NY Books: Why We’re in a New Gilded Age, by Paul Krugman
Krugman here is reviewing a book by the French economist Thomas Piketty, Capital in the Twenty-First Century, Piketty and his colleagues at the Paris School of Economics have focused their research on the ultra-rich, a segment of the population that most economists had by and large ignored.
Piketty’s group found that, as in America’s Gilded Age and Europe’s Belle Epoque, the people at the top rung of the income ladder acquire their wealth through family and by ownership of assets. In other words, they didn’t need to work to become rich.
It therefore came as a revelation when Piketty and his colleagues showed that incomes of the now famous “one percent,” and of even narrower groups, are actually the big story in rising inequality. And this discovery came with a second revelation: talk of a second Gilded Age, which might have seemed like hyperbole, was nothing of the kind. In America in particular the share of national income going to the top one percent has followed a great U-shaped arc. Before World War I the one percent received around a fifth of total income in both Britain and the United States. By 1950 that share had been cut by more than half. But since 1980 the one percent has seen its income share surge again—and in the United States it’s back to what it was a century ago.
Still, today’s economic elite is very different from that of the nineteenth century, isn’t it? Back then, great wealth tended to be inherited; aren’t today’s economic elite people who earned their position? Well, Piketty tells us that this isn’t as true as you think, and that in any case this state of affairs may prove no more durable than the middle-class society that flourished for a generation after World War II. The big idea of Capital in the Twenty-First Century is that we haven’t just gone back to nineteenth-century levels of income inequality, we’re also on a path back to “patrimonial capitalism,” in which the commanding heights of the economy are controlled not by talented individuals but by family dynasties.
The general presumption of most inequality researchers has been that earned income, usually salaries, is where all the action is, and that income from capital is neither important nor interesting. Piketty shows, however, that even today income from capital, not earnings, predominates at the top of the income distribution. He also shows that in the past—during Europe’s Belle Époque and, to a lesser extent, America’s Gilded Age—unequal ownership of assets, not unequal pay, was the prime driver of income disparities. And he argues that we’re on our way back to that kind of society. Nor is this casual speculation on his part.
The historians among us may recall what events followed the Gilded Age and the Belle Epoque. It’s not healthy for a presumably democratic society to have a tiny minority of the population to control 80% or 90% of its wealth — or its politics.