Created Unequal: The Crisis in American Pay: A Review

Abstract

William of Occam's aphorism is frequently hijacked. When the sage said, Do not multiply hypotheses, he probably did not mean that the first plausible explanation of any phenomenon took precedence over all others. The economic profession is home to one of the highest known concentrations of those who substitute plausibility for research, and repetition for proof. In this work,' James K. Galbraith exposes one of the more persistent, and maleficent, of recent economic myths. When, in the mid-1980s, econometric evidence first emerged demonstrating rising inequality in the United States, a number of economists found the matter worth examining, and for a while an academic debate bubbled on. In 1992, however, with a presidential election looming, the facts became public and their significance a matter of debate in the New York Times, the Wall Street Journal, Business Week, and elsewhere. From 1945 to 1973, the rising tide had truly lifted all boats in President Kennedy's phrase. In a modest way, families on lower incomes even gained slightly on their better-off neighbors. The trend broke in 1973, and inequality rose rapidly during the 1980s, with the rich getting richer while the poor became poorer, relatively and absolutely. Since this was the period of the triumph of Reaganism and neoliberal economic policies, there were clear political implications. The simplest, if seldom the best, explanation for any statistical phenomenon is error, either in measurement or in specification, and the conservative side of the debate put this position with all the balance for which the Wall Street Journal's op-ed pages are noted. Paul Krugman had played a minor role in the early debate about rising inequality, and