Income Inequality (Nefarious Politics Edition)

I am currently finishing up Jacob Hacker and Paul Pierson’s fantastic Winner-Take-All Politics: How Washington Made the Rich Richer and Turned Its Back on the Middle Class. If Piketty and Saez give us the who of income inequality (that it is driven primarily by the overwhelming share of income going towards the top 1% and top 0.1% of the population), Hacker and Pierson give us the how, why, when and what. It is one of the best books I have read this year and easily one of the most important; it also stands as a superb example of how quality political science work can be made easily accessible. Seriously, buy and read this book, even gift it to someone for Christmas (particularly if they happen to be celebrating it in Zuccotti Park). I hope to post a review and summary at some point in the future. With #OccupyWallStreet and upheavals by the 99% against the 1% being hot topics now, is as relevant a book as any other out there. Plus, it has pretty charts.

Early on in the book, Hacker and Pierson confront the skeptical view that government cannot influence the earnings people receive before taxes and before receiving any benefits. This is crucial to their central premise that political decisions have been responsible for the rise in income inequality in the United States, since the data shows that this inequality is chiefly driven by divergences in pre-tax earnings. Hacker and Pierson provide a few rebuttals, including the following:

Skeptics suggest that the only way government can change the distribution of income is through taxation and government benefits. This is a common view, yet also an extraordinarily blinkered one. Government actually has enormous power to affect the distribution of  ”market income”, that is, earnings before government taxes and benefits take effect. Think about laws governing unions; the minimum wage; regulations of corporate governance; rules for financial markets, including the management of risk for high-stakes economics ventures; and so on. Government rules make the market, and they powerfully shape how, and in whose interests, it operates. This is a fact, not a statement of ideology. And it is a fact that carries very big implications [Pp. 44; emphases added].

Some examples of just how political actors can work in subtle ways to affect pre-tax income are found in this long post at Naked Capitalism by Matt Stoller, on how the Fed fights. For instance:

…the pattern, of promising crackdowns [on the Fed] while delivering little, is consistently [sic]. While year [sic], Barney [Frank, D-MA] introduced a bill to make the powerful President of the New York Fed a Presidential appointment instead of hired by banks on the Reserve Bank board, he actually killed such a provision during the conference negotiations over the final Dodd-Frank bill (when it would have mattered and structurally changed the Fed in a critical manner). This is just part of the posturing that goes on around policy reform – being loud against powerful interests when the vote isn’t being held, and then using that posture as a negotiating chip to get something else you think is important when the game is on the line.

Set aside twenty minutes and go read the Stoller post in its entirety; at the end of it, you could be forgiven for having neo-Austrian sentiments coursing through you. The broad point is: Washington has worked and continues to work in subtle ways to perpetuate and entrench income inequality trends in this country. But don’t just take my word on it. Go read Hacker and Pierson.

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