The Great American Economic Divergence: Who Got the Growth?
This podcast outline an advanced **Politics, Philosophy, and Economics** curriculum centered on the **Great American Economic Divergence** since 1975. Utilizing empirical research from organizations like **RAND** and the **Congressional Budget Office**, students investigate the multifaceted causes behind growing income inequality, including **declining unionization**, **tax policy shifts**, **automation**, and **globalization**. The sources establish a rigorous framework for examining these economic shifts through diverse **political perspectives** and foundational **philosophical theories** such as justice, rights, and capabilities. Ultimately, the coursework challenges learners to move past partisan slogans by engaging in **structured academic controversies**, **comparative international analysis**, and **policy evaluation**.
The Great Economic Divergence PRESENTATION SLIDES
An advanced high school / PPE structured academic controversy
READING SAGE • POLITICS, PHILOSOPHY & ECONOMICS • ADVANCED SEMINAR
Central question:
Did the United States experience an upward redistribution of economic growth from ordinary Americans to the wealthiest households after 1975, and, if so, what caused it?
This is an excellent subject for a PPE seminar because it forces students to confront three different questions:
- Economics: What actually happened to wages, household income, wealth, productivity, and economic mobility?
- Politics: Which public policies, institutions, and political decisions contributed to the changes?
- Philosophy: What constitutes a fair distribution of economic growth, and what obligations does a society have toward its citizens?
The central pedagogical challenge is to prevent students from confusing three very different propositions:
- A statistical finding that income distribution changed.
- An economic explanation of why it changed.
- A moral or political judgment about whether that change was unjust.
A student can accept the RAND findings while disagreeing with Bernie Sanders about their political implications. Equally, a student can defend market capitalism while acknowledging that markets operate within political and institutional rules.
The objective is not to manufacture agreement. It is to make students intellectually uncomfortable with easy answers.
Part I. Establishing the facts before debating the politics
1. The RAND $79 trillion argument
The central statistic needs to be understood correctly.
The RAND research examines the changing distribution of income in the United States. Its counterfactual asks what would have happened if the distribution of economic growth had continued along a pattern closer to the distribution observed in 1975.
The $79 trillion figure is therefore an estimate of cumulative foregone income for the bottom 90% relative to that alternative distribution.
It is not:
- A government accounting of $79 trillion stolen from bank accounts.
- A calculation showing that billionaires received every dollar the bottom 90% did not receive.
- Proof that one president or one piece of legislation caused the entire difference.
- A direct measure of the change in household wealth.
It is:
- A model-based estimate of a large cumulative income-distribution gap.
- An illustration of how small annual differences in the distribution of economic growth compound over decades.
- A starting point for examining the relationship between economic institutions, political power, and income distribution.
An important research distinction: The 1975 distribution is a counterfactual benchmark, not necessarily an ideal or perfectly equitable distribution. Students should ask why that particular baseline was selected and how sensitive the result is to alternative baselines.
2. What happened to American labor unions?
The decline in union membership is one of the strongest empirical parts of the argument.
| Year | Overall union membership |
|---|---|
| 1973 | 24.0% |
| 1983 | 20.1% |
| 1993 | 15.7% |
| 2003 | 12.9% |
| 2013 | 11.2% |
| 2023 | 10.0% |
| 2024 | 9.9% |
| 2025 | 10.0% |
The private-sector decline is even more dramatic: approximately 24% in 1973 to 6% in 2023.
This matters because unions historically served several economic functions:
- Collective bargaining over wages.
- Negotiation of health insurance and retirement benefits.
- Establishment of workplace safety standards.
- Negotiation of predictable working hours.
- Providing workers with collective political influence.
- Creating wage standards that sometimes extended beyond unionized workplaces.
However, there is an important counterargument: unionization also changes the distribution of economic costs and benefits between workers, consumers, shareholders, and employers. The existence of a union wage premium does not automatically establish that every union agreement increases total economic productivity.
3. What happened to the minimum wage?
The federal minimum wage reached $1.60 per hour in 1968, equivalent to considerably more purchasing power than today's $7.25 federal rate.
The federal rate has not increased since July 2009.
This raises a fundamental economic question:
Should wages be determined primarily by the market price of labor, or should democratic government establish a minimum acceptable price for work?
The economic debate is more complicated than simply arguing that minimum wages either create or destroy jobs.
Economists investigate:
- Employment effects.
- Hours worked.
- Business closures.
- Consumer prices.
- Worker turnover.
- Poverty reduction.
- Wage spillover effects.
- Regional differences in living costs.
A minimum wage can improve earnings for workers who retain their jobs, while potentially imposing costs on employers and consumers. The size of those effects depends on the level of the increase and the economic conditions.
4. Tax policy and the distribution of economic growth
Students should distinguish between four different tax concepts:
- Marginal income tax rates.
- Effective tax rates actually paid.
- Capital gains and dividend taxation.
- Corporate taxation.
A reduction in the top marginal income tax rate does not mean every wealthy individual receives an equivalent reduction in their total tax bill. Nor does a reduction in corporate taxation automatically translate into an equal increase in wages, investment, or shareholder wealth.
