Friday, December 31, 2010

Income Inequality and Political Economy

Robert Lieberman has an interesting book review on disparate wealth distribution in the United States and associated political economy in the January/February 2011 issue of Foreign Affairs:
It is generally presumed that economic forces alone are responsible for this astonishing concentration of wealth. Technological changes, particularly the information revolution, have transformed the economy, making workers more productive and placing a premium on intellectual, rather than manual, labor. Simultaneously, the rise of global markets -- itself accelerated by information technology -- has hollowed out the once dominant U.S. manufacturing sector and reoriented the U.S. economy toward the service sector. The service economy also rewards the educated, with high-paying professional jobs in finance, health care, and information technology. At the low end, however, jobs in the service economy are concentrated in retail sales and entertainment, where salaries are low, unions are weak, and workers are expendable.

Champions of globalization portray these developments as the natural consequences of market forces, which they believe are not only benevolent (because they increase aggregate wealth through trade and make all kinds of goods cheaper to consume) but also unstoppable. Skeptics of globalization, on the other hand, emphasize the distributional consequences of these trends, which tend to confer tremendous benefits on a highly educated and highly skilled elite while leaving other workers behind. But neither side in this debate has bothered to question Washington's primary role in creating the growing inequality in the United States.

11 comments:

Colin said...

Before commenting on the article itself, I just have to say that I continue to be baffled by the leftist obsession with income inequality. While it is widely cited as a pressing problem, it is rarely explained why it should be regarded as some kind of threat. After all, shouldn't we be much more concerned with income from an absolute rather than relative perspective? I'll note that European countries, which typically have lowers levels of income inequality, also tend to be poorer (either from a standpoint of per capita or median income). How does that benefit them?

If we reduced the income of the poor by $5,000 but reduced that of the rich by $500,000 income inequality would be lessened, but would we be better off? Would it be preferable to live in a society where they average poor person made $10K and the average rich person $100K or one where the average poor person made $20K and the average rich person $300K? We don't raise the fortunes of the poor by taking down the rich.

To the extent the issue of why income inequality is a pressing concern it seems to be this part:

It breeds political polarization, mistrust, and resentment between the haves and the have-nots and tends to distort the workings of a democratic political system in which money increasingly confers political voice and power.

These are assertions without supporting evidence. Indeed, the topic of income inequality seems to have far more currency among academics such as Hacker and Pierson (Hacker, btw, is a founder of one of the sillier political initiatives I have come across of late) than among inequality's alleged victims. It certainly wasn't an issue that resonated in the most recent election. In fact, it seems to me that some on the left are frustrated by the lack of interest by the poor and lower middle class over the income inequality issue, as evidenced by Thomas Franks' book What's the Matter with Kansas.

As for money conferring political power, this would seem to be belied by misfortunes by well-funded candidates in CT, CA and WV.

For a much better look at the topic of income inequality I would recommend this paper by Will Wilkinson.

Colin said...

Before commenting on the article itself, I just have to say that I continue to be baffled by the leftist obsession with income inequality. While it is widely cited as a pressing problem, it is rarely explained why it should be regarded as some kind of threat. After all, shouldn't we be much more concerned with income from an absolute rather than relative perspective? I'll note that European countries, which typically have lowers levels of income inequality, also tend to be poorer (either from a standpoint of per capita or median income). How does that benefit them?

If we reduced the income of the poor by $5,000 but reduced that of the rich by $500,000 income inequality would be lessened, but would we be better off? Would it be preferable to live in a society where they average poor person made $10K and the average rich person $100K or one where the average poor person made $20K and the average rich person $300K? We don't raise the fortunes of the poor by taking down the rich.

Colin said...

To the extent the issue of why income inequality is a pressing concern it seems to be this part:

It breeds political polarization, mistrust, and resentment between the haves and the have-nots and tends to distort the workings of a democratic political system in which money increasingly confers political voice and power.

These are assertions without supporting evidence. Indeed, the topic of income inequality seems to have far more currency among academics such as Hacker and Pierson (Hacker, btw, is a founder of one of the sillier political initiatives I have come across of late) than among inequality's alleged victims. It certainly wasn't an issue that resonated in the most recent election. In fact, it seems to me that some on the left are frustrated by the lack of interest by the poor and lower middle class over the income inequality issue, as evidenced by Thomas Franks' book What's the Matter with Kansas.

As for money conferring political power, this would seem to be belied by misfortunes by well-funded candidates in CT, CA and WV.

For a much better look at the topic of income inequality I would recommend this paper by Will Wilkinson.

Colin said...

Beyond the broader point, here are some more specific observations:

* They portray American politics not as a democratic game of majority rule but rather as a field of "organized combat" -- a struggle to the death among competing organized groups seeking to influence the policymaking process.

What a great argument in favor of limited government! The less government controls, the less can be hijacked by special interests for their own ends. Of course this point likely goes completely over the heads of Hacker and Pierson.

* Moreover, they suggest, business and the wealthy have all but vanquished the middle class and have thus been able to dominate policymaking for the better part of 40 years with little opposition.

The wealthy have "vanquished" the middle class? What does this even mean? Given how sharply divided US politics are, I also don't get the part about little opposition.

* The economic crisis of the 1970s, which heralded the end of a generation of U.S. economic dominance...

Huh? US economic output since 1969 as a share of world GDP has actually held remarkably constant .

