Income Inequality: World Bank, Luxembourg Income Study Center, Thomas Piketty!

Dear Commons Community,

In the past few years, the issue of income inequality has become a major rallying cry among social, political, and economic activists seeking to redistribute wealth in the United States and around the world.  Occupy Wall Street in 2011 was one of several populist movements that captured the essence of this issue.  Thomas Piketty, in his current best seller, Capitalism in the Twenty-First Century, has stoked the issue further. However, a recent study by the World Bank and the Luxembourg Income Study Center, offers that globally, income inequality has been falling. As reported in today’s  New York Times

“Income inequality has surged as a political and economic issue, but the numbers don’t show that inequality is rising from a global perspective. Yes, the problem has become more acute within most individual nations, yet income inequality for the world as a whole has been falling for most of the last 20 years. It’s a fact that hasn’t been noted often enough.

The finding comes from a recent investigation by Christoph Lakner, a consultant at the World Bank, and Branko Milanovic, senior scholar at the Luxembourg Income Study Center. And while such a framing may sound startling at first, it should be intuitive upon reflection. The economic surges of China, India and some other nations have been among the most egalitarian developments in history.”

With regard to the United States, income inequality has been rising due to a number of factors including those that have influenced the global income situation.

“International trade has drastically reduced poverty within developing nations, as evidenced by the export-led growth of China and other countries. Yet contrary to what many economists had promised, there is now good evidence that the rise of Chinese exports has held down the wages of some parts of the American middle class. This was demonstrated in a recent paper by the economists David H. Autor of the Massachusetts Institute of Technology, David Dorn of the Center for Monetary and Financial Studies in Madrid, and Gordon H. Hanson of the University of California, San Diego.

At the same time, Chinese economic growth has probably raised incomes of the top 1 percent in the United States, through exports that have increased the value of companies whose shares are often held by wealthy Americans. So while Chinese growth has added to income inequality in the United States, it has also increased prosperity and income equality globally.

The evidence also suggests that immigration of low-skilled workers to the United States has a modestly negative effect on the wages of American workers without a high school diploma, as shown, for instance, in research by George Borjas, a Harvard economics professor. Yet that same immigration greatly benefits those who move to wealthy countries like the United States. (It probably also helps top American earners, who can hire household and child-care workers at cheaper prices.) Again, income inequality within the nation may rise but global inequality probably declines, especially if the new arrivals send money back home.”

Assuming that all of the above is correct, while we can take heart that global income inequality is abating, here in the United States the situation is getting worse and is affecting our democratic principles to say nothing about the lives of the vast majority of Americans especially those living at or near poverty levels.  Thomas Piketty in his extensive analysis of the issue cautions that the top one percent has used their wealth to influence government policy in this country to the point that “a drift toward oligarchy is real and gives little reason for optimism about where the United States is headed.” (p. 514, Capitalism in the Twenty-First Century).



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