The Occupy Wall Street movement has trained the nation’s and the world’s attention on the stark disparity of wealth and privilege that has come to characterize the early 21st century. Yet that inequity has been incubated over the course of several decades, and to fully understand it, we must explore its genesis and development over a nearly half-century period.
The first wave of attention to emergent income inequality came during the Reagan era in the 1980s, spurred by best-selling works such as New Politics of Inequality by Thomas Byrne Edsall (1984) and The Politics of Rich and Poor: Wealth and the American Electorate in the Reagan Aftermath by Kevin Phillips (1990). These authors documented how the nexus of power and policy had come to be dominated by affluent and corporate interests at the expense of the poor and working classes. Not only was wealth flowing toward the top at nearly unprecedented levels, it was increasingly being converted into political power.
Edsall argued that the balance of power between the very wealthy and the rest of America was also tilting toward the have-mores within various social institutions such as the two major political parties, “the business lobbying community, organized labor and the intellectual establishment” (Edsall 14). The tilt was fueled by changes in the nation’s economic performance (the “stagflation” of the 1970s which simultaneously eroded the financial underpinnings of the redistributive state and contributed to the hegemony of the owner class). Economics had become, in the words of Lester Thurow, a “zero-sum game.”
Edsall’s analysis is particularly poignant in documenting the resultant political shifts that would amplify growing inequality. He contrasts voters’ overwhelming rejection of Barry Goldwater’s plan for major cuts in domestic spending combined with increases in military spending in 1964 with voters’ embrace of essentially the same agenda when championed by Ronald Reagan in 1980.
Several forces combined to undermine moderately redistributive policies dating back to FDR’s New Deal, including the hyperpoliticization and growing power of the business community and its fusion with the Republican party, the fissure between labor and the emergent left-wing of the Democratic party, the corrosive effect political reformers had on the strength of Democratic politics, and the class-bias of voter turnout.
Edsall’s indictment of the political reform movement is particularly telling. A large class of freshman Democrats elected in the wake of Watergate during the midterm elections of 1974, representing suburban, upper-middle income, formerly Republican districts, would launch an assault against the old-style politics that had sustained New Deal policies for decades. The reformers viewed the deal-making and vote-swapping essential to forging broad political coalitions with the disdain. While this view had long been a part of the American political landscape, during this period it briefly enjoyed majority support in Congress, (not surprisingly given the evident excesses of Watergate and fall from grace of urban ethnic machines).
Yet in seeking to secure a neutral politics free from favoritism, Edsall argues, the reformers codified the inequities of the private sector. “New class” Democrats, born of the anti-war and civil rights movements, saw the transactional politics of “old guard” pols like Chicago’s Richard J. Daley and AFL-CIO president George Meany as corrupt, special-interest bargaining. Reformist initiatives like increasing the role of direct primaries in the selection of delegates to the party’s presidential nominating conventions served to shift power from the hands of the working class voters who constituted the core of the machine vote in general elections toward the upper-middle class voters who dominate primary elections, and who contributed the funds needed to buy the TV ads necessary to communicate with voters in mass primaries. This shift toward a more affluent electorate led to a party more liberal on social issues but one less so on policies affecting the working- and lower-middle class.
At the same time, the class composition of the Republican party was changing as well. Edsall notes that in the 1950s, the proportion of the party in what could be considered the upper-crust was just over a third, but it had risen to a majority of the party by the 1970s. The party also drew increased strength from the South, from social conservatives, and from ideological interests claiming outsized influence owing to their ability to fund new-style capital-intensive political campaigns. Further, Edsall argues, increasingly hostile coverage of government in the mainstream media contributed to voter apathy and cynicism, especially among the low-income, low-information voters so key to the Democratic party.
At the very moment when organized labor’s momentum was stalled, the business community was launching a multi-front political assault. Business became increasingly willing to violate labor law in an attempt to suppress organizing. Edsall points out that between 1970 and 1980, the total number of union representation elections in the U.S. remained relatively constant (at about 8,100). Yet the number of workers re-instated by the National Labor Relations Board after being illegally fired jumped from roughly 2,700 to roughly 8,500 during that period. Business also benefited from the emergence of a plethora or right-leaning think tanks and foundations, including the Hoover Institute, American Enterprise Institute, and Heritage Foundation.
