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Lifting the Bottom: How Western Economies Are Growing Fairer and Richer

Blog Post | Income Inequality

Lifting the Bottom: How Western Economies Are Growing Fairer and Richer

The headlines and the data disagree on inequality.

Daniel Waldenström —

Summary: Despite widespread concern about rising inequality, a more complete look at the data reveals a different story: wealth in Western countries has grown more broadly shared than many believe. Rising homeownership, pension savings, and improved living standards suggest that economic growth has benefited the broader population, not just the elite. To promote continued progress, policymakers should focus on expanding opportunity and lifting the bottom.

Rethinking the Inequality Story

It is easy to get the impression that inequality in Western societies is out of control. Media and social platforms tell us that billionaires are soaring ever higher while the middle class is disappearing and democracy is under threat. These concerns feel real, especially with expensive housing, rising tech fortunes, and gaps in public services exposed during the pandemic.

But these narratives often rely on narrow or incomplete data. When we consider all the pieces—taxes, transfers, pension rights, homeownership, and people’s changing income over their lifetimes—the picture is more balanced. Western societies are not as unequal as many fear.

This doesn’t mean we should ignore inequality. Some people still live in deep poverty, and extreme concentrations of wealth can distort both markets and politics. But to shape the right policies, we must start with the right facts. Mistaken beliefs lead to harmful solutions—like high wealth taxes and bloated public sectors that risk doing more harm than good.

Instead, we should aim to grow the economic pie while ensuring that its benefits are widely shared. The best way to do this is by lifting the bottom—helping more people build personal wealth and take part in prosperity.

What the Numbers Really Show

The most famous story about inequality comes from economist Thomas Piketty’s “U-shaped curve”: inequality was very high in the early 1900s, dropped after the World Wars, and then rose again after the 1980s. It seems backed by the rise of tech billionaires, stagnant wages for many, and the top one percent’s growing share of pretax income.

But Piketty’s view leaves out several important things. Starting in 1980 is actually misleading. That was a time of unusually low inequality, due to high taxes and strict rules that discouraged risk-taking. Compared to the early 20th century, today’s inequality is far lower. The previous narrative mostly ignores taxes and welfare. Looking only at pretax income misses how taxes and public spending reduce inequality—especially in healthcare, education, and pensions. Finally, it misreads wealth data. Many studies overlook middle-class assets like home equity and pension savings, which are huge stores of personal wealth.

More complete data paints a different picture. Economists Gerald Auten and David Splinter, for example, show that when you account for unreported income, retirement savings, and government benefits, income inequality in the U.S. has barely changed since 1960. And in Europe, the trend is even flatter.

Mass Wealth, Not Mass Disparity

A closer look at household wealth shows some surprising results.

Firstly, private wealth has risen sharply across the West since 1950. But importantly, this growth has been shared. Most wealth is now held in homes and retirement accounts—not in elite corporate shares. Today, 60–70% of households in Western countries own their homes, and most workers have pension savings in funds that track the stock market. This is financial democratization.

Secondly, wealth is less concentrated. In Europe, the richest 1% now hold only about one-third of the wealth share they had in 1910. In the U.S., there has been an uptick since the 1970s, but even there, wealth concentration is closer to its 1960s level than to the early 20th century. The most recent data show that U.S. wealth inequality has actually fallen slightly since the mid-2010s. Thus, the main story is not growing inequality, but growing ownership.

Thirdly, mobility matters. People move between income brackets over their lifetimes. Many in the bottom 10% today won’t stay there long, and some at the top may fall due to job losses or market changes. Also, pension rights and welfare reduce inequality further. For instance, in Sweden, counting public pensions cuts measured wealth inequality nearly in half. In the U.S., if we add Social Security and employer-provided health insurance, middle-class living standards look far better than raw income data shows.

Success at the Top Can Lift Everyone

Some worry that billionaire success is a sign that the system is rigged. But often, these fortunes reflect broad economic growth. Tech giants, for instance, didn’t just enrich their founders—they created jobs, boosted productivity, and expanded the tax base.

Since 1980, life expectancy in advanced economies has increased by six years. High school completion has become nearly universal. Goods once considered luxuries—like personal computers—are now common. These are signs of a system that has lifted the bottom even as some at the top thrived.

