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Why are the rich getting richer while the poor stay poor? Andri W. Stahel [Universitat Popular del Baix Montseny, UPBM, Barcelona, Spain] Copyright: Andri W. Stahel, 2020
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“Everybody knows the fight was fixed The poor stay poor, the rich get rich That’s how it goes Everybody knows” (Leonard Cohen). Introduction Thomas Piketty’s (2014) striking best-seller with his largely researched and data-based 1 debunking of the post-war optimism and the so-called Kuznets Curve pointing to a supposedly automatic reduction of inequality in the advanced industrial nations, as well as the growing wealth-inequality in both mature and developing countries, has brought the discussions about wealth-distribution again to the forefront in economics. And not just in academia, but for the public at large and the media, now that the divide between the so-called 99% and 1% of the world’s population keeps growing. In this paper, I aim to build on Piketty’s findings and particularly on identifying one and probably the main factors contributing to this increasing income gap between rich and poor. While Piketty’s answer that the rate of return on capital has historically exceeded the rate of return on income and output is sustained by the impressive amount of data he considers, it nevertheless does not shed sufficient light on why it is so. Particularly, there are two aspects which I believe are important to consider and to deepen while talking about wealth-distribution and how people in our contemporary world acquire wealth in the first place. On one hand, Piketty and others take a very broad definition of capital and by doing so – as well for methodological and practical difficulties – he does not clearly distinguish between various kinds of capital income like rent, financial profits, dividends, royalties and other capital gains in his statistical analysis. Particularly, as will be argued here, Piketty’s book does not shed a light on a crucial distinction between capital gains derived from productive capital investments from those resulting from purely speculative gains. It does not distinguish between incomes deriving from producing different and new wealth from those resulting from the mere increase in prices of properties like land, real estate, artwork, antiquities, collectables, stocks and other financial instruments and goods. By not distinguishing between these different sources of capital income, Piketty does not sufficiently highlight the role of monetary inflation resulting from the steady increase in the money supply as an increasingly important factor leading to the growing income gap between the “have and the have-not”, the growing poor and the enriching rich and super-rich of the world population.
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This question is largely discussed in Piketty’s book. While Kuznets hypothesized that industrializing nations experience a rise and subsequent decline in economic inequality, following a supposedly “Bellshaped curve”, particularly after the 1970s a steady increase in inequality could be observed both in newly industrializing as well as in advanced industrial societies, as shown by numerous studies and data.
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