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The Rise of Wealth Equality in the West | Podcast Highlights

Blog Post | Income Inequality

The Rise of Wealth Equality in the West | Podcast Highlights

Chelsea Follett interviews Daniel Waldenström about the decline of wealth inequality in the western world.

Daniel Waldenström —

Read the full transcript or listen to the podcast here.

Your book, Richer and More Equal: A New History of Wealth in the West, reveals a surprisingly upbeat story: ordinary citizens in the Western world are now richer and more equal than before. Tell me about that and why the prevailing narrative of increasing inequality seems to be overstated or wrong.

One key aspect to this question is how we interpret economic outcomes in society. How do we interpret wealth creation? How do we interpret entrepreneurs creating new firms that make profits and build enormous fortunes? Is that something positive or a problem for society?

My view is that within a democratic market economy, I see very few problems with having such value-creating activities. Of course, that is different in autocratic countries. We have examples of oligarchs in Eastern Europe that have become rich through theft or dictatorships in developing countries where people gain wealth through political connections. But within democratic market economies, value-creating activities generally improve human well-being. Whether you’re a worker or a tax collector, everything begins with value creation in the private sector. People start firms, hire people, and pay wages and taxes. So, when some people become very successful at this, I think that is inherently positive.

This view contrasts with that of some of my research colleagues, who see rich people as a problem.

I departed from that view, and I challenged that view using data. The previous narrative argued that equalization—the reduction in inequality during the 20th century—was mainly due to the destruction of the capital of the rich, either through war or taxes. My data show that the main force that has created equality over the 20th century is lifting the bottom, allowing normal people to save and build wealth. And that equalization goes hand in hand with value creation and capital accumulation. So, equalization doesn’t rely on the destruction of capital but on the creation of capital.

You discuss the changing nature of wealth and how it has increasingly moved into housing and pension funds. Tell me about this shift.

So, there are different kinds of assets that we can own. We can own a house, stocks, bank deposits, bonds, land, or a summer cottage. This differs across households, but when we add up all the households in the economy and analyze the aggregate composition, we see that the wealth stock in all the rich nations has transformed profoundly.

One hundred years ago, most wealth was stuff that the rich people owned: things like industrial corporations and large agricultural domains. The stuff that the middle-class or workers owned, like houses and their long-term savings, composed just a fourth of all assets. But during the 20th century, we started establishing structures and institutions that made people more engaged in the economy. We saw educational reforms allowing more people to get better trained. We had better rules in the labor market with structures for working hours and so on. And all of that made workers more productive. So, they had a safer work environment, and they were better trained. And then, therefore, they got better paid. That allowed them to start saving privately. And the first thing they started saving in was housing.

We saw during the middle of the 20th century a virtual explosion in homeownership, going from 20 to 30 percent of the population to maybe 60 to 70 percent. Alongside this development, people started living longer—way past retirement age. And what did that imply? Well, they started to save for retirement.

These two kinds of assets, housing wealth and pension funds, have grown in importance and value over time. Today, they have become the most important part of total private wealth in all Western societies. Maybe 75 to 80 percent of all wealth is in housing or long-term savings. Wealth has transformed from being mainly composed of the stuff that the elite own to being mainly composed of stuff that regular people own, and that explains why we have a much more equal society in terms of wealth ownership today.

Part two of the book shifts the focus to the distribution of wealth over the past 130 years or so in various Western nations. What did you find?

So, over the last 20 years, we’ve built comparable, longitudinal wealth inequality series for several countries. How do you do this? How do we measure wealth inequality? It’s difficult. But mainly, we use data on the holdings of those with wealth, the rich people. We rank all households from the poorest to the richest and then look at the richest ten percent. Then, we divide the sum of their wealth by the total wealth in the economy. And we can also do this for the top 1 percent. So, we have data on the top wealth shares over the entire 20th century up to today: around 130 years of comparable wealth inequality trends.

And what they say is quite clear: we are much more equal today than in the past. In the European countries, the richest tenth of society once held around 90 percent of all wealth. That share has been halved over the 20th century. The first fascinating thing is that this great wealth equalization occurred in all Western countries, even the US, over the 20th century up to the 1970s and ’80s. That kind of consistency is very interesting.

