But this common explanation overlooks a critically important phenomenon: the increasing concentration of political power in a corporate and financial elite that has been able to influence the rules by which the economy runs. This transformation has announced to a pre-distribution upward.
Intellectual property rights--patents, trademarks, and copyrights--have been enlarged and extended, for example, creating windfalls for pharmaceutical companies.
Americans now pay the highest pharmaceutical costs of any advanced nation. At the same time, antitrust laws have been relaxed for corporations with significant market power, such as big food companies, cable companies facing little or no broadband competition, big airlines and the largest Wall Street banks. As a result, Americans par more for broadband Internet, food, airline ticket, and banking services than the citizens of any advanced nation.
Bankruptcy laws have been loosened for large corporations--airline, auto manufacturers, even casino magnates like Donald Trump--allowing then to leave workers and communities stranded. But bankruptcy has not been extended to homeowners burdened by mortgage debt or to graduates laden with student debt. Their debts won't be forgiven. The largest banks and auto manufacturers were bailed out in 2008, shifting the risks of economic failure into the backs of average working people and taxpayers.
Contract laws have been altered to require mandatory arbitration before private judges selected by big corporations, Securities laws have been relaxed to allow insider trading of confidential information. CEOs now use stock buybacks to boost share prices when they cash in their own stock options. Tax laws have special loopholes for the partners of hedge funds and private-equity funds, special favors for the oil and gas industry, lower marginal income-tax rates on the highest incomes, and reduced estate taxes on great wealth. Meanwhile, so-called ''free trade'' agreements, such as the Trans Pacific Partnership, give stronger protection to intellectual property and financial assets but less protection to the labor of average working Americans.
Today, nearly one out every three working Americans is in part-time job. Many are consultants, freelancers, and independent contractors. two thirds are living pay check-to pay check. And employment benefits have shriveled. The portion of workers with any pension connected to their job has fallen from just over half in 1979 to under 33 percent today. Labor unions have been eviscerated.
Fifty years ago, when General Motors was the largest employer in America, the typical GM worker, backed by a strong union, earned $35 an hour in today's dollars. Now America's largest employer is Walmart, and the typical entry-level Walmart worker, without union, earns about $9 an hour. More states have adopted so called ''right-to-work''laws, designated to bust unions. The National Labor Relations Board, understaffed and overburdened, has barely enforced collective bargaining.
All of these changes have resulted in higher corporate profits returns for shareholders, and higher par for top corporate executives and Wall Street bankers--and lower pay and higher prices for most other Americans. They amount to a giant ''pre-distribution'' upward to the rich. But we are not aware of them because they are hidden inside the market.
The underlying problem, then, is not just globalization and technological changes that have made most Americans workers less competitive. Nor is it that they lack enough education to be sufficiently productive. the more basic problem is that market itself has become tilted ever more in the direction of moneyed interests that have exerted disproportionate influence over it, while average workers have steadily lost bargaining power--both economic and political--to receive as large as portion of the economy's gains as they commanded in the first three decades after World War II.
Reversing the scourge of widening inequality requires the upward pre-distribution within the rules of the market, and giving average people the bargaining power they need to get a larger share of the gains from growth.The answer to this problem is not found in economics. It is found in politics.
Ultimately, the trend toward widening inequality in America, as elsewhere, can be reversed only if the vast majority join together to demand fundamental change. The most important political competition over the next decades will not be between the right and left or between Republicans and Democrats. It will be between a majority of Americans who have been losing ground, and an economic elite that refused to recognize or respond to its distress.