Or: Part 2, why is capital so much stronger than labor?
Piketty’s r>g is now pretty widely known for this sort of thing. In case you missed it, it posits that if the rate of return on wealth grows faster than the economy, wealth holdings will continue to grow more unequal.
Many have raised questions about the validity of this formula, arguing that it assumes more saving by the wealthy than is realistic or, as I suggested in yesterday’s post (see also Bivens’ comments here), other policies can whack at r. Furman raised a related critique: even faster g won’t necessarily reduce inequality if GDP growth is also skewed toward the wealthy. Piketty himself, though more in conversations since its release than in his book, suggests r>g is no iron-fast rule but more of a tendency that he predicts based on the elaborate and persuasive logic and evidence in his book.
But to me, c>l, or capital>labor, is more worrisome than r>g, though of course the two are related (“labor” here means not just unions, but those who depend on paychecks). To be clear, I’m being “cute” here because unlike r and g, c and l are not obvious, measurable quantities, though critics like Jamie Galbraith have argued ‘r’ ain’t so measurable either. It’s not hard to think of measures: the change in the profit share of national income (close to “alpha” in Cap21) relative to that of the labor share; the unionized share of the workforce; political science measures of capital’s influence versus labor’s of the type Gillens has developed.
All of these show c increasingly gaining on l (the labor share of income is still much larger than the profit share–there are a still a lot more who depend on paychecks than stock portfolios…but it’s given up about four percentage points–$550 billion in national income or about $4,000/worker–in recent years).
And like r>g, there’s a self-perpetuation to c>l, especially in today’s pumped-up money-in-politics climate. When I talk about “the toxic interaction of wealth concentration of political influence” I’m referring precisely to the ability of capital to promote the policy set that reinforces r and blocks l. This dynamic would predict difficulty moving policies like a higher federal minimum wage, Keynesian stimulus, direct job creation, expanding the safety net, closing the carried interest loophole, a tax on the negative externalities generated by finance…and ease moving regressive tax cuts, attacks on social insurance, austerity measures, and cuts in the non-defense discretionary budget.
Sticking with simple math, think of the problem of c>l in terms of a simple equation where capital’s clout over labor on policy matters is a function of B*x, where B is an elasticity that translates x, wealth concentration, into political clout. This framing helps with diagnosis and prescription in that the problem progressives face is that both B and x have increased.
Even if B were stable, capital’s relative clout would be higher based on the growth of x. But B too has increased, as the high court has facilitated more power from money in politics and the influence of lobbyists has burrowed its way deeply into both parties (one respondent to the question I posed yesterday–why is capital so much stronger than labor?–answered: “because Democrats no longer have labor’s back”).
So part of the answer must be to reduce both B, the elasticity that maps capital’s growing resources onto political power, and x, the resources themselves. And, as I stressed yesterday, both of those factors are movable by policy, but the conundrum and challenge is that the force of c>l blocks the needed interventions.
Thanks to commenters for many great and helpful thoughts and references regarding this question. More to come…