Here is a short section from a new book that I am completing about the   
problems in inequality: "Fouling the Nest."  
  
Economists' glaring lack of concern about the level of inequality owes a   
great deal to Simon Kuznets, a Nobel laureate and brother of my adviser   
in graduate school.  In his presidential address to the American   
economic Association in late 1954, Kuznets laid out what came to be the   
prevailing view about the natural course of inequality.  Seeing a trend   
toward economic equality by the end of the 1940s, based on his analysis   
of very data from United States, England, and Germany, Kuznets proposed   
that economic inequality naturally follows an inverted U-shaped curve.    
According to Kuznets, when poor countries first began to develop,   
inequality increased until the economy becomes more sophisticated, which   
then sets in motion a trend toward more equality.  
Kuznets, who won his Nobel Prize for his careful analysis of economic   
data, was modest about this suggestion, referring to his lecture "as a   
collection of hunches" rather than the sort of painstaking analysis for   
which he was justifiably famous (Kuznets 1955, p. 26).  Even so, later   
economists took his hunches very seriously, treating his casual   
observation almost as a natural law of market economies.  
Markets, according to this perspective, are a benign arrangement with a   
built-in tendency toward equality.  A longer view of the developed   
market economies over the last century and a half might suggest a   
different pattern.  Market economies have a tendency toward inequality,   
which eventually becomes so extreme it sets off an economic crisis.  In   
the wake of such catastrophes, new institutional arrangements arise   
which temporarily moderate inequality.  After a short delay, these   
institutions fray and the tendency toward inequality begins anew.  
Economists embraced Kuznets' hunch so enthusiastically because all it   
had such comforting implications.  Coming in the midst of the Cold War,   
Kuznets' hunche had an even more urgent message:  unfettered markets   
could naturally accomplish what socialism could only promise.  
So, political leaders should just let business promote economic growth   
rather than even thinking about directly redistributing resources to   
help the poor, a message Lucas later echoed.  Markets are not just the   
best means of creating widespread prosperity, but also a sure route to   
equality.  
Unfortunately, Kuznets' idea proved to be overly optimistic.  By the   
late 1940s, just as Kuznets was about launch his theory, the forces that   
were promoting equality had already lost much of their momentum.    
Looking back from 1980, Jeffrey Williamson and Peter Lindert, authors of   
a classic book on inequality of income in the United States, speculated:  
  
  
    By almost any yardstick, inequality has changed little since the  
    late 1940s.  If there has been any trend, it is toward slightly more  
    inequality in pre-fisc [pre-tax] income and toward slightly less  
    inequality in post-fisc income.  This stability has been  
    extraordinary even by twentieth-century standards.  [Williamson and  
    Lindert 1980, p. 92]  
    Even the more modest appraisal of Lindert and Williamson turned out  
    to be overly optimistic.  In retrospect, instead of stability, a  
    powerful trend toward inequality had already begun to take hold by  
    the time they published their book.  What appeared to be stability  
    in 1980 was only a temporary pause before the right wing was about  
    to launch its renewed offensive to restore the sort of inequality  
    that existed just before the Great Depression.  As the Soviet  
    government receded into history, pretenses of egalitarianism no  
    longer had any political value.  
  
By this time, anything that threatened to inconvenience corporate   
balance sheets had to be vigorously attacked.  Are wages too high?    
Then, attack labor.  Reagan's firing of the air traffic controllers   
union set the stage for a widespread attack on labor.  The new economic   
climate freed business from much of its obligation to pay either decent   
wages or taxes.  
Are regulations bothersome?  Then, eliminate them.  Within a few   
decades, the corporate sector was supreme, unburdened of a good part of   
the regulatory structure that had been in place at the end of the 1960s.  
And still the miraculous trickle down has yet to materialize!  
  
  
Michael Perelman