Capital in the 21st century, the best-selling book by French economist Thomas Piketty, has certainly struck a chord in political and economic debate, and it featured this week in the speech made in the Dublin offices of the Irish Institute for International and European Affairs, where the speaker was US president Barack Obama's main economic adviser, Jason Furman.
Furman described his fellow economist’s contribution to what is one of the top policy issues of our time – growing inequality in developed economies – as “intriguing and an important source of concern”. His favourite economic indicator, he said, was growth in real average income for the bottom 90 per cent, before pointing out that between 2001 and 2007, this huge section of the US population failed to share in that period’s economic growth – “the first time an economic expansion did not translate into rising middle-class incomes”.
Furman, taking his cue from Piketty, broke down the inequality issue into three components: inequality within income from labour; inequality within income from capital; and the division between capital and labour in terms of the proportion of overall income they generate.
Because inequality is greater within capital income than within labour income, the greater the proportion of all income generated by capital, as against labour, the greater the overall inequality.
Furman pointed out it was notable an institution such as the International Monetary Fund had carried out a study that found policies which improve the distribution of income in a society can be good for the magnitude and sustainability of economic growth.
On the issue of income distribution from labour, Furman said the decline in trade union membership in the US has played "a significant role" in declining relative incomes for the middle class. No doubt the point was noted by Paul Sweeney, former chief economist with the Irish Congress of Trade Unions, who was at the event.
Furman didn't come across at all like the types who infest Washington DC's corridors of power in US political drama, House of Cards. Which is reassuring.
