What Will Reversing Inequality Really Take?

America’s ongoing debate over economic inequality may be turning a new page.

In the debate’s first chapter, starting the 1980s, scholars, pundits, and policy makers did battle over whether the United States was becoming more unequal.

We still have some “denialists” floating around in right-wing think tank circles. But this debate has essentially ended. No serious analyst any longer argues that the gap between America’s rich and everyone else hasn’t jumped substantially.

The debate’s second chapter — over the impact of 21st-century America’s grand concentrations of private wealth — is still playing out.

Just a decade ago, mainstream orthodoxy held that we didn’t need to worry about how much wealth the wealthy were amassing. We ought to focus instead on creating “opportunity” for people at the bottom of the “economic ladder,” this orthodoxy held, and not let the wealth of the wealthy distract us.

This case still has plenty of high-powered support. But the don’t-mind-the-gap perspective has lost substantial ground. We endanger our democracy and destabilize our economy, the emerging counter consensus now holds, whenever we let income and wealth concentrate in just a few pockets.

Our current extreme inequality, researchers add, negatively impacts almost every aspect of our daily lives. The vast economic gaps that divide us are eroding the trust and empathy that make societies decent places to live — and generating a chronic stress that’s even limiting how long our lives last.

So most analysts, in short, are no longer arguing over whether we’re becoming more unequal, and the debate over whether we ought to be worrying over how unequal we’ve become seems to be ending, too. The most thoughtful observers of our unequal scene have moved on.

These observers are now debating a more fundamental proposition. Is growing inequality, they’re asking, the default setting for our modern market economies? Do we stand doomed to an ever greater divide?

In various guises, of course, this particular debate has been raging ever since the industrial revolution first left the world contemplating — and confronting — the economic reality that came to be known as capitalism. But the terms of this classic debate altered significantly in the middle of the 20th century.

Before World War II, deep inequality and equally deep economic crises seemed inevitable in market economies. Then, in the decades right after World War II, everything seemed to change. The United States became significantly more equal. The wealthy saw their share of national income plummet. A new mass middle class — the world’s first ever — took shape.

This middle class “golden age” would not last. Since the 1970s, plutocracy has come roaring back, and middle class prosperity has faded. The key question now: Can that prosperity be restored — and what will that restoring take?

Enter Thomas Piketty, a French economist who ranks as one of today’s scholarly superstars on matters distributional. A dozen years ago, a Piketty book on income distribution in France helped revolutionize how researchers calculate — and think about — the incomes of society’s richest.

All those numbers you see about the incomes of America’s top 1 percent and the top 0.1 percent? They trace back to the pioneering work of Piketty and his University of California Berkeley-based colleague Emmanuel Saez.

Now Thomas Piketty has a new book, already released in France and due out this March in English. The book, Capital in the Twenty-First Century, has some of the world’s most respected experts on inequality absolutely swooning.

The World Bank’s Branko Milanovic has dubbed Piketty’s new work “one of the watershed books in economic thinking,” an effort of “huge scope and vision” rooted in “incomparably better and richer data than ever available.”

Piketty’s Capital in the Twenty-First Century analysis actually begins back in the 18th century, and this sweeping historical framework helps him present equality’s mid-20th century heyday as an “unrepeatable phenomenon,” the product of cataclysmic world wars and severe shocks to the body politic.

In this mid-20th century epoch, Piketty relates, the economies of major developed nations grew at a faster rate than the return the wealthy could get from their income-producing assets. That had never happened before — and hasn’t happened since. The return from capital — the income that asset ownership generates — has always outpaced the overall economic growth rate.

Why does this matter? The wealthy own a disproportionate share of society’s assets. If the income these assets generate is rising faster than the economy is growing, society’s wealth will inevitably end up concentrating at the top, as we’ve seen over the past four decades.

Left uninterrupted, Piketty argues, this dynamic could quite plausibly return us to levels of wealth concentration that “might reach or surpass” the levels of 19th century Europe, where the top 1 percent held 60 percent of the wealth, almost double the share of national wealth America’s current top 1 percent holds.

What would we have to do to interrupt this intense wealth concentration? Nothing short of full-throttled redistribution, says Piketty. We would need to levy a progressive wealth tax on a global scale, to prevent the world’s super rich from shifting their assets to low-tax havens.

Piketty’s work, in effect, changes our frame of reference. If modern market economies generate growing inequality as a matter of course, then reversing that inequality will take more than a few tweaks around the edges. Our discussion of antidotes to inequality would have to become considerably bolder.

Will Piketty’s new work prompt this bold debate? One promising sign: New York Times analyst Thomas Edsall has devoted a major column to the questions Piketty raises two months before the book’s U.S. publication.

Edsall’s piece, entitled “Capitalism vs. Democracy,” makes a good place to start understanding Piketty’s potential contribution, as does Branko Milanovic’s much more detailed review of Piketty’s new work.

Also available: Piketty’s own lecture notes on his new book’s themes. And, of course, you can always wait for the book itself. If you do, try to free up some time in your March calendar. The book runs 696 pages.