Palley, Thomas
Wo king Pape
The Kuzne s cu e e sus cycles: Re hinking he
de e mina ion and long- un e olu ion o income
dis ibu ion
FMM Wo king Pape , No. 117
P o ided in Coope a ion wi h:
Mac oeconomic Policy Ins i u e (IMK) a he Hans Boeckle Founda ion
Sugges ed Ci a ion: Palley, Thomas (2025) : The Kuzne s cu e e sus cycles: Re hinking he
de e mina ion and long- un e olu ion o income dis ibu ion, FMM Wo king Pape , No. 117,
Hans-Böckle -S i ung, Mac oeconomic Policy Ins i u e (IMK), Fo um o Mac oeconomics and
Mac oeconomic Policies (FMM), Düsseldo
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FMM WORKING PAPER
No. 117 • June 2025 • Hans-Böckle -S i ung
THE KUZNETS CURVE VERSUS CYCLES:
RETHINKING THE DETERMINATION AND
LONG-RUN EVOLUTION OF INCOME
DISTRIBUTION
Thomas Palley1
ABSTRACT
This pape p esen s a heo y and model o long- un cycles in income inequali y. The model
explains he his o ical pa e n o income dis ibu ion iden i ied by Kuzne s (1955) and Pike y
(2014). I b eaks wi h con en ional ma ginal p oduc heo y which claims unc ional income
dis ibu ion is de e mined by he echnological condi ions o p oduc ion. Ins ead, i
emphasizes he ole o socio-poli ical o ces ha shape and d i e luc ua ions in he le el o
popula poli ical o ganiza ions, which hen impac dis ibu ion. Tha impac includes
assessmen and a ibu ion o p oduc i i y con ibu ions. The model p o ides a amewo k o
in e p e ing he his o ical e olu ion o income dis ibu ion and inequali y, and o e lec ing on
cu en condi ions and possible u u e de elopmen s. The co e message is wo old. Fi s ,
socio-poli ical de elopmen s ma e o income dis ibu ion. Second, i hose de elopmen s
a e cyclical, income dis ibu ion will also exhibi cyclicali y.
—————————
1 Economics o Democ a ic and Opens Socie ies, Washing on, DC, mail@ homaspalley.com
1
The Kuzne s cu e e sus cycles: e hinking he de e mina ion and long- un
e olu ion o income dis ibu ion
Abs ac
This pape p esen s a heo y and model o long- un cycles in income inequali y. The model
explains he his o ical pa e n o income dis ibu ion iden i ied by Kuzne s (1955) and Pike y
(2014). I b eaks wi h con en ional ma ginal p oduc heo y which claims unc ional income
dis ibu ion is de e mined by he echnological condi ions o p oduc ion. Ins ead, i emphasizes
he ole o socio-poli ical o ces ha shape and d i e luc ua ions in he le el o popula poli ical
o ganiza ions, which hen impac dis ibu ion. Tha impac includes assessmen and a ibu ion o
p oduc i i y con ibu ions. The model p o ides a amewo k o in e p e ing he his o ical
e olu ion o income dis ibu ion and inequali y, and o e lec ing on cu en condi ions and
possible u u e de elopmen s. The co e message is wo old. Fi s , socio-poli ical de elopmen s
ma e o income dis ibu ion. Second, i hose de elopmen s a e cyclical, income dis ibu ion
will also exhibi cyclicali y.
Keywo d: Income dis ibu ion, inequali y, cycles, Kuzne s cu e, Pike y.
JEL e .: E3, J3, N3
Thomas Palley
Economics o Democ a ic and Opens Socie ies
Washing on, DC
mail@ homaspalley.com
May 2025
1. In oduc ion
This pape p esen s a poli ical economic heo y o long- un cycles o income dis ibu ion and
inequali y. The pape is mo i a ed by he empi ical indings o Pike y (2014) in his seminal
book Capi al in he Twen y-Fi s Cen u y, which documen s he g ea e e sal in income equali y
ha has aken place since he mid-1970s. Tha e e sal has a lic ed he en i e y o he No h
A lan ic capi alis wo ld, consis ing o No h Ame ica and Wes e n Eu ope.
Pike y’s indings challenge he con en ional iew embodied in he Kuzne s cu e, which
2
eme ged ou o he wo ks o Kuzne s (1955). Tha iew asse ed income inequali y ini ially
inc eased wi h economic de elopmen (measu ed as income pe capi a), and he ea e
dec eased. Pike y’s indings also aci ly challenge ano he ea lie iew associa ed wi h Kaldo
(1963) whe eby de eloped economies a e cha ac e ized by six s able s ylized ac s. One o hose
is ha he capi al and labo sha es o ne na ional income a e oughly cons an o e long pe iods
o ime.
1
The pape has wo p incipal objec i es. Fi s , i uses Pike y’s indings as a ga eway o
engaging an al e na i e iew in which income dis ibu ion is subjec o long- un cycles d i en by
cyclical changes in poli ical and economic condi ions. A model in ha spi i has p e iously been
de eloped by S elzne (2014), and he cu en pape expands and elabo a es ha line o hinking.
The pape is also in o med by he cyclical model o long- un union densi y o Palley and
LaJeunesse (2007), wi h unions being a cen al pa o he poli ical and ins i u ional mechanism
ha gene a es long- un dis ibu ion cycles. Second, i uses he cyclical model o able an
al e na i e app oach o he de e mina ion o income dis ibu ion whe eby he a ibu ion o he
alue o wo k depends on ins i u ional a angemen s and subjec i e socie al assessmen s which
a y wi h socie al poli ical and social de elopmen s.
The logic o he pape is as ollows. Fi s , Pike y’s (2014) empi ical indings challenge
he ea lie con en ional wisdom o he Kuzne s cu e. They show a wa e-like pa e n whe eby
he e was a s eep all in inequali y in he No h A lan ic economies in he middle o he 20 h
1
I should be no ed ha al eady, be o e Pike y (2014), he e was widesp ead awa eness o g owing income
inequali y. Fo ins ance, ha de elopmen was documen ed wi hin he OECD by A kinson, Rainwa e , and
Smeeding (1995), while Galb ai h (1998) documen ed i o be a global phenomenon using manu ac u ing wage da a.
Wi hin he US, he wo k o Law ence Mishel, Ja ed Be ns ein, and John Schmi was e y impo an ia hei
biennial olume The S a e o Wo king Ame ica, he i s edi ion o which was published in 1988. The Luxembou g
Income S udy, c ea ed in 1983 by Timo hy Smeeding and Lee Rainwa e , was also e y impo an in su acing his
de elopmen . Las ly, Pike y con ibu ed o his awa eness wi h his own o e unne s udies o inequali y in F ance
(Pike y, 2003) and he USA (Pike y and Saez, 2003).
