The Great Divergence

8 Things About The Conscience of a Liberal #4
What I Learned from Paul Krugman's The Conscience of a Liberal

(B)y the late 1980s something astonishing was happenning in the upper reaches of income distribution: The rich were pulling away from the merely affluent, and the super-rich were pulling away from the merely rich.

The post war boom following the Great Compression would last until the 1970s when the American economy became stagnated in the face of rising oil prices. Still, income inequality was no different than it had been during the fifties. It was still under control. Then Ronald Reagan was elected and the dismantling of the New Deal ... the ending of the great economic leveling of the Great Compression began. The "middle-class America" was lost.

Despite little evidence, many claim that the divergence was a result of demand for skilled labor. There are those who blame the income inequality on immigration. (It is certain that immigration has dropped wages around 5% for high school dropouts, and has dropped wages slightly for high school graduates, but the net effect for college graduates has been a positive.) Still, there doesn't seem to be a purely market based explanation for what occurred. Not a convincing one. Not one that could be believed by anyone other than a wingnut. A more likely explanation is a change in norms and institutions.

First, there was the explosion of executive salaries. This was the dawn of the era of the celebrity CEO and there were seemingly no limits to the compensation they would take from their companies. I mean, they had to be worth it. They were suddenly on the cover of all the business magazines. These executives were the new super-rich, and no longer was the wealth of the super-rich predicated on returns on their large amounts of capital, they were now receiving paychecks (oaychecks!) in the many millions of dollars, with no contingencies for performance. It's a corporate trend that continues to this day.

Secondly, there was the collapse of the American union movement. You see, not only did executive salaries balloon beyond all comprehension, but the pay for the average American would stagnate, or in some cases, fall. The evidence points to the collapse of the union movement as the primary factor in the destruction of the wages of the American worker. In the 1960s, there was an uneasy truce between business and their unions, but this would end in the 1970s. Business went on the attack, even resorting to illegally firing employees for attempting to unionize. Starting with Ronald Reagan, the anti-union businesses had a friend in the White House and unions were put on the defensive. Unions lost their effectiveness and the wages of both union and non-union workers suffered. Obviously, the gap widened.

Can you guess which party endorses policies that increase the gap?