With all the furore surrounding Thomas Piketty’s Capital in the 21st Century my aim here is to carry a weekly focus on the book reblogged from For the Desk Drawer. The purpose is modest. There is already in existence some rather excellent coverage and detailed engagement with the book both in the general media and on specific blog sites. I am thinking here of the analyses by Michael Roberts on his blog site; the competing viewpoint or ‘afterthoughts’ of David Harvey; Benjamin Kunkel’s assessment in ‘Paupers and Richlings’ for London Review of Books matched by Knox Peden’s great essay on ‘The Abstractions of History’; or Paul Krugman’s rather different tone in ‘Why We’re in a New Guilded Age’ for The New York Review of Books. My own endeavour is much less ambitious than any of these engagements. It seeks to offer a weekly equivalent to the ‘Pocket Piketty’ provided by Duncan Green. Each week my intention is to carry a blog post that summarises my notes on each chapter in just a few hundred words that can be read quickly. The purpose of these summaries is to produce an interpretative synopsis of each chapter drawn from my more detailed notes.
These interpretative digests will also enable me to formulate my engagement with a reading group on Piketty’s Capital in the 21st Century, organised by Chris Hesketh at Oxford Brookes University. They will also provide a quick précis for teaching purposes at the University of Sydney and through this novel pedagogical exercise conclude with a question each week to be developed in my Department of Political Economy classes on ‘The Political Economy of Global Capitalism’ (linked to the Twitter hashtag #ECOP2613). Such short interpretative digests may thus provide a different and original form of engagement with the book. Without attempting to rival or replace the importance of detailed engagement, these ‘Piketty digests’ will facilitate a quick and accessible read for people ‘on the go’. The posts will be formulated and produced after reading each chapter, in dialogue with the Oxford Brookes University reading group and colleagues at the University of Sydney, rather than polished after completing the reading of the whole book and then subsequently edited; although I may tidy up a little week-to-week. Perhaps these ‘Piketty digests’ will also provoke some wider resonances and points of contact. Here is the ninth ‘Piketty Digest’ on ‘Two Worlds’.
Chapter 8: Two Worlds
We are into the nitty-gritty now of the book and some of its most significant empirical arguments about inequality, notably drawing from the data sets outlined in the Introduction — The argument developed further in this chapter is that the compression of income inequality has been historically concentrated in one period, 1914 to 1945 — As Piketty relays, ‘it was the chaos of war, with its attendant economic and political shocks, that reduced inequality in the twentieth century. There was no gradual, consensual, conflict-free evolution toward greater equality. In the twentieth century it was war, and not harmonious democratic or economic rationality, that erased the past and enabled society to begin anew with a clean slate’ — So, the destruction caused by two world wars, bankruptcies caused by the Great Depression and the rise of new public policies (from rent control to nationalisations and the inflation-induced “euthanasia” of the rentier class that lived on government debt), led to a sharp drop in the capital/income ration between 1914 and 1945 and a significant decrease in the share from capital in national income — That said, the significant question of the causes of global war or the causes of the Great Depression are left unanswered — Juxtaposing this historical reduction of inequality with today, Piketty notes that there is a shift from a society of rentiers to a society of managers, from a society in which the top centile is dominated by rentiers (people who own enough capital to live on the annual income from their wealth) to a society in which the top of the income hierarchy, including the upper centile, consists mainly of highly paid individuals who live on income from labour, or super-managers as defined in Chapter 7 — The result is a shift from a society of super-rentiers to what Piketty assesses to be a less extreme form of rentier society, with a “better” balance between success through work and success through capital — The income of the top decile of societies now encompasses ‘two worlds’ referring to ‘the 9 percent’ in which income from labour clearly predominates and ‘the 1 percent’ in which incomes from capital becomes progressively more important — These patterns are compellingly traced across France and the United States, specifically, to highlight how European income inequality was significantly greater than US income inequality at the turn of the twentieth century: the capital/income ratio was higher in Europe, and so was capital’s share of national income; inequality of capital ownership was therefore somewhat less extreme in the New World — ‘Europe in 1914-1945 witnessed the suicide of rentier society, but nothing of the sort occurred in the United States’ — Contemporary rising inequality is then traced in the United States, with Piketty noting that on the eve of the financial crisis of 2008, the upper decile’s share exceeded 50 percent of US national income — To identify the structural character of the increase of inequality in the United States therefore involves tracing how, from the 1970s to 2010, the increase in the upper decile’s share (exclusive of capital gains) appears to have been relatively steady and constant: it passed 35 percent in the 1980s, then 40 percent in the 1990s, and finally 45 percent in the 2000s — The level attained in 2010, with more than 46 percent of national income exclusive of capital gains, going to the top decile is higher than the figure on the eve of the financial crisis, with indications that the increase is still continuing up to the present — With a ring of familiarity, Piketty states ‘the financial crisis as such cannot be counted on to put an end to the structural increase of inequality in the United States’ — With further interesting statistics, Piketty informs us that, disaggregating the top decile, shows that the bulk of growth in inequality came from ‘the 1 percent’, whose share of national income rose from 9 percent in the 1970s to about 20 percent in 2000-2010 — For ‘the 5 percent’ (annual income ranged from $108,000 to $150,000 per household in 2010) the share in US national income rose from 11 percent to 12 percent and for ‘the 4 percent’ (income ranged from $150,000 to $352,000) the share in US national income rose from 13 to 16 percent — With an amusing rhetorical flourish, Piketty remarks that, ‘Among the members of these upper income groups are US academic economists, many of whom believe that the economy of the United States is working fairly well and, in particular, that it rewards talent and merit accurately and precisely’ — The increase in inequality in the United States, it is argued, has also led to the stagnation of the purchasing power of the lower and middle classes in the United States — Invisible here, however, is any mention of the theory of underconsumption as an explanation of crisis associated with the “Monthly Review school” linked to the socialist magazine Monthly Review — The statistics delivered by Piketty, though, are revealing in highlighting that in relation to the total growth of the US economy in the thirty years prior to the crisis, from 1977 to 2007, one finds the richest 10 percent appropriated three-quarters of the growth, the richest 1 percent absorbed nearly 60 percent of the total increase of US national income, and for the bottom 90 percent the rate of income growth was less than 0.5 percent per year — There has been a virtual stagnation of low and medium incomes with Piketty indicating that ‘It is hard to imagine an economy and society that can continue functioning indefinitely with such extreme divergence between social groups’ — While some within the context of the ‘two worlds’ (the super-managers climbing the income hierarchy and the super-rentiers gaining increased income from capital) might think of tennis many others might think of the 2014 Ferguson unrest in Missouri as indicative of the threadbare social fabric in the United States and, increasingly, elsewhere.
Question: Why is mention of global war and the Great Depression insufficient as causal explanation for the relative reduction of US income inequality in the twentieth century?