Destruction of the American Middle Class

Daniel Gross writing in The New York Times has an article on accelerating inequality in America.

INCOME inequality is a hot topic in politics and economics. The rising economic tide is lifting a bunch of yachts, but leaving those in simple boats just bobbing along.

Two professors — Thomas Piketty of the Paris School of Economics and Emmanuel Saez of the University of California, Berkeley — have found that the share of gross personal income of the top 1 percent of American earners rose to 17.4 percent in 2005 from 8.2 percent in 1980.

Many economists, especially those who find themselves in the Bush administration, argue that the winner-take-all trend is fueled by other, unstoppable trends. After all, globalization, information technology and free trade place a premium on skills and education. “The good news is that most of the inequality reflects an increase in returns to ‘investing in skills’ — workers completing more school, getting more training and acquiring new capabilities,” as Edward P. Lazear, the chairman of the Council of Economic Advisers, put it last year.

...

Aside from corporate compensation policies, public policies have played a significant role in contributing to the growth of income inequality. That’s the argument made in a recent, brilliant National Bureau of Economic Research working paper by Professor Levy and Peter Temin, the Elisha Gray II professor of economics at M.I.T. The paper, which is more narrative than quantitative — Professor Temin is a distinguished economic historian — argues that the rise of income isn’t simply a byproduct of the free market working its wonders.

...

Since 1980, they argue, it’s been a different story, thanks in part to a shifting political environment. Unions have weakened, the minimum wage hasn’t come close to keeping up with inflation, and marginal income tax rates have been cut — the top marginal rate is now 36 percent, down from 70 percent in 1980. A result has been declining bargaining power for workers and the rise of a winner-take-all environment.

“The last six years of federal tax history have involved an inhospitable politics in which winners have used their political power to expand their winnings,” the authors say. In other words, if capital has lately been prevailing in the centuries-long battle with labor, it is doing so with a substantial assist from the government.

There is more to the story - much of it along the lines of "the computers made us do it." I recommend reading the whole article.

Via Kevin Drum