Income inequality subject of guest lecture

Pressman said his presentation is part of the foundation of a book he intends to write about the best-seller, “Capitalism in the Twenty-First Century,” by French economist Thomas Piketty.

The issue of income inequality addressed by Piketty’s book is a relevant topic, which helps explain why a 700-page economics book with a lot of charts reached #1 on Amazon, Pressman said.

Two popular theories, prior to Piketty’s book, attempt to explain income inequality in the U.S. One offers that technology is the cause and the other blames globalization.

“If either theory was true, it would be affecting every nation in the world equally, but it is not," Pressman said.

He displayed a line graph which showed the level of top U.S. income earners over the past century, creating a U shape with the low point occurring during WWI and WWII comparedr to France where the number of extremely wealthy never returned to pre-war levels.

Piketty rejects both proposals and offers his alternative explanation, so simple it can be printed on a T-shirt: r>g.

In the equation, r represents how much wealth grows, or the average increase in the value of stocks and bonds, and g represents average income growth in the economy.

“When r>g, those who have a lot of wealth gain more than average, middle-class people and so income inequality grows,” Pressman said.

Piketty rounds r to 5 percent and g to 1 percent for the sake of his argument. While Piketty holds that r and g are totally independent, Pressman said all other economists admit the two are somewhat related.