Sunday, January 4, 2015

US Inequality Over the Long-Term

Stephen Rattner has some very revealing graphics in his Year in Charts. Despite the title, it is the longer-term trajectories of some key economic and political variables that are most interesting.

The top 1 per cent and 0.1 per cent of income earners in the United States have seen their share of income return to the level before the Great Depression.

The rise in inequality has been profound in the past 4 years. 

A major factor in US inequality is that government does less to improve social outcomes.

How US politics and policy reacts to this will matter a lot for Americans and the rest of the world. Clearly US politics is becoming more polarised. 

A backlash against globalisation - from the right or left - would negatively affect the progress of globalisation throughout the world. A shift towards protectionism in the United States would also affect the economic strategies of export-oriented economies everywhere. US consumer demand is very important for the world economy (and for China and the Asian production structure more generally). Increased protectionism in the United States would also encourage protectionist responses in Europe and perhaps in Asia as well. While Asian demand is now more important for Asian production, North America and Europe remain vital sources of final demand. 

Thinking along these lines reminds me of the work of Karl Polanyi and his explanation for the Great Depression. Polanyi argued: 

Our thesis is the idea of a self-adjusting market implied a stark utopia. Such an institution could not exist for any length of time without annihilating the human and natural substance of society; it would have physically destroyed man and transformed his surroundings into a wilderness. Inevitably, society took measures to protect itself, but whatever measures it took impaired the self-regulation of the market, disorganized industrial life, and thus endangered society in yet another way.
Karl Polanyi (1957[1944]) The Great Transformation: The Political and Economic Origins of Our Time, Boston, Beacon Press, p. 3 
I suppose the real question is: how much inequality can the the United States bear? It seems like quite a lot.

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