Lifting the Bottom: How Western Economies Are Growing Fairer and Richer
The headlines and the data disagree on inequality.
Rethinking the Inequality Story
It is easy to get the impression that inequality in Western societies is out of control. Media and social platforms tell us that billionaires are soaring ever higher while the middle class is disappearing and democracy is under threat. These concerns feel real, especially with expensive housing, rising tech fortunes, and gaps in public services exposed during the pandemic.
But these narratives often rely on narrow or incomplete data. When we consider all the pieces—taxes, transfers, pension rights, homeownership, and people’s changing income over their lifetimes—the picture is more balanced. Western societies are not as unequal as many fear.
This doesn’t mean we should ignore inequality. Some people still live in deep poverty, and extreme concentrations of wealth can distort both markets and politics. But to shape the right policies, we must start with the right facts. Mistaken beliefs lead to harmful solutions—like high wealth taxes and bloated public sectors that risk doing more harm than good.
Instead, we should aim to grow the economic pie while ensuring that its benefits are widely shared. The best way to do this is by lifting the bottom—helping more people build personal wealth and take part in prosperity.
What the Numbers Really Show
The most famous story about inequality comes from economist Thomas Piketty’s “U-shaped curve”: inequality was very high in the early 1900s, dropped after the World Wars, and then rose again after the 1980s. It seems backed by the rise of tech billionaires, stagnant wages for many, and the top one percent’s growing share of pretax income.
But Piketty’s view leaves out several important things. Starting in 1980 is actually misleading. That was a time of unusually low inequality, due to high taxes and strict rules that discouraged risk-taking. Compared to the early 20th century, today’s inequality is far lower. The previous narrative mostly ignores taxes and welfare. Looking only at pretax income misses how taxes and public spending reduce inequality—especially in healthcare, education, and pensions. Finally, it misreads wealth data. Many studies overlook middle-class assets like home equity and pension savings, which are huge stores of personal wealth.
More complete data paints a different picture. Economists Gerald Auten and David Splinter, for example, show that when you account for unreported income, retirement savings, and government benefits, income inequality in the U.S. has barely changed since 1960. And in Europe, the trend is even flatter.
Mass Wealth, Not Mass Disparity
A closer look at household wealth shows some surprising results.
Firstly, private wealth has risen sharply across the West since 1950. But importantly, this growth has been shared. Most wealth is now held in homes and retirement accounts—not in elite corporate shares. Today, 60–70 percent of households in Western countries own their homes, and most workers have pension savings in funds that track the stock market. This is financial democratization.
Secondly, wealth is less concentrated. In Europe, the richest 1 percent now hold only about one-third of the wealth share they had in 1910. In the U.S., there has been an uptick since the 1970s, but even there, wealth concentration is closer to its 1960s level than to the early 20th century. The most recent data show that U.S. wealth inequality has actually fallen slightly since the mid-2010s. Thus, the main story is not growing inequality, but growing ownership.
Thirdly, mobility matters. People move between income brackets over their lifetimes. Many in the bottom 10 percent today won’t stay there long, and some at the top may fall due to job losses or market changes. Also, pension rights and welfare reduce inequality further. For instance, in Sweden, counting public pensions cuts measured wealth inequality nearly in half. In the U.S., if we add Social Security and employer-provided health insurance, middle-class living standards look far better than raw income data shows.
Success at the Top Can Lift Everyone
Some worry that billionaire success is a sign that the system is rigged. But often, these fortunes reflect broad economic growth. Tech giants, for instance, didn’t just enrich their founders—they created jobs, boosted productivity, and expanded the tax base.
Since 1980, life expectancy in advanced economies has increased by six years. High school completion has become nearly universal. Goods once considered luxuries—like personal computers—are now common. These are signs of a system that has lifted the bottom even as some at the top thrived.
Growth matters not just for individuals, but for public finances. Every percentage point added to GDP generates billions in tax revenue. That supports schools, hospitals, and infrastructure. Policymakers should focus on policies that both grow the pie and spread its gains—such as promoting homeownership, making retirement saving easy and cheap, and keeping financial markets open and competitive.
Smarter Taxation and Sensible Policy
Some are now calling for new taxes on wealth, including proposals discussed by the G-20 and the UN. But these taxes are problematic. They often fall on assets that are hard to sell, like private businesses or farms, forcing owners to take on debt or sell prematurely. In Scandinavia, wealth taxes were tried and largely abandoned—they raised little money, were expensive to manage, and drove capital abroad.
A less worse, though far from ideal way to tax capital is through its income: dividends, capital gains, and corporate profits. This approach is more efficient, and it doesn’t punish people for owning assets.
Don’t Misdiagnose the Problem
Focusing too much on inequality can distract from real challenges: slow productivity growth, aging populations, and the costs of adapting to climate change. These issues will require investment and innovation—both of which depend on a healthy private sector.
Overreacting to inequality can also be regressive. Taxing housing wealth, for example, may hit retirees who are rich in assets but poor in cash. Heavy taxes on small businesses might force them to sell to multinational corporations with easier access to credit.
Mistrust also grows when people are told that only the elite benefit from capitalism—even when their own lives are improving. That opens the door to populist promises that often worsen the situation.
A Balanced Agenda for the Future
I believe that unchecked wealth concentration can hurt democracy. But the solution is not to attack wealth itself. It’s to build systems that let more people share in success.
Governments should:
Support entrepreneurship by cutting red tape
Keep labor taxes low to encourage work and saving
Focus public spending on giving people the tools to succeed—especially through education and infrastructure
Make it easier for households to build personal wealth
This is not a call for total laissez-faire nor for extreme equality. It is a recognition that the most important achievement of Western economies is the broad rise in living standards—not the fortunes of a few billionaires, but the everyday comfort of millions whose grandparents lived without antibiotics, central heating, or higher education.
Before declaring a crisis, policymakers should double-check the data. And they should keep doing what works: protecting markets, encouraging wealth-building, and lifting the bottom.
Author: Daniel Waldenström, a professor of economics at the Research Institute of Industrial Economics and the author of Richer and More Equal: A New History of Wealth in the West.