The problem of inequality has been fashionable for a long time. It was already present in all analyzes of social unrest in the United States and Europe long before Thomas Piketty published in 2013 capital. But if his study of the modern history of inequality made him a rock star in economics, it was because of the academic rigor with which he provided data and possible solutions to an issue that explained, in part, the resurgence of political formulas democratic. The relevance of the topic does not end there. And it is that as Lucas Chancel says, it is very possible that excessive inequality is not even good for the productivity of an economy. From the World Inequality Lab, which Chancel co-directs with Piketty, Gabriel Zucman, Emmanuel Saez and Facundo Alvaredo, they are collecting data on the distribution of income and wealth in practically every country in the world to investigate how they are related to macroeconomic performance.
Contrary to those who consider inequality as a symptom of a dynamic capitalism that rewards its innovators and entrepreneurs, the example of the Scandinavian countries and the Chancel data speak of very innovative economies and societies, with very good economic growth, where the Inequality is at comparatively low levels. “This is clearly the case and not only when you compare different countries today, but when you look back and see what each country was like 15, 30 or 70 years ago, when in most of the developed world inequality in income and heritage was much lower than today,” he says. According to his estimates, the income of 1% of Americans went from representing a tenth of the country’s GDP 40 years ago to representing a fifth today. “And the current growth data in the US is lower than what it was in the 1960s, 1970s or 1980s,” he explains.
To understand how inequality might affect productivity, Chancel cites the results of an experiment with young students selling subscriptions to NGOs. Without explaining the reason, some had their salaries lowered and others raised it by the same percentage. “The ones who got better paid didn’t increase their productivity, but the ones who got worse did have a clear drop in the number of subscriptions sold because they didn’t like being treated unfairly,” she says.
And the argument of innovation? Isn’t inequality the inevitable byproduct of an incentive mechanism that rewards innovators for their contributions to society? Chancel’s answer, once again, is no. “A lot of crucial innovations happened before the arrival of these giant super-billionaires today, inventors benefited from their innovations, yes, but they didn’t need the reward to be that high,” he says. As the great developments of the 19th and 20th centuries demonstrate, “innovative people are going to want to continue advancing in their own thing, they don’t need the prospect of becoming super-multibillionaires.”
According to him, to promote innovation it is much more important to use classic mechanisms to reduce inequality (universal health and a good public education system) that give people with that talent the chance to develop it. Not to mention state investment in infrastructure and basic research. “Without the billions of dollars invested by the US government in infrastructure and internet development, you wouldn’t have Bill Gates or Mark Zuckerberg, a no-brainer that these tech entrepreneurs forget all too easily,” he says.
The problem is that an excessive concentration of profits in those at the top reduces the portion available to those at the bottom. Not only because of the greater facilities they have to avoid their taxes, but also because of the pressure they exert on public opinion to reduce them even more, Chancel insists. In his opinion, if governments have more and more difficulties in raising the necessary money to invest in infrastructure, health and education, it is also due to this: “Those who have money use it buying study centers and media power to tell the people who would be much better off without taxes, that this is the best for innovation and growth”.
For Nobel laureate in Economics Angus Deaton, the problem of extreme inequality is so serious that it puts the entire system at risk, “because people get angry and can even rebel against democracy.”
To those who tell him that economists only have to worry about poverty (a variable in which much of the world is remarkably better off than it was a hundred years ago), and that thanks to inequality we have innovators and entrepreneurs, Deaton responds with a parable. about good and bad inequality, not as separate from each other as it might seem. The good one, he says, is the one that is generated when the person who has created something like Tesla or Amazon becomes a millionaire because he has added value to the whole of society. “But when the rich begin to hire thousands of lobbyists so that their interests are heard in parliament or to obtain special favors from governments and begin to leave the rest of the population out of political decisions, they are also generating economic inequality, only bad and dangerous,” he says.
According to Deaton, even those who started out with good inequality often end up producing bad inequality. “Google had on their page that motto of ‘do no harm’, and they said that they didn’t hire lobbyists in Washington because they didn’t need them, they were a good company and it was enough for them to sell their product… Now they are something like the number one lobbyists one from Washington and they have already removed from their page about not doing evil”.
Economic insecurity is a field of research related to inequality because it is solved with the same mechanism of income and benefits provided for in the welfare state. According to Olga Cantó, from the University of Alcalá de Henares, its most accepted definition is “to believe that some part of economic well-being is going to have a negative future evolution”. According to her measurements, Spain is one of the European countries where economic insecurity has spread most from the lower class to the middle class. “Insecurity hampers growth because it acts in the same way as inequality and poverty,” she says. “It is a relevant variable because income falls seriously affect people’s well-being, they leave much greater traces than an increase in income of the same size,” explains Cantó. “That is why I always say that taxes are not only used to redistribute but to stabilize the income of people who may need it at specific times.”
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