What Drives Income Inequality

Thursday, April 17, 2014

Thomas Piketty explains the grand dynamics that drive the accumulation and distribution of capital. In Capital in the Twenty-First Century, Piketty analyzes a unique collection of data from 20 countries, ranging as far back as the 18th century, to uncover key economic and social patterns. He makes the case that the main driver of inequality—the tendency of returns on capital to exceed the rate of economic growth—threatens to generate extreme inequalities that foment social and political turmoil and undermine democratic values.


Thomas Piketty

Comments [11]

Jessie Henshaw from Way Uptown

There's a repeated omission from this story that rather changes the message in the end. I won't bore you with the solution since for fine minds all you need is to catch a glimpse of the problem, and then try every possible route to the answer till you find it... ;-)

Sure, there does seems to be a strong case in how our economy works for old money making more money than anything else ***in the end***. That's Piketty's principle r > g. It says "the real productive system constantly loses money".

OK, well, the real question is how we get there ***from a beginning*** when the balance of economic forces is the opposite. That would be the time when the economy worked by the OPPOSITE PRINCIPLE, g > r. When growth begins it's both historical and logically obvious, as a "start-up" that in order to get going " the real productive system is what makes all the money".

What you can deduce from that is that money keeps making more and more money till the real productive system quite.... after getting a head start. That's the problem to solve.

May. 27 2014 02:57 PM
Meredith from nyc

I could hardly hear or grasp Piketty's sentences on my computer podcast. And I was very interested after reading Krugman. He may be an eminent author but a lousy speaker. He should be told that to communicate with audiences, with that thick accent, he must raise his voice level more, instead of mumbling in low tones in run on sentences, then speak slower, and separate his words. Otherwise it's just a droning mumble. Could wnyc producers have nicely suggested this during the break?

Apr. 23 2014 01:23 PM
DE Teodoru

Bravo mon vieux!

Le con who refers to your accent lets you know what kind of de Provence are most Americans. In fact, they are a rare race of people who accept vampiric parasitic exsanguination out of admiration for corporate cannibals and their larceny....recall who were the popular heroes during the Great Depression!

Wealth is artificial. It is like water: toxic if stagnant. During Cold War, the closer the Capitalists lived to the Communists-- as West Europe relative to East Europe-- the more equability of wealth distribution was an obsession. In America, so much was spend on war industries (which had a preset profit limit) that this distributed wealth of America amongst many Americans. After Cold War ended, American financialists went mad and made America's wealth a Casino. So, we are heading towards violence again, repeating history as monkey colonies do every generation, because no one reads history anymore. But, this Noel, I am giving your book to everyone I care for as I often do with authors I really appreciate. I pray to God to give you strength because you are to economics what the the Pope is to social morality. Casse les tetes de tous ces cons!

Apr. 19 2014 01:29 PM

I can barely understand what he is saying. What a lousy communicator.

Apr. 18 2014 01:16 AM
Pascale from Atlanta

Maybe we need some inequality to keep people motivated, but how can you be motivated when you earn less than 10,00$ an hour (less than 18,000$ a year) and are not able to make ends meet? Wal-Mart managers won't motivate their workers to give their maximum potential as employees if they don't pay them a reasonable salary. If I were paid 7$ an hour, I would be inclined to just do the minimum required by my employer. It's only logical and human. If you don't pay your workers well, then don't expect them to work hard or harder. Why would or should they?

Apr. 17 2014 03:25 PM
Steven from Brooklyn

I suggest we tax income of tenured professors that is over and above their salary at a rate of 100%.

Apr. 17 2014 01:04 PM
John A

He's faking the accent so we'll have to buy the book. Seriously, thanks in advance to WNYC for the download, I will be giving a second and third listen, sounds like he's got some solutions.

Apr. 17 2014 01:02 PM
antonio from baySide

My burning question is this...
There were rich people in the US in the 40's - 70's what made those folks settle with a higher income tax rate?

Why do todays rich seem so individualistic, selfish and oppose projects for the public good?

Apr. 17 2014 12:47 PM

Please ask Mr. Piketty to talk a bit slower and a bit closer to the microphone.
Every second or third word cannot be heard.

