These are three related, but different, phenomena that call for different governmental responses. I will try to tease them out there.
Rising Inequality
While a few right-wing economists maintain that inequality is not, in fact, rising, they are outliers; all of the credible evidence suggests that it is–not just in the US, but throughout the world. The principal drivers of increased inequality are globalization and technological change, but it has been exacerbated by government policies on taxing and spending, particularly in this country.
Is the average American really upset about this state of affairs? I would say not, because, to the average American, the super-rich are sports and media stars, not hedge fund managers, and the nexus between their work and their compensation is obvious. It is true that LeBron James, for example, is not typical of the average plutocrat, who is much more likely to be a CEO or a financial honcho, but I don’t think the American public views it that way. In any event, people are more likely to view inequality in the context of people they know, and the lifestyle of a typical CEO is not something with which average people are familiar.
Rising inequality is both a political and an economic problem. It is an economic problem because the shrinking of the middle class leads to a smaller base of consumers and, therefore, increased instability; the political problem, in the age of Citizens United, obviously is an unfair degree of access to politicians and regulators. That said, I don’t think inequality by itself is the source of the widespread unhappiness with the political system that has manifested itself both on the left and the right.
Declining Opportunity
There is also plenty of evidence that American society is becoming more oligarchical as a result of the convergence of a knowledge-based economy and the propensity of well-educated people to marry and cluster together in similar communities. There isn’t a whole lot the government can do about this; to the extent that it does have some power, it involves changes to the educational system that will have to work themselves out over decades. I don’t think this explains popular concern about the economy, either.
Stagnant Wages
If wages were rising at a historically high rate, but profits were increasing at an even higher rate, would working people be complaining? I doubt it. Wage stagnation, not inequality, is the principal source of frustration with the system.
All of the evidence I have seen indicates that stagnating wages have been a problem since the late 1970’s. The principal reasons for stagnating wages are globalization and technological change, and how they are perceived by working people. If you believe that your job is under threat every day by a machine or someone in India, labor militancy is probably not in your future. The withering away of unions is also a factor, although the ongoing relevance of unions in an economy in which the means of production are frequently laptop computers is debatable at best.
Is this state of affairs immutable? No, for reasons I will discuss in a subsequent post.