Why the Surge in Income Inequality?

Lane Kenworthy in Contemporary Sociology: A Journal of Reviews:

Why the Surge in Income Inequality?: Income inequality is more severe in the United States than in any other affluent longstanding-democratic country, and it has increased sharply in the past generation. ...

What has caused the surge in top-end income inequality? Is it a product of changes in the economy? Or, as Paul Krugman’s The Conscience of a Liberal and Jacob Hacker and Paul Pierson’s Winner-Take-All Politics contend, have the key shifts been in America’s politics and policies? ...

Researchers tend to search for a dominant cause. We want to identify the most important determinant, partly because finding one reduces complexity and partly because it implies a straightforward solution to the problem. Much of the research on the rise of top-end income inequality has proceeded in this vein, with analysts focusing on one or another hypothesized cause and frequently concluding that it is indeed the key contributor. I don’t think any such conclusion is justified. The rise in the top 1 percent’s income share since the late 1970s is a product of multiple developments—growth in product market size, shifts in corporate governance, increases in the market power of some large firms, financialization, soaring stock values, union decline, and reductions in top tax rates—no one or two or even three of which look to have been dominant or decisive.

To some degree it’s pure historical coincidence that these developments occurred around the same time. But they also reinforced and accentuated one another.

Is the origin of these developments mostly economic or mostly political? Are they, in other words, a product of markets or a product of policy? My answer is: both. ...

Just as there is no single dominant cause of the rise in top-end income inequality, there is unlikely to be a silver bullet when it comes to solutions. ...