Less Equal Than in 1774?

20 09 2012

Economic inequality had become a prominent feature of this year’s presidential election campaign. Just a few years ago there were those who claimed that class politics were dead in the United States and the Western world more generally. The Occupy Movement and the furore about Mitt Romney’s statement about the 47% have falsified these claims: competing definitions of equality are now central to electoral politics in the United States.

The current political climate has increased the public’s interest in the history of inequality.  Yesterday, Salon.com posted an article that claimed that economic inequality in the United States was now greater than it had been in 1774. This article, which was written by Natasha Lennard, was widely circulated and commented on.  The article was based on research by two academics, Peter Lindert of UC-Davis and Jeffrey Williamson of Harvard.

The current debate about economic inequality in the United States offers economic historians a wonderful opportunity to disseminate their research findings to the general public. It’s a “teachable moment” as we educators say.

Among economic historians, it is well known that inequality trends are non-linear: it is possible for measurable economic inequality in a society to go up and then go down, or vice versa. The basic story of economic inequality in the United States goes something like this: in the colonial period up and then up to about the Civil War, wealth and income was fairly evenly distributed among (white) families. Unlike Europe, where there was a vast gap between the aristocracy and the hungry poor, the United States c. 1800 had few really rich people and few desperately poor (white) people. Benjamin Franklin said that American society was characterized by a “happy mediocrity”. [1]Industrialization and urbanization after 1850 changed this, so that during the Gilded Age of the late 19th century, US society had become much more stratified. The period after the Civil War inaugurated a social revolution in the United States that witnessed rapid urbanisation, the rise of Big Business, and the growth of family fortunes, like that of the Rockefellers. In the Gilded Age, some rich American families built European-style mansions and even married into the British aristocracy. In reaction to these changes in society, new political movements such as the Populists, the Progressives, and more militant labour unions emerged. [2]  The introduction of peacetime income tax in 1913 was a response to increasing discontent with the level of inequality in America.

 

Income inequality in the United States remained fairly high until the New Deal when the United States was rapidly reverted into being a country with low income inequality. Economic historians call this the Great Compression. Between 1933 and 1945 the United States became a society with a fairly egalitarian distribution of wealth and a vast middle class that included unionized blue collar workers. Capitalism was tamed, the wealthy under FDR, Truman, and Eisenhower paid tax rates that were extremely high by today’s standards. Paul Krugman fondly refers to this society as the “middle-class society of my childhood.”[3]

Great Compression

 

This situation persisted until roughly 1980. Since then inequality has increased dramatically. The United States is now reverting into a society of haves and have-nots. The trend in Britain and, to a lesser extent Canada, has been similar. Economic historians continue to debate the exact reasons for the re-polarization of society since 1980s. Some attribute it to technological change and globalization, which decimated the old blue-collar working class. Others argue that taxation policy, particularly the massive tax cuts for the wealthy under Reagan and George W. Bush, explain why inequality had grown. See here.

 

I’m inclined to think that politics (i.e., the Reagan tax cuts) explain most of the increase inequality, as other countries with similar levels of technology and exposure to globalization have not experienced a marked increase in inequality in after-tax incomes. I’m thinking of Scandinavian countries here. Richard Wilkinson wrote inThe Spirit Level: Why More Equal Societies Almost Always Do Better, “if you want to live the American dream, move to Denmark.”

Income inequality since 1980

 

In any event, there is a lot of good research on the history of inequality out there. It needs to be showcased to the broader public as it can inform political debate. Kudos to Salon’s Natasha Lennard for starting this process.


[1] Benjamin Franklin, ‘Information to Those Who Would Remove to America’ Sept. 1782 in The Writings of Benjamin Franklin, edited by Albert Henry Smyth (New York: Macmillan, 1905–7), vol. 8:603–14. The historiography on inequality and social class in early North America is discussed in Gordon S. Wood, The Radicalism of the American Revolution (New York: A.A. Knopf, 1992), 44-53. Peter Lindert,  “When Did Inequality Rise in Britain and America?” Journal of Income Distribution. 9 (2000): 11-25; Peter Lindert, “Three Centuries of Inequality in Britain and America.” In A.B. Atkinson and François Bourguignon (eds.), Handbook of Income Distribution, volume 1.  Amsterdam: Elsevier Science, 2000, Ch. 3 (pp. 167-216).

[2] Glenn Porter,, The Rise of Big Business, 1860-1920, 3rd ed. (Harlan Davidson, 2006); Alan Trachtenberg, The Incorporation of America: Culture and Society in The Gilded Age, 1st ed., American century series (New York: Hill and Wang, 1982); Bryant Morey French, Mark Twain and The Gilded Age, the Book That Named an Era (Dallas: Southern Methodist University Press, 1965).

[3] Claudia Goldin and Robert A. Margo, “The Great Compression: The Wage Structure in the United States at Mid- Century,” The Quarterly Journal of Economics 107, no. 1 (February 1992): 1-34.

 

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