{"id":72858,"date":"2022-07-16T12:15:00","date_gmt":"2022-07-16T16:15:00","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=72858"},"modified":"2022-07-22T14:27:41","modified_gmt":"2022-07-22T18:27:41","slug":"what-causes-economic-inequality","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/what-causes-economic-inequality\/","title":{"rendered":"What Causes Economic Inequality? Expert Explains"},"content":{"rendered":"\n<p>What causes <a href=\"https:\/\/www.shortform.com\/blog\/global-economic-inequality\/\">economic inequality<\/a>? What is different about economic inequality now vs. before World War I?<\/p>\n\n\n\n<p>Economic inequality is a growing issue today. In <em>Capital in the Twenty-First Century<\/em>, Thomas Piketty argues that high salaries for executives and managers are the driving forces for inequality.<\/p>\n\n\n\n<p>Read more on how uneven salary distribution could be the leading cause of this imbalance.<\/p>\n\n\n\n<!--more-->\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-wages-are-driving-the-new-age-of-inequality\"><strong>Wages Are Driving the New Age of Inequality<\/strong><\/h2>\n\n\n\n<p>Piketty writes that the history of economic inequality in the advanced economies of Western Europe and North America followed a distinct historical pattern\u2014an era of high inequality in the period before World War I, followed by a significant compression of the wealth distribution in the decades after World War II, and a new age of rising inequality beginning in the 1980s and continuing to the present.<\/p>\n\n\n\n<p>But he notes an important difference between the earlier period of massive inequality during the 18th, 19th, and early 20th centuries and the one we are living through today. Before World War I, a much larger share of the total income of the richest people came from ownership of <em>capital <\/em>assets\u2014dividends, rents, interest on government bonds, and capital gains. So what&#8217;s causing economic inequality today?<\/p>\n\n\n\n<p>(Shortform note: The 19th century in particular was an era of staggering inequality. In the PBS documentary <a href=\"https:\/\/www.pbs.org\/wgbh\/americanexperience\/films\/gilded-age\/\"><em>The Gilded Age<\/em><\/a>, the filmmakers observe that in 1897, <a href=\"https:\/\/time.com\/5122375\/american-inequality-gilded-age\/\">the richest 4,000 families in America controlled as much wealth as the other 11.6 million American families combined<\/a>. But, as Piketty argues, we may be returning to a similar economic paradigm. In November 2017, the three richest <em>individuals <\/em>in America were as wealthy as the <em>bottom half of the population<\/em>.)<\/p>\n\n\n\n<p><strong>Since the 1980s, however, he observes that the top decile and even the top centile\u2019s income primarily comes from highly compensated <\/strong><strong><em>labor.<\/em><\/strong><strong> <\/strong>He argues that skyrocketing salaries for high-ranking executives and managers (most notably in the finance sector) are driving today\u2019s inequality. In this respect, today\u2019s wealthy are different from their predecessors of the 18th and 19th centuries. They are less a class of rentiers than they are a class of highly compensated salary-earners.<\/p>\n\n\n\n<p>But regardless of its source, Piketty warns that the rich are only getting richer: In the US, the top decile increased its share of national income by 15 points, from 35 to 50% from the 1970s to 2010.<\/p>\n\n\n\n<p>(Shortform note: We can see direct evidence of Piketty\u2019s argument by looking at the <a href=\"https:\/\/www.epi.org\/publication\/ceo-pay-in-2020\/#:~:text=In%202020%2C%20the%20ratio%20of,%2Dto%2D1%20in%201989.\">extraordinary divergence between average CEO pay and average worker pay<\/a> that has taken place in the US since the mid-20th century. In 1965, CEOs earned, on average, 21 times more than the average worker. By 1989, that ratio had nearly tripled to 61:1. And by 2020, a CEO at one of the top 350 companies in the country could expect to earn more than 351 times the salary of a typical worker. In total, from 1978 to 2020, CEO pay grew by an exponential 1,322%\u2014more than the growth in the S&amp;P stock market growth during that time and the relatively paltry 18% wage growth of the typical worker over the same period.)<\/p>\n","protected":false},"excerpt":{"rendered":"<p>What causes economic inequality? What is different about economic inequality now vs. before World War I? Economic inequality is a growing issue today. In Capital in the Twenty-First Century, Thomas Piketty argues that high salaries for executives and managers are the driving forces for inequality. Read more on how uneven salary distribution could be the leading cause of this imbalance.<\/p>\n","protected":false},"author":14,"featured_media":60159,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[81,31],"tags":[689],"class_list":["post-72858","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economics","category-money","tag-capital-in-the-twenty-first-century","","tg-column-two"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v24.3 (Yoast SEO v24.3) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What Causes Economic Inequality? Expert Explains - Shortform Books<\/title>\n<meta name=\"description\" content=\"What&#039;s causing economic inequality? Thomas Piketty has a theory. 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