Вы находитесь на странице: 1из 20

UNEQUAL DEMOCRACY

THE POLITICAL ECONOtvlY OF


THE NE\V GILDED AGE

Larry Al. Bartels

l\USSELL S:\CE HJUND:\TION :>;E\\' \'01\1\.

Pl\INCETON UNl\'El\SlTY Pl\ESS PlllNCETO'.': :\:"D OXF<ll\D

/--

.........

~~----------,

Copyright 0 :200') "" H11sst'll Sag Fo1111datio11


"'''l'"'sls li>r l'"n11issio11 to r<'prnd11n 111<1i<'ri.1! fro111 ti tis \\urk sl1rndd IH' S<'11t to l'<'r111issio 11 s.
l'ri11c'!ton l'niqrsif\ l'rt'ss
1'11hlisll<'d l>1 l'rillC'C'lo11l111iqrsit\ l'nss. 11 \\'illiarn Stnt. l'rirw<'lot1.

:\'" J"rsi 1

OS."dO

In t !w l'11it<'d Ki11gdolll: l'rillC'<'to11 l 11i1<'rsif\ l'nss. (i ( hford St r<'C'f. \ \'oodstoC'k.


Osfordshirl' 0:\:20 IT\\'
Huswll Sage Fo11ndatio11. 11:2 East (i.tth Stnct. :\('\\'York.:\"". York ]00:21

:\II Bights lksr1Y<'d


IS B :\-I :3: \J7S-O-W 1-1 :3(iG:3-\J

Bartt'ls. Larry "L l\J:)(j_


lliwqual d<11H>cTac~: the political econouiy of tlw m'11 gild"d ag<'/ l,;11T1 \I. Bart<'ls.

P cm.
lndudl's bibliographical rt'ftnncts and i11dts.
IS B :\ \!78-0-6\J I - 1:366:3-\J (hardC'Ol't'r : alk. papc r)
1. l'11ited States-EC'o11omiC' co11ditio11s-l\J!;)- :2. Eq11alit~-Eco11011lic aspt'cts-U11ited
Stat<s. :3. l'olitiC'al culture-United States-llistOJ'I'. -1. Social dass('s-l'olitical aspt'ctsU11ited Statts. ;}. Po\\n (Social sdt'nc,s)-Econo111ic aspl'l'ts-Unill'd Stall's.
6. Dt'1nocra<"y-E<"onornie asptcts-U11ited Stall's. I. Tit I<'.
llCIO(i.51):3.17 :2008
:no.u7:3-dd:2
British Library Cataloging-in-Puhlicatio11 Data is a1ailable
This book has been co111posed in :'l;,w Caltdo11ia
Printed on acid-fret papt'r.

oo

1inss.prinC'eto11.ed11
Printed in tlw Unikel States of Anlt'rica
3.57\!1086-1:2

For

1111; lirotlwr, Tlw11ws Hr1y11w11d Barl<'ls,

;clio /ired poor a11d dicd yo1111g

\iii

6.

7.

8.

CO:\TE:\TS

I Io111er Gets a Tax Ct1t


Tlte Buslt Tax Cuts
Puhlic Su ppor/ for !lie Tax Cu ts
rl11c11Iiglite1 wd Sci(-Tut crest
Tltc l111pac/ <if Poiitical fofon11alio11
Cl111111p Cl1r111 ge

foto !lie Su11s<'t


Tlw Sti:angl' Appf'al of Estatl' Tax Hl'pl'al
Public SUJJport.ftir Es/ale Tax Repeal
ls Public Support for Re J, I p I
Did Interest Grou.JJS U I~ a ro< uct <!f Misii!fi.m11alio11?
, : 1 m11~1act11rc Public A 11 tiJJatliy
to II1c Estate Tax?
Elite
Idmlogy
r111d Ifie l'<ilitils. <! f Estale Tax Repeal
~
.
The Erodmg ~finimum W 1af'
The Eco11~111iic Effects if'~ , 1. .
P I 1.
.I.I' . <.
ie, 111111111111 \Vr1ge
I I } I Support .ftir the Mi11i11w111 H'r1ae
Tlw Politics of l1wctio11
,.., .
De111ocrats i.;
I
Tit E
. '1 I n_wns, a1u tlte Eroding i'1i11i11111111 H'r1ae
e ,amer 11co111e Tax Credit
.
,.., .
Rerersi11g the Tide

Ec.~~1,01/nic. lnf'quality and Political Reprf'seutation


r <0 ogical Representation
Unequal Responsire11ess
Unequal Responsheness o11 Social Issues:
The Case <!f Abortion
Partisan Differ, . . JJ
\VI
.I.I" ences 111 wprese11tatio11
iy Are tlie Poor Unrepresented?

10.

U1wqual Democracy
Wlio Gorerns?
. "' "
Partisan
Politics and tl1e 1.rwre-1~ots
n ft. I
LO I lea Obstacl
t
E
. Equality
Tl
.
,
es o co1101111c
ie City lif Utmost Necessity

Selected References
Index

186

197
198

20.5
214

217
22:3

227
229
2:32
2:39
246
247

2.52
2.54

2.57
26.5

267
27.5
28:3

28.5
288
294
298
:30.5
;317

,,,..
;._/,

r . .: - -

__________ Preface __________

176
181
19:3

9.

I 62
164
I 70

the results of a six-year l'xplorntion of the political


causes and conscqucncf'S of l'conomic inequality in America. It is inspired,
in significant part, by a major change in American society owr tlw past thnf'
dPcades-the substantial escalation of f'C0110111ic inequality that I rdtr to as
the "New Gilded Age." That economic transformation has attrac:ted considerable attention from econmnists but much less attention from political sc:ientists. It sC'emed to me, as a studP11t of American politics, that carf'fnl
attention to public opinion, partisan politics, aml public policy might shed
valuable new light mi how and why the economic fortunes of afllt1ent,
middle-class, and poor pf'ople have diverged so dramatically in thC' contemporary United States.
As a studl'nt of democracy, it also SC'emed important to me to explore the
ramifications of f'Scalating f'conomic i1lf'quality for the American political
system. Probably most sentif'nt obsPrvers of AmC'rican politics suspect that
the concentration of vast additional wealth in the hands of alTiuent people
has augmented their influence in the political arf'H<l, while the stagnating
economic fortunes of middle-class and poor people havf' diminished their
influence. However, systematic mf'asurernf'nt of political influence is at a
very rudimentary stage, leaving political scientists remarkably ill-equipped
to confirm, refute, or qualify that suspicion. I have attempted hf're, through
a combination of systematic statistical analysis and case studies, to assess
the extent to which economic inequality in contemporary America gets
translated into political inequality.
Some readers are likely to see the product of my efforts as a rather partisan book, at least by acmlf'mic standards. For what it is worth, I can report
that it did not start out that way. I began the project as an mrnsually apolitical political scientist. (The last time I voted was in 1984, and that was for
Ronald Rf'agan.) \Vhile I was prepared to find that parties and partisanship
play an important role in the politics of economic inequality, as they do in
many domains of American politics, I was quite surprised to discoVf'r how
often and how profoundly partisan differf'nces in ideologies and values haw
shaped key policy decisions and economic outcomes. I have done my bPst to
follow my evidence where it led me.
In tf'lling this story I have attempted to balance the demands of scholarship and accessibility. My aim has been to make the text and figures
comprehensible to general rpaders-at least to general readPrs who have
some patience for the twists and turns of serious arguments and systf'matic
f'vidence. Tables and notes provide additional scholarly detail, some of

