10 Jun 2014 | Tony Leon | Original Publication: BDlive
The age-old controversy on wealth disparity has been reignited by French economist Thomas Piketty, writes Tony Leon
NEWPORT, on the coast of Rhode Island, is an apt place to add some colour to the stark debate on inequality now raging across the US and other centres of economic thought.
Actually, the age-old controversy on wealth disparity was reignited recently by a French economist, Thomas Piketty, when the English translation of his 685-page book, Capital in the Twenty-First Century, achieved the improbable feat (for an academic treatise) of topping the Amazon bestseller lists.
But Newport is the place where you can still see the luxurious seaside retreats of the US tycoons of the late 19th and early 20th centuries. These plutocrats bestrode the "gilded age", the phrase Mark Twain coined in 1873 as his uncomplimentary literary synonym for the graft, materialism and corruption he associated with the so-called US robber barons who dominated its economy at the dawn of the modern industrial age.
Visiting the most lavish of the dozen or so renaissance-style palaces that have been kept perfectly intact by the local preservation society induces a certain jaw-dropping wonderment. The Breakers is the grand pile that the heir to a railroad empire, Cornelius Vanderbilt II, built between 1893 and 1895, for which he imported its marble, mosaics and gold leaf finishes from across the world to construct his monument to posterity, or vulgarity, depending on your sense of aesthetics. Certainly, its 70 rooms on five floors, with the choicest views of the Atlantic Ocean beyond its front lawns, redeem the promise that this elite succeeded in its "determination to imitate the European aristocracy in its lifestyle", to quote from the audioguide, even if, as the narrator archly noted, "they lacked their noble pedigree".
Fast-forward about 120 years to Piketty’s thesis. He contends, with a welter of data drawn primarily from tax records, that the US and much of the developed world are again in the "gilded age" of the Vanderbilts and their neighbours in Newport, in which wealth is increasingly concentrated in a few hands (the 1%) and inheritance rather than the talented individualism of US lore is the basis of accumulation.
Piketty’s key finding, staunchly endorsed by his chief US praise-singer, Nobel laureate Paul Krugman, is that, since 1980, the wealth gap in the US has regressed to where it was more than 100 years ago. And his key methodology shows that income from capital (such as inheritance) and not earnings is the key to unlocking the explanation. The New York Times provides ample coverage for Piketty’s proposal to levy an 80% tax on incomes of more than $250,000 and, to lessen outsize accumulation, a 2% annual tax on net worth in order to prevent an excessive concentration of wealth.
Doubtless, at home, Judge Dennis Davis and his tax commission will look closely at this thesis and these proposals as they get to grips with the local tax data to determine exactly how concentrated, and unevenly spread, SA’s infamous levels of inequalities actually are.
But Piketty’s findings and proposals have hardly gone uncontested. The Financial Times, for example, has picked holes in his data and calculations. And entering, stage right, in this economic drama last week was, predictably enough, the house paper of the modern plutocrats, the Wall Street Journal. John Steele Gordon, author of the 2004 study, An Empire of Wealth: The Epic History of American Economic Power, weighed in with a furious dismissal of Piketty’s soak-the-rich proposals as "a monumentally bad idea". Actually, his polemic commences with a concession. He notes that, judging by the Forbes 400 list, the richest Americans have been getting richer very quickly. In 1982, the first year the list was compiled, there were only 13 billionaires on it. In contrast, he writes, "the 2013 list has nothing but billionaires, with $1.3bn as the cutoff. Sixty-one US billionaires aren’t rich enough to make the list."
Gordon, however, does not regard this great growth of fortune in past decades as sinister. "Instead," he contends, "it is simply the inevitable result of an extraordinary technological innovation, the microprocessor (or computer chip in laymen speak)." Seven of the 10 largest fortunes in the US today were built on this technology. He goes on to demonstrate that, just as the railways built by Vanderbilt powered the first US industrial age, the growth of the information superhighways built by Bill Gates and others "came into existence only because the public wanted the products and services — and lower prices — that the microprocessor made possible".
His argument does not address the outsize presence of hedge-fund managers and wealthy dynasties on the list, whose range of activities is presumably of less social utility than that of the developers of Apple and Microsoft. But this debate and how it plays out will be the key one of the early 21st century, just as Newport’s mansions stand as opulent symbols of the early 20th century.
• Leon is the author of Opposite Mandela (Jonathan Ball) Follow him on Twitter: @TonyLeonSA OR on Facebook: facebook.com/TonyLeonSA