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IRSEI Institute for Research on Socio-Economic University of Luxembourg Inequality 1 Globalization of Extremes: IRSEI Institute for Research on Socio-Economic University of Luxembourg Inequality 1 Globalization of Extremes: The North-Western Middle Classes Facing the Return of Pareto Distributions and Power-Laws LOUIS CHAUVEL Pr. Dr Louis. [email protected] lu WITH THE SUPPORT OF

2 1. Introduction: The point => de-middlization or even worse? Welcome back in a 2 1. Introduction: The point => de-middlization or even worse? Welcome back in a world of extreme inequalities 2. The theory: A “new” class structure: forget Quetelet, learn Pareto: A theory of imbalance of power 3. The world transformations: Brazilianisation of the North and expansion of some South 4. Conclusive Remarks The long 21 st century begins and the Hobsbawm / Arrighi legacy

1. Introduction: The point => de-middlization or even worse? Welcome in a world of 1. Introduction: The point => de-middlization or even worse? Welcome in a world of extreme inequalities The old French social science methodology: Social Facts first! 3

1. Introduction: a. Yesterday: The Western middle class dream (not everywhere but in many 1. Introduction: a. Yesterday: The Western middle class dream (not everywhere but in many western countries) Galbraith, Goldthorpe and Lockwood, Mendras, Lederer? , etc. Fourastié « The great hope of the 20 th century » 1 - « Wage based middle class society » = permanent wage earner are a majority 2 - Wage incomes sufficient to live well => the affluent society 3 - Generalization of labor stability and social protection 4 - Education boom and increasing value of diplomas, upward social mobility 5 - Political centrality of middle class 6 - Beliefs in progress 4

1. Introduction: de-middlization or even worse? b. Today: Very bad news in social facts…for 1. Introduction: de-middlization or even worse? b. Today: Very bad news in social facts…for post-affluent countries (not everywhere but in many western countries) Piketty, Alderson, Tomaskovic-Devey, Therborn, Mann, etc. « The great worries of the 21 th century » 1 - « Wage uncertainty » = decline in predictability and repatrimonialization 2 - Wage stagnation and real cost of life => the post-affluent society 3 - Generalization of precariat and destabilization of social protection 4 - Over-Education boom and increasing value of diplomas, downward social mobility 5 - Loss of political centrality/control of middle class 6 - New worries 5

Income Inequality: Economic Disparities and the Middle Class in Affluent Countries edited by: Janet Income Inequality: Economic Disparities and the Middle Class in Affluent Countries edited by: Janet C. Gornick and Markus Jäntti (Stanford University Press) 2013 http: //www. sup. org/book. cgi? id=21329 Louis Chauvel 2006, Les classes moyennes à la dérive (The Middle Classes Adrift), Seuil, Paris.

7 The bad news (Piketty) *Capital expansion and wage stagnation *Structural Matthew effect(1): R(real 7 The bad news (Piketty) *Capital expansion and wage stagnation *Structural Matthew effect(1): R(real interest rates) > G(real eco growth) => the new era *The richer will save, not the poorer *Auto-generated spiral of accumulation of wealth and inequalities *Farewell to meritocracy (1): “For unto every one that hath shall be given, and he shall have abundance: but from him that hath not shall be taken even that which he hath”. Matthew 25: 29, King James Version.

8 Even worse news (Alderson, Beckfield, etc. ) End of the 1960 -70 Western 8 Even worse news (Alderson, Beckfield, etc. ) End of the 1960 -70 Western social dream *Demography-connected changes: baby-boom overcrowding effects, homogamy, role of education *Market transformations: deindustrialization, global competition (new-developed countries and destabilization of the western upper working class), technological bias, winner take all *Economic & Social policies: Tax reforms at the top, declining minimum wages and decay of social regulations at the bottom Robert H. Frank and Philip J. Cook 1995 The Winner-Take-All Society (New York: The Free Press, ). Godechot, Olivier 2012 Is finance responsible for the rise in wage inequality in France? Socio-Economic Review 10(3), 447 -470

2. The theory: A “new” class structure: forget Quetelet, learn Pareto https: //archive. org/details/lathoriedelhom 2. The theory: A “new” class structure: forget Quetelet, learn Pareto https: //archive. org/details/lathoriedelhom 00 halbuoft Farewell to theory of middle man (Quetelet, Halbwachs) height Welcome(back) to extreme society Median = Mean M=177 cm (Pareto, Nielsen) Nielsen, François. 2007. “Economic Inequality, Pareto, and Sociology: The Route Not Taken. ”. American Behavioral Scientist 50 (5): 619– 638. sd=10. 1 1 - Normal law world max height = 227 cm (in a 1. 000. 00 sample) Max/Median = 1. 280 (in a 1. 000. 00 sample) In the US: Robert Wadlow, the tallest person 272 cm = 1. 53 the median 9

