IDEAS home Printed from https://ideas.repec.org/p/col/000122/012186.html
   My bibliography  Save this paper

A case for redistribution? Income inequality and wealth concentration in the recent crisis

Author

Listed:
  • Thomas Goda
  • Özlem Onaran
  • Engelbert Stockhammer

Abstract

Several Nobel laureates economists have called for redistributive policies. This paper shows that there is a strong case for redistributive policies because the global increase of income inequality and wealth concentration was an important driver for the financial and Eurozone crisis. The high levels of income inequality resulted in balance of payment imbalances and rising debt levels. Rising wealth concentration contributed to the crisis because the increasing asset demand from the rich played a key role in the rise of the structured credit market and enabled poor and middle-income households to accumulate increasing amounts of debt. To tame the inherent instability of the current mode of capitalism it is necessary to reduce inequality.

Suggested Citation

  • Thomas Goda & Özlem Onaran & Engelbert Stockhammer, 2014. "A case for redistribution? Income inequality and wealth concentration in the recent crisis," Documentos de Trabajo de Valor Público 12186, Universidad EAFIT.
    • Handle: RePEc:col:000122:012186
    as

    Download full text from publisher

    File URL: https://repository.eafit.edu.co/bitstream/handle/10784/2883/2014_17_Thomas_Goda.pdf?sequence=3&isAllowed=y
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Hoque, Hafiz, 2013. "From the credit crisis to the sovereign debt crisis: Determinants of share price performance of global banks," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 334-350.
    2. Emmanuel Farhi & Ricardo Caballero & Pierre-Olivier Gourinchas, "undated". "Financial Crash, Commodity Prices and Global Imbalances," Working Paper 20933, Harvard University OpenScholar.
    3. Anthony B. Atkinson & Thomas Piketty & Emmanuel Saez, 2011. "Top Incomes in the Long Run of History," Journal of Economic Literature, American Economic Association, vol. 49(1), pages 3-71, March.
    4. Bernanke, B.S., 2011. "International capital flows and the returns to safe assets in the United States 2003-2007," Financial Stability Review, Banque de France, issue 15, pages 13-26, February.
    5. George A. Akerlof, 2009. "How Human Psychology Drives the Economy and Why It Matters," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1175-1175.
    6. Joseph STIGLITZ, 2013. "The global crisis, social protection and jobs," International Labour Review, International Labour Organization, vol. 152, pages 93-106, January.
    7. Henry Ohlsson & Jesper Roine & Daniel Waldenstrom, 2006. "Long-Run Changes in the Concentration of Wealth: An Overview of Recent Findings," WIDER Working Paper Series RP2006-103, World Institute for Development Economic Research (UNU-WIDER).
    8. Anthony B. Atkinson & Andrea Brandolini, 2010. "On Analyzing the World Distribution of Income," The World Bank Economic Review, World Bank, vol. 24(1), pages 1-37, January.
    9. Viral Acharya & Itamar Drechsler & Philipp Schnabl, 2014. "A Pyrrhic Victory? Bank Bailouts and Sovereign Credit Risk," Journal of Finance, American Finance Association, vol. 69(6), pages 2689-2739, December.
    10. Edward N. Wolff & Ajit Zacharias, 2013. "Class structure and economic inequality," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 37(6), pages 1381-1406.
    11. repec:oup:copoec:v:32:y::i:1:p:11-27 is not listed on IDEAS
    12. Ricardo J. Caballero & Arvind Krishnamurthy, 2009. "Global Imbalances and Financial Fragility," American Economic Review, American Economic Association, vol. 99(2), pages 584-588, May.
    13. Ludger Schuknecht & Philippe Moutot & Philipp Rother & Jürgen Stark, 2011. "The Stability and Growth Pact: Crisis and Reform," CESifo DICE Report, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 9(3), pages 10-18, October.
    14. Aaron Major, 2012. "Neoliberalism and the new international financial architecture," Review of International Political Economy, Taylor & Francis Journals, vol. 19(4), pages 536-561.
