In this episode, the ReSolve team sits down with Daniel Waldenström, a professor of economics with a focus on growth and distribution. Waldenström shares his insights on a range of topics, from the impact of economic crises on societal structures, to the role of policy makers in fostering growth, and the shifting landscape of wealth inequality.

Topics Discussed

• Waldenström's journey into economics, spurred by an interest in societal issues and historical events, particularly the economic crisis Sweden faced in the early 90s

• The importance of understanding both the size of the economic pie and its division, and how this realization shaped Waldenström's book, 'So Richer and More Equal'

• The role of policy makers in fostering growth and the common pitfalls they face, particularly in Europe

• The impact of the Swedish economic crisis in the late 80s and early 90s, centered around real estate and loose lending standards by Swedish banks

• The evolution of wealth distribution over time, with a focus on the shift from a wealth concentration in the hands of a few to a broader dispersion

• The unique case of wealth inequality in the U.S., and how it differs from trends in other Western economies

• The role of educational systems, labor laws, and trade unions in raising people's productivity and income levels

• The impact of asset price appreciation on wealth inequality, and how this has played out differently in the U.S. and Europe

• The role of income and income distribution in wealth inequality, and the implications of capitalization of income

• Waldenström's policy prescriptions based on his research, offering a positive view of capitalism and human ingenuity

This episode is a must-listen for anyone interested in understanding the dynamics of economic growth, wealth distribution, and the role of policy in shaping these outcomes. Waldenström's insights provide a nuanced perspective on these complex issues, offering valuable strategies for navigating the ever-changing economic landscape.

Mentioned in this episode:

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Daniel Waldenström: We could

also talk about stock prices,

2

booming stock markets, and so on.

3

This has totally different implications

for people's saving and their wealth

4

today, as opposed to a hundred years ago,

because today, most people have a, stake

5

in these assets that are appreciating,

and what it did to, what it has done to

6

wealth inequality, is that despite the

enormous growth in the prices of financial

7

assets, but also housing assets over the

last two or three decades, we haven't

8

seen an equivalent growth, growth in

wealth inequality or wealth concentration.

9

Adam Butler: Okay, welcome everyone

and welcome to Daniel Waldenström.

10

Quick background on Daniel, who is a

professor of economics with the Research

11

Institute of Industrial Economics.

12

Received his PhD in economics from

the Stockholm School of Economics

13

in 2003, and thereafter worked as

visiting assistant professor at

14

UCLA and global fellow at the UCLA

International Institute from 03 to 04.

15

In 2009, Daniel gained his

second PhD in economic history

16

at Lund University, perhaps more

salient for today's conversation.

17

Daniel's also authored a couple of books.

18

me a little over a decade ago, coauthored

Sick of Inequality and just last year

19

published Richer and More Equal, A

New History of Wealth in the West.

20

And, Daniel, I stumbled across your

work and your thinking with the

21

interview that you did with Michael

Shermer a couple of months ago.

22

And, so that, that's what, Got me

curious in your research efforts

23

and, and piqued my interest in

wanting to have you on the show.

24

So Daniel, welcome to Resolve Riffs.

25

Um, to get us started, I was hoping

I warned you before the show that

26

maybe we would try to, go back a

little further, uh, into your past

27

than maybe other, interviews have.

28

So I was wondering if you could give

us some insight into, you know, how

29

you grew up and, well, maybe first

start with what exactly you focus on.

30

And then, then we'll talk about, how

maybe your upbringing and your early

31

studies led to you to become curious

and doing more work in this field.

32

Daniel Waldenström: So thank you guys

for inviting me and talk about these

33

questions that are, you know, both my

work and but also my hobby, I would say.

34

so, and, so I'm a professor of

economics doing academic economics

35

research, focusing on questions

on growth and distribution.

36

So how do the economies develop?

37

How do we, you know, Get to live a

better life, but also how to make that

38

broadly dispersed in the population.

39

How do we get people to feel engaged,

but also to be taken care of?

40

But so finding the balance between

promoting people's efforts and making them

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want to grow and want to like expand in

society, but also then how can society

42

help in terms of redistributing by.

43

Taxing people, but also then, you

know, supplying the needs to do

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and social safety nets and so on.

45

And where do we strike a balance between

retaining the, the incentives, you know,

46

the carrots to people, but also then

offering, broad, uh, you know, solutions

47

for society to work well as a whole.

48

So growth, inequality, taxation, and also

do some policy work and policy advice

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in, in, in Europe, I would say like

Sweden, Swedish government, different

50

colors, and also European level, you

know, EU commission, OECD, and so on.

51

So, you know, that's basically what I do.

52

I do some, uh, Supervising

of graduate students as well.

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But then, this is, this is what I do.

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Adam Butler: Thank you.

55

So Daniel.

56

Maybe take us back, to,

to your, upbringing.

57

were you always interested in

this kind of subject matter?

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Or was there something in your early

life or maybe in your early studies?

59

That triggered a particular

interest in this focus.

60

Daniel Waldenström: well, you could say

I kind of grew up in Stockholm, Sweden,

61

or in the suburb of Stockholm, uh, in the

seventies, eighties, living relatively

62

good life, I would say then in, uh,

some kind of middle class framework

63

with parents, you know, coming out of

university, working on, these kinds

64

of more academic professions, but also

there are, you know, some of these longer

65

tides might with banking and so on.

66

And that was an era of, political

engagement, I would say.

67

my parents coming out of the, like,

the boom, baby boom generation,

68

that kind of protested against, you

know, the older conservative society

69

that they grew up in and wanting

to, you know, Improve on society.

70

You had the Vietnam War was very

influential in Sweden and you had

71

so those kind of sentiments I think

infused me to into like political

72

interest I would say at early age.

73

so I when I get got up became a teenager

I I kind of was kind of interested in

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societal issues, politics, and, more

of a social scientist than some kind

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of natural or science or math person.

76

so I came in through into economics,

more from that background, also history.

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I've always been interested in history.

78

so, well, Sweden also then lived

through a pretty serious economic

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crisis in the early nineties.

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So we had like had some centuries of very

low, low unemployment rates, high growth

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rates, but as it happened, also high

inflation rates, stagnation, You know,

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hollowing out of competitiveness as most

European, also the US and North American

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economies had in the 70s and early 80s.

84

So, so that in Sweden, the policy,

there's the market failures or the

85

market underperformance was really

grave and we lost a lot of industries.

86

we had really high inflation rates,

bad policies, that, you know, gave

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us this really deep economic crisis.

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You know, unemployment levels

went up from maybe 2 percent to 12

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percent within a couple of years.

90

and you know, we have bankruptcies,

banking crisis and so on.

91

And I think many people then, I was

then like a teenager, became interested

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in, you know, wow, what's happening.

93

we, we understood that economics matters.

94

Then I kind of understood

that I wanted to.

95

I needed to know more in order to

really get to know the facts so

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I think that kind of channeled me

into studying economics as a topic.

97

Adam Butler: Okay.

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and particularly, you know,

development economics, I guess, right?

99

what, what are the progenitors

of sustained growth?

100

the progenitors of, of, wealth

generation, the dynamics that lead to

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increasing or decreasing inequality.

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Did that fall out of any early courses

in university or any experiences academic

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or otherwise at that time in your life?

104

Daniel Waldenström: Well,

not exactly actually.

105

So I think I was pretty much.

106

Primarily interested in historical

questions, also the financial

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development, financial industries.

108

So I started looking at the

interactions between policy, like

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political events and financial markets.

110

So stock trading, taxation

of stock trading, also then

111

within a historical context.

112

So that was more of how I, you know,

this is what I did some research on in

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my, my, my dissertation in economics

at the Stockholm School of Economics.

114

But, and then I was invited, or I

got a job at UCLA, as an assistant

115

professor, and there I met Emmanuel

Sayes of Berkeley University.

116

He gave a presentation on, the

wealth inequality in the U.

117

S.

118

and its, its development

over the 20th century.

119

It was a really great paper with Vojtek

Kopchak, who's now at Columbia University.

120

so, then I kind of, and I had

already felt that some parts of the

121

financial sector was kind of unreal.

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I mean, it's almost by construction,

you know, not part of the real sector,

123

but I felt, you know, I needed to

know more about how people fare.

124

And, so I think And with my earlier

political interests, I think I kind

125

of realized that the development

or like, yeah, development, but

126

also inequality dimensions were

like what I wanted to look at.

127

So then I was kind of, I was, became

interested in, in what Emmanuel had

128

done and also Thomas Piketty in Paris.

