Generating Inequality: Mechanisms of Distribution in the U.S. Economy

For much of the past century the mainstream of economic theory has concentrated on efficiency questions, carefully avoiding judgments on the distribution of economic rewards in society. A measure of the modern neglect of the subject is the fact that of the more than 1500 articles published in the American Economic Review and the Economic journal over the last ten years only some ioo dealt with distributional questions of any kind. Indeed, economic theory has bypassed the equality issue so thoroughly that Joan Robinson has compared the lack of a convincing theory of income distribution to the situation in the early 1930S when the discipline had no theoretical apparatus to deal with unemployment. In her address to the American Economic Association in 1972 she described "the evident bankruptcy of economic theory which for the second time has nothing to say on the question, that to everyone except economists, appears most in need of an answer." However, the mid-9g7os has seen a welcome upsurge of interest in distributional issues. Amartya Sen, Hollis Chenery, A. B. Atkinson, and now Arthur M. Okun and Lester C. Thurow have all produced important theoretical works on the subject. In the early nineteenth century Ricardo defined the laws which regulate income distribution as the principle problem in political economy, not only because of the significance of distributional shares per se but because the theory of income distribution held the key to an understanding of the productive system. It is heartening to see the discipline turning its attention once again to this all important question. Thurow presents a clear picture of the actual distribution of income and wealth in the United States economy and then moves on to evolve a conceptual framework that will square with the observed facts. His demolition of neoclassical marginal productivity theory is neat, elegant, and devastating. The only question mark is how anyone ever believed in such tautological nonsense. Thurow's own theory of income distribution revolves around the notion that in advanced market economies people compete over jobs rather than over wages and that income differentials have something to do with education and training but much more to do with economic