LOUIS CHAUVEL PrDr Louis.chauvel@uni.lu

IRSEI Institute for Research on Socio-Economic Inequality University of Luxembourg Globalization of Extremes: The North-Western Middle Classes Facing the Return of Pareto Distributions and Power-Laws With the support of LOUIS CHAUVEL PrDrLouis.chauvel@uni.lu

Introduction: The point => de-middlization or even worse? Welcome back in a world of extreme inequalities • The theory: A “new” class structure: forget Quetelet, learn Pareto: A theory of imbalance of power • The world transformations: Brazilianisation of the North and expansion of some South • Conclusive Remarks The long 21st century begins and the Hobsbawm / Arrighi legacy

Introduction: • The point => de-middlization or even worse? • Welcome in a world of extreme inequalities • The old French social science methodology: Social Facts first!

1. Introduction: a. Yesterday: The Western middle class dream (not everywhere but in many western countries) Galbraith, Goldthorpe and Lockwood, Mendras, Lederer?, etc. etc. Fourastié « The greathope of the 20th century » 1- « Wage based middle class society » = permanent wage earner are a majority 2- Wage incomes sufficient to live well => the affluent society 3- Generalization of labor stability and social protection 4- Education boom and increasing value of diplomas, upward social mobility 5- Political centrality of middle class 6- Beliefs in progress

1. Introduction:de-middlization or even worse? b. Today: Very bad news in social facts…for post-affluent countries (not everywhere but in many western countries) Piketty, Alderson, Tomaskovic-Devey, Therborn, Mann, etc. « The greatworries of the 21th century » 1- « Wage uncertainty » = decline in predictability and repatrimonialization 2- Wage stagnation and real cost of life => the post-affluent society 3- Generalization of precariat and destabilization of social protection 4- Over-Education boom and increasing value of diplomas, downward social mobility 5- Loss of political centrality/control of middle class 6- New worries

Income Inequality: Economic Disparities and the Middle Class in Affluent Countries edited by: Janet C. Gornick and Markus Jäntti (Stanford University Press) 2013 • http://www.sup.org/book.cgi?id=21329 Louis Chauvel 2006, Les classes moyennes à la dérive (The Middle Classes Adrift), Seuil, Paris.

The bad news (Piketty) *Capital expansion and wage stagnation *Structural Matthew effect(1): R(real interest rates) > G(real eco growth)=> the new era *The richer will save, not the poorer *Auto-generated spiral of accumulation of wealth and inequalities *Farewell to meritocracy (1): “For unto every one that hath shall be given, and he shall have abundance: but from him that hath not shall be taken even that which he hath”. Matthew 25:29, King James Version.

Even worse news (Alderson, Beckfield, etc. etc.) • End of the 1960-70 Western social dream • *Demography-connected changes: baby-boom overcrowding effects, homogamy, role of education • *Market transformations: deindustrialization, global competition (new-developed countries and destabilization of the western upper working class), technological bias, winner take all • *Economic & Social policies: Tax reforms at the top, declining minimum wages and decay of social regulations at the bottom Godechot, Olivier 2012 Is finance responsible for the rise in wage inequality in France? Socio-Economic Review 10(3), 447-470 Robert H. Frank and Philip J. Cook 1995 The Winner-Take-All Society(New York: The Free Press,).

https://archive.org/details/lathoriedelhom00halbuoft 2. The theory: A “new” class structure: forget Quetelet, learn ParetoFarewell to the theory of middle man (Quetelet, Halbwachs)Welcome(back) to extreme society (Pareto, Nielsen) height Median = Mean M=177 cm sd=10.1 Nielsen, François. 2007. “Economic Inequality, Pareto, and Sociology: The Route Not Taken.”. American Behavioral Scientist 50 (5): 619–638. 1- Normal law worldmax height = 227 cm (in a 1.000.00 sample) Max/Median = 1.280 (in a 1.000.00 sample) In the US: Robert Wadlow, the tallest person 272 cm = 1.53 the median

Farewell to the theory of middle man (Quetelet Halbwachs)Welcome(back) to extreme society (Pareto Nielsen) US Income Mean=1.4 * Median 2- Typical Income Pareto-Champernowne-Fisk law with a gini index = .45 Max/Median Income = 700(in a 1.000.000 sample) In the US 2013 LNG Charif Souki $141 Millions =3154 times the median US FT yearly earning lvl M=177 cm sd=10.1 Median Fits based on SCF 2011

Farewell to the theory of middle man (Quetelet Halbwachs)Welcome(back) to extreme society (Pareto Nielsen) US Wealth Mean=4.3 * Median 3- Typical Wealth Pareto-Champernowne-Fisk law with a gini index = .72 Max/Median Income = 71 000(in a 1.000.00 sample) In the US 6 Walton family members own $152 Billions =250 000 times the median wealth =500 000 times the median US FT yearly earning M=177 cm sd=10.1 Median Fits based on SCF 2011 No wealth based middle class