THIS BOOK HEPOHTS

--

---------

xi

PREl'ACE

PREFACE

which will only be intelligible or interesting to people with some background


in social science or statistics or hoth. I recognize that any compromise of this
sort is bound to leave readers in both camps less than fully satisfied; however, I view it as a necessary accommodation to the prevalence of socialscientific illiteracy among Americans who read (and write) about politics and
public affairs.
I suspect that the prevalence of social-scientific illiteracy in American
public discourse is both a cause and an effect of the fact that social-scientific
research is woefully undersupported in American society. 1lowever, I have
been unusually fortunate in finding generous financial, institutional, and
personal support for my work, and it is a great pleasure to acknowledge that
support lwre.
Princeton University and its \Voodrow \Vilson School have provided time
and facilities for research, as well as regular access to stimulating students
and colleagues. I am grateful to the past and present deans of the \Voodrow
Wilson School, Michael Rothschild and Anne-Marie Slaughter, for building
and maintaining a vibrant intellectual community in which to pursue serious
analysis of significant public issues. I am also grateful to students in my
\Vilson School seminar on Inequality and American Democracy for se1ving
as an invaluable test-audience for the first complete draft of the book, and
to my colleagues Roland Benabou, Angus Deaton, Alan Krueger, Jonathan
Parker, and Mark \Vatson for providing generous advice about economic
issues and literature.
Within the Woodrow Wilson School, my primary home for the past eight
years has been the Center for the Study of Democratic Politics. The faculty,
visitors, students, and staff there have provided abundant intellectual
and moral support, including appropriate mixtures of criticism and
encouragement in response to half-baked arguments presented in lunch
seminars, conferences, and common room chats. I am especially grateful to
Doug Arnold, Brandice Canes-Wrone, Michele Epstein, Marty Gilens,
Dave Lewis, Nolan McCarty, and Markus Prior for helpful reactions and
suggestions. As I have come to expect over the years, Chris Achen provided
especially cogent advice and especially generous encouragement. He also
graciously tolerated the constraints imposed by this project on the progress
of our long-running collaborative work on democratic accountability. Next!
I have also benefited greatly, and repeatedly, from the generous support
of the Russell Sage Foundation and its president, Eric Wanner. The first
stages of my research were conducted as part of the Princeton \Vorking
Group on Inequality, one of several interdisciplinary research teams supported by the Russell Sage Foundation through its Social Dimensions of Inequality project. I thank Bruce Western, the ringleader of the Princeton
Working Group, for involving me in the project, and Bruce, Paul DiMaggio,

I.

i
I

<l llowird Rosenthal for providing a supLeslie McCall, Nolan McCar.ty, aln. l t t'.1ckle issues well outside the range
.
ll
. tf \<1 ll1 W l!C 1 O '
ortive collaborative se II ti
.
A
. l 111eetings of the various Russe
Pof my prev10us
.
\ l l)' expertise. nnu,1
( )O'))
sc 10 ar

II . d ("001) Wisconsin 2< : . . ,
.
k er groups at arv ar ~
'
-)
) B k l
(')()()5) md UCLA (2001
Foundation wm lllti
S\ge
'
.
. . n (2004 , er e ey ~ ' '
.
Maryland (200.3), P1 Jllceto .
1 . g me to many of the toughest issues
1ting
boot
camp
Jlltroc
ucm
.
.
flo
Se1vec
. l as a '
. urrent researcll lll t lie f'ieltl .
1 .
ded 1 separate grant to support the
and much of the best c
The Russell Sage Founc at10n ~rov1 . l.ty' md public policy as part of the
l .
.
ey d-1t'l on Jllequ,1 I '
collection o I new su~
' 'd (NES) Those data figure prominent y m
2002 National Elect10n Stu y
k . d .
l1ted work h)' manv other
d 7 of this boo -an m re '
' . l
chapters 5, 6, an
.
ll b . t v1tl1 Nmcy Burns and Don Kim er,
l .
e to co a ora e \
'
.
1
scholars. It was a P e~1sur
f 1 20<P NES in desi<rning the mequa ity
the principal investigators lo t led t ~tl eir ~olle1aue~ at NES for implemodule. I am grateful to t l~lll ai1 d~ t l More g:i~rally, I am indebted to
menting the survey an<l sharing ~ ie '~ ,1.
t1.II m<l overseers who have
f :pil mvesticrators, s ' , '
d
the long succession o pnnci '
l t>t..
. d dissemination of NES ata
. l ble 1ccumu a ion an
ll
contributed to t1ie mva ua
' M l f the analysis presented here wou t
over more than half a century. u.c l l~f. t
thout their e 01 s.
.
bl
not have been poss1 e wi
f
tl e Russell Sage Foundation profi
il)
gr-mt
rom
1
1 so far, ~1,
A third (anc,
'
red to ull the various strands of my revided the concentrated tnne requ1
~ . p1eces md turn it all into a
'll .
1portant nnssmg , '
.
f
e1rch
together,
I
m
some
m
1
l . 1 ise of' iny work came 1rom
S '
u
.
l
ort or t ns p l< .
book Significant ad 1tiona supp
k. l .
of .1 C-miegie Scholars
.
t'
of New Yor m t ie 1orm
, ,
.

Corpon
ion

t1ie C arnegie
'
.
. . tl1e form of a quota 1eave.
.
p t 1 Umvers1ty
m

.
Gr1nt
' 111
' d f rom nnce m k
l te.d me to par tc1p1te
1 ' in the American
Along the wav, Theda S ocpo mvk1 F
l 1eqU'llity and American
'
. , Tis
orce on i '
.
. l'ty . dhow to study it from
Political Science Associations ,
. t le1l about mequ,1 I an
bl
Democracy. I learne d a grea c , d b Theda and especially from our a e
the distinguished group assemble
k For~e's report and the volume of
task force chair, Larry Jacobs. Theb. ,1s d Sk cpol l1ie<111aliflj a11d J\111<'riN111
1 1t d by J1co
s an
o
'
.l
supporting matena ec i e.
'
\" N 'l to Leani, prov1t e an autr
K nc and \Vlwt ve eu
l. l t I
,
Democr{l(y \V wt ve 11<

f tl politics of inequa ity t ia


thoritative introduction
to many aspects o ie
'
have ignored or underemphasized here. t d virious versions of various porOver the past five years I have pre~en ed ' rere11ces at UCLA, the Unilloqur1 an com1 . . . '
tions of the book in lectures, co
, , dl .
'-larv1rd Illinois, Michigan,
.
C l b.. Duke For Mm, i ' , ,
.
.
versity of Clucago, o um 1,1,
1,U .
ty of Pennsylvmua, Penn St,1te,
0
ford
t
ie
mvers1
1
p
bl.
Minnesota, Notre D ame, x . , l 1 B ookings Institution, t ie u ic
\Vsconsm Ya e, tie r
l d
d t
Princeton, Syracuse, I
,d 1 J . M1rch Institute in ~hK n , m1 ,1
1 r
ia
1n
tie
uan
'
"
')00'3
1
Polk-v Institute of C muon ' '
(200~. ::.. '
. . l S ce Associ1tion
;
1 A
1 Po11tica cien
'
annual meetings oft ie menca1
. A oci'ltion (2003), the Midwest
2005, and 2006), the American Econonnc ss ,
L

__

...:-:~:

