Rising Inequality: Trends and Consequences Iglika Ivanova - - PowerPoint PPT Presentation

Rising Inequality:
 Trends and Consequences

Iglika Ivanova • iglika@policyalternatives.ca Economist • Public Interest Researcher June 25, 2014

Why we are here: the rise of the 1%

Source: Alvaredo, F., A. Atkinson, T. Piketty and E. Saez. The World Top Incomes Database.

0% 5% 10% 15% 20% 1913 1922 1931 1940 1949 1958 1967 1976 1985 1994 2003 2012

Share of income going to the top 1% in the US

Thomas Piketty’s earlier work

Inequality is not just a US problem

0% 5% 10% 15% 20% 1913 1922 1931 1940 1949 1958 1967 1976 1985 1994 2003 2012

Share of income going to the top 1%

Canada US

Source: Alvaredo, F., A. Atkinson, T. Piketty and E. Saez. The World Top Incomes Database.

Facts about the growing inequality in Canada

• Income inequality has been on the rise since mid-1980s

but especially since mid-1990s

• Richest 20% increased their share of total income while

poorest and middle income groups lost share

• Canadians in the poorest income group saw their incomes

rise, but minimally (from $13,000 in 1976 to $15,100 in 2011)

• Most income gains have gone to a very small group of

“super-rich” (both before and after the Great Recession)

• Canada is less unequal than the US, but more unequal

than other rich countries (24th out of 34 OECD countries)

Who does our economic system work for?

Source: Yalnizyan, Armine. 2010. The Rise of Canada’s Richest 1%.

The problem with inequality

• Social injustice
• Bad for the economy (IMF, World Economic Forum,

Conference Board)

• Reduces social mobility (“American dream”)
• Exacerbates many social problems
• Bad for the environment and climate
• Threatens democracy (“a drift toward oligarchy”)
• Undermines social cohesion, political stability

How is inequality commonly justified?

• Belief that life outcomes are the results of individual

choices, not societal factors

• Belief that inequality is necessary to provide incentives to

people to work hard and contribute to society (“the price we pay for growth”)

• Belief that capitalism has a natural tendency to reduce

inequality at its later stages

Kuznets curve: the mainstream agreement

Piketty challenges the legitimacy of capitalism

• Argues that capitalism will always create inequality and

naturally ‘drifts to oligarchy’

• Exposes rising inequality as unjust and unnecessary

feature of our economic system

• Shows much of the income distribution in modern society

has no connection to efgort, ingenuity and hard work

• In an economy where the rate of return to wealth is

higher than the rate of economic growth, inherited wealth will always grow faster than earned wealth

The return of a wealth-based society in Europe

100% 200% 300% 400% 500% 600% 700% 800% 1870 1890 1910 1930 1950 1970 1990 2010

Value of national capital (% national income)

National capital (sum of public and private capital) is worth between 2 and 3 years of national income in Europe in 1950. Sources and series: see piketty.pse.ens.fr/capital21c

National capital in Europe, 1870-2010

Germany France United Kingdom

Source: Piketty, Thomas. 2014. Capital in the 21st Century. Figure 4.5

Wealth is growing in importance in the US too

100% 200% 300% 400% 500% 600% 700% 800% 1870 1890 1910 1930 1950 1970 1990 2010

Value of national and foreign capital (% national income)

National capital (public and private) is worth 6.5 years of national income in Europe in 1910, vs. 4.5 years in America. Sources and series: see piketty.pse.ens.fr/capital21c.

National capital in Europe and America, 1870-2010

United States Europe

Source: Piketty, Thomas. 2014. Capital in the 21st Century. Figure 5.2

Wealth is distributed very unequally

• Richest 20% of American families own 89% of total wealth
• Richest 1% of American families own 35% of total wealth
• Poorest 40% of American families have more debt than

assets

Source: Edward Wolfg (2012) based on 2010 data

• Richest 20% of Canadian families own 67% of total wealth
• Poorest 40% of Canadian families own 2.1% of total wealth

Source: 2012 Survey of Financial Security

Wealth inequality in Europe and the US since 1810

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1810 1830 1850 1870 1890 1910 1930 1950 1970 1990 2010

Un#l%the%mid%20th%century,%wealth%inequality%was%higher%in%Europe%than%in%the%United%States.%

Sources and series: see piketty.pse.ens.fr/capital21c.

Share of wealth owned by the top 10%

Source: Piketty, Thomas. 2014. Capital in the 21st Century. Figure 10.6

We don’t know enough about wealth inequality

And the Canadian edition

In the meantime for the rest of us…

Source: Statistics Canada. 2014. CANSIM Table 202-0101.

Other inequalities compound the problem

Source: Statistics Canada. 2014. CANSIM Table 202-0101.

Men Women

Unbalanced growth

• 40%
• 20%

0% 20% 40% 60% 80% 100% 1982 1986 1990 1994 1998 2002 2006 2010

Median income growth for difgerent income groups in BC

Top 1% Bottom 90% Earnings, FTFY workers Bottom 50% Adjusted for inflation (real median income growth). Source: Statistics Canada. 2014. CANSIM Tables 204-0002, 202-0101 and 326-0021.

Who benefits from economic growth?

• 40%
• 20%

0% 20% 40% 60% 80% 100% 1982 1986 1990 1994 1998 2002 2006 2010

Median income growth for difgerent income groups in BC

Top 1% Bottom 90% Earnings, FTFY workers Bottom 50% GDP per capita Adjusted for inflation (real median income growth). Source: Statistics Canada. 2014. CANSIM Table 204-0002, 202-0101, 326-0021 and BC Stats.

Summary so far

• Piketty compiles a large body of evidence documenting

the trajectory of inequality in modern capitalism (U- shape)

• The recent rapid growth in income and wealth inequality

are not an aberration, but a result of capitalism functioning ‘normally’

• The market has no automatic mechanism to prevent a

“drift to oligarchy”

• It’s up to all of us to turn this ship around