Unrest in Peace”

The Economist; October 22, 2011

Inequality is also an engine of protest. A clas­sic 1994 paper by Alberto Alesina of Harvard University and Roberto Perotti of Bocconi University stud­ied 71 coun­tries between 1960 and 1985 and found that higher lev­els of income inequal­ity were asso­ci­ated with increased social insta­bil­ity. Their expla­na­tion was that unrest often erupts when a wealthy mid­dle class is weak­ened.  That idea res­onates strongly now. By one esti­mate, 58% of the real eco­nomic growth in America of the past 30 years was cap­tured by the top 1% of earn­ers: the Occupy Wall Street demon­stra­tors are embrac­ing a motto of “We are the 99%”. The rise in American income inequal­ity reflected a dra­matic “polar­i­sa­tion” of the labour force into high- and low-skill seg­ments at the expense of middle-skill (and middle-wage) posi­tions, accord­ing to research by David Autor of the Massachusetts Institute of Technology (MIT). Just as the appar­ently benign macro­eco­nomic envi­ron­ment of the past two decades masked a build-up of finan­cial insta­bil­ity, it may also have been stor­ing up the ele­ments of pro­longed social discontent.”