Wednesday, February 2, 2011

Part Seven: Trade didn’t create inequality, and then it did.

Trade didn’t create inequality, and then it did.
Part Seven:

I typed this article on a laptop that was made in China.
Everything I own was made in China.
Everything you own was made in China, too. In 1979, when the Great Divergence began, you and I didn't own anything made in China. With Mao only three years in the grave, China still had a sluggish centrally planned economy. In that year, Mao's successor, Deng Xiaoping, decided enough was enough and inaugurated various market reforms.
"Black Cat, white cat," the Communist leader famously said. "What does it matter what color the cat is as long as it catches mice?"

Since 1979, China has caught a stunning quantity of mice, raising the annual value of its exports a hundredfold. In 2007, China displaced the U.S. as the world's second-biggest exporter, and in 2009 it displaced Germany as the world's biggest exporter. That year, China's per capita gross national income was $6,710-compared to $47,240 in the U.S.-and the U.S.'s trade deficit with China stood at @227 billion. Given China’s aggressively mercantilist trade policy and its12
Did China—and growing trade competition from other low-wage nations—cause the Great

Two decades ago, Adrian Wood, a British economist, started arguing that trade with low-wage
countries lowered wages for unskilled workers in developed countries. “There is a clear inverse
association,” Wood
experienced larger falls in manufacturing employment.” But in the United States, Wood had to
concede, imports of manufactured goods from low-wage countries still totaled less than 3 percent
of gross domestic product. By itself, that wasn’t enough to displace many workers. Wood
answered by arguing the effects were subtle and indirect. For example, he wrote that imports
from low-wage countries required more labor than other goods, and therefore displaced more
U.S. workers than imports from high-wage countries.

Most leading economists in the U.S. didn’t buy it. Paul Krugman (then at MIT, now at Princeton)
and Robert Z. Lawrence (then at the Brookings Institution, now at Harvard), argued that
international trade had played a much smaller role in U.S. manufacturing’s decline than had
domestic considerations. Among these, ironically, was the U.S. manufacturing sector’s own
efficiency, which had lowered prices on consumer products and therefore on the proportion of
U.S. spending on goods (TVs, refrigerators, groceries) as opposed to services (CT scans, legal
advice, college tuition). Between 1970 and 1990, the prices of U.S. goods relative to services had
fallen by nearly one-quarter. “Although the effect of foreign competition is measurable,” Krugman and Lawrence concluded, “it can by no means account for the stagnation of U.S.

Two decades later, Krugman decided his earlier analysis no longer held up. “My argument was
always yes, Krugman told me. But in the 1990s there simply weren’t enough of them. That changed in the aughts. In a Institution, Krugman observed that the United States had in 2006 crossed “an important watershed: we now import more manufactured goods from the third world than from other advanced economies.” Imports of manufactured goods that came from less-developed nations
had more than doubled as a percentage of gross domestic product, from 2.5 percent in 1990 to 6
percent in 2006. Moreover, the wage levels in the countries ramping up U.S. trade the fastest—
Mexico and China—were considerably lower than the wage levels in the countries whose
increased U.S. trade had created worry in the 1990s—South Korea, Taiwan, Hong Kong,
Singapore. The Southeast Asian nations had, in 1990, paid workers about 25 percent of what
U.S. workers received. By 1995 they paid 39 percent—demonstrating, reassuringly, that lowwage
developing countries that undergo rapid economic growth don’t stay low-wage for long.
But as of 2005, Mexico and China paid 11 percent and 3 percent, respectively. “It’s likely,”
Krugman concluded, “that the rapid growth of trade since the early 1990s has had significant
distributional effects.”