xiii
xii

PREFACE
PREFACE

Political Science Association (200.5), the European Consortium for Political


Hesearch (20o.5), and the National 'fax Association (2006). Each of these presentations generate<l stimulating questions and cOllllllents, helping Ille to
hone Ill)' analyses and arguments.
Through these avenues and others I have been fortunate to benefit
from helpful reactions an<l suggestions frolll Kathy Bawn, Hobert Bernstein,
Benjamin Bishin, Phil Converse, Davi<l Ellwoml, John Griffin, Jennifer
llochschikl, Sandy Jencks, Jacob Hacker, Douglas Hibbs, Skip Lupia, Paul
Pierson, John Hoerner, Tholllas Schwartz, Jeff Stonecash, Hick Valelly, Lynn
Vavreck, Ronald \Veber, and Hobert \Veissberg, among others. As always,
John Zaller has been an especially perceptive and supportive critic.
Jonathan Lacki, Gabriel Lenz, and Jeff Tessin provided able research assistance, producing very helpful literature reviews and carefully collecting
and organizing data for my analyses. Helene Woo<l solved myriad logistical
problems with skill and good cheer. Karen Pulliam and Shirley Smith of the
U.S. Census Bureau provided assistance in interpreting the bureau's
historical incollle data.
A much-abbreviated version of chapter 2 appeared in "Econolllic
Behavior in Political Context" (American Eco110111ic Recierc, 200:3, with
Henry E. Brady). A rather <lifferent version of chapter :3 was published as
"What's the Matter with What'.~ the Matter tl'ith Ktmsas?" (Quarterly Jormwl
t?{ Political Science, 2006). Portions of chapters .5, 6, and 7 are based on
"Homer Gets a Tax Cut" (Perspectii;es mi Politics, 200.5) and "Unenlightened
Self-Interest: The Strange Appeal of Estate Ta.x Repeal" (The American
Prospect, 2004). Portions of chapters 6, 7, and 8 were published in "A Tale of
Two Tax Cuts, a Wage Squeeze, and a Tax Credit" (National Tax Joumal,
2006). Portions of chapter 10 are based on "Is the Water Hising? Reflections
on Inequality and American Democracy" (PS: Political Science & Politics,
2006). I am grateful to the publishers of these pieces for permission to draw
upon thelll here.
Suzanne Nichols at the Russell Sage Foundation and Chuck Myers and his
colleagues at Princeton University Press have ably shepherded the manuscript to publication. Suzanne commissioned anonymous reviews that provided very helpful feedback on an earlier draft of the book; I am especially
grateful to one grumpy reviewer who went far beyon<l the call of duty in
providing impetus and guidance for my efforts to clarify and tighten my argument. Chuck's own reading helped me excise much, though alas not all, of
the jargon and academic indirection.
My daughters, Elizabeth and Meghan, somehow grew into unusually
charming young adults during the years in which this book took shape. They
have been a source of great pleasure, pride, and inspiration. Moreover, unlike most children in prefaces, they provided invaluable critical feedback, including detailed comments on the text.

is to Ill)' \VI1e, Dl11ise


, , who has
1' 'rkbt
t lll'<llt'l)t
,
t

id
mos
"

t
I lrwe
been wor k'1ng.. Tl. Iis
I,'iinll)'
' , iny grea {ls ".1 l
"t o f my 1I 1e w 11'\e
I
.
,
contributed so nn1c I to tie res l . g od or nearlv as nn1ch fun to wnte,
book would not have been nem Y ,1s o ,
'
without her.
Princeton, l\ew Jersey
September 2007

_ _ _ _ _ _ _ _ _ CHAPTER 1 - - - - - - - - -

The New Gilded Age


'~,

-{-

'
IN THE FIRST sentence of one of the greatest works of modern political science, Hobert Dahl posed a question of profound importance for dlmocratic
theory and practice: "In a political system where nearly ewry adult may vote
but where knowledge, wealth, social position, access to officials, and other
resources are unequally distributed, who actually governs?"'
Dahl's answer to this question, for one American city in the late 1950s,
was that political power was surprisingly widely dispersed. Examining
politics and policy making in New Haven, Connecticut, he concluded that
shifting, largely distinct coalitions of elected and unelected leaders influenced key decisions in different issue areas. This pluralistic pattern was
facilitated by the fact that many individuals and groups with substantial
resources at their disposal chose not to devote those resources to political
activity. Even "economic notables"-the wealthy property owners, businessmen, and bank directors constituting the top tier of New Haven's
economic elite-were "simply one of the many groups out of which individuals sporadically emerge to influence the policies and acts of city officials."2
The significance of Dahl's question has been magnified, m1d the pertinence
of his answer has been cast in doubt, by dramatic economic mid political
clumges in the United States over the past half-century. Economically, America has become vastly richer and vastly more unequal. Perhaps most strikingly,
the share of total income going to people at the level of Dahl's "economic
notables"-the top 0.1% of income-earners-has more than tripled, from
3.2% in the late 1950s to 10.9% in 2005. The share going to the top 1% of
income-earners-a much broader but still very affluent group--more than
doubled over the same period, from 10.2% to 21.8%.:3 It seems natural to wonder whether the pluralistic democracy Dahl found in the 19.50s has survived
1 Dahl

(1961). 1.
the 238 people in this group, only three were among the 23 most influential participants
in the city's politics and policy making. Nine more were "minor leaders"-all in the field of urban redevelopment, a policy area of distinctive relevance for their economic interests (Dahl
1961, 72 and chapter 6).
~These figures are from tabulations by Piketty and Saez (2003), updated at http://elsa
.berkeley.edu/-saez/, table A3.
2 Of

tJ

2
CHAPTER J

this ra1)id co11co11tr1t1'c)


'
' no f vist l IT
I
Wl'altliicst citizcns '
' . .ic <'Jona resourcl's in tlw lnncls <JI.A
.

'
menc1
~fran\\'hilt> ti , 1 . I
'
. . ..
, Jc po ihca process lias evolv' l . .
lll/01 Cf' tht> advantagps of Wf'alth. Politic .. t < Ill." ays that sel'rn likely to rpt'illiy more e:\})<'llsive since tho }gi::o. .
.ii ~<1111pa1gns have lwcome dr11111t
' "' s mcreisma ti
' ' 1on peop le who can afford t I l r.'
'. b le rf' 1iance of elt'cted off
" I
. t' . . l
o J( p unance th . l . I f
ic1.i s
,1c 1v1t1es ;y crnvorations and b11sines . e1r JJ.< s or rt't'lection. Lobb,incr
'.;c~d.enlited greatly, outpacing the ~row~l;1~1 P~~~Ps.sional organizations !~av;
s .up Ill abor unions. h1s
. l;st t' IIpu J IC mtnest grou1Js . iv
'I em lJer' d"''c1lllt>c l su
rnsm for organized representation of ,lJl 'k'~ y, eroding tlie primarv lllf'Chaprocess.
WOJ mg people in the gov,,'r
l
I

' nmenta
low have these economic and 1r ..
ally governs?" In 2004 ti "T'. k po' ic,11 developments aflt'cted " I ..
, le 1as Force
I
.
w 10 ,1cturac~. convened by the American Politic1~n .nequa1ity and Amt'rican Democ-

pohtt':al scientists know "astonishin I 1:uf~'.~nce Asso~~ation, concluded that


American democr1cy" of ti
gy
e ,1bout the cumulative efl' t
b
I
'
iese econom. . . d
1 .
. It'<: s on
.t~e~ ~n what we do know, the task fi . IC ,UJ po ihcal changes. However
~10fln11c mequality will solidif)., lo11gst1ord~e mde'.nbers worried "that risiiig eco~
m ue .
d
'n mg 1sp1 r
I
:nee, an perhaps exacerbate sucl1 d' . . . 'r~.!es Ill po itical voice and
Tl 11s book provi'd .
1sp.1nhes ..~
.
es <l multtfac"'t
.
con
' ' e d exarnul'1tio
f ti
_sequ.ences of economic inequality . . ' n o le political causes and
enttsts smce Aristotle have wrestled '.;; c~ntemporary America. Political sci:conomic inequality is cornp1tibla . 't\IVIdl t ie question of whether subshnthl
1s not

'
" \VJ l emocnc M
l
' '
1 enco_uragmg. I find that elected offic" I .' y. y evK ence on that score
po icy pnlf'rences of millio11s of I
.
Id s .ire utterly unresponsivt' to tl1e
t
b
ow-mcom 'f

Ill erests to e served or ignored is tl1 . I I e _c1 izens, 1eaving their politiC'l!
m1y d"t t D 11
,
e iceo ornc1l ,I.
f.
,
'
JC ,1 e. a l suggested ti . t d
b' '
"
Hms o mcumbent el't
nes f ti
l,1 emocncy t 1 "
' t'S
. s o ie govt'mment to the prec:e
' f . en ill s continued responsivec1 I eq I "fi Tl
" rences o its r

' . ua s.
le contemporary United St t . c1 izens, considered <lS polititImt standard.

a es is a very long \viy f'r


.
' om meetmg
Economic inequality cl . I I
1 .
e.ir y lils profo d
'fi
)o 1~1cs. ~lowever, that is only half the st un f rar~1 cations for democratic
t ie story is that politics also rofoun
. ~ry o tlus book. The other half of
cal change, globalization de;11ogr1pl~ly slh.'fipes economics. While technoloai
J
'
' uc s u ts , an
d I
ofcorces
lave produced powerf I
ot ier economic and so ." I
u pressures toward greater inequality in rec~::~
4 Dahl himself has <'Ontinue<l to
"
an democray. His /Jile11111tti. o{ l':e\ is~ and elaborate his aecount of the wo k'
speet; diaiJter 8 .1 l<l
.
llm/1.\'/ DmwJf:rru:y (l9S ) .
.
r mgs of Ameri2 is especnllv
' c resses the ri 'fi .
r
system and the pote t"il . . . 'nu eatmns of ec-onomi(' ine I
' . per ment in this rebook, 011 l'olitimf 1:,n,1, /~11gn~fieanee of ec'Ono111ic inequality aqs ua.11tyl't~orlt.he American political
/If! 1 y (,006)
.
po 1 <"<I 1ssu H'
ble with fundamental aspect - f I 'e.~ammes whether the ideal of polir .. iJ e. .'s ''.lost reeent
.~ Tisk ~ .
so JU man nature.
ic, equality is eom1Jatiorce on Inequality 111d A
.
,
fi D1tl1l (1971), I.
'
menean Democracy (2004), 662.

