A few months back, Tim Worstall explained why we can soon stop worrying about the rise in income inequality, because the disturbance which caused it in the first place is finally settling out:
We’re constantly told that rising inequality is the greatest threat to the peace and prosperity of the nation. And further, that the stagnant wages of the ordinary working guy and gal are an abomination: as is the increasing amount of the nation’s income going to the already well off. Therefore something must be done. And there’s interesting news for us all. Which is that we don’t have to do anything at all to reverse this trend, the world economy is going to do that for us. We don’t need to change domestic tax rates, start to place tariffs on imports, shout at China for being a currency manipulator, none of the things currently being touted. Because the reason for that income stagnation and rising inequality is itself reversing.
OK, this does rather depend upon agreeing what the original cause of them both was but I think it’s reasonably clear that it is the process of globalisation that has done it. As Branko Milanovic tells us, here’s the winners and losers from globalisation:
That 75% to 95% of the global income distribution, the people who haven’t done well out of it, is essentially some of the people in the communist transition countries and most of those on below median wages in the rich countries. That latter group being exactly who everyone is worrying about in terms of stagnant incomes. The poor of the world have made out like bandits from globalisation which is why I support it. And, yes, the already rich have done well too.
And the point is, this is exactly what we would expect from having added a couple of billion low wage and low skill workers to the global economy. The low skill and low wage workers already in that global economy aren’t going to do very well, as Charles Goodhart explains via Ambrose Evans Pritchard:
Prof Goodhart and Manoj Pradhan argue in a paper for Morgan Stanley that this was made even sweeter by the collapse of the Soviet Union and China’s spectacular entry into the global trading system. The working age cohort was 685m in the developed world in 1990. China and eastern Europe added a further 820m, more than doubling the work pool of the globalised market in the blink of an eye. “It was the biggest ‘positive labour shock’ the world has ever seen. It is what led to 25 years of wage stagnation,” said Prof Goodhart, speaking at a forum held by Lombard Street Research.
