A Piketty Pot Pourri

“It is not true that globalization is the primary cause of the relative impoverishment of the American worker.”—By Sanford Rose

Dolors & Sense

By Sanford Rose

KISSIMMEE Florida—(Weekly Hubris)—6/16/2014—On dipping into Thomas Piketty’s monumental Capital in the Twenty-First Century:

The new rich are not rich because of capital gains or dividends. They are rich primarily because of the rising inequality of so-called labor income.

That inequality stems largely from the efflorescence of “super-salaries” at the apex of corporate America and Britain.

It is an Anglo-Saxon phenomenon, effectively absent from Continental Europe and Japan.

It is traceable in part to the tax cutting championed by Margaret Thatcher and Ronald Reagan, which  produced far lower top-bracket tax rates since 1980 than had hitherto prevailed.

Lower tax takes created powerful incentives for executives to lobby their boards of directors and compensation committees for outsize salaries that bore no discernible connection to their marginal productivity.

The intellectual underpinnings of tax-cutting mania were fragile.

Conservatives argued that the growth rates of economic output in the US and Britain compared unfavorably with those in Continental Europe and Japan because high tax rates were curbing entrepreneurship.

In reality, Continental Europe and Japan grew more rapidly than the US or Britain in the 1945-1975 period because they were in effect starting from scratch. Once the wartime destruction had been repaired–by about 1975–growth rates in these areas tumbled, and the growth gap evaporated.

Thus, the Thatcherite-Reaganite tax revolution took hold at just about the time that its economic rationale was being fatally undermined.

Largely because of inflated salaries, the top 10 percent of US income recipients were able to preempt about three-quarters of the total increase in national income from 1977-2007. The top one percent alone got 60 percent of the increase.

As a result, American income, which was distributed much more equally than European income in 1900, is now distributed far less equally.

It is not true that globalization is the primary cause of the relative impoverishment of the American worker. The  internal transfer of national income in the USA—around 15 percentage points from the poorest 90 percent of workers to the richest 10 percent since 1980—is nearly four times greater than the size of the US trade deficits, as a percent of national product, in the 2000s.

Thus, the size of the Chinese, Japanese, and German trade surpluses, proxies for the job damages done by a globalized economy to American workers, cannot begin to  explain their income plight.

Let’s face it: Domestic political and economic factors have conspired to deprive the American poor and near-poor of all but the merest crumbs of the economic advances recorded in the last generation.