The egalitarian society that was the ideal and preserve of our ancestors does not exist today in the United States.  Rather we have created a society that benefits the wealthy and powerful at the expense of everyone else.

Divided We Fall

Business Behaving Well highlights the extent of growing inequality in the United States, and our country’s anomalous and unstable position with relatively high average prosperity but inequality resembling that of a developing country.  Our book also examines the causes of growing inequality including reduced top marginal taxation rates, and compensation growth for those at senior levels in organizations far outstripping compensation growth for most of our population.  It highlights the social, practical, and emotional consequences of increased inequality, whether related to social ills, reduced discretionary spending that threatens economic health, and curtailed happiness.  Moreover, it outlines some possible approaches to address these concerns both at an institutional and an individual level.   This increase in inequality also speaks to reduced freedom of opportunity and economic mobility today when compared with many other developed countries and with the past.  The egalitarian society that was the ideal and preserve of our ancestors does not exist today in the United States.  Rather we have created a society that benefits the wealthy and powerful at the expense of everyone else.

Further evidence for this is presented in Thomas Piketty’s new book Capital in the Twenty-First Century.  One of its strengths is how it builds a persuasive and comprehensive case that explains the steady decline that we are embarked upon.  Indeed Piketty’s concern is that our current level of inequality is but a pale ghost of what is to come if we continue on our current path.  This path is taking us back to a society consisting of a small wealthy group supported by a large disadvantaged population to do their bidding, just as it was in Europe before the Industrial Revolution.  Is this the outcome we want for the American Dream?

Let us look at Piketty’s book, the path that it takes and its implications.  It is structured in four parts looking first at income and capital, then the interaction of these two aspects, then the nature of inequality, and finally recommended steps needed to change our course and reverse the stampede into serfdom.  The book is built on a strong foundation of historical economic fact, which forms the underpinning of Piketty’s conclusions and future projections.  He reviews the economic and social dynamics prior to the industrial revolution where inherited wealth based on ownership of land was dominant in defining the economic well-being of a small privileged class in Europe, and to a lesser degree in the United States.  The industrial revolution brought greater access to economic well-being for some people, as communal support for education grew, though inequality remained high until the shocks of the two world wars and the great depression.  Inequality began to fall when the top marginal income tax rates were increased in the 1930s to more than 70% in the United States and Britain.  Economic growth was strong after the second world-war from the 1950s until the 1970s.  The top marginal income tax rates were then reduced to 40% or less in the 1980s and have stayed at lower levels since then.  Economic growth rates fell as top marginal tax rates were reduced.  Inequality began to increase sharply in the 1980s in the United States and that increase has continued, so that now our level of income inequality is “probably higher than in any other society at any time in the past, anywhere in the world, including societies in which skill disparities were extremely large.”  This was fuelled by rampant and disproportionate compensation increases for the highest earners and a stagnant minimum wage.  Now for the first time the United States is more unequal than Europe.  Inequality is evident in income and even more so in wealth.  The rush to serfdom that began in the 1980s has continued unabated since then.

Piketty projects, based on likely returns on capital and economic growth rates, that without some intervention inequality will continue to increase with capital increasingly concentrated in the hands of a small group of people.  Indeed he views the period from the 1930s to the 1970s, when inequality declined, as an anomaly driven by global upheaval from two world wars.  He examines possible solutions to stave off the social and economic collapse that will likely occur if the current trajectory continues.  Foremost among these is a proposal for a progressive global tax on capital.  This could mitigate the growing increase in inequality and provide funding for needed social programs.  He acknowledges such a step as unlikely on a practical level globally, though suggests regional implementation as a more feasible first step.  Perhaps a more realistic step is to bring our income tax code back to where it was earlier when we had strong economic growth, so that it both adequately taxes capital gains, and provides the needed progressive tax on earned income that served us well in the past.  Since there is little evidence of political leadership in Washington to promote and implement such an approach, it will likely require mobilization of a grass roots movement to return this country to the egalitarian ideals on which it was founded.