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LOUIS CHAUVEL PrDrLouis.chauvel@uni.lu

Globalization of Extremes: The North-Western Middle Classes Facing the Return

of Pareto Distributions and Power-Laws

WITH THE SUPPORT OF

IRSEI Institute for Research

on Socio-Economic InequalityUniversity of Luxembourg

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1. Introduction: The point => de-middlization or even worse?Welcome back in a world of extreme inequalities

2. The theory: A “new” class structure: forget Quetelet, learn Pareto: A theory of imbalance of power

3. The world transformations: Brazilianisation of the North and expansion of some South

4. Conclusive RemarksThe long 21st century begins and the Hobsbawm / Arrighi

legacy

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1. Introduction:

The point => de-middlization or even worse?

Welcome in a world of extreme inequalities

The old French social science methodology: Social Facts first!

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1. Introduction:

a. Yesterday: The Western middle class dream

Fourastié « The great hope of the 20th century »

1- « Wage based middle class society » = permanent wage earner are a majority

2- Wage incomes sufficient to live well => the affluent society

3- Generalization of labor stability and social protection

4- Education boom and increasing value of diplomas, upward social mobility

5- Political centrality of middle class

6- Beliefs in progress

Galbraith, Goldthorpe and Lockwood, Mendras, Lederer?, etc. etc. (not everywhere but in many western countries)

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1. Introduction: de-middlization or even worse?

« The great worries of the 21th century »

1- « Wage uncertainty » = decline in predictability and repatrimonialization

2- Wage stagnation and real cost of life => the post-affluent society

3- Generalization of precariat and destabilization of social protection

4- Over-Education boom and increasing value of diplomas, downward social mobility

5- Loss of political centrality/control of middle class

6- New worries

Piketty, Alderson, Tomaskovic-Devey, Therborn, Mann, etc.

b. Today: Very bad news in social facts…for post-affluent countries (not everywhere but in many western countries)

Income Inequality: Economic Disparities and the Middle Class in Affluent Countries edited by: Janet C. Gornick and Markus Jäntti (Stanford University Press) 2013

 http://www.sup.org/book.cgi?id=21329

Louis Chauvel 2006, Les classes moyennes à la dérive (The Middle

Classes Adrift), Seuil, Paris.

7The bad news (Piketty)

*Capital expansion and wage stagnation

*Structural Matthew effect(1):

R(real interest rates) > G(real eco growth)=> the new era

*The richer will save, not the poorer

*Auto-generated spiral of accumulation of wealth and inequalities

*Farewell to meritocracy

(1): “For unto every one that hath shall be given, and he shall have abundance: but from him that hath not shall be taken

even that which he hath”. Matthew 25:29, King James Version.

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Even worse news (Alderson, Beckfield, etc. etc.)End of the 1960-70 Western social dream

*Demography-connected changes: baby-boom overcrowding effects, homogamy, role of education

*Market transformations: deindustrialization, global competition (new-developed countries and

destabilization of the western upper working class), technological bias, winner take all

*Economic & Social policies: Tax reforms at the top, declining minimum wages

and decay of social regulations at the bottom

Alderson, A. S., J. Beckfield and F. Nielsen, "Exactly How Has Income Inequality Changed? Patterns of Distributional Change in Core Societies." International Journal of Comparative Sociology, 46, 405-423, 2005.

Robert H. Frank and Philip J. Cook 1995 The Winner-Take-All Society(New York: The Free Press,).

Godechot, Olivier 2012 Is finance responsible for the rise in wage inequality in France?

Socio-Economic Review 10(3), 447-470

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2. The theory: A “new” class structure: forget Quetelet, learn Pareto Farewell to the theory of middle man

(Quetelet, Halbwachs)Welcome(back) to extreme society

(Pareto, Nielsen)

1- Normal law worldmax height = 227 cm (in a 1.000.00 sample)

Max/Median = 1.280 (in a 1.000.00 sample)

In the US: Robert Wadlow, the tallest person 272 cm = 1.53 the median

0.01.02.03.04Density

120

140

160

180

200

220

hei

ghtc

m

M=177 cm sd=10.1

https://archive.org/details/lathoriedelhom00halbuoft

height Median = Mean

Nielsen, François. 2007. “Economic Inequality, Pareto, and Sociology: The Route Not Taken.”. American Behavioral Scientist 50 (5): 619–638.

