Two days ago I posted this diary Janet Yellen Creates Panic On Wall St. I was really surprised at the huge response that it generated. I was certainly not claiming that Janet Yellen is turning into some kind of wild eyed economic radical. What I thought was remarkable was the bellowing outrage from the right wing thought police in response to the mild and reasonable suggestion from the Fed chair that economic inequality was a topic that should be discussed and explored. I did indulge myself in a brief fantasy about the Democratic Party rediscovering its new deal heritage.
People who commented in the diary reflected a range of ways in which they were reacting to the issue, but it seems clear that it is a topic that holds potency and importance for many people. In light of that I am going to attempt to explore the issue in a bit more depth. That requires getting into messy complexities and likely won't be as exciting as the previous diary.
I have long held the view that neoliberalism has come to be the dominant influence on the economic policies of both of the major parties. Two years ago I posted a diary series on neoliberalism. The link is to the last diary in the series and contains links to the other diaries. Anybody who wants to know what I mean by neoliberalism and the history of its rise to become the dominant paradigm can refer to those diaries. I am not claiming that there is no difference between the two parties. I think that the Republicans have a major ideological ax to grind about it and that the Democratic leadership has essentially gotten sucked up into it and let their policies be steadily dragged to the right.
I found what I think is an excellent summary of the data and history of economic inequality in the US economy since WW II.
A Guide to Statistics on Historical Trends in Income Inequality
The broad facts of income inequality over the past six decades are easily summarized:
The years from the end of World War II into the 1970s were ones of substantial economic growth and broadly shared prosperity.
Incomes grew rapidly and at roughly the same rate up and down the income ladder, roughly doubling in inflation-adjusted terms between the late 1940s and early 1970s.
The income gap between those high up the income ladder and those on the middle and lower rungs — while substantial — did not change much during this period.
Beginning in the 1970s, economic growth slowed and the income gap widened.
Beginning in the 1970s, economic growth slowed and the income gap widened.
Income growth for households in the middle and lower parts of the distribution slowed sharply, while incomes at the top continued to grow strongly.
The concentration of income at the very top of the distribution rose to levels last seen more than 80 years ago (during the “Roaring Twenties”).
Wealth — the value of a household’s property and financial assets, minus the value of its debts — is much more highly concentrated than income. The best data available until recently did not show a dramatic increase in wealth concentration at the very top (unlike the income data), but new research suggests that the percentage of wealth held by the very wealthiest also has risen sharply over the last three decades.
This is what has happened in a nut shell. This is what it looks like on a graph.
This chart is about the rate of growth not the amount of money held at any point in time. People in the top 5% have always had a lot more income and wealth than those further down the line.
There are many complex processes that have been at work over the past 60 years. US prosperity relative to the rest of the world was at an artificial high at the end of the war. That was bound to level out to a certain extent regardless of policies followed by governments. Economic stagnation has also plagued the economies of Europe and Japan. The nations that had the upper hand in industrial economies are facing sustained competition from developing nations. However, on the basis of gini coefficient the US has a much higher level of inequality in income and wealth than the countries of the EU and Japan.
So just how did the land of the free and the home of the brave manage to get to this sorry state of affairs? Prior to the new deal the US had major economic inequality as did the nations of Europe. The increased wealth produced by the industrial revolution was concentrated in the hands of the robber barons. The new deal made a moderate shift in those arrangements. It did not impose socialism on the country as the right wing would have you believe. Personally I don't see socialism as being outrageous and unreasonable, but the US has never come close to it. We had a period of social democracy that created a more balanced form of capitalism.
The new deal was a mixed bag of crisis intervention and experimentation. Some of it worked and some of it didn't. There were two pieces of major legislation that laid the basis for greater economic equality, the Social Security Act and the National Labor Relations Act. Social Security included both the pensions for retirement and disability and programs of public assistance popularly known as welfare. These were various approaches to income transfer. The pension arrangements are still with us and have Medicare added to them. Public assistance programs were substantially eliminated during the Clinton administration.
The NLRA gave unions the tools for organizing a major portion of the industrial economy. It excluded agricultural and domestic workers. Unions were instrumental in moving industrial workers into middle class income levels. The post war housing and educational programs of the Truman administration gave those same workers and others the basis for wealth accumulation that came with home ownership.
The expansion of union membership took place from the mid 30s until the beginning of the war. Unions entered into an agreement to hold things in place for the duration. They had major plans for extending union organization into other sectors of the economy after the war was over. They were stopped in their tracks by the Taft Hartley Act. The southern Democrats who had signed onto the NLRA because most workers in the south were excluded from it, switched sides and voted with the Republicans to pass Taft Hartley by a veto proof margin. During the war the south had begun to shift toward an industrial economy.
Unions formed an important part of the base of the Democratic Party and were a major source of its financial support. From the late 40s until the 70s they continued to function in the industrial sector. That began to change in the 70s. A combination of changes in the global economy and a concerted effort on the part of employer organizations began to push them against the wall. In 1954 35% of the workforce were union members. Today that figure stands at 11%. The political influence of unions and their ability to provide workers with economic and political leverage has declined accordingly. IMO this is a major cause of the rise in economic equality. There is simply no organized national movement of workers. Unions are trying to hold on in the service and public sectors but they are under organized attack there. Bill Clinton and the Democratic Leadership Council turned their attention to wooing the suburban middle class.
That is my short version of how I think we got here. What can be done about it? I have to confess to a good bit of pessimism on that matter. I really believed that the great crash of 2009 was going to be the opening for a substantial shift in economic policy. That did not happen. In that diary series that I linked to at the beginning of this diary I tried to explore the reasons why it didn't. It was the ideological choir that greeted Yellen's remarks who managed to completely control the policy discussion during that critical period. I don't know if things would have taken a different course if Obama had made an effort to sound like FDR. The path that he chose was an effort at conciliation. He hasn't gotten any of that from people who were absolutely determined to see him fail and what passes for an economic recovery looks pretty anemic to a lot of the public.
What I would like to see happen is for Democrats to forcefully speak up on behalf of the interests of ordinary working people. Elizabeth Warren is one of the few that have tried doing that and it doesn't seem to have done her any political harm. I don't know if she could get elected president even if she decided to run, but she does have a message that a lot of people respond to very strongly. One thing I am certain of is that until that message gets put clearly put on the table for serious discussion we won't even begin to look for ways to do something about economic inequality, much less find solutions to it.