129

and then let me, we could come, come

back to this, but I think, at that

130

time, I didn't really think that growth

development was that important, even

131

though I kind of, I knew that it existed

and I'd studied it, but, and I think this

132

is actually something we need to talk

about that many inequality researchers,

133

but also people interested in inequality

have a problem of not really understanding

134

that, you know, in order to have

something to tax, we also need income.

135

We need profits.

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So, so not only the division of

the pie, but the size of the pie.

137

And I think this is something

that I started to realize actually

138

even later during the later years.

139

And I think this is also what was kind of

the key driver behind my book on, uh, so

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richer and more equal, which is where I

really try to highlight, you know, that

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those two sides, both the size of the pie

and, and also the division of the pie.

142

Richard Laterman: I'm curious to

maybe circle back to the crisis you

143

mentioned in the early 1990s, ahh which

you said you grew up in the 70s and

144

80s so that you, your early, young

adult is probably out of university,

145

Daniel Waldenström: Yeah, you can see

that from my color on here, right?

146

Sorry.

147

Richard Laterman: Yeah, I wasn't

going to go there, but, I think what

148

we're trying to get at is from the

outside, I've never been to Sweden.

149

I think a lot of people's views on Sweden,

it's usually remarked along with the other

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Scandinavian countries as this, beacon

for social democratic policies, more

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homogenous society, a more equal society.

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And so the fact that you grew up

in Sweden, you're, you're, you're a

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Swedish guy and your, the outcome of

your research and the focus of your

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academic life has been on how, you

lionize capitalism and its effects on

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bringing up the bottom half, let's say,

of the income distribution might strike

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a lot of, listeners as surprising in a

lot of ways, given the, the, the, the

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more social democratic, bent, that the

Scandinavian countries seem to have.

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So I'm curious if perhaps that episode

159

bad policies that you remember,

that, the Swedish government imposed

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and maybe what, what those were

would be interesting to understand.

161

Daniel Waldenström: Oh, I

mean, it's a great question.

162

I think this is something that's actually

really on the agenda as of today as well.

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maybe I didn't really understand it at the

time, but so the policy makers, they of

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course wanted to do as good as possible.

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they wanted growth.

166

All policy makers say they

want high growth and so on.

167

The problem is that many of them

don't understand what it, what's

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needed in order for growth to happen.

169

I think some of them, I think this

is particularly problematic for,

170

for people interested in like maybe

inequality, but it's a policy makers,

171

maybe leaning towards left side, left

side of the, of the political spectrum

172

to, to see like the means of society

as given, you know, they're there, you

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know, not seeing, you know, the, the

efforts required for growth to happen.

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So for example, what happened

was a lot of deficits.

175

So deficit spending, meaning not first

make sure that, that, that the means

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are created in the private sector, but

instead policymakers could, borrow,

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from the future, from future taxpayers,

raising government debt, without needing

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to prioritize between different areas.

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Because, you know, if you borrow,

you can just like add resources.

180

you don't need to take from some area.

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and this is, What that kind

of destabilized Swedish, the

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Swedish economy during the 1980s.

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It generated like spending, which then

in turn generated higher inflation

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rates, you know, built up a fiscal

balance that also made, creditors, uh,

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Uh, leading to higher interest rates,

so that in, you know, increase the

186

pressures on, on, on the budget, without

really solving the underlying problems

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of competitiveness on, on really,

you know, the growth, uh, potential.

188

derivatives that are needed.

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Then we also had some other, some

other aspects at that time in terms

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of like, we had a fixed exchange

rate that was pegged towards, like

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a basket of European currencies.

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And as you may know, so if you have like,

you know, committed to a certain exchange

193

rate and there is like these speculative

tax, then, uh, and, and typically also

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this fixed exchange rate may over time be.

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With respect to your like the

competitive level of your of your

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economy that became very expensive then.

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So that was just part of the of the in

the imbalances that were being built up.

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But as far as the deficit spending.

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You know, the lack of commitment,

and, long termness, long

200

termness of, of, of politicians.

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I think, I think that is a really

grave problem that especially

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Europe is suffering from today.

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As you can see, I think that was

aggravated during the, during the

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pandemic, but we had it before.

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Many of the over inducted economies,

you know, just continued borrowing

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and they do still continue to borrow.

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France, for example, has a really large

government debt and they have low growth

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rates and yet their latest budget was

like some 5 6 percent of GDP deficit.

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just signaling that, you know, these guys

really are out of hand with what's needed

210

for them to create long run stability.

211

So, really what we

experienced 30 years ago.

212

And, And this is something that Europe

is actually experiencing right now.

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Adam Butler: So that's a really

interesting framing of the Swedish,

214

Economic crisis in the, in the late

80s, early 90s, because my recollection

215

of it was that it was, it was centered

around real estate and, loose lending

216

standards by Swedish, Swedish banks,

especially in commercial real estate.

217

And so the banking system got over

leveraged with asset back loans.

218

And then there was an interest rate

spike and some inflation, which

219

obviously was probably the trigger

for a collapse in the real estate

220

bubble, that had accumulated over sort

of a, the five or 10 years previous.

221

and this kind of gets into some

of the frictions or tensions I,

222

have found with, with some of your

conclusions and your, in your analysis.

223

around wealth, right?

224

So just taking the Swedish example,

obviously there was an enormous

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credit bubble, maybe it wasn't obvious

at the time, or, you know, it was

226

obvious in retrospect, but it wasn't

obvious as it was accumulating.

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It had an enormous wealth effect, right?

228

For a time, I'm sure, Swedish

citizens felt very wealthy, right?

229

During the accumulation of this credit

bubble and the increase in commercial

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and residential real estate prices.

231

so, you know, I, I just wonder to

what extent are we confabulating

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maybe a wealth effect, you know,

cause you do make the point that.

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Over the, you know, since the 1980s,

234

wealth has increased and it's not just

increased for the, those at the top of

235

the food chain, but for those at, at other

stratum, strata in, in the food chain.

236

to what extent are we confabulating

or conflating, asset price bubbles

237

with a general wealth effect?

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Daniel Waldenström: Okay.

239

So, you know, there are

several topics a little bit.

240

So let's, so just very briefly on,

241

So you're perfectly right.

242

So, so I think, so what we

did was to deregulate the

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banking sector in the 1980s.

244

So this was part of the, of the kind of

the political, these were part of post

245

war or like Second World War regulations.

246

So we had regulations of

the financial industry.

247

So all the banks, you know, basically were

required to do things that was steered by

248

the finance minister or the central bank,

in terms of how much to lend or how much,

249

what at what interest rate we couldn't

like have capital flowing across borders.

250

We couldn't have borders taking active

part in our economy because of these

251

regulations, capital account regulations.

252

our tax system was, you know, such that

borrowing was really, supported or, or

253

you could say, subsidized by, by, you

know, high deduction possibilities.

254

And then what, when we deregulated

the banking system, because that was

255

just part of what What was kind of

lacking in, in a dynamic economy.

256

The problem is that we stick with our

older, with our tax system that, you

257

know, promoted borrowing and having

these deduction possibilities, making

258

it very beneficial to borrow a lot.

259

so it's kind of boosted borrowing

and, and construction, and so on.

260

And we can, so we had a bubble.

261

That's right.

262

I think though that that was

more like, so that was the bubble

263

that kind of burst in a sense.

264

When we, when we, when we redesigned

the tax system in the early nineties,

265

but I think, the deeper economic

problems and political problems, you

266

know, were in place in the 1970s, I

think throughout the Western World.

267

And they kind of outlived the 1980s and

also then for Sweden then created this

268

huger, much larger crisis in the, in the

early nineties, but, but fair enough.

269

as for the other question that you

raised, and I think it's very kind

270

of interesting about what is wealth,

and how is wealth generated, and what

271

you allude to in, in the sense of, of

housing prices going up, and you could

272

also have new buildings, of course.

273

So this is basically

how wealth is created.

274

Either we save, it's a kind of

volume growth of, of assets and

275

wealth, or we have Price gains,

relative asset price gains.

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and that, that we can have actually both

in terms of the, of the non financial

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assets, the property or the housing and

the houses, or at the financial side,

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of course, we could have, capital gains.

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And so there is definitely the case

that a large part of middle class

280

wealth growth over the last two,

three decades, you could say, in many

281

Western countries has been the, in the,

in the, has been asset price driven.

282

So, and this is shown by, by some

scholars for different countries.

283

So, and we see in fact, relative price

gains or capital gains are relatively

284

dominant in, in middle class portfolio

growth, whereas higher end of the

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wealth scale, we see much more of

like new savings or like, maybe gains

286

from income or whatever that makes

you expand in like buying new assets.