Lawrence,, looking at the same new data, continued to believe that trade did not affect U.S.
income inequality to any great extent. Lawrence focused on the fact that China was increasingly
exporting computers and other sophisticated electronics. To depress the wages of lower-skilled
workers in the United States, Lawrence reasoned, China would have to compete with American
firms that employed lower-skilled workers. But the U.S. tech sector doesn’t, for the most part,
employ lower-skilled workers. It employs higher-skilled workers. If trade with China were
throwing anybody out of work, Lawrence concluded, “it is likely to be … workers with relatively
high wages.” And in fact, Lawrence wrote, during the first decade of the 21
very little measured increase in income inequality “by skill, education, unionization or
occupation.” Income inequality did increase through the aughts, but that was because incomes
soared at the tippy top of the income-distribution scale, where just about everybody had a college
degree, and often a graduate degree, too. It didn’t increase because less-skilled workers got
squeezed—or rather, it didn’t increase because less-skilled workers got squeezed any more than
they did during the previous two decades. At the very bottom, incomes actually edged up

Krugman wasn’t convinced by his former collaborator’s argument. “There is good reason to
believe that the apparent sophistication of developing country exports is, in reality, largely a
statistical illusion,” he answered in his Brookings paper. Unskilled laborers paid a pittance in
China weren’t really doing high-tech work, Krugman wrote. They were grabbing sophisticated
components manufactured in more advanced and higher-paid economies like Japan, Ireland,
and—yes—the United States, and they were slapping them together on an assembly line. That
couldn’t be good news for less-skilled workers in the United States, though Krugman said he
couldn’t quantify the effect without “a much better understanding of the increasingly finegrained nature of international specialization and trade.”

Where does that leave us? Trade does not appear to have contributed much to the Great
Divergence through the mid-1990s. Since then, it may have contributed to it more significantly,
though we don’t yet have the data to quantify it. With trade more than with most topics, the
economics profession is struggling to interpret a reality that may not fit the familiar models.

12 This logic was laid out in a 1941 paper by economists Paul Samuelson and Wolfgang Stolper.
13 Krugman also argued, in his 1994 book Peddling Prosperity, that if trade were creating greater income inequality
in the U.S., one would expect to see it creating greater income equality in, say, Mexico, which “ships low-skill
goods to the United States and imports high-skill goods in return.” But income inequality, Krugman wrote, was
increasing in Mexico. That was true at the time, but the trend has since reversed itself. For the past decade and a half income inequality has been decreasing in Mexico.

Man looking for marriage!

I have a friend that I have met on the WWW that would like to get married to an American woman.
I some info on him that I have been meaning to write down and post as well as pictures of him. Unfortunately, illness and time has gotten in the way of me doing ANYTHING on my blog or Facebook for some time.

I am getting back in the swing and wanted to give everyone a heads up that I will be composing and posting pictures of my friend, Babar, very soon.  He is praying to find someone soon, and I have let him down by not posting about him wanting to find a wife for too long now.

If anyone is intrested before I am able to post the bibliography and pictures, just let me know and I will be glad to forward your email to him to get things started.  I am praying for him that he will find that one person that the Good Lord has created just for him, whether it is here in America or another country.

Look for more info soon!

BTW, I also have pictures I will be posting soon and info on Mason's races now that he has started. (Even on a injured ankle.)

Till then, take care and stay warm in all these radical storms. 

Tuesday, December 7, 2010

The Great Divergence and Organized Labor

Part VI

The Great Divergence coincided with a dramatic decline in the power of organized labor. Union
members now account for
1983. When you exclude public-employee unions (whose membership has been
membership has dropped to a mere 7.5 percent of the private-sector workforce. Did the decline
of labor create the income-inequality binge?

The chief purpose of a union is to maximize the income of its members. Since union workers
members usually earn more than nonunion workers, and since union members in higher-paying
occupations tend to exercise more clout than union members in lower-paying ones, you might
think higher union membership would
increase income inequality. That was, in fact, the
consensus among economists
Freeman demonstrated in a
disparities among members outweighed other factors, and therefore their net effect was to
before the Great Divergence. But the Harvard economist Richard1980 paper that at the national level, unions’ ability to reduce incomereduce
income inequality. That remains true, though perhaps not as true as it was 30 years ago, because
union membership has been declining more precipitously for workers at lower incomes.
Berkeley economist David Card calculated in a
among men explained about 15 percent to 20 percent of the Great Divergence among men.
(Among women—whose incomes, as noted in an earlier installment, were largely unaffected by
the Great Divergence—union membership remained relatively stable during the past three
2001 paper that the decline in union membership
Card’s estimate suggests. To consider how, let’s return to the “institutions and norms”
framework introduced by MIT’s Frank Levy and Peter Temin* and further elaborated by
Princeton’s Paul Krugman and Larry Bartels.

