The US Is Having An Anti-Piketty Moment

Thomas pikettyREUTERS/Benoit TessierThomas Piketty director of the Paris School of Economics (PSE) attends the inauguration of the school in Paris, February 22, 2007.

In his review of Thomas Piketty’s “Capitalism in the 21st Century,” MIT’s Robert Solow frames the author’s question to his readers thusly:

Would you rather live in a society in which the real wage was rising rapidly but the labour share was falling (because productivity was increasing even faster), or one in which the real wage was stagnating, along with productivity, so the labour share was unchanging?

The answer to this question, according to Piketty, will tell us whether inequality, as bad as it is now, will worsen in years to come.

Right now, it seems, the answer seems to be that both are happening.

According to the BLS, unit labour costs were up
4.2% in Q1, as productivity declined and hourly compensation increased 2.4%. At the same time, the private sector is adding jobs at an ever-increasing clip. Last week we learned nonfarm payrolls came in at 288,000 for April, compared with 203,000 in March.

There’s more. The minimum wage is going up in 13 states, as well as Washington DC, and hikes are under consideration in a number of other different places.

Piketty’s argument hinges on the notion that if the rate of return on capital, or wealth, outpaces GDP, which can be used as a proxy for consumption, then the rich will get exponentially richer than the the rest of society.

But just as things have turned up in the labour market, they have taken a turn for the worse in capital markets. Stocks have seen a rough 2014: The Dow is flat on the year, the S&P is up just 2%, and the NASDAQ is off 1.8% year-to-date. In general assets across the board have seen low gains year-to-date. Not even the most unproductive and most notorious forms of wealth have been immune: art auctions are fizzling, and returns on things like furniture and wine is slowing. Meanwhile, hedge funds have been getting slammed.

Meanwhile, the housing market shows that within wealth inequality, there are some disparities. As CoreLogic observes, the S&P 500 serves as a very good two-month leading indicator of million-dollar home sales. So it’s not surprising to learn that the fastest-growing sales segments are below that level. As of February, sales of homes valued between $US650,000 and $US950,000 had climbed 33% from year-ago levels, while sales in the $US350,000 to $US650,000 range were up 26 per cent during the same period. Clearly not everyone’s house is valued as such, and rents are going up. But housing gains at the topmost part of the food chain look to have stagnated.

Perhaps the biggest sign is savings. The BLS says those with incomes above $US150,000 spend the most on saving for retirement. That comes back to the S&P, but it also comes back to the return you can get from keeping your money in the bank. Thanks to the Federal Reserve those returns have been practically non-existent for half a decade now.

Most analysts agree that the function Piketty describes as having exacerbated inequality is correct, although in a new speech White House economic adviser Jason Furman says there is no guarantee the function will hold in the future.

There’s still plenty of evidence to show Piketty is still correct as of May 8, 2014, where, for instance, the U.S. labour force participation rate remains at lows not seen in decades.

But for now we appear to be trending through a moment Piketty said was unlikely to happen.

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