Inequality in Ireland and elsewhere battle between rich and well-off
US data show that the ultra-rich have seen the biggest rises in wealth in recent decades and both in the US, Ireland and elsewhere, the battles on inequality are being waged between elites of the rich and the well-off.
An Oct 2014 paper by Emmanuel Saez of the University of California Berkeley, and his French compatriot Gabriel Zucman, of the London School of Economics, showed that in the mid-1980s the ultra rich — the 0.01% with a net worth of over $100m — owned just over 4% of the total wealth in the United States. By 2012, the share had almost tripled to 11%. Those worth between $20m and $100m saw their wealth share almost double, while the those with wealth between $4m and $20m only saw a slight improvement and the other 99% of households saw a relative decline in wealth.
Last December a Pew Research Center analysis of wealth found that the gap between America’s upper-income and middle-income families has reached its highest level on record. In 2013, the median wealth of the nation’s upper-income families ($639,400) was nearly seven times the median wealth of middle-income families ($96,500), the widest wealth gap seen in 30 years when the Federal Reserve began collecting these data.
In addition, America’s upper-income families have a median net worth that is nearly 70 times that of the country’s lower-income families, also the widest wealth gap between these families in 30 years.
This month the Census Bureau reported that median household income in the United States in 2014 was $53,657, not statistically different in real terms from the 2013 median income. It was 7.2% lower than the median household income peak ($57,843) in 1999 — the median is the point where half of households are above and half below.
Last week we covered trends in the world's other rich countries here and as for global poverty, Martin Ravallion, economist at Georgetown University’s Center for Economic Research, said in a Dec 2014 paper that:
"there has been very little absolute gain for the poorest. Using an absolute approach to identifying the floor, the increase in the level of the floor seen over the last 30 years or so has been small — far less than the growth in mean consumption. The modest rise in the mean consumption of the poor has come with rising inequality (specifically, a rising variance normalized by the mean poverty gap), leaving room for only a small gain in the level of living of the poorest. The bulk of the developing world’s progress against poverty has been in reducing the number of people living close to the consumption floor, rather than raising the level of that floor."
Prof Ravallion who was a former head of research at the World Bank cites the moral philosopher John Rawls, and Mahatma Gandhi who said in 1948: “Recall the face of the poorest and the weakest man whom you may have seen, and ask yourself if the step you contemplate is going to be of any use to him. Will he gain anything by it?”
Science magazine reports this month on research which analyses how elite Americans display distinctive attitudes on questions concerning economic inequality. The study included experiments that varied the price of redistribution of donations, so that sometimes giving was expensive (inefficient) and sometimes giving was less costly (efficient).
The study measured how subjects trade off efficiency against equality, and fairness against selfishness. The study also predicted the career choices of some Yale Law School students: equality-minded subjects were more likely to be employed at nonprofit organizations, over efficiency-minded subjects.
The authors conclude:
"From a policy perspective, our results suggest a new explanation for the modesty of the policy response to the rise in income inequality in the United States: Regardless of party, the policy making elite is significantly more focused on efficiency vis-à-vis equality than is the US public."
In Ireland during the recession the public arguments between tenured academics and high profile commentators about austerity were in effect mainly between people who hadn't experienced it.
There were public book tours where members of the public paid to hear the oracles dispense wisdom on economic policy or the lack of it.
However, the striking fact that for example the poor occupational pension coverage in Ireland's private sector is generally ignored in public debate illustrates what happens when it's not a personal issue for ministers, policy makers, academics and media editors.
This is what the OECD wrote in 2014:
"Ireland and New Zealand are the only OECD countries that do not have a mandatory earning-related pillar to complement the State pension at basic level, thus they face the challenge of filling the retirement savings gap. Private pension coverage, both in occupational and personal pensions, is uneven and needs to be increased urgently."
This month Bono, the lead singer of U2, the Irish rock group, called for a Marshall Plan for Africa but he either doesn't know about or omitted an inconvenient reference to the current work of the Netherlands (where U2 has a letter-box company for tax purposes), on closing down Dutch companies that are used to shift profits from Africa that cost countries there at least $100bn in tax revenues each year.
Lilianne Ploumen, Dutch minister for foreign trade and development cooperation, wrote last July:
"In developing countries, tax systems often have a regressive effect because they tend to rely heavily on consumption taxes, like VAT and excise duty, or on import levies. The poor end up paying a relatively high amount of tax because they spend all their income on goods subject to VAT, such as groceries and phone credit. And they pay import levies on their mobiles. There is no tax-free shopping for the poor."
In the US where a business school professor can earn up to $150,000 for a speech, Paul Krugman and Joseph Stiglitz, two of the country's wealthiest economists, are the best known critics of inequality and austerity.
When you have fan base that comprises the most likely folk to buy your next book, are you going to present home truths to them? Besides, there is a conflict of interest when critics are also beneficiaries of the stacked deck?
David Brooks, a New York Times conservative columnist, wrote last year:
"The modern left is led by smart professionals — academics, activists, people in the news media, the arts and so on — who tend to live in and around coastal cities. If you are a young professional in a major city, you experience inequality firsthand. But the inequality you experience most acutely is not inequality down, toward the poor; it’s inequality up, toward the rich. They’re the people who are buying Thomas Piketty’s book advocating redistribution of wealth."
Apart from future growth, which is uncertain, emerging corporate tax reform in particular should reduce the massive avoidance of recent decades. However, a country like Ireland that is over-dependent on foreign investment has less options.
Jeremy Corbyn, the new UK Labour Party leader, and Angela Merkel, German chancellor, have at least one thing in common — their personal frugality.
Corbyn has usually had the lowest expenses claims of any MP according to the BBC.
"Well, I don't spend a lot of money, I lead a very normal life, I ride a bicycle and I don't have a car," he told The Guardian earlier this year.
However, most politicians gravitate towards the money class.
This week's Economist says on Alexis Tsipras, Greek prime minister:
"Mr Tsipras’s turn away from leftist orthodoxy has manifested itself in his private life as well. He spent the summer staying at a Greek shipowner’s villa by the sea, commuting by helicopter to his office. This month he enrolled his seven-year-old son at one of Greece’s most expensive private schools. Some Syriza officials voiced disapproval. But the size of Mr Tsipras’s election win — Syriza finished less than one%age point down from January — suggests that voters were not concerned."
Yanis Varoufakis, then finance minister and now back in his old job as a professor of economics, appeared with his wife in a six page feature in Paris Match, the French lifestyle magazine (see below) — what austerity?
Pic top of page: Enda Kenny, taoiseach, at the Low Pay Commission press conference, July 2015.