Issue #20, Spring 2011

The “Hood Robin” Economy

No one can agree on the causes of inequality, but its effects are indisputable: more policies that benefit the already rich.

But what worries me is that even that political system might not have responded effectively. And that’s at least in part because, for all the books written and all the peers reviewed, we’re still having trouble saying just what, exactly, is causing all this—and that makes the problem quite a bit harder to fix.

At this point, I’d say there are four good places to look for answers. One is where Hacker and Pierson focus their energies: Whatever our eventual conclusions on inequality, we’re going to have trouble acting on them if the political system can’t bring itself to care about the average American a little bit more. A second is the education system: Arguably the only persuasive explanation for what’s happened to median wages is that educational attainment leveled off in the 1970s, even as the demand for educated workers increased. Economists Claudia Goldin and Lawrence Katz estimate that this explains two-thirds of the rise in inequality, and importantly, explains it on the side of median-wage stagnation, which is what we’re most worried about. Even if that estimate is a bit high, boosting educational attainment would still be a good place to start.

Then there’s the financial system. Insofar as anything explains the run-up in the incomes of the very rich, it’s the increasing financialization of the economy. And if you look at profits in the financial sector, you’ll see, among other things, an incredible rise between 2002 and 2007, and then a sharp rebound after the crash. That rise was an illusion: It was a bubble that would’ve taken down most every bank on Wall Street and most every person in the market if the government hadn’t aggressively stepped in to save the financial system. But the government did aggressively step in, and it recapitalized the banks by giving them cheap money that they could use to make more money and get everyone’s stock portfolios healthy again.

This was probably a good thing for a lot of reasons (a world without financial markets looks more like Mad Max than it does like 1973), but the reality is that the federal government and the Federal Reserve brought overwhelming force to their efforts to save the financial market and underwhelming force to their efforts to save the labor market. And so the rich are getting richer again, but unemployment remains above 9 percent. There’s little we can—or even should—undo here, but we at least need to recognize what it is that we keep doing: green-lighting the policies that make the rich richer or, in the case of the crisis, keep them rich, while dithering and drifting on the problems and needs of the vast middle. Watching House Republicans talk about repealing the health-care law even as bankers are back to getting their pre-crash bonuses is just the latest evidence of our grotesque priorities. I don’t know how you solve the problems of inequality or median wage stagnation, but it’s not like that.

And finally, we need to recognize that Americans haven’t accepted the status quo. Rather, they’re unaware of it. Behavioral economist Dan Ariely and psychologist Michael Norton recently asked people to estimate wealth inequality in this country. As it happens, most Americans think wealth is distributed vastly more equally than it actually is, and yet they would like something more equal still: When given a choice between various options, they chose the one most closely resembling Sweden, followed by the world in which every quintile has exactly 20 percent of the wealth. Only 10 percent chose our world. But the problem, as Hacker and Pierson point out, is that the political system isn’t listening. It’s time it did. The fact that we don’t quite know how to solve inequality and median-wage stagnation doesn’t make the situation any less urgent.


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Issue #20, Spring 2011
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Economics is not a zero-sum game.

Mar 17, 2011, 11:00 AM
David A:

Wait-I'm confused. I thought Robin Hood robbed from the rich to give to the poor?

Mar 17, 2011, 11:47 AM

No mention of financialization? If normal wages do not account for changes in money flow, then investment wealth must.

Overall find it a bit silly that the article only considers the various answers in isolation... A lonely exercise in taking a complex problem and searching out its simple (and incorrect) solution.

Mar 17, 2011, 1:56 PM

What's missing from this picture? Sociology, in the sense that the workings of society have changed in the last half-century or so. The family isn't what it used to be. Women compete for top jobs (and sometimes get them).
"Flexibility" in family, jobs and retirement separates us from the homes of our youth and working years. Thus the most successful need not bother with the local communities in which they spend time (when not travelling or visiting their second or third homes). Care about public education and community values suffers. We have no determination to fix immigration or other social ills because those most capable of leadership have separated themselves from their original communities and, too often, their first families.

Mar 17, 2011, 4:54 PM

Excellent analysis!

Very eye-opening.
I agree that we are asking the wrong questions, thereby never getting close to any solutions.

But "the people" being unaware?
THAT is beginning to change! Thanks - Republican Governors and the House GOP! (You should not have been So blatant and So greedy So quickly - "we" would have stayed asleep.)

What, if anything, "the people" can "do" about bringing solutions remains to be seen....

But what we DO know is, "No Justice, No Peace!"

Mar 17, 2011, 5:09 PM

If the problem is the leveling off of educational attainment then there would have to be no such leveling in Germany, Japan, France, The Netherlands, Switzerland, and Sweden.

