7/22/2019

Markets Can Give Us Both Greater Income Equality and Greater Economic Growth

"Thomas Piketty is correct that World War I, the Great Depression, and World War II are the three primary events which most of the industrial world had in common, along with the Spanish Flu. These events were also episodes that destroyed or suppressed vast amounts of capital around the world. They were also events that killed or disabled more than one million Americans and tens of millions of young adults around the world who would have been highly likely to get married and have children. In the case of the Great Depression, family formation and child bearing decreased precipitously. The population growth rate was about half the normal level. So, the fact that labor gained while the income from capital relatively fell is not big surprise. Labor income also increased as a result of the Black Plague. Harsh immigration restrictions stopped the flow immigrants and this largely explained the gains to low-skilled workers vs. high skilled workers. Notice that immigrants are not permanently low-skilled, low-wage workers, but often move up the income distribution ladder."