Piketty’s Ugly Projection for US Inequality
The inescapable reality is this: wealth is so concentrated that a large segment of society is virtually unaware of its existence, so that some people imagine that it belongs to surreal or mysterious entities. Capital in the Twenty-First Century, p. 259
One of the things that makes Capital in the Twenty-First Century a good read is that Thomas Piketty uses his huge pile of data to look closely at issues we only talk about in platitudes. Even the so-called liberals run from discussions of the grotesque inequalities in our society, including President Obama, Hillary Clinton, and even worse, spineless moderate Democrats. There isn’t any of that cowardice in Capital. Part Three, The Structure of Inequality, begins with a lengthy discussion of Honoré Balzac’s Pere Goriot. The ex-convict Vautrin explains to the protagonist Eugené that if he limits himself to working in the legal field, the most he can hope for is that with thirty years of backbreaking work and toadying, he can hope to be passably comfortable, but he will never be wealthy. The only path to wealth is through marriage to a rich woman. Vautrin suggests Victorine, an unattractive young woman, because if someone kills her brother, she will inherit a million francs and produce the same income Eugené can hope for in his profession. Vautrin offers to see to the murder.
This story sounds familiar. You might win the lottery, which is about as likely as finding a rich spouse or a wildly successful business, or making a fortune in sports, movies or music. All you can hope for as a hard worker with decent smarts is a comfortable life, and that’s far from a sure thing.
Under such conditions, why work? And why behave morally at all? Since social inequality was in itself immoral and unjustified, why not be thoroughly immoral and appropriate capital by whatever means are available?
Now there’s a question you won’t hear from any economist in the US, and you most certainly won’t hear it from politicians. We live in the best of all possible worlds, in which each and every one of us is just moments away from fabulous wealth. Maybe we need a couple of tweaks, but our system is not immoral. The fabulous wealth of the few is fully justified by their great merit, their wisdom, their grace, their talent, and their general superiority over the rest of us. Our billionaires are fabulously wealthy because of their innate superiority. In the US, there is nothing to learn from Pere Goriot. Let’s ignore the reality that our financial sector follows Vautrin’s advice.
In the context of Capitalist Celebration, let’s look at some of Piketty’s numbers on income and capital inequality. He describes these numbers as estimates, but says they give a good idea of the real world.
Note the excellent title: Inequality of capital ownership across space and time. Piketty says that capital ownership is much more unequal than income inequality in every society he knows anything about. That, in a nutshell, is the beginning point of the story Vautrin tells. This chart puts numbers to that difference. The dominant class owns a huge percentage of the wealth of society. In the US as of 2010 (and it’s gotten worse), the dominant class owns 35% of the total wealth. The bottom 50% owns an aggregate of 5%. In the real world, it’s even worse, because it’s fair to estimate that a large number of lower class people are broke, their liabilities exceed their assets.
Here’s the chart of income inequality. Labor income means all income from work, including both wages and salaries, and income created through labor, as that of a restaurant owner/chef whose profits include a component attributable to labor income, compensation for the hours worked and skills deployed. Capital income is all income derived without any effort on the part of the recipient: interest, dividends, patent license fees, gain on sale of works of art by people other than the artist, and so on.
The labor income chart doesn’t look so bad. The dominant class grabbed 12% of labor income, and the bottom 50% got 25%. But then, even the lower class has to eat, and work is such an excellent discipline for these people, don’t you know? That takes us to the total income chart:
In 2010, the dominant class got 20% of the national income, and the lower class got 20%. The top 1% of the population took the same amount of total income as the bottom 50%.
Piketty extrapolates to the near future, 2030, in the right-hand column of each chart. The dominant class sees an 25% increase in its share of total income. The well-to-do class, the rest of the top decile, sees an increase of 17%, to 35% of total income. The rest of the population see losses. The middle class goes down 17%, to 25% of total income, and the lower class goes down 25%, to just 15% of total income.
Wealth inequality is even worse. The middle class share falls 80%, to the same level as the lower class, 5%. The dream of leaving a bit of wealth to your children is dead.
The richest are taking income and wealth from the middle and lower classes. We’ve already reached the point that most middle class parents can’t pay for their kid’s college education, which is essential if the kid is going to remain in the middle class. With piles of college debt, middle class kids are way behind the income and wealth accumulation trajectories of their parents. It’s worse for the lower class, which will have to borrow even more, attend worse schools and colleges, and overcome increasingly crucial class barriers just to move up a bit in the income chart, with little or no chance of acquiring wealth.
Vautrin’s question demands an answer: If the system is immoral, why should anyone act morally?