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and this has made people think, what

happens if prices Drop if prices

288

fall, or whether there is like

some kind and, and, and, and how

289

to interpret these kinds of gains.

290

Uh, and I think there's like, isn't,

there's no really simple answer.

291

I mean, wealth is a very

complex outcome in this sense.

292

so capital gains, unrealized capital

gains are kind of paper gains.

293

so they don't really change your life,

very much, you know, depending, you know,

294

as you, as you know, I mean, if your house

becomes much more valuable, still your

295

house, it provides the same services.

296

We can, so there, there's like

some, so the liquidity dimension or

297

interpretation of, of, of different

kinds of assets becomes important here.

298

but, well, I don't know, I don't know

if this was not an answer really.

299

This is just like some thoughts, but let,

let me hear what you, what you have to

300

Adam Butler: No, no, it's

a, it's a good point.

301

And I, and I put the car before the horse

a little bit, with, with my question.

302

Right.

303

So why don't I allow you to describe

what you investigated for your book and

304

probably what you've investigated as

kind of your life's work over the last

305

decade or so, and then, you know, talk

about some of your main conclusions

306

and then we can follow up with some,

with some challenges potentially.

307

Daniel Waldenström: Yeah.

308

So thanks, thanks for, thanks for

reminding me about like bringing,

309

bringing forth my, my, thoughts on this.

310

So.

311

So what I kind of found when looking

at the data, uh, in terms of what, what

312

wealth is, what, what kind of people

wealth, what kind of wealth that people

313

hold and how this has maybe changed

over time was precisely the fact that,

314

all of a sudden the stuff that you

and I own, and what, what is that?

315

You know, the popular wealth that

people sometimes have are basically

316

our, our homes, our dwellings.

317

that's We know it like it dominates

most people's total portfolios, in all,

318

you know, in the aggregate, but also

in the micro, like the household level.

319

so that is, uh, and also

we have long term savings.

320

We save primarily for old age.

321

So this is something that, you know,

we as households always have wanted to

322

do, but it, as it turns out, looking at

the very long time perspective, like a

323

hundred year, It turns out that maybe

some people did, many people didn't.

324

Because why?

325

People were too poor to save.

326

So basically, all that they

earned, they had to eat.

327

we were underdeveloped.

328

so looking at the aggregate, The

total amount of housing wealth and

329

also long term savings, is like

maybe a one quarter of all wealth in

330

society and the rest was other things.

331

What was that?

332

Well, agricultural domains, Land,

forestry and so on, but also industrial

333

capital that, you know, grew, grew in

our economies in the early 20th century.

334

Over time, this has changed.

335

So why?

336

Well, people started becoming

more, more educated, better paid,

337

starting to build their lives.

338

This is something we have not,

perhaps our generation have not seen

339

that, but our parents have seen it.

340

I think they have been part of it.

341

And their parents were kind of.

342

In the midst of it.

343

So normal people could

basically start buying homes.

344

and you know, our parent generation,

40s, 50s born, many of the, some

345

of them are still the first ones

to get a university education.

346

so these are real growth developments.

347

And, and what happened was that, people

started building, you know, their own

348

saving and building their own portfolios.

349

So, and today, when we look at the

aggregate, three quarters instead

350

of one quarter of all wealth are

made up of housing and long term

351

savings, pension funds and so on.

352

So that is like this huge

shift of the 20th century.

353

And what it, what it does is

that whenever we have, you know,

354

Price changes in the markets.

355

So we talk a lot about housing

prices and house price, maybe

356

inflation, but it doesn't matter.

357

We could also talk about stock prices,

booming stock markets, and so on.

358

This has totally different implications

for people's saving and their wealth

359

today, as opposed to a hundred years

ago, because today, most people have a,

360

have a stake in these assets that are

appreciating, not everyone but a lot of

361

people and what it did to, what it has

done to wealth inequality, which is then

362

like the other big theme of my work and

also my book, is that despite the enormous

363

growth in the prices of financial assets,

but also housing assets over the last

364

two or three decades, we haven't seen

an equivalent growth, growth in wealth

365

inequality or wealth concentration.

366

Let's, we could let U.

367

S.

368

be a little bit aside for the time being,

but if we will look at basically all

369

European countries, but also Canada,

Australia, so despite asset gains of 200%,

370

300 percent between say 1990 and 2020, top

wealth shares, the richest people's share

371

of all wealth has not increased a lot.

372

In some countries it hasn't increased

almost, you know, It's it's basically

373

flat and this is because yeah, we've

had a lot of new entrepreneurs building

374

new companies and so on but The values

of our economies have also increased,

375

you know Both in terms of no savings,

but also these asset price gains.

376

Then dampening or like basically balancing

out the wealth growth in the top.

377

We can then talk about why we had

these asset price changes and so on.

378

But this is just like looking at the value

of wealth as we, we, as we measure it.

379

Namely the market, the current

market price of our assets.

380

And we see that since people have started

saving and owning to a large extent,

381

middle class people, they are also

part of these asset price increases.

382

Meaning that, despite the value

creation, we haven't had the, boost or

383

growth in, in, uh, wealth inequality.

384

And I think this is worth pointing out.

385

And this is completely different

from what we had, what we

386

experienced like a century ago.

387

Richard Laterman: It sounds

like the reason why you

388

would put, excuse me, the U.

389

S.

390

aside is that because the

stock market in the U.

391

S.

392

plays such a magnified role as

a savings vehicle for the U.

393

S.

394

population, much more so than

any other European or Western

395

country that would come to mind.

396

is the access to real estate, to owning

real estate, what has been the main

397

driver of wealth accumulation for that

bottom half of the income distribution?

398

And is that maybe the main

reason why you would put the U.

399

S.

400

aside?

401

Because in the U.

402

S.

403

so many people also own such a

large amount of stocks, and that has

404

kind of shifted the perception on

asset ownership and wealth effect.

405

Effect.

406

Daniel Waldenström: actually not really.

407

Um, so things are of course complex.

408

and so I, the reason I wanted to put U.S.

409

aside a little bit was that so, whereas

basically all Western economies have

410

not experienced almost any increase

in, in, in wealth concentration.

411

So measuring this by By like the

share of the rich relative to others.

412

so these trends have been almost flat.

413

there have been some changes, but

they're very small, especially

414

historically in mostly in almost all

Western economies, except for the U.

415

S.

416

I think for the, and that's

why, why I wanted to take you

417

as a little bit aside in the U.

418

S.

419

We've seen much clearer

increases in wealth inequality.

420

and, but I don't think that's the main

reason, in fact, that would be if more

421

people are kind of participating in,

in, stock market, ownership, they,

422

they would also be part of that.

423

And actually this is what we see.

424

What, what is where the US is actually

kind of a little bit departing is

425

that their top guys, their successful

business people have been the most

426

successful globally, of any country.

427

So their wealth growth has been

faster than And more, more pronounced

428

than in other Western countries.

429

So they have kind of, even

though middle class people have

430

experienced higher wealth growth.

431

The top guys in the U.

432

S.

433

have experienced the highest

wealth growth in the world.

434

So this explains why wealth

inequality, wealth concentration

435

has increased in the U.

436

S.

437

quite pronouncedly.

438

So the U.

439

S.,

440

you have other kinds of, you

had the financial crisis where

441

the middle class in the U.

442

S.

443

took pretty big hits on their home values,

which I think was more pronounced than

444

maybe some other Western countries.

445

But, but as for participation, I think

also, in fact, Sweden being a very

446

small country, but, but, we have pretty

high financial market participation

447

rates, especially when it comes to

mutual funds, that's a very popular

448

saving vehicle in the US, in this,

in Sweden, as well as in the US.

449

Adam Butler: How

450

would you characterize the,

trajectory of this change in the

451

distribution of wealth over time?

452

Right.

453

In my research, I noted that

you, I think you sort of.

454

Primarily start your observation

455

And then sort of paint the

trajectory of wealth inequality.

456

when does that, how did that

457

You did touch on that with a, a

large concentration in agricultural

458

wealth, that sort of thing.

459

What was the arc of that trans, transition

over, you know, seven or 80 years?

460

When did that kind of, when did equality

peak, let's say, kind of globally.

461

and then what's happened since, and then

we can maybe talk a little bit about why.

462

Daniel Waldenström: Hmm.

463

So looking at the facts when

it comes to, so to national

464

level wealth inequality, trends.

465

So what I do was, is to basically

collect the numbers that we have

466

for a few countries, maybe a

handful, maybe up to maybe a dozen

467

of, of Euro of Western countries.

468

And what we see is when

measuring wealth inequality.

469

By the share of the richest

guys, the richest, for example, 1

470

percent of the entire population.

