IMF Head: Inequality Will Haunt the 21st Century

G20 Finance Ministers Meet In Sydney

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Christine Lagarde, the managing director of the International Monetary Fun, said Friday that the world is at a crossroads when discussing goals for economic growth.

“If we’re not careful, the ghosts of the late 19th century could come to haunt us in the 21st,” Lagarde said. The ghosts is she’s talking about are the detrimental effects of inequality. “There’s been a staggering rise in inequality,” she said. “Seven out of 10 people in the world today live in countries where inequality has increased in the last three decades. And yet we know that excessive inequality stops growth, inhibits inclusion, and undermines social capital as well as trust.”

This is not the first time she’s given this warning, but it only becomes more dire with each mention. At a speech in May, Lagarde warned that rising inequality is threatening global financial stability, democracy, and human rights. “One of the leading economic stories of our time is rising income inequality, and the dark shadow it casts across the global economy,” Lagarde said in May.

Income inequality has “reached critical levels,”according to Lagarde’s speech at the start of the autumn meetings of the IMF and the World Bank. “Oxfam recently estimated that the world’s richest 85 individuals control as much wealth as the world’s poorest 3.5 billion people,” she said. “According to the U.S. Federal Reserve, between 2010 and 2013, America’s richest 10% saw their incomes rise by 10%, while the incomes of the poorest 20% fell by 8%.”

Lagarde said the world is in a period of great innovation, but the innovations are not creating enough jobs and, in fact, contributing to inequality instead. “The global economy faces the prospect of prolonged subpar growth, accompanied by high unemployment and rising inequality,” Lagarde said.

This inequality is reflected in the structural reforms Lagarde is calling for and her goal to increase spending on infrastructure projects. Lagarde noted that many countries have obvious infrastructure gaps, such as India, which has 300 million residents who have no access to electricity. “What we’re saying is not investment infrastructure everywhere at any cost, at any rate, at whatever terms. It has to be efficient; it has to respond to a need,” she said.

In its 70th anniversary year, the IMF is unfortunately focusing many of its meetings on slow global economic growth, still reeling from the 2008 recession. Last week, the IMF changed its global economic growth forecast for this year to 3.3 %, lowering it 0.4 percentage points from an earlier projection in April. The fund is estimating that there’s a 40% possibility the Eurozone will face another recession.

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