Capital, labor, and inequality

Posted: 29 May 2014 in Uncategorized
Tags: , , ,

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I find it interesting that Thomas Piketty’s classical treatment of inequality is being interpreted—and criticized—as a battle of capital versus labor. (Is that just because Piketty begins chapter 1 with the story of the August 2012 strike at Lonmin’s Marikana platinum mine? It must be, because the book (as far as I’ve read) focuses much more on rates of demographic growth than it does on class conflict.)

In any case, as I suspected, the main line of attack (at least within mainstream economic thinking) against Piketty’s treatment is to undermine the idea of capital versus labor and to focus instead on growing inequality among workers. We saw this with David Autor’s article. Now, it’s Laurence Kotlikoff:

The deep flaws in parts of Piketty’s book don’t mean that inequality is either small or benign. But the real source of inequality these days is not due to capitalists saving every penny and workers spending every cent or to r always exceeding g. It’s due to labor earnings becoming ever more skewed. This is happening for a variety of reasons, including the advent of smart machines. This rising wage inequality, which Berkeley’s Emmanual Saez and co-author Piketty have spent years carefully documenting, doesn’t pit capitalists against workers. It pits workers against workers.

In my view, the problem with juxtaposing ownership-of-capital inequality and labor-earnings inequality is that it ignores the extent to which earnings at the top are themselves distributions of the income captured by capital. That’s a point that seems to have been missed by both Piketty and his mainstream critics.

Comments
  1. Magpie says:

    To be fair with mainstream commentators, some heterodox commentators seem also spooked by the “Capital” in Piketty’s book title.

    Take post Keynesian economist James K. Galbraith for instance. In the latest in a series of articles on Piketty’s book, Galbraith (who seems intent on blurring the distinction between income and wealth inequalities) argues that, contra Piketty, the problem with inequality and capitalism is not capitalism per se, but **this** capitalism:

    “In his feted book Capital in the Twenty-First Century , Thomas Piketty contends that wealth inequality rises inexorably under capitalism. (…)
    “For the past two decades, the University of Texas Inequality Project has been contributing to this work [i.e. study of inequality]. (…) We also find that inequality, measured within countries, rose in recent decades. But we do not find anything inexorable about this. We think that global circumstances and national policies were largely at fault.”

    So, for Galbraith, the problem is not with capitalism (neither is inequality “necessarily a sign of bad times”) but with really existing capitalism: presumably there is a capitalistic egalitarian utopia (think of a 1960s groundhog day) we must strive to go back to.

    See “Policy, not capitalism, is to blame for the income divide”, May 26th, 2014. Financial Times.

  2. […] Magpie on Capital, labor, and inequality […]

  3. […] first was to focus on earnings inequality within the bottom 99 percent, instead of the growing gap between the top 1 percent and everyone […]

  4. […] if to illustrate the point I made the other day (about earnings at the top being themselves distributions of the income captured […]

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