Larry Summers got fired from his last job as president of Harvard. He doesn't seem to be doing much better at his current job, working as a columnist at the Financial Times. Today's column rightly notes the anger produced by growing inequality in the United States, but he misses both the dimensions of this inequality and its causes.
...He attributes the problem to a redistribution from wages to profits, noting that the bulk of income gains since 2001 have gone to profits. Profits are hugely cyclical, as economists know. Profits fell sharply in the 2001 recession. They have since grown very rapidly, but they are just now coming back to their 1997 share of output, the profit peak of the last business cycle. While there was a redistribution from wages to profits in the 80s and 90s, the upward redistribution that has kept most workers from benefitting over the last decade has been entirely from workers at the middle and bottom to workers at the top.
I think I understand what is going on at the top of the income distribution. I see stable, affluent families acting like machines for cranking out wealthy, assortively-mating kids.
I think I understand what is going on at the bottom of the income distribution. I see very dysfunctional people having very dysfunctional kids, out of wedlock.
In between? Not so clear. What is going to happen to my writing-challenged students at George Mason? Are they headed for middle-class jobs in nursing or social work, or for something worse?
When it comes to making the case that the middle is hurting, Dean Baker is going to have to work hard to overcome my skepticism. If middle-class squeeze is such a problem, how come almost everyone but me has cable? Why are flat-panel TV's flying off the shelves? Why are there so many Starbucks? Why are there so many restaurants? Why are there so many leaf-blowers and snow-blowers?
Last month, a county employee was driving a vehicle that was blowing the leaves off of the bicycle path, for crying out loud. Granted, we live in a bubble of affluence, because the Washington DC metro area benefits especially from the "harvesting cash" phenomenon of siphoning taxpayer money.
But even when I go home to St. Louis, the area looks much more prosperous than it did 30 years ago. They're putting up what looks like a 15- or 20-story luxury condo building in the Central West End. I don't think there were that many affluent people in the whole metro area back in the 70's.
Larry Summers says that the newly-elected Congressional Democrats are up in arms about the troubles of the middle class. I would not have accepted that story so uncritically.