Book Reviews 151 account of Prebisch’s life and times. Those more the effects of “skill-biased technical change” on interested in the validity of Prebisch’s ideas will the opportunities available to working people. In have to continue to rely on the accumulated, and this view, the ever-greater integration of comput- still growing, more technical literature relating to ers into economic life has meant that markets the North–South divide. increasingly reward those who work effectively Albert Fishlow with computers and related technical equipment, Columbia University while correspondingly placing at a growing dis- advantage those who lack solid computer-related skills. From this view, rising inequality is primar- D Microeconomics ily due to the impact of technological forces as Unequal Democracy: The Political Economy of opposed to policy changes. the New Gilded Age. By Larry M. Bartels. New Proponents of this position have marshaled a York: Russell Sage Foundation; Princeton and wide range of supportive evidence (e.g., David H. Oxford: Princeton University Press, 2008. Pp. Autor, Lawrence F. Katz, and Alan B. Krueger xiii, 325. $29.95. ISBN 978–0–691–13663–9. 1999). But this view has also been challenged by JEL 2008–0797 an at least equally strong set of counterevidence. For example, John E. DiNardo and Jorn-Steffen Since the mid-1970s, the distributions of Pischke (1997) showed with German data that income and wealth in the United States have the returns for white-collar employees of work- become increasingly unequal, creating what ing with pencils were comparable to those for the Princeton political scientist Larry Bartels working with computers (more generally, see terms “the New Gilded Age,” in the subtitle of also David R. Howell 1999 and David Card his important new book, Unequal Democracy. and DiNardo 2002). Such counterevidence also Bartels begins the book by citing some of the connects with alternative explanations for ris- most striking findings from the research of econ- ing inequality in the spirit of arguments initially omists Thomas Piketty and Emmanuel Saez. For advanced in The Great U-Turn. From this alter- example, the share of total personal income going native perspective, the rise of inequality has been to the richest one percent of income-earners in mainly due to increasing global competition, and the United States more than doubled between the weakening of institutions and policies—such the late 1950s to 2005 from 10.2 to 21.8 percent. as effective labor unions and minimum wage Even more dramatic, the share received by the standards—that can protect working people richest 0.1 percent more than tripled over this against the pressures arising from globalization. same period, from 3.2 to 10.9 percent. Bartels moves aggressively into this debate Of course, capitalist economies are not designed with an approach that builds from the second, to create equality. They are rather designed to policy-centered viewpoints but pushes these reward winners in marketplace competition and arguments further to reach a simple and strik- correspondingly punish losers. This indeed is ing conclusion: that the Democratic Party over- the motor force that drives capitalist economies all supports greater equality and the Republican to ever-rising levels of efficiency, even as it also party supports greater inequality. Thus, the more promotes inequality. But recognizing this central Democrats are elected to office, especially the fact about capitalist economies still does not help Presidency, U.S. society becomes more equal, answer the question on which Bartels focuses in and the more Republicans are elected, U.S. soci- Unequal Democracy, which is why U.S. capitalism ety becomes more unequal. circa 2005 was generating a much greater level of Bartels presents an impressive array of statis- inequality than during the 1950s and 1960s. tical evidence to support his position, including Economists have been debating this question the results of formal modeling exercises. For for a generation, starting with the seminal 1988 example, over roughly a half-century starting in book by Bennett Harrison and Barry Bluestone, the 1950s, Bartels shows that, on average, the The Great U-Turn. Over time, the dominant real incomes of middle-class families have grown explanation among economists has been about twice as fast under Democrats as they have under 152 Journal of Economic Literature, Vol. XLVIII (March 2010)

Republicans, while the real incomes of working across-the-board, even while the vast majority of poor families have grown six times as fast under benefits flowed to the rich. Bartels also examines Democrats as they have under Republicans. He the debate around repealing the estate or “death” also finds that the average unemployment rate tax. His findings here are quite surprising—that was much lower under Democratic administra- working class voters strongly oppose the estate tions (4.8 percent) than Republican administra- tax as a matter of principle, even though they tions (6.3 percent). themselves would not benefit financially from its If, as Bartels finds, Democratic Party policies repeal. are indeed dramatically more favorable to mid- Overall, Unequal Democracy provides fresh dle- and lower-income people, and if such people perspectives and wide-ranging statistical evi- constitute a decisive majority of the U.S. elector- dence to the task of explaining why the United ate, then this raises another obvious question: States has become dramatically more unequal why don’t Democrats dominate U.S. politics; and over the past fifty years. However, just as Bartels indeed, why, at least through George W. Bush’s is able to show how previous analyses have missed reelection in 2004, was the Republican party major aspects of the overall story, his own argu- ascendant? Bartels pursues this question vigor- ments are similarly weakened by inattention to ously, still relying primarily on formal statistical important parts of the historical record. This modeling exercises to uncover explanations that becomes evident even by considering data fea- have not been apparent through the more casual tured prominently in Unequal Democracy itself. empiricism that dominate in the media. Most telling here is Bartels’s figure 2.2 (p. Bartels devotes a full chapter to debunking 35), which plots the rise of inequality under the claim that Republicans success had been Democratic and Republican administrations due to white working class voters making their from 1947 to 2005. My own eyeballing of this political choices increasingly on the basis of hot- figure conveys to me a pattern quite unlike that button cultural issues, such as abortion, religion, described in Bartels’s verbal discussions. Thus, and gay marriage, as opposed to economic con- the figure shows that overall