Lucas Chance — 40 Years of Data Suggests Ways to Fix the Problems Caused by Globalization

Globalization has led to a rise in global income inequality, not a reduction.

Income doesn’t trickle down.

Policy – not trade or technology – is most responsible for inequality.

Demand lagging capability to supply due to hoarding at the top end. Contrary to the assumptions of neoclassical economics, distribution counts. This should be obvious since in a capitalistic system distribution is through markets where goods are rationed by price and ability to pay. But the "laws of economics" seem to have missed this.

Neoliberalism is a political theory based on neoclassical economics that assumes growth per capital regardless of distribution is primary and growth is optimized by favoring capital in order to promote capital accumulation.

Capital is both non-financial and financial. Only a portion of non-financial capital is productive, mostly technology. Financial capital is unproductive unless in invested in production or spent on consumption.

Wealth includes both financial and non-financial capital. Most global wealth is owned by the wealthy. (Surprise.) Wealth constitutes portfolio savings. It is augmented in portfolios by income not spent on consumption and capital gains. But income spent on consumption flows to some portfolios either through distribution of profit or capital gains based on firm investment.

If the profit rate falls owing to lagging demand, then firm investment in new production decreases and various forms of saving increase.

The only way lower income people can maintain lifestyle is through personal borrowing. If income is stagnant or falling, borrowing becomes unsustainable.

The data show the US faring particularly badly owing to policy choices.

Harvard Business Review
40 Years of Data Suggests Ways to Fix the Problems Caused by Globalization

Lucas Chancel | Codirector of the World Inequality Lab at the Paris School of Economics

See also

Project Syndicate
Working Toward the Next Economic Paradigm
Mohamed A. El-Erian