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Book Review: Winner-Take-All Politics

Winner-Take-All Politics: How Washington Made the Rich Richer – And Turned Its Back on the Middle Class, by Jacob Hacker and Paul Pierson. New York: Schuster & Schuster, 2011.

Income inequality is a phrase that haunts the American punditocracy, if not its political system. Every pundit worth his syndicated column across the ideological gamut has penned an article recognizing income inequality as an ailment in modern America. Although this particular narrative is framed in idiosyncratic terms and blame for income gaps is selectively allocated, its broad contours can easily be summarized. The authors’ main point is as follows: there is no longer one America in this story – rather, there are two. The gap between the “haves” and the “have nots” has always existed, but in this newly bifurcated country it is growing larger and larger.

From here, the bipartisan comity ends. The reasons for this narrative and some possible prescriptions to alleviate or reverse income inequality differ. Some conservative thinkers such as Charles Murray believe that income inequality derives from cultural practices. He notes that Americans who get married and raise their children in a nuclear family are wealthier, have arduous work ethics that lead to a perpetuation of success, and are more likely to send their children to college. One corollary of Murray’s argument is that traditionalist conservative values need to be readopted by lower-class Americans. Conversely, liberal thinkers such as Thomas Friedman see income inequality as a result of a divide in education. Friedman argues that in a “flat world” where jobs, firms, and capital can seamlessly shift across the globe, only those best equipped and most talented can find a job. He and others point to the discrepancy in unemployment numbers (while national unemployment is 7.6 percent, Yalies can take solace that the unemployment rate for college graduates is only 3.9 percent), and call for an increase in spending on public education.

Two political scientists, Paul Pierson of Berkeley and Jacob Hacker of Yale, not only delve into this discourse with a bang, but they argue from the outset of Winner-Take All Politics that the very narrative everyone can agree on is wrong. For Pierson and Hacker, the broad narrative should not be one comparing the “haves” with the “have nots.” As the authors note, such a narrative implies that a reasonably large segment of the American population has benefitted at the expense of the bottom twenty or thirty percent of the population. In reality, when actually studying the economic data, Pierson and Hacker concluded that income inequality in America was the result of a tiny sliver of the population, less than 1%, taking an astounding amount of America’s economic gains since the late 1970s.

“The story is about the have-it-alls versus the rest of the Americans,” said Hacker in an interview with Bill Moyers, when explaining that these “have-it-alls” – those in the top 1 percent of the American population – have acquired 40 percent of the nation’s GDP growth since 1979. In the chart below, the authors demonstrate how even Americans in the wealthiest 20 percent have hardly seen their incomes grow in the last 30 years.

Graph for Winner-Takes-All Politics

Pierson and Hacker argue that even the seemingly decent gains of the Americans in the 80th-99th percentile (a 55 percent rise in income over the past 27 years) is illusory. In the same interview with Moyers, Hacker said that nearly all of these gains can be attributed “to the simple fact [that] American households are working many more hours today than they were in the late 1970s,” in part “because women are much more likely to work outside the home.”

Pierson added that, if anything, this graph was an “understatement,” because tax data could not accurately show the activity happening within the top 1 percent. “Those in the top-tenth of one percent saw their incomes rise by even more then your average 1 percenter,” said Pierson. The authors claim this astounding concentration of wealth is in direct contrast to what happened in the generation succeeding the Second World War when incomes grew at roughly the same rate for people across every income group.

There are a number of other surprising claims, powerful examples, and original thinking in this book. It is well-written and holds a sonorous voice, but – two years after it was published – it is a voice still too often neglected amidst the cacophony of Washington.

Editors’ Note: read a response to this book review here.

  • Dimitri

    Sounds like an interesting book. I’m curious though, do the authors give an explanation for the explosion in wealth inequality?

    I also have a methodological question – the tremendous inequality figures we’ve seen (and that are displayed in this graph) only speak to disparity in pre-tax, pre-welfare income. Once you consider the redistributive elements of the tax code, inequality is far less severe than these authors suggest.

    I’m also curious what the authors think “fair” taxation looks like. Today, the top quintile of earners makes 51% of the total revenue, but pays 68% of all federal taxes. Is that too little? http://www.cbo.gov/publication/43373

    But a perhaps larger question about this topic more broadly – why is it that income is the best way to measure inequality? If you look at indicators like consumption, there is far greater equity in America than previously thought.

    This ties in with my final question – what is wrong with inequality itself? I understand that inequality can be associated with other bad things (poor education and poverty come to mind), but it doesn’t follow that alleviating inequality will have any effect on education and poverty. I am personally somewhat partial to the Murray perspective, that there may be social costs associated with inequality, but I don’t really see a compelling political economy problem. To paraphrase Margaret Thatcher, would you rather the poor be poorer so long as the rich were less rich?