471

This means lining up the population

from the poorest to the richest, and

472

dividing the population into hundredths.

473

So 100 groups of equal size.

474

Then we take the richest group in

that population and add and count or

475

measure all their wealth and relate

it to the total wealth in the country.

476

In the early 19 hundreds, the,

the share of this 1%, the richest

477

1% was between 50 and 70% of all

wealth in, in, in the western world.

478

Meaning that like 100th had, had

commanded basically more than half of

479

all assets of, in the entire population.

480

So I think the UK then has had at

some point, maybe 73% as the, you

481

know, the peak of the inequality,

in the early 19 hundreds.

482

In fact, I think this is the highest

degree of wealth concentration that

483

any human society has ever seen.

484

So we know that.

485

Earlier societies were not as

unequal in wealth holding because

486

there weren't that much values.

487

so the value started being built up in

during like industrialization and then

488

they went down during the 20th century.

489

So that's around, so around 1900, 1910.

490

Then we have a peak in wealth

concentration in the Western world.

491

And after that, concentration

starts decreasing.

492

A little bit differently.

493

Exactly when they started in different

countries, but it starts decreasing during

494

the 1910s and continues throughout the

20th century, 20s, 30s, 40s, 50s, up until

495

around the 1970s when it flattens out.

496

So then we go from, top 1 percent

wealth shares around 50 to 70%, down

497

to maybe 20%, around the Western world.

498

and this is, so then after the

499

of facts that I want to highlight.

500

so despite the deregulation of our

economies, so we started getting rid of

501

the post war regulations or World War

regulations, despite the booming housing

502

markets, especially, but then the stock

markets, values increasing by several

503

hundreds of percent, we have not witnessed

them in similar vast increase in, in,

504

in wealth inequality since the 1970s.

505

so those are the data.

506

Those are the numbers.

507

The US began maybe a little bit lower

actually, in, in concentration, wealth

508

concentration in the early 1900s.

509

Coming down to the 1970s around the same

level as Europe, but then has shown a

510

clearer increase in wealth inequality

511

so those are basically the broad, so when

I, you know, broad, broad trends and I,

512

you know, I call in the book this for the,

I call this the great wealth equalization.

513

I think, you know, those kind of,

some people like those brands and I

514

couldn't find it actually anywhere else,

but, it is, has really been a great

515

wealth equalization, within, Western

countries during the 20th century.

516

Richard Laterman: what have been the main

drivers then for this wealth equalization?

517

I mean, I think we've touched on a little

bit, on this, but, why don't you walk us

518

through, I think education plays a major

role here and, institutional reform.

519

So kind of maybe, and if you might be

able to, rank them in terms of hierarchy,

520

what do you think is perhaps the single

most important variable that has driven

521

this and then work your way down?

522

Daniel Waldenström: ok thanks but

this is actually, but let, let me

523

just mention that this is has, this

is actually one or the, you know, the

524

main new things that I think I have

contributed to highlighting with my book.

525

And also with my research, namely, I

mean, it's like, you know, why my, the

526

subtitle on my book is called a new

history of wealth, uh, in the West.

527

and the, the, you know, that

the reason is The drivers

528

between this equalization here.

529

I actually depart from my old, my, my

old colleague to my Piketty and, whereas

530

where he highlighted shocks to capital.

531

So wars, crisis, but specifically

wars, as being the main driver

532

of, of the wealth equalization.

533

So you could have outright capital

destruction, bombings of factories and,

534

you know, stuff that the rich owned,

but also, you know, you can have wars

535

coming with regulation of societies

that hampered, you know, the rich or

536

like slash the wealth of the rich.

537

And then we had capital.

538

And then he proposes as a second channel

capital taxation, that came up, during the

539

20th century, especially during the post

war era with like inheritance or estate

540

tax rates being at very high capital

income tax rates, profit or corporate tax

541

rates, Basically, so according to Thomas

Piketty, but also like Walter Scheidel,

542

the historian at Stanford, who has said

like the wars are a necessary condition

543

for sustained wealth equalization.

544

So they kind of aim at factors

lowering the top of the distribution

545

and thereby creating equality.

546

I don't think that this is really,

the factors that we want to look at.

547

I don't think they are

that important at all.

548

I think they have contributed, but

they are not at all that important

549

that they have kind of highlighted.

550

In fact, or instead, my book, and

I think I lean on others like, you

551

know, Daron Acemoglu, Jim Robinson,

like Doug North, of course, and

552

Lance Davis and many of the economic

historians and promoting the view of.

553

Economic growth generating values

that in combination with political

554

changes, economic changes in the

20th century that allowed for these

555

new, new values to be more widely

dispersed, namely the democratic values.

556

Uh, events, the, you know, the extension

of suffrage, the, the educational

557

reforms, labor laws and so on.

558

That is what has changed totally,

our lives and that has lifted

559

bottom of the distribution.

560

Allowing people to start saving in

housing and pension savings and so on.

561

And, so I, I will come back then

to talk about, you know, you

562

know, some, perhaps some of the

magnitudes, but so, so this is then.

563

Instead of having, you know, the shocks

to capital, slashing the wealth or

564

the rich, lowering the top as, as the

main drivers, as you know, Piketty

565

has promote it as main, main, causes.

566

I instead promote, you know, that

it's lifting the bottom and here.

567

So democracy, democracy, uh, is a key

to understand this, the kind of the

568

inclusiveness of the institutional

changes that came, came during the

569

20th century, this kind of almost like

a zero one thing, all of a sudden.

570

You have to take into account

that people can't have a say.

571

You can't get ousted as

a government, and so on.

572

So we had democracy, kind of

pseudo democracies, and this

573

has kind of come gradually.

574

But then we see that over

time, we had changes.

575

I mean, I, in my book, I highlight

the educational system, which means,

576

so schooling becomes broadened.

577

Access to higher education, is,

is expanded to more groups, like

578

professional, professionalists, uh,

people with, uh, you know, skills,

579

become more and more like larger and

larger share of the working population.

580

And also we have labor laws, we have

trade unions being able to, you know,

581

empower people to, you know, ask

for better work conditions, maybe

582

restricting work hours, having a more,

having more say on, on environments

583

at the working place and so on.

584

And all of this raised.

585

People's productivity.

586

we see that incomes go up.

587

We see that wage rates, uh, uh,

and, and, and labor incomes,

588

uh, increase as, as a whole.

589

And this is, uh, and this

is then especially for the

590

laborers, normal workers.

591

And I think this is like connect,

connected to then this new, new kind

592

of institutional setting where we

had to take them into account when.

593

When kind of promoting the educational, or

the economic development of our societies.

594

so I wouldn't be able to rank

unfortunately like, education or

595

labor laws or maybe some, you know,

variants of this, but so then democracy

596

is key and then, but then don't

forget then the other part, namely

597

the growth thing, the growth part.

598

So technological change,

industrial, industrials.

599

Uh, revolution bringing

more gains to the side.

600

And here we also have

private property rights.

601

And I think that is If, like, democracy

is very important, I think private

602

property rights is perhaps the key,

uh, institution for value creation,

603

for wealth, wealth creation, or,

that, you know, in all dimensions,

604

perhaps the most important one.

605

and that we had too.

606

So we had our legal systems securing

private property rights to people.

607

that was like, that came earlier.

608

that was probably very important

for the Industrial Revolution to

609

take place in the first place.

610

and then after, during the 20th

century, having then the technological

611

change, economic growth, and then we

have people being able to take part

612

in this then this plays out either

through people starting buying homes.

613

of course, then also thanks

to financial development.

614

Banks becoming better to mortgage, home

purchases, And then with the pension

615

systems being built up in various forms,

you could have, employee, employee,

616

you could have like trade unions being

part of this, the private part in the

617

private sector, you could also have state

solutions like or government solutions.

618

this was then And the other kind

of main asset that people started

619

building up during the 20th century.

620

Here, of course, mutual funds as a

financial innovation also helped,

621

of, uh, ramping, ramping up, growth

potential in, in, in pension savings.

622

Okay.

623

So, um, at least, so this is

the, you know, the broad picture.

624

Uh, we can go into details, but, uh,

this is at least the broad picture.

625

Adam Butler: Well, I think it's worth

exploring some of the differences

626

between, this, this Evolution in

the US and versus ex US, right?

627

Call it Canada, Australia, New

Zealand, Europe and the UK, right?

628

So maybe let's start

with Europe and the UK.

629

And then we can sort of transition

to a discussion of the U.

630

S.

631

as, as maybe a bit of a special case.

632

Daniel Waldenström: Okay.

633

Yeah, sure.

634

Oh, do you want me to?

635

Adam Butler: Yeah.

