Adam Davidson, NY Times Magazine online, yesterday:

Earlier this month, Larry Mishel, the president of the Economic Policy Institute, stood at a lectern in a small hotel conference room in San Diego and fiddled with a computer until his PowerPoint presentation flashed on the screen. Mishel then composed himself, paid tribute to his intellectual opponent sitting in the front row and began a speech that, he hopes, will reorient the U.S. economy away from the 1 percent or the 0.1 percent and toward the rest of us.

Mishel’s session at this year’s meeting of the American Economic Association, titled “Inequality in America,” tellingly coincided with other sessions called “Extreme Wage Inequality” and “Taxes, Transfers and Inequality.”  As the financial crisis wanes, economists are shifting their attention toward a more subtle, possibly more upsetting crisis in the United States: the significant increase in income inequality.

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Either way, the Great Compression gave way to a Great Divergence. Since 1979, according to the nonpartisan Congressional Budget Office, the bottom 80 percent of American families had their share of the country’s income fall, while the top 20 percent had modest gains. Of course, the top 1 percent — and, more so, the top 0.1 percent — has seen income rise stratospherically. That tiny elite takes in nearly a quarter of the nation’s income and controls nearly half its wealth.

The standard explanation of this unhinging, repeated in graduate-school classrooms and in advice to politicians, is technological change. The rise of networked laptops and smartphones and their countless iterations and spawn have helped highly educated professionals create more and more value just as they have created barriers to entry and rendered irrelevant millions of less-educated workers, in places like factory production lines and typing pools. This explanation, known as skill-biased technical change, is so common that economists just call it S.B.T.C. They use it to explain why everyone from the extremely rich to the just-kind-of rich are doing so much better than everyone else.

For two decades, Mishel has been a critic of the S.B.T.C. theory, and that morning in San Diego, he argued that broad technological innovation has been taking place so steadily for so long that the rise of computers simply can’t explain the recent explosion in inequality. After all, when economists talk about technological innovation, they are thinking beyond smartphones; they’re usually considering innovations that affect production. Business innovations — like the railroads, telegraph, Henry Ford’s conveyor belt and the plastic extruders of the 1960s — have occurred for more than a century. Computers and the Internet, Mishel argued, are just new examples on the continuum and cannot explain a development like extreme inequality, which is so recent. So what happened?

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