The major policy episodes to examine include:
| Administration | Major policy episode | Question for students |
|---|---|---|
| Ronald Reagan | 1981 Economic Recovery Tax Act; 1986 Tax Reform Act | Did lower marginal rates stimulate growth sufficiently to justify their distributional consequences? |
| George W. Bush | 2001 and 2003 tax cuts | Who received the benefits, and what were the long-term fiscal consequences? |
| Barack Obama | 2012 tax changes and subsequent reforms | Did the changes reverse or preserve the earlier distributional trajectory? |
| Donald Trump | 2017 Tax Cuts and Jobs Act | How were corporate and individual benefits distributed? |
| Joe Biden | 2022 Inflation Reduction Act | Did targeted tax changes meaningfully alter the distribution of economic benefits? |
The Congressional Research Service provides a useful historical reference for federal individual tax brackets and legislative changes.
One particularly important question: Can a tax policy be economically efficient while being distributively unfair?
That question belongs at the center of this debate.
Part II. The economic evidence: competing explanations
The decline in labor's share of national income and the rise in inequality cannot responsibly be attributed to one variable.
A major scholarly review by economists Gene Grossman and Ezra Oberfield identifies several competing and potentially interacting explanations: technology, globalization, market concentration, declining unionization, weakening worker bargaining power, and changes in workforce composition.
Students should investigate at least eight explanatory models.
Eight competing explanations of American inequality
1. Technological change and automation
Automation and artificial intelligence can increase productivity while displacing or reducing demand for particular categories of labor. Owners of productive capital may capture a disproportionate share of the gains.
2. Globalization and international competition
Offshoring and international trade can lower consumer prices and expand markets while placing downward pressure on wages in industries exposed to lower-cost international competitors.
3. Deindustrialization
The decline of manufacturing employment weakened a traditional pathway to middle-class wages for workers without university degrees.
4. Financialization
The increasing importance of financial markets, shareholder returns, executive compensation, and financial asset ownership may have changed corporate priorities and the distribution of profits.
5. Corporate concentration and market power
When competition declines, dominant firms may gain greater power to set prices, wages, and contractual terms.
6. Declining worker bargaining power
Declining union density, employer consolidation, outsourcing, and changes in labor law may have weakened workers' negotiating position.
7. Education and skill premiums
Differences in educational attainment, specialized skills, and access to high-paying professions may have increased wage disparities.
8. Asset ownership and inheritance
People who already own stocks, businesses, and real estate can accumulate wealth through capital appreciation. Those who primarily depend on wages may not participate equally in that growth.
The key intellectual challenge is distinguishing correlation, causal mechanisms, and relative explanatory importance.
For example, union membership declined during the same broad historical period in which inequality increased. That does not, by itself, tell us how much of the inequality was caused by declining union membership.
Students should ask what additional evidence would establish causation.
Part III. The structured academic controversy
(PPE seminar format) (Advanced high school) (90–120 minutes)
The proposition
Resolved: Since 1975, American economic policy and institutional changes have disproportionately benefited wealthy Americans at the expense of ordinary workers, and government should intervene to reverse that trend.
This proposition contains two claims that students must evaluate separately:
- Descriptive claim: The distribution of economic gains has become substantially more unequal.
- Normative and policy claim: Government should actively redistribute economic gains or change the institutions that determine their distribution.
A student who proves the first claim has not automatically proved the second.
The four debating positions
Divide the classroom into four research teams. This is preferable to a simple left-versus-right debate because it requires students to defend more sophisticated positions.
TEAM A — The Progressive Institutionalists (Position 1)
The American economy has become structurally tilted toward capital owners.
Central argument
The postwar American middle class was built partly on strong labor unions, progressive taxation, public investment, and regulations that gave workers bargaining power.
Beginning in the late 1970s, these institutions weakened. Corporate power expanded, unions declined, and tax policy increasingly favored capital and high-income households.
The result was not simply an accidental change in income distribution. It reflected political choices about who should possess economic power.
Proposed remedies
- Strengthen collective bargaining.
- Increase the federal minimum wage.
- Restore progressive taxation.
- Close preferential tax treatment of certain capital income.
- Strengthen antitrust enforcement.
- Expand public investment in education, infrastructure, and healthcare.
Philosophical foundations
- John Rawls: Justice as fairness.
- John Kenneth Galbraith: Countervailing power.
- Karl Polanyi: The social consequences of unregulated markets.
- Franklin D. Roosevelt: Economic security and the Second Bill of Rights.
Questions this team must answer
If workers produce economic value, why should capital owners capture a disproportionately large share?
Is the freedom to negotiate meaningful when one side has substantially greater economic power?
Can democracy remain politically equal when economic resources are highly concentrated?
Why should taxpayers subsidize businesses whose workers require public assistance?
What evidence would demonstrate that stronger unions actually improve economic outcomes?
TEAM B — The Free-Market Institutionalists (Position 2)
Inequality is not necessarily evidence of economic injustice, and government intervention can make economic problems worse.
Central argument
Income differences reflect, among other things, differences in productivity, investment, entrepreneurship, innovation, education, and risk-taking.
Markets reward individuals and firms that create products, services, and technologies that people value. Large differences in income may therefore reflect differences in economic contribution.
Government intervention can produce unintended consequences, including reduced investment, higher consumer prices, unemployment, political favoritism, and inefficient allocation of resources.
Proposed remedies
- Maintain competitive markets.
