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