How the Rich Are Different from You and Me

How the Rich Are Different from You and Me

They keep coming, these papers by economists, chock full of equations I can’t decipher and an economists’ jargon I have to translate into English, but all of which conclude what has been obvious for some time: A massive redistribution of wealth from labor to capital has been ongoing for decades.

That’s not to denigrate these surveys; it matters that the clear statistical evidence is backed up by clear statistical analysis. The latest such analysis comes from three professors: Daniel Greenwald at MIT’s Sloan School of Business, Martin Lettau at Berkeley, and Sydney Ludvigson at NYU. The subject of their investigation is, in Piketty patois, how r (the rate of return on investment, in this case, share values) has grown faster than g (the overall growth of the economy) in the United States since 1988. What the Gang of Three concludes is that “from 1952 to 1988, economic growth accounted for 92 percent of the rise in equity values, “but that from 1989 to 2017, economic growth was responsible for just 24 percent of the rise in the value of stocks. What made stocks rise in recent decades was “reallocated rents to shareholders and away from labor compensation,” which accounted for 54 percent of the rise in share values. That is, the share of income going to corporate shareholders increased because the share of income to corporate employees decreased.

As I said, economists have been discreetly sharing this message for some time now. In July 2011, a report JPMorgan Chase distributed to its large investors concluded that 75 percent of the increase in American corporations’ profit margins in this century was due to “reductions in wages and benefits.”  

This isn’t to validate Proudhon’s famous charge that “property is theft.” Then again, it doesn’t invalidate it, either.