Following is a selection of news, research and other developments in relation to economic inequality that has not been separately reported since the last issue of the Evatt Journal:
The rate of return on everything
In late December 2017, the US National Bureau of Economic Research (NBER) published a working paper by Òscar Jordà, Katharina Knoll, Dmitry Kuvshinov, Moritz Schularick and Alan M. Taylor with the extraordinary title: ‘The rate of return on everything: 1879-2015’. The paper found that, if anything, Thomas Piketty's Capital in the Twenty-First Century underestimates the historical rate of return on wealth. Looking at 16 countries, including Australia, they found that wealth accumulates faster—much faster—than economies can keep up, which means that in coming years, wealth inequality is likely to grow even faster than Piketty feared. For Australia, the summary figures for the average annual rate of real return on wealth compared with GDP growth are:
Full Period: Return on Wealth (RoW): 5.91%; GDP growth (GDP): 3.58%;
Post-1950: RoW: 7.4%; GDP: 3.85%;
Post-1980: RoW: 7.55%; GDP: 3.41%
Polarising opportunities in Australia
On 15 January the McKell Institute released Mapping opportunity: a national index on wages and income, which finds the income gap is widening and the opportunity to earn differs markedly across Australia’s 150 federal electorates. The best access to income for working-age Australians tends to be concentrated in the affluent inner-city electorates where education levels and employment variability are higher on average.
Oxfam, Elton John & Trudeau at Davos, as the Top 1% clean up
On the eve of Davos, Oxfam released The growing gulf between work and wealth, reporting that 82% of all wealth created in the last year went to the top 1% while the bottom 50% saw no increase at all. Some 42 people now own the same wealth as the bottom 3.7 billion people. Last year’s figures were revised down from eight to 61 people owning the same as the bottom 50%. The report found that inequality in Australia is the worst it's been in two decades. The wealth held by Australia’s richest 1% grew to 23% in 2017, up from 22% the year before, with the top 1% owning more wealth than the bottom 70%. According to Oxfam, 2017 saw the largest annual increase in the number of Australian billionaires and billionaire-wealth since the start of the century—an increase in total billionaire wealth of roughly $38bn. Oxfam relies on the investment bank Credit Suisse and is based on individual—as distinct from household—units. Meanwhile, the World Economic Forum’s 2018 global risks report warned of widespread dissatisfaction with the distribution of wealth, Elton John blasted the ‘disgraceful inequality’ and Canadian PM Justin Trudeau told the global elite to get its act together on inequality and advancing the role of women.
ACOSS & UNSW join forces
In early February, UNSW Sydney and the Australian Council of Social Service (ACOSS) announced a collaboration to tackle poverty and inequality to the value of $2 million over five years, backed by various ACOSS member organisations, UNSW, and philanthropists. Professor Ian Jacobs, UNSW President and Vice-Chancellor, said the partnership is in line with UNSW Sydney’s commitment to social justice
What policy in a recession?
Prolonged inequality will stymie the capacity to fight recessions, argues a new research paper by Stanford University’s Adrien Auclert and Matthew Rognlie of Northwestern University, published by the Washington Centre for Equitable Growth and the Institute for New Economic Thinking.
Europe’s regions decay
With findings similar to those of Thomas Piketty and others, Joan Rosés and Nikolaus Wolf have traced the long run development of 173 European regions from 1900 until today. In The economic development of Europe's regions: a quantitative history since 1900 (forthcoming Routledge), Rosés and Nikolaus find a U-shaped development of regional inequality with a turning point around 1980, when it all ended with a sharp increase in top incomes, stagnating middle incomes, and a real decline for the poor. The rapid decay of formerly prosperous parts of Europe undermines social peace and political stability, and it's not only the poor who lose but the middle-income groups that are faced with a choice between migration (at the risk of losing their identity) and staying (at the risk of further decline). Or, put differently, between ‘exit’ and ‘voice’.
Propaganda on dividend imputation
In March, the Grattan Institute rubbished the Turnbull government’s criticism of Labor’s proposed reform of Australia’s dividend imputation system. The government’s claims that 54 per cent of people affected by Labor’s policy have taxable incomes of less than $18,200 are deeply misleading, as are the claims that 86 per cent of the value of all franking credits refunded are received by those with taxable incomes of less than $87,000 a year. Labor has exempted pensioners in any event.
Corbyn amplifies his policies
The British Labour Party has released a new policy paper titled A world for the many, not the few, setting out five new priorities to help tackle the root causes that lie at the heart of that systemic inequality, poverty and climate change
The high cost of education inequality in Australia
In an April report What price the gap? Education and inequality in Australia, the Public Education Foundation has found that growing educational inequality over the six years from 2009-2015 cost Australia around $20.3 billion, equivalent to 1.2% of GDP. The total cost of Australia’s decline in educational performance over the 2009-15 has been over $118 billion, of which $20.3 billion was the ‘inequality effect’. The cost was calculated using Australia's data from the OECD's Programme for International Student Assessment (PISA) and an OECD formula used to measure the impact on long-term economic performance.
Top 1% will own two-thirds of the world’s wealth in 12 years
A projection by the UK House of Commons library has found that, if trends seen since the 2008 financial crash continues, the top 1% will hold 64% of the world’s wealth by 2030. Even taking the financial crash into account and measuring assets over a longer period, they will still hold more than half of all wealth. Since 2008, the wealth of the richest 1% has been growing at an average of 6% a year—much faster than the 3% growth in wealth of the remaining 99% of the world’s population. Should that continue, the top 1% will hold wealth equating to $305 trillion (£216.5tn), up from $140tn.
OECD backs wealth taxes absent inheritance taxes
Governments should use tax to reduce wealth inequality, with inheritance tax the favoured route, according to a new report by the OECD, The role and design of net wealth taxes. Wealth such as property and share portfolios grows and becomes self-reinforcing because the rich have more to invest in higher-yielding assets, greater financial knowhow and better access to investment advice. The report examines the use of net wealth taxes—both currently and historically—across the OECD to raise revenue and reduce inequality and finds scope in countries where the taxation of capital income is low, or inheritance taxes are not levied.
Stiglitz wins 2018 Peace Prize
The distinguished American economist Joseph Stiglitz has been awarded the 2018 Sydney Peace Prize for leading a global conversation about the crisis caused by economic inequality, for exposing the violence inflicted by market fundamentalism, and for championing just solutions to the defining challenge of our time: how can we break the cycle of power and greed to enable all peoples and the planet to flourish? Professor Stiglitz will accept the prize in the Sydney Town Hall on 15 November.
Anthony Ashbolt is a lecturer in politics at the University of Wollongong. This is the text of his speech at the City Diggers Club on launching Keating and his Party Room by Jim Snow, published by Australian Scholarly Publishing in 2017 (637 pages, $39.95).
Evatt Foundation,, 'Inequality round-up', Evatt Journal, Vol.17, No. 1, May 2018.<https://evatt.org.au/ inequality-round-up>