In a recent post, Jared Bernstein discussed asked ‘Inequality: why now?.’ Among his answers was the Occupy movement, alongside the sheer fact of growing inequality. Bernstein attributed that latter to fact to, among other things, the decline in tax and transfer: “the system of taxes and transfers has become less effective over time at pushing back on the rising tide of pretax income inequality.” Hence the by now well-known chart

Bernstein’s view is a familiar liberal interpretation of the kind of conflict that is emerging. The major inequality at stake is one of income, the major problem is the decline of progressive taxation and the withering of welfare benefits. This view radically undersells the kinds of concerns that inform the Occupy and related movements, and it is even more limited as a piece of social analysis.

There is no single view on economic inequality at Occupy Wall Street or elsewhere, but it is clear that the concern is with a wider form of inequality than mere earning power. The ability to meet basic needs is of course important, and is why pushing back against housing and student debt has been a recurring theme. But the relevant inequalities are of social and political power more widely. One sees demands for transforming work, for ending corporations, for real democracy and political equality, for socializing the means of production and for anarchist productive collectives. Some of these demands are contradictory, others downright undesirable. But they have in common the view that the inequality problem here is more fundamental than mere differences in income. Even income inequality itself tends to be seen as a consequence of differences in social and economic power.

Again, Occupy is a diverse, many-headed hydra. But even if we take something like Berntein’s argument as just a piece of social analysis it is also surprisingly limited. Bernstein seems to think that the key problem is the attack on welfare benefits and tax cuts. However, changes in tax policy have surprisingly little to do with the dramatic increase in income (and wealth) inequality. Rather, as an important paper by Bakija et al. observes, it is not taxes but changes in the underlying structure of the economy over the past thirty years that have produced dramatic inequalities. In particular, the increasing financialization of the economy, and the use of various modes of compensation linking executive pay to the stock market, rather than long-run firm performance, have mattered much more. As we have discussed elsewhere, and as Doug Henwood described expertly in Wall St. many years ago, this change in compensation was part of a wider class project of transforming managers into extensions of shareholder capital, and creating incentives for them to squeeze workers ever harder. Workers who were facing declining ability to defend their earnings due to, among other things, declining unionization and weakening labor militancy.

This class project took place not just at the level of the firm, but also the state. There were various bills, like the Gramm-Leach-Bliley act, deregulating banking. And there was, of course, the Fed. When then Fed Chairman Paul Volcker (yes, that Volcker, of the Volcker rule) jacked up interest rates from 1979 through the early 1980s, declaring “the standard of living of the average American must decline,” this was the opening shot of the Reagan era offensive against the working class. Volcker forgot to mention that this was so that “the standard of living of the top 20% of Americans will increase.” The Fed has in fact consistently served certain interests over others, not just because of some conspiratorial connections, but because the ‘expert’ knowledge supplied by bankers and their friends at the Fed are taken simply as value neutral economic advice, rather than as highly interested knowledge. How else are we to understand recent revelations that the Fed loaned $7.7 trillion interest-free to major banks between August 2007 and April 2010, only to have the banks loan most of that back to the US (via bond purchases and the like) at a higher interest rate – yielding them $13 billion in profits? We should take at face value Fed statements that “Our lending programs served to prevent a collapse of the financial system and to keep credit flowing to American families and businesses.” This was not just some secret project to redistribute money upwards to the Fed’s banker friends. It was also the working of ideology – the belief that the only way to save the economy was to shovel more and more money into the banks sitting at the top so as to get the credit wheel spinning again. This is a belief that developed and won hegemonic status over a long period of time, winning acceptance well beyond those whose interests it has served (remember this recent debate in which Yglesias argued for easier money against the now prescient objections of, among others, Henwood and Robin?). This belief forms part of the debt-based social model that has dominated our political economy for decades.

In other words, at the level of the firm, the state, and ruling ideology, the key inequality has been an inequality of class power, not just earning potential. That, in the end, is the inequality that matters.