‘A bit of inequality is good as it creates incentives for hard work and rewards entrepreneurship,’ explained Mohamed El-Erian, Chief Economic Advisor of Allianz and former CEO of PIMCO. ‘Lots of inequality is bad, disenfranchises segments of society, and erodes the social fabric,’ he said, joining the chorus of voices that have been lamenting income and wealth inequality as an economic problem.
But none of these voices dare to mention the cause – though they all know it. And we just got numerical confirmation.
Hundreds of millions of people have been lifted out of abject poverty over the last two decades, mostly in Asia. In that respect, inequality has been reduced. But on a national level, ‘you get a different picture,’ El-Erian said in the interview published on Monday:
Whether in the US, Brazil or China: there has been a significant increase in both income and wealth inequality, and so much so that it is now affecting access to equal opportunities. The minute you start talking about opportunities, you start making it a much deeper problem and harder to solve.
‘Social cohesion is at risk,’ said Allianz Chief Economist Michael Heise in the same interview. ‘That is a danger for industrialized and developing countries alike. In recent times we have seen social upheavals and conflicts where poverty played a major role.’
As if they’d coordinated this, Oxfam, a non-profit that works in over 90 countries, published a research report on Monday that found that the richest 1% have been on a global wealth-grab. In 2008, the 99% still owned 56% of global wealth, based on data from Credit Suisse, whereas the 1% owned 44%. Then the Financial Crisis happened. It impacted both groups in similar proportions, and there was no change in 2009. But 2010 was the ‘inflection point,’ when the 1% started grabbing an ever larger share of global wealth, while the 99% began to lose their grip. By 2014, the 99% was down to 52% of global wealth, the bottom 80% owned a measly 5.5%, but the top 1% had squirreled away 48%.
This post was published at Wolf Street by Wolf Richter ‘ January 20, 2015.