I had some fun with the latest “extraordinarily important,” “truly superb,” “magisterial,” “seminal … masterpiece” of a liberal economics tome in this space Thursday. Maybe you read my column — if not in print, maybe on your iPad or laptop, perhaps finding it via a link on Twitter, Facebook or email.
However you may have read the column, which imagined a conversation between French economist Thomas Piketty and the famous investors on “Shark Tank,” I hope you’re content with that technology. If we take Piketty’s advice about dealing with wealth and inequality, advances in technology will come more slowly in the future.
The striking flaw in Piketty’s thesis about the ever-widening gap between return on capital and broader economic growth — besides the growing number of errors and inconsistencies found in his “Capital in the 21st Century” — is the way he looks past the constant churn among the people who have the capital. That churn is driven by the financial incentives for those who create and invent.
Here’s how Mark Rank, a Washington University professor who looked at 44 years of longitudinal data about Americans aged 25 to 60, explained why “the image of a static 1 and 99 percent is largely incorrect” in a recent op-ed in The New York Times.
“It turns out,” Rank wrote, “that 12 percent of the population will find themselves in the top 1 percent of the income distribution for at least one year. What’s more, 39 percent of Americans will spend a year in the top 5 percent of the income distribution, 56 percent will find themselves in the top 10 percent, and a whopping 73 percent will spend a year in the top 20 percent of the income distribution.”
The fact three-quarters of Americans will live among the top quintile of income for at least one year shows our system has fluidity, not rigidity.
Other sources show similar findings. Forbes’ 2013 list of the richest 400 Americans — roughly the top 1 percent of the top 1 percent of the top 1 percent — featured 20 people who weren’t on the 2012 list. That’s 5 percent turnover in one year.
The fallen include some famous names. Given enough guesses at the top 400, many people would eventually name the famous oil man T. Boone Pickens. But he fell off the list in 2013 after losing hundreds of millions betting on wind energy.
In real life, if not in Piketty’s faceless aggregated data, rich people lose money. Often. They may still be rich, but not so rich as to rob everyone else of opportunity.
Speaking of opportunity: Forbes’ list included 20 people younger than 45. Sixteen of them made their own fortunes, by founding such modern mainstays as Google, Facebook, Twitter, Yahoo, Groupon and Under Armour.
This brings us back to the question of technology. Maybe Sergey Brin and Larry Page would have started Google even in the face of the 80 percent tax Piketty wants for incomes above $500,000 a year. But would their investors have taken on the risk without the potential reward? Doubtful.
And if we achieved the — in Piketty’s view — utopia in which wealth no longer accumulated as it did with Google’s early investors, who would have had the money to fund the company? Isn’t it better for all that those investors did, even if some of them got filthy rich?
Such innovations make opportunity broader, not narrower. Making them harder to achieve is a curious way to seek more equality.
