Put simply, the benefits of economic growth have gone into the pockets of plutocrats rather than the bulk of the population. So why has there been no revolution? Because there was a solution: debt. If you couldn't earn it, you could borrow it. Cheap financing was made widely available. Financial innovations such as the asset-backed securities market aided this process, as did government-sponsored agencies such as Fannie Mae and Freddie Mac. Regulators welcomed it all while perhaps taking insufficient account of the moral hazard problem it posed: that ever-increasing leverage meant the authorities had to keep interest rates low, otherwise the debt burden would cripple consumption. This prompted more leverage, which exacerbated the problem.
Many of those houses have now been lost - "owners" turned into renters. The new Bimmers and Benzes traded in for used Toyotas. It will be a long and painful readjustment for much of America as we head toward a new normal.
Richard Florida
So that long awaited revolution is back on track now?
I should note -- and probably will address this more thoroughly at my own space -- but the sharp rise in incomes at the top was at least in part driven by a fiction of its own, huge profits in the financial sector.
One of the alarm bells of the past decade was the growing share of national income being earned by capital. Despite a lot of hand wringing to the contrary, growth economists have long been comforted by the fact that capital's share of national income was constant.
Over the last 40 years it never really moved. Unions, high taxes, low taxes, regulation, deregulation - none of it seemed to make a great deal of difference. Capital earned just under 1/3 of the pie.
At the turn of the 21st century that share started growing. At first I thought it was simply minor fluctuations around the long run trend, but it kept growing. Suddenly there was concern. Had the rules changed?
Now, it seems that much if, not all of the excess fluctuation was due to financial profits that are now being offset by massive losses. When the period from 2000 - 2015 is looked at as a whole I am betting that capital's share will be back to roughly 1/3.