The Morning Economic Report
5:30 am
Mon March 24, 2014

Income Inequality Historically - 3/24/14

There was a time when conventional wisdom suggested that as economies developed, income inequality would decline largely through the formation of larger middle classes.  Some of this wisdom was set forth by Belorussian-born American economist Simon Kuznets. 

A recent article by economics writer Eduardo Porter describes how Kuznets painstakingly assembled data from tax returns.  His analysis of those data revealed that between 1913, when the U.S. first introduced the income tax, and shortly after the end of World War II in 1948, the slice of the nation’s income absorbed by the richest 10 percent of Americans had declined sharply.  The income share of this group declined from a little under half to about a third.  Mr. Kuznets’ conclusions supplied an enormous moral lift to capitalism as the U.S. worked to fend off the spread of the Soviet model.  But today, that long-lived conventional belief is wearing down.  

In his new book Capital in the 21st Century, Professor Thomas Piketty, the highly influential economist from the Paris School of Economics, concludes that economic forces will continue to concentrate more and more wealth into the hands of the fortunate few.  The professor suggests that political action can make this go in the other direction.