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Tuesday, October 19, 2010

Unequal Politics

Jacob S Hacker and Paul Pierson interviewed

by Sam Petulla

The American Prospect (October 01 2010)

With the distribution of income between the rich and the poor less equitable than at any time in recent memory, a slew of new books has come forth attempting to explain the phenomenon as not just an accident but the result of decades of policy-making. Winner-Take-All Politics: How Washington Made the Rich Richer - And Turned Its Back on the Middle Class (2010), the new book from Jacob S Hacker, an economist from Yale University, and Paul Pierson, a political scientist from the University of California, Berkeley, brings out the charts and combs the data in a swiftly written political history that shows why we're where we are and what crippled our government's ability to deal with it.

The Amerian Prospect ("TAP") caught up with Hacker and Pierson to talk about their income-disparity analysis, criticisms from around the blogosphere, and the kind of politics needed if someone's going to start standing up for the middle-class.

TAP: So the rich are getting really rich now. How did that help put us in the economic situation in which we find ourselves?

PP: The focus of this book is on [the] long-term economic crisis rather than the immediate economic crisis that we're facing, which we see as a symptom of a broader problem - the dramatic shift in the way the economy seems to be geared towards the concerns of those at the very top. So, for example, some authors deal with how inequality itself yields a financial bubble, and we focus on the politics of financial deregulation and how that played into the current crisis.

The main focus of the book is on this longer-term imbalance in the economy and the politics of how that was constructed.

TAP: Matt Yglesias criticized the book, saying that there may not be as strong a link between stagnating middle-class wages and inequality as you would have us believe. Your thoughts?

JH: I think it's wrong to think that the stagnation of middle incomes is separate from rising inequality. From a simple mathematical perspective, the fact that over the 1979 to 2007 period almost forty percent of after-tax income benefit gains {*} have gone to the richest one percent of Americans can't but have an impact on the rest of society, as we show in the book. Essentially, no one below the top ninety percent has experienced household income gains commensurate with the average growth of household income over this period, and a lot of other scholars have shown that productivity gains have been strong but that they have not gone to the middle.


The real puzzle of our book is why over a generation in which we've seen the middle class fall further and further behind those at the very top - with consequences not just for their incomes but for their economic security, for their chances of economic security, and for their financial wealth holdings - why, over that period, we've seen the middle-class lose so much apparent political clout as well as apparent economic clout. And I think a key illustration is that the current debate over tax cuts that's taking place may end with neither the upper-income tax cuts nor the middle-class tax cuts getting passed before the elections because there's such a strong commitment on the part of Republicans and a handful of Democrats to pass big tax cuts for millionaires - so much commitment that they're willing to hold middle-class tax cuts hostage.

TAP: Those reading this might jump to the conclusion that a quick fix is to simply let the tax cuts for the wealthy expire and be done with the problem. Is it that simple?

PP: Taxes is a big one, and people do not fully appreciate even now how much the distribution of taxes has changed in the United States and what a significant contribution that's made to the improving relative economic position of those at the top. But there's also what's happening to financial regulation, which has had a huge effect over the distribution of income, where you'd want to see important reforms, and also what's happened to executive pay and CEO compensation where there's just been an explosion of the benefits of economic growth going to those at the very top.

We think the most important contribution of the unions is they give some kind of expression to the concerns of ordinary Americans in all these policy areas. So some people who have discussed the book have said, "We don't think the decline in unions in itself makes that much difference for inequality". But that's because many of these critics don't focus on the political side of the story and how important it is that there be some counterweight, some countervailing power in Washington on all these public-policy issues that can push back on the growing tendency in Washington to focus on the growing concerns at the top.

TAP: In the mid 2000s, there was a lot of discussion on the left about whether focusing on identity politics displaced the left's energy toward class politics and whether that contributed to the rise in wealth inequality. What can we learn from your book to help create a politics focused on economic justice that doesn't neglect race and gender?

JH: I think there's no question that the way in which the Democratic alliance has evolved over the last generation has involved a conflict between the post-materialist identity concerns of the New Left and the more traditional bread-and-butter, lunch-pail concerns of the old left. And I think there's very important work done by scholars to show that as middle-class professional voters have become more important in shaping the Democratic coalition - in part because of their role as contributors - that the party as a whole has shifted more strongly to these post-material concerns and neglected these more traditional economic concerns. But I agree that there's no inherent conflict between emphasizing economic inequality and disadvantage on the one hand and the special problems facing racial minorities and other groups on the other.

The challenge is to construct a compelling political narrative and organizational coalition around the broad concerns of the middle class, and so far that has proved to be a really difficult challenge for Democrats to realize.

TAP: The main criticism of your book in the blogosphere seems to be criticism levied at the data you rely on, less than on your analysis of the data. What do you say to them?

JH: The main source of data we use to look at the change in the distribution of income since the late 1970s is the Congressional Budget Office's ("CBO's") effective federal tax rates dataset. It's based on a combination of Census Bureau statistics and income-tax data to which the CBO has unique access, and it shows a very sharp skew towards the very top as well.

So at this point, I think these debates about the share of income going to the top tenth of one percent has tripled or quadrupled are really beside the basic point. There's been an irrefutable dramatic increase in inequality since the 1970s. That increase is driven by the increase in the concentration at the very top. All the data suggest that. And that increase is sustained. It's not just a blip that occurs in the wake of the 1986 Tax Reform Act or in a few years in the 1990s.

Using the CBO data, more than fifty percent of all of the after-tax, after-benefit household income gains during the expansion of the 2000s went to the richest one percent of the population. That transformation is irrefutable, and it has enormous consequences to American society, and what we're trying to show in this book is it's not an inevitable response to globalization or technological change or other broad economic shifts but directly a result of what government has done and not done in response to economic and social changes. And the central role of government in this transformation means that there is scope for changing it, and that if we recognize that politics and policy play a central role, then we can work to change politics and policy to create a more just and fair society.


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