Invested capital tends to produce real returns of at least 6%, while economic growth is always much slower. Therefore fortunes based on those high returns grow faster than the economy & much faster than wages, which will continue to shrink (in terms of their buying power), as dynastic wealth grows steadily larger. These fortunes will then pass on to the next generation an even larger share than they would have in decades past.

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As Monsieur Piketty has so eloquently helped us understand, oligarchy and dynastic wealth are taking over our society. And lots of Americans may very well remain blind to that fact until our democracy has been completely hollowed out and transformed into something very much different from what people commonly suppose it to be.

As ever more of the nation's wealth and income is being vacuumed up and/or systematically siphoned into the accounts of dynasties and oligarchs, this transition is actually being facilitated by our government. The result: an ever smaller middle class in the US, as former members are forced into poverty or near-poverty, by ever lower wages and an ever increasing scarcity of decently paid jobs.

Vacuumed up and siphoned off? How?

For starters, consider the banksters as well as the government stooges who help them. A recent news report tries to make a good case that the prosecution of banksters was only about budgets, ambitious prosecutors etc. It mentions Eric Holder only once, in the very last paragraph, and then as someone who merely "laments" the situation.

Not a word about how he came from a gold-plated Wall Street law firm, to which he expects to return when he tires of public service -- nor any word about his specialty in that firm: Defending the very banks of which he is now tasked with overseeing the prosecution!

Not a word, either, about the robo-signings, by the tens of thousands, that cannot in any way be excused as difficult to prosecute, and that should certainly not be excused as "recklessness rather than criminality" -- not when banksters deliberately stole the property of tens of thousands of innocent home owners, many of whom were not even behind on their mortgage payments!

And nothing whatsoever about the enormous amounts of campaign cash that banksters and other Wall Street fat cats passed to key political campaigns, in return for which they were granted (by gov't stooges) not merely immunity from prosecution, but impunity from any accountability whatsoever . . so that even now, as they continue to ransack the public till, almost all their profits now come from quantitative easing, in which the Fed creates money out of thin air and gives it to the largest financiers to spend as they see fit, which serves mostly to reward criminal-class executives with ever more astounding bonuses and stock options, taxed at a rate that doesn't even pay the transaction costs. And then Jamie Dimond has the gall to complain that he is not sufficiently respected for his high-minded public service, and Lloyd Blankfein says he, personally, is "doing God's work" -- this after both men have been given: a) scores of millions to maintain their obscenely extravagant lifestyle, b) absolute immunity from prosecution, and c) the guaranteed continuation of their historically criminal institutions.

Not one word, either, about the LIBOR scam, which bankrupted innumerable small towns and municipalities and further enriched our new plutocrats by billions if not trillions; nothing whatsoever about the deep-level corruption in Congress that enabled this enormous, world-class, and unprecedented grand larceny. Phil Gramm, who, at midnight, pushed through the immunity from regulation (of these newly designed instruments of financial thievery), is not even mentioned, even though his wife Wendy works on Wall Street, the scene of the crime.

Nor is there even a suggestion that the Racketeering Influenced and Corrupt Organizations Act (originally passed to facilitate Mafia prosecutions, and almost immediately turned into an all-purpose instrument for repressing the progressive side of politics), might be usefully applied to what are, without any doubt whatsoever, thoroughly corrupt banking organizations.

In short, a long apologetic that lacked even the appearance of investigative journalism.

* * *

For most of our lives (as Thom Hartmann recently pointed out), we've been taught that hard work pays off. Problem is, most of the super-rich didn't make their money by working hard -- at least not at any job that actually makes an actual contribution to society. According to a new analysis by Paul Buchheit of UsAgainstGreed.org, those at the top now make most of their money by betting, in one form or another, against the American people,. For example, this growing sector of our wealthy elite makes a fortune on such things as speculating on rising food prices, which means that they profit by making it harder for people around the world to afford to eat.

They also have a history of betting against mortgages (specifically, mortgage-backed securities or 'packaged' mortgages). Why did they do this? It was so that they could make big profits when many Americans could no longer afford to stay in their homes -- a situation that they very perceptively saw coming. Then, once these unfortunate Americans were forced out of their homes, private equity firms swooped in, bought up the foreclosures, and rented these houses back to many of the very same people that had been swindled out of their homes.

The super-rich rake in ever more, by gambling on Wall Street, screwing over Main Street, and paying off the politicians that make it all possible. The only hard work these billionaires face is walking the fine line between their so-called 'investing,' and the easily identified (and therefore prosecutable) activities like the more common forms of bribery, fraud, and front-running the stock market.

