Can the political environment really be that decisive in determining economic inequality? It sounds like economic heresy, but a growing body of economic research suggests that it can. I’d emphasize four pieces of evidence.
First, when economists, startled by rising inequality, began looking back at the origins of middle-class America, they discovered to their surprise that the transition from the inequality of the Gilded Age to the relative equality of the postwar era wasn’t a gradual evolution. Instead, America’s postwar middle-class society was created, in just the space of a few years, by the policies of the Roosevelt administration—especially through wartime wage controls. The economic historians Claudia Goldin and Robert Margo, who first documented this surprising reality, dubbed it the Great Compression.[3] Now, you might have expected inequality to spring back to its former levels once wartime controls were removed. It turned out, however, that the relatively equal distribution of income created by FDR persisted for more than thirty years. This strongly suggests that institutions, norms, and the political environment matter a lot more for the distribution of income—and that impersonal market forces matter less—than Economics 101 might lead you to believe.
Second, the timing of political and economic change suggests that politics, not economics, was taking the lead. There wasn’t a major rise in U.S. inequality until the 1980s—as late as 1983 or 1984 there was still some legitimate argument about whether the data showed a clear break in trend. But the right-wing takeover of the Republican Party took place in the mid-1970s, and the institutions of movement conservatism, which made that takeover possible, largely came into existence in the early 1970s. So the timing strongly suggests that polarizing political change came first, and that rising economic inequality followed.
Third, while most economists used to think that technological change, which supposedly increases the demand for highly educated workers and reduces the demand for less-educated workers, was the principal cause of America’s rising inequality, that orthodoxy has been gradually wilting as researchers look more closely at the data. Maybe the most striking observation is that even among highly educated Americans, most haven’t seen large income gains. The big winners, instead, have been members of a very narrow elite: the top 1 percent or less of the population. As a result there is a growing sense among researchers that technology isn’t the main story. Instead, many have come to believe that an erosion of the social norms and institutions that used to promote equality, ultimately driven by the rightward shift of American politics, has played a crucial role in surging inequality.[4]
Finally, international comparisons provide a sort of controlled test. The sharp rightward shift in U.S. politics is unique among advanced countries; Thatcherite Britain, the closest comparison, was at most a pale reflection. The forces of technological change and globalization, by contrast, affect everyone. If the rise in inequality has political roots, the United States should stand out; if it’s mainly due to impersonal market forces, trends in inequality should have been similar across the advanced world. And the fact is that the increase in U.S. inequality has no counterpart anywhere else in the advanced world. During the Thatcher years Britain experienced a sharp rise in income disparities, but not nearly as large as the rise in inequality here, and inequality has risen modestly if at all in continental Europe and Japan.[5]
Political change, then, seems to be at the heart of the story. How did that political change happen?
The story of how George W. Bush and Dick Cheney ended up running the country goes back half a century, to the years when the National Review, edited by a young William F. Buckley, was defending the right of the South to prevent blacks from voting—“the White community is so entitled because it is, for the time being, the advanced race”—and praising Generalissimo Francisco Franco, who overthrew a democratically elected government in the name of church and property, as “an authentic national hero.” The small movement then known as the “new conservatism” was, in large part, a backlash against the decision of Dwight Eisenhower and other Republican leaders to make their peace with FDR’s legacy.
Over the years this small movement grew into a powerful political force, which both supporters and opponents call “movement conservatism.” It’s a network of people and institutions that extends far beyond what is normally considered political life: In addition to the Republican Party and Republican politicians, movement conservatism includes media organizations, think tanks, publishing houses and more. People can and do make entire careers within this network, secure in the knowledge that political loyalty will be rewarded no matter what happens. A liberal who botched a war and then violated ethics rules to reward his lover might be worried about his employment prospects; Paul Wolfowitz had a chair waiting for him at the American Enterprise Institute.
There once were a significant number of Republican politicians who weren’t movement conservatives, but there are only a few left, largely because life becomes very difficult for those who aren’t considered politically reliable. Just ask Lincoln Chafee, the moderate former senator from Rhode Island, who faced a nasty primary challenge from the right in 2006 that helped lead to his defeat in the general election, even though it was clear that the Republicans might well need him to keep control of the Senate.
Money is the glue of movement conservatism, which is largely financed by a handful of extremely wealthy individuals and a number of major corporations, all of whom stand to gain from increased inequality, an end to progressive taxation, and a rollback of the welfare state—in short, from a reversal of the New Deal. And turning the clock back on economic policies that limit inequality is, at its core, what movement conservatism is all about. Grover Norquist, an antitax activist who is one of the movement’s key figures, once confided that he wants to bring America back to what it was “up until Teddy Roosevelt, when the socialists took over. The income tax, the death tax, regulation, all that.”[6]
Because movement conservatism is ultimately about rolling back policies that hurt a narrow, wealthy elite, it’s fundamentally antidemocratic. But however much the founders of the movement may have admired the way Generalissimo Franco did things, in America the route to political power runs through elections. There wouldn’t be nearly as much money forthcoming if potential donors still believed, as they had every reason to in the aftermath of Barry Goldwater’s landslide defeat in 1964, that advocating economic policies that increase inequality is a political nonstarter. Movement conservatism has gone from fringe status to a central role in American politics because it has proved itself able to win elections.
Ronald Reagan, more than anyone else, showed the way. His 1964 speech “A Time for Choosing,” which launched his political career, and the speeches he gave during his successful 1966 campaign for governor of California foreshadowed political strategies that would work for him and other movement conservatives for the next forty years. Latter-day hagiographers have portrayed Reagan as a paragon of high-minded conservative principles, but he was nothing of the sort. His early political successes were based on appeals to cultural and sexual anxieties, playing on the fear of communism, and, above all, tacit exploitation of white backlash against the civil rights movement and its consequences.
One key message of this book, which many readers may find uncomfortable, is that race is at the heart of what has happened to the country I grew up in. The legacy of slavery, America’s original sin, is the reason we’re the only advanced economy that doesn’t guarantee health care to our citizens. White backlash against the civil rights movement is the reason America is the only advanced country where a major political party wants to roll back the welfare state. Ronald Reagan began his 1980 campaign with a states’ rights speech outside Philadelphia, Mississippi, the town where three civil rights workers were murdered; Newt Gingrich was able to take over Congress entirely because of the great Southern flip, the switch of Southern whites from overwhelming support for Democrats to overwhelming support for Republicans.
3.
Claudia Goldin and Robert Margo, “The Great Compression: The Wage Structure in the United States at Mid-Century,”
4.
See, in particular, Ian Dew-Becker and Robert Gordon, “Where Did the Productivity Growth Go?” Inflation Dynamics and the Distribution of Income,”
5.
Thomas Piketty and Emmanuel Saez, “The Evolution of Top Incomes: A Historical and International Perspective” (National Bureau of Economic Research working paper no. 11955, Jan. 2006).