Capital in the Twenty First Century

I’ll confess I didn’t finish it (audible tells me I made it about three-quarters through). It is, however, a great book, but it does not make for great listening. This one (and it is the first book I’ve thought this about) really should be read on paper.

The central thesis of the book is that the return on capital generally exceeds the rate of economic growth, and when economic growth is slow (as it has been for much of human history) that this leads to a natural tendency for societies to develop extreme inequality.

I’ve long had a “rich-get-richer” argument playing out in my head, but through a slightly different mechanism, which plays out like this: as people get wealthier, their ability to take risk with their capital increases; as this “risk appetite” increases, they are able to devote a more substantial share of their capital to higher-risk assets with a higher expected return; this, then, would lead to a higher overall return to their investments. Think of a person initially holding only cash, then saving up enough money for a down payment on a home, and then to investing their savings in liquid stocks and bonds. Each class of investment (cash, real estate, equities) is riskier and higher-returning than the last, and this sequence leads to an increasing return on increasing capital. Wealthier people are invested in all these asset classes and more, such as hedge funds or privately-held companies.

So it was no surprise to me that there should be runaway effects to wealth inequality. But the rationale Piketty lays out are quite different. I must confess that I did not completely understand the reasons that returns to capital (as a whole, not the varying allocations of capital that I describe above) ought to generally be at a rate faster than economic growth. But the data show convincingly that it is now, and has usually been so. The result is runaway wealth inequality that has only been tempered throughout human history by capital-destroying calamities, such as world wars, that bring people back to an equal footing.

Where Piketty really succeeds, if you ask me, is in linking this argument to the literature describing the extremely stratified societies of, for example, Victorian England. He saying “watch out, these crazy societies could one day be reborn”. I hope he’s wrong, but he’s given ample reason to fear that he might be right.

Review of Lean In

Recently I finished listening to Lean In, which you should probably Google if you don’t already know it. I listened to it as part of a college-friend-audible-book-listening-club, and kept some thoughts about the book as I listened on. Here they are.

If there is one key theme to the book that deserves singling-out, it is the focus on the individual woman as the unit of analysis. Sandberg’s book, when it’s all boiled down, is a entreaty to women, as individuals, to consider a fuller range of career and family options, and gives many “how-tos” regarding how to accomplish some of the tougher options. She is basically saying “You, promising young woman, here is what you have against you and how you can best navigate it”. So although she does pronounce some big goals, such as 50/50 splits in the executive ranks everywhere, her book is emphatically not about what policy needs to do to change things. This is a pragmatic manifesto which aims to give women more tools to confront, as individuals, the institutional sexism that impedes their career progress.

I’m going to get an MBA quite soon, so I’m a sympathetic audience for career-enhancing tips, and I found much of her advice quite applicable as well as useful. Perhaps sadly, though, much of her advice is either not gender specific or only applicable to elites.

Sandberg’s advice can be broken down into two categories: that aimed at helping women more adeptly confront sexist barriers in their professional lives, and that aimed at helping women to make choices that balance their professional and personal lives. For the former, most of this material is, when one really gets down to it, applicable in equal parts for men For example, when outlining the differing negotiating strategies of men and women, the advice that she gives to her female readers is to use tactics that are, in their essence, a subset of the “principled negotiation” methods outlined in Getting to Yes. Men, too, would be well advised to adopt state-of-the-art bargaining methods, not to mention develop relationships with mentors, and to have some thoughts about their future careers.

Although Sandberg is absolutely right to attack the stigma placed on working mothers from all sides (showing, for example, that children with home care from nannies develop just as well and have just as healthy a relationship with their mothers as those raised by full-time moms. I, for one, am one of these children, so I should hope so.), it is just not the case that many women are in a position to consider many of the options that Sandberg urges her audience to feel better about, such as working more flexible hours or having a nanny. Sandberg acknowledges this, and this does not affect the efficacy of her argument; it does, however, limit its scope.

The most powerful part of the book is Sandberg’s entreaty to women not to put their foot on the brakes of their professional lives until they are indeed confronted with hard tradeoffs. The point of the practical portions of the book being, of course, tools to give women a better set of options in these dilemmas.

The book is littered with references to studies and much of its summarized research is quite compelling. Sandberg erred, though, in making her argument for the motivation of the book; namely, that women’s progress infiltrating all strata of professional ranks had stalled. Her data, which were only long-term statistics, only showed that progress was not yet complete, not that it had slowed down. This mishandling of the data led me to approach the rest of her citations with a more skeptical eye.

It’s an interesting book, but far more so for its cultural cache than the material inside.