636

What happened, what happened in Europe?

637

Like it's, it seems like this,

wealth concentration or wealth

638

equalization, I guess, really that,

639

early 1980s has stabilized in Europe.

640

Right.

641

So first of all, why hasn't it?

642

continue to go down, and,

and why has it stabilized?

643

And then maybe we can contrast that with

what we've seen in other jurisdictions.

644

Daniel Waldenström: Okay.

645

Thanks.

646

Thanks.

647

so yes.

648

So looking first at when we look

at the European countries, maybe,

649

well, then I was, I think, well,

Canada, Australia, and so on their

650

entire kind of Western offshoots.

651

I think, What is striking is how similar

they are, actually, over the 20th century.

652

So, as I said before, the levels

of concentration were very

653

high in the early 20th century.

654

to early 1900s, uh,

throughout the Western world.

655

And then we see this equalization

also throughout the Western world.

656

And this is kind of interesting because,

the countries are kind of different.

657

So US or like, yeah, well, US, uh,

also, also equalized, but UK and

658

looking at Europe, then UK, France,

Germany, Sweden, Spain, they were kind

659

of Similar, but also different because,

you know, in terms of war experience,

660

we know the big ones, big countries

had like really rough war experiences,

661

during the first and second world wars.

662

Whereas Sweden didn't even take

part in any of these wars and yet

663

experienced the same equalization trend.

664

meaning that I think this is kind

of exhibit A against wars as being

665

a key Uh, of course, wars can affect

also non belligerent countries

666

like Sweden, through, you know, war

economy spreading and war regulations.

667

And this was indeed something

that Sweden was affected by.

668

But, but still, Wars as a main or

a key driver necessity necessary

669

kind of condition for wealth

equalization is clearly Not really

670

kind of a strong strong conclusion

coming out of the historical data.

671

I think So and also You could also

think that, you know, some of these

672

other things that differ across these

countries are not playing out so much

673

in the wealth concentration evolution.

674

But then, as you say, this leveled out,

675

Why?

676

Well, I mean, this is now getting into

an area where we don't know exactly

677

why we we have a certain level of.

678

like dispersion in wealth or income so

we, we don't know what from theory what

679

is the optimal level of income inequality

or wealth inequality, but we know that

680

wealth is more unequally distributed

than income, ahh as we measure it.

681

Why?

682

Well we know for example that ah

looking at the diffusion of people

683

owning wealth and not owning wealth,

we see that almost half of the

684

population has almost no Net wealth.

685

So, which is different from income

because, it's not that half of the

686

population has no income because they, you

need to have income in order to survive.

687

But you don't need to have

wealth in order to survive.

688

Why?

689

Well, I mean, we, a large part

of the population not having

690

wealth are young people.

691

People just becoming adults, maybe

going into higher education, they don't

692

need, they can't save because they

have almost no income, and they don't

693

need to save because they basically

live their lives and they study.

694

Fair share, maybe one third, maybe half of

all the zero net wealth owners, net wealth

695

people in the population, young people.

696

And then we have people who

have like, maybe they have,

697

you know, Very little saving.

698

They don't want to save.

699

Why?

700

Well, they they they don't want to

save privately because they pay taxes

701

and these taxes give them right the

right to Unemployment insurance if they

702

gotta get become unemployed Their kids

can get schooling and even university

703

dedication in many of these countries.

704

That's cost cost free and also when they

get old they have elderly care and so

705

on health care Basically provided for

everybody, but also specialized care.

706

Meaning that after all the taxes,

they don't have a very high income.

707

So they can save privately, but

they actually don't need to.

708

Meaning that with half of the

population not holding wealth in

709

the net, we would have to begin with

relatively high inequality levels.

710

So this means that, and

where exactly would that be?

711

I don't know.

712

I did a, I did a kind of a

simulation of a population looking

713

exactly the same, but the only

thing that differed was their age.

714

And just from the age, we would have like

the famous Gini coefficient, which is

715

an inequality measure from zero to one,

with zero being no inequality and one

716

being that one individual has all wealth.

717

And we would have, only looking

at the age differences, we

718

would have maybe a Gini of 0.2

719

or 0.3,

720

meaning that life cycle effects

are very imminent in understanding

721

or explaining wealth inequality.

722

So when we have this flattening out of

wealth equalization in the 70s, we may be

723

approaching a level where, are stagnating.

724

Economists don't generate

a lot of new wealth.

725

So our wealthiest entrepreneurs were

historically, I think, relatively poor,

726

but, still it was, you know, we would

have a large share of the population not

727

having a lot of wealth giving us some,

you know, Gini coefficient or maybe 0.

728

6, 0.

729

7 and a top 1 percent share or maybe 20%.

730

Uh, We couldn't maybe go much lower than

that, simply because of these reasons.

731

And also the US, I mean, I think

this is, this is something, I

732

mean, I think up until then, I

think we have a large commonality

733

across Western countries actually.

734

but then in the areas, like in

the years thereafter, then we've

735

had some differences, I think, uh,

economically, but also policy wise.

736

And this could also matter for why

we have difference, differences

737

in, in, in these developments.

738

And I think, That will help us understand

why do we have that much of the kind of

739

the growth, the new technologies that

we've seen, and the dominance of some

740

larger economies have become more and

more oriented and more centered around the

741

United States and not in other countries.

742

In fact, looking at the top, the

top country, the top corporations

743

in the world, uh, in terms of

market cap, The share of the U.

744

S.

745

has kind of increased, I think,

quite, quite markedly over the last,

746

profoundly, exactly over the last

like four, four decades or something.

747

Richard Laterman: when,

748

Daniel Waldenström: yeah, sorry.

749

Richard Laterman: no, I, I, as

you're describing this, I'm wondering

750

if the, bottom half of the U.

751

S.

752

's income distribution, how that compares

to some of the other Western, countries.

753

Because as you're describing this,

it occurs to me that, and you correct

754

me if I'm wrong, but that's an

aspect of your argument is that some

755

degree of inequality is increasing.

756

Perhaps a necessary condition for much

larger growth and perhaps even innovation.

757

I mean, the fact of the matter is the U.

758

S.

759

continues to be, the country where

almost everyone in the country, in

760

the world wants to integrate towards.

761

And so you have this influx of

talent and human capital, which

762

obviously is one of the main

factors for economic growth as well.

763

So allowing for perhaps some of

this, inequality or perhaps a higher

764

Gini coefficient, perhaps it's a

necessary condition for you to,

765

to generate this, this larger pie.

766

But I am wondering how that, how that

argument stacks when comparing the bottom

767

half of the income distribution of the U.

768

S.

769

against some of these

other Western countries.

770

Daniel Waldenström: No, but, uh,

you know, that's a longstanding,

771

longstanding question.

772

so that kind of relates to both how the

cross sectional differences of the gaps

773

in income, how they look and who are there

and so on, but also then the mobility.

774

within the system.

775

So how easy it is to improve on your

situation if you work hard, for example.

776

and here research is also like try to

understand like how mobile is the U.

777

S.

778

Contra, uh, Europe and so on in terms

of when we look at both within people's

779

careers, but also across generations.

780

So the role of family, family background,

and as it turns out, So the U.

781

S.

782

has not a much more mobile or,

or dynamic economy, according to,

783

you know, most of the studies.

784

So, the gaps are very large in, in

the income distribution in the U.

785

S.,

786

meaning not so much that, you know,

the low income earners are much poorer,

787

but But instead of the high income

earners are much richer in the U.

788

S.

789

It's a bigger, both bigger

economy, market size effects.

790

But also as you say, you know, the kind

of selection of talents flowing in.

791

You just get the best and

the brightest globally.

792

Then, you know, that effect

on, on the income gaps.

793

but also that makes it more

difficult to really reach the top.

794

You need to You know, become much, much

more productive than otherwise, uh, in

795

maybe in some other countries where, where

income distributions are more compressed.

796

so I think, well, you brought up, so

this is, this is like, there are a

797

number, a number of questions here,

but, I think, Here we have a difference.

798

The low income earners in Western Europe,

maybe Canada, maybe Australia, have lower

799

incentives to change their situation

because they're better taken care of.

800

So I think these countries are, Western

countries outside of the US, more

801

experienced and I think better in taking

care of people who have a hard time.

802

And I think we could discuss levels But

I think, for example, I think when I talk

803

about better, it's not just different.

804

I think it's better because, for example,

when we came to the, when we saw during

805

the pandemic, so many of the, our

countries had like systems of automatic

806

stabilizers, basically setting systems

so that when you lose your job or so,

807

you automatically get An insurance

income, which is set in the system, to

808

have it practically, you know, decided.