Our nation used to genuinely value hard work, and that work was rewarded with a better life and brighter future -- for everyone who put forth the necessary effort. But for the last three decades, the super-rich have ever more completely rigged the system, while at the same time managing to convince the gullible majority that they're just not working hard enough -- in spite of the fact that our productivity has risen markedly over those same three decades. Therefore the time has come for us to stand up, speak out, and fix this broken system, which bribed politicians have saddled us with -- and do it while we still have the chance. Working hard and playing by the rules is no longer enough; we also need to fight to achieve a political-economic system that "pays off" for more folks than just those in the top 1%.

With respect to all this, Paul Krugman and Bill Moyers point to revolutionary developments in our society, of which most people are still unawares, but which are outlined in the revolutionary new book mentioned at the outset of this article. As already stated, this book has mainly to do with: a) this upwardly directed wealth redistribution, b) the corresponding rise of dynasties and oligarchy, and c) our disappearing democracy. Author Thomas Piketty is telling us, quite convincingly for those who will listen, that we are on a fast road not just to an ever more unequal society, but to an oligarchy on steroids, i.e. a society that will be ever more undemocratic and ever more dominated, in every way, by inherited (and increasingly dynastic) wealth.

As Bill Moyers points out, "even in this age of hyperlinks and cyberspace, nearly six centuries after Gutenberg devised his printing press, it's still possible for a single book to shake the foundations, rattle cliches, upend dogma, unnerve ideologues, and arm everyday people with the knowledge they need to fight back against the predatory powers that are continuing to rob them of their birthright as citizens."

Capital in the Twenty-First Century, by the French economist Thomas Piketty is such a book. Reviewers have called it "a bulldozer of a book," "magisterial," "seminal," "definitive," "a watershed." At 700 pages it quickly became a best seller. Graph after graph, fact on fact, drawn from two centuries of data all of which are imbedded in prose that can suddenly explode like a supernova in your brain.

The gist of it: We are heading into a future dominated by inherited wealth, as capital concentrates in ever fewer hands, thereby giving the very rich ever greater power over politics, government, and society. For those who work for a living, the level of inequality in the US is "probably higher than in any other society, at any time in the past, anywhere in the world," says Piketty. Over three decades, between 1977 and 2007, an unprecedented 60% of our national income went to the richest 1% of Americans.

No wonder this is the one book the 1% doesn't want the other 99% to read.

A lot of what we know about inequality actually comes from Piketty because he's been an invisible presence behind so much of the research and data collection having to do with this subject. So when economists talk or write about the 1%, they're actually, to a large extent using and referring to his prior research. According to Piketty, "Even among those who talk about the 1%, many still don't really yet see the most important aspect of what's now going on, and so they're living in the past. They're still living in the '80s with Gordon Gekko."

Yes of course, Gordon Gekko is a bad guy, he's a predator. But he's a self-made predator. And right now, what's important in this new story are the sons or daughters of our country's Gordon Gekkos -- and their sons and daughters. Why? Because we're talking about the way inherited wealth is playing an ever-growing role in our society and economy. Remember: Piketty is telling us that we are on the road not just to a highly unequal society, but to a society that is owned by oligarchy in a way that is virtually unprecedented -- and entrenched. And he tells this story with an enormous amount of documentation, so it becomes a revelation even for professional economists.

We knew that in the Gilded Age here in the US, and in the Belle Époque in Europe (both of which Picketty talks a lot about), high incomes were mostly a result of having lots and lots of income-earning assets. But we sort of said, "Well, that's not the way things work anymore." And Picketty replies, "Oh yeah? Well it turns out you're mistaken." How so? "Because we're rapidly moving towards becoming a country where inherited wealth once again dominates all."

Most economists didn't know that, and they should've known it. They should've thought about it, but didn't. So, quite suddenly, with this book, there has been an epiphany in the minds of its readers. You suddenly say, "Oh, the world is not, after all, the way I saw it and believed it to be."

The world has in fact moved on, a long way, in the last 25 years, and not in a direction people are going to like. Why not? Because we are now seeing not only immense disparities in income and wealth, but we're seeing them get solidly entrenched in ways that make upward mobility a permanent thing of the past, for ever more Americans. We're seeing fixed inequalities that will, for the first time in many decades, be transferred and preserved across generations. In short, we are becoming the kind of society that many people still imagine we are nothing like. And such people are in for a rude awakening.

Piketty's key point

Invested capital tends to produce real returns of at least 6%, while our economic growth is always much slower.

What that means is that if a family has a large fortune, the inheritors of that large fortune can not only live very, very well. But quite beyond their extraordinarily lavish standard of living they will increasingly be able to put a large fraction of the income from that fortune into investments that will bring them at least 6% in the way of a return. Therefore that fortune will grow faster than the economy, and much faster than wages -- which will continue to shrink (in terms of their buying power), as dynastic wealth grows steadily larger.

