Thomas Piketty's Capital in the Twenty-first Century has got to be The Economics book of 2014. For those of you who have not yet managed to pull the 577-pager off their shelves, Piketty's account that increasing wealth inequality is a one-way ratchet: wealth inevitably concentrates in the hands of a few, gradually and over time. By "gradually," he means a long time: we are headed back to the vast differences in wealth in place at the beginning of the twentieth century, but that process has been slowed by two world wars and the Great Depression, which knocked everybody back, so that the world became more equal. Wealth inequality has not yet, by Piketty's account, recovered from those economic catastrophes, but will.
At this point, with the hullabaloo mostly over, it is worth wondering if there is anything new about Piketty's account. He has the benefit of much more data than earlier writers. For me, I find some interesting parallels with the late Mancur Olson's The Rise and Decline of Nations in which he described a one-way ratchet of increasing unemployment, stagflation, and the ultimate economic decline of nations. Over time, Olson argues, a country with a stable political environment allows special interest groups to develop. Special interest groups exist only to engage in rent-seeking – the achievement of favorable government policy that secures above-normal rents for members of the special interest group. Why else would members of special interest group pay dues, unless they expect the group to obtain benefits they could not obtain themselves as individuals? Drawing upon Olson's earlier magnum opus, The Logic of Collective Action, how else can one even explain the existence of special interest groups, given the potential for within-group free-riding?
The provocative result of Olson's work is that this decline is almost inevitable. Over time, special interest groups form, they secure enough above-normal wealth, and what is left over is below-normal wealth for everybody else. Once special interest groups gain a foothold, their influence over policy grows, and their gains at the expense of society accumulate. Exceptions to inexorable decline exist, but are uncommon. A large and sudden shock from a trade liberalization might scramble the economic order faster than special interest groups can form or mobilize. Or, disruptive technologies might lead to a creative destruction. But absent such serendipitous shocks, the die is cast.
While Olson is primarily concerned with allocative inefficiency and Piketty with distributive effects, it is striking to notice the parallels of their theses. Both see a one-way ratchet, not a cycle. Both see their stories as mostly inevitable, checked only by random, infrequent, exogenous shocks. Both see a narrow segment of society – Piketty's one percent and Olson's special interest groups (though there is clearly overlap) – garnering above-normal rents to the detriment of the broader polity.
Is it possible that Piketty and Olson are actually talking about the same thing? Certainly, Olson's stagflation and unemployment is integral to the g part of Piketty's now-iconic r > g relation. Ultimately, there is some link between the allocative efficiency Olson worried about and the inequality that Piketty worries about. That nature and extent of that link is unclear.