Policy Matters: Piketty and "Two Critical Realignments" in One Graph

Our friend Colin Gordon of the Iowa Policy Project runs a website called The Telltale Chart. As the name implies, he loves charts.

Colin's outdone himself today on the blog of the Center for Economic Policy and Research (CEPR) with what he calls "Piketty in one graph."

Two other possible titles for this chart, just to hit you over the head with Colin's messages.

  1. Two critical realignments in one chart (dramatic changes in the political system). The chart shows in spades the impact of progressive shifts in what we could call a "big four" set of policy variables in the 1930s: the top marginal income tax rate, the inheritance tax, the minimum wage, and union density (which are impacted by labor laws). Then in the second "critical realignment" -- the first Reagan Presidency -- these variables moved powerfully in a regressive direction.
  2. A simpler, title: POLICY MATTERS. That is something of a "duh." Less of a "duh" is a corollary -- you want big changes in outcomes (such as income inequality), you need big changes in policies. We got big changes in policies in the big four in the 1930s and the 1980s and we got big changes in outcomes. We want to fix income inequality in this decade, we need big changes in policies. Can you say "New Deal for a New Economy"?

A wag once said that economists have predicted seven of the last three recession. In my case, as an institutional economist, I've predicted two of the last zero "New Deals for a New Economy" -- 1993-94 and 2008-09. Maybe this time.



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