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Farewell to the theory of middle man (Quetelet Halbwachs)

Welcome(back) to extreme society (Pareto Nielsen)

2- Typical Income Pareto-Champernowne-Fisk law with a gini index = .45

Max/Median Income = 700(in a 1.000.000 sample)

In the US 2013 LNG Charif Souki $141 Millions

=3154 times the median US FT yearly earning lvl

M=177 cm sd=10.1

0.2.4.6.8Density

01

23

45

i

US Income Mean=1.4 * Median

Median

Fits based on SCF 2011

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Farewell to the theory of middle man (Quetelet Halbwachs)

Welcome(back) to extreme society (Pareto Nielsen)

3- Typical Wealth Pareto-Champernowne-Fisk law with a gini index = .72

Max/Median Income = 71 000(in a 1.000.00 sample)

In the US 6 Walton family members own $152 Billions

=250 000 times the median wealth

=500 000 times the median US FT yearly earning

M=177 cm sd=10.1

0.2.4.6.81Density

01

23

45

w

US Wealth Mean=4.3 * Median

Median

No wealth based middle classFits based on SCF 2011

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Farewell to the theory of middle man (Quetelet Halbwachs)

Welcome(back) to extreme society (Pareto Nielsen)

3- Typical Wealth Pareto-Champernowne-Fisk law with a gini index = .72

Max/Median Income = 71 000(in a 1.000.00 sample)

In the US 6 Walton family members own $152 Billions

=250 000 times the median wealth

=500 000 times the median US FT yearly earning

M=177 cm sd=10.1

0.2.4.6.81Density

01

23

45

w

US Wealth Mean=4.3 * Median

Median

No wealth based middle classFits based on SCF 2011

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2. The theory:An imbalance of power theory of income and wealthAnd the double Pareto curve (Champernowne-Fisk)

Power of income = Gini times Power of rank

At the top, your log of income is proportional to the number of people above youGaining one rank can dramatically change the size of resourcesAt the bottom as well to avoid radical poverty

Near to the median, rank changes have much less impact on resources=> the middle class face less radical competition

When Gini is smaller, the radicallity of the game is smoothed

(Champernowne, 1953; Fisk, 1960; Dagum 1975)Ln(y) ≈ Gini * logit(r)

http://www.lisdatacenter.org/wps/liswps/609.pdf

Louis Chauvel Mar - 2014 Intensity and shape of inequalities: the ABG method for the analysis of distributionsLIS working papers series - No. 609

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2. The theory:An imbalance of power theory of income and wealthAnd the double Pareto curve (Champernowne-Fisk)

World buzz: The red baron (Manfred von Richthofen) example(“victories” of WW1 aces are normally distributed, but fame is not…)

World biz: how the financial market works?

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3. The world transformations: Brazilianisation of the North

The big shift :

Increasing Ginis of IncomesIncreasing Ginis of WealthIncreasing size of Wealth relative to incomesetc.

Welcome(back) to a very non-normal world!

Drumbeat of bad news

Changes in the general shapes

Globalization of the income distribution:

The rich are indexed

on global firms size

The others on the BRICs working

and wage earner classes

Even more massive changes in the distributions still to come ?…

The strobiloid representation of income distribution

Upper middle class

6 Strobiloids Change

se81 se11

01

23

4

-1 0 1

de83 de11

01

23

4

-1 0 1

fr79 fr11

01

23

4

-1 0 1

uk79 uk10

01

23

4

-1 0 1

us79 us10

01

23

4

-1 0 1

il79 il07

01

23

4-1 0 1

Sweden Germany(W)

France

U.K. U.S. Israel

X` 18

Branko Milanovic version of Piketty-Saez

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Growthlog10(per capita GDP PPP)

Inequality (Gini coeff)

U.S.

U.K.

Turkey Tunisia

Taiwan

Switzerland.

Sweden

Spain

Slovenia Slovak Rep.

Russia

Romania

Portugal

Poland

Norway Netherlands

Malaysia

Korea, Republic of

Japan

Italy

Israel

Ireland

Hungary

Greece

Germany

France

Finland Denmark

Czech R.

Canada

Belgium

Austria

Australia

20

25

30

35

40

45

3,6 3,7 3,8 3,9 4 4,1 4,2 4,3 4,4 4,5 4,6

Australia

Austria Belgium

Canada

Costa Rica

Czech R.

