Matt Zeitlin

We know from Larry Bartels that inequality tends to go up under Republican presidents, and down during Democratic presidents. If Obama is elected, when can certainly expect some increase in inequality. He’ll raise taxes on the wealthy, and if the Employee Free Choice Act is passed, wages in the middle should go up some. Tack on the traditional Democratic focus on unemployment as opposed to inflation, along with the possibility of minimum wage increases, and some decrease in inequality is certain.

But it will be a modest decrease, and it won’t satisfy those who’s major objection to inequality is that the tippity-top of the income distribution having vastly more money than everyone else is necessarily bad. That’s because there are two different types of income inequality, and your standard Democratic policy solutions, or an increased investment in human capital as suggested by Ed Glaeser, only affects one. Robert Gordon and Ian Dew-Becker wrote a paper explaining these two types of inequality. One type of inequality is “90-10″ inequality. This is the standard, skills based technological change explanation of inequality. Basically, managers got more money and benefited the most from productivity gains, which were unchained from median wages in the late 1970s. There’s also the unbounded increase in the college wage premium, which is no longer cyclical. This is the 90th percentile, and above, running away from everyone else – or, everyone else staying behind, while the 90th percentile’s income inequality shoots up.

But that’s not the entire inequality story, the other is inequality within the top decile. This is the inequality that liberals and progressives find so objectionable. This inequality that isn’t driven so much by technological change, lagging minimum wage, or decreased unionization, but instead by the “superstar effect” (JK Rowling can sell more books than any other author in history) or the institutional failures behind skyrocketing CEO pay. And the only way to address that inequality is massively increasing marginal income rates. 

In an Obama administration, we’ll probably see a bunch of policies that address 90-10 inequality, along with modest tax increases on the rich. But I don’t think we’ll see a decrease in the type of inequality that people really don’t like. Even if median wages go up, they’ll still be far outpaced by wages at the top, which have gone up by 121 percent at the 99th percentile, 236 percent at the 99.9th percentile and 617 percent at the 99.99th percentile. We’ll be living in interesting times, to say the least.