In their influential 2007 paper, “Inequality and Institutions in 20th Century America,” Levy and
Temin regard unions not merely as organizations that struck wage bargains for a specific number
of workers but rather as institutions that, prior to the Great Divergence, played a significant role
in the workings of government. “If our interpretation is correct,” they wrote, “no rebalancing of
the labor force can restore a more equal distribution of productivity gains without government
intervention and changes in private sector behavior.”

According to Levy and Temin, labor’s influential role in the egalitarian and booming post-World
War II economy was epitomized by a November 1945 summit convened in Detroit by President
Harry Truman. The war had ended a mere three months earlier, and Truman knew the labor
peace that had prevailed during the war was about to come to an abrupt end. To minimize the
inevitable disruptions, Truman promised labor continued government support. Truman even
coaxed Chamber of Commerce President Eric Johnson into making the following statement:
“Labor unions are woven into our economic pattern of American life, and collective bargaining
is part of the democratic process. I say recognize this fact not only with our lips but with our

An eventual result of Truman’s 1945 summit was a five-year contract between United Auto
Workers President Walter Reuther and the big three automakers that included cost-of-living
adjustments, productivity-based wage increases, health insurance, and guaranteed-benefit
which would be adopted by Big Steel and other industries, the
companies mimicked the Reuther pact. The federal government’s ongoing collaborative role in
the process was demonstrated in April 1962 when President John F. Kennedy, having talked the
United Steel Workers into accepting a moderate wage increase,
a price hike he deemed excessive (“a wholly unjustifiable and irresponsible defiance of the
public interest”), forcing the steel giant to back down. According to Levy and Temin, this display
of muscle “helps to explain why the reduced top tax rate” enacted two years later (it dropped to
70 percent) “produced no surge in either executive compensation or high incomes per se.” Fear
of attracting comparable attention from President Lyndon Johnson kept corporations from
showering the bosses with obscene pay hikes.

The Treaty of Detroit didn’t last. One reason was that, even as Truman was romancing Big
Labor, the Republican Party won majorities in the House and Senate and passed the
Taft-Hartleyover Truman’s veto in 1947. Levy and Temin don’t dwell on this, but in his 1991 book
Which Side Are You On?: Trying To Be For Labor When It’s Flat On Its Back
Geoghegan, a Chicago-based labor lawyer, argues that Taft-Hartley was the principal cause of
the American labor movement’s eventual steep decline:

First, it ended organizing on the grand, 1930s scale. It outlawed mass picketing,
secondary strikes of neutral employers, sit downs: in short, everything [Congress of
Industrial Organizations founder John L.] Lewis did in the 1930s.


The second effect of Taft-Hartley was subtler and slower-working. It was to hold up
new organizing at all, even on a quiet, low-key scale. For example, Taft-Hartley ended
elections, and sometimes more hearings, before a union could be officially recognized.

It also allowed and even encouraged employers to threaten workers who want to
organize. Employers could hold “captive meetings,” bring workers into the office and
chew them out for thinking about the Union.

And Taft-Hartley led to the “union-busting” that started in the late 1960s and continues
today. It started when a new “profession” of labor consultants began to convince
employers that they could violate the [pro-labor 1935] Wagner Act, fire workers at will,nothing would happen. The
fire them deliberately for exercising their legal rights, and
Wagner Act had never had any real sanctions.


So why hadn’t employers been violating the Wagner Act all along? Well, at first, in the
1930s and 1940s, they tried, and they got riots in the streets: mass picketing, secondary
strikes, etc. But after Taft-Hartley, unions couldn’t retaliate like this, or they would end
up with penalty fines and jail sentences.

To summarize: Taft-Hartley halted labor’s growth and then, over many decades, enabled
management to roll back its previous gains. Big manufacturing’s desire to do so grew more
urgent in the 1970s as inflation spun out of control,
industries faced stiffer competition from abroad. Even before Ronald Reagan’s election, Levin
and Temin write, the Senate signaled the federal government was rapidly losing interest in
enforcing Truman’s 1945 pact when it killed off, by filibuster, a
easing union organizing in the South.

