Two inequalities

Ezra Klein argues that America's income inequality is the result of fat-cat profits, not differences in education or skills. Matt Yglesias points out that Ezra's chart starts in 2000, while much of the 1980s saw a big runup in skills-based inequality.

(Quick primer: "Skills-based" inequality happens when complicated new technology places a premium on skills. For example, computers get invented; Jim knows how to use computers, but Steve doesn't, because Steve didn't go to college. So Jim's wages go up and Steve's either stay the same or go down. "Profit-based" inequality - a term I just invented, but something a lot of people talk about - happens when cheap foreign labor raises the "return to capital" - i.e. profits - while holding down wages for most workers. Alternatively, a boom in finance can raise profits...for a little while at least. "Skills-based" inequality tends to separate the upper middle class from the lower middle class, while what I'm calling "profit-based" inequality tends to separate the super-rich from everyone else.)

I agree with Yglesias. Inequality has exploded twice in recent history - the Reagan Explosion, which was probably due to the shift from a manufacturing-based to a service-based economy, and the Bush Explosion, which was probably more due to globalization and the finance mega-bubble. Yglesias wisely points out that even though the Bush Explosion is more recent and perhaps more distasteful, we never really corrected the Reagan Explosion either. Boosting Americans' skills is just as important now as before Bush.

But I agree with Klein that, because of the Bush Explosion, education alone - even if successful - won't do the whole trick. But what will, I don't know. Maybe the credit crunch will finally bring the finance industry back to Earth, but maybe not.