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Our new president described us as poised to tackle our challenges together. “Ask not what your country can do for you,” he said, “ask what you can do for your country.” To Americans at that stage in our history, Kennedy’s argument that collective well-being was even more important than individual well-being was hardly countercultural. Though the rhetoric was powerful, to his contemporaries he was stating the obvious.
Between the mid-1960s and today—by scores of hard measures along multiple dimensions—we have been experiencing declining economic equality, the deterioration of compromise in the public square, a fraying social fabric, and a descent into cultural narcissism. As the 1960s moved into the 1970s, 1980s, and beyond, we re-created the socioeconomic chasm of the last Gilded Age at an accelerated pace.
And our culture became far more focused on individualism and less interested in the common good.
Kennedy’s call to put shared interest above self-interest may have sounded at the time like reveille for an era that was opening—a new frontier of even greater shared victories—but with the perspective of the full century, we can now see that instead he was unwittingly sounding taps for an era that was about to close.
If ever there were a historical moment whose lessons we as a nation need to learn, then, it is the moment when the first American Gilded Age turned into the Progressive Era, a moment which set in motion a sea change that helped us reclaim our nation’s promise, and whose effects rippled into almost every corner of American life for over half a century.
between 1915 and 2015 the number of vehicles per 1,000 inhabitants in the U.S. exploded from 25 to 820—a growth rate of 3.5 percent per year across an entire century!—a
Within barely one century the lifespan of the average American lengthened by three decades.
The emergence of deaths of despair in recent years is important not merely because of the human tragedies they reveal, but because they are a warning signal that the broader social trends discussed in this book may bring yet more calamities.
The latest research suggests that the high school graduation rate, properly measured, is perhaps 5 percentage points higher than it was a half century ago, compared to a rise of more than 70 percentage points in the previous half century.20 So although educational attainment as measured by high school graduation has risen over more than 125 years, that inexplicable and prolonged halt after the mid-1960s will merit revisiting later in this book, because it turns out that many other measures of social progress halted at the very same time.
GI Bill offering greatly discounted22 college education to all returning World War II veterans—mostly white and almost exclusively male. Among white men, college-going accelerated in earnest in the early 1960s, temporarily widening preexisting gender and racial disparities.
Roughly speaking, the top 1 percent’s share of national income nearly doubled from less than 10 percent in 1870 to approaching 20 percent in 1913.25 Inequalities in income, wealth, and status were vast and seemed destined to grow in perpetuity.
during the Great Convergence low- and middle-income groups gained a growing share of the expanding pie. Lindert and Williamson estimate that over this period “the real income per family of the top 1 percent rose by 21.5 percent in the United States, while… average real family income for the bottom 99 percent… more than tripled.”30 In other words, for the first two thirds of the twentieth century greater national prosperity and greater equality in sharing the wealth went hand in hand. In those decades we did not have to choose between growth and equality, as some economic theories have it—we
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Wealth—not how much we earn in a year, but how much we accumulate over the years from savings and inheritance—has always been much more unequally distributed than income, because roughly half of all families have essentially zero net worth,
No facet of the first Gilded Age had been more glaring than the extremes of wealth. Even in 1913 the wealthiest 1 percent owned 45 percent of the country’s total wealth, and during the Roaring Twenties their share rose for a couple of years to 48 percent,
The top 1 percent in recent years have garnered roughly 20 percent of household income, but nearly 40 percent of household wealth. The share of wealth held by that top 1 percent nearly doubled from less than 25 percent of total national wealth in the early 1980s to more than 40 percent in 2016. In fact, the top 0.1 percent of American families now hold about 20 percent of household wealth, almost as much as at the peak of the first Gilded Age.
In short, the top 1 percent now have nearly twice as large a share of the nation’s wealth as the bottom 90 percent,
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As we shall shortly review, the institutional, social, and cultural seeds of the Great Convergence were sown in the Progressive Era from roughly 1890 to 1910.
