I’m finding so much interesting analysis of the Picketty book, but I’m not really capable of synthesizing it into anything particularly coherent, nor do I have the qualifications or, frankly, the time and interest to do so. Instead, I will offer up the links as well as any quotes that show some of the unique thoughts within the posts:
From Heather Boushey at Challenge Magazine, a 13 page review. This quote, referencing the “postwar golden age,” is referring to the 3 decades following WWII in which inequality did not increase.
It is important to note that unlikemany scholars, Piketty does not thinkthat this postwar golden age was theresult of labor wins on the shop flooror the expansion of the welfare state,important as those were. For him, itwas the destruction of capital causedby the two world wars and taxeslevied on high incomes and estatesto pay for those wars. Politics led topolicies that meant that, for the firsttime, the rate of return on capitalfell below the rate of growth. This isa stunning revelation. The success ofthe welfare state is not due to whatit buys in the form of social stabilitybut, rather, to the taxes to pay for it,which regulate capital in a highlyfunctional way.
A first step would be for governmentsto begin to compile data oncapital income, in the same waythat they have data on income fromearnings. Knowing who owns capitalcould help societies understand howthey want to respond to today’s highinequality. The government alreadytracks every tweet I send; I don’tthink it’s unreasonable to followthe money and know who owns thewealth. This policy recommendationis certainly not revolutionary,but that does not mean it will sailthrough Congress. One advantagethat we have, however, is that we livein an era where developed economiesare governed by democratically elected,capable states with the provenpower to tax incomes.
What the Saez-Picketty work together suggests is that Income inequality is a two-headed monster. It occurs when the rich get
richer in absolute (capital income) terms, as well as when middle class and below households experience a decline in their
(earned wage & salary) incomes; or when both occur simultaneously which of course has been the case in the past three
decades at least. However, while identifying wage stagnation or decline, neither Picketty or Saez offer much explanation
as to why or how this decline has been occurring. It is one thing to identify wage stagnation and decline; it is another to
explain why and how it is occurring—and accelerating of late.
So how are the wealthiest 1% households becoming not merely ‘very rich’ but ‘super-rich’ and ‘mega-rich’? What are the
fundamental causes behind the trend? How is their income being generated at the source—thereafter ensuring it is ‘passed
through’ by an ever-generous treatment of corporate and personal capital incomes by a restructuring tax system?
The Dual Origins of Rising Capital Incomes
Their accelerating income and wealth is generated, in increasing part, from the manipulation of global financial assets
and speculative financial trading, on the one hand. That is, from returns on capital from global stock & bond trading,
foreign exchange speculation, interest, real estate, commodity futures, structured finance and derivatives in myriad
proliferating forms, rents, and so forth—to mention just a short list. This is just ‘money making money’ and doesn’t
involve shifting income from workers by reducing their real wages, cutting their health care and retirement benefits,
stealing all their productivity gains, and the many other ways their corporations shift income from the working class to
This second of the twofold process, i.e. reducing of labor costs across the board, are therefore a second major way in
which income has been growing for the wealthiest 1%. Income and wealth is not only generated from financial
speculation, but from the transfer of income from workers through the conduit of their corporations to them in the
form of capital gains, dividends, interest and rent. One of the hallmarks of the past decade globally is that Corporate
‘profit margins’ (i.e. profits from reducing operating costs) are at consistent, record annual levels. Corporate income
taxes are then in turn reduced by governments to increase the ‘pass through’ of these growing corporate net income
gains to their major stockholders, the wealthy 1% households who are almost exclusively ‘investor’ households and
not earners of wages & salaries. Governments then further reduce their personal income taxes as well, in order to
ensure they can keep an ever growing percentage of the profits that their corporations pass through to them.
As both Saez and Picketty have understood, Capitalist tax systems are central to both of the more basic processes
of income creation noted above. Tax cuts on corporate and personal investor income taxes both result in more income
accruing to the wealthiest 1%. But the underlying processes are different. One involves the increase in transfer of
share of national income from workers to owners of capital; the other involves owners of capital manipulating the
financial system and financial asset prices for gain. One involves increasing the exploitation of labor, and the other
involves the manipulation of asset prices and exchange.
Both Saez and Picketty focus on the tax system as central to the growing concentration of income in favor of the
wealthiest 1%. However, neither examine the more fundamental processes at play—i.e. the growing relative
weight of financial speculation in global Capitalism or the simultaneous growing intensification of labor exploitation
and income transfer between classes that is occurring in the U.S. and globally as well.
Piketty observes that over the next century g will slow because of demographic and potentially other factors as well. If r doesnot fall by as much as g, then Piketty argues that wealth will become proportionately more important than income, raising theshare of income going to capital and thus raisi ng overall inequality. Piketty further argues that the increased importance of wealthwill also result in the increased importance of inherited wealth. This thesis is intriguing and an important source of concern,although it is unclear how likely it is.Piketty’s prediction is that the capital share of income will rise, pushing in the direction of increased inequality. But this is onlyone of the determinants of inequality. While the trends may continue to shift in that direction, a more important factor to date hasbeen the inequality within labor income , and while Piketty implicitly takes this to be fixed, there is no a priori basis to predictwhether it will rise or fall in the future because it is a function of unpredictable technological developments, norms, institutions,and public policies.
Imagine a bountiful forest. And then — no one can say quite why — a small handful of the trees suddenly grow tall. Much taller.They became so tall and strong and broad that they block the sunlight from all the other trees. The other trees begin to wilt, andwither, and disappear. Their roots crack, and split, and turn to dust. And one day, not long after, even the roots of the tallest treescan find no water, can grip no soil. They begin to fall. Soon the whole forest becomes a desert.
For example, if we didn’t know whether we would be working long days at a fast-food counter or overseeing the entireorganization, we would think differently about compensation structures and the ever increasing gap between the most seniormanagement and the most junior staff members. If we didn’t know whether we would be working on a factory floor in Bangladeshor in a shiny head office in the United States, no one would disavow responsibility for the health and safety of Bangladeshiworkers.The list goes on. If board members were making choices from behind the veil of ignorance –not knowing their positionin the company – they would want everyone to have opportunities to implement change or be entrepreneurial. Not knowingwhether they were male or female, they would ensure pay equity and better policies concerning parental leave and child care.Likewise, knowing that they might be the customer would make them look differently at cost-cutting measures that weaken
product testing and consumer protection. If they believed that they might live in a community affected by an oil spill, they
would want robust, not minimal, environmental safety standards, and they would not seek to circumvent the rules.
There is a danger of taking this thought experiment too far. Getting caught up in factoring in all of the different perspectives
would cause decision-making to gravitate toward the lowest common denominator, with outcomes that achieve very little for
anyone. That is not the point. The point is to step outside of one’s comfort zones, distance oneself from the voices around the
table that sound just like one’s own, and remember that board members are responsible for the direct and indirect impact of their decisions.