inequality had not cerns. Bartels rather finds economic well-being risen by the end of the Republican Eisenhower consistently remains the first concern of white administration in 1960 relative to when it working class voters, and that these voters are began in 1952. Moreover, inequality rose under broadly committed to greater economic equal- the Democratic presidency of Jimmy Carter ity. But he also finds that, to a significant extent, at roughly the same sharp rate as it had in the white working class voters frequently respond immediately preceding Republican administra- to economic concerns in ways that, anoma- tions of Nixon and Ford. Finally, considering Bill lously, end up helping Republicans. His most Clinton’s Presidential term overall, inequality did surprising finding is that working class voters not fall at all relative to the historically high lev- respond more positively to rising income growth els that were attained under Ronald Reagan and for upper-income households than to income the first President Bush. In fact, Bartels’s figure gains that primarily benefit themselves. Bartels 2.2 shows that the only period between 1947 argues that this is at least in part caused by the and 2005 when the United States became sig- effectiveness of political advertising in setting nificantly more equal was during the Kennedy/ the terms of political debates around election Johnson years. times. Republicans did have substantially larger Because Bartels overlooks this major historical advertising war chests over the time period on pattern, he also neglects the dramatic transfor- which Bartels focuses, and they exploited that mation in policy-setting circles undergirding it. advantage effectively. This was the shift in policy-setting influence from The second half of Unequal Democracy pres- an ascendant Keynesian social democratic frame- ents a series of case studies in the political econ- work, whose U.S. intellectual leaders included omy of inequality. These include a ­discussion of Paul Samuelson and James Tobin, to what is often the 2001 tax cuts under George W. Bush, which termed a “neoliberal” framework, led, of course, were sold effectively as providing tax relief by Milton Friedman. This shift occurred during Book Reviews 153 the high inflation years of the 1970s, between in which the differences between Democrats and the presidencies of Richard Nixon and Jimmy Republicans had diminished on central matters Carter. It was the Republican Nixon, after all, who relating to economic equality. declared that “I am now a Keynesian” when he Bartels could not have anticipated the more imposed wage and price controls in 1971. By 1979, recent dramatic shift in U.S. politics: the recap- the year before Carter’s reelection bid, major turing of both houses of Congress by Democrats leaders on Wall Street forced him to appoint Paul in 2006 and Barack Obama’s decisive election to Volcker as Chairman of the Federal Reserve. the Presidency in 2008. One of the most notable Volcker quickly engineered a punishing recession features of the Obama’s Presidential campaign as a means of eliminating double-digit inflation. was his massive fundraising advantage over his More broadly, the transformation of the U.S. Republican opponent John McCain. This neu- policy environment meant that macro policy no tralized the tool that, according to Bartels, had longer aimed to balance concerns over inflation been a major factor in producing electoral victo- and unemployment, but rather concentrated ries to Republicans for the past generation. almost entirely on inflation control. It was also Roughly one year into Obama’s Presidency as I during the Carter presidency that the movement write, it remains an open question whether Obama toward deregulating business—including, in and the Democratic Congress will implement a particular, global trade and financial markets— strongly egalitarian program in the New Deal/ began gathering strong momentum. Indeed, the Great Society tradition, or a tepid “Eisenhower most significant formal moves to deregulate U.S. Republican” type agenda, as with Bill Clinton. financial markets occurred during the Clinton In either case, Unequal Democracy—because of presidency, when most of the remaining features both its many substantial achievements as well of the 1930s-era Glass–Steagall financial regula- as its significant shortcomings—will serve as an tory system were repealed. important reference for anyone seeking a serious Bartels is clearly aware of this shift in the broad understanding of the ongoing politics and eco- U.S. policy landscape, writing, for example, that nomics of inequality in the United States. “When Bill Clinton entered the White House in 1993, he apparently felt a good deal more References constrained by the Federal Reserve Board and Autor, David H., Lawrence F. Katz, and Alan B. the bond markets than previous Democratic Krueger. 1998. “Computing Inequality: Have Com- presidents had been” (p. 55). Bartels’s observa- puters Changed the Labor Market?” Quarterly Journal of Economics, 113(4): 1169–1213. tion coincides closely with Clinton’s own views, Card, David, and John E. DiNardo. 2002. “Skill-Biased expressed only weeks after winning the 1992 Technological Change and Rising Wage Inequality: election, that “We’re Eisenhower Republicans Some Problems and Puzzles.” Journal of Labor Eco- here . . . . We stand for lower deficits, free trade, nomics, 20(4): 733–83. and the bond market. Isn’t that great?” (quoted DiNardo, John E., and Jorn-Steffen Pischke. 1997. “The Returns to Computer Use Revisited: Have in Bob Woodward 1994, p. 165). Important dif- Pencils Changed the Wage Structure Too?” Quar- ferences between Democrats and Republicans terly Journal of Economics, 112(1): 291–303. on economic policy did continue after the 1970s. Harrison, Bennett, and Barry Bluestone. 1988. The But the terms of the debate had shifted decisively Great U-Turn: Corporate Restructuring and the Polarizing of America. New York: Basic Books. away from New Deal/Great Society-type com- Howell, David R. 1999. “Theory-Driven Facts and the mitments to egalitarianism. Growth in Earnings Inequality.” Review of Radical As a result of having neglected this dramatic Political Economics, 31(1): 54–86. transformation of the U.S. political landscape, Woodward, Bob. 1994. The Agenda: Inside the Clinton Bartels is also less well positioned to explain the White House. New York: Simon & Schuster. significant extent of myopia and susceptibility to Robert Pollin advertising that, according to his own evidence, University of Massachusetts, Amherst shapes the political choices of white working class voters. It may be that such factors become Rational Decisions. By Ken Binmore. Gorman more powerful forces in a political environment Lectures in Economics. Princeton and Oxford: