Americans Getting Skewed: Part 2

New Deal

In Part 1, I argued that the skewed distribution of wealth in the United States has been produced under conditions of unequal opportunity and therefore must be considered unfair. Further, a lack of sufficient protections – such as guaranteed health care and higher education – keeps the risks of inequality intolerably high.

In this second installment, I will show that rising inequality is a predictable byproduct of U.S. economic policy choices, which actively pursue advantage for elites – at the necessary disadvantage of laborers.

The Great Compression

According to Paul Krugman, a Nobel Prize-winning economist, the middle class society “was created in a very short period of time between the late 1930s and the end of World War II.” He cites “equalizing policies” in President Roosevelt’s New Deal that placed higher taxes on the wealthy, supported unions, guaranteed a minimum wage, granted unemployment insurance and instituted social security.

The evidence is in the Gini coefficient (which measures national inequality on a .00-1.00 scale, .00 being perfect equality and1.00 being perfect inequality). Gini peaked above .50 during the Great Depression in the 1930s. But, by 1947, after the New Deal and the end of WWII, it had dropped to .38.

Krugman argues that the New Deal – and not the war-time economy alone – closed the gap between rich and poor, but, more importantly, he says it cemented equalization as the norm.

Peak

Indeed, the trend persisted well after 1945, up through President Johnson’s own attempt at New Deal-style economics – the Great Society. Equality peaked in 1968. It was a year dominated by anti-authoritarian challenges, which were funneled through movements for peace in Vietnam, African-American equality and women’s liberation. Together, these stirrings represented the strongest uprising in the U.S. since the Civil War.

But they also represent the end of shared economic prosperity in America.

Trough

Equality has decreased ever since the near insurrection of the late 1960s, and now, at Gini .45, it barely even resembles the distributions seen in other advanced industrial democracies.

For comparison’s sake, France and Germany come in at .28; Canada is at .32, Italy is at .33 and the U.K. is at .34.

Rollback

Reaganomics represented the most significant subversion of FDR’s equalization policies – subversion that continues to the present, but which reached notorious depths under Bush II.

Instead of supporting public works, Reagan gutted social spending. Academics Joel Rogers and Thomas Ferguson point out that “the deepest social spending cuts” came in “low-income benefits and jobs and services programs.”

Instead of progressive taxation, he reduced the top tax bracket’s rate from 70% to 28%. Instead of market controls, he favored market de-regulations (a policy with familiar effects in 2009).

Union membership – which correlates positively with equality – shrank under Reagan, who famously waged a union-busting campaign throughout his administration. In the early 1980s, more than 20% of the workforce was unionized. Now only 12% of workers belong to a union, and most of them are in the public sector.

These policies have had a predictable effect. Since 1980, economic growth has been overwhelmingly relegated to the richest fraction of American elites – even during the Clinton years. Since Reagan, “real” wages for Americans have stagnated, and the minimum wage is actually less than the adjusted minimum wage from 1968 (more than $9).

Conclusion

Economic inequality in the U.S. is unjust. It is not the result of chance, nor of autonomous market forces. Rather, it is the necessary and predictable by-product of economic policies that favor elite Americans.

These policies, instituted by Reagan but continued ever since, include tax breaks for the wealthiest, drastic cuts in social spending and impediments to unionization. (Interestingly, they also include extreme protectionism and increases in national debt.)

While official rhetoric suggests otherwise, the motive for this economic agenda can be ascribed to self-interest. The social movements of the late 1960s challenged fundamental power structures in the U.S. – structures that feature control by a concentrated elite. Economic equality, normalized by the New Deal/Great Society programs, created expectations and (relatively) shared prosperity that lead to these movements. Thus, it’s no surprise that elite sectors would support a redistribution of wealth toward the top.

Now, with inequality near its peak and the economy in crisis, it’s time for another rollback. Americans don’t deserve lower wages and longer hours. They don’t deserve to have the profits from their labor diverted to the top of the tax bracket, while they struggle to hold on to increasingly-insecure employment, afraid nothing will support them should they fall.

It’s time for a new deal.

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Flickr photo by jimbowen0306

One Comment

  1. Chris

    Agreed. 100%.

    Unfortunately our society has been twisted by years of Washington and media scaremongering on tax increases. It’s gotten so crazy that taxing 6 figure incomes to pay for health care is generating a firestorm in Congress and in the news. Instead, the establishment would like Obama to cut grandma’s healthcare. Check out this question from Obama’s health care reform press conference last night:

    “Specifically, what kind of pain, what kind of sacrifice, are you calling on [Medicare] beneficiaries to make? And even if not right away, aren’t future beneficiaries going to be getting less generous benefits than today’s?”