bermuda

1. Our Economic Pie:
When 10% is more than 90%
Fall 2014 Public Lecture
B E R M U D A C O L L E G E

3. Everything is Relative
…even when it shouldn’t be

4. How our economic pie is divvied up?
Upper
class
50%
Low
class
20%
Middle
class
30%

5. Literature Review
• Thomas Piketty, Income Inequality in France, 1901-1998, Journal of
Political Economy, 2003
• T. Piketty & E. Saez, Income Inequality in the United States, 1913-
1998, Quarterly Journal of Economics, 2003
• A. Banerjee & T. Piketty, Top Indian Incomes, 1922-2000, World
Bank Economic Review, 2005
• A. Atkinson & T. Piketty, Top Incomes over the Twentieth Century - A
Contrast Between Continental European and English-Speaking
Countries, Oxford University Press, 2007
• Claudia Goldin & Lawrence Katz, The Race between Education &
Technology, Harvard University Press, 2008.
• Greg Mankiw, Defending the One Percent, Journal of Economic
Perspectives, 2013
• T. Piketty, Capital in the 21st Century, 2014

6. Definitions
Capital (K) = wealth
Domestic K + Foreign K
Machines
Buildings
Land
Infrastructure
Natural resources

7. Definitions
National income (Y) =
labour income + capital income
• β = K/Y = capital-income ratio

9. 1st Fundamental Law of Capitalism
• α = r β
• α = capital income as a share of Y
• r = rate of return on K
• β = capital-income ratio
• if α = 30% & β = 6 then r = 5%

10. 1st Fundamental Law of Capitalism
 if Y = $7b & Population = 70,000
then per capita Y = $100,000 = $70,000 + $30,000
L income + K income
 if wealth = K = 6 years Y, then K = β Y = $42b,
and per capita wealth (K) = $42b/70,000 = $600,000
r = K income/K = $30,0000/$600,000 = 5%

11. 2nd Fundamental Law of Capitalism
β = s/g
s = savings rate
g = growth rate

12. Share of different groups in
total income
Shares Low inequality Medium inequalityHigh inequality
Top 1% 7% 10% 20%
Upper 25% 35% 50%
Middle 45% 40% 30%
Lower 30% 25% 20%

13. Share of different groups in
total income
Annual Low inequality Medium inequalityHigh inequality
Top 1% $1,225,000 $1,750,000 $3,500,000
Upper $437,500 $612,500 $875,000
Middle $196,875 $175,000 $131,250
Lower $105,000 $87,500 $70,000

14. Share of different groups in
total income
Month Low inequality Medium inequalityHigh inequality
Top 1% $102,083 $145,833 $291,667
Upper $36,458 $51,042 $72,917
Middle $16,406 $14,583 $10,938
Lower $8,750 $7,292 $5,833

15. Share of different groups in
total income
Week Low inequality Medium inequalityHigh inequality
Top 1% $23,558 $33,654 $67,308
Upper $8,413 $11,779 $16,827
Middle $3,786 $3,365 $2,524
Lower $2,019 $1,683 $1,346

16. Policies
• GDP Release: include social tables
• Less Regressive Tax system
Negative payroll taxes
Value-added tax
Lump-sum Corporate tax

17. Policies
• GDP Release: include social tables
• Less Regressive Tax system
Negative payroll taxes
Value-added tax
Lump-sum Corporate tax
• Progressive Government spending
Education
Health
Transportation
Pensions

18. Policies
• GDP Release: include social tables
• Less Regressive Tax system
Negative payroll taxes
Value-added tax
Lump-sum Corporate tax
• Progressive Government spending
Education
Health
Transportation
Pensions
• Minimum Wage/Low Income guidelines

19. Final Thoughts
• What is JUST?
Utilitarianism
Liberalism
Libertarianism
• New Oligarchy?

20. Our Economic Pie:
When 10% is more than 90%
Fall 2014 Public Lecture
B E R M U D A C O L L E G E