Wealth & Inequality: Back to the Future

What fraction of total economic growth accrues to the top 10%, top 1%, etc.? How does growth per capita of the bottom 90% compare to overall growth? Zucman discusses his research and efforts to bring more hard data into the inequality dialogue.

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From the collection: America's Dual Economy: Why the Middle Class Is Vanishing


From the collection America's Dual Economy: Why the Middle Class Is Vanishing

Let me tell you about the very rich. They are different from you and me.

F. Scott Fitzgerald

Fitzgerald is responsible for the quote, but in his scholarship Gabriel Zucman actually tries to quantify the ways in which the rich are in fact different from the rest of us. For one thing, they pay a lot less in taxes proportionate to their income and wealth. And as the recent revelations from the “Panama Papers” illustrate, a considerable amount of the rich’s income is directly toward extensive tax evasion schemes, which further exacerbate prevailing inequality.

How big is this problem? Let’s take the US, where the data is most comprehensive. In America, according to research by Professor Zucman (and Professor Emanuel Saez), the respective shares of wealth held by the bottom 90 per cent and the top 0.1 per cent from 1917 to 2012 (note that is not the top 1 per cent but the top 0.1 per cent), are back to where they were in the early 1930s when robber barons ruled.

The top 0.1 per cent now hold 22 per cent of the total wealth in the US about the same as the bottom 90 per cent. The difference is held by the group defined by the 90th to 99.9th percentile which holds 54.4 per cent. According to Zucman (and Saez), the key driver of the rapid increase in wealth at the top is the surge in the share of income, in particular labor income, earned by top wealth holders. Income inequality has a snowballing effect on the wealth distribution: top incomes are being saved at high rates, pushing wealth concentration up; in turn, rising wealth inequality leads to rising capital income concentration, which contributes to further increasing top income and wealth shares.

And as to the bottom 90 per cent – including the “rise of middle-class wealth” – during the full employment era, the authors show that better pension systems and higher home ownership rates saw the “bottom 90% wealth share gradually increased from 20% in the 1920s to a high of 35% in the mid-1980s”.

But the onset of neo-liberalism witnessed a sharp reversal of past trends, according to Zucman, whereby the bottom 90% wealth share has fallen since then, to about 23% in 2012. Pension wealth has continued to increase but not enough to compensate for a surge in mortgage, consumer credit, and student debt.

The rise in debt coincided with three other causal trends. First, the suppression of real wages (as above) which meant that consumption expenditure could really only be maintained by accessing credit. Second, the rise of the financial engineers and their elaborate and usually crooked or misleading marketing schemes to force more debt onto the the naive households. This included the rise of the “financial planner” – if ever there was a blight on society, it is this group. Third, the increasing tendency for national governments to pursue fiscal surpluses, which further squeezed private purchasing power and promoted the credit binge. Remember a government surplus (deficit) is to the dollar a non-government deficit (surplus). There is no way around that accounting statement.

A rising non-government deficit means more private debt and an erosion of wealth. Further, fiscal surpluses destroy private wealth. So the austerity that neo-liberalism has attempted to master squeezes private wealth holdings from both directions.

Zucman’s unhappy conclusion is that the result is that we are seeing a the fall of middle-class saving, a fall which itself may partly owe to the low growth of middle-class income, to financial deregulation leading to some forms of predatory lending, or to growing behavioral biases in the saving decisions of middle-class households.

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