New Book: The Great Divergence: Should we drag the 1 percent down or the 99 percent up?

[pampango]

Conservatives don’t want to talk about one major cause of the skill-based income gap: the decline of private-sector unions. I don’t think it will be possible to raise the median income on a consistent basis without finding some way to revive the labor movement. Maddeningly, it isn’t just conservatives who hate talking about unions these days. Liberals do, too. They regard them as corrupt, antiquated institutions. The other day I was talking to a very smart economics writer who said he resisted the idea of reviving labor because its culture was too adversarial. Culture? With private-sector union density down to 7 percent, there is no culture anymore. Reviving labor means starting virtually from the ground up. You can have any culture you like!

Conservatives are also loath to acknowledge another contributor to skill-based income inequality: Republicans! Larry Bartels, a political scientist at Duke, has documented a five-decade pattern in which income inequality has grown under Republican presidents and shrunk under Democratic ones.

The second trend in income inequality—what in the book I call the Great Divergence, Part 2—is the huge growth in income share for the top 1 percent. This began in 1979 and went off the charts starting in the 1990s. (One-percent-based inequality has thrived under both Democratic and Republican presidents.) We only really became aware of the 1 percent’s role in income inequality about a decade ago, thanks to the work of Piketty and Saez. Here the causes appear to be pretty straightforward: the financialization of the economy (greatly aided by financial deregulation) and a breakdown in accountability for nonfinancial executive compensation. We’re talking here about obscenely rich hedge fund managers and stock-option-gobbling CEOs. Conservatives don’t like to talk about this form of income inequality (and liberals do) because the solution mostly involves imposing new government regulations on businesses. The banks are already having conniptions about Dodd-Frank, which is really just a first step to the kind of reform that’s needed.

Do I want to drag the 1 percent down? If that means diverting more of the revenue that becomes corporate profit back to payroll then my answer is yes. If it means reining in high-flying banks that court risk and assume they’ll receive taxpayer bailouts if they bet the wrong way, then my answer is also yes. Higher taxes on the rich would also help a little (though mostly that’s worth doing in order to share the burden of paying for government services more equitably).

But I also want to elevate median incomes. The ways to achieve that are trickier, but part of the answer is to lower or at least stabilize the cost of necessities like health care and university education.

http://www.slate.com/articles/arts/the_book_club/features/2012/tim_noah_s_the_great_divergence/great_divergence_book_review_the_decline_of_unions_.html