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Approaching Equality

What Can Be Done About Wealth Inequality?

Roger A. McCain

Drawing on some recent research (especially that of Piketty and his associates) and on older ideas (particularly from Sir Arthur Lewis), Roger McCain proposes policies that, together, would aim to reverse the observed tendency towards the concentration of wealth in market economies, thus ‘approach equality.’ The shortcomings and dangers of rising wealth inequality are discussed, both from the point of view of increasing instability and of equalitarian values.
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Chapter 6: Can we “grow the middle class?”

What Can Be Done About Wealth Inequality?

Roger A. McCain

Extract

Revisits the definition of what Piketty calls the Patrimonial Middle Class and argues that what is significant in it is that it includes a component of the (Marxian) working class, a twentieth-century transformation of capitalism. From the point of view of modern macroeconomics, the puzzle is why everyone is not a member of the “middle class.” The utopian element in this view is discussed. The chapter then addresses the puzzle, which is that a majority of the population are not included in the middle class, and addresses this with an ordinary-language exposition of a model of wealth formation that extends the standard model in modern macroeconomics by allowing for “liquidity constraint,” arguing that it may be rational for an agent to fail to save in financial terms when the rate of return to formation of human capital is greater than the rate of return on financial capital. A mathematical model is presented that corresponds to the ordinary-language discussion of liquidity constraint and the rate of return to human capital formation in Chapter 6. A simplified diagrammatic exposition is also given.

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