THE NEW GILDED AGE

decades, politics and public policy can and do significantly reinforce or mitigate those pressures, depending on the political aims and priorities of
elected officials. I tract' the impact of public policit's on changes in the U.S.
income distribution over the p<tst half-century, from the tripled income share
of Dahl's "economic notablt's" at the top to the plight of minimum wage
workt'rs at the bottom. I find that partisan politics and the ideologieal convietions of political elites lu1vt' had a substantial impact on tht' American t'eonomy, especially on the economic fortunes of middle-class and poor people.
Economic inequality is, in substantial part, a political phenomenon.
In theory, public opinion constrains the ideological convictions of political
elites in democratic political systems. In practice, however, elected officials
have a great deal of political leeway. This fact is strikingly illustrated by
the behavior of Democratic and Republican senators from the same state,
who routinely pursue vastly different policies while "representing" precisdy
the same constituents. On a broader historical scale, political latitude is also
demonstrated by consistent, marked shifts in economic priorities and performance when Democrats replace Republicans, or when Republicans rt'place
Democrats, in the \Vhite House. In these respects, among others, conventional democratic theory misses much of what is most interesting and important about the actual workings of the American political system.
My examination of the partisan politics of economic inequality, in chapter 2, reveals that Democratic and Republican presidents over the past
half-century have presided over dramatically different patterns of income
growth. On average, the real incomes of middle-class families have grown
twice as fast under Democrats as they have under Republicans, while the
real incomes of working poor families have grown six times as fast under Democrats as they have under Republicans. These substantial partisan differences persist even after allowing for differences in economic circumstances
and historical trends beyond the control of individual presidents. They suggest that escalating inequality is not simply an inevitable economic trendand that a great deal of economic inequality in the contemporary United
States is specifically attributable to the policies and priorities of H.epublican
presidents.
Any satisfactory account of the American political economy must therefore
explain how and why Rt'publicans have had so much success in the American
electoral arena despite their startling negative impact on the economic fortunes of middle-class and poor people. Thus, in chapter 3, I examine contemporary class politics and partisan change, testing the popular belief that
the white working class has been lured into the Republican ranks by hotbutton social issues such as abortion and gay marriage. Contrary to this familiar story, I find that low-income whites have actually become more Democratic
in their presidential voting behavior over the past half-century, partially
counterbalancing Republican gains among more affluent white voters.

I
:~

4
CHAPTER I

Moreover, low-income white voters continue to attach less weight to social issues than to economic issues-and they attach less weight to social issues
than more affluent white voters do. The familiar image of a party system
transformed by Republican gains among working-class cultural consel\latives
turns out to be largely mythical.
Then why haw Republican pnsidential candidates fared so well over the

PL~t half-century? J'vfy analysis in chapter 4 identifies three distinct biasE'S in political accountability that explain 111uch of their success. One is a myopic focus
of voters on very recent economic perfonnance, which rewards Republicans'
smprising success in concentrating income growth in election years. Another is
the peculiar sensitivity of voters at all income levels to high-income growth
rates, which rewards Republicans' success in generating election-year income
growth among afTiuent families specifically. Finally, the responsiveness of voters to campaign spending rewards Republic<ms' consistent advantage in
fundraising. Together, these biases account three times over for the Republican
Partys net advantage in presidential elections in the post-war era. Voters' seemingly straightforward tendenc.y to reward or punish the incumbent government
at the polls for good or bad economic perfonrnmce turns out to be waiped in
ways that are both fascinating mid politically crucial.

In chapter 5, I tum to citizens' views about equality; their attitudes toward


salient economic groups such as rich people, poor people, big business, and
labor unions; and their perceptions of the extent, causes, and consequences
of economic inequality in contemporary America. My analysis reveals considerable concern about inequality among ordinary Americans and considerable
sympathy for working-class and poor people. However, it also reveals a good
deal of ignorance and misconnection between values, beliefs, and policy
preferences among people who pay relatively little attention to politics and
public affairs, and a good deal of politically motivated misperception among
better-informed people. As a result, political elites retain considerable latitude to pursue their own policy ends.
Cliapters 6, 7, and 8 provide a series of case studies of politics and policy
making in issue areas with importm1t ramifications for economic inequality.
Chapter 6 focuses on the Bush tax cuts of 2001and2003, which dramatically
reduced the federal tax burdens of wealthy Americans. I find that public
opinion regarding the Bush tax cuts was remarkably shallow and confused,
considering the multitrillion-dollar stakes. More than three years after the
2001 tax cut took effect, 40% of the public said they had not thought about
whether they favored or opposed it, and those who did take a position did so
largely on the basis of how they felt about their own tax burden. Views about
the tax burden of the rich had no apparent impact on public opinion, despite
the fact that most of the benefits went to the top 5% of ta.\payers; egalitarian
values reduced support for the tax cut, but only among strong egalitarians
who were also politically well informed.

THE NEW GILDED AGE

..
. . n to re ea! the federal estate tax. As with
Chapter 7 focuses on the ca1.1;ru~ find that repeal of the estate tax i~ .retile
Bush tax cuts more genera y, A
. l lS regtrdless of their political
d nry menc< 1 ,
'

. cl cl
'te the fact that the vast maJOrmarkably popular among or II '
. cumstmces an espi
views and eco1101rnc cir
'
, i<l be subject to estate taxation. Moreover,
ity of them never have been or wou 11 g predttes the efforts of conserva1 f st'lte tax repea on
. '
..
ti
f: cture public oppos1tlon to ie esthe strange appea o e. ' ,
. ti 1990s to manu a
,
I cl
tive interest groups Ill 1e ... I
t r is not why the estate tax was P iase
t 1te tix Thus, the real pohhca mys e y ti
80 yetrs-an<l will likely re' '
I
'cl for more ian
'
.
out in 2001, but w iy it su1v.1w . 2011 The simple answer is that the views
I I . u t exp1res 111

