Newspaper article International New York Times

U.S. History and the Politics That Foster Income Inequality

Newspaper article International New York Times

U.S. History and the Politics That Foster Income Inequality

Article excerpt

Can democracy stop inequality from rising? The answer echoing down the halls of history is not encouraging.

The years from the late 19th and early 20th centuries were not the most egalitarian in American history. Robber barons roamed the economy, living off lavish rents generated by powerful cartels and industrial monopolies.

The richest 1 percent of Americans reaped nearly one in five dollars generated by the economy and amassed almost half its wealth; at the other end of the scale, wage earners lost ground to inflation. It was the era of the Haymarket riots and Upton Sinclair's "The Jungle." Workers staged 1,500 strikes in 1886 alone.

Ultimately, though, the disparities in wealth and income led to an age of ferment that came to be known as the Progressive era.

Women got the right to vote. Congress passed the Sherman Act. Chicago's Beef Trust and John D. Rockefeller's Standard Oil were taken down. In 1914, Henry Ford decided to raise wages to $5 a day, doubling at a stroke most of his workers' pay.

And crucially, a progressive federal income tax was enacted by constitutional amendment, overcoming the opposition of not only the steel lobby and the establishment press, but a Supreme Court that had struck down the income tax law of 1894 as unconstitutional.

"The present assault on capital is but the beginning," wrote Justice Stephen J. Field in a concurring opinion against the 1894 law. "It will be but the steppingstone to others, larger and more sweeping, till our political contests will become a war of the poor against the rich; a war constantly growing in intensity and bitterness."

The United States has come a long way over the last century. Still, it remains a strikingly similar place in a couple of important respects.

The income of a typical American family has barely risen since the 1970s. The share of national income captured by the richest 1 percent of Americans is even higher than it was at the dawn of the 20th century.

The parallel offers valuable insight into one of the most important questions posed by the nation's lopsided development: Can democracy stop inequality from rising? Despite the gains of the Progressive era, the answer echoing down the halls of history is not encouraging.

Basic models of political economy hold that inequality self- corrects. As income concentrates among a smaller group of voters, majorities will vote for more redistribution.

But that isn't quite how the world works. For starters, the poor vote less than the rich. And they don't vote exclusively based on their economic self-interest. Many Americans, rich or poor, mistrust government. They support free-market capitalism and view the distribution of the nation's economic fruits as roughly fair.

The growing concentration of income can, in fact, make inequality more difficult to correct, as the wealthy bring their wealth to bear on the political process to maintain their privilege.

What's more, disparities in income seem to produce political polarization and gridlock, which tend to favor those who receive a better deal from the prevailing rules, says Francesco Trebbi, an expert on political economy at the University of British Columbia in Vancouver, Canada.

The American political system may eventually act against the interests of the fortunate few at the very top of the pyramid of success. …

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