4 May 2014. David Atkins. Salon.
You’ve doubtless seen the charts and figures showing the decline of the American middle class and the explosion of wealth for the super-rich. Wages have stagnated over the last 40 years even as productivity has increased — Americans are working harder but getting paid less. Unemployment remains stubbornly high even though corporate profits and the stock market are near record highs. Passive assets in the form of stocks and real estate are doing very well. Wages for working people are not. Unfortunately for the middle class, the top 1 percent of incomes own almost 50 percent of asset wealth, and the top 10 percent own over 85 percent of it. When assets do well but wages don’t, the middle class suffers. This ominous trend is particularly prominent in the United States. That shouldn’t surprise us: study after study shows that American policymakers operate almost purely on behalf of wealthy interests. Recent polling also proves that the American rich want policies that encourage the growth of asset values while lowering their own tax rates, and are especially keen on outcomes that favor themselves at the expense of the poor and middle class. So why isn’t the 99 percent in open revolt?
4/12/2014. Professors Emmanuel Saez (UC Berkeley) and Gabriel Zucman (LSE and UC Berkeley)
April 2, 2014. Jordan Weissmann. Slate.com
Eduardo Porter. 11 March 2014. New York Times.
The richest 10 percent of Americans take a larger slice of the economic pie than they did in 1913, at the peak of the Gilded Age.
What if inequality were to continue growing years or decades into the future? Say the richest 1% a quarter of the nation’s income, up from about a fifth today. What about half? Thomas Piketty of the Paris School of Economics believes this future is not just possible. It is likely.
In “Capital in the Twenty-First Century,” Professor Piketty provides a fresh and sweeping analysis of the world’s economic history that puts into question many of our core beliefs about the organization of market economies.
His most startling news is that the belief that inequality will eventually stabilize and subside on its own, a long-held tenet of free market capitalism, is wrong. Rather, the economic forces concentrating more and more wealth into the hands of the fortunate few are almost sure to prevail for a very long time.
History does not offer much hope that political action will turn the tide: “Universal suffrage and democratic institutions have not been enough to make the system react.”
Professor Piketty’s description of inexorably rising inequality probably fits many Americans’ intuitive understanding of how the world works today. But it cuts hard against the grain of economic orthodoxy that prevailed throughout the second half of the 20th century and still holds sway today as shaped during the Cold War by economist Simon Kuznets. After assembling tax return data he estimated between 1913 and 1948, the slice of the nation’s income absorbed by the richest 10% of Americans declined from 50% to 33%.
Mr. Kuznets’s conclusion provided a huge moral lift to capitalism as the United States faced off with the Soviet Union. It suggested that the market economy could distribute its fruits equitably, without any heavy-handed intervention of the state.
This isn’t true anymore: Wages have been depressed for years. Profits account for the largest share of national income since the 1930s. The richest 10% of Americans take a larger slice of the economic pie than they did in 1913, at the peak of the Gilded Age.
Like Kuznets’s analysis, Mr. Piketty’s is based on data. He just has much more: centuries’ worth, from dozens of countries.
Kuznets’s misleading curve is easy to understand in this light. He used data from one exceptional period in history, when a depression, two world wars and high inflation destroyed a large chunk of the world’s capital stock. Combined with fast growth after World War II and high taxes on the rich, this flattened the distribution of income until the 1970s.
But this exceptional period long ago ran its course.
Americans will argue that this description does not fit the United States. Wealth here is largely earned, not inherited, we say. The American rich are “creators,” like Bill Gates of Microsoft or Lloyd Blankfein of Goldman Sachs, rewarded for their economic contributions to society.
Mr. Piketty doubts that the enormous remuneration of top executives and financiers in the United States — enhanced by the decline of top income tax rates since the 1980s — really reflects their contributions. What’s more, he points out, inherited inequality has been lower in the United States mainly because its population has grown so fast — from three million at the time of independence to 300 million today — driving a vast economic expansion.
But this population boom will not repeat itself. The share of national income absorbed by corporate profits, a major component of capital’s share, is already rising sharply.
If anything, this means future inequality in the United States will be driven by two forces. A growing share of national income will go to the owners of capital. Of the remaining labor income, a growing share will also go to the top executives and highly compensated stars at the pinnacle of the earnings scale.
Is there a politically feasible antidote? Professor Piketty notes that the standard recipe — education for all — is no match against the powerful forces driving inherited wealth ever higher.
Taxes are, of course, the most feasible counterweight. Progressive wealth taxes could reduce the after-tax return to capital so that it equaled the rate of economic growth.
But politically, “the fiscal institutions to redistribute incomes in a balanced and equitable way have been badly damaged,” Professor Piketty told me.
The holders of wealth, hardly a powerless bunch, will oppose any such move, even if that’s what is needed to preserve capitalism against the populist impulses of those left behind.
Professor Piketty offers early-20th-century France as an example. “France was a democracy and yet the system did not respond to an incredible concentration of wealth and an incredible level of inequality,” he said. “The elites just refused to see it. They kept claiming that the free market was going to solve everything.”