As this week’s New Yorker points out, we all owe a debt of gratitude to Simon Kuznets, a relatively obscure number-cruncher who invented the gross domestic product, along with many of the other accounting tools we still use to understand the national economy.
Kuznets also is known for a hypothesis about economic inequality—that, as an economy industrialized, inequality would first rise (as the benefits of industrialization benefited a relative handful), and then fall (as more workers joined high-productivity sectors of the economy).
This hypothesis did a pretty good job of describing inequality patterns in the US from the early part of the century through the late 1970s. A new paper by Thomas Piketty and Emmanuel Saez shows that the share of income commanded by the top decile peaked in the 1930s at about 46 percent, then fell to about a 33 percent by the late 1940s, where it remained for nearly 3 decades.
But income inequality began rising steadily in the late 1970s, and is now at levels not seen since the beginning of World War II.
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The Northwest is no exception to this trend – the top quintile of Northwest households gained more than $30,000 in annual income during the 1990s, while the middle and lower deciles saw their incomes stagnate.
What’s not clear is the root cause of widening inequality. Explanations range from an inequitable tax structure, to globalization holding down wages on the lower end, to an increasingly “winner-takes-all” economy. But perhaps we’re going through another round of fundamental economic change, similar to the early phase of industrialization described by Kuznets.