809

In the US, I think, you

had not so much of that.

810

Instead, what you saw was they started

sending out checks to people, so that

811

they, people shouldn't like starve, right?

812

And this was the same, basically

the same as printing money.

813

I think this is also then showing

that, you know, the safety nets

814

didn't work as well in the US as

they did in other Western economies,

815

but also then additionally they I

think that may have contributed to

816

the You know inflation increases

basically that you printed money.

817

so at the end of the day, we we don't

it's difficult, but I think this is this

818

matters all of this matters to why we get

these, You know differences in outcomes,

819

maybe more of getting high talented people

and having higher um Upsides in the US

820

economy, lower, maybe lower tax rates on

high income earners, maybe having low,

821

lower corporate tax rates and so on.

822

Now at least, that contributes to

people wanting to, to be in the

823

US and be successful in the US.

824

Maybe more than having just like, you

know, looking at low income earners

825

and finding the explanations there.

826

Adam Butler: So the two primary factors,

just, I think from, from reading your

827

work that have had the greatest impact

on this contraction of wealth inequality,

828

have been the proliferation of private

pensions and the appreciation of, and

829

participation in private home ownership.

830

Is that, are those kind of the two big,

variables that you continue to highlight?

831

Daniel Waldenström: I, I think so,

at least, you know, when it comes to

832

outcomes of what people actually own

at the end of the day and looking at

833

people's, people's portfolios, those

two are the kind of the dominant assets

834

in in, in middle class households,

835

Adam Butler: And then

how do you disentangle?

836

This is kind of where I

was trying to go earlier.

837

I was too, it was too early in the

discussion, but how do you disentangle

838

the impact of just rising asset prices?

839

Relative to their underlying

fundamentals, relative to the

840

accrual of genuine capital, right?

841

So, as an example, the, Association

of Civil Engineers in the United

842

States, Forecasts that by 2030,

there's going to be a 29 trillion

843

infrastructure deficit in the U.

844

S.

845

Right?

846

That's a, we've accrued an enormous

liability, or not we, but the U.

847

S.

848

has accrued an enormous liability on the

infrastructure side of its balance sheet.

849

On the other side, we have the U.

850

S.

851

and to a great extent,

Western democracies.

852

Have succeeded beyond our wildest

dreams or nightmares, depending on

853

how you look at it in capitalizing

854

future labor income further

and further out, right?

855

If you think about a US 30 year, fixed

interest mortgage, well, what you've

856

effectively done is you've capitalized

30 years of labor income, all at once in

857

this, you know, crystallization of this,

of this mortgage, which is obviously a

858

bank asset and a homeowner's liability.

859

In, in allowing homeowners to capitalize.

860

An increasing duration or

maturity of their future income.

861

that has allowed asset

prices to rise in proportion.

862

So I just, I find a wealth effect

to be very difficult to kind of

863

disentangle, what real wealth has

accrued and to whom, and has it accrued

864

because we have built new things, we,

there are vastly more housing units

865

or, productive enterprise units.

866

in these economies, or whether we

have just valued the price of existing

867

units at much larger multiples.

868

And how does that impact your

analysis and your conclusions?

869

Daniel Waldenström: You're raising

many, many important, you know, aspects

870

of, you know, why, why we, we want to

look at wealth, but also why we do not

871

want to look at wealth only in terms

of, both the kind of understanding

872

the size of the economic pie.

873

So the wealth of our societies, but

also wealth and welfare of people.

874

so, so I think here we need to,

so you're, so we need to kind of.

875

If you can allow me so it will be a

little bit like, not so crystal clear

876

in all dimensions because I also

think this is like difficult area.

877

This is a difficult domain

to really disentangle.

878

Adam Butler: Mm hmm.

879

Mm

880

Daniel Waldenström: so

looking just at wealth.

881

The wealth ownership, the assets that

we hold and their market value, our

882

measure, our measures of wealth and

wealth inequality are simply to add up

883

all the assets in our balance sheets in

the, you know, the non financial assets,

884

whatever they may be, land and housing

and dwellings and holiday homes and so on.

885

And then our financial assets could

be bank savings, could be Some mutual

886

funds and then like stock market,

shares and, and, and pension funds.

887

And these, this is just like simple

accounting and these values are both

888

in this kind of volume stuff, you know,

the number of assets, but also their

889

market values that in the market values,

the market prices can go up and down.

890

And, but what's fascinating is that, yes,

it's not that If you want to double your

891

market value as a like a normal working

household, you can't just like easily at

892

least like a buy, construct a new home.

893

like, like an entrepreneur, maybe starting

up a new firm, or like expand, you

894

know, services and goods being produced.

895

You just have your home and then

it may go up in value or not.

896

and this is kind of, this is kind of the

basic contract that we, we agree upon.

897

and yes, so the wealth gain for these

households is that their house of

898

value has gone up, Does it give them

more power to influence politicians?

899

Well, probably not.

900

It's just like, paper gain as

long as they stay in their house.

901

With exception for a fraction of

households who have actually been

902

able to actually liquidize some part

of that, you know, that asset price

903

game, namely by taking additional

mortgages, maybe by, you know,

904

improving on their home or maybe even

buying a car or doing things, consume.

905

So we had, I mean, in theory, they could

have also started, you know, setting

906

up some, political action comedy or

something to, to influence politicians.

907

But, whereas the liquidity share of

wealth held by, you know, of the, of

908

the rich households or the rich people,

is, is most likely very clearly larger.

909

So, but still that said.

910

Our asset price change would

affect, the top as well.

911

So I think during 2022, the

market value of Tesla shares or

912

Tesla corporation decreased by,

I don't know, 65 percent or so.

913

So asset price fluctuations affect

both the top and the bottom of

914

the, of the wealth distribution.

915

And this means that it's not really

clear at the end of the day where,

916

you know, where distributional

changes will be the swiftest.

917

We could have a financial crisis,

for example, they typically

918

hit the rich guys hardest.

919

We think that wealth, wealth

concentration goes down during,

920

during financial crisis typically.

921

And you would also have a lot

of reshuffling within the top.

922

So some people just get bankrupt

and then get kicked out and

923

being replaced by others.

924

So that's one thing.

925

And then the other part, okay, let me

just shift, shift a little bit to what you

926

said about infrastructure and, you know,

the, the kind of the underinvestment,

927

if one may want to talk about that.

928

I, I, I think here, here's another

kind of interesting, you know,

929

ground for comparison between the

US and other Western countries.

930

I think we, and I, And I actually often

when I give talks, I, I emphasize the

931

importance of separating out different

country experiences, especially,

932

especially separating the U S from Europe,

maybe where Europe should also include

933

Canada and Australia, I don't know, or,

or New Zealand, but, simply because we

934

have such large differences in, you know,

and this has to do with how much we tax,

935

so the average level of taxation is an

order of magnitude higher in Europe,

936

meaning that we are more ambitious in

doing public infrastructure investments or

937

like having collective expenditures that

comes into the education system and so on.

938

So the question is then, are we

better, are we better in doing this?

939

You know, there's one question

about should the government do this

940

rather than the private sector?

941

But I think in general, I think

it's fair to say that the U.

942

S.

943

has could do much better in terms of

taking care of their infrastructure.

944

I think this is quite clear.

945

And, uh, you know, then to add

to this is the role of growth,

946

growth, potentially in the economy.

947

So if we pick up on growth and

here, I think on the other end, then

948

Europe is actually underperforming.

949

We, I mean, we have a secular

stagnation throughout the Western

950

world, but I think growth rates are, are

worryingly low in Europe at the moment.

951

And, and why, and why this is a

big, big, big thing to discuss, but

952

with higher growth, could we pick

up growth, meaning productivity

953

growth and just like doing better.

954

And what we do, maybe

doing new things as well.

955

This would give us means

to do a lot of good things.

956

Both in terms of expanding quality

in public infrastructure, but

957

also then generating more means

for people to live good lives.

958

And that then also then adheres

to like future income growth would

959

then maybe that would then also have

capitalization effects on our assets.

960

So we would then have

higher than housing values.

961

In fact, I think a fair share of

the capital gains in the housing

962

market over the last two or three

decades is part of the real,

963

income increases that we've seen.

964

Households in most Western countries have

fared really well over the last decades.

965

On average, that is.

966

Why?

967

I think growth has been increasing

because of globalization, partly.

968

I think not least the China entry into

the world economy has generated a lot

969

of A lot of gains, both in terms of

lowering like consumption stuff or like

970

goods and so on, but also their capital

flowing in and so on and so forth.

971

anyway, so they're like, as you

can hear, a lot of things are

972

interplaying at the same time.

