There is no larger political issue in the US right now than the progress of income inequality. Polls show that most Americans think it is a serious problem, and more importantly that work does not create opportunities for advancement. Concern over this situation falls somewhat along party and generational lines, but when we talk about potential solutions that debate becomes much hotter. Should wealth actively be redistributed by government policy?
Into this debate comes Thomas Piketty, a French economist whose work has culminated so far with “Capital in the 21st Century”. His decades of research in the field is laid out to show that wealth is concentrating, and more to the point naturally will because return on investment outpaces wage growth. That argument has been called into question, but another central point has not – that this generation’s wealthy are not a “leisure class” but a “working rich”. They have a power beyond their own money in that they control corporations and funds – other people’s money. Taken properly, it’s political high explosive.
The problem with today’s wealthy is not simply that they have all the money. If that were the case, they would increase their fortunes by investing wisely and, at some point, harvest a return. In between there would be opportunity for those who did the work for them to also rise. Our last guilded age saw many men rise through the system created to serve the leisure class at the end of the 19th Century – Carnegie, Rockefeller, and Ford among them.
Today’s rich do not hire others to manage their holdings, but do it themselves. Their primary source of income is not from investment returns, per se, but from a salary. A salary combined with options, perks, and many other ways of turning corporate money into personal income.
The difference is important. The old system exploited labor where it could, but ultimately relied on labor to fuel its expansion. Industry at the time was far less productive per employee, meaning that growth always demanded more hiring. The value of the barons that owned a company was directly related to the growth of the value of that company, so constant expansion was assumed.
There was a natural balance to this system. Growth in consumption meant a growth in the consumer economy, meaning that more worker pay did benefit everyone. There was also only so much skilled labor to go around, meaning that anyone with a college education could demand a decent living.
Not so today. The working rich make their money by extracting from a company, not necessarily growing it. There is less incentive to expand and little incentive to hire, especially with productivity per employee running much higher in an information age. With considerable evidence that this system has only so much paid work to go around there is constant downward pressure on wages, meaning that opportunities to advance are necessarily limited.
Piketty’s work does not emphasize this problem as much as it should, but it is an obvious imbalance in the system that limit not only income but opportunities for growth in the future. It is a recipe for an economy that is monetarily and social stagnant, with little room for advancement.
Worse yet, the working rich can set the standards for those who have access to the few jobs that pay the stratospheric salaries by defining the terms on their own. That’s why competition for the best schools often starts with pre-school today – missing out on the path that leads through Ivy League to the best jobs is has a huge penalty.
When phrased as a lack of opportunity, the question goes from a traditionally Democratic concern to a Republican one. The latter’s response to labor’s demands for more income has always gone along the lines of, “Better yourself and take advantage of opportunities.” As those opportunities close down and the working rich control all the capital of the nation – not just their own – the politicians that should be the most alarmed are not the ones that call themselves progressives.
An America with little to no opportunity for advancement, and no reward for hard work, is an America that simply will not be willing to protect the privilege of the wealthy forever. The basic social contract is broken.
Will this ever get better? The short answer is that we will know that it is getting better when Republicans formulate market oriented solutions to the problem of diminishing opportunity. Until then, there is only one answer on the table – actively redistribute income through an aggressive tax policy.
Is that what America wants or needs? Without any other viable answer, it does. Is that really the only answer, however?