Our Economic Pie:

When 10% is more than 90%

Fall 2014 Public Lecture

B E R M U D A C O L L E G E

CAUTION

Everything is Relative …even when it shouldn’t be

How our economic pie is divvied up?

Upper class 50%

Lowclass 20%

Middle class 30%

Literature Review• Thomas Piketty, Income Inequality in France, 1901-1998, Journal of

Political Economy, 2003• T. Piketty & E. Saez, Income Inequality in the United States, 1913-1998,

Quarterly Journal of Economics, 2003 • A. Banerjee & T. Piketty, Top Indian Incomes, 1922-2000, World Bank

Economic Review, 2005• A. Atkinson & T. Piketty, Top Incomes over the Twentieth Century - A

Contrast Between Continental European and English-Speaking Countries, Oxford University Press, 2007

• Claudia Goldin & Lawrence Katz, The Race between Education & Technology, Harvard University Press, 2008.

• Greg Mankiw, Defending the One Percent, Journal of Economic Perspectives, 2013

• T. Piketty, Capital in the 21st Century, 2014

Definitions

Capital (K) = wealthDomestic K + Foreign K

Machines

Buildings

Land

Infrastructure

Natural resources

Definitions

National income (Y) =

labour income + capital income

• β = K/Y = capital-income ratio

1st Fundamental Law of Capitalism

•α = r β

• α = capital income as a share of Y

• r = rate of return on K

• β = capital-income ratio

• if α = 30% & β = 6 then r = 5%

1st Fundamental Law of Capitalism

if Y = $7b & Population = 70,000

then per capita Y = $100,000 = $70,000 + $30,000

L income + K income

if wealth = K = 6 years Y, then K = β Y = $42b,

and per capita wealth (K) = $42b/70,000 =

$600,000

r = K income/K = $30,0000/$600,000 = 5%

2nd Fundamental Law of Capitalism

β = s/g s = savings rate

g = growth rate

Share of different groups in total income

Shares Low inequality Medium inequalityHigh inequalityTop 1% 7% 10% 20%Upper 25% 35% 50%Middle 45% 40% 30%Lower 30% 25% 20%

Share of different groups in total income

Annual Low inequality Medium inequalityHigh inequalityTop 1% $1,225,000 $1,750,000 $3,500,000Upper $437,500 $612,500 $875,000Middle $196,875 $175,000 $131,250Lower $105,000 $87,500 $70,000

Share of different groups in total income

Month Low inequality Medium inequalityHigh inequalityTop 1% $102,083 $145,833 $291,667Upper $36,458 $51,042 $72,917Middle $16,406 $14,583 $10,938Lower $8,750 $7,292 $5,833

Share of different groups in total income

Week Low inequality Medium inequalityHigh inequalityTop 1% $23,558 $33,654 $67,308Upper $8,413 $11,779 $16,827Middle $3,786 $3,365 $2,524Lower $2,019 $1,683 $1,346

Policies

• GDP Release: include social tables

• Less Regressive Tax systemNegative payroll taxesValue-added taxLump-sum Corporate tax

Policies

• GDP Release: include social tables• Less Regressive Tax system

Negative payroll taxesValue-added taxLump-sum Corporate tax

• Progressive Government spendingEducationHealthTransportation Pensions

Policies

• GDP Release: include social tables• Less Regressive Tax system

Negative payroll taxesValue-added taxLump-sum Corporate tax

• Progressive Government spendingEducationHealthTransportation Pensions

• Minimum Wage/Low Income guidelines

Final Thoughts

• What is JUST?UtilitarianismLiberalismLibertarianism

• New Oligarchy?

Our Economic Pie:

When 10% is more than 90%

Fall 2014 Public Lecture

B E R M U D A C O L L E G E