Hello and welcome to Pinch Shots Daily. In today's episode, we talk about Thomas Piketty and the inequality conundrum, why the rich keep getting richer.

Inequality is rife in India. Take a look at these numbers from Oxfam called The top 10 percent of the Indian population holds 77 percent of the total national wealth. 73 percent of the wealth generated in 2017 went to the richest one percent, while 67 million Indians who comprise the poorest half of the population, saw only a one percent increase in their wealth that 119 billionaires in India. That number has increased from only nine and two thousand two hundred and one in 2017 between 2018 and 2022.

India is estimated to produce 70 new millionaires every day. Also, billionaires fortunes increase by almost 10 times over a decade, and their total wealth is higher than the entire union budget of India for the fiscal year 2013 to 2019. Many ordinary Indians are not able to access the health care they need. 63 million of them are pushed into poverty because of healthcare costs. Every year, almost two people every second. It would take nine hundred and forty one years for a minimum wage worker in rural India to earn what the top paid executives at a leading Indian garment company owns in a year.

Unquote. It's quite staggering, really. And almost all research indicates that this disparity is likely to grow in the coming years. So although we are growing economically as a country, the rising inequality negates the positive effect of this development. We are becoming increasingly unhappy and so it's imperative to understand what's driving this phenomenon before we can counter this effect. And one of the most comprehensive analysis on the subject matter comes from a French economist, Thomas Piketty, in his bestselling book, Capital in the 21st Century.

Piketty outlines why the divide between the rich and the poor keeps increasing each day. His prognosis is simple. When capital grows at a faster rate than the economy, it provides the perfect recipe for disaster. Think of capital as accumulated wealth, real estate investments, land, bank deposits, that sort of stuff. When return from these assets vastly outweighs growth in the economy, then it's safe to presume that it's a bad precedent for the working class. After all, growth in wages is directly dependent on the growth in GDP.

So if odd, which is the return on capital is greater than wages growth in the economy and the wealth of the rich folk grow faster than the income of workers, it leads to an endless inegalitarian spiral and the effect is only magnified when the difference between odd and G increases. For instance, if the economy grows as a consequence of a pandemic and the return on capital doesn't fall as much, which it didn't during covid-19, then you'll automatically see inequality rise.

After all, income produced by capital tends to be concentrated in the hands of a small group of elites, whereas income from labor is dispersed over a much larger group. Therefore, we must see inequality rise in tandem. But how did we get here? A simplistic analysis will tell you lower tax rates, fewer regulations and low inflation will help your capital grow by leaps and bounds.

Think about it. If you got a bank deposit and the government makes it easy to access said bank deposits and it didn't tax your proceeds as much, then you can keep compounding wealth at a faster rate. Also, if you don't have to worry about price rise and inflation eating away all the gains you made. We are the fixed deposit then that's even better. Piketty uses this argument to show how the rate of return on capital changed during the 20th century in the first half.

The return on capital tumbled because of war and destruction of assets. In the second half of the 20th century, there was steady growth in our thanks to low inflation and countries actively pursuing policies to encourage investments. Meanwhile, growth in GDP moderated during the same period. And while this analysis explains the disparity in high income countries, the case for India is a bit complicated. Piketty argues that the income share of the top one percent fell sharply from 1950 to the mid 1980s and then rose sharply after liberalization in 1991.

This would imply that ordinary folk were treated better in the socialist era than the liberalization era. But that's a hard argument to follow. As Swaminathan Eyer, an Indian economist, notes, quote, The poverty ratio did not fall at all between 1947 and 1977, while the.

And almost doubled, so the absolute number of poor almost doubled. By contrast, fast growth induced by economic liberalization raised 138 million people above the poverty line between 2004 and 2011. Doubtless inequality must have increased after economic liberalisation, although not as much as Piketty estimates. Uncowed so. Technically, not all inequalities are bad. If inequality rises at a time when the country is introducing policies to offer people better opportunities, then maybe this argument doesn't hold as much water.

In fact, as an article in the Atlantic notes, quote, In many countries, wealth grows more as a result of thievery and malfeasance than as a consequence of the returns on capital invested by elites, a factor that is surely at work to rechannel Piketty. Inequality will continue to rise in societies where C is greater than Haertsch here. C stands for the degree to which corrupt politicians and public employees, along with their private sector cronies, break laws for personal gain.

And he represents the degree to which honest politicians and public employees uphold fair governing practices. Corruption. Fuel inequality flourishes in society where there are no incentives, rules or institutions to hinder corruption.

Court. And maybe that last line explains why the rich keep getting richer in this country. Thank you for listening to today's episode.

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