- Reduce barriers to entrepreneurship.
- Improve educational opportunity and workforce training.
- Encourage investment and innovation.
- Reform occupational licensing and unnecessary regulation.
- Use targeted assistance rather than broad economic controls.
Philosophical foundations
- Friedrich Hayek: Knowledge and the price mechanism.
- Milton Friedman: Economic freedom and individual choice.
- Adam Smith: Competition, specialization, and the division of labor.
- Robert Nozick: Entitlement theory and individual rights.
Questions this team must answer
Is an unequal outcome necessarily an unjust outcome?
Who should decide how much a person deserves to earn?
What happens when a minimum wage exceeds the productivity of a worker?
Can taxation discourage the investment that creates future employment?
If a technology entrepreneur creates a product that improves millions of lives, what is a fair economic reward?
TEAM C — The Social Democrats and Mixed-Economy Reformers (Position 3)
The choice is not between unrestricted capitalism and government ownership of the economy.
Central argument
A competitive market economy can coexist with strong social protections, universal public services, collective bargaining, and progressive taxation.
The appropriate comparison is not simply capitalism versus socialism. It is a comparison of different institutional arrangements within market economies.
Countries such as Sweden demonstrate that a market-based economy can operate alongside substantial social insurance, coordinated labor relations, and public investment.
Proposed remedies
- Preserve private enterprise and competition.
- Expand universal healthcare and social insurance.
- Establish stronger worker protections.
- Support collective bargaining.
- Invest in early childhood education and vocational training.
- Reduce economic insecurity without eliminating market incentives.
Philosophical foundations
- John Rawls: Fair equality of opportunity.
- Amartya Sen: Capabilities and human development.
- T. H. Marshall: Social citizenship.
- Gunnar Myrdal: Social policy and economic development.
Questions this team must answer
Can a country preserve innovation while guaranteeing a stronger social safety net?
Does universal healthcare improve economic freedom by allowing people to change jobs or start businesses?
Are Nordic institutions transferable to a country as large and diverse as the United States?
What level of taxation is sustainable?
Is economic security a public responsibility or primarily an individual responsibility?
TEAM D — The Political Economy Skeptics (Position 4)
The real issue is not simply redistribution. It is the concentration of political and economic power.
Central argument
Both corporations and government institutions can become instruments of concentrated power.
Corporate lobbying, regulatory capture, subsidies, monopolies, political donations, and revolving-door employment can allow organized interests to shape public policy.
But a government with extensive economic authority can also become vulnerable to political favoritism and rent-seeking.
The central question is how to prevent powerful interests from capturing either markets or government.
Proposed remedies
- Stronger antitrust enforcement.
- Greater transparency in campaign financing and lobbying.
- Restrictions on conflicts of interest.
- Simplification of regulations that favor large incumbents.
- More competitive procurement and contracting.
- Institutional reforms that increase accountability.
Philosophical foundations
- James Madison: Federalist No. 10 and factions.
- Public choice economics: James Buchanan and Gordon Tullock.
- Mancur Olson: The Logic of Collective Action.
- Adam Smith: The danger of collusion among business interests.
Questions this team must answer
- Can government redistribute wealth without creating new political patronage?
- Why do large corporations sometimes support regulations that ostensibly constrain them?
- Does political equality require limiting private wealth?
- Who guards the regulators?
- Can free markets survive when firms become powerful enough to influence the rules of competition?
Part IV. The evidence laboratory
Before students argue their assigned positions, they must examine common evidence.
This is important: all four teams receive the same data. No team is allowed to construct its argument from selectively chosen statistics.
Exhibit A. The RAND income-gap calculation
CUMULATIVE COUNTERFACTUAL INCOME GAP, 1975–2023
$79 trillion
Approximate decomposition from the 2025 RAND update. Components are rounded.
Primary source: Carter C. Price, Measuring the Income Gap from 1975 to 2023: Extending Previous Work, RAND, February 2025.
Students should identify five methodological considerations:
- The calculation uses the bottom 90% of earners.
- It compares actual earnings with a hypothetical distribution based on the 1975 income share.
- The calculation uses the Personal Consumption Expenditures price index to adjust for inflation.
- The $79 trillion is cumulative, not an annual loss.
- The analysis describes the income gap; it does not establish the political or economic causes of the gap.
An important academic qualification: the 2025 document is a RAND working paper, not a peer-reviewed journal article. RAND describes working papers as research circulated for informal peer review, and the paper states that it has not been formally peer reviewed. Its institutional origin is credible, but its methodology should still be scrutinized.
Research questions
- Why did the researcher choose 1975?
- What happens if the benchmark is 1980 instead?
- Should economic growth be distributed in the same proportions as it was in the past?
- Does the calculation capture changes in healthcare benefits, pensions, working hours, and household composition?
- Does the figure establish a transfer from the bottom 90% to the top 1%, or merely a difference between actual income and a counterfactual?
The last question is especially important. The meme's language about money being transferred to the top 1% is stronger than the mathematical claim itself.
Exhibit B. Income inequality according to the Congressional Budget Office
The CBO provides a useful independent comparison because it examines household income before and after government transfers and taxes.
The CBO finds that average income grew in every quintile between 1979 and 2023, but grew most quickly for households in the highest quintile. Taxes and transfers reduced inequality, although they did not eliminate the overall increase.
