0:00:00.629,0:00:05.917
So here's the most important economic fact of our time.

0:00:05.917,0:00:09.947
We are living in an age of surging income inequality,

0:00:09.947,0:00:12.872
particularly between those at the very top

0:00:12.872,0:00:14.708
and everyone else.

0:00:14.708,0:00:18.730
This shift is the most striking in the U.S. and in the U.K.,

0:00:18.730,0:00:20.928
but it's a global phenomenon.

0:00:20.928,0:00:23.251
It's happening in communist China,

0:00:23.251,0:00:24.974
in formerly communist Russia,

0:00:24.974,0:00:28.268
it's happening in India, in my own native Canada.

0:00:28.268,0:00:31.235
We're even seeing it in cozy social democracies

0:00:31.235,0:00:34.860
like Sweden, Finland and Germany.

0:00:34.860,0:00:38.771
Let me give you a few numbers to place what's happening.

0:00:38.771,0:00:41.480
In the 1970s, the One Percent

0:00:41.480,0:00:45.757
accounted for about 10 percent of the national income

0:00:45.757,0:00:47.521
in the United States.

0:00:47.521,0:00:50.830
Today, their share has more than doubled

0:00:50.830,0:00:53.269
to above 20 percent.

0:00:53.269,0:00:55.369
But what's even more striking

0:00:55.369,0:00:58.055
is what's happening at the very tippy top

0:00:58.055,0:01:00.297
of the income distribution.

0:01:00.297,0:01:03.301
The 0.1 percent in the U.S.

0:01:03.301,0:01:06.530
today account for more than eight percent

0:01:06.530,0:01:08.420
of the national income.

0:01:08.420,0:01:12.913
They are where the One Percent was 30 years ago.

0:01:12.913,0:01:15.681
Let me give you another number to put that in perspective,

0:01:15.681,0:01:19.199
and this is a figure that was calculated in 2005

0:01:19.199,0:01:20.658
by Robert Reich,

0:01:20.658,0:01:23.397
the Secretary of Labor in the Clinton administration.

0:01:23.397,0:01:28.701
Reich took the wealth of two admittedly very rich men,

0:01:28.701,0:01:31.421
Bill Gates and Warren Buffett,

0:01:31.421,0:01:34.370
and he found that it was equivalent to the wealth

0:01:34.370,0:01:39.123
of the bottom 40 percent of the U.S. population,

0:01:39.123,0:01:41.965
120 million people.

0:01:41.965,0:01:44.329
Now, as it happens,

0:01:44.329,0:01:47.133
Warren Buffett is not only himself a plutocrat,

0:01:47.133,0:01:50.860
he is one of the most astute observers of that phenomenon,

0:01:50.860,0:01:54.162
and he has his own favorite number.

0:01:54.162,0:01:58.105
Buffett likes to point out that in 1992,

0:01:58.105,0:02:00.267
the combined wealth of the people

0:02:00.267,0:02:02.596
on the Forbes 400 list --

0:02:02.596,0:02:05.993
and this is the list of the 400 richest Americans --

0:02:05.993,0:02:08.765
was 300 billion dollars.

0:02:08.765,0:02:09.966
Just think about it.

0:02:09.966,0:02:11.993
You didn't even need to be a billionaire

0:02:11.993,0:02:14.966
to get on that list in 1992.

0:02:14.966,0:02:18.979
Well, today, that figure has more than quintupled

0:02:18.979,0:02:21.865
to 1.7 trillion,

0:02:21.865,0:02:24.043
and I probably don't need to tell you

0:02:24.043,0:02:26.504
that we haven't seen anything similar happen

0:02:26.504,0:02:27.889
to the middle class,

0:02:27.889,0:02:32.590
whose wealth has stagnated if not actually decreased.

0:02:32.590,0:02:36.650
So we're living in the age of the global plutocracy,

0:02:36.650,0:02:38.691
but we've been slow to notice it.

0:02:38.691,0:02:40.374
One of the reasons, I think,

0:02:40.374,0:02:43.352
is a sort of boiled frog phenomenon.

0:02:43.352,0:02:45.915
Changes which are slow and gradual

0:02:45.915,0:02:47.455
can be hard to notice

0:02:47.455,0:02:50.359
even if their ultimate impact is quite dramatic.

0:02:50.359,0:02:53.591
Think about what happened, after all, to the poor frog.

0:02:53.591,0:02:56.406
But I think there's something else going on.

0:02:56.406,0:02:58.516
Talking about income inequality,

0:02:58.516,0:03:01.047
even if you're not on the Forbes 400 list,

0:03:01.047,0:03:03.188
can make us feel uncomfortable.