Then, in recent decades, if you continue from 1980 onwards, one of the most surprising facts is that in the European countries, wealth inequality has not increased since the 1980s. It’s been hovering around the same historically low level that they landed on in the 1970s. And this is in spite of the fact that wealth values have increased tremendously around the Western world. Housing has become more expensive; stock markets have boomed. We are richer today than we were in 1980, and yet, in Europe, wealth inequality has not increased. The reason is that most of the wealth that has increased in value is held by the middle class or the ordinary people. So, they’ve been lifted up by these asset price increases and the positive economic developments.

In the US, there has been an increase in wealth concentration. In the US, the wealth holdings of middle-class households have increased in value a lot, but the wealth of the top groups has increased even faster. Mind you, even in the US, there hasn’t been much of a wealth concentration increase since 2010. Over the last 10 to 15 years, US wealth concentration has been relatively stable.

Yet, even in the US, you note that inequality is lower than pre-war levels. What explains this pattern of inequality?

We can see that mechanically, the main explanation for the long equalization during the 20th century is that we’ve been lifting the bottom. We’ve been expanding wealth ownership and wealth growth in the lower parts of the wealth distribution, and the lower parts have experienced higher wealth growth than the top.

The reasons why we’ve seen this are, to a large extent, institutional. Political and economic institutions expanded opportunities, allowing people to get educated, gain access to the labor market, and take loans for starting enterprises. Basically, entering the economic market and possibly succeeding. So, as I said before, capital destruction or taxing the rich has been relatively unimportant to wealth inequality change.

Then, of course, taxes matter, and they can prevent people from wanting to invest and so on. We’ve seen examples of that in the economic histories of all of these Western countries. But, mind you, much of the growth of government that we’ve seen over the 20th century has actually been built by increasing labor taxes. So workers have borne the biggest burden of increased taxation, meaning that their opportunity to save privately is what has been prevented the most by tax increases.

You go into greater detail in the book about the different kinds of wealth, including offshore wealth, to public sector wealth, and inheritance. Tell me about all of these things.

The concept of wealth is a little bit complicated if we compare it to, for example, income. So, income from labor is quite clear in its definition, whereas wealth is the stock value of assets that need to be defined and valued. One complication is that some wealth is held offshore. Of course, this wealth should be part of people’s portfolios and the standard wealth measurement. The problem is that some offshore wealth is hidden for tax reasons. There is research trying to measure the size of those hidden assets, and the main conclusion is it doesn’t change much. On the aggregate, when it comes to measuring wealth inequality, it doesn’t change a lot. And it does not change the historical developments at all.

You also mentioned social security wealth. When we get sick, we get an income, or when we retire, we have a pension. Some of that is then based on our savings, but some is also based on promises from employers or, most of the time, from the state. You can think about those future pension incomes as wealth because you would need to save more money privately in the absence of a pension system. These wealth amounts are huge, and they are much more evenly distributed than other types of wealth. So, whereas many workers don’t own much property or have a lot of private savings, they have a lot of expectations of future pension incomes. So, when we add the present value of future pensions, we see that the equalization of wealth inequality over the 20th century is much larger. This is true for both the US, which is one of the lowest-taxing market economies, and for Sweden, which was, during parts of the 20th century, close to a socialist command economy.

Finally, you asked about inheritance. When we look at the aggregate picture, looking at the aggregate flows of inheritance compared to GDP, and how has that changed over time, we see that over the last 120 years, the relative importance of inheritance was the largest at the beginning of the 20th century and has since become less and less important. We don’t have that much data for many countries, but data for the UK, France, Sweden, and the US show basically the same picture. We see that even though richer heirs receive larger inheritances, the relative importance of inheritance is larger for less wealthy heirs. So, in fact, inheritance has an equalizing effect.

Another section of the book discusses how many of the super-rich are self-made and how many are rich heirs. And I have data there for the US and Sweden showing clearly decreasing trends in the relative importance of inheritance. So, there have been more and more self-made billionaires in our economies over the last 30 and 40 years. This is a signal that the book’s overall message that we are getting richer and more equal is not changed when we also account for inheritance.

