Bringing Politics Back In: Piketty and Economic Inequality in the United States

Abstract

French economist Thomas Piketty's bestseller, Capital in the TwentyFirst Century, provocatively claims that the widening income inequalities in the advanced economies (indeed, widening income inequality worldwide), is fundamentally rooted in the exigencies of the capitalist system. Specifically, capitalism operates according to inexorable laws – in Piketty's succinct formulation as r>g. That is, "r" is the rate of return on capital whereas "g" is the rate of economic growth. However, "the central contradiction of capitalism" is that the rate of return on capital (r) will always exceed the rate of economic growth (g). Because the rate of return on capital is higher than the economy's overall rate of growth, widening income inequality is inherent to capitalism. Drawing on Marx's insight that the returns on capital (which to Piketty is mainly wealth in the form of financial assets and equity) tend to be far greater than the growth rate of the economy, Piketty concludes that the owners of equity will always see their wealth grow much faster than those depended on earning income from labour (Table 1). And, since capital tends to be concentrated in fewer hands while income generated from labour is more broadly dispersed, it is hardly surprising that the capital-owning class have seen their incomes and overall wealth grow at an exponential rate, whereas those who sell their labour for a living have seen their incomes either stagnate or decline in real purchasing terms.