Understanding Piketty's Capital in the Twenty-First Century by Pressman Steven

Author:Pressman, Steven. [Steven Pressman]
Language: eng
Format: epub
ISBN: 9781317380016
Publisher: Taylor & Francis (CAM)

6

Pikket-Ing Income Inequality

(Part Three: chapters 7–12)

“All animals are equal, but some animals are more equal than others.”

—George Orwell, Animal Farm

Introduction

Just as some animals are more equal than others, some people are more equal than others. Some begin life with many advantages because they had the good fortune to be born to wealthy parents. For Piketty, this is the main cause of inequality. Income inequality stems to a large extent from wealth inequality. Some people inherit wealth from their parents; others do not. Or, some are more equal than others because they were born to one set of parents rather than another.

Part Three of Capital in the Twenty-First Century makes this case as it moves from the functional to the personal distribution of income. The functional distribution, the subject of Part Two, looks at how total national income gets divided between labor and non-labor (or capital) income. The personal distribution concerns how income gets divided up among households. Part Three presents a great deal of economic data on household income inequality and how it has changed over the past century. Mostly, it depicts the share of total income going to the top 10%, the top 1% and the top. 01%. These are all pre-tax figures—market income rather than disposable income (p. 255). In addition, as noted in Chapter 2, the figures exclude all income that is not subject to taxation and not reported on income tax returns, including unrealized capital gains, tax-free interest and government transfers.

Examining several countries over a long time period, Part Three depicts a similar pattern everywhere. Income inequality fell from World War I until a little after World War II. It then remained constant for several decades. Beginning in the late 1970s or the 1980s, inequality began to rise sharply. According to Piketty, this trend follows the trend in wealth inequality, as documented in Part Two of his book. Two wars, the Great Depression and inter-war inflation destroyed wealth and reduced wealth inequality. It was not until the end of the twentieth century that wealth inequality began to rise, Phoenix-like. Largely due to lower income taxes, CEOs began to push for higher salaries. This enabled those with high incomes to save and increase their wealth, since it is easier to save money when you make a great deal of income during the year and you also get to keep a lot of it. Accumulated wealth then earns high returns, r, leading to even greater income and wealth inequality. As a result of this cumulative process, nations are slowly becoming more and more like the societies described in the novels of Balzac and Austen, where a small number of very rich and powerful families own large fortunes while everyone else struggles to survive or struggles to figure out how to marry into wealth.

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