The winner-take-all economy is primarily a result of winner-take-all politics

In the 1980s, 1990s, and 2000s, the American economy experienced long periods of prosperity, in which GDP growth performed quite well. At the same time, inequality rose rapidly. Yet rather than seeking to correct the inequality through redistributive policies, American governments steadily redistributed less and less. They cut capital-gains taxes and the top marginal income-tax rate, ended welfare (as we knew it), failed to keep the minimum wage even with inflation, and so on. The result is that the increase in inequality after taxes and redistribution from 1979-2008 was even greater than the increase in inequality before taxes and redistribution.

Hacker and Pierson explain rising inequality. Their objection is that rising inequality in the US over the past 30 years has not mainly been a story of the 29% of Americans with college degrees pulling away from the rest. The growth in inequality has been highest between the top 1% and the top 20%, and indeed between the top 0.1% or even 0.01% and everyone else. From 1979-2007, incomes for the top 1% rose four times as fast as those for the 80th percentile. Moreover, skills-biased technological change should be operating just as strongly in other advanced nations, like those of Western Europe and Japan. But those countries haven't seen anything like the rise in inequality the US has. From the early 1970s to the late 1990s, the top 1%'s share of income in France actually fell; in Germany it was static; in Ericsson's Sweden and Sony's Japan it barely budged. In the United States it doubled, from 8% to 16%. (Indeed, France had a more unequal income distribution than the United States until the 1970s. Today, America's Gini coefficient is in the high 40s, while those of France, Germany and Japan are just above 30.)

In an innovative historical departure, Hacker and Pierson trace the rise of the winner-take-all economy back to the late 1970s when, under a Democratic president and a Democratic Congress, a major transformation of American politics occurred. With big business and conservative ideologues organizing themselves to undo the regulations and progressive tax policies that had helped ensure a fair distribution of economic rewards, deregulation got under way, taxes were cut for the wealthiest, and business decisively defeated labor in Washington. And this transformation continued under Reagan and the Bushes as well as under Clinton, with both parties catering to the interests of those at the very top. Hacker and Pierson’s gripping narration of the epic battles waged during President Obama’s first two years in office reveals an unpleasant but catalyzing truth: winner-take-all politics, while under challenge, is still very much with us.