Martin Wolf, chief economics commentator for the London Financial Times, which is the newspaper of choice for the European economic elite, is concerned about the “new gilded age” in the US:
Between 1997 and 2001, the top 10 per cent of US earners received 49 per cent of the growth in aggregate real wages and salaries, while the top 1 per cent received an astonishing 24 per cent. Meanwhile, the bottom 50 per cent received less than 13 per cent. Why is this happening? And should non-egalitarians care?
Most of the growth in the US has gone to a small group of wealthy corporate managers while the rest of the people got the crumbs from the table. Why is this happening?
.. the normal link between productivity and real earnings is broken. Thus, between 1966 and 2001, real median earnings (the earnings of those half way up the distribution) rose by only 11 per cent. Over the same period, the earnings of those at the 90th percentile (10 per cent from the top) rose by 58 per cent, of those at the 99th percentile by 121 per cent, of the top 0.1 per cent by 236 per cent and of the top 0.01 per cent by 617 per cent.
Now, Martin Wolf is no socialist but he is concerned because this is bad for business and economics in the long run. Even if you don’t care about inequality at an ethical or moral level, you should care because it will damage the economy and the political life of the country in the long run:
First, income mobility does not offset the rising inequality. As the two Northwestern university authors note, “not only are half the penthouse dwellers still there a decade later, but the differential opulence of the penthouse keeps increasing relative to the basement”. The chances of leaving the basement are low. Moreover, intergenerational opportunity is also adversely affected.
Second, the failure of an economy to generate rising incomes for a majority over decades causes frustration. US individualism may contain this reaction. Most cultures cannot.
Third, politics inevitably become more populist: the US “right” has become “pluto-populist” – an alliance of free-marketeers, nationalists and social conservatives – and the “left” is increasingly “protecto-populist” – an alliance of protectionists, dirigistes, social liberals and anti-nationalists. This endangers both intellectual coherence and sensible policymaking.
Economic populism makes irrational economic decisions. This isn’t good for anyone in the long run. Even the sensible members of the policy making elite are worried.