973

Finally, like interest rates, for example,

lowered interest rates is also capitalized

974

in market values and maybe shares.

975

So of course that could then be

offset if interest rates go up.

976

We saw that a little bit a few years ago.

977

this may be the way we come back if we

would have military conflicts and, you

978

know, we would have like, you know,

extreme needs of, of, of capital in the

979

military industry or defense industry.

980

Maybe climate investments would then

Create, create demand all of a sudden, it

981

would actually demand large investments.

982

So we could have higher

interest rates because of that.

983

And that would of course have effect on

housing values as well, but, but also

984

on, on, on corporate values, I would say.

985

Um,

986

Adam Butler: Well, what's what's

interesting to just talking

987

about cross sectional differences

between, for example, U.

988

S.

989

and and rest of the world or

rest of the developed world,

990

call it, is, of course, that U.

991

S.

992

mortgages are typically fixed for decades,

whereas mortgages in the rest of the

993

world are reset every two to five years.

994

you've got to go back to the

bank in Canada and Australia.

995

And I think in most places in Europe

and the UK, every two to five years and

996

get a new interest rate and renegotiate

your mortgage with, with the bank.

997

Whereas in the U S.

998

We don't see the impact of higher

interest rates propagate to the same

999

extent through the economy, despite

the fact that the U S is maybe more

01:05:51,474 --> 01:05:53,864

financialized than the rest of the world.

01:05:54,214 --> 01:05:57,514

But just by virtue of the fact that

those interest rates are locked in and

01:05:57,524 --> 01:06:03,144

therefore asset owners don't experience

the consequences of their over leverage

01:06:03,144 --> 01:06:08,014

in the way that, asset owners in

other jurisdictions might, right?

01:06:08,054 --> 01:06:14,484

And so you're going to get a, Reset

of the of that capitalized value of of

01:06:14,494 --> 01:06:19,413

future labor, as a function of a reset in

interest rates in the rest of the world.

01:06:19,413 --> 01:06:19,704

Right?

01:06:19,724 --> 01:06:24,934

So, I, I, I think that probably

meaningfully, certainly not completely,

01:06:24,934 --> 01:06:26,584

but but meaningfully explains.

01:06:27,014 --> 01:06:32,714

Some of the difference in the, reaction to

higher interest rates that we've observed

01:06:33,314 --> 01:06:35,544

in the rest of the world outside of the U.

01:06:35,544 --> 01:06:35,764

S.

01:06:35,774 --> 01:06:36,424

versus in the U.

01:06:36,424 --> 01:06:36,794

S.

01:06:37,764 --> 01:06:41,021

Daniel Waldenström: this has been this

is an area of great concern also in,

01:06:41,041 --> 01:06:46,663

in Europe, Sweden, with a large share

of, of, homeowners have mortgages, are

01:06:46,663 --> 01:06:51,854

not even only set by every two or 52

or 50 years or five years, but instead

01:06:52,413 --> 01:06:54,374

every third month, every three months,

01:06:54,377 --> 01:06:55,517

Adam Butler: Ah, yes, holding rate.

01:06:55,829 --> 01:06:59,479

Daniel Waldenström: Yeah, like,

and, so monetary policymakers are,

01:06:59,489 --> 01:07:01,079

you know, follow this very closely.

01:07:01,079 --> 01:07:03,809

And they were, of course, really

concerned, during the pandemic

01:07:03,849 --> 01:07:05,399

or post pandemic, period.

01:07:06,119 --> 01:07:09,559

so, uh, exactly what to take out of this.

01:07:09,589 --> 01:07:11,199

so there's a difference across Europe.

01:07:11,334 --> 01:07:12,064

European countries.

01:07:12,064 --> 01:07:14,904

I mean, French, the French households

are, are, you know, more, much more

01:07:15,124 --> 01:07:19,284

U S like in the sense of having

very long term, interest, contracts.

01:07:19,564 --> 01:07:22,744

then on the other hand, this

is also something where we have

01:07:22,744 --> 01:07:26,974

like relationships between banks

and, and, and, and the borrowers.

01:07:27,064 --> 01:07:30,964

I think that also depends on how

is the banking system structured?

01:07:30,974 --> 01:07:33,574

What do we have in terms of,

the guarantees, insurance

01:07:33,574 --> 01:07:36,314

guarantees, for, for depositors?

01:07:37,122 --> 01:07:39,742

but you know, but anyway, so, but

you're, you're perfectly right.

01:07:39,742 --> 01:07:44,662

So that kind of propagation of, of

interest rate shocks, uh, into like

01:07:44,852 --> 01:07:48,072

household behavior consumption and

so on, getting more real effects on

01:07:48,072 --> 01:07:51,452

that, uh, is of course, something

which we, we are discussing.

01:07:51,462 --> 01:07:52,657

And, there are kind of.

01:07:52,927 --> 01:07:57,137

In fact, in Sweden, we try to have

had some regulation of, of, of like

01:07:57,137 --> 01:08:01,681

ceilings on, on how much to borrow

against certain interest rates or when

01:08:01,681 --> 01:08:05,241

you need to start having, paying off

your mortgage, mortgages and so on.

01:08:05,721 --> 01:08:09,511

so it's kind of an experimentation,

institutional experimentation or policy

01:08:09,521 --> 01:08:15,674

experimentation on how to get a little

bit of less reliance on, on, or maybe

01:08:15,684 --> 01:08:17,663

exposure to these kinds of events.

01:08:17,694 --> 01:08:19,742

But, I don't know.

01:08:19,812 --> 01:08:23,032

I don't know what the, what the best

scenario is or what the best, you

01:08:23,032 --> 01:08:24,242

know, where, where we want to be,

01:08:24,983 --> 01:08:25,263

Adam Butler: Yeah.

01:08:25,263 --> 01:08:28,433

I mean, just in general, I know, I

know I've sort of monopolized this

01:08:28,433 --> 01:08:30,643

segment, Richard, to which I apologize.

01:08:30,643 --> 01:08:34,033

I know you've got some other questions,

but I guess just to tie a bow on this

01:08:34,042 --> 01:08:39,148

is, I think it's very difficult to make

assertions, strong assertions about, Okay.

01:08:39,608 --> 01:08:44,898

Wealth accumulation or, the, the

share of wealth in an economy in the

01:08:44,898 --> 01:08:47,058

presence of financialization, right?

01:08:47,058 --> 01:08:51,707

The, just the ability to capitalize future

labor and the innovations in the financial

01:08:51,707 --> 01:08:57,618

sector, I think have had a profound

impact and that impact is felt differently

01:08:57,618 --> 01:09:02,408

in different jurisdictions because of

different banking and landing policies

01:09:02,488 --> 01:09:05,098

and, and, and other things, right?

01:09:05,198 --> 01:09:09,988

But I just think that substantially

weakens the conclusions that we

01:09:09,988 --> 01:09:17,108

can make about wealth accretion,

the changes in wealth inequality

01:09:17,108 --> 01:09:18,377

that we've observed over time.

01:09:18,738 --> 01:09:22,127

And I think it's more than a

coincidence that if you look at the

01:09:22,127 --> 01:09:28,643

trajectory of wealth concentration

or wealth, equalization over time.

01:09:29,513 --> 01:09:34,173

Wealth tends to be the most equal

when asset prices are low, right?

01:09:34,173 --> 01:09:38,792

In the very, in the late 19th cent

relative to cash flows, right?

01:09:39,113 --> 01:09:44,913

When the home prices are low relative to

rents, when stock prices are low relative

01:09:44,993 --> 01:09:50,113

to earnings, when interest rates are

high and therefore bond prices are low.

01:09:50,488 --> 01:09:54,207

That tends to be when we see

the greatest amount of equality.

01:09:54,788 --> 01:10:00,438

And when, after many years of asset price

appreciation, relative to fundamentals,

01:10:00,718 --> 01:10:02,798

that's where we see the most.

01:10:03,451 --> 01:10:09,411

unequal share of, of wealth and why

we also see a much more unequal share

01:10:09,411 --> 01:10:13,851

of wealth in the US than we do in the

rest of the world, because the US has

01:10:13,851 --> 01:10:18,661

experienced such a massive appreciation

of financial assets relative to the

01:10:18,661 --> 01:10:22,281

rest of the world, which over the last

15 years, outside of the US, there

01:10:22,281 --> 01:10:27,016

really hasn't been any growth in equity

markets, and in the US, Equity market

01:10:27,285 --> 01:10:30,934

growth has been about twice the long

term average of the last 15 years.

