Piketty Analysis of Capital

An Analysis of Capital

Limmy Claxton C.A.S.

California State University East Bay

                                                                Social Inequality

SOC. 3420

Dr. Thomas Long

May 20, 2014

An Analysis of Capital

Introduction    

In this paper I will cover several things that Piketty reveals in his analysis of income inequality in modern society, particularly income inequality pertaining to wealth/capital ownership. First, I will spell out his detailed analysis of increasing income inequality in the United States since the 1970’s. Then I will spell out his analysis of wealth/capital inequality in the United States. In closing I will explain the effects of the propertied middle class as well as the governmental tax policies which invariably mitigates the concentration of wealth/capital in today’s contemporary society.

Income Inequality

Looking at income inequality particularly in the United States, more so than all the other nations of the world, one must wonder what force is at the center driving this phenomenon of inequality, what other factors may be involved. To answer this we have to take a look at the opposing powers pushing towards convergence and divergence. Convergence is the forces pushing toward inequality, including the diffusion of knowledge, training, and skills required to meet those needs. Divergence on the other hand is the opposite force which produces a greater inequality, quite possibly and understandably more powerful than the forces pushing for convergence.

“The crucial fact is that no matter how potent a force the diffusion of knowledge and skills may be, especially in promoting convergence between countries, it can nevertheless be thwarted and overwhelmed by powerful forces pushing in the opposite direction, toward greater inequality (Piketty, Capital and the Twenty First Century, P.22, Harvard Press, 2014).

Looking at the forces associated with divergence as it pertains to the United States, one notices the humongous increase in inequality as it skyrockets upwards around the end of the 1970’s and has consistently been rising ever sense. Going back to the 1920’s and 1930’s income inequality in the United States reached huge proportions somewhere around 50% of national income, before plunging downward during the 1940’s. This rapid fall off in the top deciles’ share in national income was mainly due to war and it’s after effects. This drop in income inequality eventually stabilized until around the end of the 70’s when it again shot upwards with the advent of top- managers or super managers of huge corporations.

This rise of income for the top wage earners is not without suspect. The very fact of separating the top wage earners from the rest of society, especially in the U.S. rests entirely on the ability that many of these individuals who are managing these giant national and international companies have in setting their own remuneration. One way to substantiate this increase and which is quite possible is that the skills and productivity of these top managers rose suddenly in relation to those of other workers, which is this case is very difficult to estimate in a large organization (Piketty, P.24).

The ability of these individuals to set their own wages is a new phenomenon that has mainly taken place in the US and England. This new found freedom of remuneration is less fortunate in other wealthy European countries where there are forces of constitutional law preventing it.

This inequality in the United States, in Piketty’s view is what led to the financial crisis in 2007. The rise of super salaries in the US began in the mid 70’s where the top 1 percent and top ten percent were beginning to receive a share of the labor income, which dramatically increased their income and thereby reduced the buying capability of the common wage earner.

According to Piketty the 15 additional points of national income going to these top managers, “the 1 percent” those making more than $352,000 a year in 2010, of which half that amount went to “the 0.1 percent” those making more than $1.5 million a year. (Piketty, P.296) These remunerations for the top wage earners are generally set by the top executives or corporate compensation committees who also receive comparable salaries.

Piketty’s research reveals that in the top 60 – 70 percent of income earners in these large corporations during 2000-2010 mostly consisted of these top managers. The ability these top earners have in setting their own remuneration, the gap in income inequality is destined to continue.