You know, we all hear from Bernie Sanders from AOC as they fly around on their private jet talking about the oligarchy that wealth inequality is out of control, and if you listen to them talk, you would think that the rich people have just gotten rich by stealing everything from the people on the other end of the socio economics spectrum. And my guest has done quite a bit
of work on this. Daniel Waldenstrom is a professor of economics at the Research Institute of Industrial Economics in Stockholm, Sweden, where he is currently trying to enjoy his Friday night, but is taking time away from that to talk to us about wealth inequality.
Daniel, welcome to the show.
First of all, thank you, Mandy.
Great to be here.
So tell me a little bit about the field of study that you're in. We were kind of talking about that before the break. What made you concentrate on wealth inequality in your study of economics and beyond?
So you know, Maddy, I've been working on these questions for more than twenty years. So I mean I started out as a young peach the working on financial markets, stock trading and so on. I felt that is important, but it's not reality it's not people's welfare, and you know the gaps between rich and poor and what is driving politics. So then I started looking at income inequality, wealth inequality and taxation and also how they have evolved over time, and that has been my main feel of
interest since then. I've been working on creating data sets so there are comparable over time, so also we can compare countries. But also then to you know, understand why did we get here and what can we learn from history and and you know, into getting a better society for everyone.
Coming from one of the Nordic states where we are always told as Americans the Nordic States are the ideal because everyone.
Is very, very equal.
I would say everyone is equally taxed a lot, and that's why things are so equal. But did you have a perception about wealth inequality and did you confirm it or maybe change that perception over the years.
Well, so I think wealth inequality is kind of one specific angle of economic inequality. So to begin with, a lot of the poor people, according to wealth are actually young people. People have not yet been able to start saving and so on, because they're still students or just have entered their careers. So just as a fact, many of the questions of like socio economic gradients and differences and so on, are more adequately addressed with income looking
at income differences. But wealth, on the other hand, tells us about what is you know, successful entrepreneurship, you know, people saving for housing and so on. And what I found was that wealth inequality is much higher than income inequality. And that's true for the US, that's true for also for the Nordic countries like Sweden where I live.
But I think what is important here and.
What I found in my book is that only because some people are really successful in building wealth, so becoming you know high, you know, owners of large corporations, globally successful and becoming even billionaires, And that doesn't mean that you and I get poorer, right in fact, because we
we we buy their stuff, you know. Typically, Microsoft has helped at least me to become a better researcher, has lifted me in being able to get a higher income, start saving for a home, and start saving for my pension. And as it turns out, that has kind of that's the most important.
Stuff in all of these economies.
Around three fourths of all wealth in the US actually also in Sweden, are basically housing wealth and pension savings people stuff that people normal people, normal working class, working class, middle class households own. Now this is just tells us that even though we have billionaires, most people have actually come a long way to get a good life and even starting to save and build wealth on their own.
And this has led to a large equalization historically. It's one hundred years ago, normally people like working class people didn't own anything.
Today they actually own quite a bit.
And it's it's actually partly thanks to the you know, the democratically embedded market economists that we live in.
So let's talk about that for a second.
Let's talk about the history of wealth inequality or income inequality. I mean, I think that because we live in a world, especially in the developed nations like Sweden, like the United States, we don't have to necessarily worry about the kind of grinding poverty that still exists in other parts of the world. And I think maybe it's it's shifted our perspective as to how things were back then versus how they are now. So if you could dip into that, I would appreciate it.
No, but that that's true, that's true many so if we want to help wour countries to get get we get a very live We should learn them or how to you know, inspire them to start in implementing societ.
It is that create economic growth.
So for all countries to have been lifted from poverty, low income status, economic growth has been the thing. So looking even today, you know Taiwan, Singapore, Thailand, or in South Korea for example, they are you know, old colonies most of them, and that have been lifted by economic growth. So we should learn them and inspire them to started trading like free trade, securing private property rights and open up to you know, for piers and sellers to do
their thing. So that's what we did. So our grandparents were much worst off in their daily life. They lived, they lived shorter, they were more sick. When they had a bad hip, they bought a case, they bought a stick and started like waved around like ducks.
Right today we get hip.
Replacements and this is thanks to growth. And how do we get growth? So this is a big question of course. I mean, we should have stable you know political democracies that people feel safe secure then that they can you know, protect what they have earned. We should also have like transparency and so on. But most of all, we should private property rights, free trade, and this is what gets
things going, I think. But we should also, you know, let's just meet saying, coming from Sweden, a high tax country, it's important also to have a functioning public sector that provides a framework for education, labor laws, so that we make working places you know, safe and you know, nice to go to. So we need taxes and they should be collected efficiently and so on.
