Tuesday, February 6

Ben Bernanke's disappearing act

Ben Bernanke, the chairman of the Federal Reserve, gave a speech today about economic inequality, then sidestepped some of the most important drivers of inequality. He performed a magic act: Poof! The federal government disappeared. Wealthy special interest groups vanished.

Bernanke introduced his topic this way:

Although we Americans strive to provide equality of economic opportunity, we do not guarantee equality of economic outcomes, nor should we. Indeed, without the possibility of unequal outcomes tied to differences in effort and skill, the economic incentive for productive behavior would be eliminated, and our market-based economy--which encourages productive activity primarily through the promise of financial reward--would function far less effectively.

This type of economic propaganda has been spouted so tirelessly for so long that no one notices that it's propaganda. "We do not guarantee equality of economic outcomes, nor should we." Both clauses of that sentence are untrue. We do guarantee equality of economic outcomes for some people. And we should -- but for a different group of people.

We guarantee high incomes for doctors, especially. Also for drug companies, movie studios, and corporate lawyers. We do this by limiting the number of doctors, lawyers and other highly paid professionals who are allowed to practice. The medical and law professions ensure that medical schools and law schools admit a limited number of students each year. More important, they make sure that the federal government keeps a lid on the number of immigrants who practice highly paid professions.

Movie studios, record companies and drug manufacturers are protected by strict copyright and patent laws.

Dean Baker has been beating this drum for years.

In today's speech, Bernanke sought to explain why the rich have gotten so much richer in the last few decades, leaving the poor and especially the middle class behind. (The people in the middle quintile of the income scale have advanced the least, in relative terms.)

Bernanke trots out the role of global trade and technological change, and then he comes up with this:

Finally, changes in the institutions that have shaped the labor market over the past few decades may also have been associated with some increase in wage inequality. For example, unions tend to compress the dispersion of pay for jobs in the middle of the skill distribution. Thus, the decline in private-sector union membership over the post-World War II period -- particularly the sharp drop in the 1980s -- has been associated with an increased dispersion of pay among workers with intermediate levels of skill. The sources of the decline in union membership are much debated, and certainly long-run structural changes in the economy, such as the decline in manufacturing employment, have played a role.

No mention of Ronald Reagan. No mention of PATCO. No mention of a decades-long effort to throttle unions until they constitute just 7.4 percent of employees of private companies.

Unions do guarantee equality of outcomes for some people -- those who hold similar jobs. The decline of unions over the past 30 years has happened at the same time that income has been redistributed upward. That's not a coincidence. It's the deliberate result of policy, adopted mostly by Republicans.