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The Big Story Of Our Economic Era

The big debate over income inequality and economic stagnation is, in part, a debate over whether these two trends are connected. Conservatives tend to portray the middle-class income stagnation of the last few decades as unrelated to the massive explosion of gains at the top. Liberals tend to portray them as more interrelated phenomena. In any case, it's clear that the main difference between the last three decades and the three decades before that is not that we're growing so much less but that the income growth is wildly maldistributed:

That chart is from Chuck Marr. It does give a lot of credence to the liberal story that the richest top 1% basically just managed to grab all the income growth for itself.

Now, the flaw in the liberal story is the lack of an ironclad causal mechanism. Liberals have a lot of fairly persuasive stories about how this happened -- political power, the decline of unions, monetary policy, changing social norms -- but all those stories have at least some problems. Still, that chart captures the overriding economic problem of the current era. It also explains why policy solutions like the "Road to Prosperity" are so insane. It is based not only on ignoring this overriding reality but of accelerating it. Ryan's premise that liberating the wealthy from their social obligation will create mass prosperity. It could not be more out of touch with reality.