With the Crash of 1929 the bacchanal among the 1 percent abruptly ended, even before Franklin Roosevelt took power in 1933 with his New Deal programs. Those programs, based in large part on innovations from the Progressive Era, unleashed the full force of the Great Convergence, as we shall shortly see. World War II required massive tax increases and further encouraged the sense that “we are all in this together,” and measures of economic equality jumped even higher, just as during World War I. That both world wars were associated with a rapid increase in equality seems to confirm the view of
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Why economic egalitarianism long outlasted World War II, unlike World War I, will prove to be an interesting puzzle, because it suggests that the distribution of income was driven by something more basic than wartime exigencies. Something had changed between the first postwar era and the second, and the search for that something will carry us through the succeeding chapters of this book.
Over the four decades between 1974 and 2014, inflation-adjusted annual market income fell $320 for households at the 10th percentile (the bottom tenth), rose $388 for those at the 20th percentile (the bottom fifth), rose $5,232 for those at the national median, rose $75,053 for households in the top 5 percent, rose $929,108 for those in the top 1 percent, and rose $4,846,718 for those in the top 0.1 percent.There are no misprints in that sentence!
We know from the pathbreaking work of Raj Chetty and his colleagues that beginning with young adults who reached their adult earning levels in the late 1960s, upward mobility in terms of income has been steadily declining. “Children’s prospects of earning more than their parents have fallen from 90 percent to 50 percent over the past half century.”51 They attribute most of this decline in mobility precisely to the increasingly unequal distribution of economic growth.
People are most mad when you screw with their kids
International factors are no doubt a significant part of the backstory, because the same basic U-shape across the twentieth century is found in most advanced countries.62 Globalization is a plausible suspect, because international flows of people and goods and money tended to diminish in the first half of the twentieth century and then to intensify in the second half.63 Other Western countries have experienced the same international pressures, however, while seeing a much less dramatic increase in inequality, suggesting that U.S. domestic institutions and policies have played a major role.
Moreover, even if it’s true that imports have helped the American economy as a whole, while hurting industrial workers, we still need to explain why the overall gains have not been redistributed to compensate the losers. That is fundamentally a political question, not an economic one,
Progressive Era social innovations and institutional reforms put the US on a new path toward greater economic equality, laying the foundations for the Great Convergence that lasted until the 1970s. Progressive Era reformers, both dreamers and doers, created innovations such as the public high school, labor unions, the federal tax structure, antitrust legislation, financial regulation, and more.66 Those creations did not immediately close the income gap, given the turbulence of the Twenties, but they were the necessary foundations for further developments (especially during the New Deal, but
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the collective norm that “we are all in this together” was replaced by a libertarian (sometimes misleadingly called “neoliberal”) norm that we’re not. These changes underlay the pivot toward inequality in the mid-1970s
the presidential election of 1980 and the subsequent unfolding of Reaganism was a lagging indicator of this sea change in the American political economy.
Most experts agree that a primary cause of the Great Convergence was the interplay between technological advance and the educational innovations (especially the public high school) that emerged from the Progressive Era around 1910.
Americans collectively took our feet off the educational accelerator in the 1970s and began to coast. Almost immediately, the long, gradual upward trend in equality was reversed, as we saw in Figure 2.8.
The rapid growth of public high schools and universities from 1910 to 1975 did not happen by accident. It required major public investment, and it emerged from a nationwide grassroots reform movement,
Gallup polls showed union supporters steadily outnumbered critics by more than three to one throughout the three decades from 1936 to 1966.79 It was a period in which most Americans had come to appreciate the virtues of solidarity.
several independent studies suggest that roughly one quarter of the post-1970s decline in income equality could be explained by the fall in unionization.93 Unions are another important example, like the high school movement, of a “we” social innovation from the early 1900s whose development over the ensuing six decades contributed to the Great Convergence and whose decline after mid-century contributed to the ensuing Great Divergence.
In summary, as Piketty and Saez argue, a significant reason for the Great Convergence is “the creation and the development of the progressive income tax (and of the progressive estate tax and corporate income tax).”
Importantly, however, most of this expanded spending represents the growth of middle-class entitlement programs like Social Security and Medicare.105 The big beneficiaries of these growing transfer programs have been older Americans in the middle 40 percent of the income distribution, not the bottom 50 percent. That spending (in effect, transferring money from younger people to older people) has made the age distribution of income more egalitarian, mostly ending the scourge of elderly poverty that in the 1960s outraged social reformers like Michael Harrington, author of The Other America.
