July 29, 2014

Measuring Income Versus Wealth

Income and wealth can be touchy subjects, especially when couched in terms of disparities or inequalities. But that doesn’t stop economists, like France’s Thomas Piketty, from measuring income and wealth and speculating how they affect society. 

Source:
http://ccattache.com/america-owns-worlds-wealth/
Time is what sets Piketty’s analysis apart from other studies on this topic. ”The distribution of wealth is one of today’s most widely discussed and controversial issues. But what do we really know about its evolution over the long term?,” Piketty asks in the introduction to Capital in the Twenty-First Century (2014).

What did his analysis reveal? That wealth is growing a lot faster than income. What are the consequences of this trend? Here’s how Bloomberg Businessweek’s Megan McArdle summed it up:
 …[Piketty] details a dire possible future that looks a lot like the past—which is to say, a world in which inheritance trumps almost every other possible way of making money. There’s a reason that characters in Victorian novels spend so much time scheming to marry heiresses, murdering inconvenient older brothers, and ingratiating themselves with rich uncles. It’s more profitable than working.    
"Piketty in Cambridge 3 crop" by Sue Gardner.
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via Wikimedia Commons
Not surprisingly, not everyone agrees with Piketty. But his 700-page book is on the best seller list, and booksellers last May were scrambling to keep up with the demand. (Which may explain why Piketty’s book was the featured story in the May 29th Bloomberg Businessweek edition.) Why is this economics text selling? Because it seems to strike a nerve. According to McArdle, the book:
is a perfect stand-in for collective anxiety about the fate of the middles class, from Occupy Wall Street’s concern that the 1 percent are leaving the rest of us to an increasingly impoverished future, to the growing worry on the right that inequality springs from and is creating a vicious cycle of economic instability and cultural breakdown among two-thirds of the American population who lack a college diploma.
The book speaks to today’s fears even though it addresses future trends. McArdle believes it speaks to “a society that used to offer broad security, stability, and opportunity to the top 75 percent of households but is now increasingly divided into an educated elite and a low-skilled workforce for whom work is uncertain and not very well paying.” McArdle adds, “this doesn’t just make it harder to sustain the iconic single-family home on a nice lot; it makes it harder to form stable families and communities.”