EZRA KLEIN

The “Hood Robin” Economy

No one can agree on the causes of inequality, but its effects are
indisputable: more policies that benefit the already rich.

W I N N E R -TA KE-ALL POLITICS: HOW WAS HINGTON MADE THE RICH

R I C H E R —A N D TURNED ITS BACK ON THE MIDDLE CL ASS BY JACOB S.
H AC K E R & PAUL PIERSON • SIMON & SCHUSTER • 2010 • 360 PAGES • $27

I n 1973, if you put the 1 percent of the

country that had made the most money in a room and got them to empty out
their pockets, you’d see 8 percent of all the money paid out in wages over the
last year falling to the floor. If you’d repeated that exercise in 2008, you’d find
18 percent of the economy’s income on the ground. You’d better have a pretty
big room.
But that’s what makes the rich different from you and me: their riches. The
problem is that since 1973 median wages have been stagnating. Inequality isn’t
just rising because the rich are getting richer. It’s rising because the rest of us,
by and large, aren’t. If median household incomes had risen between 1974 and
2008 by as much as they rose between 1949 and 1973, the median family would
be making well over $100,000 a year by now. In such a world, we might wonder
about inequality, but we’d have less reason to worry about it.

ezra klein is a staff writer at The Washington Post, a columnist for

Newsweek, and a contributor at MSNBC.

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 But the rest are not getting richer. The question is whether the two phe-
nomena are connected: Has the economy gone Hood Robin, with median wages
stagnating because the folks at the tippy-top are channeling more and more of
the economy’s gains into their own bank accounts? Or have the rich and famous
moved into their own economy, and whatever is going on with median incomes
is a different problem that will require different solutions?
Economists have not had an easy time parsing this out. The problem, they say,
is that it’s very difficult to pinpoint a mechanism that can explain much of this.
In fact, pick your explanation, and an economist can tell you a story for why it’s
not true. They just can’t point you toward the one that is true.
We know, for instance, that taxes on the rich have fallen dramatically in recent
decades. But the data on inequality are pre-tax. That is to say, they’re showing
changes in who gets paid what, not who gets left with how much.
Immigration? Absolutely not. Might depress wages slightly at the very bot-
tom of the economy, but it’s probably making the median American somewhat
better off by making goods cheaper, and it might even be helping her wages by
increasing demand for higher-skilled positions. And it doesn’t explain at all why
the rich are getting so much richer.
Computers and associated technological change? Then why hasn’t inequality
risen by as much in Europe? They’re into computers, too. And median wages
actually did better in the 1990s, which is the decade most associated with the
spread of information technology throughout the economy.
The decline of unions? The reigning estimate here is from Berkeley econo-
mist David Card. He thinks the decline might account for 15 to 20 percent of
the problem. Many others consider that overstated.
International trade? Sorry. It just wasn’t a big enough factor between 1970 and
2000. Paul Krugman and others have begun to argue that since 2000—which is
really to say, since China and India have come into their own as major export-
ers—that story has begun to change, and trade may be depressing American
wages. That may be important going forward, but it doesn’t explain what’s
happened so far.

B
ut the debate has been shaken up by the sudden intervention of Jacob S.
Hacker and Paul Pierson, two celebrated political scientists who, in their
book Winner-Take-All Politics, argue that the problem isn’t with the expla-
nations. It’s with the economists.
That diagnosis has some unlikely allies. Krugman, for one. The problem with
the approach economists take, this Nobel Prize-winning economist has said, is
that when their models miss something, so do they. “The temptation to only go

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for what’s ‘modelable’ is not entirely wrong,” he told me. “Unless you’re missing
the story. And in this case, you’re missing the story.” In The Conscience of a Lib-
eral, his book on inequality, he relied heavily on work done by Larry Bartels—a
Princeton political scientist. The implication was clear: When there’s a multi-
decade phenomenon that economists can’t seem to explain, maybe it’s about
time to ask somebody else.
Hacker and Pierson have a theory of where the economists went awry: Econo-
mists might understand markets, they say, but they don’t understand politics. In
markets, when big things change, it’s usually because something has happened.
But in politics, big changes can be the result of something not happening. The rise
of inequality, in Hacker and Pierson’s view, is the result of “systematic, prolonged
failures of government to respond to the shifting realities of a dynamic econ-
omy.” They call this theory, in which
For all the books written and big things happen because lots of other
things don’t happen, “drift,” and it’s at
all the peers reviewed, we the center of their story.
still have trouble saying what Their first—and most persuasive—
piece of evidence is international: Ger-
causes inequality; that makes
many, France, Japan, the Netherlands,
the problem harder to fix. Sweden, and Switzerland have seen
almost no rise in inequality. Australia,
Canada, Ireland, and the UK have seen a rise in inequality, but only half of what
America has seen. And anyway, Hacker and Pierson say, if inequality was driven
by politics, wouldn’t you expect to see more of it in the English-speaking coun-
tries that mirror America’s policy consensus most closely?
Then comes the question of timing: Why did it start in the 1970s? This has
been the trouble for economists, as the economy didn’t undergo any self-evidently
major changes. But it’s a red flag to political scientists, Hacker and Pierson say,
because right about then, our politics underwent some extremely major changes.
It was around that time, after all, that the business community really began
to get politically organized. In 1971, future Supreme Court Justice Lewis Powell
wrote his famous memo saying that “the American economic system is under
broad attack” and “business must learn the lesson . . . that political power is neces-
sary; that such power must be assiduously cultivated; and that when necessary, it
must be used aggressively and with determination—without embarrassment and
without the reluctance which has been so characteristic of American business.”
The next year, the National Association of Manufacturers moved its head-
quarters from New York to Washington, D.C. “We have been in New York since
before the turn of the century, because we regarded this city as the center of

