NEW YORK (AP) — If you'd like to live in Downton Abbey, the good news is that our economy has entered a second Gilded Age of opulence and elegance.
The bad news is that you'll likely end up among the vast majority stuck sweating in the kitchen.
In a new book, Thomas Piketty, the French economist who helped popularize the notion of a privileged 1 percent, sounds a grim warning: The U.S. economy has begun to decay into the aristocratic Europe of the 19th century. Hard work will matter less, inherited wealth more. The fortunes of the few will unsettle the foundations of democracy.
The research Piketty showcases in his book, "Capital in the 21st Century," has set the economics field ablaze. Supporters cite his work as proof that the wealth gap must be narrowed. Critics dismiss him as a left-wing ideologue.
Digging through 300 years of economic data, tax records, 19th century novels and modern TV shows, Piketty challenges the assumption that free markets automatically deliver widespread prosperity. Instead, he writes, the rich will get richer, and everyone else will find it nearly impossible to catch up.
Investments in stocks, bonds, land and buildings — the "capital" in his title — almost always grow faster than people's wages. By its nature, capitalism fuels inequality and can destabilize democracies, Piketty argues.
Economists once viewed the three decades after World War II as proof of capitalism's ability to build and share wealth. Piketty counters that the period was a historical outlier, a result of two world wars and the Great Depression leveling the fortunes of the old establishment.
In 2012, the top 1 percent of U.S. households received 22.5 percent of the nation's income, the most since 1928. Piketty thinks higher taxes on wealth can curb inequality's spread. He also thinks that sending more people to college and sharpening their skills through training could help slow the "inegalitarian spiral."
In an interview with The Associated Press, Piketty, 42, held forth on the "dangerous illusion" of the meritocracy, why China is unfairly blamed for flat U.S. wages and his fix for limiting inequality.
Here are excerpts of the interview, edited for length and clarity:
Q: What is the impact of a growing wealth gap?
A: The main problem to me is really the proper working of our democratic institutions. It's just not compatible with an extreme sort of oligarchy where 90 percent of the wealth belongs to a very tiny group. The democratic ideal has always been related to a moderate level of inequality. I think one big reason why electoral democracy flourished in 19th century America better than 19th century Europe is because you had more equal distribution of wealth in America.
Q: Your research shows that profits on investments — capital — increase faster than wages and economic growth. But a lot of people think greater inequality can help fuel stronger growth.
A: When inequality gets to an extreme, it is completely useless for growth. You had extreme inequality in the 19th century, and growth was not particularly large.
Because the growth rate of productivity was 1 to 1.5 percent per year (in 19th century Europe), and it was much less than the rate of return to wealth, which on average was 4 to 5 percent, the consequence was huge inequality of wealth. It's important to realize that innovation and growth in itself are not sufficient to moderate inequality of wealth.
Continue reading this story on the...