Welcome to Income Inequality Kos.
Join us Thursdays, at 9:00 p.m. eastern. We discuss income inequality, concentration of wealth, and related issues.
Previous diaries in the series can be found by the tag Income Inequality Kos, or by a series history.
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Jacob Hacker and Paul Pierson: Winner-Take-All Politics
Concentration of wealth in America hit a peak before the Great Depression. It was brought down, and stayed steady for long decades under the New Deal political consensus. Concentration of wealth then began sharply rising in the early 1980s, at the time of the election of Ronald Reagan. It has been on the sharp upward climb ever since.
The upward rise is the result of government economic policy. Policy comes from politics. This diary is an overview of Jacob Hacker and Paul Pierson, "Winner-Take-All Politics: Public Policy, Political Organization, and the Precipitous Rise of Top Incomes in the United States":
The dramatic rise in inequality in the United States over the past generation has occasioned considerable attention from economists, but strikingly little from students of American politics.
The dramatic rise in inequality has prompted a huge outpouring of commentary and analysis. Until recently, however, most of this discussion has focused on the hypothesized economic roots of rising inequality: increasing global integration, rising returns to education, changing technology, heightened domestic competition, and so on. The relationship between American politics and the sharp rise in inequality, by contrast, has been notable for its absence.
This has started to change.
Purely economic accounts have three weaknesses:
(1) they downplay the distinctive feature of American inequality –namely, the extreme concentration of income gains at the top of the economic ladder;
(2) they miss the profound role of government policy in creating this "winner-take-all" pattern; and
(3) they give little attention or weight to the dramatic long-term transformation of the organizational landscape of American politics that lies behind these changes in policy.These weaknesses are interrelated, stemming ultimately from a conception of politics that emphasizes the sway (or lack thereof) of the "median voter" in electoral politics, rather than the influence of organized interests in the process of policy making.
Gains Have Been Highly Concentrated
As shown by Piketty and Saez (overview here), concentration of wealth in America is not evenly increasing, but is highly and further stratified at the top.
the real action is at the top, especially the very top.
We have a hyper-inequality of income, a hyper-concentration of wealth.
Gains Have Been Sustained
Redistribution of wealth towards the very top has been steady and sustained since 1980. Business cycles and political control have not much affected it:
the growing share of national income captured by the richest of Americans is a long-term trend that does not appear to be obviously related to either the business cycle or the shifting partisan occupation of the White House.
Gains Have Resulted in Few Trickle-Down Benefits for the Nonrich
This picture turns out to be stark: The bottom of the distribution went nowhere, the middle saw a modest gain, and the top ran away with the grand prize.
If household income had grown equally for all groups from 1979 to 2005, the share of wealth now would be very different. The huge gains of the very wealthiest come directly at the expense of those farther down:
Income group Difference per household ($) Difference for group ($)
------------ ---------------------------- -------------------------
Bottom fifth 5,623 richer per household 136 billion richer as a group
Middle fifth 10,100 richer 224 billion richer
Top 1 percent 597,241 poorer 673 billion poorer
Party Differences in Concentration of Wealth
Larry Bartels in Unequal Democracy argues that since World War II, Republican presidents have more or less consistently abetted inequality, while Democratic presidents have more or less consistently reduced it.
This analysis works at lower income levels. Lower levels do better under Democrats than Republicans. Party matters.
In other words, Bartels’s argument about partisanship boils down to the claim that those on the bottom portions of the income ladder do much worse under Republicans than under Democrats. This is an important insight—leaving open the question of whether it actually reflects the differing policies of Republican and Democratic presidents, as we discuss in a moment—but it does not directly address the issue of why growth has been so skewed toward the very top since the late 1970s.
But partisan analysis starts to break down at the higher levels.
Once we shift our gaze to the biggest fact about American inequality—the steady upward rise of the share of income going to the top 1 percent shown in Figure 1—a simple partisan story becomes much harder to sustain. Instead, something happened around 1980 that resulted in a fairly consistent upward trend in the fortunes of those at the very top, regardless of the partisan identity of the president.
Shifts in the Balance of Organized Interests Are a Major Driver of Policy Change
Concentration of wealth has been sharply rising since the 1980s. This time has also seen a very strong shift towards the influence of business and money on politics. Citizens United is a strong recent example of it.
The influence of business and wealth is becoming more concentrated and organized, the influence of labor and middle classes, of voters in general, is becoming more diffuse and less organized:
Gaining and using control over political authority requires organization. Influencing the exercise of government power in modern democracies necessitates a range of formidable capabilities: the capacity to overcome collective action problems, mobilize resources, develop extensive expertise, focus sustained attention, coordinate actions with others, and operate flexibly across multiple domains. By and large, these are the attributes of organizations, not discrete, atomized voters.
Government’s Reshaping of the American Economy
The increased control of business and wealth on politics has reshaped government economic policy to represent their interests:
Conclusion
Explaining the remarkable rise of winner-take-all requires a true political economy— that is, a perspective that sees modern capitalism and modern electoral democracies as deeply interconnected. On the one side, government profoundly influences the economy through an extensive range of policies that shape and reshape markets. On the other side, economic actors—especially when capable of sustained collective action on behalf of shared material interests—have a massive and ongoing impact on how political authority is exercised.
Recent economic accounts have missed the first side of this relationship. Conceptualizing government’s role in an excessively narrow way, they have attributed highly concentrated gains to impersonal technological forces. While this interpretation has some basis, neither the American experience nor comparative evidence suggests it can bear the weight that economists have placed on it.
Recent political accounts have missed the second side of this relationship. Conceptualizing politics and policy in excessively narrow ways, they have sought to sustain an explanatory focus on the median voter. Yet once the hyperconcentration of gains is recognized, and the policy dynamics more clearly outlined, appeals to the median voter look less and less like a plausible line of argument and more and more like a kind of deus ex machina.
Perhaps surprisingly, the limits of these accounts flow from a similar source. Too many economists and political scientists have treated the American political economy as an atomized space, and focused their analysis on individual actors, from voters and politicians to workers and consumers. But the American political economy is an organized space, with extensive government policies shaping markets, and increasingly powerful groups who favor winner-take-all outcomes playing a critical role in politics. Finding allies in both political parties, organized groups with a long view have successfully pushed new initiatives onto the American political agenda and exploited the opportunities created by American political institutions to transform U.S. public policy—through new enactments and pervasive policy drift. In the process, they have fundamentally reshaped the relative economic standing and absolute well-being of millions of ordinary Americans. Politics and governance have been central to the rise of winner-take-all inequality.