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What’s Gone Wrong?

• Runaway inequality

– State redistribution can’t keep up!

The Recovery Has Not Reduced Inequality Gini coefficient of disposable income in 2014 (or latest year), 2010 and 2007

0,20

0,25

0,30

0,35

0,40

0,45

0,50

2014 or latest year (↗) 2010 2007

Average Income (After taxes, including public

and private benefits; 2007 dollars)

12

16% 23% 25%

35%

59%

281%

0%

50%

100%

150%

200%

250%

300%

0-20% 20-40% 40-60% 60-80% 80-99% Top 1%

$-

$200.000

$400.000

$600.000

$800.000

$1.000.000

$1.200.000

$1.400.000

1979

2007

Percent Change

Source: Congressional Budget Office (CBO)




• Stagnant or declining social mobility

– Linked to wealth inequality, educational

inequalities

Argentina

Australia

Brazil

Canada

Chile

China

Denmark

Finland

France

Germany

Italy

Japan

New Zealand

Norway

Pakistan

Peru

Singapore

Spain

Sweden

Switzerland

United Kingdom

United States

0,1

0,2

0,3

0,4

0,5

0,6

0,7

20 25 30 35 40 45 50 55

Immobility (male intergenerationl earnings elasticity)

Inequality (Gini coefficient)

Inequality and Immobility: Relationship between income inequality and economic immobility

(Miles Corak,”Inequality from Generation to Generation,” 2012.

15

Source: Corak, Journal of Economic Perspectives 2013.

1940

0

20

40

60

80

100

0 20 40 60 80 100

Parent Income Percentile (conditional on positive income)

Percent of Children Earning More than their Parents

By Parent Income Percentile P

ct.

of C

hild

ren E

arn

ing m

ore

than t

heir P

are

nts

1940

1950

0

20

40

60

80

100

0 20 40 60 80 100




ct.

of C

hild

ren E

arn

ing m

ore

than t

heir P

are

nts

1940

1950

1960

0

20

40

60

80

100

0 20 40 60 80 100




ct.

of C

hild

ren E

arn

ing m

ore

than t

heir P

are

nts

1940

1950

1960

1970

0

20

40

60

80

100

0 20 40 60 80 100




ct.

of C

hild

ren E

arn

ing m

ore

than t

heir P

are

nts

1940

1950

1960

1970

1980

0

20

40

60

80

100

0 20 40 60 80 100




ct.

of C

hild

ren E

arn

ing m

ore

than t

heir P

are

nts

Mean AM:50.0%

Mean AM:91.5% 1940 Empirical

1980 Empirical

0

20

40

60

80

100

0 20 40 60 80 100


Counterfactual Rates of Absolute Mobility by Parent Income Percentile P

ct.

of C

hild

ren E

arn

ing m

ore

than t

heir P

are

nts

Mean AM:50.0%

Mean AM:61.9%


1980 Empirical

0

20

40

60

80

100

0 20 40 60 80 100


1940 GDP/family growth rate (2.5%), 1980 income shares

Counterfactual Rates of Absolute Mobility by Parent Income Percentile P

ct.

of C

hild

ren E

arn

ing m

ore

than t

heir P

are

nts

Mean AM:50.0%

Mean AM:61.9%

Mean AM:79.6%


1980 Empirical

0

20

40

60

80

100

0 20 40 60 80 100




Counterfactual Rates of Absolute Mobility by Parent Income Percentile

Pct.

of C

hild

ren E

arn

ing m

ore

than t

heir P

are

nts




• Stagnant or declining social mobility

– Linked to wealth inequality, educational

inequalities

• Declining position/security of workers

– Capital more mobile than labor

– Decline of unions

What is to be done? • Cultivate cosmopolitan economic populism

(linking local and national)

• Political reform: money in politics, turnout,

middle-class organizations

• Predistribution

26

“Predistribution”

What is to be done? • Cultivate cosmopolitan economic populism

(linking local and national)

• Political reform: money in politics, turnout,

middle-class organizations

• Predistribution

– Union alternatives/wage-setting institutions

Percent of

those in

employment

who were

trade-union

members,

2001

What is to be done? • Cultivate cosmopolitan economic populism (linking local and

national)

• Political reform: money in politics, turnout, middle-class

organizations

• Predistribution

– Union alternatives/wage-setting institutions

– Public investment: infrastructure, R&D, higher ed, early childhood

education, retraining, etc.