0:03:03.188,0:03:06.633
It feels less positive, less optimistic,

0:03:06.633,0:03:09.162
to talk about how the pie is sliced

0:03:09.162,0:03:12.214
than to think about how to make the pie bigger.

0:03:12.214,0:03:14.942
And if you do happen to be on the Forbes 400 list,

0:03:14.942,0:03:17.740
talking about income distribution,

0:03:17.740,0:03:21.427
and inevitably its cousin, income redistribution,

0:03:21.427,0:03:23.967
can be downright threatening.

0:03:23.967,0:03:28.243
So we're living in the age of surging income inequality,

0:03:28.243,0:03:30.356
especially at the top.

0:03:30.356,0:03:33.944
What's driving it, and what can we do about it?

0:03:33.944,0:03:37.610
One set of causes is political:

0:03:37.610,0:03:43.205
lower taxes, deregulation, particularly of financial services,

0:03:43.205,0:03:48.335
privatization, weaker legal protections for trade unions,

0:03:48.335,0:03:50.775
all of these have contributed

0:03:50.775,0:03:54.892
to more and more income going to the very, very top.

0:03:54.892,0:03:58.315
A lot of these political factors can be broadly lumped

0:03:58.315,0:04:01.644
under the category of "crony capitalism,"

0:04:01.644,0:04:03.821
political changes that benefit a group

0:04:03.821,0:04:05.983
of well-connected insiders

0:04:05.983,0:04:09.521
but don't actually do much good for the rest of us.

0:04:09.521,0:04:12.910
In practice, getting rid of crony capitalism

0:04:12.910,0:04:14.951
is incredibly difficult.

0:04:14.951,0:04:18.444
Think of all the years reformers of various stripes

0:04:18.444,0:04:21.838
have tried to get rid of corruption in Russia, for instance,

0:04:21.838,0:04:24.867
or how hard it is to re-regulate the banks

0:04:24.867,0:04:28.024
even after the most profound financial crisis

0:04:28.024,0:04:29.646
since the Great Depression,

0:04:29.646,0:04:34.242
or even how difficult it is to get the big multinational companies,

0:04:34.242,0:04:38.253
including those whose motto might be "don't do evil,"

0:04:38.253,0:04:41.027
to pay taxes at a rate even approaching that

0:04:41.027,0:04:43.135
paid by the middle class.

0:04:43.135,0:04:46.171
But while getting rid of crony capitalism in practice

0:04:46.171,0:04:48.167
is really, really hard,

0:04:48.167,0:04:51.635
at least intellectually, it's an easy problem.

0:04:51.635,0:04:57.284
After all, no one is actually in favor of crony capitalism.

0:04:57.284,0:04:59.931
Indeed, this is one of those rare issues

0:04:59.931,0:05:03.166
that unites the left and the right.

0:05:03.166,0:05:05.986
A critique of crony capitalism is as central

0:05:05.986,0:05:10.283
to the Tea Party as it is to Occupy Wall Street.

0:05:10.283,0:05:14.621
But if crony capitalism is, intellectually at least,

0:05:14.621,0:05:16.656
the easy part of the problem,

0:05:16.656,0:05:19.931
things get trickier when you look at the economic drivers

0:05:19.931,0:05:22.684
of surging income inequality.

0:05:22.684,0:05:26.423
In and of themselves, these aren't too mysterious.

0:05:26.423,0:05:29.470
Globalization and the technology revolution,

0:05:29.470,0:05:32.010
the twin economic transformations

0:05:32.010,0:05:33.708
which are changing our lives

0:05:33.708,0:05:35.805
and transforming the global economy,

0:05:35.805,0:05:39.272
are also powering the rise of the super-rich.

0:05:39.272,0:05:40.852
Just think about it.

0:05:40.852,0:05:42.840
For the first time in history,

0:05:42.840,0:05:45.579
if you are an energetic entrepreneur

0:05:45.579,0:05:47.278
with a brilliant new idea

0:05:47.278,0:05:49.693
or a fantastic new product,

0:05:49.693,0:05:53.372
you have almost instant, almost frictionless access

0:05:53.372,0:05:57.352
to a global market of more than a billion people.

0:05:57.352,0:06:01.186
As a result, if you are very, very smart

0:06:01.186,0:06:02.981
and very, very lucky,

0:06:02.981,0:06:05.832
you can get very, very rich

0:06:05.832,0:06:08.362
very, very quickly.

