9:59:59.000,9:59:59.000 Okay, so it's very nice to be here tonight. 9:59:59.000,9:59:59.000 So I've been working on the history of income 9:59:59.000,9:59:59.000 and wealth distribution for the past 15 years, 9:59:59.000,9:59:59.000 and one of the interesting lessons 9:59:59.000,9:59:59.000 coming from this historical evidence 9:59:59.000,9:59:59.000 is indeed that, in the long run, 9:59:59.000,9:59:59.000 there is a tendency for the rate of return of capital 9:59:59.000,9:59:59.000 to exceed the economy's growth rate, 9:59:59.000,9:59:59.000 and this tends to lead to high concentration of wealth, 9:59:59.000,9:59:59.000 not infinite concentration of wealth, 9:59:59.000,9:59:59.000 but the idea of the gap between r and g 9:59:59.000,9:59:59.000 and the idea of the level of inequality of wealth 9:59:59.000,9:59:59.000 towards society tends to converge. 9:59:59.000,9:59:59.000 So this is a key force that[br]I'm going to talk about today, 9:59:59.000,9:59:59.000 but let me say right away 9:59:59.000,9:59:59.000 that this is not the only important force 9:59:59.000,9:59:59.000 in the dynamics of income and wealth distribution, 9:59:59.000,9:59:59.000 and there are many other forces that play 9:59:59.000,9:59:59.000 an important role in the long run dynamics 9:59:59.000,9:59:59.000 of income and wealth distribution. 9:59:59.000,9:59:59.000 Also, you know, there is a lot of data 9:59:59.000,9:59:59.000 that still needs to be collected, 9:59:59.000,9:59:59.000 so, you know, we know a little bit more today 9:59:59.000,9:59:59.000 than we used to know, but we still know too little, 9:59:59.000,9:59:59.000 and, you know, certain there[br]are many different processes 9:59:59.000,9:59:59.000 — economic, social, political — 9:59:59.000,9:59:59.000 that need to be studied more. 9:59:59.000,9:59:59.000 And so I'm going to focus today on this simple force, 9:59:59.000,9:59:59.000 but that doesn't mean that other important forces 9:59:59.000,9:59:59.000 do not exist. 9:59:59.000,9:59:59.000 So most of the data I'm going to present 9:59:59.000,9:59:59.000 comes from this database 9:59:59.000,9:59:59.000 that's available online: 9:59:59.000,9:59:59.000 the World Top Incomes Database. 9:59:59.000,9:59:59.000 So this is the largest existing 9:59:59.000,9:59:59.000 historical database on equality, 9:59:59.000,9:59:59.000 and this comes from the effort 9:59:59.000,9:59:59.000 of over 30 scholars from several dozen countries. 9:59:59.000,9:59:59.000 So let me show you a couple of facts 9:59:59.000,9:59:59.000 coming from this database, 9:59:59.000,9:59:59.000 and then we'll return to r is bigger than g. 9:59:59.000,9:59:59.000 So fact number one is that there has been 9:59:59.000,9:59:59.000 a big reversal in the ordering of income inequality 9:59:59.000,9:59:59.000 between the United States and Europe 9:59:59.000,9:59:59.000 over the past century. 9:59:59.000,9:59:59.000 So back in 1900, 1910, income inequality was actually 9:59:59.000,9:59:59.000 much higher in Europe than in the United States, 9:59:59.000,9:59:59.000 whereas today, it is a lot higher in the United States. 9:59:59.000,9:59:59.000 So let me be very clear: 9:59:59.000,9:59:59.000 the main explanation for this is not r bigger than g. 9:59:59.000,9:59:59.000 It has more to do with changing supply and demand 9:59:59.000,9:59:59.000 for skill, the race between education and technology, 9:59:59.000,9:59:59.000 globalization, probably more unequal access 9:59:59.000,9:59:59.000 to skills in the U.S., 9:59:59.000,9:59:59.000 where you have very top universities 9:59:59.000,9:59:59.000 but where the bottom part of the educational system 9:59:59.000,9:59:59.000 is not as good, 9:59:59.000,9:59:59.000 so very unequal access to skills, 9:59:59.000,9:59:59.000 and also an unprecedented rise 9:59:59.000,9:59:59.000 of top managerial compensation of the United States, 9:59:59.000,9:59:59.000 which is difficult to account for[br]just on the basis of education. 