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.”