Mar 18, 2011, 12:53 AM
Birger Braadland:

BB: A great difference may be the amount of credit for consumer goods and housing. The total payment i greatly increased giving the financial sector unduly slices of the total cake. Why are indian farmers so poor and monylenders rich? Do swiss or german youth by the dreams on credit?

Mar 18, 2011, 4:36 PM

I think much can be attributed to the rise in personal credit and the increasing ease with which it was obtained since the 1970s. 'Business' played a huge trick on the masses--made them feel rich through easy borrowing and thus quieted their demand for actual income. Meanwhile, rich people tend to be those who collect interest from others, and with more and more credit you've widened and deepend the river of passive income flowing from the lower 3/4 to the highest segment.

Mar 21, 2011, 2:49 AM

David A - That's correct. That's why the title is "Hood Robin" and not "Robin Hood."

Matt - That's why it's winner-take-all "politics" and not "economics."

Mar 23, 2011, 7:17 PM
Suzanne Lainson:

Can we hope that as a new generation of very wealthy grow into economic power they might have different priorities in DC? Let's assume that politicians only make policy that appeals to their wealthy contributors. But at some point there is going to be a generation of wealthy contributors who fully support clean tech and who may be making their money from it. And there might be new wealthy patrons who have no ties to the current health care industry and will look for ways to bring down costs. And there are already wealth entrepreneurs lobbying for changes in immigration laws to allow more talent to stay in the country.

By the time DC responds to these changes China will have firmly established itself as the leader in many areas, so the impact may be lessened. And by that time the US will be very multi-cultural and the Tea Party supporters will have died off, so it won't be the same country anyway, but perhaps the course we are currently on will change.

Mar 24, 2011, 2:40 PM

I hate to say it, but, third world skills, third world wages. What value do you provide that any other hardworking person in this world can't? Do you really have special skills, or knowledge? Think about it - carefully.

Mar 24, 2011, 4:02 PM

Sure, the data on the rich are pre-tax, but if I'm rich, I've already calculated my tax liability and the lower it is (or has been historically) then the more I can budget to put into my pocket for the coming year.

Apr 6, 2011, 1:38 PM

I've never been too convinced that the fact that inequality is measured in pre-tax income disposes of the argument that tax reductions are part of the cause of inequality.

That may be true for contemporaneous association. but if you allow for a lag increasing post tax income through the dramatic top-rate reductions that occurred, must increase private investment capacity and hence future pre-tax incomes.

Apr 9, 2011, 11:09 PM

Faith of human dignity is main character to equality.

Jun 7, 2011, 9:03 AM

I think this is a fresh look at the problem.

A problem that everyone sees but no one seems to know where it comes from.

It seems that many Republican representatives have been participating in a parallel government, named "Alec" to get not votes, but money for political campaigns, while Rupert Murdoch has been running a private intelligence agency.

If US defaults on its debt on the instructions of the parallel goernment, I hope someone will agree on the need to develop new instruments to analyze the state of the world.

Jul 18, 2011, 2:16 PM
Mark A Wichterman:

Althougah Klein, Pierson and Hacker don't say it, I will: the political climate has changed because our once presidents, congresspersons and judges with integrtiy have become money whores. Courts have defined money as speech and coorporations as people. This Orwellian linquistic larceny has changed the political landscape. Another major player (and Klein only mentions it but does not do its significance justice) is health care costs. Again, politics at play. The differance between the "60s and '70s and today is the privatization of health care. Back then, hospitals, retirement homes, etc were not for profit entities. You buy politicans, they change the playing field and...the mess today. leftbank

Jul 18, 2011, 10:25 PM

Yes David A, Robin hood does steal from the rich and give to the poor... if you read carefully though, you'll notice the title says "Hood Robin"

Nov 18, 2011, 1:24 PM
Terry Baker:

You might think Chicago School Economics would be apologizing for their phony baloney take on How Wealth Gets Generated And Maintained, but I notice mostly that's not happening. And Trickle Down Economics generally being in worldwide laughingstock status, Our Right Still Clings To That Old Mythical Rock. And gives as good medicine the advice that we require MORE OF THE SAME. I will notice that moving capital overseas has had a more profound impact than given here. And of course removing income from working people and their families and redistributing it at the topmost economic tiers has in effect been killing our economy besides...the idea that this is somehow mysterious, too complicated for anyone to understand, reminds me so much of the pretense that Banksters were as much a victim of The Big Fall (which they in fact caused) as the rest of the world. Hood Robin laughs and continues massive set ups that generate public purse debts that might attach to a major war and no political recourse seems viable except that of the streets. Our ordinary public government having been largely turned into a corporate lackey, only broad based and possibly revolutionary change offers as any alternative...perhaps.

Jan 9, 2012, 2:06 PM
david :

yay for neoliberalism

Nov 3, 2012, 3:48 PM

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