INCOME INEQUALITY AND A POLITICAL DIVIDE

It is said that those who do not learn from history are doomed to repeat it. We can learn a great deal from the strong historic correlation between political polarization and income inequality.

Income inequality peaked in the early 20th century when the top 1% of the population claimed about 20% of total income. Political polarization peaked around the same time as fiscally conservative Republicans and their presidential candidate, Herbert Hoover, carried the 1928 Presidential election. This was before the stock market crash but already there was rising dissatisfaction with income inequality. White southern farmers (Most blacks were barred from voting.) were pushing for increased federal regulation of banks, financial institutions and railroads that were thought to be profiting unfairly from the work of others. Organized labor gained traction among industrial workers who felt abused by their employers.

Conflict was widespread as workers banded together for higher wages and better working conditions while their employers arranged for police or private armed forces to attack strikers and organizers. In 1929, National Guard and local police intervened to end a textile mill strike in Gastonia NC, resulting in the shooting deaths of several strikers and a law enforcement officer. Bloodshed was more common in northern industrial centers.

Workers formed unions because their work was dangerous, provided no job security and they could not decently support families on what they earned. In 1912, a Socialist third party candidate garnered 6% of the popular vote for President. The “Farmer-Labor Party” gained fringe popularity along with socialist and communist movements. By 1930, the Depression was severe and FDR was elected President, subsequently passing his New Deal programs including federal economic stimulus, massive public works projects, Social Security, and strong regulation of banks. Thus began a painfully slow recovery which was not complete until the WWII effort brought full employment.

Today the share of national income enjoyed by the top 1% is again around 20% and political polarization is at its highest level since 1900. Conservatives have blamed unions for economic woes and more recently have succeeded in changing laws to make it harder for workers to organize; but labor activity is on the rise among low wage workers. Like their predecessors a century ago, they find it impossible to participate in modern society on their wages. Even among those who have jobs, hunger and homelessness are rising. Politicians respond that they would like to do something to help but they don’t have enough money. That response comes resoundingly from Republicans but also from Democrats.

Explanations of why there is not enough money ring hollow when the incomes of the top 1% continue to rise while the wages for labor stagnate or shrink. Teachers and many white collar workers are similarly affected. One factor contributing to the rapid growth of income among the wealthy while others see no increase is the more than 50% reduction in tax rates for the wealthy since their 20th century peak. Our budgets were balanced and our middle class grew to its largest size when taxes were higher. Poverty was shrinking; unemployment was low; and public education was a source of national pride.

Today, candidates from both major parties depend on the very wealthy for campaign contributions which they use to sell themselves to the general public. In 1982, the top .01% (one ten thousandth of the population) made 10% of all campaign contributions for federal elections. By 2012, they provided 40% of the contributions. Major corporations make sure that they have very wealthy people from both parties on their boards in hopes of sustaining strong influence on public policy no matter who wins an election. That is the same kind of influence which encouraged the Governor of North Carolina to send troops to break up the Gastonia strike.

Most Americans do not want a radical swing to the right or the left but they do desperately want an economy where hard work is rewarded with wages sufficient to support a family; including realistic opportunities for good education and upward mobility. We want to believe that any job worth doing is worthy of a living wage but our middle class is disappearing. We see employers back out of promised retirement plans and other benefits while using temporary employment arrangements to cut wages. People don’t join labor unions because they enjoy paying dues. They join because they believe they need protection from untrustworthy employers and because they perceive strength in unity.

We are again in a time when many adult workers cannot support a family and see little hope of upward mobility. In the early 1900s, desperate people tried desperate things. From their despair they built strong unions, New Deal jobs programs, and tax policies of the 1930s – 1950s. Their actions decreased unemployment and poverty and built our middle class. Once again, we are in a time when desperation will bring change. I wonder, this time will we read the writing on the wall before our backs are up against it?

Most data for this column is from the article “Why hasn’t democracy slowed rising inequality?” Journal of Economic Perspectives—Volume 27, Number 3—Summer 2013. It is available free on line or I will email it to readers on request.