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So here's the most important economic fact of our time.

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We are living in an age of surging income inequality,

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particularly between those at the very top

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and everyone else.

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This shift is the most striking in the U.S. and in the U.K.,

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but it's a global phenomenon.

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It's happening in communist China,

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in formerly communist Russia,

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it's happening in India, in my own native Canada.

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We're even seeing it in cozy social democracies

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like Sweden, Finland and Germany.

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Let me give you a few numbers to place what's happening.

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In the 1970s, the One Percent

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accounted for about 10 percent of the national income

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in the United States.

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Today, their share has more than doubled

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to above 20 percent.

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But what's even more striking

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is what's happening at the very tippy top

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of the income distribution.

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The 0.1 percent in the U.S.

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today account for more than eight percent

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of the national income.

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They are where the One Percent was 30 years ago.

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Let me give you another number to put that in perspective,

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and this is a figure that was calculated in 2005

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by Robert Reich,

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the Secretary of Labor in the Clinton administration.

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Reich took the wealth of two admittedly very rich men,

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Bill Gates and Warren Buffett,

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and he found that it was equivalent to the wealth

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of the bottom 40 percent of the U.S. population,

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120 million people.

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Now, as it happens,

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Warren Buffett is not only himself a plutocrat,

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he is one of the most astute observers of that phenomenon,

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and he has his own favorite number.

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Buffett likes to point out that in 1992,

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the combined wealth of the people

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on the Forbes 400 list --

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and this is the list of the 400 richest Americans --

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was 300 billion dollars.

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Just think about it.

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You didn't even need to be a billionaire

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to get on that list in 1992.

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Well, today, that figure has more than quintupled

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to 1.7 trillion,

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and I probably don't need to tell you

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that we haven't seen anything similar happen

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to the middle class,

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whose wealth has stagnated if not actually decreased.

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So we're living in the age of the global plutocracy,

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but we've been slow to notice it.

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One of the reasons, I think,

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is a sort of boiled frog phenomenon.

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Changes which are slow and gradual

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can be hard to notice

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even if their ultimate impact is quite dramatic.

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Think about what happened, after all, to the poor frog.

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But I think there's something else going on.

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Talking about income inequality,

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even if you're not on the Forbes 400 list,

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can make us feel uncomfortable.

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It feels less positive, less optimistic,

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to talk about how the pie is sliced

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than to think about how to make the pie bigger.

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And if you do happen to be on the Forbes 400 list,

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talking about income distribution,

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and inevitably its cousin, income redistribution,

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can be downright threatening.

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So we're living in the age of surging income inequality,

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especially at the top.

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What's driving it, and what can we do about it?

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One set of causes is political:

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lower taxes, deregulation, particularly of financial services,

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privatization, weaker legal protections for trade unions,

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all of these have contributed

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to more and more income going to the very, very top.

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A lot of these political factors can be broadly lumped

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under the category of "crony capitalism,"

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political changes that benefit a group

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of well-connected insiders

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but don't actually do much good for the rest of us.

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In practice, getting rid of crony capitalism

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is incredibly difficult.

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Think of all the years reformers of various stripes

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have tried to get rid of corruption in Russia, for instance,

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or how hard it is to re-regulate the banks

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even after the most profound financial crisis

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since the Great Depression,

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or even how difficult it is to get the big multinational companies,

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including those whose motto might be "don't do evil,"

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to pay taxes at a rate even approaching that

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paid by the middle class.

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But while getting rid of crony capitalism in practice

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is really, really hard,

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at least intellectually, it's an easy problem.

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After all, no one is actually in favor of crony capitalism.

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Indeed, this is one of those rare issues

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that unites the left and the right.

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A critique of crony capitalism is as central

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to the Tea Party as it is to Occupy Wall Street.

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But if crony capitalism is, intellectually at least,

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the easy part of the problem,

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things get trickier when you look at the economic drivers

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of surging income inequality.

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In and of themselves, these aren't too mysterious.

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Globalization and the technology revolution,

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the twin economic transformations

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which are changing our lives

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and transforming the global economy,

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are also powering the rise of the super-rich.

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Just think about it.

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For the first time in history,

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if you are an energetic entrepreneur

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with a brilliant new idea

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or a fantastic new product,

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you have almost instant, almost frictionless access

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to a global market of more than a billion people.

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As a result, if you are very, very smart

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and very, very lucky,

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you can get very, very rich

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very, very quickly.

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The latest poster boy for this phenomenon

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is David Karp.

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The 26-year-old founder of Tumblr

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recently sold his company to Yahoo

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for 1.1 billion dollars.

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Think about that for a minute:

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1.1 billion dollars, 26 years old.

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It's easiest to see how the technology revolution

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and globalization are creating this sort of superstar effect

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in highly visible fields,

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like sports and entertainment.

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We can all watch how a fantastic athlete

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or a fantastic performer can today leverage his or her skills

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across the global economy as never before.

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But today, that superstar effect

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is happening across the entire economy.

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We have superstar technologists.

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We have superstar bankers.

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We have superstar lawyers and superstar architects.

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There are superstar cooks

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and superstar farmers.

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There are even, and this is my personal favorite example,

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superstar dentists,

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the most dazzling exemplar of whom

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is Bernard Touati, the Frenchman who ministers

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to the smiles of fellow superstars

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like Russian oligarch Roman Abramovich

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or European-born American fashion designer

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Diane von Furstenberg.