0:06:08.362,0:06:11.204
The latest poster boy for this phenomenon

0:06:11.204,0:06:13.184
is David Karp.

0:06:13.184,0:06:16.039
The 26-year-old founder of Tumblr

0:06:16.039,0:06:18.821
recently sold his company to Yahoo

0:06:18.821,0:06:21.854
for 1.1 billion dollars.

0:06:21.854,0:06:23.392
Think about that for a minute:

0:06:23.392,0:06:27.806
1.1 billion dollars, 26 years old.

0:06:27.806,0:06:31.253
It's easiest to see how the technology revolution

0:06:31.253,0:06:34.874
and globalization are creating this sort of superstar effect

0:06:34.874,0:06:36.817
in highly visible fields,

0:06:36.817,0:06:39.120
like sports and entertainment.

0:06:39.120,0:06:42.495
We can all watch how a fantastic athlete

0:06:42.495,0:06:46.839
or a fantastic performer can today leverage his or her skills

0:06:46.839,0:06:50.507
across the global economy as never before.

0:06:50.507,0:06:52.587
But today, that superstar effect

0:06:52.587,0:06:55.569
is happening across the entire economy.

0:06:55.569,0:06:57.746
We have superstar technologists.

0:06:57.746,0:06:59.467
We have superstar bankers.

0:06:59.467,0:07:02.803
We have superstar lawyers and superstar architects.

0:07:02.803,0:07:04.232
There are superstar cooks

0:07:04.232,0:07:05.744
and superstar farmers.

0:07:05.744,0:07:08.527
There are even, and this is my personal favorite example,

0:07:08.527,0:07:10.518
superstar dentists,

0:07:10.518,0:07:12.622
the most dazzling exemplar of whom

0:07:12.622,0:07:15.984
is Bernard Touati, the Frenchman who ministers

0:07:15.984,0:07:18.303
to the smiles of fellow superstars

0:07:18.303,0:07:20.984
like Russian oligarch Roman Abramovich

0:07:20.984,0:07:23.845
or European-born American fashion designer

0:07:23.845,0:07:25.890
Diane von Furstenberg.

0:07:25.890,0:07:28.973
But while it's pretty easy to see how globalization

0:07:28.973,0:07:30.885
and the technology revolution

0:07:30.885,0:07:33.356
are creating this global plutocracy,

0:07:33.356,0:07:37.523
what's a lot harder is figuring out what to think about it.

0:07:37.523,0:07:39.049
And that's because,

0:07:39.049,0:07:41.426
in contrast with crony capitalism,

0:07:41.426,0:07:45.336
so much of what globalization and the technology revolution

0:07:45.336,0:07:47.699
have done is highly positive.

0:07:47.699,0:07:49.434
Let's start with technology.

0:07:49.434,0:07:53.044
I love the Internet. I love my mobile devices.

0:07:53.044,0:07:54.878
I love the fact that they mean that

0:07:54.878,0:07:58.564
whoever chooses to will be able to watch this talk

0:07:58.564,0:08:00.611
far beyond this auditorium.

0:08:00.611,0:08:03.720
I'm even more of a fan of globalization.

0:08:03.720,0:08:05.707
This is the transformation

0:08:05.707,0:08:08.131
which has lifted hundreds of millions

0:08:08.131,0:08:11.180
of the world's poorest people out of poverty

0:08:11.180,0:08:12.622
and into the middle class,

0:08:12.622,0:08:15.664
and if you happen to live in the rich part of the world,

0:08:15.664,0:08:19.171
it's made many new products affordable --

0:08:19.171,0:08:21.697
who do you think built your iPhone? —

0:08:21.697,0:08:25.519
and things that we've relied on for a long time much cheaper.

0:08:25.519,0:08:28.143
Think of your dishwasher or your t-shirt.

0:08:28.143,0:08:30.679
So what's not to like?

0:08:30.679,0:08:32.571
Well, a few things.

0:08:32.571,0:08:34.675
One of the things that worries me

0:08:34.675,0:08:38.838
is how easily what you might call meritocratic plutocracy

0:08:38.838,0:08:41.534
can become crony plutocracy.

0:08:41.534,0:08:44.193
Imagine you're a brilliant entrepreneur

0:08:44.193,0:08:47.570
who has successfully sold that idea or that product

0:08:47.570,0:08:48.949
to the global billions

0:08:48.949,0:08:51.515
and become a billionaire in the process.

0:08:51.515,0:08:53.884
It gets tempting at that point

0:08:53.884,0:08:56.859
to use your economic nous

0:08:56.859,0:09:01.131
to manipulate the rules of the global political economy

0:09:01.131,0:09:03.217
in your own favor.