th!
turn when t ie P iaseo
.
. e1l have been more consequen '
of liberal elites determined ~~ prevent l l P '
tlnn the views of ordinary c1hzenls.l I . . to working poor people and the
'
f 1 wea t 1y ien s
t
In chapter 8, I turn ron
I
. s of ordinary citizens seem o
H re too t 1e view
. .
1 Tl1e re1l value of the m1111mum
erodincr minimum wage. e , bl.'
b
1 I . . t on pu ic po icy.
'
k bl
11
1ve had very itt e unpac
.
ti l1te 19'~/\s despite remar a y
'
I . 40% smce 1e ' \JV
I
wage has declined by mor~ t ian
t fi ninimum wage increases. My ana ystrong and consistent public supporl. .or I l't'ctl clout of labor unions mid to
11 '
erosion
to ti ie dee mmg
. tIie es
sis attributes tins
. clpothe White
House. As With
shifts in partisan control of Congress ,m
l(lerscores the ability of deter'nimum wage u1
1
..
f I
tate hix, the politics o t m1 IT "ll s 'Stem to postpone or prevent po icy
mined elites in the Amencan pod1 ic, ~ d elites il'we not been liberal De. I .. e the etermme '
. R
shifts However, m t us CclS
.
f 'll1'0111ires but conservative e.
. tl bequests o n11
'
'
I
)
mocrats intent on t;ixmg 1~ , h f
1trket (and low-wage emp ayers
otectmg t e ree n '
publicans intent on pr
. .
5 15 er hour.
.
from the predations of people eanung $ ~ t ~ix repe<tl and the eroding mmMy case studies of the Bush t<ixlcuts, el.st.'l -~ '..luses u;d the political conseboth t 1e po 1 1cm c, '
.
I
d 1. I
. .
mli in contemporary Amenca. n
imum wage she ig 1t on
quences of escalating econonuc meq , ty,.1. wer to Dahl's fundamental
.d a more gener,u ans .
chapter 9, I attempt to prov1 e . b . d . ttems of polic.y making across a
I
.' ,
c1 roa
. r pa
s in the responsiveness o f e Iecte d
question: \V io governs.? I eX'lmme
wide range of issues, focusmg on . ispan iel fi d tint the roll call votes cast by
n
'
I. I b
.
f tl .r constituents.
officials to the views o ie1
.cl fi b their own partisans up t ian Y
U S senators are much better accounte or y . 1sof:ir 'lS constituents' views
.
t't nts Moreover, u ' '
cl
t
b 1 'ted e11tirely to aflluent an
he preferences of the1r cons 1 ue .
,
. . . fl
.
s to e um
.
.
b
f or<lhnry citizens m the otdo matter political m uence seemf 11
'
I b
,
I
. . s 0 mi ions 0
middle-class people. T ie opuuon . I
, discernible impact on t ie e.
d' tribution iave 1W
,
t'
tom third of the mcome is
.
Tl
disparities in representa 1011
havior of their elected repres~ntahves. b 1et,se en high- and low-income citi.11 fi differences e we
. . I
Persist even after m
OWing or
d
t ct with public off1c1a
s.
I. . .1 k wledge an con a
zens in turnout, po ihcm no
,
. I
st recent wave o f escaIat'mg
ly st'lge 111 t 1e mo
Writing in the 1980s, at an ear
'
b
d G ry Orren depicted an on. . t S'd 1ey Ver a an
a
1
inequality political sc1enhs s i I ,
,
f I rorces of economic inequa ity
, back-and-fort
,
I1 b etween the power u i1
,
,
going

1:

CHAPTER I

and political
ec1ua)ih1:
.. I equ1)1h'
.
.
') ".R0l"t
I IC.l
nom1c inequality as dis1clv111t1 I ' 'J . . . poses a constant challe11ge t
.
' ' ' aec group
t"
o eco1tanan demands lead to eq111J-~
1' . I s_pe it1on the state for redress E I
t B
I
' 1zmg eg1s itm I
l
g.1 ';;. . _ut t ie co1~tinuing disparities in th~ '.1, sue~ as t ie progressive income
el ectiveness ol such laws is tlie
. eco11om1c sph<'re work to lin11"t ti
t 1e
' '
eco11omicill . d
ie
1001~~1~1:~:itf ~ relsources in the political sphe~e: l~h vantaged groups unleash
ese groups lobb fi
, ure <l\\yers and icc
laws, and then deduct the co;t .~,untants to maximize their benefit
or t'<lX
In ti 1
s.
om t,ix
ie ong nm of Ameriein . IT I I .
seems apt. However, in the c:irr~1~t\:~a ust?ry, Verba mid Orrens depiction
~asy to_ wonder whether the "constant ci.1;fm1c and political environment it is
_the ideal of political equality is reall l.l p,nge to eco1'.omic inequality" osed
1 lus book provides strona ev1"cl
y so constant or, Ill the end so ercepct
fi II
b
Puce tlnt e .
. .
,
111. 1ve.
u y on the political process frust . '. conom1c mequality impinats owerdemocracy. The cou11tervi1 , .
r,itmg the egalitarian ideals
P .
. .. .
, 1 mg impact of . 1 . . .
mencan
Plflhes m the economic sphere
e?.i 1t.inm1 ideals in constraining d
. seems considerably more tenuous.
is-

rr

otA

ESCALATING ECONOMIC INEQUALilY

~ost A'.nericans have on! a va u


come d1stribution-espe~all f~r e ~ense of th~ contours of the nations intend beyond their personal e~ erie~~:ts of the mcome distribution that ex~.S. Census Bureau provide /usef l . Annual tabulations published by the
different points in the distributio u;,ummary of the incomes of families it
year for which
I b
n. or example in 2005 (ti
,
. ie most recent
sue l ta ulations 1re 1v 1 bl ) 1'
l1ad a tot J
.
' ' a1 a e t 1e typ l

f ,i pre-tax mcome of $56 9()() M


,
ica American family
~~:no$;~ery five-earned less tha;;$2.5 ~e;l1~m .15 million families-one
f; ' . . 0.3,100. Even higher in the dist '.b .'
snmlar number earned more
.inul1es had incomes of
I
n ution, the richest 5% of A
.
The C
more t 1an $184 500 11
'
mencan
. ensus Bureau provides ir-illel . ,
.
~ac~ to 1947 for families at the ~~tl1 4o~i111;l lfamily income tabulations going
d le mcome distribution. These t-ib~hf l, t l, 80th, and 95th percentiles of
ata series included in the Ce:1sus' ;~~e<~~~1stit~te ~he longest consistent
. s H1stoncal Income T:ibl
' es. o
: .~:~rba and Orren (198.5), 19_

Iable F-1: lneome t . li .


to 2005. n These d t
dmuts or Eaeh Fifth and 'fo1> 5 D
a a are eri . d f
I
.rereent of F: 1 ( I
and are intended t
R
\e rom t le Census Bure1u' M I
an111es A I Raees): 1947
'I1
re ect total pr t
' s .ire 1 Current B I .
1e data and icldi"t al . li
e- ax uwmne for fam 1J 1e
. .
opu ahon Survevs
'
1011 111 ornl"lf

s rons1st111g 0 ft
,
~on are available from the C
.eensus.go\'/hhes/" ,1.
wo or more people.
"The ,...._
'W\\ llleome/lustindfOlar.html
ensus Bureau Web site htt1J/f
~nsus Bureaus deli "t

www
eonsisting of sin I
m 1011 of families exdudes a
.
families bvthe ,....~ e orBunrela~ed people. (In 2005, almost grow1ln~ proportion of households
"""nsus ure1u s deli .
one-t urd of )
I I
I10lds was-$46 300
.b

mtion, up from 18% in 1967


10use Io ds were not
. ie median ineome of house'
' .1 out 18% less than the medhn . .
' meome of families ) H
owever, a parallel

THE NEW GILDED AGE

Although they do not reflect the economic fortunes of very poor families at one
extreme or very wealthy families at the other extreme, they do represent a
broad range of economic circumstances, encompassing working poor families
at the 20th percentile, middle-class families at the 40th and 60th percentiles,
all1uent families at the 80th percentile, and even more all1uent families at the
9.5th percentile. Thus, they provide an invaluable record of the changing economic fortunes of American families over a period of almost six dec:ades. 10
The distribution of income in American society has shifted markedly in
that time. The broad outlines of this transformation are evident in figure
1.1, which shows how the real pre-tax incomes (in thousands of 2006 dollars) of families at various points in the income distribution have changed
since 194 7. It is clear from figure 1.1 that the period since \Vo rid \Var II has
seen substantial gains in real income for families throughout the income
distribution, but especially for those who were already well off. The average
rate of real income growth over the entire period covered by the figure increased uniformly with each step up the income distribution, from about
1.4% per year for families at the 20th percentile to 2% per year for families
at the 9.5th percentile.
The difference between 1.4% and 2% may sound small, but it has compounded into a dramatic difference in cum11latice real income growth over
the past half-century: 118% for families at the 20th percentile versus 199%
for families at the 9.5th percentile. Of course, the contrast in economic gains
between poor families and rich families is much starker in absolute terms
than it is in percentage terms. Measured in 2006 dollars, the real incomes of
families at the 20th percentile increased by less than $15,000 over this period,
while the real incomes of families at the 95th percentile increased by almost
$130,000 .
These figures convey a striking disparity in the economic fortunes of rich
and poor American families over the past half-century. However, they fail to
capture another important difference in the experience of families near the
bottom of the income distribution imd those near the top: poor families have
been subject to considerably larger fluctuations in income growth rates. For
example, families at the 20th percentile experienced declining real incomes
in 20 of the 58 years represented in figure 1.1, including seven declines of
3% or more; by comparison, families at the 9.5th percentile have experienced
only one decline of 3% or more in their real incomes since 1951.
series of ineome tabulations for the larger universe of households displays generally similar ineome trends over the period for whieh the two series overlap, 1967-2005.
10
Obviously, specific families do not remain at exaetly the same point in the ineome distribution from year to year. Indeed, the specific families induded in the Current Population Survey, from whieh these tabulations are derived, ehange from year to year. Nevertheless, the data
reffeet the general eronomic fortunes of poor, middle-dass, and rieh families and how they
h<we ehanged.