3
cen u y, ollowed by a s eep inc ease in inequali y in he las qua e . Second, hose s eep swings
a e consis en wi h a socio-poli ical heo y o income dis ibu ion, and he swings a e also
consis e wi h he socio-poli ical his o y o he pe iod. Thi d, he e a e g ounds o belie ing ha
socie y’s socio-poli ical e olu ion is subjec o long cycles, so ha income dis ibu ion may also
exhibi cyclical swings i i is de e mined by socio-poli ical ac o s. Fou h, he pape p esen s a
socio-poli ical model o income dis ibu ion ha ames and explo es hose issues. Rega dless o
whe he income dis ibu ion is de e mined by a long cycles mechanism, he model ables
impo an conce ns which ha e di icul y ge ing a hea ing wi hin con empo a y economics.
The balance o he pape is as ollows. Sec ion 2 discusses he o iginal Kuzne s cu e.
Sec ion 3 discusses Acemoglu and Robinson’s (2000) elabo a ion o he heo y o he Kuzne s
cu e o include poli ical de elopmen s. Sec ion 4 discusses Pike y’s (2014) empi ical indings
which unde mine he Kuzne s cu e and, ins ead, sugges income dis ibu ion should be amed
in e ms o long- un cycles. Sec ion 5 b ie ly desc ibes how poli ical his o ians ha e posi ed he
exis ence o poli ical cycles. Sec ion 6 p esen s he poli ical economic model o long- un cycles
in he dis ibu ion o income. Sec ion 7 discusses he mul iple implica ions ha low om he
model. Sec ion 8 concludes he pape .
2. The Kuzne s cu e
The s a ing poin o analysis is he Kuzne s cu e associa ed wi h he Kuzne s’ (1955) seminal
a icle on economic g ow h and income inequali y. Tha a icle p esen ed his hypo hesis and
heo e ical a gumen (based on his obse a ions o he US, UK, and Ge man economies) ha
income inequali y ini ially inc eases as an economy de elops, and i hen dec eases a e some
ex ended pe iod o ising pe capi a income. Tha pa e n gene a es an in e ed U-shaped ela ion
as illus a ed in Figu e 1, which shows a s ylized Kuzne s cu e o he No h A lan ic economies
4
ha illus a es app oxima e de elopmen s om he onse o he indus ial e olu ion o he end o
he Keynesian e a in he 1970s. Since pe capi a income is s eadily ising owing o he p ocess o
economic g ow h, pe capi a income le els can be pai ed wi h momen s in his o y.
Figu e 1. A s ylized Kuzne s cu e illus a ing he app oxima e his o ical pa e n o income
inequali y de elopmen s wi hin he No h A lan ic economies (1800 –1970).
Income inequali y
Pe capi a income
Onse o
indus ializa ion
(ci ca 1800)
1920s End o WWII
(1945)
1970
Gilded age
1870s
The me can ile capi alis p e-indus ial economy was highly unequal. Wi h he onse o
indus ializa ion, inequali y s a s o u he inc ease. Tha is accompanied by ising pe capi a
income, he p ocess behind which e en ually causes inequali y o peak and s a alling. In Figu e
1, inequali y p io o indus ializa ion is d awn as la ish. Howe e , i may ha e s a ed o
inc ease be o e ha (e.g., in he UK) wi h he la e 17 h cen u y onse o me can ile capi alism and
coloniza ion which b ough g ea weal h o a ew ia he colonial and sla e ades. Income
inequali y peaks in he 1920s and hen alls e y apidly and signi ican ly h ough o he 1970s.
Addi ionally, Figu e 1 shows income inequali y d opping a below i s p e-indus ializa ion le el
a e Wo ld Wa II.
5
Kuzne s’ a icle ocuses on h ee main channels. The i s is sa ing and weal h dynamics
which will end o inc ease inequali y as sa ing ends o be concen a ed in uppe income g oups.
Tha endency is mode a ed by se e al mechanisms including poli ical in e en ions ia axes,
he dilu ion o he old ich by he en y o he new ich, and a endency o a g owing economy o
shi he composi ion o employmen owa d highe paying jobs. In sum, o Kuzne s i is
economic dynamism ha mode a es sa ing and weal h inequali y dynamics:
“One can hen say, in gene al, ha he basic ac o mili a ing agains he ise in
uppe -income sha es ha would be p oduced by he cumula i e e ec s o
concen a ion o sa ings, is he dynamism o a g owing and ee socie y
(Kuzne s, 1955, p.11).”
In e es ingly, as discussed below, Pike y (2014) has e i ed conce n abou he ad e se
inequali y impac o sa ing and weal h dynamics which Kuzne s discoun ed.
The second channel is he impac o indus ializa ion on demog aphics. Pos -na al
su i al a es inc eased and dea h a es dec eased disp opo iona ely among lowe -income
g oups, he eby inc easing inequali y:
“... he “swa ming” o popula ion inciden upon a apid decline in dea h a es
and he main enance o e en ise o bi h a es, would be un a o able o he
ela i e economic posi ion o lowe -income g oups (Kuzne s, 1955, p.18).”
The hi d and mos impo an channel was he shi o employmen om ag icul u al o
he u ban non-ag icul u al sec o . P oduc i i y and wages we e highe in he la e which explains
i s con ibu ion o ising pe capi a income, bu income inequali y was also highe wi hin i .
Consequen ly, he ini ial shi o labo om ag icul u e o non-ag icul u e would inc ease
inequali y. The ea e , income inequali y wi hin he non-ag icul u al sec o ended o decline,
he eby beginning a p ocess o e e sing highe inequali y.
“Much is o be said o he no ion ha once he ea ly u bulen phases o
indus ializa ion and u baniza ion had passed, a a ie y o o ces con e ged o
bols e he economic posi ion o he lowe -income g oups wi hin he u ban
6
popula ion (Kuzne s, 1955, p.18)”.
Kuzne s’ hypo hesis quickly became he benchma k o hinking abou he de e minan s
and pa e n o long- un income dis ibu ion. The hypo hesis was also in e p e ed as being
mechanis ic. Bo h si poo ly wi h Kuzne s’ (1955) a icle which was p e aced wi h ese a ions
ega ding da a quali y and openly sugges ed he p esence o non-economic o ces. Fi s , he
pape s opening sec ion (Kuzne s, 1955, p.1-3) emphasizes pauci y and limi a ions o da a.
Second, in explaining why inequali y e en ually u ns down, Kuzne s explici ly emphasizes he
ole o poli ical ac o s:
“Fu he mo e, in democ a ic socie ies he g owing poli ical powe o he u ban
lowe -income g oups led o a a ie y o p o ec i e and suppo ing legisla ion,
much o i aimed o coun e ac he wo s e ec s o apid indus ializa ion and
u baniza ion and o suppo he claims o he b oad masses o mo e adequa e
sha es o he g owing income o he coun y (Kuzne s, 1955, p.17).”
