limitations of the data, it’s clear that between the twenties and the fifties America became, to an unprecedented extent, a middle-class nation.
Part of the great narrowing of income differentials that took place between the twenties and the fifties involved leveling downward: the rich were significantly poorer in the fifties than they had been in the twenties. And I literally mean poorer: We’re not just talking about relative impoverishment, a failure to keep up with income growth further down the scale, but about a large absolute decline in purchasing power. By the mid-fifties the real after-tax incomes of the richest 1 percent of Americans were probably 20 or 30 percent lower than they had been a generation earlier. And the real incomes of the really rich—say, those in the top tenth of one percent—were less than half what they had been in the twenties. (The real
Meanwhile the real income of the median family had more or less doubled since 1929.[4] And most families didn’t just have higher income, they had more security too. Employers offered new benefits, like health insurance and retirement plans: Before the war only a small minority of Americans had health insurance, but by 1955 more than 60 percent had at least the most basic form of health insurance, coverage for the expenses of hospitalization.[5] And the federal government backed up the new security of private employment with crucial benefits such as unemployment insurance for laid-off workers and Social Security for retirees.
So working Americans were far better off in the fifties than they had been in the twenties, while the economic elite was worse off. And even among working Americans economic differences had narrowed. The available data show that by the 1950s unskilled and semiskilled workers, like the people manning assembly lines, had closed much of the pay gap with more skilled workers, like machinists. And employees with formal education, like lawyers and engineers, were paid much less of a premium over manual laborers than they had received in the twenties—or than they receive today.
Economic statistics are useful, of course, only to the extent that they shed light on the human condition. But these statistics do tell a human tale, that of a vast economic democratization of American society.
On one side the majority of Americans were able, for the first time, to afford a decent standard of living. I know that “decent” isn’t a well-defined term, but here’s what I mean: In the twenties the technology to provide the major comforts and conveniences of modern life already existed. A modern American transported back to, say, the time of Abraham Lincoln would be horrified at the roughness of life, no matter how much money he had. But a modern American transported back to the late 1920s and given a high enough income would find life by and large tolerable. The problem was that most Americans in the twenties couldn’t afford to live that tolerable life. To take the most basic comfort: Most rural Americans still didn’t have indoor plumbing, and many urban Americans had to share facilities with other families. Washing machines existed, but weren’t standard in the home. Private automobiles and private telephones existed, but most families didn’t have them. In 1936 the Gallup organization predicted a landslide victory for Alf Landon, the Republican presidential candidate. How did Gallup get it so wrong? Well, the poll was based on a telephone survey, but at the time only about a third of U.S. residences had a home phone—and those people who didn’t have phones tended to be Roosevelt supporters. And so on down the line.
But by the fifties, although there were still rural Americans who relied on outhouses, and urban families living in tenements with toilets down the hall, they were a distinct minority. By 1955 a majority of American families owned a car. And 70 percent of residences had telephones.
On the other side F. Scott Fitzgerald’s remark that the rich “are different from you and me” has never, before or since, been less true than it was in the generation that followed World War II. By the fifties, very few Americans were able to afford a lifestyle that put them in a different material universe from that occupied by the middle class. The rich might have had bigger houses than most people, but they could no longer afford to live in vast mansions—in particular, they couldn’t afford the servants necessary to maintain those mansions. The traditional differences in dress between the rich and everyone else had largely vanished, partly because ordinary workers could now afford to wear (and clean) good clothes, partly because the rich could no longer afford to dress in a style that required legions of servants to help them get into and out of their wardrobes. Even the traditional rich man’s advantage in mobility—to this day high-end stores are said to cater to the “carriage trade”—had vanished now that most people had cars.
I don’t think it’s romanticizing to say that all this contributed to a new sense of dignity among ordinary Americans. Everything we know about America during the Long Gilded Age makes it clear that it was, despite the nation’s democratic ideology, a very class-conscious society—a place where the rich considered themselves the workers’ “betters,” and where workers lived in fear (and resentment) of the “bosses.” But in postwar America—and here I can speak from my personal memory of the society in which I grew up, as well as what we can learn from what people said and wrote—much of that class consciousness was gone. Postwar American society had its poor, but the truly rich were rare and made little impact on society. A worker protected by a good union, as many were, had as secure a job and often nearly as high an income as a highly trained professional. And we all lived material lives that were no more different from one another than a Cadillac was from a Chevy: One life might be more luxurious than another, but there were no big differences in where people could go and what they could do.
But how did that democratic society come into being?
Simon Kuznets, a Russian immigrant to the United States who won the Nobel Prize in Economics in 1971, more or less invented modern economic statistics. During the 1930s he created America’s National Income Accounts, the system of numbers—including gross domestic product—that lets us keep track of the nation’s income. By the 1950s Kuznets had turned his attention from the overall size of national income to its distribution. And in spite of the limitations of the data, he was able to show that the distribution of income in postwar America was much more equal than it had been before the Great Depression. But was this change the result of politics or of impersonal market forces?
In general economists, schooled in the importance of the invisible hand, tend to be skeptical about the ability of governments to shape the economy. As a result economists tend to look, in the first instance, to market forces as the cause of large changes in the distribution of income. And Kuznets’s name is often associated (rather unfairly) with the view that there is a natural cycle of inequality driven by market forces. This natural cycle has come to be known as the “Kuznets curve.”
Here’s how the Kuznets curve is supposed to work: In the early stages of development, the story goes, investment opportunities for those who have money multiply, while wages are held down by an influx of cheap rural labor to the cities. The result is that as a country industrializes, inequality rises: An elite of wealthy industrialists emerges, while ordinary workers remain mired in poverty. In other words a period of vast inequality, like America’s Long Gilded Age, is the natural product of development.
But eventually capital becomes more abundant, the flow of workers from the farms dries up, wages begin to rise, and profits level off or fall. Prosperity becomes widespread, and the economy becomes broadly middle class.
Until the 1980s most American economists, to the extent that they thought about the issue at all, believed that this was America’s story over the course of the ninteenth and twentieth centuries. The Long Gilded Age, they thought, was a stage through which the country had to pass; the middle-class society that followed, they believed, was the natural, inevitable happy end state of the process of economic development.
But by the mid-1980s it became clear that the story wasn’t over, that inequality was rising again. While many economists believe that this, too, is the inexorable result of market forces, such as technological changes that place a growing premium on skill, new concerns about inequality led to a look back at the equalization that took place during an earlier generation. And guess what: The more carefully one looks at that equalization, the less it looks like a gradual response to impersonal market forces, and the more it looks like a sudden change, brought on in large part by a change in the political balance of power.
The easiest place to see both the suddenness of the change and the probable importance of political factors is to look at the incomes of the wealthy—the top 1 percent or less of the income distribution.
We know more about the historical incomes of the wealthy than we know about the rest of the population, because the wealthy have been paying income taxes—and, in the process, providing the federal government with information about their financial status—since 1913. What tax data suggest is that there was no trend toward
