Inequality is not inevitable – but the US ‘experiment’ is a recipe for divergence

Is the rise of inequality inevitable? Today’s inaugural World Inequality Report shows that income inequality has increased in nearly every country around the world since 1980 – but at very different speeds.

Comparing the divergent paths of the United States and western Europe, for example, we see that it is possible for institutions and policymakers to tame the unequalising forces of globalisation and technological change. And it is also possible to unleash those forces with renewed vigour, as in the case of the latest US tax plan.
World’s richest 0.1% have boosted their wealth by as much as poorest half
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In 1980, both sides of the Atlantic showed similar levels of inequality. Since then, however, the gap between the richest and the rest has surged in the US, while in western Europe it has increased only moderately.

In both regions, the top 1% of adults earned about 10% of national income in 1980. Today that cohort’s share has risen modestly to 12% in western Europe, but dramatically to 20% of all income in the US. The good times have rolled especially fast for those at the very top in the US, with annual income booming by 205% since 1980 for the top 1%, and by 636% for the top 0.001%.

But this boomtime at the very top has not benefited the rest of the American population in any measurable way. The average annual wage of the bottom 50% has stagnated since 1980 at about US$16,000 per adult (after adjusting for inflation and before taking into account taxes and transfers). It’s a tale of two countries: the top half has been growing at roughly the same rate as China, while for the 117 million American adults in the bottom 50%, income growth has been nonexistent for a generation. In western Europe, by contrast, incomes of the bottom half have matched overall economic growth over the last quarter of a century.

What explains this dramatic divergence? The US has experienced a perfect storm of radical policy changes which have all contributed to this surge in inequality. The tax system, which used to be progressive, has become much less so over time. The federal minimum wage has collapsed, unions have been weakened and access to higher education has become increasingly unequal. At the same time, deregulation in the finance industry and overly protective patent laws have contributed to booms on Wall Street and in the healthcare sector, which now makes up 20% of national income.

– The Guardian

Read the full article here.