One of the biggest challenges facing us is the increasing disparity in wealth and income which has become so obviously apparent in American society in the last four decades or so with all its pernicious effects on societal health. Thomas Piketty's extensively data-backed tour de force Capital in the Twenty-First Century gave us two big and alarming pieces of news about this trend: 1) Inequality is actually worse than we thought it is, and 2) It will continue to get worse because of structural reasons inherent in our form of capitalism itself, unless we do something.
The top 0.1 percent of families in America went from having 7 percent of national wealth in the late 1970s, to having about 25 percent now. Over the same period, the income share of the top 1 percent of families has gone from less than 10 percent to more than 20 percent now. And lest we think that even if wealth and income are more concentrated now, America is still the land of opportunity and even those born with very little at least have a good chance to move up in economic class, there is a depressing number of studies which show that, contrary to this optimistic notion, according to standard measures of intergenerational mobility, the United States ranks among the least economically mobile among developed nations.
Piketty shows that there is an internal feature of capitalism which increases inequality: as long as the rate of return on capital (r) is greater than the rate of economic growth (g), wealth will tend to concentrate in a minority, and that the inequality r > g always holds over the long term. And he is not some lone wolf academic with an eccentric theory of inequality. Scores of well-respected economists have given ringing endorsements to the central thesis of his book, including economics Nobel winners Robert Solow, Joseph Stiglitz, and Paul Krugman, who has written that:
Piketty doesn’t just offer invaluable documentation of what is happening, with unmatched historical depth. He also offers what amounts to a unified field theory of inequality, one that integrates economic growth, the distribution of income between capital and labor, and the distribution of wealth and income among individuals into a single frame.
The only solution to this growing problem, it seems, is the redistribution of the wealth concentrating within a tiny elite using instruments such as aggressive progressive taxation (such as exists in some European countries which show a much better distribution of wealth), but the difficulty in that is the obvious one that political policy-making is itself greatly affected by the level of inequality. This creates a vicious positive feedback loop which is making things even worse. It is clearly the case now in the United States that the rich are not only able to hugely influence government policy directly, but that elite forces are able to shape public opinion and affect election outcomes through large-scale propaganda efforts through media they own or can control. This double-edged sword is being used effectively to attack and shred democracy itself.
The political dysfunction resulting from the current severe levels of inequality makes it extremely difficult to address our most pressing problems, for example, lack of opportunity in education, lack of availability of quality healthcare for all, man-made climate change, and not least, as I pointed out above, the indecent injustice of inequality itself. I am not sure if there is any way to stop the growth in inequality that we have seen in the last four or five decades anytime soon but I do believe it is one of the very important things we have learned more about just in the last couple of years. Unfortunately the news is not good.