Thi d, Kuzne s exp essly emphasized he ele ance o poli ical and social ac o s o he
de e mina ion o income dis ibu ion, wi h he las sen ence o he pape claiming:
“E ec i e wo k in his ield necessa ily calls o a shi om ma ke
economics o poli ical and social economy (Kuzne s, 1955, p.28).”
Those h ee ese a ions and obse a ions a e consis en wi h and suppo i e o he
a gumen s made below, so ha his pape is suppo i e o Kuzne s, i no he pa icula s o he
cu e which bea s his name. I was he o e -con iden pos -wa mains eam economics
p o ession which emb aced Neoclassical ma ginal p oduc i i y heo y whe eby he agg ega e
p oduc ion unc ion mechanis ically de e mines income dis ibu ion, and which neglec s he ole
o he poli ical and social. The p o ession also neglec ed Kuzne s’ wa ning abou he pauci y o
da a and i s sho ime-span, he eby mis akenly hinking he in e ed U-shaped pa e n
co esponded o an endu ing i on law.
3. In oducing poli ics: he Acemoglu - Robinson (A&R) model wi h disc e e poli ical
7
change
The nex s ep in he na a i e is he con ibu ion o A&R (2000). As no ed abo e, Kuzne s (1955)
explici ly ecognized he impo ance o social and poli ical de elopmen s, bu he mains eam
economics chose o igno e ha . A&R in oduce hose ac o s in o hei model o democ acy and
g ow h, which has become a cen al elemen o hei magnus opus Why Na ions Fail (Acemoglu
and Robinson, 2012).
The logic o he A&R model is illus a ed in Figu e 2. Indus ializa ion gene a es ising
income inequali y (i.e., he le -hand side o he Kuzne s cu e). Tha , in u n, gene a es socio-
poli ical esen men s among lowe -income wo ke s who h ea en e olu ion and he
exp op ia ion o he high-income g oup. I he e olu ion h ea is su icien ly c edible, he high-
income g oup may e o m democ acy and expand he anchise o include lowe -income
wo ke s. Tha inclusion shi s he median o e (who is he decide in hei poli ical model) in a
lowe income di ec ion. In u n, he median o e decides on a highe ax a e and inc eased
edis ibu ion o he lowe -income g oup, which paci ies he e olu iona y impulse. Fo he
uling class (high-income g oup), ha is a wo hwhile s a egy as he cos o anchise expansion
and edis ibu ion is less han he cos o e olu ion.
14
Figu e 5. Decons uc ing Pike y’s (2014) analysis o income inequali y.
Laye 1: he unc ional dis ibu ion
o income and capi al - labo sha es.
Laye 2: he dis ibu ion o labo
income among wo ke s.
Laye 3: he dynamics o weal h
accumula ion & concen a ion.
As ega ds his own heo y, Pike y adhe es o con en ional Neoclassical ma ginal
p oduc i i y heo y o income dis ibu ion, whe eby unc ional income dis ibu ion is de e mined
by he echnical cha ac e is ics o he p oduc ion p ocess, as ep esen ed by he p oduc ion
unc ion. Tha is e iden in chap e six (Pike y, 2014, p.199-234) which ackles he capi al-labo
income spli (laye 1). Wi hin Neoclassical heo y, he elas ici y o subs i u ion be ween capi al
and labo (σ) is c i ical. Economic g ow h is cha ac e ized by a ising capi al-labo a io (k). I σ
= 1 ( he case o he Cobb-Douglas p oduc ion unc ion), capi al’s sha e is cons an as k inc eases.
I σ > 1, capi al’s sha e inc eases wi h k. I σ < 1, capi al’s sha e dec eases wi h k. E go, o he
ex en ha ising income inequali y is due o an inc easing capi al sha e, Neoclassical economic
logic a ibu es ha o σ being g ea e han 1. Howe e , he empi ical e idence (Geche ,
Ha anek, Is o a, and Kolcuno a, 2022) sugges s σ is signi ican ly below uni y. Tha is a
p oblem o Pike y’s (2014) heo e ical accoun o his indings, and pa o he mo i a ion o
his pape ’s sugges ed al e na i e app oach.
15
Chap e nine (Pike y, 2014, p.304-335) discusses inequali y o dis ibu ion o labo
income (laye 2), and i in oduces some ins i u ional conside a ions. Men ion is made o he
minimum wage and o excessi e supe -manage (CEO) pay in Anglo-Saxon economies, wi h he
o me lowe ing inequali y and he la e aising i . Howe e , e e y hing is iewed h ough a
Neoclassical lens. Minimum wages may educe income inequali y, bu hey will also end o
lowe employmen – hough ha isk is mi iga ed gi en he cu en low le el o minimum wages
in he US. Re lec ing his Neoclassical disposi ion, Pike y (2014, p.310-313) inclines agains
minimum wages as an impo an long un ins i u ional mechanism o add essing inequali y.
Excessi e Anglo-Saxon CEO pay is iewed by Pike y as being he p oduc o
ins i u ional dis o ions, cons i u ing a p icing dis o ion ela i e o ma ginal p oduc i i y p icing.
In his a emp o explain he s a k di e ences in supe mange pay ac oss coun ies, Pike y seeks
o dis ance himsel om Neoclassical ma ginal p oduc i i y heo y, w i ing ha “ he heo y o
ma ginal p oduc i i y and o he ace be ween echnology and educa ion does no seem capable
o p o iding (Pike y, 2014, p.321” an explana ion o supe manage pay. Howe e , ha a emp
a dis ancing in oduces c acks in he book’s o e a ching heo e ical s uc u e which is p edica ed
on ma ginal p oduc i i y heo y. I i is no possible o iden i y he ma ginal p oduc i i y o
CEOs and op managemen , how is i possible o iden i y he p oduc i i y o hose below hem?
Thus, he heo y begins o un a el as i inclines o an all o no hing p oposi ion.
Las ly, and e y su p isingly, ade unions and hei decline a e absen om he analysis (abou
which mo e below). Ba gaining powe is almos en i ely absen in he analysis, he e being one
e e ence o i in connec ion wi h he minimum wage (Pike y, 2014, p.312), which is p esen ed
as an an ido e o employe monopsony powe . Acco ding o Neoclassical economics, bo h unions
and a minimum wage would be an ine iciency, e en i hey educe inequali y. Ano he su p ise
16
is ha Pike y’s (2014, p.304 – 335) discussion o labo income inequali y also makes no
men ion o globaliza ion o inancializa ion. The o me ha e placed wo ke s in global
compe i ion wi h each o he , while he la e has pushed i ms o emb ace he sha eholde alue
maximiza ion pa adigm and o use deb o p e-emp wo ke claims on p o i s (Palley, 2007).