This is what hit history tells us at least. So let's talk for.
A second about the notion that I always hear. I love it when people say the middle class is shrinking, and in the United States it is, but it's because of upward mobility, not because of downward mobility. What do we've seen in terms of the standard of living across the board. Let's start with people who are in poverty versus in poverty one hundred years ago.
To your point, Yeah, that's right.
So being poor one hundred years ago, you can read stories about you know, how people lived. They lived in miserable homes, so many many people, you know, you know, small homes, kids sharing beds, disease spreading, They were you know, sicker, and they lived shorter for sure, and infant mortality was much much higher, so they had worse working places to go to. Most of them did not have the opportunity to go to have a higher education after secondary life
after high school. And this has all evolved and been improved thanks to our societies being linked to growth. Like democracy, we still have a vote right, but also so economic.
Roles has has created a lot of goods.
So being poor, being poor today in our countries, I think Sweden and the US is a little bit different. Still, I think I would rather be poor, actually income poor in Sweden than in the US. So because we have you have schooling for our kids, we have health care for our children as.
Well, and also many for many other people.
We have elderly care, which is some stuff that helps us to raise the bottom, so to lift the bottom and make life okay even if you're unlucky to be unemployed or sick and so on. So I think, and at least this is an improvement in the US and also in Sweden by far to what we had fifty years ago, even.
But for sure one hundred years ago.
Can I ask you a question about that, particularly about Sweden's social safety net, because when I talk to especially younger people, they say, look, you know in the Nordic countries, they love the Nordic countries. Younger people, they say, they are all of these services. And then I point out, but the burden of paying for all of those services is worn by everyone.
You know, everyone in.
Swedish society pays a pretty steep tax rate no matter where they are, and they don't necessarily know that part of it. They just know the high services part. Sweden is also so very competitive in many ways though, So how do you have such a high tax, high service structure and still have a spirit of entrepreneurship or the spirit of as you said, creating new business and free economies and things of that nature.
How does that all work together?
Yeah, you know, Maddie, this is one, you know, the thousand, like a thousand dollars question. So, yes, we in Sweden have among the highest taxes in the world.
We have been a top ten for ages.
In the you know, the average level, the marginal tax rate, you know that stuff. How much you're going to get after working an additional hour at work or is you know, top top of the world. Uh, this hurts us in terms of having growth being lower than it otherwise would have been. I think also it hurts us in the in terms of not actually we did not provide the
world with smartphones. We did not you know, having the we did not have the best chips like Nvidia or so we are still in Sweden also in your blagging behind in terms of actually being at the frontier. And I think one of the of the explanations is our high high tax rates. This like hampers efficiency, it hampers the willingness to work extra and our best and brighter
is many of them actually travel to the US. That's said, Uh, we have managed to try to find a balance of creating safety nets that give you a protection if you're unlucky or if your company goes bankrupt. So we're not going to help the company, but we're gonna we are going to help the workers.
So we should not have industrial.
Policies saving in productive, uncompetitive sectors. We should instead let them go away, because this is what capitalism and market economies is. But we should protect actually the workers who have invested a lot of their their skills maybe and moved to a city for where this company is and because then we should help them to move somewhere else.
But then you know, your question on why do we also have actually you know we have Spotify, we created like Minecraft, or we have do we have the erics on and H and M and so on.
So we have in Evolvo solve and on. We're very proud of that.
Maybe also one of the reasons is that we have so we are a small country.
We need to be adapted, adapt adaptive. We don't set the rules, we don't set the.
Prices, so we need to be fast and to take on new new rules of the game. This may have helped us to adapt and learn how to you know, where to be in order to be competitive. But I would say this is still a question that we don't know the full answer.
We need more research, We need to think more.
How come we can combine you know, you know, relatively generous systems for the unluck key and still provide incentives to create economic growth.
I mean, obviously you guys understand organization and how to make money because Ikea is everywhere here now and I'm a little bit mad at Sweden just for the instructions on Ikea furniture right now.
But I'm just kidding, of course.
