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Category: Politics and Economics

A Summary of the Important Points in Capital in the Twenty-First Century

Capital in the Twenty First Century by Thomas Piketty was widely recognized as a very important book when it came out in 2013. Yet somehow now, in 2018, I rarely encounter people who have learned the lessons from the book. Of course I don’t expect most people to read the book, but since the lessons are so important for development of society, I would expect them to be spread by other means. In order to help that, I decided to write this blog post which summarizes the most important points. So here is the first point:

1. The more money you have, the more money you make

This seems to be a fundamental law of economics. It’s not something we have constructed. It’s even true in primitive societies: If there are two families, one family owns two cows, and one family owns ten cows, the family with ten cows doesn’t make five times as much money as the family with two cows, it makes more than that. That’s because it can more easily survive bad times (like if a cow gets sick) or it can invest in better tools to take care of cows, and those tools pay off more (like fences or a cow shed).

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Where do top scientists come from? And what do taxes have to do with it?

I was reading this article recently, which talks about “Where star scientists choose to locate: the impact of US state taxes” It’s a summary of a paper about “the effect of state taxes on the geographical location of top earners.”

It’s a very interesting idea: The problem is that states often lower taxes with the hope of attracting business or talent, but there is very little evidence about whether that actually works. So the authors of that paper decided to find a group of influential people who are somewhat easy to track: people who apply for lots of patents, the so called “star scientists” from the title. So the authors built a huge database, tracking where the top 5% of scientists who applied for the most patents had moved to over the years.

And the authors claim that they found pretty clear evidence that people like to move from high-tax states to low-tax states, so the conclusion is that if you want to attract top scientists, you should lower taxes.

Except, I dug through the data and I found the opposite. Yes, top scientists do move to states that have lower taxes, but high tax states have such a large lead in the number of scientists, that that little bit of migration doesn’t matter. But we’ll have to get to that conclusion one step at a time.

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