President Reagan’s 1981 decision to break the air-traffic controllers’ union and to slash top
income-tax rates killed off Truman’s 1945 pact entirely. Although Reagan was a onetime
Belt manufacturing jobs that the proportion of private-sector workers who belonged to unions
dropped to 16 percent in 1985, down from 23 percent as recently as 1979. Reagan’s hostility to
unions was further reflected in his choice of
Relations Board. Dotson had previously worked as a management-side labor adversary for
Wheeling-Pittsburgh Steel, and (presumably with both lips and heart) believed
minimum wage
stuck at $3.35 an hour for close to a full decade. Similarly, President George W. Bush, another
two-term Republican, later let the minimum wage remain at $5.15 (to which it had risen during
the presidencies of his father and Bill Clinton) for two months shy of 10 years, by which time its
buying power had reached a

Academics may argue about the significance of any one of these decisions. Raising the minimum
wage, for instance, reduces income inequality to a degree that some experts judge
others judge
characterization) and Princeton’s Bartels (who leans toward the “substantial” one) agree is that
policies like setting the minimum wage don’t occur in a vacuum; they are linked to a host of
other government policies likely to have similar effects. Bartels emphasizes partisan differences
and Levy and Temain emphasize ideological ones that occur over time, but both constitute
changes in the way Washington governs. Levy and Temain concede that the ideological shift was
influenced by changing circumstance (inflation
embraced, and the increased income inequality that resulted, were not inevitable. The proof, they
argue, lies in the fact that other industrialized nations faced similar pressures but often embraced
different policies, resulting in far less income inequality.

Geoghegan’s latest book,
looking at Germany. German firms, Geoghegan writes,

don’t have the illusion that they can bust the unions, in the U.S. manner, as the prime way
of competing with China and other countries. It’s no accident that the social democracies,
Sweden, France, and Germany, which kept on paying high wages, now have more
industry than the U.S. or the UK. … [T]hat’s what the U.S. and the UK did: they smashed
the unions, in the belief that they had to compete on cost. The result? They quickly ended
up wrecking their industrial base.

Geoghegan’s book went to press too soon to report that Germany is now experiencing
that’s leaving the United States in the dust
the lesson
States to stimulate its economy (a conclusion that Krugman, his fellow
already labelled “foolish”
government policy in Germany is much more supportive of labor; for example, during the
recession it paid businesses to keep workers employed (something the United States was willing
to do only for state government workers). The idea that pro-labor policies can produce an
economy that’s both more egalitarian
Detroit—has, regrettably, become unfashionable.

“[U]nions are not the answer to increasing prosperity for Americans workers or the economy.”

*An earlier version of this installment misidentified MIT’s Peter Temin as “Peter Temlin.” The error resulted from a typo on the
cover of Levy and Temin’s paper as it appears on an MIT Web site.

unemployment—has lately been
The traditional economic argument against raising the minimum wage—that it increases low-wagecalled into question.
The Chamber’s current position on unions, laid out in a 2008 white paper, is … um … somewhat different:

Happy Holidays! Delay in Posting the Great Divergence

SOOOOO Sorry for the delay in posting the next chapter in the Great Divergence. I do plan to do this soon.

That is one thing about having a couple of diseases. Crap happens!

We did adopt a new member to the family that is about 10 months old and FULL of UNBELIEVABLE ENERGY.  But, I knew when we got him that he would be a hand full and was willing to deal with it in order to help myself hopefully regain a lot of the strength I have lost in the last couple years.

After falling numersous times, I am still in it and he is sticking by me. When I do fall or have a problem, he comes running over to me to help and lick me till I am soaking wet!

It is obvious he has already been through training but, a condition of the adoption was that we attend more obediance classes. He is SO smart and quite the character! He knows just about all the commands and some that surprise us. But, like I said...he is SO ACTIVE.

