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thomas piketty
The World Bank Needs Better Metrics to Understand Inequality
The bank is pushing a statistical notion of “shared prosperity” that, as one expert puts it, “leaves the rich out of the equation!”
Aug 03, 2023
Been eating a bit too much ice cream this sweltering summer? Thinking about going on a bit of a diet? Well, imagine yourself counting calories but exempting anything with sugar from all your counting.
Would that approach help you make an appreciable dent on your excess bodily baggage? Of course not. We can’t eliminate what we ignore. And that goes for inequality as well, over 300 distinguished economists worldwide are charging in a new open letter to the United Nations and the World Bank.
Back in 2015, these eminent economists remind us, the world’s nations came together and adopted a series of “Sustainable Development Goals”—SDGs for short—designed to systematically attack both poverty and climate change. The tenth of these goals specifically aims to “reduce inequality within and among countries.”
Significantly narrowing our world’s deeply unequal distribution of income and wealth will, of course, always remain a tall order, given the political power that grand fortunes create. The World Bank, unfortunately, has made that order taller.
The progress so far on this inequality SDG? Practically nonexistent. By many measures, the open-letter economists note, our “inequalities have worsened,” and that worsening really matters. Without reducing the “deep divide” that separates our global rich from the rest of us, the economists suggest, we’ll forever be going nowhere on “ending poverty and preventing climate breakdown.”
Significantly narrowing our world’s deeply unequal distribution of income and wealth will, of course, always remain a tall order, given the political power that grand fortunes create. The World Bank, unfortunately, has made that order taller.
The U.N.’s member nations have essentially made the bank the world’s official inequality scorekeeper. But the metrics the World Bank uses to track inequality have turned out to be “very inadequate,” charges Jayati Ghosh, a coauthor of the economists’ new open letter.
We already have, Ghosh points out, a variety of established yardsticks for measuring inequality. The Gini coefficient plots actually existing income distributions between 0 for total equality and 1 for infinite inequality. The more easily understandable Palma ratio divides the income share of a society’s top 10% by the income share of its bottom 40%.
The World Bank isn’t relying on either of these standard measures. The bank is instead pushing a statistical notion of “shared prosperity” that, as Ghosh puts it, “leaves the rich out of the equation!” This World Bank measure defines success in the battle against inequality as what we have when the incomes of the bottom 40% are growing faster than the national average income.
On the World Bank’s scorecard, in other words, any nation where the incomes of the top 1% are rising ten times faster than the national average income would be making “progress” against inequality so long as the incomes of the bottom 40% were rising slightly faster than that national average.
This “bizarre notion of ‘shared prosperity,’” says Jayati Ghosh, “provides very misleading estimates of the extent of inequality or progress in reducing it.”
By this bizarre World Bank yardstick, over half the world—53% of the nations the bank sampled—were making progress against inequality just before the pandemic hit and another 11% were showing no change.
Researchers with the World Inequality Database, an ambitious statistical effort that takes inspiration from the ground-breaking research of scholars like Thomas Piketty, paint a starkly different picture. Only 26% of the world’s nations, as measured by the Gini coefficient, are actually showing progress against income inequality, and only 12% are showing progress in Palma-ratio terms.
For three top global inequality watchdogs—Oxfam, the Development Finance International, and the New York University Center for International Cooperation’s Pathfinders initiative—the World Bank’s “shared prosperity” scorekeeping makes plain the need for a real “data revolution” that spotlights the wealth of the world’s wealthiest.
The World Bank’s current approach, these three groups charged in a new report released last month, essentially “ignores what is happening to the rich.” We cannot afford that ignoring, the groups stress, not at a time when “the world’s wealthiest citizens continue to be largely responsible for extreme carbon emissions” while the world’s “poorest citizens pay the price through climate disasters.”
Will critiques like this get the World Bank to change its statistical ways? We’ll see. The bank’s first reaction to the economists’ open letter has been somewhat encouraging. The World Bank, says a spokesperson, agrees “we need to do more to address inequality” and “do better in measuring progress.”
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New Data Show Income of Top 0.1% Soared 345% While That of Bottom 90% Stagnated Over Past 40 Years
"It's all a matter of political choices," progressive economist Thomas Piketty said in a recent interview. "You can have economic justice together with economic prosperity."
Dec 01, 2020
U.S. wage data released this week reveal the continuation of a trend that began at the end of the 1970s, and which has given the United States the dubious distinction of having the worst income inequality among most-developed countries.
The Economic Policy Institute reports that between 1979 and 2019, the top 1% of people in the U.S.--whose mean income was nearly $738,000 in 2018-- have enjoyed 160% income growth, while wages for the bottom 90% have stagnated, rising just 26% over the same 40-year period.
The figures showed massive inequality even among the top 1%, as the highest 0.1%--those making an average of $2.82 million--skyrocketed 345% since 1979.