The crucial question:
If the incomes of lower-income households increased in real terms, can we accurately say that they became poorer?
Students should distinguish:
- Absolute income growth.
- Relative income growth.
- Purchasing power.
- Wealth accumulation.
- Economic security.
- Social mobility.
A worker can be earning more in inflation-adjusted dollars than a worker in 1979 while still falling further behind the income and wealth of the most prosperous households.
Exhibit C. The decline in union membership
Source: Bureau of Labor Statistics and historical union-density research.
Questions
- Does the decline in unionization explain the decline in middle-class bargaining power?
- Did manufacturing decline cause unionization to fall, or did weaker labor institutions contribute to manufacturing's decline?
- Can workers achieve comparable bargaining power without traditional unions?
- Are unions equally beneficial to all workers?
Exhibit D. The productivity-pay question
A particularly important research question concerns the relationship between worker productivity and compensation.
If workers produce more economic output per hour, should their compensation rise proportionally?
Students should examine:
- Labor productivity.
- Average compensation.
- Median wages.
- Inflation adjustments.
- Benefits and employer contributions.
- The changing composition of the workforce.
A common error in this debate is to compare incompatible measures: productivity per hour with cash wages, for example, while excluding noncash compensation or using different inflation deflators.
The teams should investigate the productivity-pay gap using the Economic Policy Institute and Bureau of Labor Statistics, and explain why different researchers produce different estimates.
Exhibit E. The tax policy question
Ask students to examine the 1981, 1986, 2001, 2003, and 2017 tax legislation.
Their task is to construct a distributional analysis, not simply a political timeline.
For each policy, identify:
- Changes to marginal rates.
- Changes to corporate taxation.
- Changes to capital gains taxation.
- Changes to deductions and exemptions.
- Short-term versus long-term fiscal effects.
- Effects across income groups.
The Congressional Research Service provides historical statutory tax-rate information. Students should supplement that with distributional estimates rather than assuming that statutory rates describe actual tax burdens.
Part V. The philosophical foundations: What does economic justice mean?
This is where the debate becomes a genuine PPE exercise.
Students must understand that economics can describe the distribution of resources, but it cannot independently determine what distribution is morally just.
For that, we need political philosophy.
1. John Rawls — Justice as Fairness
Rawls asks us to imagine choosing society's rules behind a veil of ignorance, without knowing whether we will be born rich, poor, talented, disabled, or disadvantaged.
His difference principle permits inequalities only when institutional arrangements work to the greatest benefit of the least advantaged.
Seminar question: Would you choose the American economic system if you had no idea which income group you would occupy?
2. Robert Nozick — Entitlement Theory
Nozick argues that a distribution is just if it arises through just acquisition, voluntary exchange, and legitimate transfers.
The fact that one person possesses more than another does not automatically make the distribution unjust.
Seminar question: If a billionaire acquires wealth through voluntary transactions, what moral justification does the state have to redistribute it?
3. Friedrich Hayek — Spontaneous Order
Hayek argues that markets coordinate information dispersed across millions of people. Prices communicate information that no central planner can fully possess.
Attempts to engineer a particular distribution may interfere with this discovery process.
Seminar question: Can government know enough about an economy to deliberately produce a fair distribution without destroying important market signals?
4. Amartya Sen — The Capabilities Approach
Sen asks not merely how much money people possess, but what they are actually able to do and become.
Healthcare, education, personal security, mobility, and opportunity matter because they affect real freedom.
Seminar question: Is a person economically free if they are legally free to change jobs but cannot afford to lose their employer-provided health insurance?
5. Adam Smith — Markets and Moral Sentiments
Smith is frequently reduced to the invisible hand, but his work also examines moral judgment, justice, public institutions, and the dangers of collusion among merchants.
Seminar question: Would Adam Smith consider a market genuinely competitive if powerful corporations could manipulate the rules of competition?
6. Karl Marx — Capital and Class
Marx analyzes the relationship between ownership of productive assets, wage labor, surplus value, and class power.
His framework asks whether workers receive an appropriate share of the value generated by production.
Seminar question: Does ownership of capital justify receiving an increasing share of economic output even when labor contributes to the productive process?
7. James Buchanan — Public Choice Theory
Buchanan applies economic reasoning to political behavior. Politicians, bureaucracies, and interest groups also respond to incentives.
Government intervention cannot be presumed to serve the public interest merely because it is undertaken by government.
Seminar question: If corporations can capture markets, can politicians and interest groups capture the institutions intended to regulate those corporations?
A philosophical comparison
| Thinker | Primary concern | Economic justice test |
|---|---|---|
| Rawls | Fair institutions | What happens to the least advantaged? |
| Nozick | Individual rights | Were holdings acquired and transferred justly? |
| Hayek | Knowledge and freedom | Can institutions coordinate dispersed knowledge? |
| Sen | Human capabilities | What can people actually do and become? |
| Smith | Competition and moral order | Are markets competitive and justly governed? |
| Marx | Ownership and class power | Who controls production and captures its surplus? |
| Buchanan | Political incentives | Who controls and benefits from government decisions? |
Part VI. The Oxford Union debate protocol
The purpose of this exercise is to teach students how to argue a position they may not personally support.
