How do wealth and income inequality develop? And how can they be reversed?

Matt Bruenig in Jacobin:

5482099348_0a9217ff5c_oWhen American Airlines announced last month that it would boost the pay of its pilots and flight attendants by around $1 billion, investors were livid. One Citi analyst fumed: “This is frustrating. Labor is being paid first. Shareholders get leftovers.” Traders swiftly punished the company for its temerity, with American Airlines’ market capitalization shrinking by 9.7 percent, or $2.2 billion, in the three days following the news.

But while the amusing outrage and simple narrative of the American Airlines story caused it to attract a good deal of attention, it is far from unique. Quarterly earnings statements and company announcements regularly send the market value of businesses soaring or plummeting. As shareholder expectations about the future profits of companies change, so too does the price of corporate shares.

This basic point lies at the core of some recently published critiques of Thomas Piketty’s seminal work Capital in the Twenty-First Century. According to economists like Suresh Naidu, a contributor to the new volume After Piketty, asset valuation dynamics like those at American Airlines could be at the heart of the changing wealth landscape in the US and other developed economies.

If Naidu and others are right, Piketty’s theory of how wealth and income inequality develop may be exactly backwards. And his prescriptions for reversing skyrocketing inequality may suffer accordingly.

More here.

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