It will then eventually become obvious to one and all that the big dynastic fortunes are taking an ever-growing share of total, national wealth. And these fortunes will then pass on to the next generation an even larger share than they would have been able to pass on, in decades past.

What's the realistic impact of this on working people?

While part of the nation's total income is always going to go to labor, we now know (by the logic outlined above) that it is certain to be an ever diminishing fraction of that total national income. Meanwhile, the part of the nation's income that comes from capital is going to not just get ever larger, but will be ever more confined to the hands of a very few.

The other critically important thing Piketty talks about, towards the end of the book, is that when you have (as Teddy Roosevelt pointed out long ago) a few people who are so wealthy they can effectively buy the political system ever more completely, then that political system is going to end up serving their interests ever more completely and ever more exclusively. And that will of course reinforce and replenish, ever more, this shift of income and wealth from the rest of us to the very top.

The Forbes' Richest 400 List is increasingly not a list of self-made men

And of the few who are self-made, a lot of them are pretty elderly. Therefore, those fortunes are, for the most part, going to be passed on to next generations. Unfortunately, all too few of our billionaires are planning on giving most of their wealth to charity and good-works projects. So the drift towards oligarchy is becoming ever more visible (for those willing to look), both by way of casual observation and by way of looking at the numbers.

Piketty is telling us that the American story is in the midst of an as yet largely unseen, and radical, change that's not going to abate on its own -- which means that unless some political movement, disaster, or unexpected economic development intervenes, we're going to look back nostalgically on the early 21st century as a time when you could still at least pretend that the wealthy actually earned their wealth. By year 2030 or so, that pretense will, however, be exhausted and obsolete; for wealth will then, in the very largest part, be inherited.

Yet at the same time, the powers-that-be can't even manage to allow workers a minimum wage of $10 an hour in most parts of the USA -- which, in terms of its basic-goods&services buying power, is actually less than what was allowed in 1968!

* * *

One of the most depressing things (however enlightening) in Piketty's book, is his talk about France in the Belle Époque (in the years before World War I), which was, ideologically, as much a society committed to equality in principle as we are today. In practice, however, it was totally dominated by very wealthy families -- so much so that it was impossible for ordinary folks and the government to even raise the possibility of seriously taxing great wealth. It was a society in which it was very hard to do anything to improve the conditions of ordinary workers. And this history shows you how that can happen, i.e. how you can have a society (like ours) where the ideology is democratic, and it is claimed that all men are 'equal,' yet in practice there's not a chance in hell of that claim being real!

Americans used to say, "Oh -- we'll never allow ourselves to become like old Europe," yet in fact, that's exactly what has happened and will continue to happen unless it is stopped. Yes, we've always had the Rockefellers, the Carnegies, the Pews and other dynastic families. And we've had dynasties that transferred their wealth from one generation to the next; but such families were not nearly as dominant as their counterparts were in old Europe -- not because we didn't have high returns on capital, but because our economy was growing so fast, and wages were thereby keeping up with that growth. In other words, the relative scarcity of labor (caused by that growth) kept wages comparatively high.

Therefore our nation's dynastic families in America were unable to establish a headlock on our society; they lacked ultimate control; the economy was growing too fast; labor was in great demand and so wages remained relatively high. After that, we had a long period of high taxation on both large estates and capital income. And the anomaly of a great and strong middle class occurred.

But now all that's gone, thanks to bought-and-paid-for congressmen, and we're well on our way back to something that looks much more like the kind of extremely hierarchical society that existed in the Belle Epoque and the Gilded Age.

Piketty also makes the counterintuitive point that the very size of inherited fortunes today is so great that it practically makes them invisible: "Wealth is so concentrated that a large segment of our society is virtually unaware of its own upper echelons. If you have conversations with people who are not political-economists, they have no idea what this kind of hyper-wealth means in America. They think that having a million dollars makes you wealthy. They think that having a salary of several hundred thousand dollars makes you wealthy. And while it's of course true that this is a vastly privileged condition compared to that of most people, the sheer size of the very biggest fortunes is so far outside and removed from our daily experience that it remains invisible to the vast majority of us: You're never going to meet these people or hear anything about exactly how they dominate and control, and most of us are never going to have any sense of even what it is they control. Most of us have no idea just how far removed the commanding heights are from you and me.

The US now has a much more unequal distribution of income than other advanced countries

And much of this difference is the result of government actions in these other countries, vs. government inaction in ours. To wit:

Most European countries don't actually have higher taxes on very high incomes. But they do have higher taxes overall (which is where the vast majority of tax revenues come from), which are used to pay for a lot of programs that aid those of very modest means. And so it is that our counterparts in other advanced countries enjoy universal healthcare, as we here in the USA stumble our way towards something which only approximates that, but at comparatively great cost to most of us.