--

--9
THE NEW GILDED AGE

CHAPTER l

200

~ 1947-1974 J

120

- - 95th percentile
- - - 80th percentile

180

\!- 1974-2005 J

Hl2.9

- - - - 60th percentile

100

- -40th percentile

160

20th percentile
'O'

~
0

140

120

eOil

..c:
~

Vt

80

<U

'g

100

.::::
80

..,,, .

,.:il

.-

60
40
20

............. ,, .. _.---

........

..

'.,,,,..,,,,..-. . -. .... -~.............................. .


___
. . . . . ...

o:~-:::---,--~.---.-~r---

F"

<U

.5

60

(.)

.s

<U

1945

1955

1965

1975

1985

1995

2005

igure 1.1 Family Incomes by I ncome Percentile, 1947-2005

~:'~::~~;7,'.'l; i~~the pa<tthree ~l:::;,:;'e:dfi!i~;e 1.1, the patient of


. Although it may not be immed ..

tdhe post-war era. In the 1950s d 19rply from the pattern


art of the.
60s fan 1
mcome istrib ut'ion experienced rob mi
mid-1970
.
t.
' u ies m every
P
s mcome growtl I b
us mcome gro ti s
I
evenly dist n'b ute d.. These d'ff
l las een a good deu
I
i. mce t le
' sower m1d a w
good
1 .1 1
cumulative rat
f
. I erences are evident in 6
.
.
( em ess
oome d. t .b
o wal moome growth Im fiu T _gme 1.2, winch compare>
is n uhon from 1947 to 1974. d f ' m 1es m various parts of the inrom the late 1940s th
I l ,m rom 1974 to 200.5 11
. F'd d
roug l t le earl 1970
.
~ap1 an remarkably egalitarian 1t 1;.lSr. s American income
growth wlS
mcomes of working poor
,(at ;he
Indeed, the re,al
percenh e of the income d' t .
11"1' .
IS n-

~'

