The emergence of economic inequality as a public policy issue grew out of the wreckage of the Great Recession. And while it was protest movements like Occupy Wall Street that brought visibility to America’s glaring income gap, academic economists have had a near monopoly on diagnosing why it is that inequality has worsened in the decades since 1980.
Monopolies rarely deliver outstanding service, and this is no exception. The economics profession is fond of believing that its theorizing is an impartial, value-neutral endeavor. In actuality, mainstream (‘neoclassical’) economics is loaded with suppositions that have as much to do with ideology as with science.
Take the distribution of income, which economists argue is (in the final analysis) a consequence of production. Whether one earns $10 per hour or $10 million per year, the presumption is that individuals receive as income that which they contribute to societal output (their ‘marginal product’). In this vision, the free market is not only the best way to efficiently divide the economic pie, it also ensures distributive justice.
But what if income inequality is shaped, in part, by broad power institutions—oligopolistic corporations and labor unions being two examples—such that some are able to claim a greater share of national income, not through superior productivity, but through market power?
In a study recently published with the Levy Economics Institute, I explore the power underpinnings of American income inequality over the past century. The key finding: corporate concentration exacerbates income inequality, while trade union power alleviates it.…
… if we are to meaningfully confront the dual problem of secular stagnation and soaring inequality we must begin to understand the role that power plays in driving these trends.Economics
Concentrated Power Drives Extreme Income Inequality and Slows Economic Growth
Jordan Brennan, economist for Unifor, Canada’s largest private sector labor union
Lessons from the Leading Game Theorist — Interview with Robert Axelrod
Eric Michael Johnson