Thanks to Lee for pointing me to this “very interesting survey article”:http://chronicle.com/temp/email2.php?id=Y5n2NbvrRMzF9kHkbFtyhnNhGqKvmws9 (liable to linkrot after five days) in the _Chronicle_ on the political economy of inequality in the US.
bq. Is income inequality due to economics, politics, or some interplay between the two? Some pundits are tempted to look inside the Beltway for a cause, but the case is hard to make,” wrote the Harvard economist N. Gregory Mankiw in an April column in The New York Times. … our new society results from a massive shift in income returns to education. … But economics can’t give us the whole picture. There is, after all, a fundamental political puzzle here. How does it happen that a democratic citizenry will tolerate increasing income inequality without pushing for a systematic response — something more than the recent flood of phone calls and e-mail on Capitol Hill over the Wall Street bailout?
bq. To illuminate that puzzle, we should turn to the Princeton political scientist Larry M. Bartels’s book, Unequal Democracy: The Political Economy of the New Gilded Age. … Bartels’s book challenges not just economists like Mankiw who caution against looking inside the Beltway for explanations of income inequality. It also questions the way many political scientists view the politics of macroeconomic performance. Many political scientists have reasoned that because the Fed is independent, macroeconomic performance cannot be politically engineered to decisively help one party or the other. … voters are also myopic. In judging economic performance, they take into account only quickly accessible information from the very recent past. n contrast, Republicans, who have their own characteristic macroeconomic preoccupations, throw people out of work in Year 2 in order to reduce inflation. That causes a general economic slowdown but also increases incomes disproportionately for the wealthiest. Republicans also happen to preside over strong GDP growth in Year 4. In contrast, Republicans, who have their own characteristic macroeconomic preoccupations, throw people out of work in Year 2 in order to reduce inflation. That causes a general economic slowdown but also increases incomes disproportionately for the wealthiest. Republicans also happen to preside over strong GDP growth in Year 4.
bq. Nolan McCarty, Keith T. Poole, and Howard Rosenthal, in Polarized America: The Dance of Ideology and Unequal Riches, focus on why rational voters do not halt rising income inequality and correct it with redistributive public policy.McCarty and colleagues emphasize the role of immigration in weakening citizen support for unemployment insurance and increased minimum wage. Political inaction is reinforced, they persuasively suggest, by the ideological polarization of the political parties and frequent recurrences of divided government.
In fairness to Mankiw, there are still substantial gaps in the politics-led account of increasing inequality. Bartels and McCarty, Poole and Rosenthal have substantially advanced our understanding of the relationship between voter attitudes and inequality. But what we still lack is a precise account of the mechanisms through which government policies have increased inequality. One possible explanation, advanced by James Mosher in a “2007 article”:http://pas.sagepub.com/cgi/reprint/35/2/225 (sub required) for _Politics and Society_ is union power. US government policy has demonstrably made it harder for unions to organize workers, and Mosher uses data over time to argue that this in turn may help explain rising wage inequality. This seems to me to be an useful first step – but only a first step. While, as Paul Krugman (who used to believe in the skills-based inequality story and has now changed his mind) argues, the mechanism of changing-returns-to-skills doesn’t provide a good overall explanation of what seems to have happened over the last couple of decades, we still need better-developed alternative explanations of what actually has been going on.