Updated on April 17, 2014
The publication of Thomas Piketty’s book, Capital in the Twenty-First Century, in English, has advanced the discussion of rising inequality around the industrial world, notably in the US. It follows on the heels of Pope Francis’ landmark speech decrying “trickle down” economics last November, and Barack Obama saying that America’s sky-high inequality the “defining challenge of our time” the following month.
Just how bad is American inequality? How did we arrive at this new Gilded Age? And how might we create an economy of broadly shared prosperity?
To these and other questions, you’ll find interesting and useful answers in our Essential Reader…
What’s the big deal about this new book? At Vox.com, Matt Yglesias offers a “short guide” to Capital in the Twenty-First Century. Paul Krugman goes into far more depth in his review for the New York Review of Books. And Dean Baker takes issue with Piketty’s determinism in the Huffington Post.
Inequality in America: How bad is it? A study by the compensation firm Equilar found that CEO pay in 2013 was up 9 percent over the previous year. Another by the Institute for Policy Studies found that Wall Street bonuses last year exceeded the earnings of every full-time worker in the US making the federal minimum wage. In 2011, Mother Jones published a series of charts capturing the depth of inequality in the US, which remains one of the best big-picture looks at the problem out there. We have greater inequality of accumulated wealth than income, and University of California sociologist William Domhoff’s “Who Rules America” provided the details. In The Atlantic, Max Fisher offered a map of global inequality that named the US among the most unequal wealthy countries, and Mark Gongloff reported in the Huffington Post about a study that found that we have the fastest growth in inequality in the developed world. Thomas Shapiro, Tatjana Meschede and Sam Osoro wrote a brief on the black/ white wealth gap at the Institute on Assets and Social Policy, and Brookings’ Benjamin Harris and Melissa Kearny offered 12 facts about America’s struggling lower middle class.
I’m not poor. Why should I care? A study conducted by Sir Michael Marmot, a professor of epidemiology at University College London, found that high levels of inequality cause stress and harm the health of both rich and poor. In The Boston Review, Stephen Bezruchka, a professor of public health at the University of Washington, points out that on average, Americans are living shorter lives than those in more equal societies. Justin Wolfers noted that higher inequality correlates with less upward mobility. A report by the UN found that higher levels of inequality were accompanied by slower overall growth. World Bank economist Branko Milanovic found that it’s more “fun” to live in more equal societies.
How do we perceive inequality? Almost two-thirds of respondents to a January 23 Pew poll said that inequality is growing, but there were stark partisan differences over the causes and possible solutions. A now-classic study by Michael I. Norton of Harvard Business School and Dan Ariely of Duke University found that most Americans preferred Sweden’s much flatter income distribution to our own and also thought that our economic stratification was similar to Sweden’s. Yale psychologist Paul Bloom wrote in Salon about a series of studies that found children have an inherent attraction to what they perceive as fairness. Even capuchin monkeys have been shown to react with anger to unequal distribution of resources.
You may ask yourself, well, how did I get here? A variety of factors helps explain our spiraling levels of income and wealth inequality. Daron Acemoglu and James A. Robinson, the authors of Why Nations Fail: The Origins of Power, Prosperity, and Poverty, took the bird’s-eye view, connecting income inequality with vast differences in political power. Dylan Matthews wrote in The Washington Post that public policy is entirely responsible for the trend. University of Texas scholar Thomas McGarity linked growing inequality with deregulation. Economic Policy Institute’s Andrew Fieldhouse looked at how changes in the tax code have widened the gap between the haves and the have-nots. His colleague Lawrence Mishel chronicled the role of declining union membership in increasing many Americans’ economic security.
Do we just have to live with it? Nope. Piketty proposes a global tax on wealth to address the growing divide. Jason Sattler rounded up five ways to reduce inequality in The National Memo. Back in 2003, the New America Foundation’s Ray Boshara proposed combating wealth inequality by giving a $6,000 ‘opportunity account’ to every baby born in the US. Peter Edelman, Mark Greenberg, Steve Holt and Harry Holzer argued that expanding tax credits for the working poor with children would go a long way toward reducing inequality. Paying people a fair wage is an obvious approach, and Demos suggested it’s possible to do so for workers in the retail and fast food industries. Alan Berube of Brookings offered some ideas about what mayors of major American cities could do to narrow the gap.