Unlike that guy who cornered you at the party, I’ll admit I haven’t read all ten million pages (it’s actually 700 pages) of economist Thomas Piketty’s new bestseller, Capital in the Twenty-First Century. I’ve read a bunch of it, and skimmed more it, and so here are the takeaways for people who are also reading my book about America, our society and our economy, Ghosts of Tom Joad
What Piketty says:
– There has been a significant increase in income inequality in America. Our inequality rate is higher than it ever has been in our own history, is growing, and is higher than in countries in Western Europe and Canada.
– The inequality is driven by two complementary forces. By owning more and more of everything (capital) rich people have a mechanism to keep getting richer, because the rate of return on investment is a higher percentage than the rate of economic growth. This is expressed in Piketty’s now-famous equation R > G. The author claims top of layer of wealth distribution is rising at 6-7 percent a year, more than three times faster than the size of the economy.
– [NOTE: In the United States, the top one percent own 35 percent of all capital, and the top 10 percent of wealth holders own roughly 70 percent. The bottom 50 percent have roughly 5 percent. Note also that until slavery was ended in the United States, human beings were also considered capital.]
– At the same time, wages for middle and lower income people are sinking, driven by factors largely in control of the wealthy, such as technology employed to eliminate human jobs, unions being crushed and decline in the inflation-adjusted minimum wage more and more Americans now depend on for their survival.
– All of this is exacerbated by America’s lower tax rate on capital gains (how the rich make their money) versus wages (how the 99 percent make their money.) This all becomes a kind of snowball effect.
– Because rich people pass on their wealth to their relatives, the children of rich people are born rich and unless they get really into hookers and blow, will inevitably get richer. They almost can’t help it. The gap between the 1 percent and the 99 percent must grow. This will create a society reminiscent of the pre-Enlightenment past.
– About the only way to change this is either via world-wide cataclysmic events such as wars, or by alterations in tax policy, specifically a progressive tax that really charges rich people more than poor people. Piketty does not seem to address the issue that many rich people profit mightily from wars, but either way, these cataclysmic events are transitory. It is not clear how Piketty sees a more fair tax system coming into play, but he seems very optimistic it will happen.
– Social reforms, such as increased education opportunities and low-cost health care, are incapable without tax changes of significantly affecting income equality.
– All of this is based on A LOT of data. Much of it is historical data, so the overall arguments are not some politically-vulnerable factoid-based stuff.
– A good Piketty quote: “The entrepreneur inevitably tends to become a rentier, more and more dominant over those who own nothing but their labor… Once constituted, capital reproduces itself faster than output increases. The past devours the future.”
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