Inequality is the big problem now. Some call it the problem of the 21st century. Thomas Picketty, a French economist, wrote a book "Capital in the 21st century" which has become the most discussed economic book in many years. His thesis is this: capital is taking a growing portion of output.
The reason: real wages grow at a rate smaller than the real interest rate. So if you have human capital but no money, your share of output falls.
The concern about inequality is the consequence of the fact that income inequality has been increasing in the last 30 years. Picketty argues that the trend towards more inequality has been interrupted by unusual events (Great Depression and the second world war) but it is a long-term trend. The level of income inequality now is back to what it was just before the Great Depression.
Note that median real incomes did not change much in the last 30 years, while incomes at the top of the distribution have been increasing. This is the case in the U.S. above all, but also in other developed countries, including Canada.
This Yahoo story is based the article Roger Martin, the former dean of Rotman School of Management, UofT, points out to another reason for inequality. The current economy rewards talent, rather than accumulated capital. So people like LeBron James and Mark Zuckerberg earn a lot. Martin argues they earn too much.
Why does it all matter? Because there is evidence that the higher is inequality, the slower is economic growth.
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