Laye 3 ega ding weal h accumula ion and concen a ion dynamics is add essed in
chap e en (Pike y, 2014, p.336-376). The conce n wi h weal h concen a ion links back o
Kuzne s’ (1955) pape . Howe e , whe eas Kuzne s belie ed ma ke dynamism ende ed he issue
unp oblema ic in he long- un, Pike y iews i as highly p oblema ic. The p oblem is explained
h ough he inequali y > g, whe e ep esen s he a e - ax a e o e u n on capi al and g
ep esen s he economy’s g ow h a e. I > g, owne s’ weal h (W) will be g owing as e han
he agg ega e income (Y), leading o an inc ease in he weal h- o-income a io. Wi h a gi en
se ing o and g, weal h-owne s will ake an inc easing sha e o agg ega e income. Since
weal h owne ship is unequal, income inequali y will inc ease.
Acco ding o Pike y (2014, p.353-358), excep o he mid-20 h cen u y when axes we e
high, he his o ical no m appea s o be > g. Tha sugges s capi alism ends o weal h
concen a ion absen high axes on capi al. Fo Pike y, he solu ion is weal h axa ion and
edis ibu ion. Howe e , ha mus be accomplished in a manne ha does no impe il he
accumula ion o capi al which sus ains he sys em.
4.c An assessmen : aking s ock
Pike y’s undamen al con ibu ion conce ns he documen a ion o long- un de elopmen s in
income inequali y. As no ed abo e, his esea ch p og am summa ized in Capi al in he Twen y-
Fi s Cen u y (Pike y, 2014), p o ides de ini i e p oo o ad e se changes in income dis ibu ion
ha many al eady suspec ed by he mid-1990s. Tha p oo has been o massi e poli ical
17
consequence as he documen ed changes ha e been o such scale ha i has pushed he income
dis ibu ion ques ion o he o e o he poli ical deba e. Be o e Pike y (2014), i was s ill possible
o he poli ical and economic es ablishmen o dismiss conce ns abou massi ely inc eased
income inequali y: a e Pike y (2014) i was no .
4
As pa o legi imizing he poli ical salience o he inequali y issue, Pike y has also pu
weal h axes squa ely back on he able. Such axes, including inhe i ance axes, ha e a long
his o y. Howe e , in he Neolibe al e a which began ci ca 1980, hey ha e been inc easingly
challenged and subjec o educ ion. Pike y’s wo k has gi en such axes enewed legi imacy and
hey a e inc easingly widely can ased.
Ano he bene i om his wo k is he boos i has gi en o in e es in he heo y o income
dis ibu ion. Addi ionally, his wo k has gi en inc eased legi imacy o he Kaleckian o mula ion
o Keynesian AD heo y, which is widely used by Pos Keynesians. Tha o mula ion emphasizes
he signi icance o he capi al-labo income sha e o he de e mina ion o AD, wi h unc ional
income dis ibu ion impac ing agg ega e in es men and agg ega e consump ion spending.
The key ques ion is does Pike y’s own heo y sa is ac o ily accoun o his own
empi ical indings and he pa e n shown in Figu e 4? Pike y’s app oach is oo ed in
con en ional ma ginal p oduc heo y. I emphasizes he elas ici y o subs i u ion be ween capi al
and labo (σ), and he dynamics o weal h accumula ion oo ed in he in e es a e ( ) e sus
g ow h (g) ela ion. The one non-con en ional “ins i u ional” ea u e is supe -manage (CEO)
pay.
4
While Pike y (2014) has ga ne ed mos a en ion and ca ied he a gumen ac oss he line, his wo k s ands on he
shoulde s o gian s. In pa icula , he wo k o he la e An hony A kinson was pa icula ly impo an , and A kinson
(1975) launched he con empo a y in e es in he s udy o income inequali y wi h his book The Economics o
Inequali y. Addi ionally, he Luxembou g Income S udy ha began in 1983 has been c i ical in i s p o ision o
mic oeconomic household da a ha could empi ically documen de elopmen s.
18
Acco ding o Pike y (2014) and as shown in Figu e, he mid-20 h cen u y decline in
inequali y happened in app oxima ely hi y yea s (1930-1960), while he la e 20 h cen u y
inc ease in inequali y happened in abou 20 yea s (1980-2000). Tha pa e n o apid change si s
uneasily wi h con en ional ma ginal p oduc i i y heo y which emphasizes s able deep
pa ame e s. Tha p o ides ano he eason o conside ing al e na i e explana o y amewo ks o
he de e mina ion o income dis ibu ion.
4.d C i ique and p elude o an al e na i e
The abo e ension sugges s need o new heo y o explain he d ama ically changed Kuzne s
pa e n and he speed wi h which massi e changes in socie al income inequali y ha e occu ed.
Figu e 5 illus a es wo compe ing app oaches. One app oach ( he Pike y ou e) is o s ick wi h
ma ginal p oduc i i y heo y and augmen i wi h ins i u ional dis o ions, as exempli ied by
CEO pay which has inc eased income inequali y since he 1980s. To explain he mid-20 h cen u y
decline in inequali y, Pike y migh appeal o he jump in union densi y b ough abou by changes
in labo law.
19
Figu e 6. Compe ing app oaches o explaining he changed Kuzne s pa e n.
Explaining he changed
Kuzne s pa e n
Ma ginal p oduc i i y heo y
augmen ed by ins i u ional dis o ions
Al e na i e social heo y
o income dis ibu ion
Howe e , ha spo ligh s he p oblems wi h Pike y’s ins i u ionally augmen ed ma ginal
p oduc i i y app oach whe eby he accep s ma ginal p oduc i i y heo y bu hen appeals o ad
hoc ins i u ions o pa ch anomalies he ewi h. Fi s , i ends o iew unions and ins i u ions
p o ec ing wo ke s and inc easing wages as ine iciencies ha dec ease employmen . Second, i
emains a ached o a de-socialized and echnological iew o p oduc i i y whe eby p oduc i i y
is de e mined by he objec i e echnological condi ions o p oduc ion. Tha denies a ole o
subjec i e and social ac o s. Thi d, hough “powe ” can be in oduced in o he ma ginal
p oduc i i y app oach, wi h hose holding powe imposing ins i u ions ha wis pay ou comes in
hei a o , ha ea men has powe being imposed exogenously as i he “na u al” s a e o being
is absence o powe . Such a cha ac e iza ion is a odds wi h eali y, whe e powe is always and
ine i able p esen . The idea o no powe is on ologically impossible. Powe is like oxygen. The
ai can be mo e o less a i ied, bu he e is no li e wi hou oxygen. Simila ly, he e is no
economy wi hou powe ela ions. Viewed in ha ligh , p oduc i i y is ne e na u al and
20
objec i e. Ins ead, i is nes ed in a nexus o powe ela ions which a ec e e y aspec o i s
de e mina ion and assessmen .
