In a paper for the Institute for New Economic Thinking’s Working Group on the Political Economy of Distribution, economist Lance Taylor and his colleagues examine income inequality using new tools and models that give us a more nuanced — and frightening —picture than we’ve had before. Their simulation models show how so-called reasonable modifications like modest tax increases on the wealthy and boosting low wages are not going to be enough to stem the disproportionate tide of income rushing toward the rich. Taylor’s research challenges the approaches of American policy makers, the assumptions of traditional economists and some of the conclusions drawn by Thomas Piketty and Larry Summers. Bottom line: We’re not yet talking about the kinds of major changes needed to keep us from becoming a Downton Abbey society.
Lynn Parramore: In America, the top 1 percent has steadily increased its income share while the rest are either treading water or sinking. Let’s talk first about how you’re measuring the problem of inequality.
Lance Taylor: I think we need some detail to really understand what’s going on. So I look at inequality across low, middle and top groups. How does the share of income of the richest group compare to the others? Where do these groups get their income and what do they do with it? Is the middle getting squeezed? What’s driving income toward the rich?
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