Can Increasing Inequality Be a Steady State?

Historically, discussions of income inequality have emphasised cross-sectional comparisons of levelsof inequality of income. These comparisons have been used to argue that countries with more inequalityare less healthy, less democratic, more crime-infested, less happy, less mobile and less equal in economicopportunity, but such comparisons implicitly presume that current levels of inequality are steady stateoutcomes. However, the income distribution can only remain stable if the growth rate of income is equal atall percentiles of the distribution. This paper compares long-run levels of real income growth at the verytop, and for the bottom 90% and bottom 99% in the United States, Canada and Australia to illustrate theuniqueness of the post-WWII period of balanced growth (and consequent stability in the incomedistribution). The ‘new normal’ of the United States, Canada and Australia is ‘unbalanced’ growth –specifically, over the last thirty years the incomes of the top 1% have grown significantly more rapidlythan those of everyone else. The paper asks if auto-equilibrating market mechanisms will spontaneouslyequalise income growth rates and stabilise inequality. It concludes that the more likely scenario iscontinued unbalanced income growth. This, in turn, implies, on the economic side, consumption andsavings flows which accumulate to changed stocks of indebtedness, financial fragility, and periodic macroeconomiccrises and, on the social side, to increasing inequality of opportunity and political influence.Greater economic and socio-political instabilities are therefore the most likely consequence of increasingincome inequality over time.