Friday, March 04, 2011

Income inequality as public policy

In their new book, Jacob Hacker and Paul Pierson point to public policy as the source of income inequality and the growing economic pressure on the middle class. And there is very good reason for the middle class -- even, or especially, those not members of a union -- to pay attention to events in Wisconsin, Ohio, and Indiana.

Mr. Hacker: We’re certainly not arguing that changes in the balance of power are the only cause of inequality and stagnating wages. The college premium has indeed grown, though it’s hard to see how this accounts for the most striking and distinctively American development – namely, the extreme concentration of economic rewards at the very, very top of the economic ladder. Most of those who have a college degree haven’t shared in the really big gains experienced by the top 1 percent or top 0.1 percent (average 2007 income: $7 million), which has seen its share of income more than quadruple since the early 1970s.

The big question is whether these outsized rewards could have been distributed more broadly given different economic policies. We’re convinced the answer is yes. The key to getting the answer right, we argue, is to look beyond the economics of rising inequality to examine the politics. Much of our book traces how major changes in policies governing finance, corporate governance, taxation, and industrial relations helped fuel the “winner-take-all economy.” These changes, we show, directly reflected the declining clout of middle-class voters and unions relative to a much more organized and mobilized corporate sector.

Mr. Pierson: We need to think more broadly about what shapes markets and the distribution of economic rewards. For instance, economists generally err in thinking that unions influence the income distribution mostly through direct negotiations with employers. Instead, we argue the most important role these forces play is to create some organized countervailing pressure in Washington. Cross-national research suggests that strong labor unions are associated with greater government redistribution through taxes and transfers. The United States is one of only a handful of countries where government taxes and benefits have become less redistributive as inequality has grown.

And failure to compensate for rising inequality through taxes and benefits is only the tip of the iceberg. From industrial relations policy to regulation of executive pay to financial deregulation, policy makers either remade markets in ways that encouraged inequality or stood on the sidelines (despite plenty of complaints and clear alternatives) as changes in the market outran existing policy rules. Especially after the financial crisis, it’s hard to deny that some of the big policy shifts that enriched those at the top have contributed substantially to the hardships faced by the middle class.

Conservative Republican crusades against collective bargaining and for making union dues "voluntary" and making it illegal to take public employees' union dues directly from their paychecks aren't about reducing deficits. They are about depriving unions of their members and their members' dues. They are about eliminating union clout as a countervailing political force against corporate control of public policy. And we are all -- or at least 99% of us -- victims of that.

And, the authors argue, the Republican party is no longer "conservative." It is radical in its ideas about economics, and that, along with the filibuster, have made financial reform all but impossible.

UPDATED for clarity

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