Business & Economics

Inequality In the Twenty-First Century

john powell

As part of his nationwide book tour, French economist Thomas Piketty stopped on campus and in San Francisco last week to speak to overflowing lecture halls. The lecture I attended in San Francisco quickly filled to capacity, and the enthusiasm in the audience was palpable. Piketty’s new book, Capital in the Twenty-First Century, has catapulted him and his work to rock star status, and his nearly 700-page best-selling book has sold out on Amazon.

Piketty

Thomas Piketty in San Francisco. Photo taken by  Haas Institute Assistant Director, Stephen Menendian

Piketty is a serious scholar who has produced a tremendous work, but he is not alone. One of his long-time collaborators is UC Berkeley economist Emmanuel Saez, who is also a member of the Haas Institute’s Economic Disparities research cluster. For over a decade now, Saez and Piketty have been studying income inequality and the accumulation of wealth in the upper percentiles of the income distribution. Berkeley scholar and fellow Economic Disparities cluster member Robert Reich was the subject of a wonderful recent documentary, Inequality For All, that uses the research of Piketty and Saez to illustrate the dynamics of income inequality and its impacts on democracy. Dr. Saez is also part of an important team that has issued some fascinating insights into the geography of upward mobility with a team at Harvard.

Thomas Picketty with Robert Reich

Photo of Robert Reich greeting Piketty at the campus event taken by Stephen Menendian

Although I read Piketty’s book enthusiastically, I will not attempt to summarize his argument here, but I will offer a few observations about his work and the issue he is addressing. First, Piketty is part of a growing chorus of pundits and opinion leaders examining the growth of income inequality in the United States and beyond. In the past few years, a range of scholars have approached inequality from a number of angles — Joseph Stiglitz’s the Price of Inequality, Kate Pickett and Richard Wilkinson’s The Spirit Level, Tyler Cowan’s Average Is Over,  and many more — to examine the issue from perspectives across the spectrum. The range of people drawing attention to growing inequality includes the IMF, the World Bank, President Obama and Pope Francis.

Although Piketty essentially argues that the growth in inequality is a feature of capitalism wherever the return to capital exceeds the rate of economic growth (his now famous r>g relationship), the United States is apparently better and faster at creating income inequality than virtually any other wealthy democracy in the world.  The issue is not just inequality of income, but rather inequality and concentration of wealth. Many conservative thinkers and politicians have long-argued that wealth accumulation is simply the fair result of hard work and entrepreneurialism, and that income distributional effects are not structural, but change dramatically through the life cycle. Piketty’s work challenges, if not rejects, this basic premise. He shows that wealth is increasingly a function of inheritance. While some folks may be smarter at selecting their parents, Piketty also shows how this wealth concentration is neither natural nor inevitable, but a result of political structures and social choices. Justifications advanced by inequality apologists are increasingly less persuasive.

While globalization and technological change may be contributing to inequality, our social structures and systems are far too tolerant of the situation, and either drive or exacerbate concentration of wealth. It makes sense that many billionaires in the United States seek even greater wealth (well, perhaps not). But what is perplexing is why we are collectively opposed to a fair and sensible system that includes raising taxes on wealth inheritance and on income for the top one percent (such as higher capital gains taxes, as Warren Buffett has long suggested). Why do working class and struggling middle class families appear to accept this situation? Unlike members of the Supreme Court, ordinary Americans do not believe that we must treat corporations like natural human beings and imbue them with many of the same constitutional rights.

Let’s go back to Piketty and Saez to see if they can help make sense of this. It turns out that they can. There has been a debate among scholars and progressive activists about political polarization and economic polarization. One position held by many on the right and left is that as the economy becomes more polarized, and more wealth and income share goes to the top, there will be growing social and political polarization and unrest among the bottom of the income distribution. There is a common sense logic to these concerns. As people worry about their economic security, they become more anxious and less tolerant of the racial other. Not only do they not want their taxes to help the “other,” they do not want to tax the wealthy because they are “creating jobs.”

