Global Meritocratic Plutocracy

Click here if you'd like to find the video on YouTube.

We live in an era of surging income inequality.

• In the 1970's: 1,0% of US population represented 10% of national income.
• Today: 1,0% of US population represents >20% of national income.
• Today: 0,1% of US population represents >8% of national income.

• In 2005 the combined wealth of Bill Gates and Warren Buffett was the same as the combined wealth of the bottom 40% of US population (120 million people).

Whilst this effect is particularly strong in the US and UK, surging income inequality is a global phenomenon. It is the result of a meritocratic (= performance-oriented) plutocracy (= society ruled and dominated by the small minority of the top wealthiest citizens) fueled by political factors (e.g. lower taxes, deregulation of financial services, privatization) and economic drivers (e.g. globalization, technological revolution).

• Meritocratic plutocracy easily becomes crony capitalism ("Vetternwirtschaft")
  People start to use their economic wealth to manipulate the rules of the global political economy in their favor (e.g. Amazon, Apple, Google, Starbucks are particularly adapt at working the international tax system to lower their tax bill very significantly). Once people have the economic power and the political power that comes with it, they are tempted to start trying to change the rules of the game in their own favor (e.g. Russian oligarchs created the sale and privatization of Russian's resources; deregulation of the financial services in the US and UK).
• Meritocratic plutocracy easily becomes aristocracy
  Plutocrats are aware how important highly sophisticated analytical and quantitative skills are in todays economy. They therefore spend unprecedented time and resources educating their children, widening the educational gap within society. This results in "The Great Gatsby Curve" shown by Alan Krueger and Miles Corak. As income inequality increases, intergenerational social mobility (= likelihood that someone will be able to reach a different (better) income level relative to their parents) decreases. You have to be born in the top part of that ladder to take part in that race.
• These forces hollow out the middle class in western industrialized economies
  Globalization raises many people out of poverty in the emerging markets, whilst it is outsourcing a lot of jobs from the developed western economies. And, in contrast with the industrial revolution, the new technology economy is not creating that many new jobs (e.g. General Motors employed hundreds of thousands, whilst Facebook employs less than 10.000 people).

It is more uncomfortable to think about how the income pie is sliced than to think about how to make it bigger.

There is no economic rule which automatically translates increased economic growth into widely shared prosperity.

Since the late 1990's increases in productivity have been decoupled from increases in wages and employment. Our countries are getting richer, our companies are getting more efficient, but we are not creating more jobs and we are not paying people as a whole more.