    15. James Crotty, 2012. "The great austerity war: what caused the US deficit crisis and who should pay to fix it?," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 36(1), pages 79-104.
    16. Engelbert Stockhammer & Özlem Onaran & Stefan Ederer, 2009. "Functional income distribution and aggregate demand in the Euro area," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 33(1), pages 139-159, January.
    17. Brenner, Robert, 2009. "What is Good for Goldman Sachs is Good for America The Origins of the Present Crisis," Institute for Social Science Research, Working Paper Series qt0sg0782h, Institute for Social Science Research, UCLA.
    18. L. Randall Wray, 2009. "The rise and fall of money manager capitalism: a Minskian approach," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 33(4), pages 807-828, July.
    19. Jan Kregel, 2008. "Using Minsky's Cushions of Safety to Analyze the Crisis in the U. S. Subprime Mortgage Market," International Journal of Political Economy, Taylor & Francis Journals, vol. 37(1), pages 3-23.
    20. Joseph E. Stiglitz, 2011. "Rethinking Macroeconomics: What Failed, And How To Repair It," Journal of the European Economic Association, European Economic Association, vol. 9(4), pages 591-645, August.
    21. Eckhard Hein & Lena Vogel, 2008. "Distribution and growth reconsidered: empirical results for six OECD countries," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 32(3), pages 479-511, May.
    22. Philip Vermeulen, 2018. "How Fat is the Top Tail of the Wealth Distribution?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 64(2), pages 357-387, June.
    23. Palley,Thomas I., 2013. "From Financial Crisis to Stagnation," Cambridge Books, Cambridge University Press, number 9781107612464.
    24. Freeman, Alan, 2009. "Marxism without Marx: a note towards a critique," MPRA Paper 48618, University Library of Munich, Germany, revised 17 Nov 2009.
    25. Engelbert Stockhammer & Robert Stehrer, 2011. "Goodwin or Kalecki in Demand? Functional Income Distribution and Aggregate Demand in the Short Run," Review of Radical Political Economics, Union for Radical Political Economics, vol. 43(4), pages 506-522, December.
    26. Gérard Dumesnil & Dominique Levy, 2011. "The crisis of neoliberalism," Post-Print halshs-00654682, HAL.
    27. James Crotty, 2009. "Structural causes of the global financial crisis: a critical assessment of the 'new financial architecture'," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 33(4), pages 563-580, July.
    28. Malcolm Sawyer, 2013. "Alternative Economic Policies for the Economic and Monetary Union," Contributions to Political Economy, Cambridge Political Economy Society, vol. 32(1), pages 11-27.
    29. Engelbert Stockhammer, 2011. "Peripheral Europe's debt and German wages: the role of wage policy in the Euro area," International Journal of Public Policy, Inderscience Enterprises Ltd, vol. 7(1/2/3), pages 83-96.
    30. Jacopo Costa & Roberto Ricciuti, 2013. "Sources for the Euro Crisis: Bad Regulation and Weak Institutions in Peripheral Europe," Working Papers 15/2013, University of Verona, Department of Economics.
    31. Thomas Goda & Photis Lysandrou, 2014. "The contribution of wealth concentration to the subprime crisis: a quantitative estimation," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 38(2), pages 301-327.
    32. repec:ilo:ilowps:470932 is not listed on IDEAS
    33. Photis Lysandrou, 2011. "The primacy of hedge funds in the subprime crisis," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 34(2), pages 225-254.
    34. Emilie Daudey & Cecilia Garcia-Penalosa, 2007. "The personal and the factor distributions of income in a cross-section of countries," Journal of Development Studies, Taylor & Francis Journals, vol. 43(5), pages 812-829.
    35. Eckhard Hein, 2012. "The Macroeconomics of Finance-Dominated Capitalism – and its Crisis," Books, Edward Elgar Publishing, number 14931.
    36. Gérard Dumesnil & Dominique Levy, 2011. "The crisis of neoliberalism," PSE-Ecole d'économie de Paris (Postprint) halshs-00654682, HAL.
    37. Ricardo J. Caballero & Emmanuel Farhi & Pierre-Olivier Gourinchas, 2008. "Financial Crash, Commody Prices, and Global Inbalances," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 39(2 (Fall)), pages 1-68.
