Robert Shiller: Book Review

This isn't a review, but some comments by Robert Shiller about a list of ten books that are his favourites. The tenth book is the one that interests me the most. I've bolded the key bit:

Which brings us to your final book, Winner-Take-All Politics: How Washington Made the Rich Richer and Turned its Back on the Middle Class, by Paul Pierson and Jacob Hacker.

This is a new book – it just came out. It’s about rising inequality and it traces back to fundamental causes. I like books that get back to ultimate causes and that think like social scientists about these causes. The question is, ‘Why is inequality getting worse in so many different countries?’ This book particularly focuses on the US. The traditional answer is – well, there are a number of traditional answers, but the most prominent among them is this idea that in a modern economy there is a skill bias in technical change. Our computers and communications have led to a winner-take-all society, where only the really smart can make money. Everyone else is technologically obsolete, with all these computers that are replacing people. It is, I think, a very important theory.

But Hacker and Pierson point out that it doesn’t really fit the recent data. In the US, we’ve seen a rapid concentration of wealth at the extreme high end. The top tenth of a per cent of the top hundredth of a per cent of the population is getting wealthy very fast. They point out that this is not true in Europe, and yet the economies are very similar and growing at similar rates. If the technology is the same, why would there be a difference at the extreme high end? And they argue that the answer is really political. There have been political changes in the US that allow the extreme high end to garner more wealth. Ultimately, it represents a failure of our society to take account of the fact that the extreme high end can lobby and can organise for its own interests, and we’ve let it happen.

The rabid politics of the Republican governor Walker in Wisconsin and the unyielding fanatical Republicans in the federal government who are leading toward a shutdown of the government are examples of the power that the elites, the top 0.1% in the US currently have over the politics. Gadaffi in Libya is scary, but this faceless elite in the US is probably even more dangerous to the world than Gadaffi ever was.