Forum newsletter: What Really Works Against Wealth Inequality? New Economy Short Cut with Gabriel Zucman

Dear friends and colleagues,

Are the rich and the poor drifting further and further apart? Is the gap between top earners and those on lower incomes widening? Or is it not? Hardly any issue seems to generate such persistently contradictory reporting as this one. And every few weeks, new data appear that supposedly confirm either one view or the other. So which is it?

For a long time, this inconsistency could be explained by the fact that there was indeed hardly any reliable statistical data, especially on wealth. That has become less and less true in recent years. And the findings are as differentiated as they are clear: yes, the gaps in wages and incomes have, on balance, tended to narrow somewhat in Germany since around 2015. And there is no automatic mechanism by which the gap in wealth grows larger year after year.

That does not mean, however, that inequality as a whole has simply been talked into existence, as some like to claim (usually those who stand as close to the rich as they are distant from the critics) — quite the opposite. If lower incomes are no longer falling quite as sharply, this is precisely because the severity of the situation was eventually recognized — and because a minimum wage was introduced in Germany as well.

It is equally misguided to conclude that there is no rich–poor divide simply because top wealth holdings fail to pull further ahead for a year or two. The overall trend is clear, if only because the wealthiest households achieve far higher returns on their assets. Minor ups and downs do nothing to change the fact that, according to all surveys, an astonishing two thirds of total wealth are held by the richest ten percent. That is neither socially sustainable in the long run nor economically sensible. It is a historic drama — especially at a time when money is lacking for all kinds of essential purposes and the government is forced to take on debt to finance them. Something is clearly wrong here. No amount of statistical acrobatics can change that.

Of course, it makes sense to continue refining the data, updating the statistics, and scrutinizing them carefully. But the likelihood that the problem will suddenly dissolve in the process is low. By now, the data used by inequality researchers are simply too robust.

The real tragedy of the endless, emotionally charged debate over whether the problem even exists is that it prevents time and energy from being spent on the question of how the problem might be solved. One of the key insights of recent years is that a comparatively ​large impact on wealth distribution could be achieved by granting younger people a kind of basic inheritance​. According to simulations, raising wealth and inheritance taxes would achieve less — though that does not make such measures any less sensible.

In recent months, the French economist Gabriel Zucman has attracted a great deal of attention with his proposal for a minimum tax on the super-rich. His book on the subject will be published in German next week. On January 19, we will be discussing with him what such a tax could actually change — in the next New Economy Short Cut, starting at 11:30 a.m. You can register ​here​.

Have a wonderful weekend 

Thomas Fricke 

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