Growth matters not just for individuals, but for public finances. Every percentage point added to GDP generates billions in tax revenue. That supports schools, hospitals, and infrastructure. Policymakers should focus on policies that both grow the pie and spread its gains—such as promoting homeownership, making retirement saving easy and cheap, and keeping financial markets open and competitive.

Smarter Taxation and Sensible Policy

Some are now calling for new taxes on wealth, including proposals discussed by the G-20 and the UN. But these taxes are problematic. They often fall on assets that are hard to sell, like private businesses or farms, forcing owners to take on debt or sell prematurely. In Scandinavia, wealth taxes were tried and largely abandoned—they raised little money, were expensive to manage, and drove capital abroad.

A less worse, though far from ideal way to tax capital is through its income: dividends, capital gains, and corporate profits. This approach is more efficient, and it doesn’t punish people for owning assets.

Don’t Misdiagnose the Problem

Focusing too much on inequality can distract from real challenges: slow productivity growth, aging populations, and the costs of adapting to climate change. These issues will require investment and innovation—both of which depend on a healthy private sector.

Overreacting to inequality can also be regressive. Taxing housing wealth, for example, may hit retirees who are rich in assets but poor in cash. Heavy taxes on small businesses might force them to sell to multinational corporations with easier access to credit.

Mistrust also grows when people are told that only the elite benefit from capitalism—even when their own lives are improving. That opens the door to populist promises that often worsen the situation.

A Balanced Agenda for the Future

I believe that unchecked wealth concentration can hurt democracy. But the solution is not to attack wealth itself. It’s to build systems that let more people share in success.

Governments should:

  • Support entrepreneurship by cutting red tape
  • Keep labor taxes low to encourage work and saving
  • Focus public spending on giving people the tools to succeed—especially through education and infrastructure
  • Make it easier for households to build personal wealth

This is not a call for total laissez-faire nor for extreme equality. It is a recognition that the most important achievement of Western economies is the broad rise in living standards—not the fortunes of a few billionaires, but the everyday comfort of millions whose grandparents lived without antibiotics, central heating, or higher education.

Before declaring a crisis, policymakers should double-check the data. And they should keep doing what works: protecting markets, encouraging wealth-building, and lifting the bottom.

World Bank | Income Inequality

High-Inequality Economies Have Declined by More Than One-Third

“A measure that captures prosperity should account for both the level of welfare and level of inequality. A measure that captures inequality, such as the Gini index, is an example of a measure of inclusivity. The World Bank reports the number of economies with high levels of inequality, defined as those with a Gini index greater than 40. Based on this, the number of economies with high inequality has declined by more than a third in the past three decades.”

From World Bank.

World Bank | Income & Inequality

Global Progress Lifts Six Nations Into Higher Income Classifications

“Since 1987, the global income classification landscape has changed significantly, with the share of economies classified as low-income declining from 30% to 11%. These shifts have not been evenly distributed, however, with some countries moving across income groups much faster than others. This year’s update to the World Bank Group Country Income Classifications shows six countries moved to a higher income category, but each has a different story to tell: a country emerging from economic crisis, an export powerhouse outpacing its peers, and an economy that turned out to be 10% larger than previously thought are just three of them…

This year, none of the countries assessed moved down. Five moved from lower-middle to upper-middle income: Jordan, Micronesia, the Philippines, Sri Lanka, and Viet Nam. One moved from low to lower-middle income: Togo. They reached the same thresholds through very different paths.”

From World Bank.

Blog Post | Income & Inequality

Was COVID Also an Inequality Pandemic?

COVID slowed but couldn’t stop the fall in global inequality.

Chelsea Follett —

Summary: Recent debates have framed global inequality as rapidly worsening, particularly in response to the COVID-19 pandemic. Evidence from the Inequality of Human Progress Index indicates that, despite temporary setbacks, long-term declines in inequality across multiple dimensions of wellbeing have largely persisted, with global disparities remaining well below 1990s levels.

Affordability fears, talk of a “K-shaped” economy, and claims of a new Gilded Age have pushed inequality to the center of today’s policy debates. Calls for a worldwide wealth tax and other unprecedented measures are not treated as radical but as inevitable—across academia, non-profits, the press, and international organizations, including the United Nations.

The COVID-19 pandemic seemed to clinch the case. As economies contracted and progress in poorer countries stalled, it was easy to assume that decades of convergence between developed and developing countries had come to an end. The authors of one Oxfam paper, for example, proclaimed during the pandemic that “unparalleled action [is] needed to combat unprecedented inequality in the wake of COVID-19.”

