Paul Krugman in a tour-de-force wrote about income inequality and the emerging US plutocracy for the NYT Magazine this Sunday.
The increasing gap in incomes doesn't come as a surprise to me. Unregulated capitalism always trends strongly toward concentrated wealth. In the corporate world, companies that are dominant can easily remain dominant if they are unregulated. They can set up barriers to entry in previously competitive markets. They can leverage monopolies in one market segment into monopolies in other segments. They can purchase competitors just to put them out of business. Individual wealth works along the same principles. Without social and governmental pressure to disband concentrated wealth (which is not in the cards as far as I can see), we will continue to see wealth concentrate in the hands of a small number of companies and individuals:
So claims that we've entered a second Gilded Age aren't exaggerated. In America's middle-class era, the mansion-building, yacht-owning classes had pretty much disappeared. According to Piketty and Saez, in 1970 the top 0.01 percent of taxpayers had 0.7 percent of total income -- that is, they earned ''only'' 70 times as much as the average, not enough to buy or maintain a mega-residence. But in 1998 the top 0.01 percent received more than 3 percent of all income. That meant that the 13,000 richest families in America had almost as much income as the 20 million poorest households; those 13,000 families had incomes 300 times that of average families.
The above statistic implies the doubling rate of wealth concentration is a mere 14 years. Without serious counter pressure from government and society by 2030 we will see more than 15% of all income in the hands of the top 0.1% of American society.
Of course, that assumes things don't accelerate -- which with the repeal of the estate tax and Bush's tax cut -- it is likely to do just that. Another factor impacting accelerating wealth concentration is the ability of dominant companies (and the individuals that own them) to thrive during a protracted downturn by consolidating market share. As less wealthy companies struggle, they are easy prey to better financed companies. Microsoft is proving this with their record profits this last quarter as the rest of the industry struggles for footing. Individuals of extreme wealth can do this by investing at pennies on the dollar in otherwise strong companies. When economic health returns, we are likely to see concentrations of wealth at substantially higher levels due to this effect alone.
The emergence of an American plutocracy would change things for the worse. We would be much less innovative and poorer as a result. Toll taker values would replace the values of the innovators and risk takers. Are we ready for that? [John Robb's Radio Weblog]
9:37:38 PM 
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