Farewell to theory of middle man (Quetelet Halbwachs) Welcome(back) to extreme society (Pareto Nielsen) Farewell to theory of middle man (Quetelet Halbwachs) Welcome(back) to extreme society (Pareto Nielsen) US Income Mean=1. 4 * Median 2 - Typical Income Pareto-Champernowne-Fisk law with a gini index =. 45 Max/Median Income = 700 (in a 1. 000 sample) M=177 cm sd=10. 1 Median In the US 2013 LNG Charif Souki $141 Millions =3154 times the median US FT yearly earning lvl Fits based on SCF 2011 10

Farewell to theory of middle man (Quetelet Halbwachs) Welcome(back) to extreme society (Pareto Nielsen) Farewell to theory of middle man (Quetelet Halbwachs) Welcome(back) to extreme society (Pareto Nielsen) US Wealth 3 - Typical Wealth Pareto-Champernowne-Fisk law with a gini index =. 72 Mean=4. 3 * Median M=177 cm sd=10. 1 Max/Median Income = 71 000 (in a 1. 000. 00 sample) In the US 6 Walton family members own $152 Billions Median =250 000 times the median wealth =500 000 times the median US FT yearly earning Fits based on SCF 2011 No wealth based middle class 11

Farewell to theory of middle man (Quetelet Halbwachs) Welcome(back) to extreme society (Pareto Nielsen) Farewell to theory of middle man (Quetelet Halbwachs) Welcome(back) to extreme society (Pareto Nielsen) US Wealth 3 - Typical Wealth Pareto-Champernowne-Fisk law with a gini index =. 72 Mean=4. 3 * Median M=177 cm sd=10. 1 Max/Median Income = 71 000 (in a 1. 000. 00 sample) In the US 6 Walton family members own $152 Billions Median =250 000 times the median wealth =500 000 times the median US FT yearly earning Fits based on SCF 2011 No wealth based middle class 12

2. The theory: An imbalance of power theory of income and wealth And the 2. The theory: An imbalance of power theory of income and wealth And the double Pareto curve (Champernowne-Fisk) Ln(y) ≈ Gini * logit(r) (Champernowne, 1953; Fisk, 1960; Dagum 1975) Louis Chauvel Mar - 2014 Intensity and shape of inequalities: the ABG method for the analysis of distributions LIS working papers series - No. 609 http: //www. lisdatacenter. org/wps/liswps/609. pdf Power of income = Gini times Power of rank At the top, your log of income is proportional to the number of people above you Gaining one rank can dramatically change the size of resources At the bottom as well to avoid radical poverty Near to the median, rank changes have much less impact on resources => the middle class face less radical competition When Gini is smaller, the radicallity of the game is smoothed 13

2. The theory: An imbalance of power theory of income and wealth And the 2. The theory: An imbalance of power theory of income and wealth And the double Pareto curve (Champernowne-Fisk) World buzz: The red baron (Manfred von Richthofen) example (“victories” of WW 1 aces are normally distributed, but fame is not…) World biz: how the financial market works? 14

3. The world transformations: Brazilianisation of the North Drumbeat of bad news The big 3. The world transformations: Brazilianisation of the North Drumbeat of bad news The big shift : Increasing Ginis of Incomes Increasing Ginis of Wealth Increasing size of Wealth relative to incomes etc. Welcome(back) to a very non-normal world! 15

Changes in the general shapes Globalization of the income distribution: The rich are indexed Changes in the general shapes Globalization of the income distribution: The rich are indexed on global firms size The others on the BRICs working and wage earner classes Upper middle class The strobiloid representation of income distribution Þ Even more massive changes in the distributions still to come ? …

6 Strobiloids Change Sweden Germany (W) U. K. U. S. France Israel 6 Strobiloids Change Sweden Germany (W) U. K. U. S. France Israel

