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The Myth of Dynastic Wealth: The Rich Get Poorer

Posted: 1 May 2015 Last revised: 29 Dec 2016

Robert D. Arnott

Research Affiliates, LLC

William J. Bernstein

Frontier Advisors

Lillian J. Wu

Research Affiliates, LLC

Date Written: April 27, 2015

Abstract

Thomas Piketty’s Capital in the Twenty-First Century rocketed to the top of the best-seller lists the moment it was published in 2013, and remained there for months. While this feat is quite remarkable for a weighty tome on economics, it’s no mystery why Piketty’s magnum opus created such a sensation; it is clearly articulated, accessible to the non-economist, has a sound neo-Keynesian foundation, and contains a trove of historical insights. We believe Piketty’s core message is provably flawed on several levels, as a result of fundamental and avoidable errors in his basic assumptions. He begins with the sensible presumption that the return on invested capital, r, exceeds macroeconomic growth, g, as must be true in any healthy economy. But from this near-tautology, he moves on to presume that wealthy families will grow ever richer over future generations, leading to a society dominated by unearned, hereditary wealth. Alas, this logic holds true only if the wealthy never dissipate their wealth through spending, charitable giving, taxation, and splitting bequests among multiple heirs.

Keywords: Thomas Piketty, wealth, dynastic wealth

JEL Classification: G32

Suggested Citation

Arnott, Robert D. and Bernstein, William J. and Wu, Lillian J., The Myth of Dynastic Wealth: The Rich Get Poorer (April 27, 2015). Cato Journal, Vol. 35, No. 3, 2015. Available at SSRN: https://ssrn.com/abstract=2599827 or http://dx.doi.org/10.2139/ssrn.2599827

Robert Arnott (Contact Author)

Research Affiliates, LLC ( email )

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Newport Beach, CA 92660
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949-325-8700 (Phone)
949-325-8901 (Fax)

HOME PAGE: http://www.researchaffiliates.com/Our%20Firm/Our%20Team/Pages/Rob-Arnott.aspx

William Bernstein

Frontier Advisors ( email )

1890 Waite Dr. Suite 3
North Bend, 97459
541-756-0668 (Phone)
541-756-3774 (Fax)

Lillian Wu

Research Affiliates, LLC ( email )

620 Newport Center Dr
Suite 900
Newport Beach, CA 92660
United States

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