    38. Bhaduri, Amit & Marglin, Stephen, 1990. "Unemployment and the Real Wage: The Economic Basis for Contesting Political Ideologies," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 14(4), pages 375-393, December.
    39. Philip Arestis & Malcolm Sawyer, 2011. "The Ongoing Euro Crisis," Challenge, Taylor & Francis Journals, vol. 54(6), pages 6-13.
    40. Adrian Blundell-Wignall, 2007. "Structured Products: Implications for Financial Markets," Financial Market Trends, OECD Publishing, vol. 2007(2), pages 27-57.
    41. Barry Z. Cynamon & Steven M. Fazzari, 2013. "Inequality and Household Finance during the Consumer Age," Economics Working Paper Archive wp_752, Levy Economics Institute.
    42. Thomas Goda, 2014. "Global trends in relative and absolute wealth concentrations," Documentos de Trabajo de Valor Público 10897, Universidad EAFIT.
    43. Carol Bertaut & Laurie Pounder DeMarco & Steve Kamin & Ralph Tryon, 2011. "ABS Inflows to the United States and the Global Financial Crisis," NBER Chapters, in: Global Financial Crisis, National Bureau of Economic Research, Inc.
    44. Thomas Goda, 2013. "Changes in income inequality from a global perspective: An overview," Working Papers PKWP1303, Post Keynesian Economics Society (PKES).
    45. Carol Bertaut & Laurie Pounder DeMarco & Steven B. Kamin & Ralph W. Tryon, 2011. "ABS Inflows to the United States and the Global Financial Crisis," NBER Working Papers 17350, National Bureau of Economic Research, Inc.
    46. Viral Acharya & Itamar Drechsler & Philipp Schnabl, 2014. "A Pyrrhic Victory? Bank Bailouts and Sovereign Credit Risk," Journal of Finance, American Finance Association, vol. 69(6), pages 2689-2739, December.
    47. Carol C. Bertaut & Steven B. Kamin & Laurie Pounder DeMarco & Ralph W. Tryon, 2011. "ABS inflows to the United States and the global financial crisis," International Finance Discussion Papers 1028, Board of Governors of the Federal Reserve System (U.S.).
    48. Sandy Brian Hager, 2014. "What Happened to the Bondholding Class? Public Debt, Power and the Top One Per Cent," New Political Economy, Taylor & Francis Journals, vol. 19(2), pages 155-182, March.
    49. Ashcraft, Adam B. & Schuermann, Til, 2008. "Understanding the Securitization of Subprime Mortgage Credit," Foundations and Trends(R) in Finance, now publishers, vol. 2(3), pages 191-309, June.
    50. Hager, Sandy Brian, 2014. "What Happened to the Bondholding Class? Public Debt, Power and the Top One Per Cent (Preprint)," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 19(2), pages 155-182.
    51. Mr. Romain Ranciere & Mr. Nathaniel A. Throckmorton & Mr. Michael Kumhof & Ms. Claire Lebarz & Mr. Alexander W. Richter, 2012. "Income Inequality and Current Account Imbalances," IMF Working Papers 2012/008, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hager, Sandy Brian, 2015. "Corporate Ownership of the Public Debt: Mapping the New Aristocracy of Finance," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 13(3), pages 505-523.
    2. Hager, Sandy Brian, 2015. "Public Debt as Corporate Power: Mapping the New Aristocracy of Finance," Working Papers on Capital as Power 2015/01, Capital As Power - Toward a New Cosmology of Capitalism.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Thomas Goda & Özlem Onaran & Engelbert Stockhammer, 2017. "Income Inequality and Wealth Concentration in the Recent Crisis," Development and Change, International Institute of Social Studies, vol. 48(1), pages 3-27, January.
    2. Thomas Goda, 2017. "A comparative review of the role of income inequality in economic crisis theories and its contribution to the financial crisis of 2007-2009," Revista Finanzas y Politica Economica, Universidad Católica de Colombia, vol. 9(1), pages 151-174, February.
    3. Thomas Goda, 2013. "The role of income inequality in crisis theories and in the subprime crisis," Working Papers PKWP1305, Post Keynesian Economics Society (PKES).
