Nobel Laureate Robert Shiller and Wharton’s Jeremy Siegel discuss income inequality.
Earlier this year, Oxfam reported that the world’s eight richest people control roughly the same amount of wealth as the bottom half of the world’s population. Around the same time, the World Economic Forum identified income inequality as the most challenging problem the world faces today. It is an issue that has been discussed for decades, but in the wake of political upheaval in the U.S. and Europe from voters hurt by globalization, there is more intense interest in creating a less polarized distribution. In this interview, Nobel Laureate Robert Shiller of Yale and Wharton finance professor Jeremy Siegel discuss how the income distribution gap became so wide, and they offer possible solutions. Shiller also notes that one of the big challenges to future income levels may be artificial intelligence and robots, and he suggests some ideas on how to prepare for that eventuality.
An edited transcript of the conversation appears below.
[email protected]: The topic of income and wealth inequality has gotten a lot more attention since the Great Recession began in 2008, which was followed by one of the slowest economic recoveries in modern times. The Great Recession just made the statistics about income and wealth inequality even more skewed. The topic then seemed to go mainstream this year when the World Economic Forum at Davos noted that rising income and wealth inequality could be the most significant trend in world economic development over the next 10 years. Their report had input from 700 experts. So there is more agreement today on the size and importance of this challenge.
A couple of notes about our guests: In addition to being awarded the Nobel Prize in Economics in 2013, Professor Shiller’s book, Irrational Exuberance, which was a New York Times bestseller, warned about a stock market bubble, which burst shortly after the book was published in 2000. The dot-com boom turned into the dot-bomb bust. And he correctly pointed out that the nation was in a housing bubble a few years later that could lead to a deep recession, shortly before the 2007-2008 financial meltdown.
Professor Siegel also correctly called the top of the tech bubble in 2000, warning about high valuations in the sector. He is the author of the classic Stocks for the Long Run, which argued that stocks have been giving a real return of about 7% for almost two centuries, and thus are a solid investment over the long run. He has been consistently bullish on the equity markets since the time of the 2008 crash, and the Dow has gone from about 6,600 in March of 2009, to above 20,000 today. Professor Siegel also appears regularly on CNBC, CNN, NPR and many other TV and radio shows, to offer his views on the market.
Let’s start the questions. Professor Shiller, do you agree that rising income and wealth disparity is one of the world’s biggest challenges, including, of course, in the United States?
“I’m worried that technical progress, robots, will be replacing common labor. And so is the World Economic Forum.” –Robert Shiller
Robert Shiller: I’m worried about the future, that if the trend continues, it could be the biggest problem we’ve faced. … I’m worried that technical progress, robots, will be replacing common labor. And so is the World Economic Forum. They paid a lot of attention to robotics at the Forum. When I was there this January, they had some impressive new robots. It’s moving fast. And it’s eliminating jobs. It hasn’t been a real tragedy yet, but it could be in the future.
[email protected]: Are you suggesting that the disparities are a problem now, but that the problems may accelerate because of robotics?
Shiller: The problem is that robotics is on the verge, it seems, of replacing many basic functions that labor performs now. There are so many examples. This Christmas, a lot of people got their Google Home, or their Amazon Echo — Alexa. And it’s like there’s another person in your home. If you bought one of these, you can talk to her. You can ask her to put on some music. To control something around the house or to order something.
This is now. The question is, we just don’t know where it’s going. And the worry is that it will eliminate any source of income for some people who can’t do much more with their labor than these things that are being replaced.
“We’ve had a tremendous falling behind of the lower-income groups relative to the upper-income groups over much more than 20 years — 30 years.” –Jeremy Siegel
[email protected]: Professor Siegel, what’s your view? This is a problem that’s been brewing for decades. And now Professor Shiller is suggesting that it’s going to accelerate because of robotics.
Jeremy Siegel: I think we need to separate out several forces. One is the growth of productivity itself overall. And the other is the fact that we’ve had a tremendous falling behind of the lower-income groups relative to the upper-income groups over much more than 20 years — 30 years. Now, to some extent, I think there is a relation. But we have to understand that relation. What worries me as the greatest problem — as a long-term factor — is the collapse of productivity that we’ve had across the board since the Great Recession.
Non-farm productivity growth used to be 2.3%. Higher in expansions, somewhat higher when oil prices are going down. We had a big expansion since 2009. We had oil prices going down. And it’s 0.5%, 0.6%. We’ve never had it so low. And if we just had it normal, we would have wages up by 10% to 12% today, which is significant, compared to what we do see.
[email protected]: Is it also true the percentage of benefits from productivity increases that go to labor have diminished quite a bit? And is that a problem?
Siegel: Yes. Well, that’s a problem of, why has it diminished for labor, mostly? I think there are several factors there. And we could certainly go into those with Bob, if you want. But I could start it out, if you’d like.
[email protected]: Why don’t you give the headline ones, and then, Professor Shiller, please weigh in.
Siegel: I think some of the lack of a rise in productivity growth and real wages in the working class sector and below has to do with globalization, and the tremendous increase in the supply of labor worldwide that we’ve seen over the last 20 years. I also don’t think our educational system is providing the right sort of training for people coming into the job market in the 21st century. I think our school system is falling down on producing those sorts of workers. There are certainly other factors, and Bob might bring some up, and we might talk further on this.
Shiller: Well, you were asking me what am I most worried about. And so, worries tend to be about the future. I’m actually chiming in with a worry that Norbert Wiener, in his famous book on cybernetics [Cybernetics: or Control and Communication in the Animal and the Machine, first published in