The Europeans also have, for another example, a lot of income support for young parents. In other words, they have lots of redistribution -- which is still a dirty word in US politics, but is in fact essential for having a decent society, according to Krugman and many others.

Krugman continues: The average American is richer than the average Frenchman or other European, but that's because we work significantly more hours daily, weekly and annually. On the other hand, to be in the bottom fifth of income receivers in France is a far, far better thing than to be in the bottom fifth in the United States. Why? Because of the redistributive government policies just mentioned! It's not that wages are especially high at the bottom in France; being low-income in France is better than in the US mostly because of the government programs, which make an enormous difference in the lives of the low-income beneficiaries. The level of inequality of market income, i.e. the size of their hourly wage, is simply not that different among advanced countries. In other words, the level of inequality of disposable income and benefits, once the government has gotten through taxing, spending, and redistributing, is much, much less extreme in most other advanced countries than it is in the US.

Why is redistribution such a bad word in the USA?

Mostly it's because there's the very effective apparatus of corporate-controlled TV and print media, and rightwing think tanks etc., which continually hammer against any suggestion of egalitarian redistribution, and they've managed to convince a lot of people that it is somehow un-American.

But if you look at American history, you see a much different picture. It's just that this particular rightwing message has been pushed so very hard in the media in these last few decades. Also to be considered is the fact that race is always lurking behind most everything in American life. And 'redistribution,' in the minds of a lot of people, means taking money from people who look like me and giving it to people who don't look like me. So that represents a big difference between us and Europe: their redistributive efforts run into no such problem.

Conservatives regularly and consistently say that inequality doesn't matter, that if the affluent were less rich, it wouldn't really make a difference to people out there working for a living. But the truth is that to tax the upper 10-20% and use it to provide benefits to people lower down the scale, as the Europeans do, makes a big difference. It can even make an enormous difference: Even taking a few percent of national income away from the top 1-to-5% and direct it towards the bottom 20% -- that makes for a tremendous gain in the quality of life for the bottom 20%. It does so in Europe, and it could well do so here.

For example, consider healthcare reform. As Krugman told Moyers, it's financed in large part with small surtaxes on high incomes. A lot of the money that is paying for health care is coming from additional taxes on investment income, which is an additional tax on very high earners. And that is going to give everybody in America the guarantee of being able to have essential, basic health insurance at an affordable cost. And that represents a huge improvement in many people's lives. So a little bit of Robin Hoodism can do a lot. And if there were the political will, we in the US could do a lot more of it. Could we do major redistribution in a way that makes this a significantly better society all around? Yes we could, replies Krugman.

We can't give up hope on these things. Look at the American political tradition. One of the most interesting things Piketty points out is that serious progressive taxation of high incomes and great wealth is an American invention: We invented it -- and we invented it in the early 20th century, right at the peak of our Gilded Age. Somehow we found political leaders like Teddy Roosevelt, who were willing to say to our budding "Gilded Age": "This is a bad thing, we do not want the society that seems to be emerging here." So yes things can change for the better.

So what's it going to take to change this situation?

A mass uprising? Consistent demonstrations? Insurgent politics? Specifically, how are we going to stem the tide that Piketty says is taking us into a permanently entrenched oligarchy and the end of democracy?

There's a negative answer as well as a positive one. Piketty seems to argue through much of the book that we only escaped the old oligarchy for a while, thanks (oddly enough) to really disastrous events like a war and a depression, which disrupted the 'normal' development of oligarchy and dynastic wealth accumulation.

On the other hand, if you read histories of the New Deal, you know that the New Deal didn't just spring out of nowhere. You know that we had a progressive movement and a lot of proto-NewDeal programs building for quite a long time before the actual birth and consolidation of the New Deal. By way of a developing 'movement' in America, there was an increasing political, philosophical readiness to take on inequality of wealth and power even before FDR moved into the White House. So yes there are these better angels of our nature, as Lincoln said.

And yes there is also an ugliness, which we've seen all too often, which can be frightening. But never forget this redemptive streak that we do have here in the USA and in other places. So we shouldn't give up hope on this. Given consistent argumentation, given the right events -- and perhaps as people become more aware of what is actually going on, through articles like this one -- there is still a chance of stopping oligarchy , and changing things for the better.

(Article changed on May 18, 2014 at 18:22)

Authors Bio:

Several years after receiving my M.A. in social science (interdisciplinary studies) I was an instructor at S.F. State University for a year, but then went back to designing automated machinery, and then tech writing, in Silicon Valley. I've always been more interested in political economics and what's going on behind the scenes in politics, than in mechanical engineering, and because of that I've rarely worked more than 8 months a year, devoting much of the rest of the year to reading and writing about that which interests me most.