I well recall that pharmaceutical brown-out known as the Clinton Health Care Plan. Everyone just stopped hiring scientists - raked the resumes into the trash can and spent the interview budget on something else. It wasn't a great time to be a fresh PhD or post-doc, that's for sure. Not that it was a picnic being employed, because some companies seemed to take the opportunity to make unpopular moves. And why not? If you didn't like it, where else could you go?

a) No one is paying attention to what they do, because it's complex and boring.

The agency regulates in a way that benefits the people who do care -- the companies, and their lawyers and banks -- because those are the people who are going to go to congress and complain if the SEC rules against them. Witness the march on congress of the technology industry in the face of a proposed change in the taxation or regulation of stock options. These are not, by and large, executives who are concerned about aggrandizing their own wealth (well. . . not solely concerned, anyway.) These are executives who are genuineley concerned about their ability to attract both capital and prime techie talent if the regulations are changed. They're self-interested, but not necessarily in a way that seeks to screw the rest of us for their own benefit. And in California, they vote. Cross them, and you can expect to have Boxer and Feinstein screaming in your ear in no time flat.

b) Something has gone horribly wrong and everyone is paying attention, and the public is screaming for you to do something now.

At this point, journalists, who know just about as much about accounting as they know about 7th Century Mayan Pottery (much less, in many cases) are going to be paging through all the regulations, searching for one that sounds relevent and can be paraphrased in a single sentence. Chances are better than even that they will either misunderstand the regulation (such as the journalists who appeared to think that the reason Enron's off-balance sheet entities were fraudulent was that they were located offshore), or totally misunderstand its implications (such as the journalists who think that banning accounting firms from consulting will eliminate conflicts of interest, without noticing that the audit firms still get all their revenue from the same source, the companies they audit; they just get less of it now.). Because they haven't the faintest clue how to read a financial statement, and aren't going to waste valuable time learning just so they can do some stupid story on financial statements, they are going to get the majority of what they report factually wrong, and come up with suggestions that will be as well thought out and useful as a journalist suggesting to an aerospace engineer that because birds can flap their arms and fly, we ought to be able to do so as well. Those will be the stories that the public reads that generate such useful thoughts as "Why is it so hard to just pass a simple regulation?"

Then their congressmen, aided by political science graduates who get all their ideas about accounting from the journalists, are going to pass some laws based on what will make the voters who read the journalists' stories think that their congresscritters are doing something about the problem. Given the public process by which the likely subject of those new laws has been selected, there are three possible outcomes:

i) The law will solve more problems than it creates.
ii) The law won't do anything much, or will create as many problems as it solves
iii) The law will create more problems than it solves.

Given the fact that the people involved have absolutely no background that would enable them to actually assess the effects of the laws they pass, the best-case scenario is that it mimics a random distribution: in other words, you have a 2/3 probability of doing nothing worthwhile. The worst-case scenario is that the bad ideas are easier to explain, and thus more likely to get passed, than the good ideas. Anyone who has ever actually tried to get the government to do something can judge for themselves which is more likely.

In the middle of the 1980's, as economists became aware that something important was happening to the distribution of income in America, they formulated three main hypotheses about its causes.

The ''globalization'' hypothesis tied America's changing income distribution to the growth of world trade, and especially the growing imports of manufactured goods from the third world. Its basic message was that blue-collar workers -- the sort of people who in my youth often made as much money as college-educated middle managers -- were losing ground in the face of competition from low-wage workers in Asia. A result was stagnation or decline in the wages of ordinary people, with a growing share of national income going to the highly educated.

A second hypothesis, ''skill-biased technological change,'' situated the cause of growing inequality not in foreign trade but in domestic innovation. The torrid pace of progress in information technology, so the story went, had increased the demand for the highly skilled and educated. And so the income distribution increasingly favored brains rather than brawn.

Finally, the ''superstar'' hypothesis -- named by the Chicago economist Sherwin Rosen -- offered a variant on the technological story. It argued that modern technologies of communication often turn competition into a tournament in which the winner is richly rewarded, while the runners-up get far less. The classic example -- which gives the theory its name -- is the entertainment business. As Rosen pointed out, in bygone days there were hundreds of comedians making a modest living at live shows in the borscht belt and other places. Now they are mostly gone; what is left is a handful of superstar TV comedians.

The debates among these hypotheses -- particularly the debate between those who attributed growing inequality to globalization and those who attributed it to technology -- were many and bitter. I was a participant in those debates myself. But I won't dwell on them, because in the last few years there has been a growing sense among economists that none of these hypotheses work.

Some -- by no means all -- economists trying to understand growing inequality have begun to take seriously a hypothesis that would have been considered irredeemably fuzzy-minded not long ago. This view stresses the role of social norms in setting limits to inequality. According to this view, the New Deal had a more profound impact on American society than even its most ardent admirers have suggested: it imposed norms of relative equality in pay that persisted for more than 30 years, creating the broadly middle-class society we came to take for granted. But those norms began to unravel in the 1970's and have done so at an accelerating pace.

Exhibit A for this view is the story of executive compensation. In the 1960's, America's great corporations behaved more like socialist republics than like cutthroat capitalist enterprises, and top executives behaved more like public-spirited bureaucrats than like captains of industry. I'm not exaggerating. Consider the description of executive behavior offered by John Kenneth Galbraith in his 1967 book, ''The New Industrial State'': ''Management does not go out ruthlessly to reward itself -- a sound management is expected to exercise restraint.'' Managerial self-dealing was a thing of the past: ''With the power of decision goes opportunity for making money. . . . Were everyone to seek to do so . . . the corporation would be a chaos of competitive avarice. But these are not the sort of thing that a good company man does; a remarkably effective code bans such behavior. Group decision-making insures, moreover, that almost everyone's actions and even thoughts are known to others. This acts to enforce the code and, more than incidentally, a high standard of personal honesty as well.''

Economists also did their bit to legitimize previously unthinkable levels of executive pay. During the 1980's and 1990's a torrent of academic papers -- popularized in business magazines and incorporated into consultants' recommendations -- argued that Gordon Gekko was right: greed is good; greed works. In order to get the best performance out of executives, these papers argued, it was necessary to align their interests with those of stockholders. And the way to do that was with large grants of stock or stock options.