The era’s public policy consequences were stark. Tax law changes benefited high-income earners, while spending cuts hit the poor and working-class hardest. Full-employment gave way to inflation fighting as the nation’s principal economic goal. Republicans focused on discontent with tax and spending policies among white voters providing support for pro-wealthy policies like cuts in the tax rate on capital gains, a form of income limited to about 10 percent of the nation’s population.
If Edsall’s insights into the way changes within the Democratic party contributed to growing inequity have proven particularly discerning, so too were those of Kevin Phillips regarding the Republicans. Phillips analysis seemed to draw particular attention because he had been something of an architect of the “silent majority” and “Southern strategy” that put Republicans in control of the White House for the better part of a quarter-century following the election of Richard Nixon in 1968.
For Phillips, the Reagan era represented the third period of conservative capitalist overdrive in American history. (The first occurred at the end of the 19th century, the second in the 1920s.) By the end of the 1980s, America had become the most unequal of the advanced industrial democracies. Phillips cites analyses suggesting that between 1977 and 1987, the average after-tax income of a family in the lowest 10 percent saw a drop of 10.5 percent, while incomes for a family in the upper 10 percent increased by 24.4 percent. Incomes for the top 1 percent skyrocketed by 74.2 percent over the decade. Wealth distribution numbers are even more unequal. The share of wealth owned by the top ½ of one percent (420,000 households) rose to 26.9 percent of U.S. family net worth, after having fallen for the previous four decades. The top 10 percent held fully 68 percent of the all the wealth in America.
Phillips speaks with authority on the new GOP populism, belligerently anti-establishment and anti-elite, that flowered under Nixon, and the emergence of a new Republican elite under Reagan. It was that cultural populism that provided cover for the party’s regressive economic agenda (see also Thomas Frank’s What’s the Matter with Kansas?: How Conservatives Won the Heart of America).
For Phillips, the three eras of capitalist overdrive shared 10 common characteristics: conservative politics, a reduced role for government, difficulties for labor, large-scale economic and corporate restructuring, tax reduction, anti-inflationary praxis, a two-tier economy, concentration of wealth, increased debt and speculation, and a speculative implosion.
In the Reagan era, Phillips notes, tax law changes favoring the well-off combined with a shift in government spending away from programs benefiting the poor and working class and toward the military to exacerbate inequity. Making matters worse were deregulation and debt. Phillips would go on to argue in Arrogant Capital: Washington, Wall Street, and the Frustration of American Politics (1994) that the “finanacialization of America” and the speculative frenzy it engendered magnified inequality and created a “stocks up, jobs down” environment.
The triumph of finance is also critical to economist Jeff Madrick’s analysis in Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present. In his profiles of dozens of influential contributors to the rise of the speculative economy, he notes how through the high-tech bubble of the 1990s and the real estate bubble of the 2000s, Wall Street professionals profited handsomely while real investment stagnated and taxpayers bore the brunt of socialized risk and privatized profit. In Winner-Take-All Politics: How Washington Made the Rich Richer–and Turned Its Back on the Middle Class (2010), Jacob S. Hacker and Paul Pierson describe the juxtaposition in 2009 of bonus payouts on Wall Street while Main Street Americans saw the value of family home equity drop by 40 percent between December 2006 and December 2008. As unemployment hovered near 10 percent, there were six job seekers for every job opening.
Hacker and Pierson’s analysis documents how the decade of the 2000s was marked by unprecedented inequity, dwarfing even that of the 1980s described by Edsall and Phillips. They note,
“the decade featured six years of economic growth (from the end of 2001 until the end of 2007) in which the median income of non-elderly households actually fell while the share of Americans living in poverty actually rose … the first economic expansion on record in which the typical non-elderly household lost economic ground. Yet it wasn’t all bad news. Between 2002 and 2007, the real pretax incomes of those in the top 1 percent rose by 10 percent. Per year.”
Overall, according to data collected by the Congressional Budget Office (CBO), between 1969 and 2006, average after-tax income (including public and private benefits) rose 21 percent for the middle quintile of earners, and 256 percent for the top 1 percent. In fact middle quintile gains owed almost entirely to American households working more hours than in the late 1970s. Without such gains, incomes for the bottom quintile would actually have fallen.