2. The theory:An imbalance of power theory of income and wealth And the double Pareto curve (Champernowne-Fisk) Ln(y) ≈ Gini * logit(r) (Champernowne, 1953; Fisk, 1960; Dagum 1975) Louis Chauvel Mar - 2014 Intensity and shape of inequalities: the ABG method for the analysis of distributions LIS working papers series - No. 609 Power of income = Gini times Power of rank At the top, your log of income is proportional to the number of people above youGaining one rank can dramatically change the size of resourcesAt the bottom as well to avoid radical povertyNear to the median, rank changes have much less impact on resources=> the middle class face less radical competition When Gini is smaller, the radicallity of the game is smoothed http://www.lisdatacenter.org/wps/liswps/609.pdf

2. The theory:An imbalance of power theory of income and wealth And the double Pareto curve (Champernowne-Fisk) • World buzz: The red baron (Manfred von Richthofen) example(“victories” of WW1 aces are normally distributed, but fame is not…) • World biz: how the financial market works?

3. The world transformations: Brazilianisation of the North The big shift : Increasing Ginis of IncomesIncreasing Ginis of WealthIncreasing size of Wealth relative to incomesetc. Drumbeat of bad news Welcome(back) to a very non-normal world!

Changes in the general shapes • Globalization of the income distribution: • The rich are indexed on global firms size • The others on the BRICs working and wage earner classes • Even more massive changes in the distributions still to come ?… Upper middle class The strobiloid representation of income distribution

6 Strobiloids Change France Sweden Germany(W) U.K. U.S. Israel

X` Branko Milanovic version of Piketty-Saez

45 Costa Rica Mexico Inequality (Gini coeff) Malaysia Russia Tunisia From early 1980’ to late 2000’ Venezuela Tunisia 40 Turkey Korea, Republic of Korea, Republic of U.S. Greece Portugal Portugal 35 Israel U.K. Spain Greece Italy Ireland Ireland Japan Japan Spain Canada Australia Switzerland. Italy Israel Canada U.S. 30 Taiwan Hungary Poland France France Hungary Australia Switzerland. Romania Belgium Pola nd U.K. Russia Taiwan Germ any Netherlands Austria Czech R. Denmark Sweden Norway 25 Slovenia Netherlands Slovenia Germany Denmark Slovak Rep. Finland Luxembourg Growthlog10(per capita GDP PPP) Austria Belgium Norway Sweden Finland Czech R. 20 3,6 3,7 3,8 3,9 4 4,1 4,2 4,3 4,4 4,5 4,6

Branko Milanovic version of Piketty-Saez wgini=.35(.031) igini +55.3(1.3)R-sq=.41 Data fromJames Davies, Rodrigo Lluberas, and Anthony F. Shorrocks, different years

Piketty

Piketty In 1980 = wealth is 3 years of incomeIn 2010 = wealth is 6 years of income

US 1980 Wealth Gini=.75 Mean wealth=3.7 med income Income Gini=.35 Median Income

US 2010 Wealth Gini=.79 Mean wealth=8.5 med income Income Gini=.45 Median Income

US 2040 Piketty Central Scenario Wealth Gini=.82 Mean wealth=15.5 med income Income Gini=.55 Median Income

3. Consequences and side effects More income and wealth homogamy Less mobility More opportunities for top quantile groups Less for the others (even the upper middle class?) Health, lack of human development, violence, … “Inequality kills…” (Therborn, 2014)

“Great Gatsby” Curve R-sq = 0.75 !!(slope close to 1) Corak, Miles. 2013. “Inequality from Generation to Generation: The United States in Comparison.” Chap. 6 in The Economics of Inequality, Poverty, and Discrimination in the 21st Century, edited by Robert S. Rycroft. Santa Barbara, CA: ABC - CLIO. http://milescorak.files.wordpress.com/2012/01/inequality-from-generation-to-generation-the-united-states-in-comparison-v3.pdf

4. Conclusive remarks: Brace! Brace !… • Hobsbawm / Arrighi and a new age of extremes • The self-sustaining inequality spiral • The differences with the 19th century capitalism: From material to symbolic starvation?Which frustrations in Europe after de-middlization?What is the new class structure?

4. Conclusive Re-Marx: Solutions! • Piketty: let us have a world level progressive wealth taxand more transparent informationWright: let us have a universal minimum incomeand a real utopia Therborn: let us construct a real democracy and re-balance powerChauvel: let us understand/interpret again the real social facts Sedulo curavi, humanas actiones non ridere, non lugare, neque detestari, sed intelligere. I have striven not to laugh at human actions, not to weep at them, nor to hate them, but to understand them. Baruch Spinoza, 1675/1676 Tractatus Politicus (A Political Treatise)

4. Conclusive remarks: but last last bad news … • The increasing concentration of power at the top changes the imbalance of power including the ideological oneThe poor, the post-working class, and the new lower-middle class no longer trust politicsand consider the intellectuals are a part of the 1%

LOUIS CHAUVEL PrDr Louis.chauvel@uni.lu