A lot of attention has been being paid to rising income income inequality. This has led many to argue for improving and expanding education opportunity. That might have a limited effect on wage dispersion but most of the growth in income within the top 10% has gone to the top 1% despite the fact that the top 1% is not better educated than the remainder of the top 10%. Out policy issues in the future will directed toward the concentration of wealth.
The ratio of wealth to income has been growing rapidly in the developed world. It is driven mainly by a slowdown in economic growth. For example if we assume a 10% saving rate and a 3% growth rate, the ratio of wealth to income is 300%. If the growth rate falls to 1.5% the ratio is 600%. Slow population and productivity growth will continue to drive down the economic growth rate in most developed countries.
Automation is also a factor in changing the ratio of wealth to income. As automation is substituted for wage labor, the share of income going to capital will rise relative to wage income.
The wealth to income ratio has grown fastest in Spain. It has been even faster than the change in Japan during its boom period. It is not surprising that the economic and political consequences in Spain have been severe during its recession and the bursting of the real estate bubble.
The social and political fallout from growth in the wealth to income ratio will require atypical policies in the future. There may be a need to have higher taxes and wealth and inheritance. It will require international cooperation to limit the ability of the very wealthy to hide their wealth in tax havens.
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