9:59:59.000,9:59:59.000 So there is more going on here, 9:59:59.000,9:59:59.000 but I'm not going to talk too much about this today, 9:59:59.000,9:59:59.000 because I want to focus on wealth inequality. 9:59:59.000,9:59:59.000 So let me just show you a very simple indicator 9:59:59.000,9:59:59.000 about the income inequality part. 9:59:59.000,9:59:59.000 So this is the share of total income 9:59:59.000,9:59:59.000 going to the top 10 percent. 9:59:59.000,9:59:59.000 So you can see that one century ago, 9:59:59.000,9:59:59.000 it was between 45 and 50 percent in Europe 9:59:59.000,9:59:59.000 and a little bit over 40 percent in the U.S., 9:59:59.000,9:59:59.000 so there was more inequality in Europe. 9:59:59.000,9:59:59.000 Then there was a sharp decline 9:59:59.000,9:59:59.000 during the first half of the 20th century, 9:59:59.000,9:59:59.000 and in the recent decade, you can see that 9:59:59.000,9:59:59.000 the U.S. has become more unequal than Europe, 9:59:59.000,9:59:59.000 and this is the first fact I just talked about. 9:59:59.000,9:59:59.000 Now, the second fact is more about wealth inequality, 9:59:59.000,9:59:59.000 and here the central fact is that wealth inequality 9:59:59.000,9:59:59.000 is always a lot higher than income inequality, 9:59:59.000,9:59:59.000 and also wealth inequality, 9:59:59.000,9:59:59.000 although it has also increased in recent decades, 9:59:59.000,9:59:59.000 is still less extreme today 9:59:59.000,9:59:59.000 than what it was a century ago, 9:59:59.000,9:59:59.000 although the total quantity of wealth 9:59:59.000,9:59:59.000 relative to income has now recovered 9:59:59.000,9:59:59.000 from the very large shocks 9:59:59.000,9:59:59.000 caused by World War I, the Great Depression, 9:59:59.000,9:59:59.000 World War II. 9:59:59.000,9:59:59.000 So let me show you two graphs 9:59:59.000,9:59:59.000 illustrating fact number two and fact number three. 9:59:59.000,9:59:59.000 So first, if you look at the level of wealth inequality, 9:59:59.000,9:59:59.000 so this is the share of total wealth 9:59:59.000,9:59:59.000 going to top 10 percent wealthholders, 9:59:59.000,9:59:59.000 so you can see the same kind of reversal 9:59:59.000,9:59:59.000 between the U.S. and Europe that we had before 9:59:59.000,9:59:59.000 for income inequality. 9:59:59.000,9:59:59.000 So wealth concentration was higher 9:59:59.000,9:59:59.000 in Europe than in the U.S. a century ago, 9:59:59.000,9:59:59.000 and now it is the opposite. 9:59:59.000,9:59:59.000 But you can also show two things: 9:59:59.000,9:59:59.000 first, the general level of wealth inequality 9:59:59.000,9:59:59.000 are always higher than income inequality. 9:59:59.000,9:59:59.000 So remember, for income inequality, 9:59:59.000,9:59:59.000 the share going to the top 10 percent 9:59:59.000,9:59:59.000 was between 30 and 50 percent of total income, 9:59:59.000,9:59:59.000 whereas for wealth, the share are always 9:59:59.000,9:59:59.000 between 60 and 90 percent. 9:59:59.000,9:59:59.000 Okay, so that's fact number one, 9:59:59.000,9:59:59.000 and that's very important for what follows. 9:59:59.000,9:59:59.000 Wealth concentration is always 9:59:59.000,9:59:59.000 a lot higher than income concentration. 9:59:59.000,9:59:59.000 Fact number two is that the rise 9:59:59.000,9:59:59.000 in wealth inequality in recent decades 9:59:59.000,9:59:59.000 is still not enough to get us back to 1910. 9:59:59.000,9:59:59.000 So the big difference today, 9:59:59.000,9:59:59.000 wealth inequality is still very large, 9:59:59.000,9:59:59.000 with 60, 70 percent of total wealth for the top 10, 9:59:59.000,9:59:59.000 but the good news is that it's actually 9:59:59.000,9:59:59.000 better than one century ago, 9:59:59.000,9:59:59.000 where you had 90 percent in[br]Europe going to the top 10. 