0:09:03.217,0:09:05.966
And that's no mere hypothetical example.

0:09:05.966,0:09:10.395
Think about Amazon, Apple, Google, Starbucks.

0:09:10.395,0:09:12.499
These are among the world's most admired,

0:09:12.499,0:09:15.045
most beloved, most innovative companies.

0:09:15.045,0:09:17.969
They also happen to be particularly adept

0:09:17.969,0:09:20.207
at working the international tax system

0:09:20.207,0:09:24.765
so as to lower their tax bill very, very significantly.

0:09:24.765,0:09:29.080
And why stop at just playing the global political

0:09:29.080,0:09:31.168
and economic system as it exists

0:09:31.168,0:09:33.313
to your own maximum advantage?

0:09:33.313,0:09:37.630
Once you have the tremendous economic power

0:09:37.630,0:09:40.703
that we're seeing at the very, very top of the income distribution

0:09:40.703,0:09:43.953
and the political power that inevitably entails,

0:09:43.953,0:09:46.466
it becomes tempting as well

0:09:46.466,0:09:50.054
to start trying to change the rules of the game

0:09:50.054,0:09:52.156
in your own favor.

0:09:52.156,0:09:54.890
Again, this is no mere hypothetical.

0:09:54.890,0:09:56.825
It's what the Russian oligarchs did

0:09:56.825,0:10:00.087
in creating the sale-of-the-century privatization

0:10:00.087,0:10:02.057
of Russia's natural resources.

0:10:02.057,0:10:03.831
It's one way of describing what happened

0:10:03.831,0:10:05.866
with deregulation of the financial services

0:10:05.866,0:10:08.101
in the U.S. and the U.K.

0:10:08.101,0:10:10.027
A second thing that worries me

0:10:10.027,0:10:12.758
is how easily meritocratic plutocracy

0:10:12.758,0:10:15.504
can become aristocracy.

0:10:15.504,0:10:17.579
One way of describing the plutocrats

0:10:17.579,0:10:19.386
is as alpha geeks,

0:10:19.386,0:10:21.900
and they are people who are acutely aware

0:10:21.900,0:10:24.308
of how important highly sophisticated

0:10:24.308,0:10:28.490
analytical and quantitative skills are in today's economy.

0:10:28.490,0:10:30.909
That's why they are spending

0:10:30.909,0:10:33.686
unprecedented time and resources

0:10:33.686,0:10:35.583
educating their own children.

0:10:35.583,0:10:38.850
The middle class is spending more on schooling too,

0:10:38.850,0:10:41.211
but in the global educational arms race

0:10:41.211,0:10:42.995
that starts at nursery school

0:10:42.995,0:10:46.733
and ends at Harvard, Stanford or MIT,

0:10:46.733,0:10:50.211
the 99 percent is increasingly outgunned

0:10:50.211,0:10:51.750
by the One Percent.

0:10:51.750,0:10:54.456
The result is something that economists Alan Krueger

0:10:54.456,0:10:58.161
and Miles Corak call the Great Gatsby Curve.

0:10:58.161,0:11:00.964
As income inequality increases,

0:11:00.964,0:11:03.737
social mobility decreases.

0:11:03.737,0:11:06.495
The plutocracy may be a meritocracy,

0:11:06.495,0:11:08.711
but increasingly you have to be born

0:11:08.711,0:11:13.595
on the top rung of the ladder to even take part in that race.

0:11:13.595,0:11:16.619
The third thing, and this is what worries me the most,

0:11:16.619,0:11:20.970
is the extent to which those same largely positive forces

0:11:20.970,0:11:24.160
which are driving the rise of the global plutocracy

0:11:24.160,0:11:27.592
also happen to be hollowing out the middle class

0:11:27.592,0:11:30.546
in Western industrialized economies.

0:11:30.546,0:11:32.633
Let's start with technology.

0:11:32.633,0:11:35.706
Those same forces that are creating billionaires

0:11:35.706,0:11:39.729
are also devouring many traditional middle-class jobs.

0:11:39.729,0:11:42.668
When's the last time you used a travel agent?

0:11:42.668,0:11:45.749
And in contrast with the industrial revolution,

0:11:45.749,0:11:47.905
the titans of our new economy

0:11:47.905,0:11:50.707
aren't creating that many new jobs.

0:11:50.707,0:11:54.526
At its zenith, G.M. employed hundreds of thousands,

0:11:54.526,0:11:57.549
Facebook fewer than 10,000.