Colin said...
This comment has been removed by the author.
Colin said...

Beyond the broader point, here are some more specific observations:

* They portray American politics not as a democratic game of majority rule but rather as a field of "organized combat" -- a struggle to the death among competing organized groups seeking to influence the policymaking process.

What a great argument in favor of limited government! The less government controls, the less can be hijacked by special interests for their own ends. Of course this point likely goes completely over the heads of Hacker and Pierson.

* Moreover, they suggest, business and the wealthy have all but vanquished the middle class and have thus been able to dominate policymaking for the better part of 40 years with little opposition.

The wealthy have "vanquished" the middle class? What does this even mean? Given how sharply divided US politics are, I also don't get the part about little opposition.

* The economic crisis of the 1970s, which heralded the end of a generation of U.S. economic dominance...

Huh? US economic output since 1969 as a share of world GDP has actually held remarkably constant .

Colin said...

Beyond the broader point, here are some more specific observations:

* They portray American politics not as a democratic game of majority rule but rather as a field of "organized combat" -- a struggle to the death among competing organized groups seeking to influence the policymaking process.

What a great argument in favor of limited government! The less government controls, the less can be hijacked by special interests for their own ends. Of course this point likely goes completely over the heads of Hacker and Pierson.

* Moreover, they suggest, business and the wealthy have all but vanquished the middle class and have thus been able to dominate policymaking for the better part of 40 years with little opposition.

The wealthy have "vanquished" the middle class? What does this even mean? Given how sharply divided US politics are, I also don't get the part about little opposition.

* The economic crisis of the 1970s, which heralded the end of a generation of U.S. economic dominance...

Huh? US economic output since 1969 as a share of world GDP has actually held remarkably constant .

Colin said...
This comment has been removed by the author.
Colin said...

Beyond the broader point, here are some more specific observations:

* They portray American politics not as a democratic game of majority rule but rather as a field of "organized combat" -- a struggle to the death among competing organized groups seeking to influence the policymaking process.

What a great argument in favor of limited government! The less government controls, the less can be hijacked by special interests for their own ends. Of course this point likely goes completely over the heads of Hacker and Pierson.

* Moreover, they suggest, business and the wealthy have all but vanquished the middle class and have thus been able to dominate policymaking for the better part of 40 years with little opposition.

The wealthy have "vanquished" the middle class? What does this even mean? Given how sharply divided US politics are, I also don't get the part about little opposition.

* The economic crisis of the 1970s, which heralded the end of a generation of U.S. economic dominance...

Huh? US economic output since 1969 as a share of world GDP has actually held remarkably constant .

* But in the 1970s, it began to prove thoroughly inadequate for an era of globalization, deindustrialization, and economic dislocation... What deindustralization? US industrial output is significantly higher today than it was 20 years ago, and has only declined from its all time peak due to the recession. As the saying goes, the authors are entitled to their opinions, but not their own facts.

* Policymakers have repeatedly failed to enact reforms that would have accommodated new union-organizing techniques and empowered unions to counter the growing power of business to resist labor's demands.

I'm guessing that this is an allusion to card-check and the desire by unions to eliminate the secret ballot, which is disgusting. In any case, the enemy of unions aren't business but economic reality. Indeed, it is instructive that one of the few remaining areas of the economy that is highly unionized -- US autos -- is also where we find tremendous problems. Unions have sewn the seeds of their own destruction by enacting policies that undermine the competitiveness of the companies they work for. This explains why they have found about their only growth opportunity in the public sector, where they are free from the demands of the marketplace and can make absurd demands.

Colin said...

Beyond the broader point, here are some more specific observations:

* They portray American politics not as a democratic game of majority rule but rather as a field of "organized combat" -- a struggle to the death among competing organized groups seeking to influence the policymaking process.

What a great argument in favor of limited government! The less government controls, the less can be hijacked by special interests for their own ends. Of course this point likely goes completely over the heads of Hacker and Pierson.

* Moreover, they suggest, business and the wealthy have all but vanquished the middle class and have thus been able to dominate policymaking for the better part of 40 years with little opposition.

The wealthy have "vanquished" the middle class? What does this even mean? Given how sharply divided US politics are, I also don't get the part about little opposition.

* The economic crisis of the 1970s, which heralded the end of a generation of U.S. economic dominance...

Huh? US economic output since 1969 as a share of world GDP has actually held remarkably constant.

Colin said...

* But in the 1970s, it began to prove thoroughly inadequate for an era of globalization, deindustrialization, and economic dislocation...

What deindustralization? US industrial output is significantly higher today than it was 20 years ago, and has only declined from its all time peak due to the recession. As the saying goes, the authors are entitled to their opinions, but not their own facts.

* Policymakers have repeatedly failed to enact reforms that would have accommodated new union-organizing techniques and empowered unions to counter the growing power of business to resist labor's demands.

I'm guessing that this is an allusion to card-check and the desire by unions to eliminate the secret ballot, which is disgusting. In any case, the enemy of unions aren't business but economic reality. Indeed, it is instructive that one of the few remaining areas of the economy that is highly unionized -- US autos -- is also where we find tremendous problems. Unions have sewn the seeds of their own destruction by enacting policies that undermine the competitiveness of the companies they work for. This explains why they have found about their only growth opportunity in the public sector, where they are free from the demands of the marketplace and can make absurd demands.