Written by Garrett Ainsworth
It is a truth universally acknowledged (by economists) that economic inequality has sharply risen in the United States since the 1980s. To discover what caused this increased inequality, why it persists, even worsens, and, importantly, why it is unequivocally bad both for individuals and society at large, we first need to look back to the decades preceding the 1980s.
19th century US economic history is mainly characterized by the Great Divergence, that is, the explosion in wealth and productivity brought about by the Industrial Revolution, and by the Gilded Age of its final three decades. In this era, the industrial magnates, the capitalist tycoons, got rich and richer from the capital they owned and the industries they dominated. In the first couple decades of the 20th century, American politics became markedly more progressive, economically and socially: antitrust laws were considerably expanded, the 16th Amendment allowed for a graduated income tax, and the 19th Amendment gave women the right to vote. Despite the definite progress made, the boundary between the Gilded Age and the Progressive Era is not so clear cut, mainly because the economic landscape did not change considerably; the Rockefellers were still by far the richest family in the 1920s as they were throughout the late 1800s, and economic inequality was still incredibly high; however, as the rich got richer, so did the poor. In this case, overall growth did benefit everyone, until it all came crashing down in October 1929. The Great Depression, however, galvanized the Roosevelt administration into creating the programs of the New Deal, from which the American welfare state and middle class as we know it today were created. These New Deal era policies – particularly Social Security, labor protections, financial reform and regulation, government spending on affordable housing and make-work programs – and the institutions upholding them lifted millions of Americans out of poverty and fostered an era of political bipartisanship and relative economic equality throughout the following three decades, an era called the “Great Compression” by economic historians.
Clearly this era has come to an end. Since the 1980s, we’ve seen the middle class shrink, the number of people in poverty increase, real wages stagnate, and the top 1% gain more and more wealth even as the productivity of the average worker has skyrocketed due to the immense technological advancements in the intervening 40 years. But why? In his book The Conscience of a Liberal, Nobel laureate Paul Krugman offers two main reasons: economic neoliberalism and movement conservatism.
At face value, neoliberalism sounds innocuous, or maybe even like a good thing, a new path forward for liberalism. The word in fact refers to a handful of disparate ideologies, but I will refer to the neoliberalism conceived of by the Walter Lippmann Colloquium and the Mont Pelerin Society, codified by economists like Milton Friedman, and adopted by politicians like Ronald Reagan. If you read the titles of the works authored by some of its champions, like Friedman, it seems neoliberalism esteems freedom and choice, liberty and rights, but, in reality, as David Harvey (2005) puts it in A Brief History of Neoliberalism, this is, “a benevolent mask full of wonderful-sounding words…to hide the grim realities of the restoration or reconstitution of naked class power.” Neoliberalism’s true aims are economic liberalization of the highest order, namely deregulation, privatization, commodification, financialization, and reduced taxation. It’s not necessary to go too much into the economics of each of these to understand their effects: innovation and deregulation in financial markets gave the wealthy an easy means of consolidating and multiplying their wealth (Harvey, 2005); deregulations have weakened the power of labor and harmed the environment, among other corporate abuses; privatization and commodification have allowed seemingly most public goods and common goods to be bought, sold, and profited from, and have transformed public institutions and services into profit-driven efforts controlled by the rich and powerful; and finally, reduction in taxation for corporations and the rich have put more money into elites’ pockets while reducing the money the government spends on social safety nets, affecting a large portion of the population, particularly the lower classes (Krugman, 2007). The efforts to achieve and uphold these neoliberal policies and others through state intervention are sustained by two forces: movement conservatives in government and, as you may imagine, wealthy elites and their corporations.
Movement conservatism, which certainly does not sound so innocuous, is the New Right; it was borne out of a reaction by conservatives, such as William F. Buckley, against communism, the New Deal, LBJ’s Great Society policies, especially civil rights, and the counterculture of the 1960s. Now most, if not all Republican politicians fall into this category in one way or another. Movement conservatism and capitalist elites go hand in hand: the elites use their wealth and influence to fund the Republican Party and its politicians’ campaigns, lobby for legislation, and promote right-wing politics through, “media organizations, think tanks, publishing houses, and more,” (Krugman, 2007). In turn, Republican politicians win elections through means of diversion and distraction, mainly consisting of social issues and foreign wars. In government, these politicians push through and defend policies that benefit, “a handful of extremely wealthy individuals and a number of major corporations, all of whom stand to gain from increased inequality, an end to progressive taxation, and a rollback of the welfare state,” (Krugman, 2007). More recently, the neoconservative Republican and the corporate elite have fused to form the most powerful political figure in the US, Donald Trump.
The results of these efforts in the past 4 to 5 decades are clear. We have surpassed the wealth inequalities of the Gilded Age; the entrepreneurs, investors, and CEOs of today are the robber barons of old (Wolff-Mann, 2021). From 1975 to 2018, the top 1% of earners were the only group whose income gains exceeded economic growth; more than 90% of the rest of earners’ incomes have lagged behind that growth rate (Price & Edwards, 2021). The wealth being generated by new technologies, increased productivity, and surging population is being consolidated in the pockets of the ultrarich, who in turn fund the structure designed to make them richer and keep the vast majority of wealth away from not only the middle and lower classes, but even the lesser rich not in the top 1%.
This is why the United States is the only developed country that does not have universal health care, this is why the average retirement age is increasing, this is why children in many states cannot get free meals at school, and why they go hungry, this is why there is not enough affordable housing, why the problem of homelessness has become a crisis since the 1980s. This ideology has corrupted the American dreams of democracy and meritocracy by being cynically upheld in the name of freedom, individualism, and stability while effectively creating a plutocracy. Its aims are pushed towards under the guise of some supposedly inherent righteousness of market fundamentalism, but in reality, we can see in the data, in the stated aims and patent agenda of its architects and benefactors, that it is polarizing the politics of this country and profiting from the strife, it is commodifying our attention and profiting from our impulses, it is limiting our opportunities and forcing us to work bullshit jobs, it is sending our friends and family blinded by patriotism to fight and die in pointless, grossly immoral wars, and ultimately, it is destroying the world, not only through its foreign policy (although that may be enough in itself), but by viewing the earth itself as capital, and damaging its environments to the point of no return in the name of profit. This status quo is not sustainable, and we cannot simply buy our way out of these problems. Action must be taken now in order to ensure a better future for all Americans, not just the ultrarich.
Works cited:
Harvey, D. (2005). A brief history of neoliberalism. Oxford University Press, UK.
Krugman, P. R. (2007). The conscience of a liberal. W.W. Norton.
Price, C. C., & Edwards, K. A. (2021). A New Approach to Measuring Income Inequality over Recent Decades. https://doi.org/10.7249/rba516-1
Wolff-Mann, E. (2021). Super Rich’s wealth concentration surpasses gilded age levels. Yahoo! Finance.
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