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business and industry,” the organization said. “But the thing that affects busi-
ness most today is government. . . . In the last several years, that has become
very apparent to us.” That same year, the Business Roundtable was formed, and
within five years, had signed up the majority of the Fortune 200.
And so business, which felt battered by the swell of new regulations and rules
associated with the Great Society, began fighting. And winning. One of its first,
and arguably most consequential, victories was to kill a revamp of the nation’s
labor laws that would’ve made it much easier to organize new workers. Unions,
which had begun going into decline, were denied their chance to get up off the
mat. Then came Ronald Reagan and that was pretty much that for organized labor.
As far as Hacker and Pierson are concerned, that was pretty much that for
the American middle class, too. “It is surely no coincidence,” they write, “that
almost all the advanced industrial democracies that have seen little or no shift
toward the top 1 percent have much stronger unions than does the United States.”
Of course, “surely no coincidence” is not the same as evidence. But Hacker
and Pierson have more than an interesting data point: They have a theory. When
an economist looks at the decline of unions, she typically looks at the decline
in worker bargaining power. But when a political scientist looks at the decline
of unions, he sees a change in the distribution of political power. “[O]rganized
labor’s role is not limited to union participation in the determination of wages,”
write Hacker and Pierson. “Much more fundamental is the potential for unions
to offer an organizational counterweight to the power of those at the top.”
Unions call it “solidarity.” Republicans call it “liberalism.” But whatever you
call it, the fact is that unions do not spend the bulk of their political capital fight-
ing for laws that would make it easier to organize. Most of it goes toward a more
broadly defined agenda of economic and social uplift. Organized labor—arguably
to its detriment—acts as the world’s largest advocacy group on behalf of people
who aren’t rich. And there’s really no one else who does that.
As unions weakened, the nonrich lost their loudest voice in Washington. And
that meant they became quiet indeed.

W
inner-Take-All Politics is sold, somewhat campily, as a “crime drama.”
Various pieces of data are referred to as “DNA evidence.” Luckily, the
cute doesn’t get in the way of the content: The writing is crisp and clear,
and the graphs and tables are used well, clarifying rather than complicating the
proceedings.
But the book’s greatest strength is its easy command of political science
data, which sets it apart from most of the other studies of inequality that have
been released. Perhaps the most shocking study the authors cite comes from

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Martin Gilens, a political scientist at Princeton University. Gilens has been col-
lecting the results of nearly 2,000 survey questions reaching back to the 1980s,
looking for evidence that when opinions change, so too does policy. And he
found it—but only for the rich. “Most policy changes with majority support
didn’t become law,” Hacker and Pierson write. The exception was “when they
were supported by those at the top. When the opinions of the poor diverged
from those of the well-off, the opinions of the poor ceased to have any appar-
ent influence: If 90 percent of poor Americans supported a policy change, it
was no more likely to happen than if 10 percent did. By contrast, when more
of the well-off supported a change, it was substantially more likely to happen.”
In part, this is because politicians began to need money more than they had
before, as the costs of campaigns started skyrocketing. The predictable outcome?
Both parties have been relying more on wealthy donors and less on labor unions.
Where unions had substantial support among the Republican Party in the middle
of the twentieth century—then-Senator Ted Stevens, we learn, ended up back-
ing the labor law reforms that the business community eventually killed—today
the Club for Growth primaries anyone in the GOP who forgets to refer to union
presidents as “bosses.” Meanwhile, the Democrats have had to embrace the busi-
ness community to remain financially competitive. As Hacker and Pierson show,
Democrats were at a massive funding disadvantage in the 1960s and ’70s. In 1981,
the Democratic National Committee was still paying down debt incurred during
the 1968 election. There was only one place to turn to close the gap: corporate
America, and the (mostly) men who ran it, or lobbied for it. And so they turned
there, which meant turning away from the middle class, at least somewhat. As
Hacker and Pierson say, today’s Republican and Democratic parties are not black
and white. They’re “black and gray.”

