“To understand why people are so miserable about the economy,” Greg Ip recently wrote in the Wall Street Journal, “look no further than Thursday’s report on gross domestic product. Not how much GDP grew, but how it was divvied up.” Ip went on to document the growing divergence between wages, which are a declining share of national income, and corporate profits, which are taking an ever-larger share.
It’s not clear how much trends in the division of the economic pie between capital and labor — what economists call the factor distribution of income — are driving current economic discontent and anger. But there’s a growing public sense that the system is unfair and rigged against ordinary people. This sense partly reflects the reality that a rising share of economic rewards is going to shareholders as profits rather than to workers as earned income. It also reflects the fact that, even as a growing share of income accrues to wealth, within the growing upwards distribution of income within, there is growing concentration of wealth at the very top. In other words, a rising share of unearned total income is going to a very small number of people.
As a result, it is now widely recognized that the U.S. economy is far more unequal than it was a few decades ago. However much of the discourse about inequality is still stuck in the past — shaped by the perception that rising inequality is largely a consequence of greater inequality in paid income. According to the prevailing yet misguided story, rising inequality is due to higher earnings of those with more education.
That story was never entirely true even in the past. But to the extent it was ever true, it mainly explains rising inequality between around 1980 and 2000. Since then, and especially in recent years, the main story is one of rising oligarchy: more and more of the economy’s rewards are going to a small group that overwhelmingly derives its income from the assets it owns.
And the reality of rising oligarchy is important, not just for explaining current malaise, but for thinking about the possible implications for the future, especially the impact of AI.
Beyond the paywall I will discuss the following:
1. The old, earnings-based inequality: The big rise between 1980 and 2000, and its limited relevance since then
2. The economics of rising profits and stagnant wages
3. The growing concentration of wealth
4. Will AI produce an inequality apocalypse?
5. The political economy of oligarchy…