Tuesday, March 25, 2014

American Patrimony

Paul Krugman has praised Thomas Piketty's new book but he begs to differ with Piketty on the role of wealth in the US.  Piketty argues that the rapidly rising incomes of corporate executives are primarily responsible for rising inequality in the US.  He does not believe that inherited wealth in the US is as great as it is in Europe.  Krugman points us to a couple of slides which show that the concentration of wealth in the US has reached the peak that existed in the "Gilded Age".  Moreover, the data show that the top 1% is not really the issue.  Wealth has been concentrated in the top 0.1%.  The degree of inequality within the top 1% is very high.  The upper middle class has lost ground to the top 0.1%.  This is the patrimonial society described by Piketty in which inherited wealth perpetuates inequality and reduces the role of merit in the economy, and in government.

I don't know why Krugman has chosen to pick on this point of difference with Piketty.  The growth in executive compensation has certainly been a major source of inequality in the US.  It has also influenced the investment decisions made by corporate executives who place the growth of the stock price above all other considerations.  Krugman could be more helpful if he focused on what might be done to reverse the trends that we have observed in the US.  He is aware of the tax policy decisions that have benefited the top 0.1% and many economists argue that they have been good for the economy.

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