In the US, Capital Is Still King

I’ve just finished a draft of a long review of Thomas Piketty’s new book, Capital in the Twenty-First Century, in which the French economist argues that we’re on the road back to “patrimonial capitalism,” dominated by inherited wealth. It’s an amazing book; among other things, it does an awesome job of integrating economic growth, the factor distribution of income (between capital and labor), and the individual distribution of income into a common framework.

One slight weakness of the book, however, is that Mr. Piketty’s grand framework doesn’t do a good job of explaining the explosion of income inequality in the United States, which so far has been driven mainly by wage income rather than capital. Mr. Piketty does take this on; but it’s kind of a side journey from the central story.

No matter; it’s still a masterwork. But I’ve been thinking about this quite a bit, and one thing that strikes me is the remarkable extent to which American conservatism in 2014 seems to be about defending and promoting patrimonial capitalism, even though we aren’t there yet.

Think back to the George W. Bush administration, whose main economic theme was the “ownership society” message – which was, in effect, that you’re not really a full-fledged American, no matter how hard you work, unless you have a lot of assets. Think of Eric Cantor’s famous Labor Day 2012 tweet in which the Republican House majority leader used the occasion to celebrate business owners, rather than workers. More recently, Mike Konczal of the Roosevelt Institute has pointed out that despite claims that the Tea Party somehow represents a rebellion against business domination of the G.O.P., the Tea Party agenda corresponds almost perfectly with Wall Street’s goals.

Oh, and let’s not forget the long crusade against the estate tax.

In short, the G.O.P. is more and more a party that consistently, indeed reflexively, supports the interests of capital over those of labor.

But why?

Well, one thing you might consider would be that the party is responding to a change in society – aren’t more and more Americans asset owners, for example, through their retirement accounts?

And the answer is no. In fact, the concentration of income from capital in a few hands has risen sharply. Tucked deep inside a Congressional Budget Office report on trends in the distribution of income in the United States is data on the concentration of various types of income. What we’re seeing is that half the political spectrum now instinctively accords much more respect to capital than to labor, at a time when capital income is growing ever more concentrated in a few hands – and is surely on its way to being concentrated largely in the hands of people who inherited their wealth.

Curious, isn’t it?

What America Isn’t, Or Anyway Wasn’t

I got mail:

“Paul you are a subhuman communist traitor who should be deported. You are a disgrace to America’s founders and an affront to the Constitution. Republicans believe in protecting the money of WORKERS not RECEIVERS. All workers, poor and rich, should be protected from high taxes equally.”

I get at least one of these messages each day. But it’s kind of interesting to read this right after reviewing Mr. Piketty’s book, because one of his points is that the modern notion that redistribution and “penalizing success” is un- and anti-American is completely at odds with our country’s actual history. One subsection in the book is titled “Confiscatory Taxation of Excess Incomes: An American Invention”; he shows that the United States actually pioneered very high taxes on the rich:

“When we look at the history of progressive taxation in the 20th century, it is striking to see how far out in front Britain and the United States were, especially the latter, which invented the confiscatory tax on ‘excessive’ incomes and fortunes.”

Why was this the case? Mr. Piketty points to the American egalitarian ideal, which went along with fear of creating a hereditary aristocracy. High taxes, especially on estates, were motivated in part by “fear of coming to resemble Old Europe.” Among those who called for high estate taxation on social and political grounds was the great economist Irving Fisher.

Just to re-emphasize the point: during the Progressive Era, it was commonplace and widely accepted to support high taxes on the rich specifically in order to keep the rich from getting richer – a position that few people in politics today would dare espouse.

And as my correspondent so vividly illustrated, many people nowadays imagine that redistribution and high taxes on the rich are antithetical to American ideals, indeed practically communism. They have no idea (and wouldn’t believe) that redistribution is, in reality, as American as apple pie.