Americans are often told that raising taxes on the wealthy will kill jobs and harm the economy. In fact, it is concentration of wealth that threatens our economy and our democracy. Liberals get this. They argue that political polarization and intolerance of the other is caused by a weak economy. This logic suggests that those advocating for greater social inclusion for marginalized groups should prioritize the economy.

The problem is that this approach is wrong. Piketty, Saez and others, including my colleague Ian Haney-Lopez, in his new book Dog Whistle Politics, have shown that it is not the economic polarization that is driving political polarization but the other way around. It is the anxiety, fear, and hostility to the “other” that is driving economic polarization and the concentration of wealth and inequality. It is the southern strategy all grown up with respectable clothes.graph

It turns out that if you want to address inequality, you would be wise to address the existing and growing racial anxiety that is increasingly evident around the United States and most of Europe. This is something that not only the right refuses to recognize, but that much of the left fails to take into consideration, including many social justice advocates.

Economic stress may indeed be used to foster intolerance of the “other.” But the economic concentration we are now facing in the U.S. was preceded by and driven by political polarization in reaction to the civil rights movement.

This insight is more than a minor oversight. It has important strategic and policy implications if we want to address inequality. It is this dynamic that Douglass Massey, David Roegdiger, Jill Quadagno in the The Color of Welfare, and my colleague Andrew Barlow in his book, Beyond Fear and Hope: Globalization and Race in the United States, have argued. Their voices have not yet broken through. Maybe the rock star’s can.

In a future blog and through continuing conversations on race, inequality and “othering” that we’ll be convening at the Haas Institute, I will talk about what this dynamic may mean in terms of policy and strategy.

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Comments to "Inequality In the Twenty-First Century":
    • Lani Hunt

      I was reading an article the other day about the fight for a decent minimum wage.

      The article mentioned that Martin Luther King discussed how civil rights and economic issues are parallel in importance. They quoted him saying:: “Now our struggle is for genuine equality, which means economic equality,” he told a rally of AFSCME sanitation workers in Memphis on March 18, 1968, barely two weeks before his death. “For we know now that it isn’t enough to integrate lunch counters. What does it profit a man to be able to eat at an integrated lunch counter if he doesn’t have enough money to buy a hamburger?” (See the article here.

      It’s sad that the economic gap has only gotten worse and the fight for racial equality is still a shattered dream.

      [Report abuse]

    • thevillasofbyron.com

      Economic stress may indeed be used to foster intolerance of the “other.” But the economic concentration we are now facing in the U.S. was preceded by and driven by political polarization in reaction to the civil rights movement.

      [Report abuse]

    • nina ruymaker

      I often wonder that so many people in this country do not seem to recognize the nature of the class system that we are all a part of and that determines so much of our lives; even more perverse, the failure to recognize where one’s own best self-interest lies. The system cannot hold, and it will change.

      Perhaps climate change will force the issue — a race to see if we can figure out how to share & live more simply, before it’s just too late.

      [Report abuse]

    • Anthony St. John

      Prof. Powell, having been a voter during the free speech and civil rights era of the 60s I have experienced the ecstasy of the social advances we appeared to have made during that period, only to be followed by renewed agony due to failures by our political and intellectual leaders to improve and perpetuate those advances.

      American Democracy provided us with the tools to meet the challenges of change, but far too many eligible voters do not truly understand the consequences of our emotional decisions that prevent the creation of acceptable long-term quality of life for everyone.

      The only way I have been able to figure out to create and perpetuate an ideal state of society, because every method we have tried so far has failed, is for us to implement a program of public information and education using our best professors and scholars to inform and motivate voters to make decisions that will produce an acceptable quality of life for everyone, beginning with the 2014 elections.

      That is unless you and your colleagues can implement a better way to overcome our inequality and environmental problems with the required sense of urgency.

      [Report abuse]

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