Krugman on Inequality

| Mon Feb. 27, 2006 2:55 PM EST

We've argued before against the notion that income inequality in America is simply due to the fact that some "lucky" set of workers has the skills and education to flourish in the "new" economy while another, less fortunate, set just doesn't. Now Paul Krugman argues along similar lines today:

The 2006 Economic Report of the President tells us that the real earnings of college graduates actually fell more than 5 percent between 2000 and 2004. Over the longer stretch from 1975 to 2004 the average earnings of college graduates rose, but by less than 1 percent per year.
Even well-educated workers haven't necessarily been doing well in the "new" economy. But there has been economic growth over the past few decades. Lots of it. So who's receiving all the benefits? A "small oligarchy":

Advertise on MotherJones.com

A new research paper by Ian Dew-Becker and Robert Gordon of Northwestern University, "Where Did the Productivity Growth Go?", gives the details.

Between 1972 and 2001 the wage and salary income of Americans at the 90th percentile of the income distribution rose only 34 percent, or about 1 percent per year. So being in the top 10 percent of the income distribution, like being a college graduate, wasn't a ticket to big income gains.

But income at the 99th percentile rose 87 percent; income at the 99.9th percentile rose 181 percent; and income at the 99.99th percentile rose 497 percent. No, that's not a misprint.

The idea that this inequality can be fixed by improving education in America is simply wrong. For the past 30-odd years, the upper classes—the "small oligarchy" in Krugman's phrase—have been waging a conscious war against equality. Thomas Edsall's excellent 1985 book, The New Politics of Equality, chronicled this trend 20 years ago, halfway into the Reagan administration: "During the 1970s, business refined its ability to act as a class, submerging competitive instincts in favor of joint, cooperative action in the legislative arena."

In 1976, the top 1 percent in America had "only" 20 percent of the wealth, a sharp drop from 35 percent in the 1960s. Inflation was threatening to throw the rentier class down off the mountain. (Real wages, meanwhile, reached historic highs in those "bad old days.") But then the counterattack that Edsall describes occurred, and after ten years of "joint, cooperative action"—first the Volcker recession in 1979 (urged on by Wall Street), and then Reagan's attacks on organized labor, corporate regulation, and the welfare state—the "small oligarchy" had 40 percent of the wealth again. And now we're safely at the point were liberals are accused of "class warfare" whenever they suggest that maybe the Bush tax cuts are a bit excessive. It's a good racket.