18 X` Branko Milanovic version of Piketty-Saez 18 X` Branko Milanovic version of Piketty-Saez

 45 Inequality (Gini coeff) Costa Rica Mexico Russia Tunisia From early 1980’ to 45 Inequality (Gini coeff) Costa Rica Mexico Russia Tunisia From early 1980’ to late 2000’ Venezuela Tunisia Turkey 40 19 Malaysia Korea, Republic of Greece Portugal 35 Greece Ireland Spain Israel Hungary Poland 30 Romania 25 20 3, 6 Hungary Poland Taiwan Russia Slovenia 3, 8 U. K . Italy Ireland Japan Canada Australia Switzerland. Italy Canada U. S. Taiwan France Australia Switzerland. Belgium Japan Germany Austria Czech R. Netherlands Denmark Sweden Norway Slovenia Netherlands Germany Denmark Slovak Rep. Finland Luxembourg 3, 9 Israel Spain U. S . U. K. Austria Belgium Norway Sweden Finland Czech R. 3, 7 Korea, Republic of Portugal 4 4, 1 4, 2 4, 3 Growth log 10(per capita GDP PPP) 4, 4 4, 5 4, 6

20 Branko Milanovic version of Piketty-Saez wgini=. 35(. 031) igini +55. 3(1. 3) R-sq=. 20 Branko Milanovic version of Piketty-Saez wgini=. 35(. 031) igini +55. 3(1. 3) R-sq=. 41 Data from James Davies, Rodrigo Lluberas, and Anthony F. Shorrocks, different years

21 Piketty 21 Piketty

22 Piketty In 1980 = wealth is 3 years of income In 2010 = 22 Piketty In 1980 = wealth is 3 years of income In 2010 = wealth is 6 years of income

23 US 1980 Income Gini=. 35 Median Income Wealth Gini=. 75 Mean wealth=3. 7 23 US 1980 Income Gini=. 35 Median Income Wealth Gini=. 75 Mean wealth=3. 7 med income

24 US 2010 Income Gini=. 45 Median Income Wealth Gini=. 79 Mean wealth=8. 5 24 US 2010 Income Gini=. 45 Median Income Wealth Gini=. 79 Mean wealth=8. 5 med income

25 US 2040 Piketty Central Scenario Income Gini=. 55 Median Income Wealth Gini=. 82 25 US 2040 Piketty Central Scenario Income Gini=. 55 Median Income Wealth Gini=. 82 Mean wealth=15. 5 med income

3. Consequences and side effects More income and wealth homogamy Less mobility More opportunities 3. Consequences and side effects More income and wealth homogamy Less mobility More opportunities for top quantile groups Less for the others (even the upper middle class? ) Health, lack of human development, violence, … “Inequality kills…” (Therborn, 2014) 26

“Great Gatsby” Curve R-sq = 0. 75 !! Corak, Miles. 2013. “Inequality from Generation “Great Gatsby” Curve R-sq = 0. 75 !! Corak, Miles. 2013. “Inequality from Generation to Generation: The United States in Comparison. ” Chap. 6 in The Economics of Inequality, Poverty, and Discrimination in the 21 st Century, edited by Robert S. Rycroft. Santa Barbara, CA: ABC - CLIO. (slope close to 1) 27 http: //milescorak. files. wordpress. com/2012/01/inequality-from-generation-to-generation-the-united-states-in-comparison-v 3. pdf

4. Conclusive remarks: Brace! Brace !… Hobsbawm / Arrighi and a new age of 4. Conclusive remarks: Brace! Brace !… Hobsbawm / Arrighi and a new age of extremes The self-sustaining inequality spiral The differences with the 19 th century capitalism: From material to symbolic starvation? Which frustrations in Europe after de-middlization? What is the new class structure? 28

4. Conclusive Re-Marx: Solutions! Piketty: let us have a world level progressive wealth tax 4. Conclusive Re-Marx: Solutions! Piketty: let us have a world level progressive wealth tax and more transparent information Wright: let us have a universal minimum income and a real utopia Therborn: let us construct a real democracy and re-balance power Chauvel: let us understand/interpret again the real social facts Sedulo curavi, humanas actiones non ridere, non lugare, neque detestari, sed intelligere. I have striven not to laugh at human actions, not to weep at them, nor to hate them, but to understand them. 29 Baruch Spinoza, 1675/1676 Tractatus Politicus (A Political Treatise)

4. Conclusive remarks: but last bad news … The increasing concentration of power at 4. Conclusive remarks: but last bad news … The increasing concentration of power at the top changes the imbalance of power including the ideological one The poor, the post-working class, and the new lower-middle class no longer trust politics and consider the intellectuals are a part of the 1% 30