So yeah, I'm talking with Daniel walden Shrum and we're talking about income inequality, his book that he's got out now. I put a link on the blog to today Richer and More Equal, a New History of Wealth in the West, and it talks about the fact that in an historical perspective, we are far more equal than we've been before. And I think the biggest point that I took away from a couple of the articles that I've read written by you is that there's two different kinds of thinking about this.
There is the fixed pie way of thinking, meaning you have one set amount of pie and rich people take too large a piece. Or is the other side that the pie is dynamic and can keep growing and your piece can be bigger and my piece can be bigger.
Is that a fair assessment?
Well, yeah, that's a fair assessment. So one you know, looking at history. So when my colleagues have talked about this though, my former colleague to Mapikiti was a French economist, has been having this best seller book on the history of inequality. His claim was that we got equal by taking money from the rich, so lowering the top. This is how equality. Equality emerged over the twentieth century. And this is also the lesson for the future. We should
tax the rich because they don't add much value. Well, but when I look at the same data, and actually I know I showed it to him and to others, and it's actually what happened was that some during some periods over the twentieth century, it was not that the rich became poorer that we got equality. Instead, normal people were able to start saving and building wealth. The first thing they saved for was a home, so home ownership
increased during the twentieth century. This has been you know, the prime working class saving object for a long time. And then over the twentieth century we started living longer, We started living after sixty five years of age. What did we need to save for then? Well, pensions. Right, So this is what I said in the beginning. Pension savings, housing wealth are three fourths of all assets in the US,
also in Sweden. And this shows that equalization have come about has come about not because we took down the rich. Instead we started they created new products and those new services that helped us get jobs and also get taxes that could create good you know, educational systems and allowed
us to start saving and building wealth. So the cake got bigger thanks to the growth promoted by the entrepreneurs, the rich actually, but also that you know, invited us to also start saving and building wealth.
So we did not be we were.
We have never actually been hurt by their successes and their progress. In fact, we've been lifted by that by having getting jobs in their firms, getting getting their products.
Let me just say Walmart.
You know, Walmart is a big, big company and big employer. So this this family, the Wolton family, they are among the richest in the world right and being on the top list of Forbes Billionaires list for a long time. They employ two point one or two point three million people, so they create two point three million jobs.
But it's not it doesn't end there. You know.
Research has shown so Jason Furman and the economist at Harvard, he showed that, you know, the the cheaper products that you know, created good stuff for low income people was equivalent of a ten percent real income increase for these people.
I talked about that yesterday on the show, and I said, I don't know what the numbers are because I read some data on that many years ago. And I don't know what it is now, but I talked about the fact that there are always trade offs in a free trade situation. Right in one case, we may not have as many many manufacturing jobs, maybe we've lost twenty five thirty thousand manufacturing jobs to an overseas firm, but we've elevated the buying powder of a huge number of people,
millions of people because of that trade. So it's a tradeoff, and you just have to decide, like where that trade off. Somebody's going to take the hit in every trade off, and you have to decide the best way to figure that out and hurt the least amount of people while helping the most amount of people.
Unfortunately, that's what the market is.
Exactly.
So this is I mean, this is where also where you know, the social safety net comes in, so people are much more you know, positively positively engage with the transformation, with the effectivity improvements that we want to have by this creative destruction if you may, with the markets improving.
But then they may some of these people lose their jobs along the way, but let them And I think it's kind of a sympathetic part of of a like democratic market economy to have systems that we that we're where we can always say we help these people who are losing their jobs because of the better for everyone, and I think there is But anyway, so let's not be unfair to our economies that create growth and also having some of these firm owners becoming very rich because
it's not they are not rich because they have taken money from us. We could think we of course, we could think about taxing their capital income. That's another part of this of this discussion, right, So we and this is because we should everybody contribute to you know, you know the you know, the public sector. Maybe would it be buying new spacecraft or like war like defend stuff,
but it could also be infrastructure. So the rich and successful they should also contribute and pay back to society by as we do with our laboring come taxes.
But let not point them out as being.
Enemies just because they're successful. I don't think it's fair to them, but it's also I don't think it's fair to our democratic market economies.
I've got a link to an article written by Daniel walden Trum. I guess he's a professor of economics the Research Institute of Industrial Economics in Stockholm, Sweden. He's also got a book out called Richer and More Equal. I have put a link to buy that as well. Daniel, go have your second glass of wine, enjoy your Friday night, and your kids matriculation next weekend.
Enjoy it.
Thank you Mannie, thanks for having me on your show.
Well, thank you so much. We'll talk to you again soon. Very very interesting stuff.