Thomas Piketty Visits The Lion's Den

The success of Piketty's book on inequality has given him an opportunity to share his ideas in many parts of the world.  He is currently involved in a program at the University of Chicago.  He was asked to participate in a panel discussion on inequality at the Becker-Friedman Institute at the University of Chicago.  Its hard to imagine a worse place for anyone to talk about the issue of income inequality.  The University of Chicago Economics Department, and the Becker-Friedman Institute is the high church of neo-liberal ideology is America, and it has been successful in exporting its ideology to the rest of the world.  This video of the discussion illustrates some of the tactics that proponents of this ideology are using to defuse the debate that Piketty's book has accelerated.  The video is rather long and disjointed so I condensed the debate into a few issues.

Piketty's presentation focused on the US because it is #1 among western nations in the growth of inequality (Perhaps this is part of our cherished US "exceptionalism").  The most dramatic growth in inequality is within the top 10%.  The super rich have gotten much richer than highly educated individuals who are well off.  The percentage of Americans in poverty has not changed very much and wage growth has stagnated for the middle classes but that does not explain the rise in inequality within the top 10%.  Piketty argued that changes in our institutions are the source of inequality.  He signaled out corporate compensation policies, and US tax policies which have become much less progressive as factors which may be responsible for American Exceptionalism on income inequality.

The first respondent changed the subject.  He talked about the culture of those in poverty and some of the things that might be done to provide more social and emotional skills that would enable children in poverty to escape from their trap.  Everyone would like to improve opportunities for children who are caught in the poverty trap but that has little to do with the rise in income inequality within the top 10%.

The second respondent argued that inequality is best explained by a shortage in skilled labor.  He argued that the labor force has a shortage of skilled labor and that has increased their wages and depressed wages of unskilled labor.  Its certainly true that skilled worker earn more than unskilled workers.  On the other hand, this does little to explain the growth in income inequality within the top 10%.  He also argued that progressive income taxes would reduce the incentive for individuals to invest in growing their human capital.  He had no answer for Piketty's argument that economic growth and productivity were very strong during a period in which the US tax system was much more progressive than it is today.  He had no interest in addressing the issues that Piketty raised about corporate institutional change and the more rapid growth in income equality in the US.

It is apparent that places like the Becker-Friedman Institute have been funded by the super rich for a good reason.  It defends the existing system of inequality by blaming the victims, and by shifting attention away from the super rich.  Impoverished families do not do a good job developing essential skills which keep their children in poverty, and workers have not developed the skills that are required in the higher paid segments of the workforce.  They also choose to ignore the real growth in inequality within the top 10%.  Piketty has nothing against improving educational opportunity; however, the educational achievement of the super rich does not explain why they are much richer than other well educated Americans.