Every team must demonstrate that it understands the strongest opposing argument. Students should not be rewarded for simply repeating political slogans.
Round 1 — Opening statements
(10 minutes per team)
Each team presents:
- Its interpretation of the $79 trillion statistic.
- Its explanation of the causes of economic inequality.
- Its philosophical justification.
- Its proposed economic reforms.
- Three pieces of supporting evidence.
Each team must state one weakness in its own position.
Round 2 — The steelman exercise
(15 minutes)
This is arguably the most important exercise.
Each team must construct the strongest possible argument for its opponents.
For example:
- Progressive institutionalists must explain why a free-market economist might reasonably oppose substantial redistribution.
- Free-market institutionalists must explain why workers might reasonably believe they have lost bargaining power.
- Social democrats must explain why American institutions cannot simply be replaced with Scandinavian institutions.
- Political economy skeptics must explain why markets and governments can both become instruments of concentrated power.
Rule: The opposing team must certify that its argument has been represented fairly before rebuttal begins.
This teaches intellectual honesty and prevents the straw-man fallacy.
Round 3 — Cross-examination
(20 minutes)
Each team receives five minutes to question another team.
The questioning team must ask questions that expose assumptions, contradictions, and weaknesses.
Suggested questions:
To the Progressive Institutionalists
- If stronger unions increase wages, how do you prevent them from protecting existing workers at the expense of new entrants?
- Can you identify the share of the RAND income gap attributable specifically to declining unionization?
- How would you prevent higher corporate taxation from reducing investment?
- Is the objective equal income, equal opportunity, or economic security?
To the Free-Market Institutionalists
- If productivity increases but typical compensation does not keep pace, who should receive the productivity gains?
- Can a worker negotiate freely when a local labor market is dominated by one employer?
- Should corporations be permitted to use political influence to establish barriers to competition?
- Does the existence of voluntary transactions guarantee that the starting conditions are fair?
To the Social Democrats
- How would you finance universal social programs?
- Can a welfare state survive an aging population?
- What happens if taxation makes investment less attractive?
- Which Swedish institutions could realistically operate in the United States?
To the Political Economy Skeptics
- If both government and corporations can become corrupt, what institutional arrangements would you establish?
- Can campaign-finance reform meaningfully reduce economic influence over politics?
- Is a highly concentrated private economy compatible with democratic self-government?
- What happens when the interests of voters and organized economic interests conflict?
Round 4 — The rebuttal
(15 minutes)
Every team must identify:
- One factual weakness in an opposing argument.
- One logical weakness.
- One philosophical disagreement.
- One policy consequence that the opposing team has failed to consider.
Students must distinguish between:
Ad hominem: Attacking the person making the argument.
Straw man: Misrepresenting an opposing position.
False dichotomy: Pretending that only two economic systems are possible.
Correlation versus causation: Assuming that two trends occurring together prove that one caused the other.
Appeal to authority: Assuming that an argument must be correct because a famous economist or respected institution supports it.
Cherry-picking: Selecting favorable data while ignoring contradictory evidence.
Post hoc reasoning: Assuming that because a policy came before an economic change, it necessarily caused that change.
Round 5 — The policy challenge
(20 minutes)
Each team must design a ten-year economic reform package.
It cannot simply criticize the existing system.
It must specify:
- What policy would change?
- Which institution would implement it?
- Who would pay for it?
- Who would benefit?
- What unintended consequences might occur?
- How would its success be measured?
- What would cause the team to reconsider its policy?
This is where economic literacy becomes important.
A proposal to increase wages is incomplete without considering employment, inflation, business investment, and productivity.
A proposal to reduce taxation is incomplete without considering public services, fiscal sustainability, and the distribution of the resulting benefits.
A proposal to expand public services is incomplete without considering opportunity costs and the quality of government implementation.
Part VII. The advanced seminar questions
These are intended for Socratic discussion after the formal debate.
A. Questions about capitalism
- Is capitalism primarily an economic system, a political system, or a legal framework for private ownership and exchange?
- Is inequality a necessary feature of capitalism, or can market capitalism operate with relatively low inequality?
- Does a free market require strong government institutions to protect competition?
- When does economic success become economic dominance?
- Is there a meaningful difference between wealth created through innovation and wealth accumulated through monopoly power?
- Does capitalism reward productivity, ownership, scarcity, bargaining power, or some combination of these?
B. Questions about labor and ownership
- Who creates economic value: the worker, the entrepreneur, the investor, or the institution?
- Does ownership of capital create a legitimate claim to an increasing share of economic growth?
- Should workers participate in corporate governance?
- Are unions a counterweight to corporate power or an additional interest group?
- Should employees receive equity in the companies they help build?
- Is a living wage a right, a market outcome, or a public policy objective?
C. Questions about democracy and wealth
- Can political democracy coexist with extreme economic inequality?
- Should individuals be permitted to use unlimited personal wealth to influence political outcomes?
- Is campaign financing an exercise of free speech or a mechanism for concentrating political influence?
- If wealthy citizens have greater access to policymakers, does everyone possess equal political rights in practice?
- Can government regulate corporate political power without becoming politically captured itself?
D. Questions about economic mobility
- Is the American Dream primarily about equality of opportunity or equality of outcome?
- Does a society have an obligation to ensure that a full-time worker can afford basic necessities?
