Economic injustice for most: from the New Deal to the raw deal

Commonweal, August 13, 2004 by Charles R. Morris

America has always had an ambivalent attitude toward equality. In contrast to the social democratic regimes of Europe, the only officially endorsed equality Americans have historically embraced is the narrow sense of equality of opportunity--as opposed to outcome. A suspicion of government interference in economic matters is an attitude that dates from the early days of the republic. When de Toqueville lauded the rough equality of Americans in the 1830s, he made it clear that it is the fluidity of the society that impressed him: "I do not mean that there is any lack of wealthy individuals in the United States.... But wealth circulates with inconceivable rapidity, and experience shows that it is rare to find two succeeding generations in the full enjoyment of it."

Lincoln made much the same point: "[It is] best to leave each man free to acquire property as fast as he can. Some will get wealthy; I don't believe in a law to prevent a man from getting rich [but] ... we do wish to allow the humblest man an equal chance to get rich with everyone else." Yet the vast accretions of personal fortunes and corporate power that accompanied the rough-and-tumble era of free-booting capitalism in the decades after the Civil War--when men like John D. Rockefeller, Andrew Carnegie, and Jay Gould were building their empires--cast doubt on the reality of the American mythos of equal opportunity.

Carnegie loved to pose as the friend of the workingman, basking in the attendant public applause, until the searing events of the 1892 Homestead strike exposed the savage working conditions at his plants--twelve-hour days, seven-day weeks, a single scheduled day off a year, squalid little company towns, contaminated water, near-starvation wages. (After the strike was broken with much violence, Carnegie salved his conscience and burnished his image by giving the borough of Homestead a library.)

By 1890, at the height of the Gilded Age, just 1 percent of the population owned slightly more than a quarter of all the nation's wealth. That data was reconstructed by historians, but widespread awareness of a growing, and possibly unbridgeable, chasm between the Haves and the Have-Nots fueled the Populist movement in the last years of the nineteenth century, the Progressive politics and trust-busting initiatives early in the twentieth, and Franklin Roosevelt's New Deal. After World War II, and through the 1950s and 1960s, there was substantial leveling of wealth and income. The rich were still very rich, but programs like the G.I. Bill restored the conviction that the ladder Americans had to climb to attain real wealth evidenced the scale of the opportunity rather than the height of the barriers.

Virtually all those gains have been dissipated over the past twenty-five years or so. Instead of controlling a quarter of the nation's wealth, as in the Gilded Age, the richest 1 percent of the population now owns about a third, and the top 5 percent about 58 percent, of all wealth. Those numbers represent the densest concentration of wealth since the peak of American wealth inequality, which was in 1929, a not entirely reassuring precedent.

The trends

The recent trends in income concentration have been even more pronounced than those in wealth. This is unusual and especially worrisome. Wealth accumulations occur over extended periods, so it can take a number of years for even highly skewed income patterns to be fully reflected in wealth distributions. The current patterns of income concentration are violently out of whack with historical experience, and may indeed be without precedent.

The graph in this column tells the story. If we divide wage earners into five quintiles--from the bottom fifth through the top fifth--one can see that over the period from 1980 through 2001, every quintile but the top one saw its share of the national income pie shrink--that is, not just the poor and the lower-middle classes, but the middle classes and the upper-middle classes also. Predictably, the poorest quintile took the biggest hit, with the blow softening as one moves up the income ladder.

At the household level, total incomes barely kept pace with inflation in the lower quintiles. The annual improvement was about half a percent a year in the lowest quintile, a bit more than eight-tenths of a percent a year for the middle class, and just about 1 percent a year for the upper-middle class. Notice that even in the top quintile, the gains were highly concentrated in the top 5 percent. And note too that these are household incomes. Average real wages for all production workers actually dropped about half a percent a year over this period, so most households were able to stay even only by putting more of their members to work. The real income of full-time year-round male workers has been essentially unchanged in thirty years. (Full-time, year-round female workers have seen a strong earnings rise, though from a much lower base.)

Shocking? Well it gets worse (see graph, bottom of next column). Over the thirty years from 1970 to 2000, the bottom 90 percent of earners as a group actually lost ground. All the top 10 percent did well, but only the top 1 percent did extremely well, and even within the top 1 percent gains were disproportionately concentrated within the top hundredth of 1 percent, a mere 13,400 households.