The McKinsey study Poorer than Their Parents? offers a new perspective on income inequality over the period 2005-2014.
Based on market income from wages and capital, the study shows 81% of US citizens are worse off now than a decade ago. In France the figure is 63%, Italy 97%, and Sweden 20%.
The numbers for the US and France differ radically once transfer mechanisms like food stamps and Obamacare subsidies are taken into consideration.
Extent of Flat or Falling Incomes
The first set of numbers is easily believable. But the second?
Who believes 98% of the US is better off after transfer payments are taken into consideration?
The study also shows that 90% of French are better off than in 2005 taking into account government giveaways.
I do not believe those numbers. We would not see so mach anger in France, the UK and the US if those numbers were true.
The numbers in Italy, however, are easily believable. The study has some points that I do agree with.
Points of Agreement
- The hardest hit are young, less-educated workers, raising the spectre of a generation growing up poorer than their parents.
- The economic and social impact is potentially corrosive.
- Nearly one-third of those who are not advancing said they think their children will also advance more slowly in the future, and they expressed negative opinions about free trade and immigration.
- If the low economic growth of the past decade continues, the proportion of households in income segments with flat or falling incomes could rise as high as 70 to 80 percent over the next decade.
- Even if economic growth accelerates, the issue will not go away: the proportion of households affected would decrease, to between about 10 and 20 percent—but that share could double if the growth is accompanied by a rapid uptake of workplace automation.
Points 2, 3, and 5 explain Brexit and the rise of Donald Trump in the US, Marine le Pen in France, and Beppe Grillo in Italy.
As is typically the case, the article failed to discuss why?
The answer is the monetary policies of central banks benefit the wealthy and those with first access to money at the expense of everyone else.
Discussion Points
- Reader Asks Me to Prove “Inflation Benefits the Wealthy” (At the Expense of Everyone Else)
- Top 1% Received 121% of Income Gains During the Recovery, Bottom 99% Lose .4%; How, Why, Solutions
- Reader Asks “Why are Zero Interest Rates Bad? What Should the Interest Rate Be?”
Mike “Mish” Shedlock
