Inequality, thecrisis, and stagnation

Transcription

1 Inequality, thecrisis, and stagnation Till van Treeck University of Duisburg-Essen 18th FMM Conference Inequality and the Future of Capitalism Berlin, 30 October 2014

2 Inequalityasa causeofinstabilityand stagnation: an emergingconsensus Growing literature on links between rising income inequality and the U.S. household debt crisis (e.g. Palley, 1994; Dutt, 2006; Frank, 2007; Cynamonand Fazzari, 2008, 2014; FitoussiandStiglitz, 2009; Rajan, 2010; Kumhof and Ranciere, 2010) global currentaccountimbalances (e.g. Kumhofet al., 2012; Sturn/van Treeck, 2012; Hein/Truger, 2012; Stockhammer, 2013; Behringer/van Treeck, 2013; Belabed et al., 2013) risingwealthinequality (e.g. Piketty, 2014; SaezandZucman, 2014) low growth/stagnation (e.g. Dutt, 2006; Palley, 2012; Berg and Ostry, 2011; Ostry et al., 2014)

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4 Outline 1. Income inequality and macroeconomic instability a) United States b) Germany c) Macro panel analysis 2. Income and wealth inequality 3. Inequality and stagnation

5 Outline 1. Income inequality and macroeconomic instability a) United States b) Germany c) Macro panel analysis 2. Income and wealth inequality 3. Inequality and stagnation

6 USA post-1980: Risingtop-end householdincomeinequality Source: WTID.

7 USA post-1980: Debt-drivenconsumptionandcrisis Source: NIPA, FoF, own calculations (as% of household disposable income)

8 USA post-1980: Whathappened? Keynesians would traditionally expect the aggregate household saving rate to rise, as inequality increases However, models with upward-looking status comparisons (the relative income hypothesis) predict a negative link between inequality and the aggregate saving rate This is not about eccentric luxury consumption, but basic middle class needs (private financing of important positional goods such as education, housing, health care, etc. in the U.S.) Empirical evidence based on micro and macro data (van Treeck/Sturn, 2012, for a survey)

9 Source: Saez and Zucman (2014)

10 Source: Kumhof et al. (2013)

11 USA post1980: Ratherlittlechangein functionalincome distribution Source: NIPA, own calculations (as% ofgdp)

12 USA post-1980: Implicationsforeconomictheory Models focusing exclusively on the functional income distribution may miss an important part of the inequality-crisis nexus for the U.S. Mainstream theories of consumption are unable to explain the decline in the household saving rate and the rise in household debt in the U.S. The current renaissance of the long-neglected relative income hypothesis of consumption is highly warranted

13 Outline 1. Income inequality and macroeconomic instability a) United States b) Germany c) Macro panel analysis 2. Income and wealth inequality 3. Inequality and stagnation

14 According to the Gini coefficient of household disposableincome, inequalityhasincreasedtoa similar degree in the U.S. and Germany

15 Yet, accordingtopiketty, Germany isan L-shape country in terms of top household income shares (whereas the United States is a U-shape country) Source: WTID, own calculations

16 A conceptual problem with Piketty s method Trends in top household income shares are not directly comparable across countries because they ignore trends within the corporate sector (which is essentially owned by rich households) In Germany, the corporate sector has been a persistent net saver since 2002 Because retained corporate profits are not counted as household income, top household income shares à la Piketty underestimate the rise of top-end inequality in Germany

17 Germany post-2000: The riseofcapitalandcorporateincome Source: Behringer/Theobald/van Treeck (2014)

18 Source: Behringer/Theobald/van Treeck (2014)

19 Germany post-2000: The macroeconomicimplicationsof thecorporateveil The corporate veil hides the rise in inequality between households restraints domestic demand (rising retained profits are not spent) limits the pressure put on the middle class to engage in debt-financed consumption (which is also restricted by more conservative banking practices and more extensive provision of public goods, compared to the U.S.; see Belabed et al., 2013)

20 Germany post-2000: Weakdomesticdemandandcurrent accountsurplus Source: Behringer/Theobald/van Treeck (2014)

21 Outline 1. Income inequality and macroeconomic instability a) United States b) Germany c) Macro panel analysis 2. Income and wealth inequality 3. Inequality and stagnation

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23 An increase in top income shares is linked to a decrease in the current account, while an increase in corporate net saving (or a decrease in the wage share) is linked to an increase in the current account (see Behringer/van Treeck 2013)

24 Outline 1. Income inequality and macroeconomic instability a) United States b) Germany c) Macro panel analysis 2. Income and wealth inequality 3. Inequality and stagnation

25 Piketty s model : Towards an infinite rise of income and wealth inequality? Two fundamental laws of capitalism : 1.α=β, or = 2. β= = Definition Arithmetic truism A fundamental force of divergence > Empirical regularity (Interesting critique of Piketty sinterpretation of the model by Bernardo/Martinez/Stockhammer, 2014!)

26 The importance of saving rates for Piketty s model Very important: The discrepancy between household saving rates of high-income and lower income groups (If the saving rate were independent of relative income, r > g would have no effect whatsoever on income and wealth inequality, which would then be identical to wage inequality)

27 The discrepancy between top-end and average saving rates has increased in both the U.S. and Germany, but in rather different ways U.S.: Lower income groups have lowered their saving rates to keep up with the rich Germany: The rich have increased their saving rates through corporate retained earnings Even at unchanged r and g, the increased discrepancy between saving rates will further exacerbate income and wealth inequality in the future

28 (Excel file available at

29 Outline 1. Income inequality and macroeconomic instability a) United States b) Germany c) Macro panel analysis 2. Income and wealth inequality 3. Inequality and stagnation

30 Inequality, thefutureofcapitalismand economictheory Inequality was an important cause of the global financial crisis (overindebtedhouseholds vs. overindebted trading partners) The inequality-induced debt overhang directly adds to the risk of secular stagnation For demand growth to recover in a sustainable way, middle and lower class incomes would have to move at least in parallel with average trend productivity Macroeconomic models can be improved by including both the functional and the personal distribution of income

31 Thankyou