Those obse a ions poin o a second app oach which iews income dis ibu ion as being
socially in o med and de e mined. Tha app oach is de eloped in Palley (1996) and is illus a ed
in Figu e 6. The e is a “s uc u e o p oduc ion” which is go e ned by a “powe s uc u e”. The
pa icipan s in ha powe s uc u e hold “subjec i e unde s andings and pe cep ions” abou he
s uc u e o p oduc ion and he alue con ibu ed he e o by he elemen s o he s uc u e o
p oduc ion (i.e., capi al, skilled labo , unskilled labo , manage s, CEO, e c.). The powe s uc u e
in e media es hose subjec i e pe cep ions and gene a es an “a ibu ion o alue” which
de e mines paymen s and he employmen mix.
Figu e 7. An al e na i e app oach o he de e mina ion o income dis ibu ion.
P oduc ion s uc u e
Powe s uc u e
Subjec i e unde s andings
and pe cep ions
A ibu ion o alue
Tha s uc u e exis s wi hin e e y en e p ise, bu agen s ac oss en e p ises sha e much in
common and he eby gene a e simila a ibu ions o alue. Powe s uc u es wi hin en e p ises
e lec his o y and sha ed socie al hinking. Agen s’ subjec i e pe cep ions a e simila , being
21
based on common lea ned sys ems o unde s anding ha a e cul u ally and ideologically
in o med. The esul is a ibu ions o alue ha a e b oadly simila ac oss en e p ises, bu hose
a ibu ions a e social cons uc s a he han objec i e measu emen s.
The con as wi h con en ional ma ginal p oduc i i y heo y and he wo kings o he
sys em can be desc ibed as ollows:
“The ope a ion o neo-classical dis ibu ion heo y es s on he p emise ha
ma ginal p oduc s a e objec i ely iden i iable and measu able by i ms.
Howe e , once he social cons uc ion o ma ginal p oduc s is ecognized, hey
become his o ically and cul u ally loca ed, and e lec cu en p ac ices o
a ibu ion. Thus, ma ginal p oduc schedules should be iewed as indexed by
he sys em o measu emen and a ibu ion cu en ly in p ac ice, and any
change in his sys em will cause he schedule o shi . Di e en con en ions o
measu emen and a ibu ion will he e o e gi e ise o di e en assessmen s o
ma ginal p oduc s, e en i he e is no change in echnology... These
measu emen and a ibu ion conce ns illumina e why dis ibu ional ou comes
a e undamen ally social. The eliance on he ma ke does no al e his, since
ma ke ou comes ely on he a ibu ion p ac ices used by agen s; he ma ke is
simply he si e whe e agen s implemen hese socially a i ed a s anda ds
(Palley, 1996, p.65-66).”
5. Poli ical his o ians and poli ical cycles
The nex s ep in cons uc ing an al e na i e accoun o he de e mina ion o income inequali y is
he inclusion o poli ics. Kuzne s (1955) aci ly ecognized he impo ance o poli ics, and
poli ics is cen al o A&R’s (2000) explana ion o he his o ical Kuzne s cu e. Howe e , in hei
model, i en e s empo a ily as a lock-in de ice (i.e., anchise expansion) ha causes policy
changes which b ing down inequali y.
In he model de eloped in Sec ion 6 below, poli ics emains a pe sis en ly p esen and
ope a i e o ce. The model is in o med by accoun s o US poli ical his o y in which he e is a
adi ion ha emphasizes poli ical cycles. The i s con ibu ion in ha spi i was by Hen y
Adams (1890) who cha ac e ized US poli ics as a pendulum wi h a wel e-yea bea :
“A pe iod o abou wel e yea s measu ed he bea o he pendulum. A e he
22
Decla a ion o Independence, wel e yea s had been needed o c ea e an
e icien Cons i u ion; ano he wel e yea s o ene gy b ough a eac ion agains
he go e nmen hen c ea ed; a hi d pe iod o wel e yea s was ending in a
sweep owa d s ill g ea e ene gy; and al eady a child could calcula e he esul
o a ew mo e such e u ns (Adams, 1890, p.123).”
Adams’ pendulum model was ollowed by A hu Schlesinge , S .’s (1939) cycle model,
and ha cycle model was u he elabo a ed and applied o an ex ended his o y by his son A hu
M. Schlesinge , J ., (1986) in his book The Cycles o Ame ican His o y. Schlesinge S .
ep esen ed US poli ics as cycling be ween pe iods o libe alism and conse a ism. Pe iods o
libe alism co esponded o inc easing democ acy, while pe iods o conse a ism co esponded o
con aining democ acy. Analyzing US his o y om 1765 o 1931, Schlesinge iden i ied en
pe iods which he belie ed cons i u ed a sys em ha exhibi ed a egula hy hm:
“Is he e a hy hm o Ame ican poli ics which no only explains ou pas
de elopmen bu may also p o ide a clue o he u u e? The a e age leng h o
he en pe iods is 16.6 yea s. The ac ual leng h has usually luc ua ed wi h a
ew yea s o he no m (Schlesinge , S ., 1939).”
Looking o wa d, he also p edic ed ha :
“... I is e iden ha he e ol agains conse a ism ha began in 1931 will las
un il 1947 o 1948, wi h a possible e o o a yea o so one way o he o he .
The nex u n o he ide will hen be due in he neighbo hood o 1963
(Schlesinge , S ., 1939).”
The e is a case o saying Schlesinge S .’s p edic ion was qui e p escien . A pos -wa
conse a i e cycle (1947-1960) began wi h he passage o he Ta -Ha ley Ac in 1947 and
las ed un il he elec ion o P esiden Kennedy in 1960. The ea e , he cycle (1960-1980) u ned
libe al again and las ed ill he Ronald Reagan’s elec ion in 1980, hough al eady unde P esiden
Ca e libe alism was in e ea . Reagan’s ic o y igge ed ano he cycle o conse a ism which
should ha e las ed un il he second-hal o he 1990s, bu o e he las hi y yea s he
mechanism seems o ha e s alled. Though con ol o he p esidency has swi ched be ween
23
Republicans and Democ a s, he poli ical empo has been mixed. On one hand, he economic
ealm has been domina ed by conse a i e Neolibe alism. On he o he hand, he social ealm
has been bi e ly con es ed be ween social libe als and social conse a i es, wi h libe als pe haps
ha ing he uppe hand.
6. Assembling he pieces: he inequali y supe -cycle
This sec ion p esen s he model o cyclical long- un income dis ibu ion, which aims o explain
he long un e olu ion o income dis ibu ion as iden i ied by Kuzne s (1955) and Pike y (2014).
Tha e olu ion connec s o social and poli ical economic de elopmen s, showing how income
dis ibu ion is shaped by social and poli ical economic o ces. The model is e med a supe -cycle
as i ope a es o e many decades. I is in ended o apply o he No h A lan ic economies which
a e he ocus o Pike y’s empi ical in es iga ions.