    4. Jo Michell, 2014. "Factors generating and transmitting the financial crisis; Functional distribution of income," Working papers wpaper41, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    5. Jakob Kapeller & Bernhard Schütz, 2015. "Conspicuous Consumption, Inequality and Debt: The Nature of Consumption-driven Profit-led Regimes," Metroeconomica, Wiley Blackwell, vol. 66(1), pages 51-70, February.
    6. Engelbert Stockhammer & Rafael Wildauer, 2016. "Debt-driven growth? Wealth, distribution and demand in OECD countries," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 40(6), pages 1609-1634.
    7. Engelbert Stockhammer & Ozlem Onaran, 2013. "Wage-led growth: theory, evidence, policy," Review of Keynesian Economics, Edward Elgar Publishing, vol. 1(1), pages 61-78, January.
    8. Alexandru Avram & Flavia Maria Barna & Miruna Lucia Năchescu & Costin Daniel Avram & Roxana Loredana Avram, 2020. "Responsible Governance and the Sustainability of Populist Public Policies. The Implications of Wage-Led Growth Strategy in Romania," Sustainability, MDPI, vol. 12(7), pages 1-21, April.
    9. Hein, Eckhard & Dodig, Nina, 2014. "Financialisation, distribution, growth and crises: Long-run tendencies," IPE Working Papers 35/2014, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    10. Michalis Nikiforos & Duncan Foley, 2011. "Distribution and Capacity: Conceptual Issues and Empirical Evidence September," Working Papers 1105, New School for Social Research, Department of Economics.
    11. Eckhard Hein, 2012. "The Macroeconomics of Finance-Dominated Capitalism – and its Crisis," Books, Edward Elgar Publishing, number 14931.
    12. Thomas Goda, 2018. "The global concentration of wealth [Persistence of power, elites, and institutions]," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 42(1), pages 95-115.
    13. Onaran, Özlem, 2015. "State and the economy: a strategy for wage-led development," Greenwich Papers in Political Economy 14075, University of Greenwich, Greenwich Political Economy Research Centre.
    14. Christian A Belabed & Thomas Theobald & Till van Treeck, 2018. "Income distribution and current account imbalances [Notes on capacity utilisation, distribution and accumulation]," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 42(1), pages 47-94.
    15. Daniel Detzer, 2016. "Financialisation, Debt and Inequality – scenarios based on a stock flow consistent model," Working papers wpaper151, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    16. Andrea Coveri & Mario Pianta, 2019. "The Structural Dynamics of Income Distribution:Technology, Wages and Profits," Working Papers 1901, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2019.
    17. Bertaut, Carol & DeMarco, Laurie Pounder & Kamin, Steven & Tryon, Ralph, 2012. "ABS inflows to the United States and the global financial crisis," Journal of International Economics, Elsevier, vol. 88(2), pages 219-234.
    18. Jan Behringer & Till van Treeck, 2013. "Income distribution and current account: A sectoral perspective," IMK Working Paper 125-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    19. Özlem Onaran & Cem Oyvat & Eurydice Fotopoulou, 2019. "The effects of gender inequality, wages, wealth concentration and fiscal policy on macroeconomic performance," FMM Working Paper 50-2019, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    20. Engelbert Stockhammer & Collin Constantine & Severin Reissl, 2015. "Neoliberalism, trade imbalances, and economic policy in the Eurozone crisis [Neoliberalism, trade imbalances, and economic policy in the Eurozone crisis]," Nova Economia, Economics Department, Universidade Federal de Minas Gerais (Brazil), vol. 25(spe), pages 749-775, December.

    More about this item

    Keywords

    Financial crisis; Eurozone crisis; distribution; income inequality; wealth concentration; redistribution;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • G01 - Financial Economics - - General - - - Financial Crises
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:col:000122:012186. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Valor Público EAFIT - Centro de estudios e incidencia (email available below). General contact details of provider: https://edirc.repec.org/data/cieafco.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.