- How should inheritance affect the distribution of opportunity?
- Does access to education meaningfully offset differences in family wealth?
- Is social mobility declining, and what evidence would demonstrate it?
- Should economic success depend primarily on talent and effort, or should society compensate for circumstances beyond individual control?
E. The technology question
This is particularly important as students consider the future of artificial intelligence.
- If AI increases productivity dramatically, who owns the resulting economic value?
- If an AI system replaces 10,000 workers, does society owe those workers compensation?
- Should workers share in the productivity gains created by automation?
- Does technological innovation justify concentrated private ownership?
- Could a universal basic income provide economic security, or would it simply subsidize an economy in which wealth remains concentrated?
- Should data, public research, and collectively developed knowledge be treated as economic assets that create shared obligations?
Part VIII. The comparative economics laboratory
The debate should not end with American politics. Students need comparative institutional analysis.
The following countries offer four different approaches to the relationship between markets, government, labor, and capital.
United States — Liberal market capitalism
Emphasis on private enterprise, financial markets, entrepreneurship, decentralized wage bargaining, and comparatively limited universal social provision.
Research: Milton Friedman and Robert Nozick.
Sweden — Nordic social democracy
Private ownership and competitive markets alongside extensive public services, social insurance, collective bargaining, and relatively high taxation.
Research: Gunnar Myrdal and Amartya Sen.
Germany — Social market economy
Competitive markets combined with social insurance, vocational training, worker representation, and institutionalized cooperation between employers and employees.
Research: Ludwig Erhard and ordoliberal economic thought.
Singapore — State-directed market development
Strong private-sector participation combined with strategic government investment, public housing, state-linked enterprises, and an active developmental state.
Research: Lee Kuan Yew and developmental-state economics.
Comparative research assignment
Each team must answer:
| Measure | United States | Sweden | Germany | Singapore |
|---|---|---|---|---|
| Private enterprise | Research | Research | Research | Research |
| Union bargaining | Research | Research | Research | Research |
| Public healthcare | Research | Research | Research | Research |
| Public housing | Research | Research | Research | Research |
| Income taxation | Research | Research | Research | Research |
| Social mobility | Research | Research | Research | Research |
| Economic inequality | Research | Research | Research | Research |
| Productivity growth | Research | Research | Research | Research |
Students must use comparable definitions and years. They must not assume that a country's social outcomes can be attributed to one policy in isolation.
The culminating question:
Is there a superior economic system, or are successful economies the result of balancing institutions that address different market failures?
Part IX. Academic vocabulary: the PPE economics glossary
The vocabulary is deliberately more demanding than an ordinary high-school economics unit. Students should be able to use these terms accurately in an oral argument and an academic essay.
1. Macroeconomics and income distribution
| Term | Definition |
|---|---|
| Income inequality | Unequal distribution of income across individuals or households. |
| Wealth inequality | Unequal distribution of accumulated assets minus liabilities. |
| Income quintile | One of five equally sized population groups ranked by income. |
| Percentile | A position within an ordered distribution of observations. |
| Gini coefficient | Statistical measure of inequality, generally ranging from zero to one. |
| Lorenz curve | Graph showing the cumulative distribution of income or wealth. |
| Counterfactual | An estimate of what would have happened under an alternative condition. |
| Real income | Income adjusted for changes in the price level. |
| Nominal income | Income measured in current dollars without adjusting for inflation. |
| Median income | The income separating the upper and lower halves of a distribution. |
| Mean income | Total income divided by the number of observations. |
| Purchasing power | The quantity of goods and services money can buy. |
| National income | Aggregate income earned within an economy under a specified accounting definition. |
| Labor share | The proportion of national income attributed to labor compensation. |
| Capital share | The proportion of income attributed to returns on capital. |
2. Labor economics
| Term | Definition |
|---|---|
| Labor productivity | Output produced per unit of labor input. |
| Marginal productivity | Additional output generated by one additional unit of input. |
| Collective bargaining | Negotiation between employers and worker representatives. |
| Union density | Percentage of workers who belong to unions. |
| Monopsony | Market condition in which employers possess significant power over wages and employment. |
| Wage premium | Difference in earnings associated with a particular characteristic or institutional arrangement. |
| Human capital | Knowledge, skills, education, and capabilities that contribute to productive activity. |
| Labor elasticity | Responsiveness of labor supply or demand to changes in economic conditions. |
| Reservation wage | Lowest wage at which an individual is willing to accept employment. |
| Wage compression | Reduction in wage differences between higher- and lower-paid workers. |
| Real wage stagnation | Little or no growth in inflation-adjusted wages. |
| Bargaining power | Ability to influence the terms of an economic agreement. |
3. Political economy
| Term | Definition |
|---|---|
| Rent-seeking | Seeking economic advantage through control of rules or privileges rather than productive activity. |
| Regulatory capture | When regulators become unduly influenced by the industries they regulate. |
| Lobbying | Attempting to influence government decisions. |
| Market concentration | The extent to which a small number of firms control a market. |
| Monopoly | Market dominated by a single supplier without effective competition. |
| Oligopoly | Market dominated by a small number of firms. |
| Antitrust | Policies intended to preserve competition and prevent anticompetitive conduct. |
