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Timothy Noah: Why the Rich Are Getting Richer and the Middle Class Is Disappearing

In his new book "The Great Divergence," Noah digs into the causes of America's rapidly increasing inequality. In this interview, he talks to AlterNet about what he found.

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TN: I did a column about the minimum wage a couple of weeks ago. I’m very frustrated that Obama is not doing anything about the minimum wage. Partly on the merits itself and partly because it’s such a great issue to torture Romney with, because Romney is on the record favoring pegging the minimum wage to inflation.

It’s actually one area where he hasn’t quite flip-flopped. He has sort of neutered his position on it, but he hasn’t changed it. He said that, well, you should take into account inflation, but you also should take into account 12 other things which justify not doing anything at all. But at least in principle, he still believes that the minimum wage should be taken out of the political arena and it should go up automatically. It’s perfectly logical. We index tax brackets, why shouldn’t we index minimum wage?

Anyway, Obama won’t raise it and I worry that one reason he won’t is that he’s half sold on the idea that it will create more unemployment. The most recent economic studies suggest that, yes, while it is true that if you raise the cost of hiring that will depress the amount of hiring that gets done, but there is a countervailing force, which is that if you pay people more money they are more productive and less alienated. What economists are starting to find is that the upside outweighs the downside, so that you don’t actually in the end see unemployment effects from raising the minimum wage.

SJ: You were just talking about how productivity and wages have been completely delinked at this point. At least for people in the working middle class, as productivity goes through the roof we’re not seeing wage increases pretty much at all.

TN: Right, and that’s a pretty recent departure from what had been the accepted, not just policy, but economic reality.

SJ: The problem there then is, if productivity has just been completely severed from wage growth, are things like education – like universal preschool, like you suggest or making college more available to all – are those going to help if we’ve already realized that people aren’t being paid based on what they produce at all? They’re not being paid on their skill or their effort or the time that they put in. They’re being paid based on what the boss can get away with paying them.

TN: Yes, but it’s easier to screw over less skilled workers than it is to screw over more skilled workers, and I emphasize in my book that there are a lot of things that have to happen. I would never pretend that any one of these solutions is the silver bullet. There are many things that happened at the same time to create this problem and there are many things that need to happen to make it go away. The only simple part of the story is actually the 1 percent versus the 99 percent. I don’t actually discuss the 1 percent versus the 99 percent all that much in my book because the causes are in that instance quite simple. It’s rising CEO pay and the financialization of the economy.

SJ: You wrote, “Wall Street ate the economy,” which was pretty funny and also entirely true. I was recently reading Thomas Frank’s book from 2000, One Market Under God. He makes a lot of the fact that the stock price of a company will go up every time they talk about layoffs and I thought of that when you mentioned that 75 percent of the increase in corporate profits is a decrease in wages and benefits. At first it makes no sense that the market would go up every time a company lays people off. You think, eventually that gets down to nothing and then you have no company to be buying stock in. But when you talk about the financialization of the economy and the increase in profit, along with the increase in the pay at the top and the decrease in the pay at the bottom it all sort of coalesces nicely into what our problem is.

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