Denmark

Finland

France

Germany

Greece

Hungary

Ireland

Israel Italy

Japan

Korea, Republic of

Luxembourg

Mexico

Netherlands

Norway

Poland

Portugal

Russia

Slovenia

Spain

Sweden

Switzerland.

Taiwan

Tunisia

U.K.

U.S.

Venezuela From early 1980’ to late 2000’

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Branko Milanovic version of Piketty-Saez

ArgentinaArgentina

Australia

Austria

BahamasBarbados

Belarus Belarus

BelgiumBulgaria

Canada CanadaCanada

Chile

Costa Rica

Croatia

Cyprus

Czech RepublicCzech Republic

Denmark

Dominican Republic

Estonia

Finland

France

Gabon

Greece

Hong Kong

Hungary Hungary

Iceland

Iran

Ireland

IsraelIsrael

Italy

Jamaica

Japan

Kazakhstan

Korea. Republic of

LatviaLithuania

Luxembourg

Malaysia

Malta

Mexico

Netherlands New Zealand

Norway

PolandPolandPortugal

Puerto Rico

Russia

Seychelles

Singapore

Slovak RepublicSlovak RepublicSlovenia Slovenia

Spain

Sweden

SwitzerlandSwitzerland

Taiwan

Trinidad &TobagoTrinidad &Tobago Trinidad &TobagoTrinidad &Tobago

Turkey

United Kingdom

United States

UruguayVenezuela

55

60

65

70

75

80

wgi

ni

20 30 40 50 60Gini

wgini=.35(.031) igini +55.3(1.3)R-sq=.41

Data fromJames Davies, Rodrigo Lluberas, andAnthony F. Shorrocks, different years

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Piketty

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In 1980 = wealth is 3 years of incomeIn 2010 = wealth is 6 years of income

Piketty

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01

23

4

-1 -.5 0 .5 1

US 1980

Income Gini=.35

WealthGini=.75

Mean wealth=3.7 med income

Median Income

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01

23

4

-1 -.5 0 .5 1

01

23

4

-1 -.5 0 .5 1

US 2010

Income Gini=.45

WealthGini=.79

Mean wealth=8.5 med income

Median Income

25

01

23

4

-1 -.5 0 .5 1

01

23

4

-1 -.5 0 .5 1

01

23

4

-1 -.5 0 .5 1

US 2040

Income Gini=.55

WealthGini=.82

Mean wealth=15.5 med income

Median Income

Piketty Central Scenario

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3. Consequences and side effects

More income and wealth homogamy

Less mobility

More opportunities for top quantile groups

Less for the others (even the upper middle class?)

Health, lack of human development, violence, …

“Inequality kills…” (Therborn, 2014)

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http://milescorak.files.wordpress.com/2012/01/inequality-from-generation-to-generation-the-united-states-in-comparison-v3.pdf

Corak, Miles. 2013. “Inequality from

Generationto Generation: The

United States in Comparison.”Chap. 6 in The

Economics of Inequality, Poverty, and

Discrimination in the 21st Century, edited by

RobertS. Rycroft. Santa

Barbara, CA: ABC - CLIO.

R-sq = 0.75 !!(slope close to 1)

“Great Gatsby” Curve

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4. Conclusive remarks: Brace! Brace !…

Hobsbawm / Arrighi and a new age of extremes

The self-sustaining inequality spiral

The differences with the 19th century capitalism: From material to symbolic starvation?

Which frustrations in Europe after de-middlization?What is the new class structure?

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4. Conclusive Re-Marx: Solutions!

Piketty: let us have a world level progressive wealth taxand more transparent information

Wright: let us have a universal minimum incomeand a real utopia

Therborn: let us construct a real democracy and re-balance power

Chauvel: let us understand/interpret again the real social facts

Sedulo curavi, humanas actiones non ridere, non lugare, neque detestari, sed intelligere.I have striven not to laugh at human actions, not to weep at them,

nor to hate them, but to understand them.Baruch Spinoza, 1675/1676 Tractatus Politicus (A Political Treatise)

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4. Conclusive remarks: but last last bad news …

The increasing concentration of power at the top changes the imbalance of power including the ideological one

The poor, the post-working class, and the new lower-middle class

no longer trust politicsand consider the intellectuals are a part of the 1%