familie~

~~~l~rcentag~lterms.

1 us(2003)
figure ,is5-mo<l
' by M'is I1e I Bernstein, and
1.
d1t-1
Boushey
e Ie <l on a similar presentation of ti1e s.une
.

;:l

40

20

20th 40th 60th 80th 9Sth 20th 40th 60th 80th 9Sth

Figure 1.2 Cumulative Income Growth by Income Percentile,


1947-1974 and 1974-2005
bution) and afl1uent families (at the 80th percentile) both grew by the same
98% over this period. Income growth was slightly higher for middle-class families and slightly lower for families at the 95th percentile, but every income
group experienced real income growth between 2.4% and 2.7% per year.
Over the past three decades, income growth has been much slower and
much less evenly distributed. Even for families near the top of the income distribution, the average rate of real income growth slowed substm1tially (from

2.4% pe' yeado 1.6% pe< yea< [o, families at the 95th pe<centile). Fo< le" al
fluent families, re<U income growth slowed to a crawl. Families at the 60th percentile experienced real income growth of less than 1% per year--<lown from
2.7% in the earlier period. The real incomes of families at the 20th percentile

grew by only 0.4% !"" yea<--down from 2.6% in the ea<lie< pe<iod. Much of
the income growth that did occur was attributable to increases in working
hours, especially from the increasing participation of women in the workforce.

IO

CHAPTER l
TllE NEW GILDED AGE

---99.99th percentile
- - - 99.9th percentile

- - - 99.5th percentile
- - 99th percentile

_...._ 5

95th ercentile

.s:"'
c

E
3
0

.s
";;

~ 2

1945

1955

1965

1975

1985

1995

2005

Figure 1.3 Top Incomes by Income Percentile, 1947-200.5

Ev~n the di~~arities in income growth for affluent, middle-class, and poor
Ame~ica'.1 fanuhes charted in figures 1.1 and 1.2 understate the extent of escalatmg mequality over the past 30 years, since much of the real action has
been concen~rated at the very top of the income distribution. While the Census Bureau figures document the experience of families affluent enough to
have reac:hed the 9.5th percentile of the national income distribution, they
~heel no light .on what has happened to people with much higher incomes. As
it turns out, mcome gains among the ultra-rich have vastly outpaced those
among the merely affluent.
iTconomists Thomas Piketty and Emmanuel Saez have used information
co ected by the ~ntemal Revenue Seivice to trac.:k the economic fortunes
of P_eople much lugher up the economic ladder than the Census Bureau tabu1atJons reach Figure 13 prese n ts ti ieJr
tab uIahons

of the real incomes (in

11

millions of 2006 dollars) of ta."Xpayers at the 9.5th, 99th, 99 ..5th, 99.9th, and
99.99th percentiles of the income distribution since 1947. 12
What is most striking in figure I.:3 is that, even at this elevated incorne
level, income growth over the past 2.5 years has accelerated with every additional step up the economic ladder. For example, while the real income of
taxpayers at the 99th percentile doubled behwen 1981 and 200.5, the real income of ht'Xpayers at the 99.9th percentile nearly tripled, and the real income
of taxpayers at the 99.99th percentile-a hyper-rich stratum comprising
about 13,000 t<t'Xpayers-increased jit:efold. The real incorne cutoff for this
hyper-rich stratum (not the awrage income but the lo11.:esf income of taxpayers in this group) was virtually constant for three decades following the end
of World \Var II; but around 1980 it began to escalate rapidly, from about
$1.2 million to $6.2 million by 2000. Although the real incomes of people in
this group declined significantly in the stock market slump of 2000-2002, by
2005 they were once again in excess of $6 million .
In 2005, the Netc York Ti111es published a 20-year retrospective on the list
of the 400 wealthiest Americans produced annually by Forbes 111agazine. The
Ti111es noted that the ar;erage net worth of these 400 economic luminaries increased 111ore than fourfold over that period (fro111 $600 111illion in 1985 to
$2.81 billion in 200.5) and that their co111bined net wealth in 200.5 exceeded
the gross domestic product of Canada. "The median household income of
Americans has been stuck at around $44,000 for five years now. The poverty
rate is up. Members of the Forbes 400, meanwhile, are richer than Croesus,
and every hour they are getting richer." 1:3
Another illuminating way to look at Piketty and Saez's tabulations is in
terms of the shares of total income going to people in different econo111ic
strata. Figure 1.4 shows these income shares for the top 5% of ht'Xpayers (the
solid line) and the top 1% (the dotted line) over a period of almost 90 years.
For the period since World War II the picture here is quite consistent with
the picture presented in figures 1.1and1.3. The share of income going to the
rich remained remarkably constant from the 111id-1940s through the 1970s
and then began to escalate rapidly. For example, the top 5% of ht"Xpayers
12 Piketty and Saez (2003), table A4. The updated data reported in figure 1.2 are taken from
Emmanuel Saez's Web site, http://elsa.berkeley.edu/-saez/. These figures derived from IRS
data are not directly C"omparable with the Census Bureau figures C"harted in figure 1.1. For example, the Census Bureau's inC"ome figure for families at the 95th percentile in 2005 is
$184,500; the C"orresponding IRS figure for the 95th percentile of tax filers is $130.400. The latter figure represents annual gross inC"ome reported on indhidual tax returns, excluding C"apital
gains and government transfers suC"h as Social Security and unemployment be1wfits. Comparisons are compliC"ated by the faC"t that some families do not file t1tx returns, while others file
more than one return. For reC"ent years, Piketty and Saez assumed that nonlilers had inC"omes
equal to 20% of the average inC"ome of filers.
13 Nina Munk, "Don't Blink. You'll Miss the 258th-Richest Ameriean," M'rv fork 'fi111rs,
September 25, 2005, BU 3.

12

CHAPTER I
THE NEW GILDED AGE

---Top5%

45

- - -Top 1%

40
35

'cf:_ 30
'-'

~
o:s
.c

"'

25

0
u

I I

.5 20

,. l
I

15

JO

1.. /\/
,

.J

1' I
I\ I

\_....

,,',,.._,

....

\I

,.," ,....
~I

"'"'"-"""'\'\. .. I

o~~-.--.----.~.---.---.--.---J
F"

1915 1925 1935 1945 1955 1965 1975 1985 1995 2005

gure 1.4 Income Shares of Top 501

YOcn

d...,..
Im
10P
w,1917-2005

accounted for 2:3.0% of total income in 1981


.
but 37.2% in 2005. The top I%
accounted for IO 0% of tot I .

cl mcome m 1981 b t 21 B% .
.
mg gradually over most of tl1e t
t' ti
u
. o m 2005; after declin, wen 1e 1 centur ti J
t1ian d <;mbled in the course of. . I
y, leir s iare of the pie more
11
I
cl smg e generation 1
wo ot ier features of the historical trends . .
figure 1.4. One is that the incr . " ' I ,
.m mcome shares stand out iu
easmg s iare of mcome going to people iu the
ii

Pl

etty and Saez (2003) t-ible A3


It d 1
' '
upc ii e t 1rougl 2005 )
U l'k I
n ~ e tie absolute income levels reported in fi ur
l
.
ittp://elsa.berkeley.edu/-sae7/.
1.4 mdude capital gains as well is oth
gf: I.3, the mcome shares reported in figure
..
..
I

er sou rt-es o rncome p1k tty


I
g .uns
are a vo atile comimnent" of .
d

e anc Saez noted th1t <"IIJittl


I I.
.
mcome an "tend to be iJ
.

t le ustoncal trends in income sl11res.
II
re. ized Ill a lum)J)' wav: .. However
.ire gener-1 )' s 1
I I

"

1
exc uded (Piketty and Saez 2003 figure A'>) ., . 1ln~1 '.1r w Jet ier capital gains are induded or
ineo mes Iiare o f t Iie riehest t<Lxpayers.
'

"eanw
ule
igno

..
1

Fo
.
l
'
nng capit<u gmns understates the
1 average income share of the top l 'J! of
hLxpayers in 2001-200.5 was 17 2% e I d~ ex,1m1~ e, tie

xc u mg capital gains but 18 8


.
v
% mdudrng eapital gains.
I

:it

13

top .5% of the distribution is entirely accounted for hy the increasing share
going to the top 1%; the distance between the solid and dotted lines, which
represents the share going to peoph' between the 9.5th and 99th percentiles,
remained virtually constant. As in figure 1.:3, it is clear here that the really
dramatic economic gains over the past :30 years !tave been concentrated
among the extremely rich, largely bypassing even the vast majority of ordinary rich people in the top .5% of the income distribution. Indeed, economists Frank Levy and Peter Temin have used Piketty and Saez's data to show
that more than four-fifths of the total increase in Americans' real pre-t<tX
income between 1980 and 200.5 went to the top 1% of taxpayers. As a frontpage story in the Neu: York Times put it, "The hyper-rich have emerged in the
last three decades as the biggest winners in a remarkable transformation of
the American economy." 11
Because Piketty and Saez's tabulations go back to the advent of the federal
income tax system, they also provide important historical perspective on the
absolute magnitude of inequality in the contemporary American income distribution. Although it is impossible to compare current levels of inequality
with those prevailing in the original Gilded Age in the late nineteenth century, it is possible to colllpare the position of today's econolllic elite with their
counteiparts in what most economic historians consider the other notable
highpoint of economic inequality in American history, the 1920s. Whether
we focus on the share of incollle going to the top .5% of t<t'\payers or the share
going to the even richer top 1%, figure 1.4 suggests that current levels of inequality rival those of the Roaring Twenties, before the Great Depression
wiped out much of the financial wealth of the nation's reigning upper class.
By this metric, America's New Gilded Age is a retrogression of historic
scope. 1i;

INTEHPHETING INEQUALl1Y

What are we to make of these economic trends? For some people, they reflect an era of economic dynamism and expanding opportunity. Others are
1 ~ Levy and Temin (2007), 49-50; David Cay Johnston, "Riehest Are Leaving Even the Rich
