It's always nice to see the Fed flipping out in fear over slight increases in wages. Sort of clarifies things, you know? Given that the late-90s saw lower-than-we-thought-possible unemployment combined with rapid wage growth and a surprising absence of inflationary pressure, you'd think some wage growth after five years of stagnation would be warmly greeted by the Fed -- instead, they're ready to slam on the brakes. The absurdity of it is almost too rich to convey, but the Federal Reserve literally takes wage growth for the median American as a warning sign of a sick economy.
Meanwhile, as Matt notes, it's a nice coincidence that we're supposed to believe that a quarter century of this sort of Fed policy had no effect on income inequality, which was, of course, entirely caused by skills-biased technological change. That Europe also saw the same change without the corresponding increase in inequality must not be mentioned. Also, don't mention any of this. That's not to say it's all, or even mostly, Fed policy -- Ben Bernanke isn't advantaging the top .1% above the top 1% in any serious way -- but a basket of things which have rapidly enhanced the capabilities of the rich to get richer, and heavily impeded everyone below them.
As a sort of general comment on the why-is-inequality-bad argument, inequality is symptomatic of bad things, like an economy where the rich-gets-richer effect has accelerated, social mobility has declined, and the median worker has lost bargaining power and thus compensation. These may not be economic bad things, but they can be contrary to the way we believe our society should work. Hell, we can simply decide the median worker deserves more than he's getting -- that is, after all, a judgment society can make. That doesn't mean we have to muck with an economy that may indeed be running at high efficiency. Ramping up the marginal progressivity of the tax code, as Robert Shiller suggests, would take care of this nicely.
