Inequality and the Second Gilded Age
from David Ruccio
Grotesque inequalities in the distribution of income characterize our time, the Second Gilded Age. The question is, what is causing those inequalities?
The only way you can answer that question is based on a theory of value—a theory of how commodity values are determined and how the resulting flows of value are distributed to different participants in the economy.
For mainstream economists, both commodity values and distributions of income are determined by the forces of supply and demand in markets. Therefore, the kinds of inequalities we have witnessed in recent decades in the United States can be explained, first, by the functioning of those markets and, then, by the “corrections” made by taxation and other government programs.
And that’s where a debate has emerged among mainstream economists. On one side, Brad DeLong, who admits that he was wrong to presume that the late-20th century America would be “a much more equal place than early 20th century America,” focuses on exogenous factors such as winner-take-all markets in an increasingly globalized world and skill-based technical change to explain growing inequalities in the Second Gilded Age. Mark Thoma, on the other side, emphasizes “the changing political tide over the last few decades, and how that has altered public policy towards institutions such as unions that were able to help workers get a fair share of the output they produce.”
Within mainstream economics, it’s not really a debate about economics versus politics; it’s more about technology versus politics. And both of them—technology and politics—are taken as given. The result is that the unequal distribution of income is explained by the market-determined prices of different groups, either as a reflection of given technology (DeLong) or given politics (Thoma).
However, if you start from a different theory of value—one in which commodity values contain a surplus, which workers produce but don’t appropriate, and which when appropriated by capitalists is then distributed to still others—you end up with a very different theory of inequality within the Second Gilded Age. Yes, of course, technology and politics matter within this alternative theory. But they’re not taken to be given, exogenous factors. Both technology and politics reflect and participate in determining the conditions whereby commodity values are produced and the resulting flows of value—including the surplus—are distributed to different participants in the economy.
A useful starting point is the recognition that real corporate profits per employee and the labor share have been moving in opposite directions in recent decades.
Consider, in addition, that the labor share contains some of the surplus that does not show up as corporate profits, which means that the share going to the direct producers has fallen even more than what is registered in the usual national accounts.
We have, then, the beginnings of a very different story about inequality in the Second Gilded Age, one that starts with the structure of production instead of market prices. It is that structure of production that determines how and when technological changes and political decisions the resulting distributions and redistributions of value.
The result is not only a different theory of the causes of the inequalities that characterize the Second Gilded Age. It’s also a different theory of what needs to be changed in order to eliminate those inequalities.