rsn | As you’ll recall, if you watched the movie Titanic,
the U.S. had a class of rentiers (rich people who live off property and
investments) in the early part of the 20th century who hailed from
places like Boston, New York and Philadelphia. They were just as nasty
and rapacious as their European counterparts, only there weren’t quite
so many of them and their wealth was not quite as concentrated (the
Southern rentiers had been wiped out by the Civil War).
The fortunes of these rentiers were not shock-proof:
If you remember Hockney, the baddie in James Cameron’s film, he survives
the Titanic but not the Great Crash of ’29, when he loses his money and
offs himself. The Great Depression got rid of some of the extreme
wealth concentration in America, and later the wealthy got hit with
substantial tax shocks imposed by the federal government in the 1930s
and ’40s. The American rentier class wasn’t really vaporized the way it
was in Europe, where the effects of the two world wars were much more
pronounced, but it took a hit. That opened up the playing field and gave
people more of a chance to rise on the rungs of the economic ladder
through talent and work.
After the Great Depression, inequality decreased in
America, as New Deal investment and education programs, government
intervention in wages, the rise of unions, and other factors worked to
give many more people a chance for success. Inequality reached its
lowest ebb between 1950 and 1980. If you were looking at the U.S. during
that time, it seemed like a pretty egalitarian place to be (though
blacks, Hispanics, and many women would disagree).
As Piketty notes, people like Milton Friedman, an
academic economist, were doing rather well in the economy, likely
sitting in the top 10 percent income level, and to them, the economy
appeared to be doing just fine and rewarding talents and merits very
nicely. But the Friedmans weren’t paying enough attention to how the
folks on the rungs above them, particularly the one percent and even
more so the .01 percent, were beginning to climb into the stratosphere.
The people doing that climbing were mostly not academic economists, or
lawyers, or doctors. They were managers of large firms who had begun to
award themselves very prodigious salaries.
This phenomenon really got going after 1980, when
wealth started flowing in vast quantities from the bottom 90 percent of
the population to the top 10 percent. By 1987, Ayn Rand acolyte Alan
Greenspan had taken over as head of the Federal Reserve, and free market
fever was unleashed upon America. People in U.S. business schools
started reading Ayn Rand’s kooky novels as if they were serious economic
treatises and hailing the free market as the only path to progress.
John Galt, the hero of Atlas Shrugged(1957), captured the imaginations
of young students like Paul Ryan, who worshipped Galt as a superman who
could rise to the top through his vision, merit and heroic efforts. Galt
became the prototype of the kind of “supermanager” these business
schools were supposed to crank out.
Since the ‘80s, the top salaries and pay packages
awarded to executives of the largest companies and financial firms in
the U.S. have reached spectacular heights. This, coupled with low growth
and stagnation of wages for the vast majority of workers, has meant
growing inequality. As income from labor gets more and more unequal,
income from capital starts to play a bigger role. By the time you get to
the .01 percent, virtually all your income comes from capital—stuff
like dividends and capital gains. That’s when wealth (what you have)
starts to matter more than income (what you earn).
Wealth gathering at the top creates all sorts of
problems. Some of these elites will hoard their wealth and fail to do
anything productive with it. Others channel it into harmful activities
like speculation, which can throw the economy out of whack. Some
increase their wealth by preying on the less well-off. As inequality
grows, regular people lose their purchasing power. They go into debt.
The economy gets destabilized. (Piketty, and many other economists,
count the increase in inequality as one of the reasons the economy blew
up in 2007-’08.)
By the time you get to 2010, U.S. inequality,
according to Piketty’s data, is quantitavely as extreme as in old Europe
in the first decade of the 20th century. He predicts that inherited
property is going to start to matter more and more in the U.S. as the
supermanagers, the Jamie Dimons and so on, bequeath their gigantic
hordes of money to their children.
The ironic twist is this: The reason a person like the
fictional John Galt would be able to rise from humble beginnings in the
1950s is because the Gilded Age rentiers lost large chunks of their
wealth through the shocks the Great Depression and the deliberate
government policies that came in its wake, thus loosening their
stranglehold on the economy and society. Galt is able to make his
fortune precisely because he lives in a society that isn’t dominated by
extreme concentrated wealth and dynasties. Yet the logical outcome of an
economy in which there is no attempt made to limit the size of fortunes
and promote greater equality is a place in which the most likely way
John Galt can make a fortune is to marry an heiress. So it was in the
Gilded Age. So it may be very soon in America.
n
a closed-room meeting of the Trilateral Commission last Friday,
Secretary of State John Kerry warned that Israel is on the verge of
becoming an Apartheid state, 
ver the past year, 