Apr. 17 2014 12:41 PM
John from Bklyn

How do I say this without sounding like Karl Marx? The alliance between America’s capitalists and wage-earners is breaking up.

We needed each other. Capitalists need workers to produce real goods or services. Until now just about everything that American capitalists invested in had to be produced by American workers. So labor supply and demand let those workers share in the fruits of productivity.

Recently however, China and India became viable labor markets, depressing our wages even as productivity rises. They are not to blame, nor are you.

What about the greedy capitalists? Well the markets for their products are as unforgiving as your labor markets. If their companies fail to optimize labor costs, price competition will grind them to dust. It is the wheel of history that threatens to align American incomes with those of poor countries.

Our economists, cosseted in tenured security, love to remind us that “our economy” benefits from free trade - as if wage-earners and capitalists still ascend together on the rising tide. But these dominant forces promise an America of richer capitalists and poorer wage-earners - two economic classes with conflicting political interests.

Falling wages will provoke American wage-earners to seek to “share the wealth,” inevitably causing an angry realignment of our political parties. Though it’s rude and unfashionable to speak of it, this tidal wave will engulf a voting booth near you - sooner than you think.

Apr. 17 2014 12:28 PM
Joe Mirsky from Pompton Lakes NJ

From my book Ornamentally Incorrect, third edition, Luxe et Veritas
For the companion article More More Money Than You Could Ever Spend google Joe Mirsky More Money

Less More Money Than You Could Ever Spend

In January, 1905, James Hazen Hyde, 28, son and heir of the founder of the Equitable Life Assurance Society, gave one of the most sumptuous balls of the Gilded Age.

It was a costume ball with an 18th century theme held in Sherry’s Restaurant in New York. Six hundred costumed guests were entertained by the Metropolitan Opera Orchestra and a specially commissioned one act play performed by famous French actress Gabrielle Réjane.

The ball was reported in all the papers. This gave James Alexander, Equitable’s president, the excuse he needed to try to gain control of the company from Hyde, who was vice-president but had inherited a controlling interest, He accused Hyde of spending $200,000, ($4.88 million in 2012) on the ball and charging it to the company. Alexander was joined by Robber Baron board members E.H. Harriman, Henry Clay Frick, and J.P. Morgan.

The charge was false — Hyde had paid for the ball himself and it had cost probably $50,000. But the press reported Alexander’s charge as fact and it caused a sensation and public outrage.

The New York State Legislature investigated the insurance industry, calling executives of New York Life, the Equitable, and Mutual Life before the Anderson committee. Their testimony revealed conflict of interest transactions, large payments to politicians and unconscionable salaries for themselves. It came to be known as the Wall Street Scandal of 1905.

Hyde was forced to resign and left for France. He served as an ambulance driver in World War I. He returned in 1941 and died in New York in 1959.

An article in the February 5, 1911 issue of the Literary Digest quotes the New York Evening Post noting “an epidemic of lowering of the big salaries of the industrial and financial world.” “Because of the public agitation respecting the high cost of insurance management in the United States and the unpleasant disclosures attending the Armstrong investigation in 1905.”

The new president of the Steel Trust [U.S. Steel] found his salary reduced to $50,000 ($1.2 million in 2012) from the $100,000 of his predecessor. Equitable’s president when he assumed office after Alexander resigned in 1905 asked that the $100,000 salary Alexander had been receiving be cut to $80,000.

Today the Equitable and New York Life are subsidiaries of AXA, a French insurance company. Salaries of their CEO’s are not available. Mutual Life executive salaries are also not available.

In 2011, U.S. Steel president John Surma made $418,991 in 1911 dollars. Prudential CEO John Strangfeld earned $456,335, and MetLife’s Steven A. Kandalian took in $435,859. JP Morgan Chase chief Jamie Dimon beat them all with $943,009.

Copyright © Joseph Mirsky 2013

Apr. 17 2014 10:56 AM

Leave a Comment

Email addresses are required but never displayed.

Get the WNYC Morning Brief in your inbox.
We'll send you our top 5 stories every day, plus breaking news and weather.