Income & Wealth Inequality
Riding the Gatsby Curve from Reagan to AI
Wise Up in 60 Seconds – Wealth, Work, and the Real Inequality Problem
- The Drive That Builds Wealth
- Ambition, innovation, and risk-taking drive progress. This entrepreneurial spirit is the engine of new industries, technologies, and jobs.
- Example: From the garage startups of Silicon Valley to self-made billionaires, the world’s wealthiest often started with nothing but a big idea and relentless drive.
- The Forgotten Workforce
- But these success stories often overlook the thousands who build the foundation for that wealth. The workers, suppliers, and communities that support the rise of the rich often see little of the upside.
- Example: Walmart’s founding family, hold more wealth than the bottom 40% of Americans combined, but the average Walmart associate makes less than $35,000 a year, and depend on social assistance programs costing U.S. taxpayers over $6b annually.
- The Real Problem Isn’t Wealth, It’s Inheritance Without Merit
- The real issue isn’t the drive to get rich, it’s the unearned advantage that often comes with inherited wealth, a kind of economic dynasticism that locks others out of opportunity.
- Example: The Gatsby Curve shows countries with high wealth concentration have lower social mobility. A kid born poor in the U.S. has a 7% chance of reaching the top income bracket, compared to 13% in Denmark.
- The Tradeoff We Should Demand
- If we celebrate self-made wealth, we should also ensure the system rewards the workers who support it, creating real pathways for upward mobility for future generations.
- Bottom Line
- Inequality becomes toxic when those at the top stay at the top without merit and those at the bottom are locked out, no matter how hard they work.
1 Fifty Years of Widening Gaps
| Year | U.S. Top 1 % Income Share | Global Gini Index | Real Median Wage (U.S. $2022) |
|---|---|---|---|
| 1973 | 8.9 % | 0.645 | $55,600 |
| 1990 | 13.2 % | 0.638 | $57,800 |
| 2001 | 15.5 % | 0.627 | $59,200 |
| 2008 | 18.0 % | 0.616 | $59,600 |
| 2024 | 19.0 % | 0.603 | $60,100 |
Sources: World Inequality Database 2025; World Bank PovcalNet 2024; U.S. Census CPS.
Globally, inequality narrowed (China & India’s rise). Within rich countries, it soared, particularly the U.S. and U.K.
2 What’s Driving the Wedge?
- Skill‑biased technological change: Automation favors coders over clerks.
- Globalization & offshoring: China shock cut U.S. manufacturing wages 7 % (Autor 2021).
- Financialization: Profits shift from production to intangible assets; shareholder primacy lifts returns on capital.
- Tax & transfer retreat: Top U.S. marginal rate 70 % (1970) → 37 % (2025); union density 27 % → 10 %.
- Superstar markets: Platform economies create winner‑take‑all firms (Big Tech, sports, entertainment).
3 Wealth vs. Income: Same Story, Different Scale
| Percentile | Share of Wealth (2024) | Share of Income (2024) |
| Top 0.1 % | 19 % | 9 % |
| Top 1 % | 33 % | 19 % |
| Top 10 % | 70 % | 46 % |
| Bottom 50 % | 2 % | 14 % |
Inequality is stickier in wealth because capital gains compound; even progressive income taxes barely graze unrealized gains.
4 Why It Matters: Economic & Social Fallout
- Growth drag: IMF finds countries with top‑heavy income shares grow 0.5 pp slower over five years.
- Political polarization: High Gini predicts populist vote surges (Inglehart 2019).
- Health gaps: Life expectancy gap between top and bottom U.S. income quintiles now 15 years.
- Social mobility: Gatsby Curve shows nations with higher inequality have lower inter‑generational mobility, U.S. bottom‑quartile kid has 7 % chance to reach top quartile vs. 13 % in Denmark.
5 Policy Toolbox: Tilt or Lift?
| Policy Lever | Evidence | Pros | Cons |
| Progressive income tax | Each 1 pp top‑rate hike trims top share 0.1 % (Piketty) | Quick revenue | Laffer curve claims, avoidance |
| Wealth tax (>50 m) | Switzerland 1 % wealth tax raises 1.6 % GDP revenue | Targets stock wealth | Valuation, flight risk |
| EITC expansion | U.S. lift 5 m above poverty; triggers labor participation | Politically bipartisan | Phase‑out cliffs |
| Minimum wage ≥ 60 % median | 17 EU states: modest job impact | Boosts bottom wages, compresses | Price pass‑through |
| Universal basic income | Finland pilot: well‑being ↑, employment neutral | Simplifies welfare, cushions tech shocks | High fiscal cost |
| Baby bonds | Simulations cut racial wealth gap by 40 % | Long‑term equity | Requires trust funds & admin |
No silver bullet; combo strategies work best.
6 Pandemic & AI: Two New Chapters
6.1 COVID Windfall
- Billionaires: Net worth ↑ $5.1t 2020‑23, asset bubbles + policy.
- Workers: Low‑wage service sectors hit hardest; stimulus checks briefly narrowed gaps.
6.2 Generative AI Risk & Reward
McKinsey 2024: Gen AI could add $4.4t annual value, but 60 % of gains accrue to capital owners without profit‑sharing reforms. Upskilling and broad share ownership vital.
7 Personal Playbook in an Uneven World
- Own appreciating assets: 401(k), index funds beat wage growth.
- Skill for complementarities: AI‑augmented roles pay premiums.
- Geographic arbitrage: Move to high‑opportunity metros or remote‑first firms.
- Political engagement: Vote on taxation, education, and labor rules shaping long‑run equality.
- Collective bargaining or equity: Negotiate stock grants; join worker co‑ops or unions in digital fields.
References
- World Inequality Lab. (2025). World Inequality Report.
- Autor, D. (2021). "The China Shock Ten Years After." Annual Review of Economics, 13, 1‑27.
- International Monetary Fund. (2023). Inequality and Growth: Revisiting the Relationship.
- Inglehart, R. (2019). "Populism and Post‑Materialist Values." Foreign Affairs.
- Piketty, T., Saez, E., & Zucman, G. (2018). "Distributional National Accounts: Methods and Estimates for the United States." Quarterly Journal of Economics, 133(2), 553‑609.
- McKinsey Global Institute. (2024). The Economic Potential of Generative AI.
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