With the rise of the emerging economies of Asia, he says, we now have two alternative forms of capitalism operating side by side. Like all schematics, this one elides a lot of details, but it provides a useful conceptual frame. The rich are able to save more than the poor, and thus come to own a disproportionate share of the capital and the wealth in the economy.
Since the return on capital, a major source of income for the rich, tends to be higher than the growth of wages, the rich become richer. Almost as potent is the way the benefits of education are distributed: rich people tend to be more highly trained, and can earn higher salaries; they are also able to earn higher returns on their capital, since their wealth gives them greater tolerance for illiquidity and risk. In addition, they tend to marry other rich, educated people and are able to pass on more capital to their children, thereby perpetuating inequalities from one generation to the next.
The rule of law is attenuated, decision-making can be arbitrary, property rights are not fully secure, and corruption is endemic. China is essentially going through a hugely accelerated version of the industrial revolution and the Gilded Age rolled into one.
Add in the insidious impact of cronyism, and a very unequal society results. Income distribution in China, it turns out, is even more skewed than in the United States, approaching the sort of levels one finds in the plutocratic republics of Latin America. What does all this mean for the future of global capitalism? Milanovic finds little on the horizon within either system that would curb the trend toward greater inequality, let alone reverse it. Despite the subtitle of his new book, though, Milanovic wisely trains his attention on the past and the present, steering clear of grand predictions.
As he has pointed out, the economics profession has an abysmal track record when it comes to seeing into the future. Attempts to make predictions about societies are, in his view, inherently doomed, because of the contingencies of human events. To have predicted that a decline in inequality was going to happen in the first part of the twentieth century, one would have had to foresee among other things the onset of a global conflagration in —and even as late as almost nobody did.
The problem with thinking in terms of waves or cycles is that doing so creates a false promise of predictability. Take the stock market. The contours of stock-market cycles become discernible only once they are over. The same seems to be true of inequality waves. Men have knowledge of the present. As for the future, the gods know it, alone and fully enlightened. The enormous influence of the Chicago School helps explain why research into inequality and income distribution was long sidelined in this country.
Milanovic, by contrast, belongs to a new generation of data-driven economists who have helped track what has happened to income distribution in recent years. The cohort of European economists, including Milanovic and the French brigade, are following in the footsteps of Tocqueville. They have been able to hold up a mirror so that we Americans can better see ourselves. This link from Our World in Data shows this the graph is interactive, and there's lots more on this topic through the link.
For the second part, if you look at people within a country, particularly rich countries, you can see that inequality has indeed risen since about the late s this link again from Our World in Data has more on it. In the US in particular, this rise has to a certain degree been accompanied by the poor getting poorer over this period not just the rich getting richer. There are several reasons for this development, including deindustrialisation, the ICT revolution favouring certain types of jobs, fall in unionisation, and globalisation.
Note: Based on "normal income," which may differ from actual income if a family's income in the past year was unusually high or low.
Retirement account savings include k s, IRAs, and Keogh plans. This disparity across income groups highlights a serious policy failure that is exacerbating income inequality as well as the existing retirement security crisis with two-thirds of seniors relying on Social Security for a majority of their income.
The policy solution to the retirement security crisis is to protect and expand Social Security for millions of Americans, not cut our only universal guaranteed source of retirement income. The rich get richer and the poor get poorer. Government activism is needed to deal with the baleful and growing levels of inequality in society. T he Sunday Times rich list provides a useful social X-ray of Britain. It is a journalistic tool that looks inside high society without damaging its subjects.
However, the findings of the latest survey — that the richest have got even richer — have been released when many people have endured a Covid year of hardship, loss and boredom.
A preview released on Friday reveals that there are now 24 more billionaires than 12 months earlier, a greater increase than in any year since the list was launched 33 years ago. To have created such a concentration of wealth during a pandemic is an indictment of an economic system that has gone badly wrong.
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