The United States in the 1990s has had seven years of economic boom with low unemployment, low inflation, and low government deficit. Amid all of this good news, inequality has increased and wages have barely risen. Common sense knowledge seems to be right in this instance, that is, the rich get richer, the poor get poorer, and the middle class is shrinking. Though President Clinton boasts that the number of people on welfare has decreased significantly under his regime to 8 million, a 44% decline from 1994, he forgets that there are still 36.5 million poor people in the United States, which is only a 2% decline in the same amount of time. How is it possible that we have increasing inequality during economic prosperity
This contradiction is not easily explained by the dominant neoclassical economic discourse of our time. Nor is it resolved by neoconservative social policy. More helpful is the one book under review: James K. Galbraith’s Created Unequal, a Keynesian analysis of increasing wage inequality.
James K. Galbraith provides a multicausal analysis that blames the current free market monetary policy for the increasing wage inequality. He calls for a rebellion in economic analysis and policy and for a reapplication of Keynesian macroeconomics to solve the problem. In Created Unequal, Galbraith successfully debunks the conservative contention that wage inequality is necessary because the new skill-based technological innovation requires educated workers who are in short supply. For Galbraith, this is a fantasy. He also critiques their two other assertions: first, that global competition requires an increase in inequality and that the maintenance of inequality is necessary to fight inflation. He points to transfer payments that are mediated by the state: payment to the poor in the form of welfare is minor relative to payment to the elderly in the form of social security or to the rich in the form of interest on public and private debt.
Galbraith minimizes the social indicators of race, gender, and class and tells us that these are not important in understanding wage inequality. What is important is Keynesian macroeconomics. To make this point, he introduces a sectoral analysis of the economy.. Here knowledge is dominant (the K-sector) and the producers of consumption goods (the C-sector) are in decline. The third sector is large and low paid (the S-sector). The K-sector controls the new technologies and wields monopoly power. Both wages and profit decline in the other two sectors. As a result of monopoly, power inequality increases. To which of the following statements would Galbraith agree