Marshall Auerback and Branko Milanovic Discuss Income Inequality: The Global Haves And Have-Nots In The 21st Century

Dave here. This discussion between Marshall Auerback of the Institute for New Economic Thinking and Branko Milanovic of the Luxembourg Income Study Center offers a great historical primer on income inequality. Well-trod ground for anyone who follows Milanovic’ work – such as the concept of the “global middle class” and the relationship to wage stagnation – but a fine catch-up for the unaware and worth watching for the sharpness of the explanations. Milanovic believes we are living in the “second Kuznets cycle,” a period of rising inequality, due to technological change, rent-seeking from elites and a movement in richer countries from manufacturing into services. Lots of talk on financialization here as well.

It’s about 20 minutes long, and I’ve added the introduction from INET. The video is underneath.

Although inequality has recently become one of the current topics “de jour” in the economics profession, Branko Milanovic is certainly not a newbie to this area. Indeed, the World Bank economist and development specialist (currently a visiting presidential professor at CUNY’s Graduate Center and a senior scholar at the Luxembourg Income Study Center), has been studying this particular field of economics since his days as a graduate student. One of his unique contributions has been to link this scholarship to prevailing financial conditions, providing substantial empirical evidence which illustrates how financial bubbles and the increasing financialisation of the global economy has played a key role in terms contributing to greater inequality.

What kind of inequality are we talking about? We are used to thinking about inequality within countries—about rich Americans versus poor Americans, for instance. But what about inequality between all citizens of the world? Professor Milanovic’s scholarship suggests that when split into ‘inequality within countries’ and ‘inequality between countries’, the latter accounts for by far the biggest gap. At the turn of the twenty-first century, the richest 5 percent of people receive one-third of total global income, as much as the poorest 80 percent. While a few poor countries are catching up with the rich world, the differences between the richest and poorest individuals around the globe are huge and likely growing.

This is almost certainly the highest level of relative, and certainly absolute, global inequality at any point in human history. Is there anything we can do to reverse or mitigate this trend?

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This entry was posted in Free markets and their discontents, Guest Post, Income disparity, Macroeconomic policy, Politics, The destruction of the middle class on by .

About David Dayen

David is a contributing writer to He has been writing about politics since 2004. He spent three years writing for the FireDogLake News Desk; he’s also written for The New Republic, The American Prospect, The Guardian (UK), The Huffington Post, The Washington Monthly, Alternet, Democracy Journal and Pacific Standard, as well as multiple well-trafficked progressive blogs and websites. His has been a guest on MSNBC, CNN, Aljazeera, Russia Today, NPR, Pacifica Radio and Air America Radio. He has contributed to two anthology books, one about the Wisconsin labor uprising and another on the fight against the Stop Online Piracy Act in Congress. Prior to writing about politics he worked for two decades as a television producer and editor. You can follow him on Twitter at @ddayen.


  1. Thure Meyer

    We interrupt this program for an important late breaking news story.

    Economists discover land and property

    Sigh …

  2. Taykadip

    What can we do to mitigate the trend? Change the economic system. At least beef up the safety net to ensure everyone has adequate nutrition housing and healthcare.

  3. Thure Meyer

    Sarcasm aside, Milanovic does provide a good example of “Hysteresis” (see previous NC discussion) at a global scale when he discusses entitlements and how your social position, wealth, privileges, etc. help your children and network prosper.

    And yes – the elimination of accumulated historical advantages would level the playing field considerably and possibly ignite a more democratic and rational discussion about the issues we face.

  4. craazyman

    I really don’t know why Jesus said sell all you have and follow me. Pretty soon you’d be poor and then you’d be begging by the side of the road. Maybe there’s another world but that seems like a hell (no pun intended) of a gamble. You’d rather get the 10 bagger first, then follow in a Winnebago stocked with food and wine. That’s not so greedy really.

    The problem with poverty isn’t lack of money it’s lack of order. There’s no coherent idea of order that organizes everybody and so they flail around and all hell breaks loose. Money is just an idea of order. That’s a deep thought. If they can give me an office and a secretary with nice tits at INET I’ll come over there and write papers. I really will.