He loves to run and will run next to me as I drive down the road in my mobility scooter. He is so good. We took him to a dog park this weekend and there must have been 30 dogs there. It is a HUGE fenced in place at one of our favorite lakes/Parks where Mason use to run all the time. Anyway, there were several Great Danes, Labs, Pit Bulls, even a small Chihuahua that stayed mostly in his mom's arms!

But, Pepper loved it and all the dogs. He can bolt like lightening and then stop on a dime. I guess Border Collies are good at that.  He would do that and the dogs chasing him would all fall over him since they could not just drop and stop like he could. 

Because of the weather it was pretty muddy and any water puddle he would find...for some reason...he would plop right down into it! So, he got very muddy!! We decided to see if he would go in the lake to get the mud off, since we had a new bed in the back of the car....and we were amazed at how he just jumped in when we told him to "go get the ducks!" Looks like we will be spending a lot of time there, especially when the weather gets better.

He has really pushed me to the limit. I think I have fallen numerous times as well as having to make sure he is excersised all the time.  I am exhaused and in a LOT of pain but, I know that this will be good for me in the long run.

He loves to sit on the patio with me and watch all the deer. Everyday we get visitors as you have seen or read from other posts.  One was a huge Buck that was not scared of me or anything. I guess with those 4 points, he doesn't need to feel any fear!

I will post the next chapter very soon. Hopefully today or tomorrow. But, for now, enjoy the pictures!

Monday, November 22, 2010

Can we blame income inequality on Republicans?

Part V
The Great Divergence by Noah

9 The percentage of the labor force that used computers increased at a faster rate in the 1980s than in the 1990s, but it wasn’t until the mid-to-late late ‘90s that a majority of workers used computers.

Overall, pre-tax income increased 1.42 percent annually for the 20th percentile (poor and lowermiddle-class people) and 2 percent annually for the 95th percentile (upper-middle-class and rich people). The White House during this period was occupied by five Democrats (Truman, Kennedy, Johnson, Carter, Clinton) and six Republicans (Eisenhower, Nixon, Ford, Reagan, Bush I, Bush II). Bartels plotted out what the inequality trend would have been had only Democrats been president. He also plotted out what the trend would be had only Republicans been president.on politics," Hacker and Pierson point out in their new book, Winner-Take-All Politics, "only a fairly small fraction is directly connected to electoral contests. The bulk of it goes to lobbying…." Corporations now spend more than $3 billion annually on lobbying, according to official records cited by Hacker and Pierson (which, they note, understate true expenditures). That's nearly twice what corporations spent a decade ago.
Until recently, the consensus among academics—even most liberal ones—was quite different. Economists argued that the Great Divergence was the result not of Washington policymaking but of larger "exogenous" (external) and "secular" (long-term) forces. In June, the Congressional Budget Office calculated that spending by the federal government made up 23 percent of U.S. gross domestic product, after averaging 18.5 percent during the previous four decades. But even with federal spending at this unusually high level (necessitated by a severe recession), Washington's nut remains less than one-quarter the size of the economy. Most of that nut is automatic "entitlement" spending over which Washington policymakers seldom exert much control. Brad DeLong, a liberal economist at Berkeley, expressed the prevailing view in 2006: "[T]he shifts in income inequality seem to me to be too big to be associated with anything the government does or did."
My Slate colleague Mickey Kaus took this argument one step further in his 1992 book The End of Equality, positing that income inequality was the inevitable outgrowth of ever-more-ruthlessly efficient markets, and that government attempts to reverse it were certain to fail. "[Y]ou cannot
decide to keep all the nice parts of capitalism," he wrote, "and get rid of all the nasty ones." Instead, Kaus urged liberals to combat social inequality by nurturing egalitarian civic institutions (parks, schools, libraries, museums) and by creating some new ones (national health care, national service, a revived WPA) that remove many of life's most important activities from the
"money sphere" altogether.

Finding ways to increase social equality is an important goal, and Kaus's book remains a smart and provocative read. But the academic consensus that underlay Kaus's argument (and Long's more modest one) has lately started to crumble.