As no ed ea lie , i is ela ed o an ea lie pape by S elzne (2014) who also sough o
p o ide a heo y o long- un cycles o income dis ibu ion and inequali y oo ed in poli ics and
poli ical choices. In ha model poli ical ac ion is a o m o public good, and he model
emphasizes cyclical changes in agen s’ p e e ences which induce hem o a y hei supply o he
public good (i.e., poli ical ac ion). Rising income inequali y causes o e s o become mo e public
spi i ed ou o conce n wi h ad e se socie al impac s o income inequali y, which gene a es
poli ical ac ion and policy choices ha educe inequali y. Like A&R (2000), S elzne emphasizes
he ole o axes and ans e s.
The p oposed model is also ela ed o a pape by Palley and LaJeunesse (2007) in which
union densi y can luc ua e be ween a high- and low-densi y equilib ium. The model ha is
de eloped below emphasizes popula poli ical o ganiza ion ha comba inequali y in he
economy and ia poli ics and policy. Unions ha e his o ically been a c i ical o ganiza ion, doing
30
Figu e 9. The s ylized dynamics o inequali y (Z) and popula poli ical opposi ion (A).
Change in inequali y (Ż)
2
3
4
1
Inequali y (Z)
Z*
Ż = (Z, A)
Inequali y (Z)
0
Popula poli ical
opposi ion (A)
Z*
2
13
4
The uppe diag am in Figu e 9 is explained as ollows. Poin 1 ma ks he poin o lowes
inequali y (g ea es equali y). As he economy passes h ough ha poin inequali y (Z) s a s o
inc ease. The change in inequali y (Ż) hen slowly inc eases o wo easons. Fi s , inequali y is
inc easing, which ein o ces he p ocess by inc easing he poli ical powe o he ich. Second,
popula poli ical opposi ion (A) is alling because inequali y is below he socially accep able
le el (Z < Z*) so ha opposi ion is deemed less necessa y, which enables mo e inequali y.
The economy hen cycles o poin 2 whe e he change in inequali y peaks. The peaking
occu s because he e a e diminishing policy e u ns o he ich om inc eased powe con e ed
by inequali y, and because he decline in poli ical opposi ion slows because inequali y is
app oaching an accep able le el (Z*). No e, poin 2 is a he op o he uppe cycle, bu a he
bo om o he lowe cycle. Nex , he economy cycles o poin 3, whe e inequali y peaks.
Inequali y keeps inc easing in his segmen because z is inc easing as poli ical opposi ion is
31
weak, bu he le el o inc ease now s a s alling o wo easons. Fi s , he e a e u he
diminishing e u ns o policy om inc eased powe o he ich ( hey a e al eady ge ing hei way
on almos e e y hing). Second, poli ical opposi ion is now on he ise (Ȧ > 0) as inequali y is
inc easingly unaccep able (Z > Z*).
The ea e , he economy cycles o poin 4. Inequali y d ops along his segmen because
poli ical opposi ion (A) has g own and con inues o g ow (Ȧ > 0) because inequali y is s ill
socially unaccep able (Z > Z*). Finally, he economy cycles back o poin 1 whe e he cycle
begins again. Inequali y is s ill diminishing in his las segmen as poli ical opposi ion (A) is s ill
s ong, bu i is now in decline because inequali y has become socially accep able (Z < Z*). The
p ocess o “ o ge ulness” has begun o kick in.
The logic o he lowe diag am is easie o explain. Popula poli ical opposi ion declines
(Ȧ < 0) when inequali y is below he le el o social accep abili y (Z < Z*), and i inc eases (Ȧ >
0) when inequali y is abo e he le el o social accep abili y (Z > Z*). In he accep able egion,
he decline in opposi ion ini ially accele a es (segmen 4 o 1) because inequali y is dec easing (Ż
< 0), bu i hen decele a es (segmen 1 o 2) because inequali y is inc easing (Ż > 0), albei om
a low le el.
In he unaccep able egion, o ma ion o poli ical opposi ion is ini ially inc easing
(segmen 2 o 3) because inequali y is ising (Ż > 0). The ea e (segmen 3 o 4), poli ical
opposi ion is s ill inc easing because he economy is s ill in he egion o socially unaccep able
inequali y (Z < Z*), bu he pace o inc ease is slowing because inequali y is declining, albei
om i s peak le el.
7. Implica ions o he model
This sec ion explo es some o he analy ical implica ions o he model.
32
7.a The ela ionship be ween inequali y and popula poli ical opposi ion
Figu e 9 con ains an implici ela ionship be ween he s a e o income inequali y and popula
poli ical opposi ion. Tha ela ionship is shown in Figu e 10. Bo h s a e a iables luc ua e
cyclically, bu hey a e sligh ly ou o phase. Poin 3 co esponds o he peak in income
inequali y, which peaks p io o poli ical opposi ion. I is ising opposi ion ha causes inequali y
o peak, and con inuing ising opposi ion ha hen causes i o all.
Poin 1 co esponds o he bo om o income inequali y, bu poli ical opposi ion keeps
alling a e ha bo om as inequali y is below he accep able le el. I is emp ing o hink ha
peaks and oughs in income inequali y will coincide wi h oughs and peaks in poli ical
opposi ion. Howe e , ha is no he case because poli ical opposi ion is no d i en by he cu en
le el o inequali y, bu a he by he gap (Z >< Z*) ela i e o he no m (Z*). Thus, he di ec ion o
change o poli ical opposi ion will con inue a e passing h ough peak/ ough inequali y because
he gap emains. The gap is akin o a o m o momen um ha keeps poli ical opposi ion
e ol ing, causing inequali y o cycle back.
33
Figu e 10. The ela ionship be ween income inequali y (Z) and popula poli ical opposi ion
(A).
3
4
1
2
3
33
4
1
2
Time
Time
Income inequali y (Z)
Popula poli ical
opposi ion (A)
4
4
The pa e n in Figu e 10 has lessons o he pas and p esen . As ega ds he pas , US
inequali y oughed in he la e 1970s and hen u ned up sha ply unde P esiden Reagan. Many
p og essi e poli ical economis s ask why o dina y o e s s uck wi h Reagan gi en he up u n
was e iden ? The model’s answe is ha inequali y was s ill below he socially accep able le el
(Z < Z*) so ha poli ical opposi ion was s ill in decline.
As ega ds he p esen , inequali y will no ha e peaked un il socie y is well in o a e i al
o popula poli ical opposi ion, and i will con inue inc easing e en as ha e i al picks up
s eam. In e ms o Figu e10, he US economy is likely now on segmen 2 - 3, and poli ical
opposi ion will need o con inue building o inequali y o u n down.
