A Piketty Pot Pourri

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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

Thomas Piketty: superstar assails super-salaries.

Thomas Piketty: superstar assails super-salaries.

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.

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About Sanford Rose

Sanford Rose, of New Jersey and Florida, served as Associate Editor of Fortune Magazine from 1968 till 1972; Vice President of Chase Manhattan Bank in 1972; Senior Editor of Fortune between 1972 and 1979; and Associate Editor, Financial Editor and Senior Columnist of American Banker newspaper between 1979 and 1991. From 1991 till 2001, Rose worked as a consultant in the banking industry and a professional ghost writer in the field of finance. He has also taught as an adjunct professor of banking at Columbia University and an adjunct instructor of economics at New York University. He states that he left gainful employment in 2001 to concentrate on gain-less investing. (A lifelong photo-phobe, Rose also claims that the head shot accompanying his Weekly Hubris columns is not his own, but belongs, instead, to a skilled woodworker residing in South Carolina.)
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3 Responses to A Piketty Pot Pourri

  1. Avatar Danny M Reed says:

    Watching Robert Reich’s Documentary “Inequality For All” released in the last few months enraged me, as have similar Documentaries on Economics over the years. As a young growing Family, we designed, built, and maintained our first new home in 1999 with a Chase sub-prime 30 year fixed mortgage that served us well until the Crash. When we lost it all in Chapter Seven Bankruptcy, our kids were ready to move out so we didn’t “need” it anymore, but I am saddened that Chase “bet” their money on our losing the place from the beginning and “won” by being Bailed Out. Sadly, the Banks simply sat on the money and paid themselves generously for it.

  2. Avatar Danny M Reed says:

    Having custody of my Grandson now, we are emerging from treading water economically for the past seven years, working with USDA Contractors to get our Credit back so we can get out of this old “immobile” home and into more appropriate Housing. We are spending our Retirement by starting over at age 50 and trying to raise a 5 year old until we drop dead and leave the Life Insurance Benefits to whomever survives, hoping the Dollar still has value after July 1, 2014 and hoping he will have some future in which to invest it. Seems like a stretch to me because even now, 1970 Wages (adjusted) are frozen as Costs multiply & Prices rise.

  3. Avatar S. Rose says:

    There are a number of reasonable ways to have avoided the impact of the crisis, and that of future crises, on home ownership. One is by structuring a more flexible mortgage contract that reduces principal on the downside and restores it, plus a portion of the house’s appreciation, on the upside. Such a vehicle, variously dubbed the shared-risk or shared-appreciation mortgage, has been tried successfully in other countries. Would that we were wise enough to adopt it here!

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