Thomas Piketty traces widening inequality in rich countries since the
early 1970s to increasing shares of income claimed by the top 1%. This
trend is decomposed into the increasing share of income accruing to
capital ownership, and the increasing share of labor income claimed by
corporate executives and financiers. Piketty shows that the increasing
share of labor income claimed by the top 1% is neither deserved nor
economically useful, in the sense of stimulating better products and
services, increasing economic growth, or providing other benefits to the
99%. Because he defines *r,* the return on capital, as the pure return
to passive ownership (excluding returns to capital that could be traced
to entrepreneurial activity or business judgment), it is evident that
capital’s share of income is also undeserved. But is it economically
useful? Piketty misses an opportunity to connect his analysis to a
critique of the ideology and associated politics that have driven
increasing inequality since the early 1970s. While he rightly claims
that the distribution of income and wealth is a deeply political matter,
and connects increasing economic inequality to the increasing political
clout of the top 1%, he does not identify political decisions, other
than cuts in marginal tax rates on top incomes, that lie behind
inequality trends. Filling in the ideological and political stories
gives us some clues as to policy instruments, other than the tax code,
needed to reverse the ominous trends he documents.
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