The Facts of Inequality

Once in a while, an economist comes along who puts out a disarmingly simple concept that seems to cut through the miasma of misinformation that is cable news. Once such person may be Thomas Piketty, a French economist  whose “Capital in the Twenty-first Century” looks at income equality in a striking way. His big thesis?  The reason so many people live so poorly is that G.D.P. growth (which impacts wages) has flagged while the rate of return on capital (things like dividends, capital gains) has soared. John Cassidy , the terrific writer at the New Yorker, has done a good job of explicating Pikettys ideas complete with graphs and charts.

Lesson #1: Investment income trumps wages
So these statistics will feel familiar:  A recent report by Oxfam says that the richest eighty-five people in the world own more wealth than the roughly 3.5 billion people who make up the poorest half of the world’s population. In 2010, the richest ten per cent of US households owned 70% of the country’s wealth while the bottom 50% owned 50%. All of this wealth at the top is investment income. Piketty and his partner, Emmanuel Saez say that 95% of the income growth in the economy between 2010 and 2012 “accrued to the 1%”. These are the most disproportionate figures since 1928.

Lesson #2: The Income Gap is a corporate things
That’s a shocker – it’s not the ga-zillionaires that are the big beneficiaries but the MBA types. It’s the  “supermanagers,” (with incomes of $1.5 million and up) rather than “superstars,” who account for 70% of the top 0.1 per cent of the income distribution. In the 50s, the average CEO was paid 20 times as much as the typical worker; today, its 200 times.

So, the way to make things more equitable? Make G.D.P. grow as fast as return on capital

The Good News
For all the inequities, things are still relative. Here’s Cassidy again: “In 1981, according to figures from the World Bank, about two in five members of humanity were forced to subsist on roughly a dollar a day. Today, the figure is down to about one in seven. In the early nineteen-fifties, the average life expectancy in developing countries was forty-two years. By 2010, it had risen to sixty-eight years. He quotes Angus Deaton, a Princeton economist  who said, “Life is better now than at almost any time in history. More people are richer and fewer people live in dire poverty.”

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