meltzer, allan (2012). a look at the global one percent

7/30/2019 Meltzer, Allan (2012). a Look at the Global One Percent.

1/3

Meltzer: A Look at the Global One Percent - WSJ.com

/online.wsj.com/article/SB10001424052970204653604577249852320654024.html#printMode[10.05.2012 15:04:45]

OPINION March 9, 2012

By ALLAN H. MELTZER

While the Occupy Wall Street movement may be waning, the perception of growing income inequality in America is not. For those

on the left, the widening gap between the top 1% of earners and the remaining 99% is proof that American capitalism is unjust and

should be traded in for an economic model more closely resembling the social democracies of Europe.

But an examination of changes in income distribution over nearly 100 years, not just in the United States but elsewhere in the

developed world, does not bear this out. In a 2006 study titled "The Evolution of Top Incomes in an Egalitarian Society," Swedish

economists Jesper Roine and Daniel Waldenstrm compared the income share of the top 1% of earners in seven countries from the

early 1900s to 2004. Those countriesthe U.S., Sweden, France, Australia, Britain, Canada and the Netherlandsall practice some

type of democratic capitalism but also a fair amount of redistribution.

As the nearby chart from the Roine and Waldenstrm study shows, the share of

income for the top 1% in these seven countries generally follows the same trend

line. That means domestic policy can't be the principal reason for the current

spread between high earners and others. Since the 1980s, that spread has

increased in nearly all seven countries. The U.S. and Sweden, countries with very

different systems of redistribution, along with the U.K. and Canada show the

largest increase in the share of income for the top 1%.

The main reasons for these increases are not hard to find. Adding a few hundred

million Chinese and Indians to the world's productive labor force after 1980

slowed the rise in income for workers all over the developed world. That's the most important factor at work. The top 1% gain

relatively because they are less affected by the hordes of newly productive workers.

But the top 1% have another advantage. Many of them have unique skills that are difficult to replicate. Our top earners include

entrepreneurs, rock stars, professional athletes, surgeons and lawyers. Also included are the managers of large international

corporations and, yes, bankers and financiers. (Interestingly, the Occupy movement seldom criticizes athletes or rock stars.)

The most dramatic change shown in the chart is the decline in the top 1% of Swedish earners' share of total income to between 5%-

10% in the 1960s from well over 25% in 1903. The Swedish authors explain that drop as mainly due to the decline in real interest

rates that lowered incomes of rentiers who depended on interest and dividends. Capitalist development, not income redistribution

brought that change.

Income-redistribution programs that became widespread in the 1960s and 1970s had a much smaller influence than market forces

Between 1960 and 1980, the share going to the top 1% declined, but the decline is modest. The share of the top percentile had been

reduced everywhere by 1960. Massive redistributive policies in Sweden did more than elsewhere to lower the top earners' share of

total income. Still, the difference in 1980 between Sweden and the U.S. is only about four percentage points. As the chart shows,

A Look at the Global One PercentThe rem arkable similarity in incom e distribution across countries over the past century m eans dom estic policy has less effect

than m any believe on who gets what.

See a sample reprint in PDF format. Order a reprint of this article now

Dow Jones Reprints: This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, use the OrderReprints tool at the bottom of any article or visit www.djreprints.com
http://online.wsj.com/public/search?article-doc-type=%7BCommentary+%28U.S.%29%7D&HEADER_TEXT=commentary+%28u.s.http://online.wsj.com/search/term.html?KEYWORDS=ALLAN+H.+MELTZER&bylinesearch=truehttp://online.wsj.com/public/resources/documents/Reprint_Samples.pdfhttp://www.djreprints.com/http://www.djreprints.com/http://www.djreprints.com/http://online.wsj.com/public/resources/documents/Reprint_Samples.pdfhttp://online.wsj.com/public/resources/documents/Reprint_Samples.pdfhttp://online.wsj.com/search/term.html?KEYWORDS=ALLAN+H.+MELTZER&bylinesearch=truehttp://online.wsj.com/public/search?article-doc-type=%7BCommentary+%28U.S.%29%7D&HEADER_TEXT=commentary+%28u.s.


2/3


3/3

Meltzer: A Look at the Global One Percent - WSJ.com

/online.wsj.com/article/SB10001424052970204653604577249852320654024.html#printMode[10.05.2012 15:04:45]

AFP/Getty Images

Occupy Wall Street demonstrators in New York

Copyright 2012 Dow Jones & Company, Inc. All Rights ReservedThis copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For

non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit

www.djreprints.com

the top earners in both countries began to increase their share of income in 1980.

The big error made by those on the left is to believe that redistribution permits the

99% or 90% to gain at the expense of top earners. In much current political

discussion, this is taken as an unchallenged truth. It should not be. The lasting

opportunity for the poor is better jobs produced by investments, many of which

are financed by those who earn high incomes. It makes little sense to applaud the

contribution to all of us made by the late Steve Jobs while favoring policies that

reduce incentives for innovators and investors.

Our system is democratic capitalism. In every national election, the public

expresses its preference for taxation and redistribution. It is a democratic choice,

not a plot controlled by one's most despised interest group. The much-maligned

Congress is unable to pass a budget because it is elected by people who have

conflicting ideas about taxes and redistribution. President Obama wants higher tax rates to pay for more redistribution now. The

Republicans, recalling Ronald Reagan and Margaret Thatcher and much of the history of democratic capitalist countries, want

lower tax rates and less regulation to bring higher growth and to help pay for some of the future health care and pensions promised

to an aging population.

Regardless of one's economic philosophy, the public deserves an accurate presentation of the reasons for the change in income

distribution. The change is occurring in all the developed countries. The chart shows that policies that redistribute wealth and

income have at most a modest effect on income shares. As President John F. Kennedy often said, the better way is "a rising tide

that lifts all boats."

Mr. Meltzer , a pr ofessor of pu blic policy at the Tepper S chool, Car negie M ellon Universit y an d a visiting scholar at Stan ford

University's Hoover Institution, is the author m ost recently of "Why Capitalism?" just published by Oxford University Press.

A v ersion of th is art icle a pp eared M ar ch 9 , 20 12, on pa ge A15 in som e U.S . edi tions of The W all S tr eet Jour nal, w ith t he hea dline

A Look at th e Global One Per cent.
http://online.wsj.com/public/page/subscriber_agreement.htmlhttp://www.djreprints.com/http://www.djreprints.com/http://online.wsj.com/public/page/subscriber_agreement.html

meltzer, allan (2012). a look at the global one percent

Documents