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Graduates versus Oligarchs Ben Bernanke's
maiden Congressional testimony as chairman of the Federal Reserve was, everyone
agrees, superb. He didn't put a foot wrong on monetary or fiscal policy. But
Mr. Bernanke did stumble at one point. Responding to a question from Rep.
Barney Frank about income inequality, he declared that "the most important
factor" in rising inequality "is the rising skill premium, the
increased return to education." That's a
fundamental misreading of what's happening to American society. What we're
seeing isn't the rise of a fairly broad class of knowledge workers. Instead,
we're seeing the rise of a narrow oligarchy: income and wealth are becoming
increasingly concentrated in the hands of a small, privileged elite. I think of Mr.
Bernanke's position, which one hears all the time, as the 80-20 fallacy. It's
the notion that the winners in our increasingly unequal society are a fairly
large group - that the 20% or so of American workers who have the skills to
take advantage of new technology and globalization are pulling away from the 80%
who don't have these skills. The truth is quite
different. Highly educated workers have done better than those with less
education, but a college degree has hardly been a ticket to big income gains.
The 2006 Economic Report of the President
tells us that the real earnings of college graduates actually fell more than 5%
between 2000 and 2004. Over the longer stretch from 1975 to 2004 the average
earnings of college graduates rose, but by less than 1% per year. So who are the
winners from rising inequality? It's not the top 20%, or even the top 10%. The
big gains have gone to a much smaller, much richer group than that. A new research
paper by Ian Dew-Becker and Robert Gordon of Northwestern University, "Where Did the Productivity Growth Go?,"
gives the details. Between 1972 and 2001 the wage and salary income of
Americans at the 90th percentile of the income distribution rose only 34%, or
about 1% per year. So
being in the top 10% of the income distribution, like being a college graduate,
wasn't a ticket to big income gains. But income at the 99th
percentile rose 87%; income at the 99.9th percentile rose 181%; and income at
the 99.99th percentile rose 497%. No, that's not a misprint. Just to give you a
sense of who we're talking about: the nonpartisan Tax Policy Center estimates
that this year the 99th percentile will correspond to an income of $402,306,
and the 99.9th percentile to an income of $1,672,726. The center doesn't give a
number for the 99.99th percentile, but it's probably well over $6 million a
year. Why would someone
as smart and well informed as Mr. Bernanke get the nature of growing inequality
wrong? Because the fallacy he fell into tends to dominate polite discussion about income
trends, not because it's true, but because it's comforting. The notion that it's all about returns
to education suggests that nobody is to blame for rising inequality, that it's
just a case of supply and demand at work. And it also suggests that the way to
mitigate inequality is to improve our educational system - and better education
is a value to which just about every politician in America pays at least lip
service. The idea that we have a rising oligarchy is much more disturbing. It
suggests that the growth of inequality may have as much to do with power
relations as it does with market forces. Unfortunately, that's the real story. Should we be
worried about the increasingly oligarchic nature of American society? Yes, and
not just because a rising economic tide has failed to lift most boats. Both history and
modern experience tell us that highly unequal societies also tend to be highly
corrupt. There's
an arrow of causation that runs from diverging income trends to Jack Abramoff
and the K Street project. And I'm with Alan
Greenspan, who - surprisingly, given his libertarian roots - has repeatedly
warned that growing inequality poses a threat to "democratic
society." It may take some
time before we muster the political will to counter that threat. But the first
step toward doing something about inequality is to abandon the 80-20 fallacy.
It's time to face up to the fact that rising inequality is driven by the giant
income gains of a tiny elite, not the modest gains of college graduates. http://www.truthout.org/docs_2006/022706Z.shtml |
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