America's Second Gilded Age

The richest Congressional district in the US is the so-called "silk-stocking" district of New York City's Upper East Side, with a per-capita income of $41,151 per year. The poorest Congressional district is a largely Hispanic-immigrant district in Los Angeles, with a per-capita income of $6,997 a year. In 1973 the poorest fifth of America's families had incomes that averaged $13,240 a year (in today's dollars); in 2000 the average incomes of the poorest fifth were the same: $13,320. By contrast, the richest 5% of America's families in 1973 had an average income of $149,150, and in 2000 the richest 5% had an average income of $254,840. The increase in inequality was large enough to give a 2/3 income boost to the well-off over a time when incomes in the middle grew by only 10% and incomes at the bottom not at all.

To outsiders, the most peculiar thing about America's rising inequality is that so few Americans object. Surely a society with a skewed income distribution is worse off than one in which incomes are more equal. An extra $10,000 a year does little to raise the well-being of a multi-millionaire, while a deficiency of $10,000 a year makes a huge impact on how a middle-class family lives.

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If you follow Nobel Prize-winner James Buchanan's utilitarian principle that you should evaluate a society's social welfare by imagining that you have an equal chance of being poor and rich, it is easy to judge that the more equal society has a better set of social and economic arrangements. From there it is easy to make the leap to the position that - so long as redistributive taxes don't slow economic growth - when inequality rises, it is the government's duty to tax the rich and transfer money to the poor to offset the rise.

Yet there are no calls in mainstream politics to sharply increase the progressiveness of the income tax. Indeed, even at the left end of mainstream discourse, the boldest call is for the well-off merely to contribute their "fair share" to paying for the costs of government.

One candidate for the Senate in the recent US elections, Erskine Bowles of North Carolina (a former chief of staff to President Clinton) was judged bold and foolhardy not for proposing redistributive tax increases, but simply for placing a higher priority on the federal government paying for prescription medicines than on a further cut in the highest marginal tax rate. What happened? Bowles lost.

Virtually no mainstream American politician seems opposed to eliminating the estate tax - a policy move that will further concentrate wealth for no countervailing supply-side gain. As Clinton's Assistant to the President for Economic Policy Gene Sperling once wrote, staff aides who tell Congressmen that estate tax repeal "...costing tens of billions of dollars... will benefit only a few thousand families" are answered "maybe so, but I think I met every one of them at my last fundraiser."

It's not the case that the striking increase in income inequality was necessary to deliver rapid economic growth. Most of the increase took place, after all, between 1973 and 1995 - a period during which American economic growth was slower than in any other period since the Great Depression. It's not the case that income gains in the middle have been large enough to make mainstream voters feel generous about what is happening among their merchant princes: save for the past half-decade, income gains away from the top have been so meager that it's hard to argue that people are living much better than their parents did.

So why don't Americans feel more alarm at their country's rising income inequality? Part of the reason that they don't is that most Americans do not recognize what is going on. One poll found that 19% of Americans think their incomes put them in the top 1% of income distribution - and that 20% more hope to reach the top 1% someday.

Deep in the core of American ideology and culture is a constellation of beliefs and attitudes: belief that the future will be brighter than the present; that what you accomplish you make with your own hands; that individuals should rely on themselves, not the state; that people can cross oceans and mountains to make for themselves a better life; and that those who succeed do so not through luck and corruption but through preparation and industry. These are not beliefs conducive to social democracy.

For two generations starting in 1933 America did look a lot like a west European-style social democracy. The shock of the Great Depression and the response of Roosevelt's New Deal probably accounts for the shockingly "un-American" attitude toward redistribution of that era. But somebody ten years old when Franklin Roosevelt was elected is now eighty. Memories of the Great Depression are dying out. So what now seems likely is that the older and more enduring - call it the Gilded Age - pattern of American ideology, culture, and political economy is reasserting itself. Inequality, it seems, is as American as apple pie.