New research suggests a more nuanced reality. The updated Inequality of Human Progress Index assesses how the pandemic affected progress toward a more prosperous and equal world.

The pandemic clearly slowed improvement in global living standards and interrupted the pace at which countries were becoming more equal. It did not, however, cancel out the long-term, positive trends. Even under the strain of COVID-19, its attendant lockdowns, and other forceful policy responses, global inequality across key measures of well-being remained lower than it was a generation ago.

The index looks beyond income alone. It measures inequality across eight dimensions that shape everyday life, including lifespan, child survival, nutrition, education, internet access, environmental safety, income, and political freedom. The index, which I co-authored with George Mason University economist Vincent Geloso, seeks to offer a fuller view of gaps in global development, taking into account more aspects of human well-being than any prior index of inequality.

The data show a substantial decline in global inequality over the past three decades as rising prosperity allowed poor countries to narrow gaps with rich ones. That pattern held through 2019. During the pandemic years of 2020 and 2021, progress slowed sharply and, in some areas, stalled or modestly reversed. Yet the earlier gains were not erased.

This distinction is important. COVID-19 was a severe shock. Life expectancy fell worldwide. School closures disrupted education. Economic activity and international trade declined, with especially devastating effects on low-income countries. The index reflects these setbacks. Inequality stopped falling at its earlier pace and, in some measures, edged upward slightly after years of progress. Still, the overall level of global inequality remained far below where it stood in the 1990s.

In a few areas, improvement continued even during the crisis. Internet access expanded rapidly, especially in poorer countries, reducing inequality in access to information to its lowest level on record. Faster regulatory approvals amid the pandemic helped bring more people online. In Kenya, for example, Alphabet’s high-altitude internet balloons were finally cleared in 2020, allowing rural areas to gain internet access for the first time. The project had been stalled in regulatory review for nearly two years before the crisis prompted action.

Not all the data were encouraging. Inequality in political liberty ticked up during the pandemic as many countries took a turn toward greater authoritarianism. Even with the long-term shift toward electoral democracy intact, the setback shows the importance of protecting political liberty during emergencies.

For all the turmoil, the damage across different measures of well-being was thankfully limited.

These findings complicate popular claims that the world is experiencing a runaway increase in inequality. Calls for a global wealth tax, massive new aid commitments, or other significant expansions of state redistribution often rest on the premise that trade and free enterprise have failed to deliver shared gains. The data suggest otherwise.

If anything, the pandemic highlighted how sensitive progress can be to disruptions in markets. Countries with greater economic freedom generally proved more resilient. In contrast, prolonged lockdowns and restrictions often imposed heavy costs on poorer populations, particularly in countries where remote work and online schooling were not viable options for most people.

The broader lesson is that global convergence is neither automatic nor guaranteed, but instead depends on certain conditions such as undisturbed markets, even as long-term progress has proven more robust than critics often assume.

Mistaken narratives about global inequality have real consequences. They shape public opinion and influence policymakers to embrace sweeping interventions. A more accurate assessment of recent history suggests a need for caution.

COVID-19 tested the global economy in ways few events in modern history have. It slowed human progress and exposed vulnerabilities. At the same time, it demonstrated the durability of the long-term trend toward lower global inequality. Preserving and strengthening the policies and institutions that made that progress possible, including economic and political freedoms, remains a better bet than assuming they have already failed. The gains of recent decades have left the world both better off and more equal.

This article was published in the Orange County Register on 2/1/2026.

Demography | Personal Income

Generational Progress on Income Growth Continues in US

“Whether each generation of Americans continues to economically surpass the previous one has recently been called into question. We construct a posttax, posttransfer income measure from 1963 to 2023 based on the Current Population Survey Annual Social and Economic Supplement that allows us to consistently compare the economic well-being of five generations of Americans at ages 36–40. We find that Millennials had a real median household income that was 20% higher than that of the previous generation, a slowdown from the growth rate of the Silent Generation (36%) and Baby Boomers (26%), but similar to that of Generation X (16%). The slowdown for younger generations largely resulted from stalled growth in work hours among women. Progress for Millennials younger than 30 has also remained robust, though largely due to greater reliance on their parents. Additionally, lifetime income gains for younger generations far outweigh their higher educational costs.”

From Demography.