The wealth mis-distribution

The controversial French scholar, Thomas Piketty, author of “Capital in the Twenty-first Century,” recently stopped by Japan to help promote the Japanese translation of his controversial book. The economist that many libertarians have come to love to hate maintains that income inequality is not an accident but rather a feature of capitalism that can be reversed only through state intervention.

Piketty is a Keynesian - a once derogatory label that is regaining respectability following the 2007-08 financial debacle. What sets Piketty apart from many other Keynesians is his unabashed call for wealth redistribution - something that sends off clarion calls in such bastions of the American right as the Cato Institute and the Wall Street Journal

And that is what Picketty was reported to have been advising Japan.

In Japan, there is the long-standing ichioku sohchuryu myth that maintains the entire country essentially belongs to a gigantic middle class. This was a given when I studied in Japan during the 1970s. It was accepted there was a remarkable - almost unbelievable - spread between the bottom and top of incomes within the self-defined Japanese middle class, achievable by a relatively even distribution of wealth.

That myth started to lose its credibility in the 1990s when young people began realizing that only a minority of them would be able to follow in their parents’ paths and thereby be reasonably assured a middle class standard of living. During that time, it became increasingly self-evident that those in the bottom of the middle class were remarkably worse off than those at the top of that same economic class.

Pesek’s book articulates the argument that gigantic wealth distribution disparity eventually damages the overall economy and welfare of a society. In other words, he advocates a society that operates in real terms what the Japanese assumed was the case of their economy some 40 plus years ago.

But stepping back a bit, one can see this to be true in most of the advanced economies. Large middle classes have been whittled down with wealth being increasingly concentrated in a smaller percentage of the populations. The most noticeable differences, depending on local economies and demographics, are the timings of economic developments and the ensuing wake up calls among younger generations. We have already seen wealth distribution becoming political issues at different times in Japan, in Korea and, of course, in the United States.

As an American Baby Boomer, I find it ironic that my generation, who in our late adolescence criticized our parents and some of our peers for “selling out” to crass greed, often at the wanton destruction of the environment, has for a large part become a self-parody of ourselves. The saving grace for our parents’ generation was a good deal of naivete - often benign in intent and usually with the hopes for the best for all in a post-World War II era.

My generation, however, does not have the luxury of that cover. Too much history has passed and too much has been discovered. But given how today’s naysayers have a large say in American politics with their human influenced-climate change denials, “greed is good”/tickle-down advocacies, etc., one wonders how our generation ended up where we are right now.

What we clearly have is an almost generic graying of a generation. When we were young and had limited means, idealism came cheap and temptations to “take on the man” were rampant. But as maturity and a greater sense of reality took hold, material success/comfort became of greater importance with the raising of families. In other words, our generation naturally became more conservative.

Now, after at least a decade of diminishing material expectations largely caused by sluggish economic growth and the specter of (semi) retirement and corresponding less earning capabilities, many aging Baby Boomers worry whether they will have enough money to survive in modest comfort during their extended lifespans. And to a lesser degree, they wonder if they will have anything to pass on to their children, who continue to extend the length of adolescent financial dependence by each new generation.

While there is no simple panacea, obviously a stronger economy helps everyone. Recognizing excessive wealth disparity as a long-term economic evil and taking corrective measures can help everyone - including the very wealthy in terms of political and social stability. Such actions can benefit all classes by the generation of stable prosperity generated by a growing middle class economic engine.

Today, however, we can either hang on to our cherished economic theories and dogmas we adopted prior to 2007, or we may look around and see what works. Extreme austerity may offer some kind of moralizing comfort in some quarters, but by surveying various markets, we should try to get an unbiased accounting for what actually succeeds, rather than debating why things should or eventually will turn out better than what they have so far.

The open question is whether those in power with graying hair are willing to recognize realities for what they have become rather than what they have been imagining.

*The author is a long-term resident of Korea as well as the author of “Doing Business in Korea: An Expanded Guide.”

by Tom Coyner