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Piketty's immaculate research establishes that the American dream – and more broadly, the egalitarian promise of Western-style capitalism – does not, and maybe cannot, deliver on its promises.
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"While recently passing through D.C., he took a little time to meet with Treasury Secretary Jack Lew, the Council of Economic Advisers, and the IMF. Even Morning Joe, never exactly on the leading edge of ideas journalism, ran a segment about Capital Tuesday morning."
Is Piketty right or wrong about inequality, its causes and the prescription for addressing inequality?
We noted in 2010 that extreme inequality helped cause the Great Depression ... and the 2008 financial crisis. We noted in 2011 that inequality helped cause the fall of the Roman Empire.
In a few short years, mainstream economists have gone from assuming that inequality doesn't matter, to realizing that runaway inequality cripples the economy. Pikettey correctly notes that inequality is now the worst in world history ... and will only get worse.Asset Prices Rise Faster than Wages
Piketty argues that the main cause for inequality is that the rate of return on capital -- land, natural resources, stocks, bonds and other assets -- is far higher than the growth rate of the economy:
Because the growth rate is much slower than the rate of profit from holding capital assets, the asset-holders' wealth increases much faster than the wealth of workers. In other words, working stiffs can't keep up with those who make their money from investing in (and seeking rent from) land, stocks, bonds and other assets.
Piketty -- a rigorous data researcher -- is probably right that this is one of the main causes of inequality.Government and Central Bank Policy Is What Is Making Assets Soar and the Economy Sink
But Piketty underplays the fact that bad government and central bank policy have greatly widened the gap between growth rate. After all, Fed chairman Bernanke, Treasury Secretary Geithner and chief economist Summer's entire strategy was to artificially prop up asset prices -- including the stock market -- and see this, this, this and this.
At the same time, government policy has harmed the general economy, caused unemployment and hurt the average American. Indeed, real wages have actually plummeted since 1969, and most of the new jobs that have been created are part times jobs with no benefit. In other words, bad government and central bank policy have made the rate of return on capital much higher ... but lowered wages. As such, bad policy is the core cause of the recent increase in inequality.
Nobel economist Joseph Stiglitz said in 2009 that the government's toxic asset plan -- a scheme to inflate the value of assets held by banks -- "amounts to robbery of the American people."
Bailouts Feather the Nests of the Fatcats, While Doing Nothing for the Average American
The American government's top official in charge of the bank bailouts,Neil M. Barofsky writes:
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