    One of the best articles I’ve read on this issue is this Hoover paper, which challenges the predominant narrative of American inequality. http://www.hoover.org/publications/policy-review/article/123566

  • Rishabh

    These are great questions, and I’m glad you raised them. I wanted to talk more about the reasoning behind the explosion in wealth inequality, but I didn’t want the post to be so long.

    Let me start with the methodology. The charts and income they use are after factoring in redistribution, welfare, and taxation. Which is actually incredible if you consider it.

    Secondly, the question of what is a ‘fair’ taxation is a normative question and one worth discussing. What this book asks is much simpler but equally important. If America is a democracy where there is relative political equality and most Americans when surveyed as to what they feel is an agreeable distribution of wealth, why is there so much inequality? Most Americans, when you ask them i) how much inequality is there in America and ii) how much inequality should there be in America, give answers that are vastly different from what you’d expect. This video here gives a fantastic summary of the findings: http://www.youtube.com/watch?feature=player_embedded&v=QPKKQnijnsM

    So the question that follows is why has the government done so little to combat inequality compared to other countries. If anything, as this book reports, throughout its chapters, both Democrats and Republicans have pursued policies that favor the rich with equal vigor. There are some really damning passages in the book but there were a couple of paragraphs that really hit home with me:

    “Did it make a difference…whether a policy [proposal] had a strong support among the poor (in Gilen’s analysis [the political scientist whose study Hacker and Pierson are citing], someone with income greater than at least 10 percent of the population), the middle class (the median income), or the well-off (income greater than 90 percent of the population)? It turns out to make a huge difference. When the opinions of the poor diverged from those of the well-off, the opinions of the poor ceased to have any apparent influence: If 90 percent of poor Americans supported a policy change, it was no more likely to happen than if 10 percent did…[in fact] when the poorest people in a state supported a policy, their senators were less likely to vote for it…but what about the middle class? They did not fare much better than the poor when their opinions departed from those of the well-of.” (pg. 111-112)

    As a corollary to this conclusion, Hacker and Pierson write of how the business community of America have built an immense network of think-tanks, lobbying groups, and punditry to defang and distort regulations. Laws were being written by businesses and then passed by politicians. And both parties are equally likely to take businesses’ cash because – in part – there are no real alternative sources of funding for political campaigns (which became more expensive in the 1970s – right around when inequality started rising – because television became a more ubiquitous medium of communication and news). Labor unions were dismantled and weakened in the private sector and the new liberal groups that have emerged – such as those for environmentalism, women’s rights, and civil rights – are those that don’t represent the Old Left (labor and the poorest Americans) but rather affluent soccer moms to put it bluntly.

    As a result, since the 1970s taxes have been cut, loopholes have expanded, and while the percentage of the tax base paid by the richest Americans is a lot, it’s grown by a lot less than how much more they’re now taking in. (think of it like this: if a business’s profits have grown by 40% over the last 30 years, neither you nor the business would be surprised and/or unhappy that expenses have grown by 20%).

    Hacker and Pierson write that even when Obama won the 2008 election by being the first candidate to really tap into Internet donations of $5 apiece, the business community doesn’t really mind which party wins the election. What they are concerned about is actually policy – what is Congress actually debating during the time between sessions. As a result, if they can keep Democrats and Republicans in their pockets during the legislative season, no real substantive reform will be enacted.

    As for measuring inequality, I think there are two main problems. Firstly, most Americans don’t know how much inequality is out there and most politicians – Democrats and Republicans – are very content to paint a rosier picture than the truth. That’s deceiving and unacceptable in a democracy if you believe that the voters get the freedom to decide the real substantive issues and direction of the country. If you don’t believe that Americans get to decide how their government deals with inequality (through taxes, welfare, regulations etc), then say so publicly. That’s something very few politicians try to do.

    Secondly, inequality goes hand-in-hand with preventing social mobility, and in that process you’re creating two Americas and losing out on maximizing the human capital of everyone not lucky enough to be born in a wealthy family. Also inequality, according to a lot of prominent economists, is one thing slowing the entire economy. The poorest Americans can’t afford to save money, so everything they have will be spent to stimulate the economy. Richer Americans can afford to save money and invest. That’s why consumption is a poor measure of wealth distribution, because rich Americans can invest and grow their wealth base for their children whereas poor Americans plunge into debt to try and keep up. That’s also one of the factors which led to the Great Recession in the first place.

    There’s obviously a lot more, but I would really encourage you to read the book for yourself!

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