You have probably heard of this book already – Capital in the 21st Century by Thomas Piketty. It has just been released in English, and is causing quite a stir. It’s a very important book and it is being compared to the great classics of economic literature – Adam Smith’s the Wealth of Nations, Marx’s Capital, Keynes’ General Theory and others. Piketty’s general idea is simple – if the rates of return on investment are greater than the rate of growth of the overall economy, wealth will continue to concentrate without bound. And the wealthier you are, the more it can concentrate – the term “one percent” is accurate. This makes sense – the wealthy have nothing else to do but look for ways to invest their income and make it grow. Note how the latest tech ventures are funded by professional venture capitalists. Note also that wealth (as opposed to income) is really possessed by a tiny sliver of people in the economy. The new economic industries are global and capital-intensive
Piketty’s second big idea – that the dispersal of income and the creation of a middle class in industrial economies is an aberration caused by two world wars, a great depression, and the political aftermath of those events. In the twenty-first century we are returning to the norm of capitalism – increasing concentration of wealth and pauperization of the workers. The great compression of incomes described by the Kuznets curve, he contends, is an anomaly. We are returning, he contends, to the "patrimonial capitalism" of the past where wealth and inheritance, not work, is required to guarantee a decent life.
Anyway, reviews are all over the Web, so I doubt I can say much more about it than has already been said by others. Here are some reviews:
Eleven (so Far) Worthwhile Reviews of and Reflections on Thomas Piketty’s “Capital in the Twenty-First Century” (Equitablog)
Two More Worthwhile Reviews of Piketty’s “Capital in the Twenty-First Century” (Equitablog)
Kapital for the Twenty-First Century (Dissent)
Everything Wrong with Capitalism as Explained by Balzac, House, and the Artistocats (Quartz)
American Patrimony (Paul Krugman)
Death of Meritocracy: How Inheritance is Poisining the American Economy (Salon)
Is Surging Inequality Endemic to Capitalism? (The New Yorker)
The Age of the Obvious: Thomas Piketty’s Capital (Ian Welsh)
Thomas Piketty's Capital in the Twenty-First Century: Its Uses and Limits (Monthly Review)
The Top of the World (Book Forum)
Another book has gotten less attention, but is on a similar theme – The Son Also Rises by Gregory Clark. It’s conclusions are equally dim. It says that social mobility is a myth – that despite the vast and transformative changes wrought by industrialization, wars, depressions, economic dislocations, political upheavals, economic mobility is very slow, and only moves at a glacial pace across many, many generations. To arrive at this conclusion, he does not look at income, he looks at surnames. Some surnames are common, and others are rare and associated with the upper classes of various countries. For status he looks at enrollment in professional occupations, elite universities, political appointments and so on. His conclusion: nothing really makes a difference in the overrepresentation of the rich and powerful in elite circles. He finds this irrespective of government policies – so even egalitarian Sweden has as little social mobility as class-ridden England. Even in China which went through a peasant revolution, you see the same people coming out on top. Here is information:
Choose Your Ancestors Carefully (Enlightenment Economics)
Is Upward Mobility in America a Fantasy? (Mother Jones)
The Value of Choosing the Right Parents: Greg Clark (Equitablog)
I started off as a libertarian economist, but now I've come full circle (Prospect Magazine)
Exceptions to this rule (like the Clintons, the Obamas) are used to justify this, but it’s just survivorship bias – we pay attention to the few exceptions and assume that defines the system, rather than the millions of people who prove the rule.
I wonder how mobility in humans compares with mobility in other hierarchical ranked social animals such as chimpanzees, baboons, meerkats, etc. If the supposed superiority of the rich is genetic, I suspect we would see it mirrored in other societies. I suspect it’s due to institutional factors more than anything else. Humans create institutions to cement their status, preserve inequality, and make sure wealth and status, not just genes, are passed to their offspring. Everything in America is specifically designed so that if you have wealthy parents, you will be better off. The entire college\educational complex is designed to maintain this, along with unpaid internships, social connections, and so on. It’s a lot easier to seek out opportunities if you’re not perenially struggling to keep food in your belly and a roof over your head (I should know).
Two factors which are not considered by these books (to my knowledge; I have not read them), but make their conclusions even worse:
1.) Piketty makes the case that slow economic growth exacerbates inequality, since wages are limited by growth, but returns to capital are not. But we know that slow growth is almost assured due to resource constraints and climate change. Even if you discount resource constraints, other economists have pointed out all sorts of other problems, such as diminishing returns to innovation, the slowing of population growth, full education running its course, high debt levels, and even inequality itself as “headwinds” to future growth.
2.) Automation will allow capital to increase while hiring very few workers. Tyler Cowen, an economist of a very different bent, has also claimed that inequality in America will explode bifurcating society into a small segment of prosperous individuals, and a majority of people living precarious lives in Mexican-style poverty. He makes his case using automation, without even considering the above arguments.
Put all of these together, and it's pretty obvious that the diamond-shaped social structure of the past is gone, and we are returning to the pyramid-shaped repressive social system where most people have very little chance of having a decent life aside from a lucky few. As the wealthy and powerful become even wealthier, they gain control over the political process to enhance their wealth and power even further. Already plutocrats are floating the idea of allocating votes based on wealth, and they're not joking. It's a runaway process with no end in sight.