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Asian Tribune is published by World Institute For Asian Studies|Powered by WIAS Vol. 12 No. 2856

Growing Inequality in America highlighted by French Economist

Growing Inequality in America highlighted by French Economist

The French author Thomas Piketty’s monumental treatise “Capitalism in the 21st Century” struck a chord that resonated with a bang making it the No. 1 in Amazon’s best seller’s list.

It produced an instant following inside the hitherto skeptical citadel of capitalism. Piketty had aroused public consciousness about the widening gap between the rich and the poor currently dwarfing many other urgent issues in America. The two mainstream newspapers with largest circulations, New York Times and Wall Street Journal immediately expressed an openness to take a deeper view of Piketty.

The timing seemed perfect because President Obama just made inequality one of the planks in his election campaign for mid-term elections in November.

Piketty’s was no defiant narrative embodying the idea of the overthrow of the capitalist class but a dire warning that things may be even worse if the current income disparities were allowed to fester: the erosion of America’s real minimum wage; attacks on labor unions and collective bargaining; technological changes and the mass elimination of mid-level jobs and the abject labor market polarization between the highly educated and skilled at the top and the army of poorly educated and unskilled at the bottom.

Top income earners dominate

First, each of these concerns pointed to the unsatisfactory state of affairs due to the very top incomes—the “1 percent” outpacing the rest of society. Second, the enormous data base Piketty provided seemed an irrefutable index of inequality prevalent in Western society, a discernible trend common within the advanced economies of the United States, Europe, Germany and elsewhere and. Piketty’s time path of total—private and public—wealth (or capital) in France, the United Kingdom, and the United States, went back to whenever data first become available and running up to the present.

Germany, Japan, and Sweden, and less frequently other countries, were included in the database when satisfactory statistics exist. If you are wondering why a book about inequality should begin by measuring total wealth, just read on. Looked at it in another way, it is unlikely that Democrats would have praised a book like even a decade ago. Recently, Jack Lew – better known as the Treasury Secretary of the United States of America – took time to exchange views with the author.

Piketty, a professor at the Paris School of Economics, argued that capitalism allocates resources efficiently but unfairly apportioned income. And the excessive accumulation of wealth by the one percent – nay, the .01 percent — is not only unconscionable and corrupt, but an inequality that made democracy unworkable. That would even get worse. So only a massive transfer of wealth could make the situation whole again, Piketty argued.

The thesis further stated that when the rate of return on capital exceeds the rate of growth of output and income, as it did in the nineteenth century and would most likely happen in the twenty-first, arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies sustain themselves would with due to capitalist aggrandizement. Piketty may have preempted the liberals in USA already advocating higher taxes on the wealthy to create more opportunity for the poor and middle class.

Even if the Republican counter point were to be given credibility that the nexus between high taxes and economic growth seemed tenuous, debating whether the top marginal tax rate should be 25 or 33 or 35 percent appeared well within the boundaries of a centrist debate. Piketty’s position went even further to the left of the Democrats who had advocated a rise in taxes.

Return on wealth and income

Many seemed inclined to see that Piketty raised a valid concern when he stated the return on wealth, such as a stock portfolio or real estate or even a factory, usually averages about 5 percent. If growth rates fall below that mark, the rich get richer. And over time, those who inherit great fortunes eventually came to dominate the economy. But that would be quite reasonable, Piketty argued, to opt for re-distributive policies through a global wealth tax. Many in the US believed that a higher tax on capital gains was overdue.

The onus of ensuring the remuneration the contributing sectors of the economy between the global elite deemed to be the meritocratic rich earning an out-sized pay due to their enormous technical and business talent and a mass of worker bees slogging away at a close to poverty level had to be based on fairness.

Piketty’s research offered a way out. Today’s rich may have worked for their success, but tomorrow’s won’t have to. So he argued that the very richest earn more income from their wealth than their labor.

And just as the ruthless robber barons of yesteryear flaunted their wealth present day hedge fund managers would give way to a generation of children who simply won the lottery being born rich.

Noble laureate Paul Krugman offered “unified field theory of inequality, one that integrates economic growth, the distribution of income between capital and labor, and the distribution of wealth and income among individuals into a single frame.” This is part of the inherent appeal that of Piketty.

Conservatives’ faith in the free market that had the proven framework balancing the discrepancies of the production apparatus—the free market cured all-suddenly looked flawed. Piketty pointed to the reality that that free market lent itself to the inevitability of the rise of the ultra-rich.

Income versus wealth

Capital changed the political conversation subtly by focusing it on wealth, not income. Discussions about income can become very muddy had always been a cramped topic because Americans don’t like to begrudge a well-earned payday as a well as the difficulty of deciding what should count as income. Conservatives are often alluded to the fact that if health insurance and government transfers such as food stamps and other welfare benefits were to be lumped together into the equation, the top 1 percent could make a case that had not hogged the national wealth.

Wealth is a different story. There is a stronger tendency to pooh-pooh the idea of aristocrats showing off their wealth, especially when some of them contest elections (2012 Mitt Romney faced it) besides income in the form of food stamps and or health plans nor what wealth really connotes—what can be saved and used in any manner a person pleased. The debate definitely had legs and Americans would be immerse in it for a long time.

Philip Fernando currently domiciled in Los Angeles had graduated in economics and political science from Peradeniya university. He was formerly Deputy Editor of the Sunday Observer.

- Asian Tribune -

Growing Inequality in America highlighted by French Economist
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