Who is to blame for the dramatic rise in inequality in recent years? The bankers, many people say. According to this view, the financial sector is guilty of triggering the global economic crisis that began in 2008 and still affects millions of middle-class families in Europe and the United States, who've seen their purchasing power diminish and job prospects wither. The outrage is amplified by the fact that not only have the bankers and financial speculators escaped punishment for their blunders, but many are now even richer than they were before the crash. Others blame growing inequality on wages in countries like China and India, where low salaries depress incomes of workers in the rest of the world. Asia’s cheap labor compounds the problem because it creates unemployment in countries where companies close factories and “export” jobs to cheaper markets overseas. Still others see technology as the culprit. Robots, computers, the Internet, and greater use of machines in factories, they say, are replacing workers and thus boosting inequality.
The true explanation is a lot more complicated, says Thomas Piketty, the French economist whose influential Capital in the Twenty-First Century has turned into a global sensation. In many countries, Piketty argues, capital (which he equates with wealth in the form of real estate, financial assets, etc.) is growing at a faster rate than the economy. The income produced by capital tends to be concentrated in the hands of a small group of people, whereas income from labor is dispersed throughout the entire population. Therefore, when capital earnings increase faster than wages, inequality grows because those who own capital accumulate a higher proportion of income. And given that growth in wages is directly dependent on the growth of the economy as a whole, economic inequality is bound to get worse if the economy expands at a slower clip than capital earnings.