Among the fans of French economist Thomas Piketty, count one you may not have expected, who seems to have been reading his book, “Capital in the 21st Century” with keen interest:
Carl Icahn announcing that he’s reading Piketty’s book probably works to the advantage of both: Icahn shows he’s intellectually engaged, Piketty gets to know he’s reaching the corridors of power. That Icahn should actually bother to read the book, though, has incited disbelief:
Really, though, it’s less of a surprise than you might think at first blush. Icahn (net worth $22.7 billion; rank among world’s billionaires: 32) acquired his wealth starting from modest circumstances. He grew up in the outskirts of Queens, the same borough of New York City where The Market Now grew up, and TMN can attest it contains hardly anyone who is truly rich.
A self-made billionaire being somewhat in tune with Piketty’s book is not shocking. More perplexing is why in an era of massive self-made fortunes like Icahn’s, Piketty chooses to talk largely about the dangers of dynastic fortunes built up through inheritance.
No question, the income gap between rich and poor has skyrocketed in the U.S. and Europe. But the driver of that in the United States has not been inheritance. On the contrary, the general trend over the last decades has been for more of the wealth at the top to be earned through wages and entrepreneurship. The main source for that information is work by the UC Berkeley economist Emmanuel Saez together with … yes, Thomas Piketty.
This is true just about any way you look at it. The share of income for the top 0.5% of Americans coming from capital gains was just 13.4 percent. Even for the very top of the pyramid (the 0.01%) the share was 41.3 percent, much less than the share of top incomes that came from capital gains in the 1960s and 1970s.
Meanwhile, dividends — once the main source of income for those at the very top — diminished. Until 1980, the top 0.01% got more of their income from dividends than than from wages (for much of that period, four times as much).
So why does Piketty spend much of his book concentrating on inherited wealth? He may simply be prescient. Taking a long view of history, a return to those days of rentier’s living off bond coupons — maybe somewhat harder than Piketty asserts — could be around the corner. Still it’s worth pointing out that the problem of inequality that comes from inherited wealth is less thorny than the problem of wealth that is acquired through effort — or even luck. Piketty writes:
“The significance of inequalities of wealth differs depending on whether those inequalities derive from inherited wealth or savings. … Inequality is not necessarily bad in itself: the key question is to decide whether it is justified, whether there are reasons for it.”
The buildup of inherited wealth is the easiest kind of inequality on which to get a consensus. There’s nothing especially admirable about being born with a trust fund. Billionaires and socialists agree about expanding opportunity. Much harder is figuring out what to do when even relatively fair opportunities still yield brutally unequal results.
Plenty of the well-off will wring their hands over the dangers of dynastic fortune. Good luck reaching the same kind of consensus about the earnings of a chief executive, the programming team at a successful startup, the creators of a TV show — or a billionaire mogul who worked his way up from Queens.