Yesterday morning, The Century Foundation hosted New Republic senior editor Timothy Noah for the first public discussion of his new book, The Great Divergence: America's Growing Inequality Crisis and What We Can Do About It, which examines the economic and political policies that have widened the income gap between the richest and poorest citizens in our society over the last thirty years. (Click here for video of the event, featuring panelists Dan Alpert, Robert Hockett and Dorian Warren.)
According to Noah, the “Great Divergence”—a term originally introduced by Paul Krugman—describes the dramatic reemergence of income inequality after 1979, following several decades of wage compression and increasing equality that economists sometimes call the “Great Compression.” Before the stock market crashed in 1929, the richest 1 percent received nearly a quarter of all wage and capital income—until today, the most unequal time in American history. But thanks to New Deal-era policies like progressive taxation, strong labor laws and the GI Bill, the poor and working class were able to share in the benefits of America's incredible postwar boom in productivity. Wages rose throughout the mid-twentieth century, creating a large and dynamic middle class. By 1970, the income share for the top 1 percent had shrunk to just 9 percent.
The Great Divergence, Noah writes, “has coincided with a dramatic decline in the power of organized labor;” the result of conservative policies that have weakened unions and allowed wealth from productivity gains to be diverted from labor to capital. Congressional support for labor faltered in the late 1970s, and the Reagan administration was notoriously hostile towards the movement. After peaking in 1954 at about 40 percent of the private sector workforce, union density today stands around 7 percent—the same level as in 1933. “It's as if the New Deal never happened.”
By 2007, the income share for the top 1 percent had returned to its 1928 peak of 24 percent—a figure that research suggests may be even higher now, despite the 2007–2009 recession. And the decline of organized labor is just one piece of the puzzle. In his book, Noah explores a whole range of reasons for inequality's rise, taking time to refute the supposed impact of race, gender (women entering the workforce), and immigration. Better explanations include a rising college wage premium, an increase in corporate lobbying in Washington, regressive tax policies, and competition from low-wage labor markets in China and the developing world (Noah estimates trade with low-wage nations is responsible for 12 to 13 percent of the Great Divergence, “and perhaps more”).
As a result, the United States has one of the highest levels of income inequality in the developed world, and is now one of the least socially mobile. Such a society, Noah concludes, is less reflective of our democratic ideals with each passing day. We can, and should, do better.
For more, check out The Great Divergence: America's Growing Inequality Crisis and What We Can Do About It, now available online, and video of yesterday's panel discussion here.