Over at the NY Times, David Leonhardt lays it out: Inequality Has Been Going On Forever ... but That Doesn’t Mean It’s Inevitable He interviewed Piketty to get a better understanding of just how capital tends to grow more quickly than income, concentrating wealth, and found out why historically this has been true. But he also found it doesn't have to be.
...To say that something is likely, or even natural, is not to say that it is inevitable. Not so long ago, the rich owned a much smaller share of this country’s resources and made a smaller share of its income than many of their predecessors. Perhaps more important, even though inequality has risen abroad, it has done so far less rapidly. Other developed economies (see charts at right), are not more equal simply because they lack success stories, like Warren Buffett, or have fewer investment bankers or hedge-fund executives. Instead, their middle class and poor have enjoyed more aggressively rising incomes, all while their economies grow as rapidly as this country’s in recent years. A more equal society does not mean a less dynamic one....Simply put, once one gets past a critical threshold of wealth, the ability to make investments not available to others with lesser amounts is an advantage that continues to widen the gap. (The BBC has an article spelling out how this works in today's economy with some examples.)
Leonhardt suggests that increased taxation on wealth, while one obvious answer to growing inequality, is not likely to get much traction in our political environment. He notes that America once emphasized the distribution of another kind of capital: education. It made America the best educated nation on earth and gave us a huge advantage. He suggests that we consider this problem:
...As the economists Claudia Goldin and Lawrence Katz have written, “The 20th century was the American century because it was the human-capital century.” Education continues to pay today, despite the scare stories to the contrary. The pay gap between college graduates and everyone else in this country is near its all-time high. The countries that have done a better job increasing their educational attainment, like Canada and Sweden, have also seen bigger broad-based income gains than the United States.NPR recently looked at how college costs are spiraling out of control. Indeed NPR has an entire series of recent takes on the problem of paying for a college education.
Yet the debate over our schools and colleges tends to exist in a separate political universe from our debate over inequality. Liberals often shy away from making the connection because they worry it holds the struggling middle class and poor responsible for their plight and distracts from income redistribution. Many conservatives fear the implicit government spending involved. And so, our once-large international lead in educational attainment has vanished, and our lead in inequality has grown.
This makes Leonhardt's observations more than a little relevant to the economic debate, especially at this time of year when High School Seniors face an uncertain future. Read the whole thing.