  5. NeqNeq

    I don’t want to be “that guy”, but……. Dryan’s claim that global inequality is growing is contrary to the claim Milanovic makes in the video (see 6:00-6:45). To be clear, the “few countries” which have gained are primariily China and India. China and India account for a significant portion of the global population. According to Milanovic, the big wage increase seen in the past 20ish years in those countries has pushed global inequality down. Milanovic does not see us sliding into higher global inequality (although his phrasing allows for a stagnation).

    One of the interesting things about all this is that you can sketch out an argument that many (most?) will find problematic. If you agree with the propositions:
    (1) Global Inequality is a bigger problem then local Inequality

    (2) Utilitarian frameworks are the best suited for solving Global Inequality (from Dryan’s “Unpopular Opinions” thread yesterday)

    Then, in conjunction with the evidence that Milanovic cites re: decreasing Global Inequality as a result of wage transfers from rich countries, we have reason to believe:

    (3) Outsourcing jobs from “rich” countries to “poor” countries is more ethical than not outsourcing them. Even when that strategy increases local inequality inside “rich” countries.

    I would add that financial investment, insofar as it can facilitate/incentivize companies investments in “poor” countries, can also be argued as more ethical. At least until finance reaches a point in ‘poor’ countries that it becomes detrimental. As far as I understand, most countries are well below the Finance-to-GDP threshold where negative effects start to kick in. Maybe more informed commenters can provide data to the contrary?

    Please keep in mind that this is only a sketch (e.x. I am glossing over differences within Utilitarianism). How one fills in the details, however, can have significant effects on the solution space that is acceptable. I am not a utilitarian (I am not sure most ‘utilitarians’ are Utilitarians…but that is another post), so I get off at (2). However, I also think that (1) is questionable especially if reject many aspects of Globalization.

    1. Vatch

      One way to reduce global inequality is for people to stop having so many children. It’s a heck of a lot more difficult for a family to support 3, 4, or more children than it is to support 1 or 2. Large families worsen poverty. The money that’s saved can be used to improve people’s standard of living. For example, toilets could be installed. If a society’s resources are always needed to provide basic subsistence because family size is chronically too large, poverty remains very persistent.

      By the way, here’s a clue as to just how bad it is in the impoverished, overpopulated Third World:

      Some 2.4 billion people around the world don’t have access to decent sanitation and more than a billion are forced to defecate in the open, risking disease and other dangers, according to the United Nations.

      1. craazyman

        the problem isn’t children it’s having children who turn out to be poor. if they can have rich children that should, mathematically speaking, improve average income for everybody

        1. Vatch

          Ha ha! I know you’re joking, but for the record, let me point out that when a rich family has a lot of children, it’s even worse, since that increases the number of high consuming, high polluting people in the world.

  6. James McFadden

    What is it with economists and their “cycles” – in this case the Kuznets cycle – as if saying is a cycle explains anything. Clearly the Kuznets curve was a simplistic idea that was no more enlightening then Anne Elk’s theory of the Brontosaurus
    The Kuznets hypothesis was clearly wrong. Inequality is rising – therefore the hypothesis was wrong and it explained nothing. So now in an attempt to retain this obviously wrong hypothesis it becomes a cycle? Calling it a cycle after less than two oscillations? What is it with economists who cling to obviously wrong ideas? Neoclassical economics is full of this nonsense. Why do they cling to simplistic models that are internally inconsistent? Why do they attempt to salvage simplistic equilibrium theories that are shown to be wrong? (see Steve Keen for more on this.) Complex non-linear systems with resource boundaries that limit behavior will form random walks in the system space. Calling it a cycle explains nothing. Economists need to grow up and embrace the complex non-linear differential calculus needed to approximate economic systems. They need to give up on their simplistic algebraic formulations of equilibrium economics. Of course such a course of investigation will demonstrate that economic systems are chaotic and unpredictable – and therefore economists won’t be able to claim they can chart the future with their models – like we didn’t already know this. But I guess what such honesty would really do is eliminate them from the halls of power since politicians would no longer be able to point to the “expert” economists who claim that the chosen policies, which benefit the 1%, are the best course for the future. They could no longer claim that “inequality” is a natural state controlled by the invisible hand of the market, with no one to blame for the political decisions that created that inequality.