Fascinating. You mentioned globalization. Your book focuses on the West, but how generalizable are your results to the rest of the world?

So, yes, I have some discussion about this in the book. If we start with the global level, looking at all the wealth in the world and how it is distributed, we can see that it’s very unequally distributed, more unequally distributed in the world than in any country. However, we also see that the measures of wealth inequality have decreased every year from the year 2000 up until the 2020s. So, the world is much more equal today than it was 20 years ago. The equalization has been much faster for poverty and for incomes than for wealth.

Given these trends toward more equality, why do you think there is this prevailing narrative to the contrary?

It’s a difficult question. One reason is that the discussion has been quite narrowly focused on certain years, especially comparing outcomes to the early 1980s. So, the early 1980s were a turning point in the global economy, especially in the Western world, where we started leaving a very bad period of stagnation. Our production systems became less productive, and manufacturing industries were evaporating. They left the rich world because we were outcompeted by upcoming countries, especially in Asia.

But we learned our lessons. Our economic struggles were explained by regulations and high taxation. In Sweden, for example, the top marginal tax rate on labor income was above 90 percent. So, we started deregulating and lowering taxes and developed a better understanding of the role of technological change and economic incentives.

That, of course, lead to growth and also greater income inequality. But much of that was a normalization. Most Western countries went from historically low levels of income inequality, which resulted from extremely high taxes on productive people, to higher levels of income inequality as economic growth led to higher incomes. People interpret this fact negatively, but this normalization improved general welfare through things like better medical care and technology. So that’s a kind of a misinformed narrative, but it’s based on observations of increasing inequality since the 1980s.

Let me also say this. People on the right side of the political spectrum are generally less interested in discussing and understanding inequality, what is happening to it, and how it is measured. And in many cases, they basically left a vacuum in these discussions. People on the left have an interest in inequality, but their problem is that they already know the answers. They don’t care about data or measurement; they take for granted that inequality is high and increasing. So, it’s a very strange debate with many strong but misinformed statements.

What insights can we learn from this new history of wealth?

One very important lesson is that we can build wealth broadly in the population by enabling more people to become owners. We have seen that home ownership has been the main pillar of household wealth. I cite a research paper in the book showing that the long-term returns in home ownership have been almost as high as the long-term returns in the stock market, but at half the risk. I think another pillar is mutual funds. Mutual funds have democratized the stock market, allowing people to own shares that give high returns but with a low level of risk. Luckily, we understood this and guided many of our pension savings or investments into mutual funds.

There is also a lesson when it comes to the taxation of capital. There’s one big group of capital taxes that work well. These are capital income taxes, so capital taxes on flows of returns. The biggest one is the corporate tax. So, the profit tax of corporations. Corporate taxes amount to around half of all capital taxes in total. Then, we have taxes on dividend income. We have taxes on rental income. We have taxes on realized capital gains. Whenever you, as an owner, take out cash from your company, we tax that as income, just like any labor earner.

The other kind of capital taxes, which are much more problematic, are the taxes on wealth and stocks of capital. Maybe there is a stock market valuation, and you pay taxes based on your company’s value. The problem is that if you make little profit, you won’t have any money to pay the tax with. What should you do then? Should you sell parts of the firm? That’s going to create corporate governance problems. It’s very clear from economic research that we don’t want those kinds of effects of taxation. It’s a very negative outcome of taxation. Another problem with wealth taxes is that we don’t know exactly how to value assets that are not actively traded. Many companies are not on a stock exchange that lists how much they’re worth. We could guess, but I would suppose we would have maybe 50 percent error margins. A 50 percent error margin on your tax bill is not so fun and could be very costly.

These problems are why very few countries today still have wealth taxes. These taxes also haven’t worked historically. The revenues that they have generated are also very small compared to capital income taxes. So, I recommend not taxing wealth or “unrealized capital gains.” I think those proposing these kinds of taxes lack a basic understanding of entrepreneurship and the economy.

Get Daniel’s book, Richer and More Equal: A New History of Wealth in the West, here.

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.