Saturday, October 6, 2012

What's Mostly To Blame For Extreme Inequality In The U.S.?

Big structural changes like globalization and technology, according to the conventional wisdom. But Jacob Hacker and Paul Pierson develop an alternative theory in their book Winner-Take-All-Politics. In the book, they see political forces as the main culprit: both active legislation as well as the passive failure to update policy and regulations in light of changing economic circumstances ("drift"). Ten good facts I walked away with:

  1. Most analyses of inequality focus on two categories of people: the educated and the non-educated. But the category that really drives inequality statistics--mega-rich corporate executives--don't have notably higher levels of education. So education-based theories aren't sufficient.
  2. Other rich-world countries didn't experience the huge increases in inequality that the U.S. did. This points to a country-specific explanation, rather than global economic forces and technology.
  3. GDP per hour worked is a good measure because it partially corrects for the fact that much of the economic gains among lower- and middle-class people over the past 30 years have been from more toil. 
  4. The collapse of labor unions was a really huge contributor to ballooning inequality. The employer-based health and retirement systems in the U.S. meant industries with historically high unionization rates got screwed by "legacy costs", resulting in lower employment growth.
  5. Due to the many veto points in its structure, the U.S. government has historically alternated between periods of drift and renewal. Since 1977 we've seen mostly drift and little renewal.
  6. The conventional wisdom holds that the 1960s were the start of some crazy political death spiral, but by looking at actual government action rather than electoral narratives, we see that Nixon was pretty moderate and status quo, while Carter blocked tons of renewal opportunities and initiated many regressive tax reforms.
  7. It's ironic that new forms of regulation in the 1960s and 70s incentivized the formation of business groups (example: U.S. Chamber of Commerce), resulting in more lobbying and interest group policy access.
  8. The advent of television dramatically increased the costs of running campaigns; political giving by business promptly skyrocketed.
  9. Most contemporary interest groups have narrow memberships and missions, and focus largely on "post-materialist" themes like social justice. No broad champion of middle class pocket-book economic interests has emerged to replace labor unions.
  10. Page 159: "Polarization primarily reflects not the growing polarization of voters, but the declining responsiveness of American politicians to the electoral middle."

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