Piketty’s Take on Wealth Inequality

By Brian Endo ’16

There has been a lot of media attention focused on Thomas Piketty’s Capital in the Twenty-First Century. The book attempts to tackle the issue of wealth inequality by using statistical measures in the past and taking into account all people, including the exorbitantly rich. Piketty uses his knowledge of history to depict the changes of wealth distribution in various countries and shows the cycle in which wealth distribution works. He also brings up the issues of  large CEO salaries, the power of the 1%, and different approaches to looking at the economy.

One of the biggest reasons Piketty believes the rich continue to get richer is that returns on capital are greater than returns on growth. This means that the rich that own a ton of capital will grow faster than the economy itself. This anomaly demonstrates how the 1% remain in the 1%, and how the wealth distribution continues to accumulate in their favor. Piketty also points out that the past devours the future because the more money people had in the past, the more they would accumulate in the future and the more they would influence the economy through their monetary power. Piketty talks about the power of inheritance and how this kept the same type of people at the top. The reason inheritance is so prominent is that the transference of capital allows that family line to utilize the capital to become “job creators” instead of workers. This idea would mean rich families would always have a strong impact on the economy due to their early establishment of power.

Piketty also uses historical references by making a strong comparison of the United States now to the United States from 1870 to 1900, a time known as the Gilded Age. During both these times, there has been strong output by the economy, but most of the gains get distributed to the people that are already wealthy. This demonstrates that wealth inequality has occurred in the past, but the wealth inequality now is a lot different than it was before. Although capital is still a major form of profit to the wealthy, the proliferation of the wages of CEOs has been a driving force in wealth inequality today. Piketty had found that since 1970 the wages of the top 1% had risen 165% and the wages of the top 0.1% had risen by 362%. This is a clear example of how CEO compensation has not been driven by the market and thus indicates an extreme amount of overpayment for their service. One of the contributing factors to CEO pay has been their ability to pick their own compensation committee. The CEO would pay off the members of the committee so that he could get their vote for the highest pay possible. Piketty believes that there should be stronger financial regulation to crack down on these committees to make sure that everyone gains their fair market value.

Piketty ends his book with a call to action for the world. He believes that a global wealth tax would be the best method to stop inherited wealth. The tax would be a way to bring the growth of capital closer to the growth of wages since people would be taxed for the overall wealth that they own. Although taxing the rich has always been on the table, Piketty brings a fresh approach to the wealth inequality issue.

Sources:

http://www.nybooks.com/articles/archives/2014/may/08/thomas-piketty-new-gilded-age/

http://www.slate.com/articles/technology/technology/2014/04/thomas_piketty_capital_in_the_twenty_first_century_surprisingly_entertaining.html

http://www.newrepublic.com/article/117429/capital-twenty-first-century-thomas-piketty-reviewed

 

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