Does Capitalism Really Create Inequality?

Dear Prof. Wolff, Some economists, writing in the press, have claimed that criticisms of capitalism are overblown and that, contrary to what is believed, inequality and indeed poverty are declining, thanks -they say- to capitalism. See for example the following article by the German economist Clemens Fuest who cites World Bank figures that suggest global income inequality is declining and that the rate of people living below a dollar a day has also declined quite significantly: I note that Prof. Fuest directly challenges the Oxfam figures you have so frequently referred to in recent episodes of Economic Update. Who is right? I am grateful for your excellent work and hopeful that you can respond to this question. Sincerely

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Dear Ali Al-Wardi,

The overwhelming concensus of economists, from divergent ideological standpoints, is that inside most countries, inequality has worsened over the last 50 years. The rise of China as a world economic power and its stunning rapid industrialization have raised the income levels of average Chinese dramatcally so that aggregate world comparisons can yield a drop in inequality among countries even as inequality worsens within countries (including and notably China). Its not a question of believing what you read; it is more a question of understanding what the point is the economist wishes to make and what data are being used to suppport the point. Periodically, people rise up against capitalism and its deepening inequality and can temporarily slow or even reverse it. The New Deal did that in the US between 1935 and 1975. But eventually, capitalism reasserts its drive toward greater inequality (for all the reasons presented in Thomas Piketty's book Capital in the 21st Century.

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  • Ali Al-Wardi
    commented 2016-09-27 05:01:36 -0400
    Thank you for this great answer to my question. What you say makes perfect sense and clarifies the matter. I really appreciate that you took the time and effort to answer this question. Thanks! Sincerely – Ali
  • Richard Wolff
    responded with submitted 2016-09-26 13:04:35 -0400
  • Ali Al-Wardi
    published this page in Ask Prof. Wolff 2016-09-21 05:04:43 -0400