French economist Thomas Piketty's hot-selling book, Capital in the 21st Century, has American liberals in a happy dither because it seems to provide a patina of theoretical credibility to the inequality argument that President Obama and his Democratic allies have made their central theme for the 2014 campaign. As Washington Examiner columnist Michael Barone so aptly summarized it, Piketty's basic argument is that “returns on capital tend to exceed returns to labor, producing increasing income inequality and concentration of wealth.” Despite the success at U.S. cash registers of the English translation of his book, however, Piketty's argument is not new.
Writing in an 1847 essay, Karl Marx offered this observation: “Finally, to say that the most favorable condition for wage-labor is the fastest possible growth of productive capital' is the same as to say: The quicker the working class multiplies and augments the power inimical to it -- the wealth of another which lords over that class -- the more favorable will be the conditions under which it will be permitted to toil anew at the multiplication of bourgeois wealth, at the enlargement of the power of capital, content thus to forge for itself the golden chains by which the bourgeoisie drags it in its train.”
But the U.S. economy long ago left behind sophisticated foreign theorists removed in space and time from way economic incentives actually work in a free economy. The reality is that the mobility of wealth generation is as great today in America as it was decades ago and greater than it has ever been anywhere else in the world. This reality is made clear, as Greg Beato reports for the Reason Foundation, by a longitudinal study recently published by the National Bureau of Economic Research and separate research by the Pew Charitable Trust's Economic Mobility Project.
Here's the conclusion of the five authors of the NBER study: “We find that children entering the labor market today have the same chances of moving up in the income distribution (relative to their parents) as children born in the 1970s.” The authors come from Harvard University, the University of California at Berkley and the U.S. Treasury Department. In other words, despite all of the economic ups and downs that have come and gone in the decades since the 1970s, the opportunity to move up to the highest income level is as great now as it was then.
Similarly, the Pew researchers concluded in July 2012 that "84 percent of Americans have higher family incomes than their parents had at the same age, and across all levels of the income distribution, this generation is doing better than the one that came before it. Ninety-three percent of Americans whose parents were in the bottom fifth of the income ladder and 88 percent of those whose parents were in the middle quintile exceed their parents’ family income as adults.”
In other words, contrary to Piketty, Marx and Obama, America remains the land of the greatest economic opportunity for the most people to be found anywhere on earth.