9:59:59.000,9:59:59.000 So today what you have 9:59:59.000,9:59:59.000 is what I call the middle 40 percent, 9:59:59.000,9:59:59.000 the people who are not in the top 10 9:59:59.000,9:59:59.000 and who are not in the bottom 50, 9:59:59.000,9:59:59.000 and what you can view as the wealth middle class 9:59:59.000,9:59:59.000 that owns 20 to 30 percent 9:59:59.000,9:59:59.000 of total wealth, national wealth, 9:59:59.000,9:59:59.000 whereas they used to be as poor, a century ago, 9:59:59.000,9:59:59.000 when there was basically no wealth middle class. 9:59:59.000,9:59:59.000 So this is an important change, 9:59:59.000,9:59:59.000 and it's interesting to see that wealth inequality 9:59:59.000,9:59:59.000 has not fully recovered to pre-World War I levels, 9:59:59.000,9:59:59.000 although the total quantity of wealth has recovered. 9:59:59.000,9:59:59.000 Okay? So this is the total value 9:59:59.000,9:59:59.000 of wealth relative to income, 9:59:59.000,9:59:59.000 and you can see that in particular in Europe, 9:59:59.000,9:59:59.000 we are almost back to the pre-World War I level. 9:59:59.000,9:59:59.000 So these are, there are really two 9:59:59.000,9:59:59.000 different parts of the story here. 9:59:59.000,9:59:59.000 One has to do with 9:59:59.000,9:59:59.000 the total quantity of wealth that will accumulate, 9:59:59.000,9:59:59.000 and there is nothing bad per se of course 9:59:59.000,9:59:59.000 in accumulating a lot of wealth, 9:59:59.000,9:59:59.000 and in particular if it is more diffuse 9:59:59.000,9:59:59.000 and less concentrated. 9:59:59.000,9:59:59.000 So what we really want to focus on 9:59:59.000,9:59:59.000 is the long-run evolution of wealth inequality, 9:59:59.000,9:59:59.000 and what's going to happen in the future. 9:59:59.000,9:59:59.000 How can we account for the fact that 9:59:59.000,9:59:59.000 until World War I, wealth inequality was so high 9:59:59.000,9:59:59.000 and if anything was rising to even higher levels, 9:59:59.000,9:59:59.000 and how can we think about the future? 9:59:59.000,9:59:59.000 So let me come to some of the explanations 9:59:59.000,9:59:59.000 and speculations about the future. 9:59:59.000,9:59:59.000 Let me first say that, you know, 9:59:59.000,9:59:59.000 probably the best model to explain 9:59:59.000,9:59:59.000 why wealth is so much 9:59:59.000,9:59:59.000 more concentrated than income 9:59:59.000,9:59:59.000 is dynamic, dynastic models 9:59:59.000,9:59:59.000 where individuals have long horizon 9:59:59.000,9:59:59.000 and accumulate wealth for all sorts of reasons. 9:59:59.000,9:59:59.000 If people were accumulating wealth 9:59:59.000,9:59:59.000 only for life cycle reasons, 9:59:59.000,9:59:59.000 you know, to be able to consume 9:59:59.000,9:59:59.000 when they are old, 9:59:59.000,9:59:59.000 then the level of wealth inequality 9:59:59.000,9:59:59.000 should be more or less in line 9:59:59.000,9:59:59.000 with the level of income inequality. 9:59:59.000,9:59:59.000 But it will be very difficult to explain 9:59:59.000,9:59:59.000 why you have so much more wealth inequality 9:59:59.000,9:59:59.000 than income inequality 9:59:59.000,9:59:59.000 with a pure a life cycle model, 9:59:59.000,9:59:59.000 so you need a story 9:59:59.000,9:59:59.000 where people also care 9:59:59.000,9:59:59.000 about wealth accumulation for other reasons. 9:59:59.000,9:59:59.000 So typically, they want to transmit 9:59:59.000,9:59:59.000 wealth to the next generation, to their children, 9:59:59.000,9:59:59.000 or sometimes they want to accumulate wealth 9:59:59.000,9:59:59.000 because of the prestige, the[br]power that goes with wealth. 9:59:59.000,9:59:59.000 So there must be other reasons 9:59:59.000,9:59:59.000 for accumulating wealth than just life cycle 9:59:59.000,9:59:59.000 to explain what we see in the data.