In the Financial Times, Rana Foroohar argues that we need to get serious about class struggle:
Democrats spend a lot of time worrying about concentrations of power in race and gender. But at the risk of sounding like a Marxist, the real action is in class. I’d love to see our next president be someone who cares deeply about understanding and deconstructing the superstar economy, which is suffocating a more shared and sustainable economic recovery.
There is little question that the superstar effect has reshaped the U.S. economy over the last 30 years or more. Incomes and profits have exploded for the most successful individuals, firms, and even counties within the United States, while they have stagnated for everyone else. It’s easy to see this as an example of a lucky few rigging the economy to make off with all the gains. Increasingly, however, I suspect that the story is not only more complex; it may, in fact, be the inverse.
A couple of clues. First, there was the De Loecker and Eekhout paper, that rightfully made a splash over the summer. It demonstrated that mark-ups had risen across the U.S. economy. Higher mark-ups are usually taken by economists as evidence of monopolies. Competition should drive prices down to near costs, once the fixed costs of setting up a business are taken into account. Curiously, however, the mark-ups had occurred mostly among smaller firms, not larger ones.
Second, recent research suggests the rise in inequality documented by Piketty, Saez, and Zucman, may be more about the visibility of high income than about actual changes in income distribution. Before the 1986 tax reform, corporations sheltered large portions of their shareholders’ income and paid their executives in perks.
Third, as the chart below (Bakija 2012) shows, the fraction of executives, managers, supervisors, and financiers among the top 1 percent hasn’t changed much since 1979. On the other hand, the composition among that group has changed significantly.
Salaried executives are way down, independent executives and financiers are way up. What this suggests is a breaking down of the profit model of big business as both a tax shield and what economists call a nexus of contracts. Key skills and decision making are now outsourced to high-income consultants and financiers. The businesses they leave are forced to lean-up and trim profits. At the same time, however, the skills of this group are more widely accessible. This is perhaps, why simply being in the same county as opposed to the same company as key talent, is key to a rising income. This is, however, ultimately a decentralization of power.