Globalization and technology have increased rewards at the top - two
areas there would be little support for curtailing or limiting.
Facing the economic reality of redistribution through taxes is most
evident in NY and Calif. It simply is not working.
So why are earners at the top doing so well lately? Two forces —
globalization and advanced technology — have combined to heap enormous
rewards on the top of the income distribution.
Expanding markets for more services and products drove up rewards.
Lesson: you cannot overlook immigrants affecting the lower quintile.
Occupy Wall Street supporters are claiming credit for at least one
political accomplishment: elevating the issue of income inequality to
the top of the national conversation.
The Occupiers are right about American incomes: They've definitely
grown more unequal. But this fact presents three inconvenient truths for
the Occupy Wall Street movement.
First, let's look at the top end of the income ladder. It's true
that the rich — especially the top 1% — are getting richer, widening the
gap between the top earners and everyone else.
So why are earners at the top doing so well lately? Two forces —
globalization and advanced technology — have combined to heap enormous
rewards on the top of the income distribution.
We can see the effect most clearly on display in the bluest parts of
the country: in the financial corridor that runs from Boston through New
York and Philadelphia to Washington and includes outposts like Chicago
and Santa Monica; in the technology clusters of deep blue Seattle, San
Francisco and the Silicon Valley; and in the entertainment hubs of
Hollywood, Nashville and Manhattan.
Expanding markets for more services and products drove up rewards.
Expanding global markets for financial services mean the rewards for
those at the top of the Wall Street heap are much larger than they were
a generation or two ago. The same goes for gigantic worldwide markets
for technology products such as software and computers, and
entertainment goods such as music and movies.
The phenomena driving this wealth explosion go by various names —
"winner-take-all markets," "superstar economies" and the like. Spend
time in Greenwich or Chevy Chase or Portola Valley or Malibu and it is
impossible to deny that thanks to these effects, the top 1% is doing
spectacularly well.
What makes this truth inconvenient is that the proposed remedy — tax
these haves and redistribute that income to the have-nots — has an upper
boundary. Indeed, blue states such as California and New York, where
these superstar effects are most pronounced, are already trying to
remedy inequality with some of the highest state income taxes in the
country, and they have bumped up against the limits of economic reality.
It's telling that New York Gov. Andrew Cuomo has been a staunch
critic of new tax increases, including on the wealthy, saying recently
that "you are kidding yourself if you think you can be one of the
highest-taxed states in the nation, have a reputation for being
anti-business — and have a rosy economic future."
What about at the lower end of the income distribution? Here too,
some hard truths complicate matters for liberal supporters of the Occupy
movement.
Consider immigration. There is little doubt that adding lots of
unskilled immigrants to the labor pool depresses the wages of the native
born at the low end of the income distribution.
Reasonable people can disagree about how many immigrants the country
should welcome (I'm in the pro-immigration camp). But liberal supporters
of Occupy Wall Street, many of whom have expressed solidarity with
undocumented workers, must reconcile the fact that their embrace of
large-scale immigration of unskilled workers is a driver of the
inequality they denounce.
Inconvenient truth: that allowing unskilled workers to enter the country is a driver of inequality.
A third dynamic widening income disparities is in some ways the most
inconvenient of all: the collapse of intact families. The explosion of
out-of-wedlock births and of children living outside of two-parent
households has widened economic disparities of all kinds, including
income.
The reason is straightforward. The role that human and social
capital plays in helping a person generate income in an advanced economy
has increased over the last half a century. And over that same time, the
primary institution for inculcating human and social capital has badly
weakened.
Social scientists routinely find that individuals raised in intact
families are generally better equipped to thrive in the economy.
Today's 99% is teeming with tens of millions of Americans who were not raised in
a stable home environment, and their earnings potential is compromised as a result.
The problem of family breakdown doesn't lend itself to easy fixes.
And its cultural roots run quite deep at this point. But it's a safe bet
that in the several months they occupied Zuccotti Park and other public
spaces, not one new idea was raised by Occupiers that would help arrest
this driver of increasing income inequality.