Did you know that 0.7% of the global population owns 41% of global wealth? A total of 32 million tycoons have a collective fortune of 99 trillion dollars. At the same time, the 68.7% of the world population, about 3.2 billion people, collectively have a fortune of just 7 trillion dollars.

On the 11th of April I had the opportunity to follow a two-hour seminar entitled “The Macroeconomics of Income Inequality”, which tool place at the 24th IMF and World Bank annual spring meeting in Washington. Distinguished economists such as Jeffrey Sachs from Columbia University and activists, such as Winnie Byanyima, executive director of the Oxfam International charity, discussed how in contemporary times income inequality is worse than ever. According to the data presented, the wealthiest people in the world own the same amount of money as 3.5 billion people, while the wealth of the wealthiest 1% of the population is 65 times greater than the poorest 50% share of the world population.

One of the more interesting observations at the seminar was that the dominant belief of how everyone has benefited from the high growth rates of the global economy is misleading. The factitious nature of this can be illustrated by the following example; let us assume that we how thousands of ships, which represent Greek households and each vessel’s length reflects a household’s income. By the late 1970s the average ship was a 3.5-meter canoe, while the largest yacht was 35 meters long. These days the average ship in 6 meters long, while the largest yacht is 210 meters long. Simply put, while the average income almost doubled in three decade, the income of the wealthier Greeks increased sixfold.

Although the participants of the IMF seminar agreed that growth and income inequality are mutually exclusive concepts, they could not agree on how to tackle the rising inequality. One of Professor Jeffrey Sachs’ more interesting points was that the explosion of income inequality in the USA is attributed to the fact that the wealthier sections of the population have “overshadowed the political process” to their benefit. Sachs claimed that the inequality is often passed on and exacerbated from generation to generation and that this phenomenon could be tackled by investing in areas such as education and healthcare, as well as by taxing the wealthier social group in favour of the poorest groups, especially in developed economies.

Taxing large wealth requires a lot of care, from a different perspective. The accumulation of wealth by a small group of people has an impact on consumption. It is one thing to have 10 consumers spend 1 million euros total on 50 businesses and another to have 1,000 consumers spend the same amount on 5,000 businesses. In the second case, prices find a balance and turnover increases, as money circulates to a greater degree.

The seminal also had a surprise. The deputy managing director of the IMF, Min Zhu, claimed that when the International Monetary Fund advises a country’s authorities on a program, it incorporates job creation, growth and employment in its policy planning, giving special care to income inequality. The senior IMF officer’s remarks conflicted with a recent IMF report from a few months ago that shows that between 2008 and 2012 the poorest 10% of Greek citizens lost 15% of their income – just as much as the wealthier classes. If we were to refer back to the aforementioned ship example, between 2008 and 2012, a poor Greek family lost almost 1 meter from their boat, while the wealthy lost 30 meters (from their yacht).

For the record, it is worth pointing out that Poul Thomsen did not follow the seminar…

Thanasis Koukakis

– Originally published in the Saturday edition of VImagazino