Seeking explanations for the causes of this “winner-take-all economy,” Hacker and Pierson reject the “skill-based technological change” model, which posits that knowledge-based employment has fostered the growing economic divide. Two problems, they note. First, the rise in inequality is not about the gap between the educated and less so, but between those at the very height of the income pyramid and the other 99 percent. Second, the skills gap is actually narrower in the U.S. than in other rich nations with less inequity. Hacker and Pierson note, “there is more inequality among workers with the same level of skills (measured by age, education, and literacy) in the United States than there is among all workers in some of the more equal rich nations.”
Yet the winner-take-all economy sweeps much broader in impact. Hacker and Pierson note “compared with other rich nations, … U.S. intergenerational mobility is surprisingly low, in part because the gap between income groups is so much bigger.” (Only Britain and Italy have lower rates of intergenerational mobility, though their rates are essentially even with the U.S.). They note, “in the United States, more than half the earnings advantage (or disadvantage) of fathers is passed on to sons. In Canada, only about a fifth or less is.” While the U.S. spends dramatically more money on health care per person than other affluent democracies, the U.S. has the highest rate of preventable death before age 75 among rich nations, and is falling farther behind.
For Hacker and Pierson, the great culprit in creating the winner-take-all economy is American politics. They note the disappearance of steep progressivity at the upper-end of the tax code starting with Reagan, and the concomitant reduction in redistributive policies benefiting the less fortunate. They point out that market-created inequity is lower in many other affluent nations (including Canada) where it has been met by an increased role for government. They also note the decline in unions in the U.S., but not so much in other nations, and attribute this to policy choices. Canadian law, for example, provides for both card certification and first-contract arbitration, both features of the Employee Free Choice Act pushed by American labor leaders. Canadian rates of unionization have seen little decline over the same period, and Hacker and Pierson note, drawing on date from the Luxembourg Income Study, in Canada, “inequality created by the market has been significantly softened by a greater government role.”
In October, 2011, the Congressional Budget Office (CBO) released its latest study on trends in the distribution of household income. The study found between 1979 and 2007, the only group of Americans to see a substantial rise in their share of national income was the top 1 percent. The bottom 80 percent saw their share of national income fall; even the top 20 percent, minus the top 1 percent, saw no real increase in their share of national income. The top 20 percent saw their share of income increase by 10 percent over this period; most of that growth went to the top 1 percent. All other groups saw their share of income drop by 2-3 points. The CBO study also found that between 2005 and 2007, the after tax income of the top 20 percent exceeded that of the remaining 80 percent of the nation.
The CBO study found that income for the top 1 percent grew by 275 percent between 1979 and 2007. By contrast, the middle 60 percent of Americans saw their income grow by just under 40 percent over this nearly 40-year period. By 2007, the minimum market income level for the top 1 percent had risen to nearly $375,000. Fully 80 percent of Americans earned less than $70,578 annually in 2007, according to CBO data. 40 percent of Americans had incomes below $28,618, and the poorest 20 percent had incomes below $14,851.
So what lessons can be drawn from these myriad analyses? Inequality, undeniably, is breaking already record levels, kindled by a range of taxing, spending and deregulatory policies, the results of the dissolution of the Democratic party’s governing majority coalition. That dissolution is in part self-inflicted, the consequence of fissures over the style and substance of left politics, fissures that in hindsight seem to pale against the fissure that is the American economy. It is also a dissolution planned and executed on behalf of the interests of the overclass, codified by changes in labor law, election law, tax law and regulatory policy.
It is an inequity decades in the making, and it will likely require a mobilization on par with the civil rights movement to reverse, requiring the assembly of a new electoral and governing majority coalition, of the people, by the people and for the people. The reformist vision of a neutral politics has abdicated responsibility for substantive equity in favor of procedural limits that have in fact served to undermine the very partisan coalitions that must be reassembled in order to challenge the hegemony of the 1 percent. The new reformers cannot afford to make this same misjudgment, and must embrace the myriad effort required to coalesce diverse and divergent interests in pursuit of policies that can truly fulfill our national motto, E Pluribus Unum: from many, one.
Glenn Richardson is an Associate Professor of Political Science at Kutztown University and author of Pulp Politics: How Political Advertising Tells the Stories of American Politics.