There was a time not so long ago when the income gap between the rich and the poor was shrinking and many near the bottom of the economic ladder moved into the middle class.
Between 1910 and 1950 inequality declined, largely as a result of two World Wars and the Great Depression, writes Thomas Piketty, author of Capital in the Twenty-First Century. But by the 1980s inequality was rising rapidly again, as it had before the industrial revolution, and it hasn't stopped. President Obama calls increasing inequality "the defining issue of our time."
The source of rising inequality is capital growing at a faster rate than the economy, explains Piketty. He defines "capital" as profits, dividends, interest and rent and says this "fundamental inequality" has been with us throughout most of human history.
Piketty, a professor at the Paris School of Economics, is on a book tour in the United States and joined The Daily Ticker on set at our New York studio.
"The book is primarily about the history of income and wealth [and] its primary objective is to help people to better understand the challenges we're going to face," Piketty tells The Daily Ticker.
So what has history taught us about rising inequality?
"One of the big historical lessons," says Piketty, "is that we don't need 19th century inequality to grow. That kind of extreme concentration of wealth that we had in European societies until World War I was just useless."
And when those policies were destroyed by the World War and progressive taxes, it did not stymie growth. "Quite the opposite," says Piketty. "It probably helped mobility [and] new groups of entrepreneurs in the postwar period."
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But now the concentration of wealth in the U.S. is comparable to the concentration of wealth in Europe in 1910. It could be reduced if productivity and population increase at a brisk rate of 4% to 5%, says Piketty.
But he's not counting on that and advises, "We ought to have another plan. We need proper democratic institutions, fiscal institutions in order to keep this under control and make sure everybody benefits from growth in comparable proportion."
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