| Deregulation | Reduction or removal of government regulations. |
| Privatization | Transfer of ownership or provision from government to private entities. |
| Financialization | Growing importance and influence of financial markets, institutions, and activities in the economy. |
| Regulatory arbitrage | Exploiting differences in regulatory rules to gain an advantage. |
| Public choice theory | Application of economic analysis to political institutions and decision-making. |
4. Taxation and public finance
| Term | Definition |
|---|---|
| Marginal tax rate | Tax rate applied to the next unit of taxable income. |
| Effective tax rate | Actual tax paid as a proportion of a defined income measure. |
| Progressive taxation | Taxation in which the average tax burden rises with income. |
| Regressive taxation | Taxation in which the average tax burden falls with income. |
| Proportional taxation | Taxation at a constant proportion of the relevant tax base. |
| Capital gains | Profit realized from the sale of an asset. |
| Tax incidence | Who ultimately bears the economic cost of a tax. |
| Tax expenditure | Revenue forgone through special tax exclusions, deductions, or credits. |
| Fiscal deficit | Government spending exceeding revenue during a given period. |
| Public debt | Accumulated outstanding government borrowing. |
| Redistribution | Changing the distribution of economic resources through taxes, transfers, or public services. |
| Opportunity cost | Value of the best alternative forgone when making a choice. |
5. Philosophy and political theory
| Term | Definition |
|---|---|
| Distributive justice | Principles governing the fair distribution of benefits and burdens. |
| Egalitarianism | Family of theories emphasizing equality as a moral or political value. |
| Libertarianism | Political philosophy emphasizing individual liberty and limits on coercive authority. |
| Meritocracy | System in which rewards and positions are allocated according to merit. |
| Social contract | Framework explaining political authority through an agreement or justification among members of society. |
| Utilitarianism | Ethical theory evaluating actions by their consequences for overall welfare. |
| Positive liberty | Capacity or opportunity to act and pursue one's goals. |
| Negative liberty | Freedom from interference or coercion. |
| Capabilities | Real opportunities people have to achieve valued ways of living. |
| Intergenerational equity | Fairness between present and future generations. |
| Procedural justice | Fairness of the rules and processes through which decisions are made. |
| Substantive justice | Fairness of the actual outcomes or conditions produced. |
Vocabulary mastery requirement: Students must use at least 20 of these terms accurately in their final essay, including five from political philosophy.
Part X. The culminating written examination
(AP / PPE-level assessment)
Students now transition from oral debate to individual academic writing.
Essay prompt
The $79 Trillion Question: Has American Capitalism Failed the Middle Class?
Write a 1,500–2,000-word analytical essay addressing the following:
Since 1975, the United States has experienced substantial changes in the distribution of economic income. Some researchers argue that the benefits of economic growth have increasingly accrued to the wealthiest Americans, while ordinary workers have received a declining share.
Evaluate the extent to which this transformation resulted from:
- Government tax and regulatory policy.
- Declining union membership and worker bargaining power.
- Globalization and technological change.
- Corporate concentration and financialization.
- Differences in educational opportunity and human capital.
Then evaluate whether government should intervene to change the distribution of economic growth.
Your essay must incorporate at least three economic theories, three political philosophers, and evidence from at least two primary research institutions.
Required essay structure
| Section | Required content |
|---|---|
| Introduction | Define the problem and present a qualified thesis. |
| Statistical analysis | Explain the RAND counterfactual and CBO findings. |
| Causal analysis | Compare competing explanations of inequality. |
| Political analysis | Evaluate government policies and institutional changes. |
| Philosophical analysis | Apply Rawls, Nozick, Hayek, Sen, or other thinkers. |
| Counterargument | Present and answer the strongest opposing argument. |
| Policy evaluation | Propose reforms and evaluate their costs and benefits. |
| Conclusion | Reach a defensible judgment supported by evidence. |
Suggested thesis statements
These are models of the different intellectual approaches students might develop.
Progressive thesis:
The increasing concentration of American income is not simply the result of technological progress or differences in productivity. It reflects institutional and political decisions that weakened workers' bargaining power and disproportionately rewarded capital ownership.
Free-market thesis:
Although income inequality has increased, the RAND counterfactual does not establish that economic resources were stolen or that government intervention would improve economic welfare. The appropriate response is to strengthen competition, human capital, and economic opportunity.
Social-democratic thesis:
The United States does not need to abandon capitalism to address inequality. A competitive market economy can produce innovation and prosperity while providing stronger social protections, collective bargaining, and public services.
Political economy thesis:
The fundamental problem is the concentration of power. Both corporations and government institutions can become instruments of rent-seeking, and reform must address the political mechanisms that allow powerful interests to control economic rules.
Part XI. Assessment rubric
100-point advanced seminar assessment
| Assessment category | Points |
|---|---|
| Economic literacy and accurate use of statistics | 20 |
| Quality of evidence and source evaluation | 15 |
| Understanding of competing economic theories | 15 |
| Philosophical reasoning | 15 |
| Steelmanning and rebuttal | 15 |
| Policy analysis and unintended consequences | 10 |
| Oral communication and intellectual integrity | 10 |
| Total | 100 |
What distinguishes an exceptional student?
A competent student can explain the RAND statistic.
An advanced student can explain the methodology and identify its limitations.
An exceptional student can explain why two economists might accept the same statistical evidence but reach different conclusions about economic justice and public policy.
