A FRENCHMAN ADMONISHES AMERICANS TO EQUALITY
By Martin Killian
[This article published on Never Mind the Markets 4/24/2014 is translated from the German on the Internet, http://bazonline.ch.]
The chasm between poor and rich opens up more and more.
Inequality has become an American trademark. Therefore the celebrated book of the French economist struck more powerfully in the US than elsewhere.
In his book "On Democracy in America," Alexis de Tocqueville, Thomas Piketty's compatriot, described a relatively egalitarian society nearly 180 years ago. Last week de Tocqueville's compatriot raced from one US television studio to the next and proclaimed the exact opposite. The United States has increasingly developed to an unequal society. A "patrimonial capitalism" of inherited money looms on the horizon as in the 17th and 18th century in Europe.
The bearer of the bad news is Thomas Piketty, professor at the Paris School of Economics and author of the path-breaking 700-page good read about the economic causes of growing inequality in many western nations. The title of his work - "Capital in the 21st Century" - may recall Karl Marx' "Capital." Piketty understands himself as a social democrat. His book struck in the United States like a bomb. It explains why inequality grows in crisis times and the rich become ever richer. Supported by enormous volumes of historical income- and tax data, Piketty predicts a further intensification of social inequality if counter-measures are not taken.
CELEBRATED AS "EPOCHAL"
The Nobel Prize winner Paul Krugman praised the book as "truly excellent." Elsewhere Piketty's thick tome is celebrated as epochal. "Whoever has read it cannot see the world as before," said the American MSNBC TV moderator Krystal Ball when Piketty was a guest. The Frenchman explained Anglo-American capitalism leads to growing inequality particularly in crisis times because capital incomes grow more quickly than economies. Whoever has receives more. That is Piketty's thesis supported by massive data.
Nowhere in the developed world can this be documented better than in the US. Those at the top skimmed off while wages and salaries of most Americans stagnated or only rose moderately since the 1970s. The income of the richest one percent grew 165 percent; the income of the richest tenth of one percent soared 362 percent. While Piketty's book led the bestseller list of online trader Amazon, the US middle class is no longer the richest on earth as in the past. Middle class persons in Sweden, Canada and elsewhere live better than the former front-runners.
ON THE WAY TO AN OLIGARCHY
Piketty is hardly alone with his warning that even greater and politically dangerous inequality threatens the United States. However his prescriptions are often disregarded as the country is already well on the way to an oligarchy. Increasing capital- or inheritance taxes together with higher top tax rates as the Frenchman urges can hardly be carried out in the United States on account of Republican resistance. Capital has been at the controls since the 1980 election of the Republican Ronald Reagan. Plutocratic characteristics increasingly cling to the US. Taxation of capital incomes and inheritances like the top tax rate was forced down.
Republicans used ideological cushioning of their gifts for the rich and the super-rich. In 1960 the Democratic president John F. Kennedy declared "a rising tide lifts all boats." Republican Congressional minorities and presidents after 1980 started a machinery clearly favoring the richest Americans with supply-oriented economic policy, "trickle-down theory" and untiring propaganda.
With Ronald Reagan, a campaign began against the unions and for an almost religious transfiguration of the markets. "No hypocrisy is too great when economic and financial elites are forced to defend their interests," Piketty writes about the French Belle Epoque and means the distortions and lies with whose help the political class in the United States supports top earners and profiteers. Unlike the European rich, the American rich have a lever with which they can gain advantages again and again. They finance American parties and election campaigns and lubricate a political system of legal bribery.
Therefore Piketty's proposals on reducing inequality and rescuing liberal democracy can hardly be carried out in the US. Alongside the reform of election campaign financing, courts are needed that stop the trend to an American oligarchy by ending legitimating the dreadful state of financing as freedom of speech. Ridiculous top salaries and the accumulation of inherited capital guarantee the constant undermining of American democracy. The way to the banana republic is opened up. (baz.ch/ Newsnet)
THE PIKETTY SHOCK FOR THE US
The book of the French economist Thomas Piketty is the dominant theme in America
By Markus Diem Meier
[This article published on May 7, 2014 is translated from the German on the Internet, http://blog.baszonline.ch/nevermindthemarkets/.]
Thomas Piketty put optimistic assessments in question with the following observations and reflections:
• The share of the top earners in the total income has dramatically increased in the US since the 1980s... In the 2000s, the top 10 percent raked in almost 50 percent of the total income. In Europe the share of the top 10 percent has also climbed but not to the same extent.
• In 2010 the richest one percent had around 20 percent of the total income with 20 times the average income. In the 1970s the share was under 10 percent. Capital gains and losses are included in this income...
• According to economic theory, work in functioning markets should be paid corresponding to its marginal productivity, the additional value created. As Piketty explains, the very strong increase of the share of the top income refers back to the salaries for top managers in the US. However nothing indicates that the efficiency of these managers has increased in the last thirty years to the same extent as these salaries. Otherwise they would be reflected in a higher output of the US economy or in a parallel development in other countries since the same possibilities must exist there. Piketty's explanation for the higher income is simple and understandable. Top managers are paid higher salaries because they have power.
Assets not incomes are the main theme of Piketty's book. The share of assets in the hands of the richest is greater in the US than in Europe. The richest 10 percent of Americans possess 70 percent of all assets; the richest one percent has 35 percent of all assets. In Europe the richest 10 percent corner 60 percent of all assets and the richest one percent 25 percent. Assets cement the economic and indirectly political hierarchies of power since they are bound to the efficiency of persons much less than incomes and are handed down.
The importance of assets appears in the US in that the highest incomes mainly result from assets and not from labor.
• As Piketty writes, the much higher income share of top earners is reflected in an even greater assets concentration. Today's top incomes are not completely spent and serve as savings.
• The social mobility in US society is trifling as the analysis of economists shows. This means there will not be others with excessively high incomes and high assets.
• Access to higher education could at least be a way to such mobility for incomes. In this connection, Piketty refers to the study of economists Claudia Goldin and Lawrence Katz who showed the importance of higher education for income and simultaneously that descendants with medium and lower income cannot afford the top universities. Piketty documents that higher education is important for the rise in the top-earning 10 percent but not for the rise in the very highest.
• As already described, that the returns on assets (as in the 19th century and before) will be even higher than economic growth in the future is most important for economists. The concentration of assets will intensify. That is the result. As Piketty shows, higher yields can be realized with very high assets than with smaller. This intensifies the assets concentration.
With his book and the data, Thomas Piketty has shaken the self-understanding of American society. The compiled and evaluated tax data in the so-called World Top Income Database is unparalleled. With all inequality in results, the basic conditions make possible everyone's assent and no class can and may be completely and permanently distanced economically (and politically) from the rest of the population. That is the assumption.
The terrible example of such a society for the US was old continental Europe before the First World War. As Piketty describes impressively, that was the reason why the US introduced exorbitantly high income taxes with top tax rates of more than 90 percent - hardly imaginable any more today...
Greater tax revenues were not gained with such higher rates. The goal was prevention of exorbitantly great differences. The worry was becoming like Europe. The irony of history is that the US today is already more like old Europe in this relation than the Europeans themselves. No wonder Piketty's book struck like a bomb in the US.