01:10:31,195 --> 01:10:36,390

So I think that explains a lot more

than maybe we give credit to and I

01:10:36,400 --> 01:10:39,030

don't know how you disentangle it But

I think it's a really important factor

01:10:39,383 --> 01:10:42,639

Daniel Waldenström: I, I, I agree, but

at least in part, but only in part, I

01:10:42,649 --> 01:10:48,169

mean, I, so I think, so, uh, so yes,

when we get depressed asset values, when

01:10:48,169 --> 01:10:52,999

we basically, you know, when, when the

value of the market value of wealth would

01:10:53,009 --> 01:10:56,529

be zero, we wouldn't have any wealth

inequality as just like a core, as a

01:10:56,529 --> 01:11:02,889

corner solution, let's say in a, commando

economy, or when, when private ownership

01:11:02,889 --> 01:11:04,749

is disallowed entirely, uh, yeah.

01:11:04,989 --> 01:11:10,509

But, you know, along that kind of angle

or that axis, in the seventies, yes,

01:11:10,559 --> 01:11:16,029

markets were dysfunctional, economies

were dysfunctional, mass asset prices

01:11:16,029 --> 01:11:17,949

were low, we had stagflation and so on.

01:11:18,369 --> 01:11:23,022

And then, as you say, since then,

markets have appreciated, uh,

01:11:23,032 --> 01:11:26,334

we have, and you could say they

have boomed, for several decades.

01:11:26,764 --> 01:11:31,224

For different reasons,

still, not only in the U.

01:11:31,224 --> 01:11:31,564

S.,

01:11:31,814 --> 01:11:34,854

market caps have increased

a lot also in Europe.

01:11:35,154 --> 01:11:42,264

and I think that is one of the striking

facts from comparing wealth distributions

01:11:42,264 --> 01:11:47,414

across countries is that we have not seen

the same level of increases in wealth

01:11:47,484 --> 01:11:49,764

inequality, that we've seen in the U.

01:11:49,764 --> 01:11:50,084

S.

01:11:50,304 --> 01:11:53,364

in comparison to what we've seen

in, in, in Europe and so on.

01:11:53,364 --> 01:11:59,242

So in Europe, when we Wealth inequality

has not increased, secularly over

01:11:59,242 --> 01:12:02,012

01:12:02,122 --> 01:12:06,712

that is basically, and this is part

of them because as you say, people's

01:12:06,712 --> 01:12:10,392

houses have gone up, house prices have

gone up, but also that people have

01:12:10,392 --> 01:12:15,312

started saving also in these financial

markets that have become more valuable.

01:12:15,512 --> 01:12:19,432

thanks to, you know,

globalization, Funded capitalism.

01:12:19,432 --> 01:12:23,752

So pension funds being built up,

perhaps driven by Japanese and U.

01:12:23,752 --> 01:12:24,102

S.

01:12:24,152 --> 01:12:27,942

pension funds, like investing in

smaller economies and so forth.

01:12:28,432 --> 01:12:34,592

but again, a little bit picking up on,

So this kind of capitalization of income,

01:12:34,742 --> 01:12:39,132

I think here, here's like, you know,

where we also want to talk about the

01:12:39,132 --> 01:12:41,082

role of income and income distribution.

01:12:41,342 --> 01:12:46,841

So, so, so there is just like so much

you can say about wealth inequality in

01:12:46,841 --> 01:12:48,931

terms of this distributional discussion.

01:12:49,151 --> 01:12:53,751

So, yes, people's wealth may go

up and down or maybe very subtle.

01:12:54,141 --> 01:12:58,591

It's gonna, Reliant on, on house

price changes, and it doesn't really

01:12:58,591 --> 01:13:04,001

matter for their kind of real wealth,

you know, life, you could say.

01:13:04,101 --> 01:13:07,971

but instead for them, what is

crucial and also for the economy

01:13:07,971 --> 01:13:09,401

as a whole is the income.

01:13:09,761 --> 01:13:14,671

So as long people, as long as people

have an income, they're, they're fine.

01:13:14,741 --> 01:13:20,786

they can buy, they can pay their mortgage

mortgages or like they could, you know.

01:13:21,116 --> 01:13:22,006

live good lives.

01:13:22,376 --> 01:13:27,780

So, and therefore, also when you talk to

monetary policy makers, instead of them

01:13:27,860 --> 01:13:32,210

focusing on asset prices and so on, which

is very complex, we don't know really how

01:13:32,210 --> 01:13:34,380

to think about this or the implications.

01:13:35,170 --> 01:13:40,325

I think for them to promote equality is

to, to To try to reach full employment.

01:13:40,805 --> 01:13:44,601

So that is what's kind you know, the

most by far important dimension in

01:13:44,611 --> 01:13:50,771

where, in which we can create like,

inclusion and equality by basically

01:13:50,811 --> 01:13:53,691

allowing people to live good lives.

01:13:53,691 --> 01:13:58,511

And we take part, act apart in the

labor markets and then they can, if

01:13:58,511 --> 01:14:03,371

they want, they can buy a home, they

can invest in the stock market, or

01:14:03,371 --> 01:14:06,795

they could be like hand to mouth and

just like, go traveling or whatever.

01:14:07,145 --> 01:14:10,785

consume whatever they want, as

long as, and then, so that's

01:14:10,785 --> 01:14:12,695

my kind of also the take on it.

01:14:12,745 --> 01:14:17,375

So you may have asset price changes

that are not really important for

01:14:17,375 --> 01:14:22,645

people's lives with house price gains

and giving maybe, I get a feeling that

01:14:22,695 --> 01:14:27,805

there is like, or people, I get these

comments when I, whenever I present,

01:14:28,733 --> 01:14:35,753

feel like, how could you compare like,

super-billionaire asset gains to, to

01:14:35,753 --> 01:14:40,363

middleclass people's housing gains,

they're just just different universes.

01:14:40,593 --> 01:14:42,163

And I, kind of agree.

01:14:42,743 --> 01:14:48,840

And yet, they're kind of, part of like

some, some kind of income wealth complex

01:14:49,380 --> 01:14:55,220

that at the end of the day, want, want

us, want us to build, live good lives.

01:14:55,986 --> 01:14:57,046

Adam Butler: Well, yeah,

I've got some other

01:14:57,176 --> 01:14:57,516

Richard Laterman: I like the

01:14:57,516 --> 01:14:58,436

Adam Butler: I'll let Richard

01:14:58,593 --> 01:14:58,803

Daniel Waldenström: Yeah.

01:14:59,773 --> 01:15:00,013

Yeah.

01:15:00,143 --> 01:15:00,473

I,

01:15:00,576 --> 01:15:04,221

Richard Laterman: like the way that you,

No, the, the way we're framing that I

01:15:04,221 --> 01:15:08,651

think raises a very interesting, and

very important point, which is much like,

01:15:08,701 --> 01:15:13,361

when, when central banks lower interest

rates, we, we, we see, stock markets boom.

01:15:13,361 --> 01:15:17,021

But that has nothing to do with actual

repricing valuations because the, the

01:15:17,021 --> 01:15:20,261

stock market is not narrowly focused

on short-term interest rates, but much

01:15:20,261 --> 01:15:21,971

more on the longer end of the curve.

01:15:22,271 --> 01:15:25,956

It's more on the, the transition,

the transmission mechanisms more

01:15:25,956 --> 01:15:27,516

about animal spirits and confidence.

01:15:27,816 --> 01:15:33,456

The idea of asset price appreciation,

more so, in the real estate, element of

01:15:33,456 --> 01:15:36,616

this, but also in stock prices, because

people aren't necessarily, selling

01:15:36,616 --> 01:15:38,616

those stocks and, and cashing them out.

01:15:39,186 --> 01:15:42,656

Those are also, I think, play a much,

stronger role in terms of boosting

01:15:42,666 --> 01:15:44,886

their confidence in terms of spending.

01:15:44,896 --> 01:15:47,546

And so that, that, that prosperity

angle, I think really comes

01:15:47,546 --> 01:15:48,866

from when they have the income.

01:15:49,901 --> 01:15:54,911

To improve their lives on a daily basis,

people might have, you know, very large

01:15:54,921 --> 01:15:58,301

properties and, and, and, and that are,

appreciating in value over time, but

01:15:58,301 --> 01:16:02,251

unless they have the cashflow to sustain

their quality of life, they're actually

01:16:02,251 --> 01:16:04,571

going to be downgrading, selling out.

01:16:04,571 --> 01:16:08,751

And so the prosperity angle has to be

intertwined as far as I can see, to

01:16:08,751 --> 01:16:11,251

the, to the income element of this.

01:16:11,251 --> 01:16:11,321

And,

01:16:11,611 --> 01:16:13,891

Adam Butler: Well, I don't, that's

the whole point about my, about