In sum, during the Great Convergence, both taxation and spending moved in a progressive direction, so government redistribution was a major contributor to growing equality. With the advent of the Great Divergence, by contrast, taxes became more regressive, though spending continued to be more progressive, softening the post-1980 trend toward inequality, at least for the aging middle class.
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Not surprisingly, financial regulation was a major policy innovation of the Progressive Era (for example, the creation of the Federal Reserve with its supervisory powers and the succession of “trust-busting” initiatives).
Perhaps the most striking implication of the minimum wage history is how closely it follows the same inverted U, with its origins at the state level in the Progressive Era, coming to the national level in the 1930s, peaking in the late 1960s, and then declining exactly at the same time as all the other factors causally linked to income inequality.
“In the United States,” argue Thomas Piketty, Emmanuel Saez, and Gabriel Zucman, “the stagnation of bottom 50% incomes and the upsurge in the top 1% coincided with reduced progressive taxation, widespread deregulation (particularly in the financial sector), weakened unions, and an erosion of the federal minimum wage.”
The pivot from egalitarian to inegalitarian policies and outcomes predated Reagan’s landslide arrival in the White House, so in that sense politics seems to have been a lagging indicator of economic change, not a leading indicator, though we shall revisit that intriguing question several times throughout this book.
Nevertheless, many of the best economists studying the Great Convergence and the Great Divergence, including Paul Krugman, Thomas Piketty and Emmanuel Saez, Anthony Atkinson, and Peter Diamond, agree that it is impossible to explain the dramatic swing in economic equality without taking norms about fairness and decency into account.
The widely shared sacrifices of World War II strongly reinforced egalitarian norms among the Greatest Generation, who would then dominate American society and politics for a quarter century after the war.
Even though TR’s Bull Moose Party lost in the three-way presidential race, that party’s platform of 1912 helped set the progressive policy agenda for Wilson’s presidency, the New Deal, and beyond.
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Though not all remained lifelong Progressives, eight of the ten Republican presidential nominees and six of the eight Democratic nominees in the first half of the twentieth century had launched their careers as members of the broad Progressive movement at the turn of the century.
In the 1890s hard times had produced intense party polarization, but in the 1930s even harder times coincided with an almost unprecedented degree of cross-party collaboration. While obviously incomplete, this degree of bipartisan collaboration contrasts sharply with party politics today.
Moreover, the 1940 Republican platform endorsed the Equal Rights Amendment and decried discrimination against blacks—in other words, on both racial and gender equality, Republicans in 1940 were actually to the left of the Democrats.
An informal content analysis of all inaugural addresses from 1901 to 2017 shows that those in the 1949–1965 period (Truman, Eisenhower, Kennedy, and Johnson) were distinctive in their emphasis on shared values, fairness, and unity, rather than self-reliance, individualism, and identity.
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economic outcomes continued to become more equal in this era. Dwight Eisenhower, elected in 1952 as the first Republican president in a generation, had actually considered running as a Democrat before accepting the Republican nomination. He campaigned in 1952 as an ideologically conservative Republican, but he governed as a moderate and was the least partisan president of modern times.
All this from a Republican president, collaborating with the moderate Democratic congressional leaders, Sam Rayburn and Lyndon Baines Johnson, to produce policies that a later generation of Republican leaders would castigate as “tax and spend liberalism.”
By the early 1960s, however, the right wing of the GOP, sidelined for nearly thirty years, had openly revolted. Barry Goldwater’s call for “a choice, not an echo” reflected this mood, as he articulated the reborn libertarianism of the New Right. In 1964, crushing the liberal wing of the Republican Party, Goldwater argued that “extremism in the defense of liberty is no vice,” and “moderation in the pursuit of justice no virtue.”
In 1968 Richard Nixon ran on a Republican platform that accepted all the major Great Society reforms, just as Ike had accepted the core of the New Deal in the 1950s. This campaign would prove the high tide of liberal Republicanism and another low-water mark for party polarization in the twentieth century.
