r > g: Increasing Inequality of Wealth and Income is a Runaway Process
One of the biggest challenges facing us is the increasing disparity in wealth and income which has become obvious in American society in the last four decades or so, with all its pernicious effects on societal health. Thomas Piketty's extensively data-backed tour de force, Capital in the Twenty-First Century (2013), gave us two alarming pieces of news about this trend: 1) Inequality is worse than we thought, and 2) it will continue to worsen because of structural reasons inherent in our form of capitalism, unless we do something.
The top 0.1 percent of families in America went from having 7 percent of national wealth in the late 1970s to having about 25 percent now. Over the same period, the income share of the top 1 percent of families has gone from less than 10 percent to more than 20 percent. And lest we think that even if wealth and income are more concentrated America is still the land of opportunity and those born with very little have a good chance to move up in economic class, a depressing number of studies show that according to standard measures of intergenerational mobility, the United States ranks among the least economically mobile of the developed nations.
Piketty shows that an internal feature of capitalism increases inequality: As long as the rate of return on capital (r) is greater than the rate of economic growth (g), wealth will tend to concentrate in a minority, and that the inequality r > g always holds in the long term. And he is not some lone-wolf academic with an eccentric theory of inequality. Scores of well-respected economists have given ringing endorsements to his book's central thesis, including economics Nobel laureates Robert Solow, Joseph Stiglitz, and Paul Krugman. Krugman has written that
Piketty doesn’t just offer invaluable documentation of what is happening, with unmatched historical depth. He also offers what amounts to a 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.
The only solution to this growing problem, it seems, is the redistribution of the wealth concentrating within a tiny elite using instruments such as aggressive progressive taxation (such as exists in some European countries that show a much better distribution of wealth), but the difficulty here is the obvious one that political policymaking is itself greatly affected by the level of inequality. This vicious positive-feedback loop makes things even worse. It is clearly the case now in the United States that not only can the rich hugely influence government policy directly but also that elite forces shape public opinion and affect election outcomes with large-scale propaganda efforts through media they own or control. This double-edged sword attacks and shreds democracy itself.
The resultant political dysfunction makes it difficult to address our most pressing problems—for example, lack of opportunity in education, lack of availability of quality healthcare, man-made climate change, and not least the indecent injustice of inequality itself. I am not sure if there is any way to stop the growth in inequality that we have seen in the last four or five decades anytime soon, but I do believe it is one of the very important things we have learned more about just in the last couple of years. Unfortunately the news is not good.
