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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