The Unassuming Economist

In a recent column for Vox EU CEPR, Professor Daniel Waldenström of the Research Institute of Industrial Economics and senior fellow at CEPR writes about the conundrum of rapidly rising wealth-income ratios in the post-WW II period not translating into a reversal of trends of wealth concentration of the previous century.

While it is true that aggregate wealth to income ratios have risen in this period, it has not led to large-scale wealth equalization since private wealth has just changed hands over the 20th century, from being held by richer classes to now being largely held by the middle class. Previously in the 1900s, wealth was dominated by agricultural estates and corporate wealth, assets predominantly held by the rich. However, this changed in the post-war period as wealth accumulation mainly acquired the form of housing and funded pensions, which are assets held by ordinary people.

“Wealth concentration was exceptionally high a century ago, with the richest percentile owning between 50% and 70% of all private wealth. From the 1920s to the 1970s, wealth concentration fell dramatically in the Western world. Country studies confirm the importance of homeownership and pension savings for this equalisation trend. In the 1970s, wealth equalisation stopped, but then Europe and the US follow separate paths. In Europe, top wealth shares stabilise at historically low levels, perhaps with a slight increasing tendency, while in the US, top wealth shares have increased (exactly by how much is currently debated).”

Waldenström, D. (2021). Wealth and history: A reappraisal. Vox EU CEPR.

Results from this study cast influence on society’s understanding of the long-run evolution of wealth as we see it. They question the view that unfettered capitalism generates extreme levels of capital accumulation. They also cast doubt on the explanation that wars, crises, and capital taxation are necessary for wealth equalization.

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