Economists and political scientists previously resisted blaming the Great Divergence on government mainly because it didn't show up when you looked at the changing distribution of federal income taxes. Taxation is the most logical government activity to focus on, because it is literally redistribution: taking money from one group of people (through taxes) and handing it
over to another group (through government benefits and appropriations).

Another compelling reason to focus on taxation is that income-tax policy has changed very dramatically during the last 30 years. Before Ronald Reagan's election in 1980, the top income tax bracket stood at or above 70 percent, where it had been since the Great Depression. (In the
Compression, as the economy boomed and income inequality dwindled, the top bracket resided at a level that even most Democrats would today call confiscatory. Reagan dropped the top bracket from 70 percent to 50 percent, and eventually pushed it all the way down to 28 percent. Since then, it has hovered between 30 percent and 40 percent. If President Obama lets George
W. Bush's 2001 tax cut expire for families earning more than $250,000, as he's expected to do, Tea Partiers will call him a Bolshevik. But at a whisker under 40 percent (up from 35), the top bracket would remain 30 to 50 percentage points below what it was under Presidents Eisenhower, Nixon, and Ford. That's how much Reagan changed the debate.

But tax brackets, including the top one, tell you only the marginal tax rate, i.e., the rate on the last dollar earned. The percentage of total income that you actually pay in taxes is known as theeffective tax rate. That calculation looks at income taxed at various rates as you move from one
bracket to the next; it figures in taxes on capital gains and pensions; it figures in "imputed taxes" such as corporate and payroll taxes paid by your employer (on the theory that if your boss didn't give this money to Uncle Sam he'd give it to you); and it removes from the total any money the
federal government paid you in Social Security, welfare, unemployment benefits, or some other benefit. Reagan lowered top marginal tax rates a lot, but he lowered top effective tax rates much less—and certainly not enough to make income-tax policy a major cause of the Great Divergence.

In 1979, the effective tax rate on the top 0.01 percent (i.e., rich people) was 42.9 percent, according to the Congressional Budget Office. By Reagan's last year in office it was 32.2 percent. From 1989 to 2005 (the last year for which data are available), as income inequality continued to climb, the effective tax rate on the top 0.01 percent largely held steady; in most
years it remained in the low 30s, surging to 41 during Clinton's first term but falling back during his second, where it remained. The change in the effective tax rate on the bottom 20 percent (i.e., poor and lower-middle-class people) was much more dramatic, but not in a direction that would
increase income inequality. Under Clinton, it dropped from 8 percent (about where it had stood since 1979) to 6.4 percent. Under George W. Bush, it fell to 4.3 percent.

Measuring tax impacts is not an exact science. There are many ways to define rich, poor, and middle class, and many variables to consider. Some experts have looked at the same data and concluded that effective tax rates have gone up slightly for people at high incomes. Others concluded they've gone down. The larger point is that you can't really demonstrate that U.S. tax
policy had a large impact on the three-decade income inequality trend one way or the other. The inequality trend for pre-tax income during this period was much more dramatic. That's why academics concluded that government policy didn't affect U.S. income distribution very much.

But in recent years a few prominent economists and political scientists have suggested looking at the question somewhat differently. Rather than consider only effective tax rates, they recommend that we look at what MIT economists Frank Levy and Peter Temin call "institutions and norms."
It's somewhat vague phrase, but in practice what it mostly means is "stuff the government did, or didn't do, in more ways than we can count." In his 2007 book, The Conscience of a Liberal, Princeton economist and New York Times columnist Paul Krugman concludes that there is "a strong circumstantial case for believing that institutions and norms … are the big sources of rising inequality in the United States." Krugman elaborated in his New York Times blog:
[T]he great reduction of inequality that created middle-class America between 1935 and
1945 was driven by political change; I believe that politics has also played an important
role in rising inequality since the 1970s. It's important to know that no other advanced
economy has seen a comparable surge in inequality.
Proponents of this theory tend to make their case not by measuring the precise impact of each thing government has done but rather by charting strong correlations between economic trends and political ones. In his 2008 book Unequal Democracy, Larry Bartels, a Princeton political scientist, writes:

[T]he narrowly economic focus of most previous studies of inequality has caused them to
miss what may be the most important single influence on the changing U.S. income
distribution over the past half-century—the contrasting policy choices of Democratic and
Republican presidents. Under Republican administrations, real income growth for the
lower- and middle-classes has consistently lagged well behind the income growth rate for
the rich—and well behind the income growth rate for the lower and middle classes
themselves under Democratic administrations.
Bartels came to this conclusion by looking at average annual pre-tax income growth (corrected for inflation) for the years 1948 to 2005, a period encompassing much of the egalitarian Great Compression and all of the inegalitarian Great Divergence (up until the time he did his research).
Bartels broke down the data according to income percentile and whether the president was a Democrat or a Republican. Figuring the effects of White House policies were best measured on a one-year lag, Bartels eliminated each president's first year in office and substituted the year following departure. Here is what he found:

In Democrat-world, pre-tax income increased 2.64 percent annually for the poor and lowermiddle-class and 2.12 percent annually for the upper-middle-class and rich. There was no Great Divergence. Instead, the Great Compression—the egalitarian income trend that prevailed through the 1940s, 1950s, and 1960s—continued to the present, albeit with incomes converging less rapidly than before. In Republican-world, meanwhile, pre-tax income increased 0.43 percent annually for the poor and lower-middle-class and 1.90 percent for the upper-middle-class and rich. Not only did the Great Divergence occur; it was more greatly divergent. Also of note: In Democrat-world pre-tax income increased faster than in the real world not just for the 20th percentile but also for the 40th, 60th, and 80th. We were all richer and more equal! But in Republican-world, pre-tax income increased slower than in the real world not just for the 20th percentile but also for the 40th, 60th, and 80th. We were all poorer and less equal! Democrats also produced marginally faster income growth than Republicans at the 95th percentile, but the difference wasn't statistically significant. (More on that in a future installment.)

What did Democrats do right? What did Republicans do wrong? Bartels doesn't know; in Unequal Democracy he writes that it would take "a small army of economists" to find out. But since these are pre-tax numbers, the difference would appear to be in macroeconomic policies. (Tne clue, Bartels suggests, is that Republicans always worry more than Democrats about
inflation.) Bartels' evidence is circumstantial rather than direct. But so is the evidence that smoking is a leading cause of lung cancer. We don't know exactly how tobacco causes the cells inside your lungs to turn cancerous, but the correlation is strong enough to convince virtually every public health official in the world.

Jacob Hacker and Paul Pierson, political scientists at Yale and Berkeley, respectively, take a slightly different tack. Like Bartels and Krugman, they believe that government action (and inaction) at the federal level played a leading role in creating the Great Divergence. But the culprit, they say, is not so much partisan politics (i.e., Republicans) as institutional changes in the
way Washington does business (i.e., lobbyists). "Of the billions of dollars now spent every year

According to Hacker and Pierson, industry began to mobilize in the early 1970s in response to liberalism's political ascendancy (which didn't end when Richard Nixon entered the White House in 1969):

The number of corporations with public affairs offices in Washington grew from 100 in 1968 to over 500 in 1978. In 1971, only 175 firms had registered lobbyists in Washington, but by 1982, 2,500 did. The number of corporate [political action committees] increased
from under 300 in 1976 to over 1,200 by the middle of 1980. […] The Chamber [of Commerce] doubled in membership between 1974 and 1980. Its budget tripled. The National Federation of Independent Business (NFIB) doubled its membership between
1970 and 1979.

examples and make arguments that are a little more speculative. We'll look at one such example in the next installment.
The resultant power shift, they argue, affects Democrats and Republicans like.Academics who believe that government policies are largely responsible for the Great Divergence don't breeze past the relevant mechanisms. Bartels writes at length about repeal of the estate tax, and the decline of the minimum wage; Hacker and Pierson about financial deregulation. But their approach to them is more impressionistic than comprehensive. They offer

Liberal politicians and activists have long argued that the federal government caused the Great Divergence. And by "federal government," they generally mean Republicans, who have controlled the White House for 20 of the past 30 years, after all. A few outliers even argue that for Republicans, creating income inequality was a conscious and deliberate policy goal.