Today's book, The Winner-Take-All Society: Why the Few at the Top Get So Much More Than the Rest of Us, by Robert Frank and Philip Cook, is somewhat dated in the details (it was first published in 1995) and can be repetitive at times, but is nonetheless a must-read for anyone interested in inequality in American society. Frank and Cook were among the first to note that the biggest driving force in inequality today is not the gap between the very poor and everyone else, but the one between the very rich and everyone else. Paul Krugman is probably the person who has spent the most time in recent years discussing this fact. As Krugman noted in the NY Times in February:
"Between 1972 and 2001 the wage and salary income of Americans at the 90th percentile of the income distribution rose only 34 percent, or about 1 percent per year. So being in the top 10 percent of the income distribution, like being a college graduate, wasn't a ticket to big income gains.
But income at the 99th percentile rose 87 percent; income at the 99.9th percentile rose 181 percent; and income at the 99.99th percentile rose 497 percent. No, that's not a misprint."
Frank and Cook labelled this phenomenon "the winner-take-all society" and argued that a variety of technological, political and economic factors have combined to create highly competitive national or global markets in which relative position is more important than absolute skill, and in which the very few top performers in any given field capture the vast majority of the returns. The most obvious examples are in sports and the arts -- while the superstars get millions in endorsements and appearance fees, no one can name the 100th best tennis player or violinist in world. Frank and Cook argue that the same thing is going on for doctors, lawyers, authors, and CEOs.
While I'm not entirely convinced by their explanations for why this happens (for one thing, in most fields it is not possible to rank people's performance as accurately as in pro golf), I don't think there's any doubt that the description of the phenomenon is dead on. The math is beyond me, but I am assured by people I generally trust that there are a wide variety of occupations in which the earnings distribution can best be explained by assuming that there are a series of "tournaments" in which only the winners proceed into the next rounds, and that small differences in skill thus are magnified into huge differences in earnings. This probably explains a significant portion of the penalty for part-time work -- it handicaps people at early levels of the tournament and makes it unlikely that they'll get into the "leagues" with the really high payoffs.
It's hard to pin Frank and Cook down on a left-right scale. They are economists, and I think they overstate the role of markets and understate the role of institutional structures in creating the outcomes that they describe. (See this American Prospect article for a good sample of their approach.) But they believe that there are huge inefficiencies in this distribution -- because people don't take into account the effect of their entry into competition on other people, more people than is economically efficient compete for the few prestigious slots -- and thus argue for progressive taxation, especially if tied to consumption.
After I finished this book, I had a really interesting conversation with T. about how the idea of the winner-take-all society interacts with the long tail -- the ability for even very small niche products to find their audience using the powers of the internet. I think our conclusion is that the long tail makes it possible to opt from the tournaments without giving up entirely on being in the game. T's example is that while it's harder and harder to get a book (commercially) published these days, he thinks he makes more money self-publishing his game than he could make if it were picked up by a publisher, even recognizing that they could get it into distribution channels that he can't reach. But I think that for most people, the money they are going to make from their piece of the long tail is for all practical purposes, indistinguishable from zero.