Should we have expected wage stagnation?

Jim Suriowecki writes in to disagree with my review of ?Winner-Take-All Politics?:

Interesting piece on Hacker and Pierson -- I heartily agree with your critique of their unconvincing economics. But I admit to being mystified by this passage: ?Why did it start in the 1970s? This has been the trouble for economists, as the economy didn?t undergo any self-evidently major changes. But it?s a red flag to political scientists, Hacker and Pierson say, because right about then, our politics underwent some extremely major changes.?

The US economy went through a host of major changes in the 1970s. We went off the gold standard. The era of cheap oil ended. Productivity growth fell off a cliff. We had our first extended bout of simultaneous inflation and unemployment. Foreign competitors began for the first time to make significant inroads in industries like autos and consumer electronics. And, after three decades (roughly speaking) in which the business world was dominated by well-established companies that funded their operations largely out of their profits, you had the early stages of an explosion in new companies and new industries (PCs, cable, networking, etc.), which were heavily reliant initially on the public markets for funding (thereby making Wall Street more important than it had been) and which ended up making people incredibly rich. Given the magnitude of these changes in the real economy, I think the real surprise would have been if country?s pre-tax income distribution hadn?t changed radically as well. Hacker and Pierson often write as if, had politics not intervened, today?s economy would look much like - and distribute its rewards like -- it did in 1973.

This mainly reminds me that Jim should restart his old blog.

Source: http://feeds.washingtonpost.com/click.phdo?i=ea4ee41eb5bc4a764dd00d2799be46a8

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