Blog #49 draft Picketty, Leonhardt, and Market Economics
David Leonhardt writes: “What is it about market economies that typically causes the assets and incomes of the rich to rise more rapidly than those of everyone else?”[1]
Picketty’s First Law of Inequality explains some – they accrue capital, invest, it,and benefit from the return on it (although the rich don’t invest all of their profits in capital to make more profits, but send a good bit of it on consumption, , from yachts on down. And a good bit of investment capital comes from borrowing from the savings of the non-rich, e.g. pension plans and savings accounts).
But isn’t there something else going on too? The rich get rich by owning capital that they use to buy machines and hire workers to use them to produce value. They profit by the difference between what they have invested and what they sell the end product for, minus what they pay the workers that have produced that product. The less they pay the workers, the higher their profits. When unemployment is low and workers are well organized and strong, labor’s bargaining position is strong; profits are less, workers’ incomes rise, inequality is reduced. When unemployment is high and labor weak, the rich who control are strong, not just in bargaining but also in shaping labor and social welfare legislation, their profits go up. Inequality increases. The rich get richer, because the non-rich don’t. That’s the way the market works.
For more on the political end of this, and fighting poverty just by anti-poverty measures, see pmarcuse.wordpress.com, Blogs #43-48.
The rich aren’t job creators, they’re job reducers and wage reducers, if they want to be profitable. They have to be. That’s the way the system works.
[1] David Leonhardt,”Inequality Has Been Going On Forever … but That Doesn’t Mean It’s Inevitable,” New York Times, Magazine Section, May 2, 2014
Peter Marcuse's Blog 
Nice, it’s an amazing topic. I worked on it and loved it.
I am curious: is reading Rosenvallon? I am and I am enjoying it. It seems to that all of hoopla over inequality is rather dishonest; after all, haven’t inequality been with us since let’s say the invention of agriculture, (forgive my crude sense of periodization).
Yes. Picketty basically ignores the role of government.
The rich receive an additional benefit courtesy of Congress – preferential treatment of their income for tax purposes. The carried interest tax deduction says that income from labor is taxed higher than income from investments. This has no economic rationale and serves no socially useful purpose. This is simply a case where the rich do not like paying taxes and have purchased and protected this preference though campaign donations.
The remedy (obviously) is to treat ALL income for tax purposes exactly the same.
> When unemployment is low and workers are well organized and strong, labor’s bargaining position is strong; profits are less, workers’ incomes rise, inequality is reduced
But that’s true at any time when the 99% are well off, whether that’s because of low unemployment or any other method to provide an income and assets to everyone.
But for most workers jobs, employment is the overwhelming method thy have to get or become better off…
> The rich aren’t job creators, they’re job reducers and wage reducers, if they want to be profitable. They have to be. That’s the way the system works.
Agreed. We need a system that recognizes this, and stops expecting the economy to provide a job for everyone. Instead, we need a better safety net for those who are unemployed.