This blog is intended to go along with Population: An Introduction to Concepts and Issues, by John R. Weeks, published by Cengage Learning. The latest edition is the 12th (it came out in 2015), but this blog is meant to complement any edition of the book by showing the way in which demographic issues are regularly in the news.

If you are a user of my textbook and would like to suggest a blog post idea, please email me at: john.weeks@sdsu.edu

Monday, March 17, 2014

More on Income Inequality and Piketty's "Capital"

My copy of Piketty's "Capital" arrived yesterday, as did a "Thoughts From the Frontline" newsletter from Mauldin Economics [the subscription is free]. Mauldin makes a very important demographic point, which I highlight in Chapter 8, namely that wealth tends to be concentrated in the older population. This is discussed in some detail by Piketty in his Chapter 11. As life expectancy increases, wealth turns over less often, and the wealthy have the opportunity to disproportionately increase their wealth because he shows how it really is true that it takes money to make money. Indeed, this is, in Piketty's mind, a "justification for a progressive annual tax on the largest fortunes worldwide. Such a tax is the only way of democratically controlling this potentially explosive process [excessive concentrations of capital] while preserving entrepreneurial dynamism and international economic openness" (p. 444).

At the same time, it is important to be clear about the distinction between wealth and income. The very wealthy earn money from "rents" (the use of their capital), rather than wages. Most people, however, are wage earners and so the question is whether or not they are better or worse off than they used to be, no matter what is happening to the very wealthy. Mauldin offers data from Emmanual Saez at UC Berkeley--a frequent collaborator of Piketty's--showing that the income share of people just below the top 1% has not changed much in the US over the past 100 years. This emphasizes Piketty's point about the explosive concentration just at the top. Mauldin also quotes studies (that I have not checked on myself) suggesting that if you include benefits and account for inflation “Middle-class stagnation and the ‘decoupling’ of pay and productivity are illusions. Yes, the U.S. economy is in the doldrums, thanks to a variety of factors... But by any sensible measure, most Americans are today better paid and more prosperous than in the past.” This sounds like something you would only hear on Fox News, but perhaps the data bear out that conclusion.

There are even more demographic complications to the income inequality issue, and I'll discuss them in a subsequent blog.

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