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?”
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.
 David Leonhardt,”Inequality Has Been Going On Forever … but That Doesn’t Mean It’s Inevitable,” New York Times, Magazine Section, May 2, 2014