Economic inequality to get worse as the rich gets richer, study reveals

Economic inequality could soon get much worse than economists originally thought, according to new research on the return rate of everything.

Òscar Jordà, Federal Reserve Bank of San Francisco economist, along with four other authors, looked at 16 countries in a first-ever data set to offer a complete analysis on the rate of return on wealth and the growth rate of the economy from 1870 to 2015.

They found that the “weighted rate of return on capital was twice as high as the growth rate in the past 150 years.”

The data set offers insight into rates of return on wealth for the major categories including bonds and stocks. Housing was included for the first time ever.

In the study, researchers examined the argument started by French economist Thomas Piketty in his 2014 book Capital in the Twenty-First Century, in which he signaled that a concentration of wealth is likely if the rich get richer at a rate greater than economic growth.

The researchers found that Piketty’s stipulations maybe “even more correct than he realized,” according to The Washington Post.

By calculating housing wealth, researchers were able to prove that the return rates on real estate have been as high or “higher than the return on equity,” according to Bloomberg, suggesting that that the rich who own real estate are largely benefitting.

The World Inequality Lab run under Piketty released its 2018 World Inequality Report in December, which uncovered that the world’s top 1 percent will own 24 percent of the world’s wealth in 2050, up by 4 percent. The share of the world’s bottom 50 percent would then drop to below 9 percent.

The report found that income inequality varies around the world but since 1980, North America, China, India and Russia have seen a considerable increase in inequality.

“The income-inequality trajectory observed in the United States is largely due to massive educational inequalities, combined with a tax system that grew less progressive,” the report found.

One way to start tackling inequality is by focusing on land ownership. In a separate paper, economist Matt Rognlie discovered that land ownership has created the majority of the wealth inequality.

“The long-term increase in capital’s net share of income in large developed countries has consisted entirely of housing,” Rognlie found.

Some have argued that the Republican tax bill signed by President Donald Trump will only make income inequality worse.

“The bill is investing heavily in the wealthy and their children — by boosting the value of their stock portfolios, creating new loopholes for them to avoid tax on their labor income, and cutting taxes on massive inheritances,” Lily Batchelder, a New York University professor, told Vox. “At the same time, it leaves low- and middle-income workers with even fewer resources to invest in their children, and increases the number of Americans without health insurance.”