    1. craazyman

      maybe it’s a drunken Kuznets cycle. It doesn’t have to be sober all the time. What fun is that?

      that’s a random walk for ya

      1. Jim Haygood

        Janet Yellen is the incarnation of Ninkasi. She has authorized me to send you this message:

        “The ancient Sumerians worshipped the beer they made and praised the Goddess Ninkasi for the miracle of fermentation. Beer is a staple of civilization. Believe in the Goddess.”


    2. susan the other

      Hysteresis. Value and equality happen long after money is spent to create them. They cannot be measured in “financial time.” However, inequality can indeed be measured in financial time. So inequality is a very convenient aspect of accounting. It’s like the article on physicists in awe of symmetrical theories that gel beautifully in math equations – so naturally we strive to prove them and call them “the laws of nature.” And proceed to continue to create them.

  7. kevinearick


    Any moron can declare and conduct war. They do it on the playground every day. Ending a war and rebooting the economy is something different all together.

    War is the repetition of make-work stupidity. While threatening Portugal and Spain with starvation, an empty threat short of WWIII, France just declared war on ISIS, a make-believe scapegoat, to issue more debt, to delay recognition of the obvious, central bank impotence, denying others the same, in a last-effeminate-man-standing currency war, to the benefit of a queen. That’s money.

    We have been discussing this nonsense for 8 years, during which time the participating majority could have chosen any one of an infinite number of paths in a different direction, but instead chose to continue arguing their books, getting the governments and Presidential candidates they deserve, arguing their books. The outcome is no accident. And labor is quite prepared, to watch the communists kill each other, until its time to end it.

    Economics, as taught in the ivory tower, is the elimination of economic mobility in prelude to war, the only possible outcome, of trying to control the narrative of History, repeating itself. Brilliant.

    Of course the stock market, stupid investment on the margin, leveraged by fiat leverage, went up, the whole point. What is crashing and what is needed in a war? It wouldn’t be steel, oil and war bonds would it?

    Jerry Brown talks incessantly about the environment, selling bonds just like his pop, and which gang do you suppose controls dirty oil in California?

    As I said, I will see the State of California in the bond market, and all bonds are war bonds.

    If you are a kid, labor doesn’t need you in this war. Your job is to get married, have children and go to work, until it’s time to reboot the economy. Not every kid went to the oil patch to sit on a drill and talk about diamond bits. Some actually went and learned something about welding, to start a business at home and provide for their families.

    The economy is a distribution of distributions of distributions, so the aggregate data is meaningless noise at your position, in the best of circumstances, and tyrannical at worst. Between the self-confirming stupidity at every level of compilation, communicated and followed by the majority over time, projected forward, which is really backward, the only possible outcome is a steady march back into time, favoring stupid. That’s like looking in a telescope at things that happened a billion years ago and planning space travel, something NASA does every day, and surprise, it’s part of the war effort, working hand in hand with ADM, Bill Gates, and the rest of the morons herding morons around the planet, calling the result productivity.

    Funny thing about my pop; he terrified the communists and fascists in the neighborhood, particularly the principals and teachers at my schools, and my mom, bless her heart, eventually sold him out, for a good life for herself, on EEO welfare. I simply preferred the street, and made the US Navy my sandbox. Being the greatest war machine built to date, I happen to know a few things about war machines, and all the monetarists have is their pet theories, repeating History.

    I was fortunate, and worked my ass off. My dad developed a business model during the Great Depression and watched WWII first hand, the lesson of which my many brothers largely ignored, as the majority always does. They had the same brains, but my mind was always busy at work, while others were busy flapping their gums.

    The Great Depression – denial, anger and depression, locked in positive feedback loops, took so long because that is how long it takes to raise a generation, to choose a different direction, which now leaves the Fed, and all of its followers trapped. The propulsion is there. What you do with it is up to you.

    The compiler has operators and operands, and time durations, all of which may be functions, operating within and among atoms, and the electron is not what you were told it is. Zoom in and zoom out, to see it, along with the patterns of creation. (one of millions). This nonsense has been going on for decades, and as far as labor is concerned, no one has an excuse not to know.

    1. kevinearick


      you assume quite incorrectly that the comments accurately reflect the readership, among other things, and the readership distribution….

      1. kevinearick

        majority vote only has power in its own peer pressure mind; that’s the point. If you care to look, at the record, much of the language you see being used these days is mine.

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