1) We target CPI first and foremost – wages are a large component of CPI. Therefore any rise in labor’s bargaining power is quickly met with monetary tightening.
2) As long as CPI (i.e., wages) are low, we accept any amount of credit creation and asset inflation. This leads to higher asset values relative to wages, which benefits the wealthy.
3) The credit creation leads to boom-bust asset cycles. However, many asset-owners and wealthy interests are bailed out in the bust phase of the cycle.

I have more stats in part II of this article: http://bit.ly/cYdvfl

What about indebtedness of the lower half of the socio-economic scale? Isn’t debt peonage of more concern than relative income? (OC, the two are related.)

LP, I agree that inequality is a big issue, and I think there are a lot of complexities that have yet to be explored. In particular, I’m not convinced that relative income (that is, the subjective effects of comparing ones one income to a reference point) is the right way to think about it. Rather, I think, inequalities in income and status are intertwined with power relationships, social inclusion and exclusion and so on. The more that money income is the measure of all things, and the more unequally it is distributed, the worse these problems become.

Yup. Jamie Galbraiith’s Inequality Project at the University of Texas.

That’s not really true; if he were really only slightly better than other professional golfers, he would win some and lose some and overall not stand out that much from the crowd. It’s precisely because he is (or was in his prime; I don’t follow golf that closely but I understand some people think he is off his game at the moment, for obvious reasons) so much better than other top golfers that he became a phenomenon and not just some guy who won sometimes.

This is because not all golf tournaments are won by the best player, just like the World Cup is not always won by the best team, etc. Time and chance happeneth to them all. There is a school of thought that is extremely resistant to any attempt to apply this principle to economic outcomes, including economic “tournaments” like the market share of Microsoft, but they don’t really have any facts to back up their ideology on that issue AFAICT.

Real-world outcomes are noisy.

I think Wilkinson’s work is very important for this discussion. I’ve only skimmed a few parts of The Spirit Level but it’s not clear that it adds a lot substantively to his earlier books, Unhealthy Societies and The Costs of Inequality, which are both very good. The important point is that asking how incomes further down the distribution have changed tells us little or nothing about the social consequences of increased inequality.

To be honest, I’m surprised how many smart, progressive economists treat absolute income as a proxy for wellbeing, when it’s clearly nothing of the sort. (DeLong is the worst offender, but he’s hardly alone.) Look at the Stern Review of the costs of climate change and of policies to avert it. Their absolute worst case scenario for climate change is that it will reduce world GDP by 14 percent, i.e. about 5 years of normal growth in the industrialized countries. How terrible would it be if we were forced todayto return to the penury and deprivation of our lives in 2005 or even 2000?

Um, not very terrible. From which—if you take Stern’s numbers at all seriously—you can only conclude that either climate change is no big deal, or that its effects on measured incomes are only a trivial part of its impact.

I’ll take door number 2; I’m sure most of us here would; I’m sure John Q. would. But in that case you have to accept the implications for questions like the costs of inequality—absolute income may be only a trivial part of those, too. And that’s where Wilkinson’s stuff is so valuable—in thinking about where the real costs of inequality lie.

The tangle of workfare policies has been a tool for suppressing wages, getting rid of workers’ rights and protections, and ensuring an absence of union representation. Welfare reform is proving to be an increasingly strong factor in the declining quality of life in the US and the profitability of corporations.

This isn’t the only factor in the redistribution of wealth from communities into the bank accounts of corporations, of course, but it is an important one.

The section in John’s book is attacking the idea that globalisation has been a net good, worldwide, even if it’s contributed to rising inequality in the US. This is something that your posts have implied / explicitly suggested. And to reiterate, this argument has nothing to do with the substance of the original post, but you are responsible for the derail.

I imagine, among others, the people on $3 a day benefited. This is one reason I find it very hard to take seriously all of the hand-wringing about “rising inequality”. If you really cared about the position of the worst-off, not just the position of the worst-off-in-rich-countries, you might think twice about advocating, say, tariffs designed to nullify the “advantage” of being paid $3 a day.