H
acker and Pierson have a theory of politics, and it’s largely persuasive.
But do they have an explanation of inequality? That’s trickier. Take their
observations on the decline of American unions. How much inequality
can they really explain? Well, maybe they explain some of the tax changes we’ve
seen in recent years, but those don’t explain what happened to pre-tax incomes.
And unions were more politically powerful in the early 1980s, when Ronald
Reagan sharply cut taxes, than they are today—fully 20 percent of the private-
sector workforce was still unionized then, compared to less than 7 percent today.
Hacker and Pierson note that health-care costs have consumed some of the
raises that median workers would have otherwise gotten, and it’s possible that
labor unions could have forced the political system to pay more attention to
health-care reform. That may be true, but given that various attempts at health-

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care reform failed while labor was at the height of its powers, it’s difficult to say
with any certainty that the path of health-care policy would be any different if
businesses hadn’t managed to derail labor-law reform in the 1970s.
The influence of the rich certainly had a role in pushing politicians to deregu-
late the financial sector, and there’s reason to believe that deregulation—and,
more to the point, the absence of new regulations—contributed to both the
financial bubble, which boosted the incomes of the rich, and the bust, which dealt
another blow to the interests of everyone else. But it’s not clear that a stronger
labor movement would’ve spent its time fighting to regulate derivatives: The
roaring economy was powering a lot of renewed faith in financial markets, and
unions, even if they had been more powerful, were focused on questions like
how best to spend the surplus and how to handle global trade. And given the
global nature of the money flows that led to the bubble, it’s easy to imagine us
doing things a bit differently even as the eventual outcome remained the same.
The problem for Hacker and Pierson, in other words, is that just as the econo-
mists aren’t very convincing on the politics, they’re not sufficiently convincing
on the economics. It’s true that the political system has shifted toward empha-
sizing the interests of the rich, and it’s true that that’s probably had a significant
impact on both the rich and everyone else. But how much of an impact? And
what would have happened if the distribution of political power had remained
frozen at 1973 levels? That’s harder to say.
What their theory explains, in the end, is not so much why median wages
stagnated and income inequality skyrocketed, but why the political system has
been so feckless and haphazard about responding. A political system where
unions held more clout and politicians weren’t so addicted to the money pro-
vided by rich donors would be a political system that would likely have taken
some of these problems much more seriously.
But what worries me is that even that political system might not have
responded effectively. And that’s at least in part because, for all the books writ-
ten and all the peers reviewed, we’re still having trouble saying just what, exactly,
is causing all this—and that makes the problem quite a bit harder to fix.

A
t this point, I’d say there are four good places to look for answers. One is
where Hacker and Pierson focus their energies: Whatever our eventual
conclusions on inequality, we’re going to have trouble acting on them if the
political system can’t bring itself to care about the average American a little bit
more. A second is the education system: Arguably the only persuasive explanation
for what’s happened to median wages is that educational attainment leveled off
in the 1970s, even as the demand for educated workers increased. Economists

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Claudia Goldin and Lawrence Katz estimate that this explains two-thirds of
the rise in inequality, and importantly, explains it on the side of median-wage
stagnation, which is what we’re most worried about. Even if that estimate is a
bit high, boosting educational attainment would still be a good place to start.
Then there’s the financial system. Insofar as anything explains the run-up in
the incomes of the very rich, it’s the increasing financialization of the economy.
And if you look at profits in the financial sector, you’ll see, among other things,
an incredible rise between 2002 and 2007, and then a sharp rebound after the
crash. That rise was an illusion: It was a bubble that would’ve taken down most
every bank on Wall Street and most every person in the market if the govern-
ment hadn’t aggressively stepped in to save the financial system. But the gov-
ernment did aggressively step in, and it recapitalized the banks by giving them
cheap money that they could use to make more money and get everyone’s stock
portfolios healthy again.
This was probably a good thing for a lot of reasons (a world without financial
markets looks more like Mad Max than it does like 1973), but the reality is that
the federal government and the Federal Reserve brought overwhelming force
to their efforts to save the financial market and underwhelming force to their
efforts to save the labor market. And so the rich are getting richer again, but
unemployment remains above 9 percent. There’s little we can—or even should—
undo here, but we at least need to recognize what it is that we keep doing:
green-lighting the policies that make the rich richer or, in the case of the crisis,
keep them rich, while dithering and drifting on the problems and needs of the
vast middle. Watching House Republicans talk about repealing the health-care
law even as bankers are back to getting their pre-crash bonuses is just the latest
evidence of our grotesque priorities. I don’t know how you solve the problems
of inequality or median wage stagnation, but it’s not like that.
And finally, we need to recognize that Americans haven’t accepted the status
quo. Rather, they’re unaware of it. Behavioral economist Dan Ariely and psycholo-
gist Michael Norton recently asked people to estimate wealth inequality in this
country. As it happens, most Americans think wealth is distributed vastly more
equally than it actually is, and yet they would like something more equal still:
When given a choice between various options, they chose the one most closely
resembling Sweden, followed by the world in which every quintile has exactly
20 percent of the wealth. Only 10 percent chose our world. But the problem, as
Hacker and Pierson point out, is that the political system isn’t listening. It’s time
it did. The fact that we don’t quite know how to solve inequality and median-
wage stagnation doesn’t make the situation any less urgent. D

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