0:11:57.549,0:12:00.219
The same is true of globalization.

0:12:00.219,0:12:03.462
For all that it is raising hundreds of millions of people

0:12:03.462,0:12:05.802
out of poverty in the emerging markets,

0:12:05.802,0:12:08.668
it's also outsourcing a lot of jobs

0:12:08.668,0:12:10.969
from the developed Western economies.

0:12:10.969,0:12:13.736
The terrifying reality is

0:12:13.736,0:12:15.993
that there is no economic rule

0:12:15.993,0:12:18.930
which automatically translates

0:12:18.930,0:12:20.633
increased economic growth

0:12:20.633,0:12:22.943
into widely shared prosperity.

0:12:22.943,0:12:25.617
That's shown in what I consider to be

0:12:25.617,0:12:29.300
the most scary economic statistic of our time.

0:12:29.300,0:12:33.358
Since the late 1990s, increases in productivity

0:12:33.358,0:12:36.020
have been decoupled from increases

0:12:36.036,0:12:37.970
in wages and employment.

0:12:37.970,0:12:40.914
That means that our countries are getting richer,

0:12:40.914,0:12:43.538
our companies are getting more efficient,

0:12:43.538,0:12:45.479
but we're not creating more jobs

0:12:45.479,0:12:49.350
and we're not paying people, as a whole, more.

0:12:49.350,0:12:53.559
One scary conclusion you could draw from all of this

0:12:53.559,0:12:57.270
is to worry about structural unemployment.

0:12:57.270,0:13:01.057
What worries me more is a different nightmare scenario.

0:13:01.057,0:13:03.649
After all, in a totally free labor market,

0:13:03.649,0:13:06.851
we could find jobs for pretty much everyone.

0:13:06.851,0:13:08.879
The dystopia that worries me

0:13:08.879,0:13:12.525
is a universe in which a few geniuses

0:13:12.525,0:13:14.605
invent Google and its ilk

0:13:14.605,0:13:19.800
and the rest of us are employed giving them massages.

0:13:19.800,0:13:22.433
So when I get really depressed about all of this,

0:13:22.433,0:13:26.262
I comfort myself in thinking about the Industrial Revolution.

0:13:26.262,0:13:30.157
After all, for all its grim, satanic mills,

0:13:30.157,0:13:32.657
it worked out pretty well, didn't it?

0:13:32.657,0:13:39.680
After all, all of us here are richer, healthier, taller --

0:13:39.680,0:13:41.706
well, there are a few exceptions —

0:13:41.706,0:13:46.697
and live longer than our ancestors in the early 19th century.

0:13:46.697,0:13:49.281
But it's important to remember

0:13:49.281,0:13:52.103
that before we learned how to share the fruits

0:13:52.103,0:13:53.782
of the Industrial Revolution

0:13:53.782,0:13:56.345
with the broad swathes of society,

0:13:56.345,0:13:59.740
we had to go through two depressions,

0:13:59.740,0:14:01.599
the Great Depression of the 1930s,

0:14:01.599,0:14:04.453
the Long Depression of the 1870s,

0:14:04.453,0:14:07.620
two world wars, communist revolutions

0:14:07.620,0:14:09.699
in Russia and in China,

0:14:09.699,0:14:12.024
and an era of tremendous social

0:14:12.024,0:14:14.780
and political upheaval in the West.

0:14:14.780,0:14:17.500
We also, not coincidentally,

0:14:17.500,0:14:20.038
went through an era of tremendous

0:14:20.038,0:14:22.617
social and political inventions.

0:14:22.617,0:14:24.961
We created the modern welfare state.

0:14:24.961,0:14:26.703
We created public education.

0:14:26.703,0:14:28.407
We created public health care.

0:14:28.407,0:14:30.182
We created public pensions.

0:14:30.182,0:14:32.207
We created unions.

0:14:32.207,0:14:34.723
Today, we are living through an era

0:14:34.723,0:14:36.684
of economic transformation

0:14:36.684,0:14:39.990
comparable in its scale and its scope

0:14:39.990,0:14:42.258
to the Industrial Revolution.

0:14:42.258,0:14:45.449
To be sure that this new economy benefits us all

0:14:45.449,0:14:47.567
and not just the plutocrats,

0:14:47.567,0:14:49.231
we need to embark on an era

0:14:49.231,0:14:53.150
of comparably ambitious social and political change.

0:14:53.150,0:14:55.808
We need a new New Deal.

0:14:55.808,0:14:59.808
(Applause)