The Global Economy in Turbulent Times

CHAPTER 94 Rising Income Inequality and the Piketty Blockbuster¹

It is undisputable that the richest 1 percent in advanced economies has captured a disproportionate share of overall income growth over the past three decades—so says the Organisation for Economic Co-operation and Development (OECD), the 34-rich-nations’ club. The lowest wage earners have scarcely progressed, and some have even fallen behind in real terms over this period. This gap will widen without direct policy action. So much so that President Barack Obama identified income inequality as “the defining issue of our time” in his 2014 State of the Union speech. In the United States, real income of the top 1 percent rose 47 percent.

Looked at differently, 95 percent of gains of the recent recovery have flowed to the richest 1 percent of US households and in which social mobility has stagnated even as inequality has widened. Indeed, the top 1 percent is close to full recovery from the financial crisis, while the bottom 99 percent has yet to really recover.

In 1912, an Italian statistician, Corrado Gini, invented the Gini coefficient (GC)—used ever since as the universal measure of income concentration anywhere. On a scale from zero (representing perfect equality) to 100, where all income flows to a single person (perfect inequality), as a rule of thumb, at over 40 a society is regarded as increasingly unequal. The US index now “ranks with Jamaica and Argentina,” so says President Obama. Latin America’s GC is about ...