“Would it spoil some vast eternal plan…If I were a wealthy man.”
“If I Were a Rich Man,” from “Fiddler on the Roof”
Some folks garden on the weekend. Some golf. Others travel. My favorite weekend pastime is reading and digesting a long economic treatise. Not your typical weekend activity, but I love to read about the history of money and finance.
So while my husband channel surfed for SEC football last weekend, I delved into “Capital in the Twenty-First Century" by Thomas Piketty, a professor at the Paris School of Economics and an expert on income inequality.
Piketty asserts that significant income inequality is deeply rooted in world history. Furthermore, he suggests that the leveling of the playing field during the late 20th century was an anomaly. And now, ownership of capital is again becoming more important than the ability to create capital.
In other words, what we now consider a recent occurrence, the shifting of income to the super-rich, is not a new trend, but rather a return to a historical norm. The best summary of Piketty’s theory that I found was in The Economist, and reads thusly: "Private wealth dwarfed national income and was concentrated in the hands of the rich families who sat atop a relatively rigid class structure. This system persisted even as industrialization slowly contributed to rising wages for workers. Only the chaos of the first and second world wars and the Depression disrupted this pattern. High taxes, inflation, bankruptcies and the growth of sprawling welfare states caused wealth to shrink dramatically, and ushered in a period in which both income and wealth were distributed in relatively egalitarian fashion."
You and I grew up in this egalitarian period. It was the only economic structure we had ever seen firsthand, regardless of the tales in history books about lords and serfs. The term "landed gentry" says it all; in the Middle Ages and well afterward, land ownership was commensurate with wealth. And even as America’s economic system evolved, land ownership and inherited privilege cemented wealth in the hands of the few, rather than the multitudes, until the aforementioned disruptions temporarily changed the game.
Piketty asserts that normally you make more money on money than do you working, a concept that favors those who have financial resources. If the global economy grows quickly then the common man benefits, but when the economy grows slowly (which is the norm), class structure tends to revert to a “winner take all” system, and is thus less egalitarian.
Today we are seeing a return to economic power of the super-rich and the shrinking of the middle class in America. Only now, instead of land, financial assets are the route to dominance for the wealthy.
Margaret R. McDowell, ChFC, AIF, author of the syndicated economic column “Arbor Outlook,” is the founder of Arbor Wealth Management, LLC, (850-608-6121 – www.arborwealth.net), a fiduciary, “fee-only” registered investment advisory firm located near Sandestin.