\u201cThread (1/8): New analysis (@EconomicPolicy) with @joriskywalker of top 1% wage growth:\nhttps://t.co/z43OVMhDDu\u201d— Larry Mishel (@Larry Mishel) 1606924316
While U.S. income inequality is the worst among most-developed nations, its wealth inequality is even more egregious. According to a 2017 report (pdf) from the Institute for Policy Studies, the three wealthiest Americans at the time, Jeff Bezos--who has since become the world's first multicentibillionaire--Bill Gates, and Warren Buffett, collectively held more wealth than the bottom 50% of the population, or some 160 million people.
Experts say it is no accident that the period in which the yawning, ever-growing chasm between rich and poor began coincides with the rise of corporatist and neoliberal economic policies--colloquially dubbed "trickle-down economics"--implemented by conservative leaders including British Prime Minister Margaret Thatcher and President Ronald Reagan in the U.S.
Thomas Piketty, a French economist whose work focuses on economic inequality and who authored the seminal book Capital in the Twenty-First Century and the recently published Capital and Ideology, says the coronavirus pandemic presents an opportunity for U.S. leaders to finally make a serious attempt to address income disparities.
"We have to revisit some of our ideologies, some of what we believe is the conventional wisdom at a given point in time," Piketty toldHill.TV last week. "I think we should use this opportunity to develop more social state, social policies in general, by which I mean a better income support mechanism, safety net, and better access to education."
"There's nothing natural in the way the economy is organized," Piketty continued. "It's all a matter of political choices, of ideology. I think it's important to send a message to working America and to low-wage America that you can have economic justice together with economic prosperity."
Piketty implored the incoming administration of President-elect Joe Biden to embrace egalitarian economic policies espoused by progressives such as ex-presidential primary rivals Sens. Bernie Sanders (I-Vt.) and Elizabeth Warren (D-Mass.), including a tax on billionaires, which he said is "actually pretty popular if you look at the polls."
"I think you need to have a more ambitious policy platform of giving a better chance to more disadvantaged socioeconomic groups," Piketty said. "We're talking about a higher minimum wage, more investment in public universities, more progressive taxation at the top."
"I think it will be a big mistake for the Democratic Party leadership to abandon this kind of idea," he added.
Standing in stark contrast to what economists like Piketty say must be done to combat inequality, the administration of President Donald Trump--who has boasted of giving billionaires a $1.5 trillion tax break--said this week that it supports Senate Republicans' proposal to freeze the wages of the more than two million people who work for the federal government.
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Why We Need a Wealth Tax
Not only would a wealth tax raise revenue and help bring the economy back into balance, but it would also protect our democracy by reducing the influence of the super-rich on our political system.
May 14, 2019
The crisis of income inequality in America is well-known, but there is another economic crisis developing much faster and with worse consequences. I'm talking about inequality of wealth.
The wealth gap is now staggering. In the 1970s, the wealthiest tenth of Americans owned about a third of the nation's total household wealth. Now, the wealthiest 10 percent owns about 75 percent of total household wealth.
"America is now on the cusp of the largest intergenerational transfer of wealth in history."
America's richest one-tenth of one percent now owns as much wealth as the bottom 90 percent.
Wealth is also passed from generation to generation. An estimated 60% of the wealth in the United States is inherited. Many of today's super-rich never did a day's work in their lives. The Walmart heirs alone have more wealth than the bottom 42 percent of Americans combined.
America is now on the cusp of the largest intergenerational transfer of wealth in history. As wealthy boomers die, an estimated $30 trillion will go to their children over the next three decades.
Over time, this wealth will continue to grow even further - without these folks lifting a finger. This concentration of wealth will soon resemble the kind of dynasties common to European aristocracies in the seventeenth and eighteenth centuries.
It's exactly what our Founding Fathers sought to combat by creating a system of government and economy grounded in meritocracy.
Dynastic wealth puts economic power into the hands of a relatively small number of people who make decisions about where and how to invest most of the nation's capital, as well as which nonprofit enterprises and charities deserve support, and what politicians merit their campaign contributions.
That means their decisions have a disproportionately large effect on America's future.
Dynastic wealth also magnifies race and gender disparities. Because of racism and sexism, women and people of color not only earn less. They have also saved less. Which is why the racial wealth gap and the gender wealth gap are huge and growing.
Today, government is financed almost entirely by income taxes and payroll taxes - totally ignoring the giant and growing wealth at the top.
So how do we address the crisis of wealth inequality?
A wealth tax, as proposed by Senator Elizabeth Warren, would begin to tackle all this by placing a 2 percent tax on to wealth in excess of 50 million dollars.
According to estimates, this tax would generate 2.75 trillion dollars over the next decade, which could be used for health care, education, infrastructure, and everything else we need.
Not only would a wealth tax raise revenue and help bring the economy back into balance, but it would also protect our democracy by reducing the influence of the super-rich on our political system.
We must demand an economy that works for the many, not one that concentrates wealth in the hands of a few. A wealth tax is a necessary first step.
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