7.b The impo ance o accep able inequali y (Z*)
Accep able inequali y (Z*) is a c i ical pa ame e in he model, de e mining he cen e o g a i y
a ound which he economy cycles. Figu e 11 desc ibes he e ec o an inc ease in he le el o
34
accep able inequali y o Z** > Z*, whe eby socie y becomes mo e ole an o inequali y. The
e ec is o shi up he axis a ound which he economy cycles. The economy con inues o
expe ience cyclical luc ua ions in inequali y, bu inequali y is highe h oughou he cycle. In
e ms o Figu e 9, i is as i he limi cycles shi igh .
Figu e 11. The e ec o an inc ease in socially accep able inequali y (Z** > Z*).
Time
Income inequali y (Z)
Z**
Z*
7.c The sensi i i y o poli ical opposi ion o inequali y
The sensi i i y o o ganized poli ical opposi ion o inequali y is cap u ed by he pa ial de i a i e
(gZ > 0) o equa ion (2) wi h espec o Z. Tha pa ial de i a i e is c i ical o he beha io o he
sys em as i de e mines he esponsi eness o poli ical opposi ion o changes in inequali y. I he
magni ude o he pa ial de i a i e is small, hen mo e inequali y will de elop be o e su icien
poli ical opposi ion de elops o u n he cycle and s a educing inequali y. Con e sely, when
inequali y is alling, a small magni ude means poli ical opposi ion will decay slowly and mo e
equali y (lowe inequali y) is needed be o e i decays o a le el a which he cycle can e e se
di ec ion. In e ec , a lowe magni ude inc eases he ampli ude o he cycle. In e ms o Figu e 9,
35
i inc eases he adially expands he cycle. Inequali y eaches highe peaks and lowe oughs, as
does popula poli ical opposi ion.
7.d A his o ical- poli ical in e p e a ion o he model.
The limi cycle model can be gi en a his o ical-poli ical in e p e a ion ha connec s o Figu e 4
which shows he his o ical e olu ion o inequali y in he No h A lan ic economies. Tha igu e
desc ibes a one-hund ed-yea cycle in which inequali y peaked a ound 1930, hen ell, and
he ea e e i ed o eco e i s p io peak.
Figu e 12 places ha his o y wi hin he limi cycle diag am. The gene ic model is
in ended o apply o No h A lan ic economies, hough he speci ic iming o u ning poin s will
a y by coun y. Figu e 12 can be in e p e ed as cha ac e izing he US long cycle. The e a e ou
wen y- i e-yea pe iods, s a ing in 1930 and ending oday (2024). His o y is ep esen ed as
mo ing coun e -clockwise. The i s pe iod (1930-1955) can be desc ibed as one o labo ic o y
and capi al de ea , wi h union densi y peaking in 1955. The second pe iod (1956-1980) can be
desc ibed as one o labo decay and capi al e i al. The hi d pe iod (1981-2005) co esponded
o one o labo de ea and capi al ic o y. The ou h and cu en pe iod (2006-2024) may
co espond o one o capi al decay and labo e i al. A his s age, he phenomenon o
Neolibe alism has been poli ically a icula ed and is being in ellec ually challenged. Tha was
subs an ially absen in he p io wen y- i e pe iod (1980 – 2005) when Social Democ acy was
con on ed by a Neolibe al poli ical sunami ha i s uggled o ebu . Howe e , he ju y is s ill
ou and he e a e easons why a labo e i al is s ill in doub , as discussed below in Sec ion 7. .
7
7
In he US, he elec ions o P esiden s Obama and Biden, he esu gence o public opinion suppo o unions, and
he inc eased poli ical s anding o he le -leaning Sena o Sande s and Cong esswoman Ocasio-Co ez speak o
labo e i al. Howe e , he Republican Pa y’s sweep o he 2024 na ional elec ions speak agains i .
36
Figu e 12. A his o ical-poli ical in e p e a ion o he model.
Z*Inequali y
Popula poli ical
opposi ion (A)
1930/2024
1955
1980
2005
Labo ic o y/
Capi al de ea
Labo decay/
Capi al e i al
Labo de ea /
Capi al ic o y
Labo e i al/
Capi al decay?
The ou quad an s in Figu e 12 a e pa o a uni ied supe -cycle mechanism. Howe e , in
each quad an he policy egime and economic ins i u ions will be di e en , e lec ing bo h he
p ocess o ins i u ional echnical e olu ion and changing poli ical condi ions associa ed wi h he
poli ics o he supe -cycle. The p oposed amewo k he e o e links o he “ a ie ies o
capi alism” discou se (Hall and Soskice, 2001; Palley, 2022). The supe -cycle will endogenously
gene a e changes in he policy and ins i u ional complexion o economies ha suppo i s
di e en s ages.
Las ly, Figu e 12 illus a es why Schlesinge ’s (1939) cycle me apho is p e e ed o
Adams’ (1890) pendulum me apho . A swinging pendulum would ha e socie y and he economy
e acing he g ound i had p e iously a elled, simply e e sing de elopmen s and e e sing he
di ec ion o a el. In con as , a cycle has he economy e u ning ia a di e en pa h and being
ma ked by di e en poli ical economic cha ac e is ics along ha pa h.
37
7.e The poli ical p ocess
The model gi en by equa ions (1) and (2) can be in e p e ed as ep esen ing a poli ical economic
p ocess ha in ol es he demand and supply o poli ical opposi ion. Tha p ocess is illus a ed in
Figu e 13. I s a s wi h he popula demand o poli ical opposi ion (equa ion (2)), which hen
eeds in o he supply o popula poli ical opposi ion (equa ion (1)). Tha supply de e mines he
inequali y ou come (Z), which eeds back o in luence he demand o opposi ion.
Figu e 13. The poli ical p ocess.
Popula demand o poli ical opposi ion
(equa ion (2))
Supply o poli ical opposi ion
(equa ion (1))
Inequali y ou come (Z)
In e p e ing he sys em in ha ashion in oduces conside a ions ha a e usually absen in
poli ical economy, and i also helps iden i y in mo e g anula de ail he mic o-poli ical economic
ac o s d i ing he p ocess. The supply o poli ical opposi ion is ela ed o he de ailed wo kings
o he poli ical sys em. Much poli ical economy emphasizes he impo ance o democ acy, bu i
s ops he e. Howe e , he gene a ion o poli ical opposi ion will depend c i ically on he ules
go e ning democ acy. Those ules cha ac e will de e mine he sensi i i y o he poli ical sys em
o popula demands, and he eby in luence he supply o poli ical opposi ion.
38
Fo ins ance, he US (in 2024) is a democ acy in ha he anchise is uni e sal, i holds
egula elec ions, and o es a e coun ed and epo ed hones ly. A he same ime, he wo poli ical
pa ies cons i u e a duopoly ha o e s a qui e simila economic policy package, and i also
blocks new poli ical en y. Tha poli ical con igu a ion obs uc s and diminishes he supply o
poli ical opposi ion ha would change Z.