– Corporate governance/finance

– “Getting the macroeconomy right”

• From Spiral of Silence to Virtuous Circle

What is to be done? • Cultivate cosmopolitan economic populism (linking

local and national)

• Political reform: money in politics, turnout, middle-class organizations

• Predistribution – Union alternatives/wage-setting institutions

– Public investment: infrastructure, R&D, higher ed, early childhood education, retraining, etc.

– Corporate governance/finance

– “Getting the macroeconomy right”

• From Spiral of Silence to Virtuous Circle

• Reasons for optimism – Changing face of affluent west

– Rise of knowledge economy

– Lots of money on the table

-Andy Grove, former CEO Intel, 2010

GROVE

“Our fundamental economic

beliefs, which we have elevated

from a conviction based on

observation to an unquestioned

truism, is that the free market is

the best of all economic

systems—the freer the better.

Our generation has seen the

decisive victory of free-market

principles over planned

economies. So we stick with this

belief, largely oblivious to

emerging evidence that while

free markets beat planned

economies, there may be room

for a modification that is even

better.”

Supplemental Slides

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

1973 1977 1981 1985 1989 1993 1997 2001 2005 2009

Real Hourly

Productivity

Median Male Hourly

Compensation

Median Hourly

Compensation

Rising Productivity,

Stagnating Compensation (cumulative percent change since 1973)

Source: Economic Policy Institute

113%

180%

352%

480%

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

500%

$0

$5.000.000

$10.000.000

$15.000.000

$20.000.000

$25.000.000

99.0 - 99.5 99.5 - 99.9 99.9 -

99.99

Top 0.01%

1979

2005

Percent Change

Average Income (After taxes, including public

and private benefits; 2005 dollars)

39 Source: CBO

50

60

70

80

90

100

1940 1950 1960 1970 1980

Mean Rates of Absolute Mobility by Cohort

Child's Birth Cohort

Pct.

of C

hild

ren E

arn

ing m

ore

than t

heir P

are

nts

Share of Population

Experiencing 25% or Greater

Decline in Available

Household Income

without an Adequate Financial

Safety Net, 1986-2010

14,3%

16,9%

18,8%

20.5%

0%

5%

10%

15%

20%

25% 1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

0

10

20

30

40

50

60

70

Un

ite

d S

tate

s

Ge

rma

ny

Au

stri

a

Fin

lan

d

Ita

ly

De

nm

ark

Sw

itze

rla

nd

Ne

w Z

ea

lan

d

Ca

na

da

Ice

lan

d

Au

stra

lia

Gre

ec

e

Sw

ed

en

No

rwa

y

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the

rla

nd

s

Un

ite

d K

ing

do

m

Be

lgiu

m

Sp

ain

Fra

nc

e

Lu

xe

mb

ou

rg

Ire

lan

d

Jap

an

Ko

rea

Percentage of Population that has Attained Tertiary Education by Age Group (2012)

25-34 year olds 55-64 year olds

Polarization of Labor Income Annual average real labor income growth, 2010-2014, by group

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

Mean (↗) Bottom 10% Top 10%

0.00

0.05

0.10

0.15

0.20

0.25

0.00

0.05

0.10

0.15

0.20

0.25

0.00

0.05

0.10

0.15

0.20

0.25

0.00

0.05

0.10

0.15

0.20

0.25

0.00

0.05

0.10

0.15

0.20

0.25

1985

1990

1995

2000

2005

2010

2015

1985

1990

1995

2000

2005

2010

2015

1985

1990

1995

2000

2005

2010

2015

AUS BEL CAN

CHE DEU DNK

ESP FIN FRA

GBR ITA NLD

NOR SWE USA

25+% arc drop, HH market income

25+% arc drop, HH disposable income

Sha

re e

xper

ienc

ing

25%

inco

me

drop

s

CNEF & SLID & CPS & ECHP & EU-SILC

0.00

0.05

0.10

0.15

0.20

0.25

0.00

0.05

0.10

0.15

0.20

0.25

0.00

0.05

0.10

0.15

0.20

0.25

0.00

0.05

0.10

0.15

0.20

0.25

0.00

0.05

0.10

0.15

0.20

0.25

1985

1990

1995

2000

2005

2010

2015

1985

1990

1995

2000

2005

2010

2015

1985

1990

1995

2000

2005

2010

2015

AUS BEL CAN

CHE DEU DNK

ESP FIN FRA

GBR ITA NLD

NOR SWE USA

25+% arc drop, HH market income

25+% arc drop, HH disposable income

Sha

re e

xper

ienc

ing

25%

inco

me

drop

s

CNEF & SLID & CPS & ECHP & EU-SILC

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