We Have the Tools to Reverse the Rise in Inequality by Olivier Blanchard and Dani Rodrik published by PIIE (2019).
“Inequality is widening, posing major moral, social, and political challenges to which policymakers must react. A combination of forces since the 1980s—globalization, new technologies, and institutional changes—has generated strong centrifugal effects in advanced economies, deepening existing divisions and creating new ones. Groups with the assets, skills, talents, and (sometimes) political connections needed to take advantage of these changes have benefited handsomely from the economic opportunities that were created. For many others, however, the same underlying trends have weakened employment prospects, suppressed incomes, and heightened economic insecurity.
Reacting to this evidence, we organized a major conference on inequality at the Peterson Institute for International Economics in October 2019. The conference focused on the tools that policymakers already have or could have to combat inequality.
The conference started with a statistical overview by Lucas Chancel of the changes in the distributional landscape. Among the key takeaways: After declining for many decades, the income shares of the richest 1 percent in Western Europe and the United States have increased from around 8 percent in the 1970s and 1980s to 11 and 20 percent, respectively, today. In 1980, the income share of the bottom 50 percent stood at 20 percent in both regions. Over the subsequent three-and-a-half decades, this figure dropped to 12.5 percent in the United States and 18 percent in Europe.
Even though the United States and Europe have been exposed to broadly similar trends in globalization and technology, the rise in inequality has been much sharper in the United States, where the wealth share of the top 1 percent has risen from 25 percent in the late 1970s to around 40 percent today. Also, greater income and wealth inequality in the United States has been accompanied by reductions in key indicators of social mobility. The percentage of children in the United States earning more than their parents has fallen from 90 percent in the 1940s to around 50 percent today (reflecting in part lower underlying economic growth rates). On the positive side, gender and racial inequalities have generally come down (but remain high).
As Chancel noted, these differences suggest that countries have dealt differently with the effects of global economic and technological forces on wealth and income distribution. Income and wealth gaps widened less in countries with more progressive tax regimes, strong labor market institutions (such as trade unions and minimum wage laws), broad-based access to education and health services, and generous social transfers…”
