Piketty and Wealth Inequality Brenden Oliver

Saez and Zucman (2016) Exploration of the trends of wealth inequality since 1913 Use of capitalized income tax data “combines income tax returns with macroeconomic household balance sheets to estimate the distribution of wealth in the United States since 1913” (Saez & Zucman 2016, p.519) Wealth: “the current market value of all the assets owned by households net of all their debts… assets include all the non- financial and financial assets over which ownership rights can be enforced and that provide economic benefits to their owners” (Saez & Zucman 2016, p.525)

Findings Big focus on 0.1% The 1% is clearly concentrating more and more wealth. But, they find that an interesting factor causing this trend is actually found within the 0.1%

Saving Rates

Findings of New Wealth Distribution Series Wealth inequality high and rising fast in the U.S. Wealth share of middle-class follows an inverted-U shape Combination of rising income and saving rate inequality is fueling wealth inequality

About Capital in the 21st Century & Dynamics of Inequality (Interview)– Thomas Piketty (2014) r>g cannot explain everything A greater magnitude between r and g can show greater wealth inequality, but: Other factors impact the rise of top income shares such as rising inequality in access to skills and higher education, increased managerial compensation, and large tax cuts to top income earners (Piketty 2014). Different ‘shocks’ bigger families have to split up their inheritance more so than others, some laborers make higher wages, some families make good/lucky investments when others fail and get bankrupt, etc. (Piketty (2014).

Critique of Marx Marx is made into a determinist by Piketty (2014) in that Marx believes, “the capital-to- income ratio increases ad infinitum, so return on capital must eventually fall to zero. The capitalist system is intrinsically unstable and naturally leads to revolution” (p.3). This didn’t happen, so Marx is incorrect according to Piketty “Increased productivity and population growth have made it possible to balance Marx’s equation and avoid the tendential fall in returns” (p.3) How so?

Critique of Neoliberals and Economists “The aim of market institutions is not to produce social justice, or to reinforce democratic values; the price system knows neither limits nor morality” (p.4) Piketty (2014) suggests that economists use less theory because they have used so much “giving themselves the illusion of being scientific, though the factual basis for them may be extremely fragile” (p.4).

Solution Inequality is two dimensional: people will differ in labor earnings and inherited wealth. The solution, optimal progressive taxation of income, wealth, and consumption, must also be two dimensional: a progressive tax on labor income and inherited wealth (Piketty 2014) Why is a tax on consumption seen as less superior than a progressive tax on inherited wealth according to Piketty? He is not optimistic about the future

Piketty and the Crisis of Neoclassical Economics– Foster & Yates (2014) Critics of Piketty, but respectful and give credit Sees Piketty’s critique of neoclassical economic theory such as: freely competitive capitalist economy will generate full employment, or that income and wealth inequality is determined by marginal productivity But, “he challenged [neoclassical economics] from the inside rather than outside of the neoclassical perspective” (p.6)

What About Causation and Class? “[Piketty] is unable to explain why capitalist economies tend to grow so slowly as to generate divergence between wealth and income. While his analysis sees slow growth or relative stagnation as endemic to the system, he neither explains this nor is concerned directly with it” (p.8). Piketty fails to look at class power and struggle Piketty finds important data, but fails to explain power and control of corporations, the economy, the state, culture, and the media

Solution Good or Bad? Piketty’s solution of a wealth tax is seen be Foster and Yates (2014) as a good and strategic place to start, but “this would require in turn a reorganization and revitalization of the class/social struggle, and in every corner of the globe” (p.21) If power and class is discussed/analyzed, the solution may point more so to changing the global capitalist mode of production as a whole, not just regulation “Piketty’s failure to relate inequality to power is not, it should be stressed, a particular failure on his part, but rather a general fault of neoclassical economics, tied to its position of hegemony” (p.17).

Discussion Does Piketty explain causation? Is his critique of Marx correct? How about Saez and Zucman (2016)? How would you rate Foster and Yates (2014) critique? Is it fair?

References Foster, Bellamy John and Michael D. Yates. 2014. “Piketty and the Crisis of Neoclassical Economics”. Monthly Review: November. Piketty, Thomas. 2014. About Capital in the 21st Century. Piketty, Thomas. 2014. “Dynamics of Inequality.” New Left Review 85: 103-116. Saez, Emmanuel and Gabriel Zucman. 2016. “Wealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data.” Quarterly Journal of Economics 131(2): 519-578.