Mainstream economists were very late to the inequality party. That’s because they relied on the “stylized fact” that factor (wage and profit) shares were relatively constant and that the size distribution of income (including top incomes) simply represented individual choices and abilities. For most of the postwar period, then, mainstream economists simply didn’t treat inequality as a serious problem.
I’ve counted at least 70 papers, speeches and panel discussions devoted to income and wealth inequality. The topic creeps into discussions of many other matters as well.
But why did it take mainstream economists so long to focus on inequality, especially since the factor and size distributions of income have become increasingly unequal from the mid-1970s onward?
I’ve offered my own analysis many times, most recently in late December. As I see it, it comes down to the fact that mainstream economists chose a theoretical framework in which inequality is not a major issue. And, even within that framework, they chose to focus on issues other than inequality. In other words, mainstream economists could have seen inequality and analyzed its causes and consequences but they chose not to.
That’s a real indictment of mainstream economic theories and of mainstream economists.
But Fox, for no apparent reason, chooses to give them a pass:
My own sense is that the economics profession’s performance on income inequality hasn’t been terrible. Lots of things in this world operate with long and variable lags, and it shouldn’t be all that surprising that it took a while for economists to focus on a new, unexpected and unmeasured change in the income distribution. Also, rising incomes across the board in the mid- to late 1990s made income inequality seem a less than pressing matter. In the stagnant post-2000 economy, economists understandably began looking for ways to explain what had gone wrong.