One possible implication of this line of analysis is that real pre-tax ‘income’ distributions may not have changed very much in the last 100 years: but, given financial markets as sluggish as those of the 1970s, the top 1 percent’s share of pre-tax income would return to the lower levels some might prefer (I would still expect the top 25 hedge fund managers to outperform the top 500 executives).

Here’s the most simple point (and my plea to look at what is right in front of our noses as opposed to tamgential areas) Allowing businesses to get larger and at the same time engaging in freer trade has been a net detriment to income equality and the condition of the middle class in this country. Simply put, consumer prices have risen but wages have not kept up. No those cheap products from the far east and the economies of scale from large organization have not improved the standard of living of most Americans but have made a few of us rich beyond any level concievable just a few decades ago. I would submit that reactions and adjustments to these big reasons for the increase inequality are where we should be concentrating our efforts, though I am not adverse to also looking at other more marginal areas.

One more thought as to what is philosophically fair and proper, when it was to capital’s advantage, tariffs were patriotic, now when globalization makes offshoring advantageous, tariffs are an impingement on even more sacred freedom. Also the first preriquisite to a free market is many buyers and sellers (i.e. competition). If we are going to set the system up in a way that the winner takes all, then to what means are we going to resort to pursue victory. If the loser gets nothing then there will be no limits. I thought we were trying to build a civilization, not a jungle.

In other words, your mechanisms make sense if we’re talking about reductions in wages at the bottom. That’s not what the data show us.

Also, your other mechanisms don’t explain the increased wages at the top either. Kaplan and Rauh did some accounting and found CEO pay doesn’t account for much of the increase. There’s just not enough of them to make a difference. BTW, the Top 500 CEOs make less money than the top 25 hedge fund managers.

Trade “deals,” at their worst, enrich those that work in export industries at the expense of those that work in import industries. There’s many people of all income levels that work in both those sorts of industries. I’m not sure why rich people as a whole would benefit one way or the other (except in the sense that everyone, eventually, benefits from trade). On the other hand, I can think of why highly skilled people (e.g. college graduates) would benefit from trade if we specialize in exporting products that take a lot of skill to produce.

Immigration has been shown to have minimal, if any, impact on native Americans’ wages (see Borjas or Peri/Ottaviano). This is because immigrants tend to do different jobs (or perform different tasks in the same jobs) than natives.

Puzzle ? C’mon , is it really so hard to explain the factors that have led to increased inequality in the U.S. ?

How about a minimum wage that has gone from an inflation-adjusted level of over $9.50/hr in 1968 to the much-reduced level of today ? The minimum wage sets a floor that tends to lift the wages of even those well above the minimum.

What about the de-unionization of the workforce , especially in the private sector , as well as the lax , or nonexistent , enforcement of the remaining weak labor laws we still have ?

How about crony capitalism run amok , with military subcontractors looting the Treasury , K-Street lobbyists engaging in legalized bribery , CEOs and BODs and compensation consultants sleeping together , and so on , ad nauseum ?

What about unfair “free” trade deals ? Tax incentives for companies that offshore jobs ? The flood of illegals in recent years , and the whiny cries by the likes of Bill Gates for more H1-B visas for high-skilled immigrants , because he knows they’ll accept lower pay than natives with the same skillsets ?

You even fail to include another obvious ramification to the reduced tax progressivity issue — CEOs and other heads of businesses will be more inclined to lavish themselves with excessive pay when they are taxed at low marginal rates than at high marginal rates , since there is a calculus that occurs that determines where the next dollar of compensation would yield the most benefit , and CEOs are not interested in plumping up the gov’t balance sheet. More money will naturally ‘trickle down’ at high marginal rates.

I’m dismayed to see the best and brighest of economics bloggers and talking heads still debating about how the problem may be simply one of education or advanced skills. Hogwash !! How do you explain the lack of such extreme inequality in other advanced nations ?

I’ll tell you how. Look at the factors I’ve mentioned above in those other countries and you’ll find that there are different policies in place that counteract inequality. There’s more than one way to skin this cat , after you’ve made the decision that the cat needs skinning. Are we getting close to that point , or do we need another full-blown Depression to teach us once again that a healthy middle class is a handy thing to have around ?

This ain’t brain surgery , folks.

The IRS is a massive fraud. Have a look into that one when you get a chance.

OYFE*