26 May 2014

The New York Review of Books: “Why We’re in a New Gilded Age”

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.

Paul Krugman

While many talk about income inequality, its effects on economic recovery and the widening gap between the 1% and the rest, the book reviewed here has solid research on the subject based on economic data going back a century and more. It also lays out an easy theoretical solution: adjusting tax rates for capital returns and inheritance would improve income distribution considerably and slow further accumulation of capital in the same hands. Unfortunately, as you may imagine, it’s not so easy to apply this in the real world, where political decision-making is heavily influenced by those 1% it’s supposed to tax…

New Gilded Age Income Share graph

Some say we couldn’t have reversed the consequences of globalization and technological change. Yet the experiences of other nations, like Germany, suggest otherwise. Germany has grown faster than the United States for the last 15 years, and the gains have been more widely spread. While Americans’ average hourly pay has risen only 6 percent since 1985, adjusted for inflation, German workers’ pay has risen almost 30 percent. At the same time, the top 1 percent of German households now take home about 11 percent of all income — about the same as in 1970. And although in the last months Germany has been hit by the debt crisis of its neighbors, its unemployment is still below where it was when the financial crisis started in 2007.

Robert B. Reich
Infographics on the distribution of wealth in America, highlighting both the inequality and the difference between our perception of inequality and the actual numbers

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