real news

Big Media continues to keep the country focused on the antics of the Trump circus.  There are, however, alternatives which provide perspective on real problems and point to real solutions.  One of these is the on-going work of Thomas Piketty in compiling comprehensive data on income inequality and drawing rational conclusions from that data about how to turn around the country's destructive trend lines which have been going in the wrong direction since the 1970s.

Piketty, along with colleagues Emmanuel Saez, and Gabriel Zucman recently published a paper with a focus on those issues, “Distributional National Accounts: Methods and Estimates for the United States”.  An overview of the paper is available at the web site of the Washington Center for Equitable Growth.

Here are a couple excerpts:

"...To understand how unequal the United States is today, consider the following fact. In 1980, adults in the top 1 percent earned on average 27 times more than bottom 50 percent of adults. Today they earn 81 times more. This ratio of 1 to 81 is similar to the gap between the average income in the United States and the average income in the world’s poorest countries, among them the war-torn Democratic Republic of Congo, Central African Republic, and Burundi..."

"...Policies that could raise the pre-tax incomes of the bottom 50 percent of income earners could include:

• Improved education and access to skills, which may require major changes in the system of education finance and admission
• Reforms of labor market institutions to boost workers’ bargaining power and including a higher minimum wage
• Corporate governance reforms and worker co-determination of the distribution of profits
• Steeply progressive taxation that affects the determination of pay and salaries and the pre-tax distribution of income, particularly at the top end"

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Update:  Some additional information on the trajectory of inequality in the U.S. is presented in an article by Ben Casselman at the 538 site.

when r > g

If you are seeking amusement, take a look at the critical responses in the Wall Street Journal's editorial pages to the publication of Thomas Piketty's Capital in the Twenty-First Century.  As might be expected, the WSJ commentators are not economists but rather business-schooled money managers.  Their arguments either ignore the inequality issues raised by Piketty or claim that obscene levels of compensation for CEOs have no significantly deleterious effect.  Much of the verbiage is devoted to an attempt to portray the French economist as a doctrinaire anti-capitalist Marxist.

What the WSJ folks do not do is to look at the central claim made in Piketty's work:

"Piketty uses a simple formula to illuminate the dynamics at work. Inequality tends to rise, he argues, when the average rate of return on capital exceeds the economy’s growth rate (or, as he puts it, when r > g)...

...Per capita growth for developed economies, Piketty believes, has settled at approximately its maximum sustainable rate, around 1 percent annually. That was enough to make people in the nineteenth century feel they were caught in perpetual revolution, but judged by the best of the twentieth century, or China and India today, it seems positively anemic. With growth reduced, escalating income inequality is all but inevitable without aggressive policy intervention."

Those are the words of Timothy Shenk in an extraordinarily articulate article in The Nation, in which the writer presents an analysis of Piketty's work in the proper historical context, which is totally lacking in the WSJ critiques.