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Brad DeLong: Three Dimensions of Inequality: Global, Educational/Technological, and Plutocratic

CENTER FOR LATIN AMERICAN STUDIES, UC BERKELEY: INEQUALITY: DIALOGUES FOR THE AMERICAS, FALL 2012: OCTOBER 15, 2012 http://www.clas.berkeley.edu/Events/series/inequalityfall2012/index.html

There are, broadly speaking, three dimensions of Inequality.

The first dimension is global inequality between nations. The fact is that the technologies of the industrial revolution--which are now the common heritage of all humankind--have been successfully implemented much much much much more in some parts of the world than in others. Up until 1975 I would say that the relative gap was growing. The rich North Atlantic plus Japan was successfully adapting these technologies extraordinarily rapidly. But by and large the rest of the world was adopting these technologies significantly more slowly,. Thus the relative gap between the North Atlantic core and the rest was in almost all cases growing rapidly, with the exception of the Southern Cone of South America which played a unique and puzzling role that shifted from decade to decade.

Since 1975, we have become much more optimistic. Our statistics about global inequality since 1975 have shown rapid increases in equality. They have shown an end to the 1800-1975 trend of rising inequality, whereby if you picked two people at random across the globe you would find the relative gap between their standards of living more unequal at later dates than earlier dates.

A potential problem with this shift is that this is entirely due to good growth performance over the past generation in two countries: China and India. That they have had a good generation is wonderful. Will they have another good generation? We hope so.

Should we have confidence? Perhaps we should. These two countries have each had a very good growth generation, together they are 40% of the human race, and so now an extra 40% of human beings are used to rapid economic growth--and perhaps they will demand it of their political leaders in the future. On the other hand, they are just two governments out of 170. What if over the next generation their quality of growth policy falls back and the next two replacement countries that experience growth miracles over the next generation are, say. Jamaica and Bermuda? Then the overall global statistics won’t look nearly as good.

That is our first dimension of inequality: global inequality.

For the second dimension of inequality let me turn to the United States and to the coming to the United States of what we now call the Second Gilded Age.

We used to have a framework for understanding the time dimension of inequality in the United States: we called it the "Kuznets Curve". The United States starts out as a country that is relatively equal--at least among white guys who speak English. Free land, lack of serfdom, the possibility of moving the west if you don’t like the wages you’re being offered in the east--all of these produce a middle-class society. Then comes 1870 or so, and things shift. The frontier closes. Industrial technologies emerge and they are highly productive and also capital intensive. So we move into a world of plutocrats and merchant princes: people in the cities, either off the farms or from overseas, competing against each other for jobs. And we get the extraordinarily stark widening of American income inequality up until the mid-1920’s or so.

This then calls forth a political reaction. Call it progressivism, call it social democracy, call it--in Europe--socialism. The idea is that the government needs to put its thumbs on the scale, heavily, to create an equal income distribution and a middle class society. Progressivism and its candidates are elected to power in democratic countries in the North Atlantic in the twentieth century--in spite of everything you say about Gramsci and hegemony and the ability of money to speak loudly in politics. Thus from 1925 to 1980 we see substantial reductions in inequality in the United States--the creation of a middle-class society, at first only for white guys and then, gradually, for others.

In 1980 things shift again. Since 1980 we have had an extraordinary explosion of inequality in the United States. This explosion has taken place along two dimensions.

First, we have seen extraordinarily rapid growth between the top twenty percent and the lower eighty percent. The benefits to achieving a college education skyrocket--for reasons that I don’t really have time to go into, and for reasons that are still somewhat uncertain.

Second, we have an even larger explosion of inequality between the top .01 percent, the top 15,000 households, and the rest of the top twenty percent. This second explosion is the most puzzling and remarkable feature of the past generation. It puts the American political system under substantial long term threat, if only because equality of opportunity in the next generation will require substantially greater equality of result in this generation than we see today: a world in which Republican presidential candidate Mitt Romney puts his wealth into a blind trust but that blind trust then decides just as a matter of chance that what it should fund Tagg Romney and he then raises money from interests that want the Romney clan to think well of them. That is not a society fulfilling a democratic commitment to equality of opportunity, not at all.

And there is a third dimension, for the rise of the 0.01% produces not just a plutocratic over-class in the United States but a transnational global plutocratic over-class. How many of the bond purchases by the People’s Bank of China over the past generation will wind up in the hands of relatives of Chinese Communist Party leaders? How many of them will be living in Gestad or Monaco or Beverly Hills in ten or fifteen years ago? How is social democratic politics and equality of opportunity going to be attainable in the world of the future? We know that money speaks loudly in politics, but plutocracy seems to be acquiring so much money that speaks very loudly indeed.

And let me stop there, so we can have a dialogue rather than a lecture.