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Income Inequality: Blame (Praise) the Tech Bubble and Stock Boom

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Everyone always minds the allegedly growing income gap but no one wants to wear Gap pants. Brad DeLong explains today that the soaring income inequality of the late 1990s was largely a product of the tech and stock boom. Some people saw very outsized income gains from these booms compared with many of their neighbors.

Income inequality soared in the late 1990s. Why? A decomposition by region and sector can tell you pretty much exactly: it was the tech bubble and the stock boom. Capital gains and stock options realizations. Much of it in just five places in the whole country: Manhattan, King County WA, and Santa Clara, San Francisco and San Mateo Counties, CA. Take out those five, as Travis Hale and I showed in a paper, and the between-counties component of income inequality (which isn't all of it, but it isn't chopped liver, either) doesn't go up at all.

One thing that’s clear about this, however, is that a “rising tide” doesn’t “lift all boats”—as the perpetual optimists like to tell us. Tech tides raise the boats of people in the tech industry, for instance, leaving other folks pretty much where they were. A more accurate assessment might be that a rising tide lifts all finance boats, since debt, equity and investment bankers tend to make money regardless of which economic sector is experiencing the rising tide.

James Galbraith on "Dean Baker on Judges Behaving Badly"
[Brad DeLong's Semi-Daily Journal]


HBS Grads Loving Tech Bubble 2.0

Tech is luring young MBAs at levels not seen since you know what.