There is little question about the phenomenon of American economic inequality. To date, the top one percent commands roughly 20 percent of US income, and there has been a massive transfer of income from the bottom 50 percent to the top one percent since 1980. The story is even more dramatic when one considers wealth, which constitutes the entirety of an individual’s assets and capital—today, the top one percent hoover up over 90 percent of all American wealth.
Both the dramatic state of American inequality and its omnipresence in contemporary discourse (on both the left and the right) are good enough reasons to pay attention to the issue. Yet I argue more needs to be done to decipher the complex causes of inequality into accessible text that can be widely decimated. That is the goal of this blog and a corresponding monthly newsletter called “The Difference Principle”. I’ll begin by first discussing the problem of inequality, and then I’ll turn to our goals with this blog.
Today’s consolidation of wealth is not unprecedented—the US was here once before, during the “Gilded Age” of the late 19th and early 20th centuries. As a new industrial elite emerged, a combination of stagnating working-class wages and elevated living costs made life harder for ordinary people. These same forces have been present today, although there are good reasons to believe the modern problem of inequality is worse. Since inequity began to increase in the mid-1970s, there have been effectively five major causes of inequality. Future blog posts will discuss these in further depth, but here are the basics:
First: a decline in unionization. Although unlikely to be chiefly responsible for the rise of inequality, the dramatic decline in organization from 1973 to 2007 from 34 percent to eight percent may among men seems to have increased wage inequality by 40 percent.
Second: globalization. The notion that trade and immigration have resulted in the outsourcing of America’s middle-class jobs abroad and the squeezing of low skill wages due to an influx of immigrants is widely discussed. Outsourcing to China alone can explain approximately 25 percent of the decline in American manufacturing employment, which has reduced the size of the middle-class. Yet, although a huge influx of low-skill and low-wage immigrants might theoretically result in wage suppression, evidence for this actually happening is scant.
Third: financialization. In 1950, finance made up only three percent of GDP, but today that is over nine percent. A combination of cheap credit, high APRs, wild speculation, exploitative securitization practices, the shift of risk onto consumers, and a lack of regulation have allowed the financial system to shift the balance of power in the US economy.
Four: bad policy. Still more important has been the impact of a shift in US redistribution policies. This includes, for example, the decline in the real value of the minimum wage, the shift of marginal tax policy in favor of lower rates for the wealthy (alone responsible for over a third of post-1970 inequality).
Five: technology. This has been the most significant force for higher inequality. Technological innovations have been at the center of every period of widespread inequity since the Industrial Revolution. From the 1970s onwards, about one-third of the rise of inequality is attributable to the effects of digital technology in spurring rising returns to high skill labor, shrinking the middle-class and leading to low-skill wage stagnation. Artificial intelligence now threatens to exacerbate these trends.
The US is doing little about this, and the causes of inequality are chronically underreported. As the Trump administration shifts its attention towards fighting trade wars, it has also passed an unfunded tax cut for the wealthy. Financial deregulation will aid in the expansion of speculation and the primacy of finance over the US economy. And the middle-wage jobs in manufacturing that Trump has reshored are already being automated away.
Yet massive economic inequality matters. It correlates perfectly with mobility, which is at the core of America’s promise to promote equality of opportunity and a capitalism that remains competitive. Higher inequality also correlates with a country’s homicide rate, depression rate, suicide rate, the prominence of drug use, and the shift towards radical and often intolerant politics. It also results in more costly economic recessions and lower rates of long-run growth. This is to say nothing of ethics and the notions of political justice that might provide ample reasons to resist inequality.
Unfortunately, the causes of inequality and the reasons why the middle-class has eroded remain obfuscated and shrouded within the caverns of academia and technical policy circles. And so the people who are most hurt by inequality remain separated from engaging with the mechanisms that promote inequality. This is why an essential job of public servants today ought to be explaining the complex ideas I have only briefly discussed here in a way that is accessible, transparent, well researched, and fit for a public context.
It is this vision of a more open and accessible discussion about both the causes and ramifications of inequality that inspires this blog. As a reader, you will receive access to interviews with prominent public figures on the issue as well as succinct explanations of important research or events that relate to inequality. Topics may include: trade, labor unions, student debt, artificial intelligence/digitalization, financialization, housing, and higher education, among others. By signing up to be notified when I publish, you will receive each post directly to your email.
The second service readers may freely sign up for is “The Difference Principle”—a newsletter all about inequality. Rather than featuring my own writing, this monthly newsletter will consist of quick surveys and summaries of important or particularly interesting developments in both news relevant to inequality and in research about it.
I hope this blog sparks your curiosity in studying economic and wealth inequity, and I am excited to curate content on such an important issue. Even more essential, however, is reader participation. Please comment, email, or generally write to me to tell me your thoughts on the blog! I hope that through discussion, we can bring forward the remarks, criticisms, and ideas that are so essential to a robust dialogue and in developing an innovative and bold response to the problem of inequality.