Global Trends Are Not Caused by Local Factors: Brad DeLong describes three types of inequality: 1. Global inequality, which was expanding from 1800-1975, and receding since (due primarily to China and India). 2. US inequality, which was declining from 1925-1980, but increasing since, in two ways: 2.a. The separation of the top 20% from the bottom 80%, partially as a function of college wage premium. 2.b. The separation of the top 0.1% from the rest of the top 20%, for reasons unexplained. 3. The rise of the top 1% globally -- the development of a new international plutocracy -- since... 1980 or so?
For reasons that escape me he does not link the three together…. This is something that has disappointed me about the conversation regarding American inequality over the past few years more generally. (I've written about it before.) Folks like DeLong, Krugman, Cowen, and others think in global terms quite frequently. But when they seek to explain the Great Stagnation and the rise of inequality they concern themselves almost entirely with local explanations. I think such analyses are very likely to suffer from omitted variable bias.
Around the 43rd minute, DeLong takes a direct question about this from the audience. He answers it fairly well, but still downplays the role of the global economy in influencing outcomes in the US, favoring cultural explanations (e.g. explosion of CEO pay) and changes to marginal tax rates. He does not consider that these might be related to global dynamics either. If global forces eroded the bargaining power of American Labor, then maybe that's why society has tolerated the enormous increase in executive pay. If global forces are pressuring American corporations through new competition, then maybe we've cut top-end taxation in an attempt to gain back some competitiveness.