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But while it's pretty easy to see how globalization

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and the technology revolution

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are creating this global plutocracy,

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what's a lot harder is figuring out what to think about it.

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And that's because,

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in contrast with crony capitalism,

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so much of what globalization and the technology revolution

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have done is highly positive.

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Let's start with technology.

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I love the Internet. I love my mobile devices.

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I love the fact that they mean that

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whoever chooses to will be able to watch this talk

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far beyond this auditorium.

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I'm even more of a fan of globalization.

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This is the transformation

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which has lifted hundreds of millions

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of the world's poorest people out of poverty

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and into the middle class,

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and if you happen to live in the rich part of the world,

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it's made many new products affordable --

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who do you think built your iPhone? —

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and things that we've relied on for a long time much cheaper.

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Think of your dishwasher or your t-shirt.

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So what's not to like?

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Well, a few things.

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One of the things that worries me

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is how easily what you might call meritocratic plutocracy

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can become crony plutocracy.

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Imagine you're a brilliant entrepreneur

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who has successfully sold that idea or that product

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to the global billions

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and become a billionaire in the process.

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It gets tempting at that point

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to use your economic nous

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to manipulate the rules of the global political economy

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in your own favor.

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And that's no mere hypothetical example.

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Think about Amazon, Apple, Google, Starbucks.

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These are among the world's most admired,

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most beloved, most innovative companies.

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They also happen to be particularly adept

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at working the international tax system

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so as to lower their tax bill very, very significantly.

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And why stop at just playing the global political

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and economic system as it exists

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to your own maximum advantage?

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Once you have the tremendous economic power

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that we're seeing at the very, very top of the income distribution

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and the political power that inevitably entails,

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it becomes tempting as well

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to start trying to change the rules of the game

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in your own favor.

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Again, this is no mere hypothetical.

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It's what the Russian oligarchs did

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in creating the sale-of-the-century privatization

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of Russia's natural resources.

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It's one way of describing what happened

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with deregulation of the financial services

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in the U.S. and the U.K.

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A second thing that worries me

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is how easily meritocratic plutocracy

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can become aristocracy.

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One way of describing the plutocrats

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is as alpha geeks,

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and they are people who are acutely aware

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of how important highly sophisticated

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analytical and quantitative skills are in today's economy.

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That's why they are spending

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unprecedented time and resources

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educating their own children.

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The middle class is spending more on schooling too,

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but in the global educational arms race

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that starts at nursery school

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and ends at Harvard, Stanford or MIT,

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the 99 percent is increasingly outgunned

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by the One Percent.

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The result is something that economists Alan Krueger

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and Miles Corak call the Great Gatsby Curve.

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As income inequality increases,

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social mobility decreases.

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The plutocracy may be a meritocracy,

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but increasingly you have to be born

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on the top rung of the ladder to even take part in that race.

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The third thing, and this is what worries me the most,

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is the extent to which those same largely positive forces

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which are driving the rise of the global plutocracy

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also happen to be hollowing out the middle class

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in Western industrialized economies.

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Let's start with technology.

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Those same forces that are creating billionaires

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are also devouring many traditional middle-class jobs.

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When's the last time you used a travel agent?

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And in contrast with the industrial revolution,

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the titans of our new economy

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aren't creating that many new jobs.

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At its zenith, G.M. employed hundreds of thousands,

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Facebook fewer than 10,000.

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The same is true of globalization.

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For all that it is raising hundreds of millions of people

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out of poverty in the emerging markets,

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it's also outsourcing a lot of jobs

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from the developed Western economies.

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The terrifying reality is

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that there is no economic rule

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which automatically translates

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increased economic growth

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into widely shared prosperity.

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That's shown in what I consider to be

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the most scary economic statistic of our time.

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Since the late 1990s, increases in productivity

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have been decoupled from increases

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in wages and employment.

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That means that our countries are getting richer,

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our companies are getting more efficient,

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but we're not creating more jobs

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and we're not paying people, as a whole, more.

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One scary conclusion you could draw from all of this

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is to worry about structural unemployment.

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What worries me more is a different nightmare scenario.

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After all, in a totally free labor market,

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we could find jobs for pretty much everyone.

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The dystopia that worries me

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is a universe in which a few geniuses

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invent Google and its ilk

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and the rest of us are employed giving them massages.

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So when I get really depressed about all of this,

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I comfort myself in thinking about the Industrial Revolution.

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After all, for all its grim, satanic mills,

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it worked out pretty well, didn't it?

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After all, all of us here are richer, healthier, taller --

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well, there are a few exceptions —

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and live longer than our ancestors in the early 19th century.

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But it's important to remember

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that before we learned how to share the fruits

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of the Industrial Revolution

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with the broad swathes of society,

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we had to go through two depressions,

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the Great Depression of the 1930s,

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the Long Depression of the 1870s,

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two world wars, communist revolutions

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in Russia and in China,

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and an era of tremendous social

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and political upheaval in the West.

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We also, not coincidentally,

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went through an era of tremendous

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social and political inventions.

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We created the modern welfare state.

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We created public education.

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We created public health care.

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We created public pensions.

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We created unions.

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Today, we are living through an era

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of economic transformation

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comparable in its scale and its scope

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to the Industrial Revolution.

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To be sure that this new economy benefits us all

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and not just the plutocrats,

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we need to embark on an era

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of comparably ambitious social and political change.

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We need a new New Deal.

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(Applause)