That is the difference between learning economics and learning to think like an economist.
Part XII. Teacher's culminating exercise: Design a fair economy
For the final activity, students become members of a constitutional economic convention.
They must design an economic system for a hypothetical country called New Republic.
The country has:
- A productive private sector.
- Rapidly advancing artificial intelligence.
- Significant differences in household wealth.
- A declining manufacturing workforce.
- A growing elderly population.
- Expensive housing.
- A government with a substantial public debt.
- A population divided over taxation and social welfare.
Students must write a short economic constitution addressing seven questions:
- Who should own productive assets?
- What rights should workers possess?
- What public services should be guaranteed?
- How should income and wealth be taxed?
- What limits should exist on corporate political influence?
- Who should receive the benefits of technological innovation?
- What responsibilities does the government have toward future generations?
The final philosophical challenge
Imagine that you do not know whether you will be born into the top 1%, the middle class, or the bottom 10%.
You do not know whether you will inherit a fortune, have a disability, become an entrepreneur, work in a factory, or lose your employment to artificial intelligence.
What economic constitution would you choose?
This brings the students back to Rawls's veil of ignorance, but now they must apply it to actual institutions, tax policies, property rights, and economic incentives.
The objective is not to produce a country without inequality. It is to produce a country whose economic rules can be defended to people who occupy very different positions within it.
Part XIII. Recommended primary reading and research library
These are the materials I would give students before beginning the seminar.
1. RAND Corporation — The $79 trillion study
PRIMARY RESEARCH • 2025
Carter C. Price, Measuring the Income Gap from 1975 to 2023: Extending Previous Work.
RAND working paper WRA516-2
The essential primary source. Students should read the methodology, assumptions, and conclusion.
2. Congressional Budget Office — Income distribution
GOVERNMENT RESEARCH • 2026
The Distribution of Household Income, 2023.
Read the CBO report
Provides an independent perspective on household income, taxes, transfers, and inequality.
3. Bureau of Labor Statistics — Union membership
OFFICIAL LABOR STATISTICS
Union Members — 2025.
Read the BLS report
Useful for investigating the decline in union membership.
4. Grossman and Oberfield — The declining labor share
ACADEMIC LITERATURE REVIEW • 2022
The Elusive Explanation for the Declining Labor Share.
Read the Annual Review of Economics article
An excellent examination of competing explanations for the changing relationship between labor and capital.
5. Congressional Research Service — Tax policy
NONPARTISAN CONGRESSIONAL RESEARCH
Federal Individual Income Tax Brackets, Standard Deduction, and Personal Exemption: 1988 to 2025.
Read the CRS report
Useful for distinguishing marginal rates, statutory changes, and tax policy.
6. Income inequality in the United States, 1975–2022
ACADEMIC RESEARCH • 2024
Read the research paper
An additional perspective on household disposable income inequality and the tax-and-transfer system.
7. Bernie Sanders — Political interpretation of the RAND findings
POLITICAL PRIMARY SOURCE • MARCH 2025
Read the senator's statement
Students should analyze how a political actor translates a research finding into a political argument. This is evidence of political framing, not independent confirmation of the study.
Final instructor's assessment: What should students conclude?
I would resist having the teacher announce that one team has the correct answer.
There are, however, several conclusions that students should be able to defend after completing this exercise.
1. The underlying distributional change is real and substantial.
Both RAND and CBO document significant changes in how economic income is distributed. The CBO finds that average income increased across all quintiles from 1979 to 2023, but increased most rapidly among the highest-income households.
2. The $79 trillion figure is meaningful, but it is not a literal accounting of stolen money.
It is a cumulative counterfactual income gap. The 2025 RAND paper does not establish that every dollar not earned by the bottom 90% was received by the top 1%. Nor does it independently establish why the gap emerged.
3. The causes are complex and interconnected.
Globalization, automation, education, tax policy, union decline, market concentration, and changes in corporate behavior all deserve investigation. The academic literature does not support reducing the entire transformation to one president or one policy.
4. Economic growth and economic justice are not identical concepts.
A country can become wealthier while distributing the benefits unevenly. It can also reduce inequality through policies that have economic costs. The question is how to evaluate the trade-offs.
5. The most important question may be institutional rather than partisan.
Who writes the rules? Who benefits from those rules? Who has the power to change them? How do we prevent both private and public institutions from being captured by concentrated interests?
That is a much more intellectually productive conversation than simply asking whether Republicans or Democrats are responsible.
My recommended closing question for the classroom
If America produces more wealth, more technology, more automation, and more economic output than any previous generation, why should the distribution of that prosperity be left entirely to the existing market institutions—and what evidence would convince us that government could do better?
Have every student write a one-page answer independently, without consulting their debate team.
That final individual response is where you discover whether students have actually changed their thinking, rather than simply become better at defending their assigned side.
The ultimate PPE lesson: Economics helps us understand what is happening. Politics helps us understand who has the power to change it. Philosophy helps us decide what ought to happen.
And a genuinely educated citizen must be able to do all three.
Reading Sage extension: A useful next project would be a four-part seminar series comparing American capitalism, Swedish social democracy, German social-market economics, and Singapore's developmental state, with a new evidence-based debate each week.
Weekly PPE economics seminar