In e ms o he model, i is as i he magni ude o he pa ial de i a i e A is small so ha
inc eases in popula poli ical opposi ion (A) ha e li le e ec on inequali y. Consequen ly, he
cycle equi es a mo e disg un led elec o a e o gene a e change, which ansla es in o ha ing a
cycle o g ea e ampli ude and du a ion. Tha also illus a es how he cha ac e o he inequali y
supe -cycle may change o e ime. The cycle can emain ope a i e, bu i s ampli ude and
du a ion can change owing o changes in he unde lying poli ical economic sys em ha d i es i .
The demand o poli ical opposi ion will also be a ec ed by changes in socie y a la ge.
He e, he e is need o dis inguish be ween ac o s a ec ing he socially accep able le el o
inequali y (Z*) and ac o s a ec ing he sensi i i y o poli ical opposi ion o condi ions (gZ).
Those wo a e likely o be a ec ed in a simila way by simila ac o s, bu he impac on he
supe -cycle wo ks di e en ly. Changes in Z* a ec he axis a ound which he cycle ci cles.
Changes in sensi i i y (gZ) a ec he du a ion and ampli ude o he cycle.
Figu e 14 shows h ee possible ac o s a ec ing demand o popula poli ical opposi ion.
The i s ac o is wage no ms and s anda d o li ing expec a ions. Highe no ms and
expec a ions would end o lowe Z* and inc ease gZ. E go, he cycle would end o ha e lowe
a e age inequali y o e i s cou se due o shi o axis. I would also ha e educed ampli ude and
du a ion because he demand o opposi ion would be mo e esponsi e o changed condi ions,
causing he cycle o u n soone wi h less ex eme condi ions. Con e sely, diminished
39
expec a ions and lowe ed no ms would ha e he e e se impac .
Figu e 14. Some ac o s a ec ing popula demand o poli ical opposi ion.
Fac o s a ec ing popula demand o poli ical opposi ion
Wage no ms and
s anda d o li ing expec a ions
Ideas and belie s abou he economy
Iden i y
The second ac o is ideas and belie s abou he economy which will end o a ec ex en
and in ensi y o poli ical ac i ism. Ideas and belie s will also shape no ms and expec a ions abou
s anda ds o li ing as hey will shape belie s abou wha cons i u e ai wages and wha he
sys em can sus ainably pay. His o y and his o ical memo y also ma e s. I people o ge abou
pas s uggles, hey may hink he e is no need o wo ke o ganiza ions (e.g., unions) and
poli ical ac i ism. Tha will weaken hose ins i u ions and ebuilding hem will be ime-
consuming and di icul , and in he mean ime he economy will lack he socio-poli ical means o
e e se ad e se inequali y de elopmen s. In sum, i people become less Neolibe al and mo e
Social Democ a ic ha will end o lowe Z* and inc ease he sensi i i y o poli ical demand o
inequali y (gZ), and ice- e sa.
The hi d ac o is iden i y which will also a ec ex en and in ensi y o poli ical ac i ism.
I pe sons iew hemsel es as wo king class, hey will end o demand a poli ics ha sui s ha
46
Rejec ing ma ginal p oduc i i y heo y ees economic analysis o ha implica ion. Being
on he igh -hand side o he Kuzne s cu e does no au oma ically co espond o an
economically ine icien posi ion, and no is he e any eason o belie e poin s along he supe -
cycle dis ibu ion pa h a y by deg ee o e iciency. They only a y in he subjec i e pe cep ions
and c i e ia applied o de e mine dis ibu ion, as a gued abo e.
Accep ing ha eali y does no mean any hing goes. En e p ises a e cons ained o a leas
b eak-e en, and mos a e cons ained o make he equi ed a e o e u n se by in es o s and
inancial ma ke s. Compe i ion o esou ces will also de e mine wha en e p ises pay ac o s, bu
ha e lec s compe i ion no ma ginal p oduc i i y. The willingness o pay in ma ke s will be
de e mined by commonly held iews and belie s abou wha ac o s a e wo h.
The si ua ion is illus a ed by he economics o a uni e si y economics depa men .
Senio p o esso s a e paid mo e han junio p o esso s. I is impossible o iden i y he ma ginal
p oduc o each ype o es ablish hei con ibu ion o he uni e si y. The e a e e en sound
easons o belie e junio p o esso s may be mo e p oduc i e. Ye , he e is a con en ion ha
senio p o esso s a e paid mo e. Tha con en ion is suppo ed by he belie senio s ha e a highe
ma ginal p oduc . I is also suppo ed by he ins i u ional powe held by senio s in he
depa men , and i is u he suppo ed by he suppo senio economics p o esso s ge om
senio p o esso s in o he depa men s. Wha is clea is he claim o a highe ma ginal p oduc is
un e i iable and dispu able.
Mo eo e , e en i senio p o esso s can command a highe sala y in he open ma ke , ha
does no esol e he issue. Ins ead, i me ely shows he p esence and ope a ion o all he abo e
o ces and con en ions in uni e si ies elsewhe e, which has hem adop ing simila alue
a ibu ion ules.
47
I is his ype o mic oeconomic amewo k which gi ds he poli ical economic model o
dis ibu ion ou lined in Sec ion 6. The c i ically impo an ea u e is i means dis ibu ion is no
locked-down and de e mined by echnology. Ins ead, he e is g ea la i ude o social o ces o
in e ene, subjec o he equi emen o en e p ises being iable. Obse ed changes in
dis ibu ion b ough abou by such o ces do no make hem ine icien . Ins ead, hey e lec
changes in he alue a ibu ion sys em. Making claims abou e iciency and ac o paymen s
equi es being able o objec i ely iden i y ac o s’ ma ginal p oduc s, and ha is a will-o’- he-
wisp. Tha is easily p o ed by economis s’ own p ac ices in economics depa men s.
8. Conclusion
This pape has p esen ed a heo y and model o long- un cycles o income dis ibu ion and
inequali y. The model explains he his o ical pa e n o income dis ibu ion iden i ied by Kuzne s
(1955) and Pike y (2014). I b eaks wi h con en ional ma ginal p oduc heo y which has
unc ional income dis ibu ion being de e mined by he echnological condi ions o p oduc ion.
Ins ead, he model emphasizes he ole o socio-poli ical o ces ha shape and d i e luc ua ions
in he le el o popula poli ical o ganiza ions, which hen impac dis ibu ion. The model
p o ides a amewo k o in e p e ing he his o ical e olu ion o income dis ibu ion and
inequali y, and o e lec ing on cu en condi ions and possible u u e de elopmen s. The co e
message is wo old. Fi s , socio-poli ical de elopmen s ma e o income dis ibu ion. Second, i
hose de elopmen s a e cyclical, income dis ibu ion will also exhibi cyclicali y.
48
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