New York Times:  The Smartphone Have-Nots:

Earlier this month, Larry Mishel, the president of the Economic Policy
Institute, stood at a lectern in a small hotel conference room in San
Diego and fiddled with a computer until his PowerPoint presentation
flashed on the screen. Mishel then composed himself, paid tribute to his
intellectual opponent sitting in the front row and began a speech that,
he hopes, will reorient the U.S. economy away from the 1 percent or the
0.1 percent and toward the rest of us.

Mishel’s session at this year’s meeting of the American Economic
Association, titled “Inequality in America,” tellingly coincided with
other sessions called “Extreme Wage Inequality” and “Taxes, Transfers
and Inequality.” As the financial crisis wanes, economists are shifting
their attention toward a more subtle, possibly more upsetting crisis in
the United States: the significant increase in income inequality.

Much of what we consider the American way of life is rooted in the
period of remarkably broad, shared economic growth, from around 1900 to
about 1978. Back then, each generation of Americans did better than the
one that preceded it. Even those who lived through the Depression made
up what was lost. By the 1950s, America had entered an era that
economists call the Great Compression, in which workers — through unions
and Social Security, among other factors — captured a solid share of
the economy’s growth.

These days, there’s a lot of disagreement about what actually happened
during these years. Was it a golden age in which the U.S. government
guided an economy toward fairness? Or was it a period defined by high
taxes (until the early ’60s, the top marginal tax rate was 90 percent)
and bureaucratic meddling? Either way, the Great Compression gave way to
a Great Divergence. Since 1979, according to the nonpartisan
Congressional Budget Office, the bottom 80 percent of American families
had their share of the country’s income fall, while the top 20 percent
had modest gains. Of course, the top 1 percent — and, more so, the top
0.1 percent — has seen income rise stratospherically. That tiny elite
takes in nearly a quarter of the nation’s income and controls nearly
half its wealth.

The standard explanation of this unhinging, repeated in graduate-school
classrooms and in advice to politicians, is technological change. The
rise of networked laptops and smartphones and their countless iterations
and spawn have helped highly educated professionals create more and
more value just as they have created barriers to entry and rendered
irrelevant millions of less-educated workers, in places like factory
production lines and typing pools. This explanation, known as
skill-biased technical change, is so common that economists just call it
S.B.T.C. They use it to explain why everyone from the extremely rich to
the just-kind-of rich are doing so much better than everyone else.

For two decades, Mishel has been a critic of the S.B.T.C. theory, and
that morning in San Diego, he argued that broad technological innovation
has been taking place so steadily for so long that the rise of
computers simply can’t explain the recent explosion in inequality. After
all, when economists talk about technological innovation, they are
thinking beyond smartphones; they’re usually considering innovations
that affect production. Business innovations — like the railroads,
telegraph, Henry Ford’s conveyor belt and the plastic extruders of the
1960s — have occurred for more than a century. Computers and the
Internet, Mishel argued, are just new examples on the continuum and
cannot explain a development like extreme inequality, which is so
recent. So what happened?

The change came around 1978, Mishel said, when politicians from both
parties began to think of America as a nation of consumers, not of
workers. President Jimmy Carter deregulated the airline, trucking and
railroad industries in order to help lower consumer prices. Congress
chose to ignore organized labor’s call for laws strengthening union
protections. Ever since, Mishel said, each administration and Congress
have made choices — expanding trade, deregulating finance and weakening
welfare — that helped the rich and hurt everyone else. Inequality didn’t
just happen, Mishel argued. The government created it.

After Mishel finished his presentation, David Autor, one of the
country’s most celebrated labor economists, took the stage, fumbled for
his own PowerPoint presentation and then explained that there was plenty
of evidence showing that technological change explained a great deal
about the rise of income inequality. …

The Organization for Economic Cooperation and Development, a sort of
global club for the world’s richest nations, has carefully studied the
relationship between inequality and growth. The fastest-growing
industrialized economies (South Korea, Estonia and Poland) have
remarkably low inequality. A few low-growth countries (notably Mexico
and Turkey) have high inequality. The rest of the world is all over the
place, with no obvious connection between a country’s level of
inequality and its economic growth.

Yet the scattershot nature of the data does provide some guidance.
Inequality has risen almost everywhere, which, Levy says, means that
Autor is right that inequality is not just a result of
American-government decisions. But the fact that inequality has risen
unusually quickly in the United States suggests that government does
have an impact. Still, economists certainly cannot tell us which policy
is the right one. What do we value more: growth or fairness? That’s a
value judgment. And for better or worse, it’s up to us.

(Hat Tip: Mike Talbert.)