Greg Mankiw is not sure why we’re talking about income inequality now:
One hypothesis is that we don’t worry about inequality when everyone is doing well. Another hypothesis is that we now have a president with a political ideology that sees inequality as especially pernicious.
As it turns out, Daniel Hirschman [ht: tc] at the University of Michigan wrote a dissertation chapter on the topic, in the field of sociology: “Rediscovering the 1%: Economic Expertise and Inequality Knowledge” (pdf).
Here’s the abstract:
In the 2000s, academics and policymakers began to discuss the growth of top incomes in the United States, especially the “top 1%.” Newly analyzed data revealed that top income earners in the 1990s received a larger share of income than at any point since the Great Depression, and that their incomes had begun a dramatic upward climb in the early 1980s. This paper investigates why it took two decades for this increase in top incomes to become politically and academically salient. I argue that experts assembled two “regimes of perceptibility” (Murphy 2006) for producing knowledge about income inequality, and that neither of these regimes was capable of tracking movements in top incomes. Macroeconomists focused on labor’s share of national income, but did not examine the distribution of income between individuals. Labor economists, on the other hand, drew on newly available survey data to explain wage disparities in terms of education, age, work experience, race, and gender. By relying on surveys, these scholars unintentionally eliminated top incomes from view: surveys top-coded high incomes, and thus were incapable of seeing changes in the top 1%. Studies of top incomes that relied on income tax data thus fell by the wayside, creating the conditions under which experts, policymakers, and the public alike could be surprised by the rise of the 1%. This historical narrative offers insights into the political power of economic expertise by clarifying the complex linkages between observations, stylized facts, causal theories, and policy attention.
There’s a great deal to recommend in Hirschman’s analysis, in terms of both his theoretical framework (in which he focuses on “regimes of perceptibility” and the way those regimes produce both ignorance and knowledge about inequality) and the history of those regimes (especially in mainstream macroeconomics and labor economics in the twentieth century).
But I also think Hirschman overlooks or downplays significant parts of that history of the regimes of perceptibility with respect to inequality within economics. Let me briefly discuss three that strike me as important in terms of tracking or, as has most often been the case, not tracking movements in top incomes.
First, while Hirschman does mention the classical political economists’ (especially David Ricardo’s) concern with the “distribution of income between the classes,” he never touches on Marx’s critique of political economy. He therefore fails to understand how, after Marx, the distribution of income within capitalism has come to be associated, directly or indirectly, with (a) class exploitation and (b) distributions of the surplus-value capitalists appropriate from wage-laborers to those at the top of the distribution of income.
Second, while mainstream macroeconomists have historically referred to the “stylized fact” of relatively constant factor shares, those factor or class shares of income never played an important explanatory role in their theoretical frameworks. Within mainstream macroeconomics, the portions of national income stemming from or going to labor and capital have never been considered to be a significant factor in—either as cause or consequence of—the recurring boom-and-bust cycles of capitalism.
Third, the postwar rise to hegemony of neoclassical economic theory (in labor economics but also across the discipline) meant that marginal productivity theory and the notion of “just deserts” were, within mainstream economics, the predominant way the distribution of income—in terms of both the factor and size distribution—was understood. If every group and individual is getting its “fair,” marginal contribution to production, there’s really nothing else to worry about or investigate.
As I understand it, the combination of the specter of class after Marx and the discursive rules within mainstream economics created a field of ignorance that was only broken—at least partially—with the spectacular crash of 2007-08. Only then did the growing share of income going to the top 1 percent acquire some relevance in the wider society and, to a lesser extent, within the discipline of economics.
Even today, and despite the important empirical knowledges produced by Thomas Piketty and Emmanuel Saez, the regimes of perceptibility within mainstream economics continue to produce a profound ignorance concerning the causes and consequences of the unequal distribution of income within contemporary capitalism.