Far Behind," New fo1* 'fi11w.~, June 5, 2005, I.
16 I do not know who first referred to the contemporary era as a "New Gildld Age." The term
seived as the title of a eollection of pieces from the New forker magazine on "the culture of affluence" (Remnick 2000). It subsequently appeared in an influential essay by Paul Krugman in
the New fork Times filagfl::,i1w in 2002 and in the headline of a front-page article by Louis
Uehitelle in the New fork 'fi11ws in 2007: Paul Krugman, "For Richer: How the Permissive Capit.tlism of the Boom Destroyed American Equality," New fork 'fi111e.~ Mflgrd11e, Oetober 20,
2002, 62-142; Louis Ud1itelle, "Age of Riches: The Riehest of the Rich, Proud of a New Gilded
Age," New fork Times, July 15, 2007, Al.

. . .

-=--~----

,;

CHAPTER l

14

made uneasy by the sheer magnitude of the gulf betwpen the rich and the
poor in contemporary America, evpn if thPy cannot quite pinpoint why. Still
others art' less concPmPd about inpquality per SP than about the absolute
living standards of the poor or about the Pxtent of their opportunity to work
their way up the economic ladder.
For the most part, discussions of escalating inequality have focused on four
related issues: economic growth, economic mobility, fairness, and inevitability. One crucial-and highly contentious-question is whether dramatic income gains among the hn1er-rich '"trickle down" to middle-class an<l poor
people, increasing the size of everyone's piece of the pie. After all, even the
influential liberal political theorist John Rawls argued that inequality is just
insofar as it contributes to the well-being of the least well-off members of
society. 1;
Many or<linary Americans believe that "large differences in income are
necessary for America's prosperity," as one standard sUivey question puts it. 1 ~
However, economists who have studied the relationship between inequality
and economic growth have found little evidence that large disparities in income and wealth promote growth. 11' There is not even much hard evidence in
support of the commonsense notion that progressive tax rates retar<l growth
by discouraging economic effort. Indeed, one liberal economist, Robert
Frank, has written that "the lessons of experience are downright brutal" to
the notion that higher taxes would stifle economic growth by causing wealthy
people to work less or take fewer risks. 20
Much of the economic argument for inequality hinges on the assumption
that large fortunes will be invested in productive economic activities. In fact,
however, there is some reason to worry that the new hyper-rich are less likely
to invest their wealth than to fritter it away on jewelry, yachts, and caviar.
According to one press report, the after-tax savings rate of households in the
top 5% of the income distribution fell by more than half from 1990 through
2006 (from 1:3.6% to 6.2%), while real sales growth in the luxury retail industry averaged more than 10% per year. 21
17

Rawls (1971), chapter 2.


This question has been included in several General Soda! Surveys condueted as part of
the International Soda! Survey Program (ISSP). In four surveys {"()ndueted between Hl87 and
2000, the proportion of the U.S. public agreeing that large differences in income are necessary
for prosperity has ranged from 26% to 32%, while the proportion disagreeing has ranged from
38% to 58% (McCall 2005, appendix table 1).
'" Alesina and Rodrik (1994); Persson and Tabellini (1994); Benabou (1996); Perotti (1996).
20 Rohert H. Frnnk, "In the Real World of Work and Wages, Trickle-Down Theories Don't
Hold Up," Mu: l'1wk 'fi11w.,, April 12, 2007, C3.
21 Anna Bernasek, "The Rich Spend Just Like You and Me," Nmc fork 'fi11ws, August 6, 2006,
BU 4. Bernasek drew upon detailed data on growth in the luxury retail sector through 2001,
eompiled by Parker, Ait-Sahalia, and Yogo (2004), supplemented with bits of more recent data
from indi\"idual high-end retailers such as Tiffany.
1~

15
TIIE r.;EW Gll.DED AGE

..
. '
s romote overall economic growth, that does rn~t.
Even ii mec1uaht) doe P .
l
ll-b 1g of the least well-oil
. l tl . t "t contnlmtes to t le Wl
en
necessarily 1~n~1 ~- l;l '~he benefits of economic growth may or may nc:t
nwmbers of soc1et).
Il
l t is common for Americans to suppose
"trickle clown" to the poor. At 10ug l I k
'
or people better off than
. ,
ll tive wealth ma es e\ell po
that the nations co ec
1 .. ti . t oor people in America seem to
.
l l l e the rea ity is hl P
lI
they otherwise wo11 c J . .'
. I .
. ntries that are less wea t lY
ll
II
t
I
m
IJoor
peop
e
Ill co11
.
I 1
be Llistinctly less Wl' o
l,
. ..
f the living standards of poor c II cuef
ul
comp.mson
o
~
k"
A
but less 11nequaI.
' . . . 1 190()s found the United States ran mg
. l d lOCf'1CleS Ill t le .~
d .t
'
d F . . . d :35% below Norway, espi e
c.lren in 1:3 nc 1 en
m b 1 w Canada an
r,mce ,m
b. 1
2o
next to last, 10 e o
1 ol,ling constant the a so ute
11 . ltl 22 Moreover, even l ~
.
its greater overa we,1 l.
11 ff ti e is some reason to worry that me. status of tlle le1st
economic
' we. -o ' .ler
l . . l. 1tions in the realms of fann1 y
l"ty itself ll1'1Y have deletenous socrn nnp ic,
qua I
. ' .
. 1 1 . d education.2:3
.
md conunumty hfe, he,1 t l, an ,d b
c
o11 the extent of econonnc
'
.
t . d of e ate 1ocuses

.
Another nnportant s ran
.
. l"ty 11d mobility. As one JOUr. 1 p between mequ.1 ' ''
. 1
mobility and t lle re1ations u
. 1'
. tl11t lies 1t the heart ol t ie
. "M bility is t le prmmse '
,
nalistic account put it,
o
k 1 t" gout of the wi<lening gulf be.
posed to ta e t le s m
.
American d ream. It. is sup .
Tl
lfe poor and rich m t1le
d the hwe-nots. 1ere ,
tween the have-mores an
' ,
b t 1s long is one can become
,
1
tl e 1rgument goes; u '
United States, o f course, ~ . '
1 . close to equality of opportunity, t ie
somet ung
l b . ..21
the other' as long as there is
d
t . dd up to c ass arners.
differences between them o no a
. . t11"11lv reflected in the extent
denl economy is cer ' ,
The dynamism of t1ie mo . :
d" t "b11tion For example, the Nett:
.
1 of the mcmne is n
.
of turnover at t1le pmnac e
. ,
l . P, rb list of the 400 richest ArnerYork Times' 20-year retrospech~e on t l~ . o 9()(es)5 up from 165 in 1985. The
c.legrees from Harvarcl or
icans counted :...955. " seIf-m1de
, . 10rtunes
.1
l . m .~d 1te
1
1
twit
l
unc
ergr,1
1i.

number of peop1e on t le. ~) l 1 tl1e number from California nearly dou2


Yale declined (from 37 to
'w u e
bled (from 49 to 96).25 . .
f 1 Forbes 400 may or may not reflect p_atOf course, the composition o t 1e .
. t 1s 1 whole. Leaving aside
.
b"l"ty Amencan socie y, '
f
terns of economic mo i i m l
t . e the economic fortunes o
this handful of billionaires, to w 1at exten ,\f
,
. I 10th ercentile of the income distribution i~ e<wh
22The comrJarison is for duldren ,1t t ie
p
S d 11 e 1uthors sucrcrest that tlus d1fL
bourg Income tu v. 1 '
,,..,
.
1
countrv, based on data from t I1e uxem
. . . cl) b ~-ounting noncash benefits sue l as
,
d . d (ti gh not ehnml.lte
Y
di
ff.
ference would be re uce
1ou
I "bl tint American children rega1 ess o ,un
sehooling-but only by assuming. rather il~h aus1 i~in~ on education. See Osberg. S1needing,
ily income levels benefit equally from pu c spe
and Schwabish (2004), 8~6-834:
f holarl research in these domains, see Neckerman
2:1 For a comprehensive review o sc
y
(2004).
"d
l dt "Class in America: Shadowy Lines That Still Divide,"
21 Janny Scott and Davi Leon l.lr

'fi11w.~. May 15, 2?~' 1. . I 258th-Richest American," BU 3.


Munk, "Don't Blink. 'iou II Miss t 1e

Nl'w Ym*
:i;1

.........

~-----------

17
THE l'\EW GILDED AGE

CHAPTER 1

16

~t

o'.dinary ~mericans detennined bv their startin


. t .
lnerarchy? One commentator' ic'!1'1
. EI K'msI ey gw1n1e
pom sl Ill
ti the'" economic
over generations is what c01iaE"1ls
"I d'fc'
'
c111
1-o ' f1'111' 11c1,1
1 1erenc:es
t0latI I nnmobility
c I.
uropean-style social class."2h II , , ,
.
o c -1as none<l,
ti
O\\ E'er, recent evidence . crcr
l
E U . I
le mtec States already h1s
' "s1'cr111'f"
,. ., h:an ti y Iess eco
su1-o1-oests
I 1 t iat
anada, Finland, Sweden, Norway, and ossibl C . nmmc lllo )I ity than
C
many;Band
States lllay be a less econolll1""1ll
"' Y mo 1 e society,e1tin
t the
,,.,- United
comparisons suggest-contr1ry
to
tl
c
b
l
.
.
'n
n
am.
_, These
, .
'
le 1ervent e ief f .
that
the
contemporary
Unitecl
St
t
I
so
m,my
Amencans.l
,1 es outc asses Euror) ti
. 1
m ehoun<l Euro1)em-st)le cl1 . t
.
e m ie ng1c ity of its
'
'
ss
s
ructu
re
1
.
Comparisons of intergenerntimnl m b.'l.
States also provide som;, evide11c 'ti . to I 'b~l.over t1111e within the United
e l.l 1110 ' ity h1s de l
l
I
t uee c ecades, at least for lllen One stud
'.
c mec over t ie past
l
I
range of falllily background c1ct.ors ('. I I~ mef_asurmg the impact of a wide
1'
.
me: uc mg 1rnily t t
mc1ty, parental education 'md mcome,
. .
. .' fo s rue
and ethand region)
d ti ure,.. race
l
advant1ged
m<l
d'
d
d
un
iat
t
le
economic
gap .between
1sa vantage men i . . . d b
.
'
'
nom1c mequality increased" durin the 19i0
. ' ncre,1se
ecause ecogaps in women's outco1nes r" . gd .
s, 1980s, and 1990s, while "the
'
' lllame constmt " A ti
cl
effect of parental income on men's . ' : , _no ier
y found that the
1940 and 1980 but incre1s"d clur1'.1g
fodrtunes declined
between
8
..
.
.
'. '
1 le
s an 1990s."2
A detailed analysis of mcome rnobl .
tions also sucrcrests th1t ther l . I I ity alcross decades rather than genera
bl->
'
. e MS )een at e1St 1
cl t d 1 .
smce the 1970s. The prob b'l'1ty o f any given
. ,, fa' mo
1 es
ec
f me m mobility
11
.
I
.
'
nu
y
nsmg
rom
quintile of the income d1'str1b ut'ion mto
1 the bottom
t 1e top q fl
c ecade increased slightly (fro m 33m
.
l
um
I e over t ie course of a
10 Ill t le 1970 t
4 3m l
l
s o 10 m t 1e 1990s).
However, the proportion of c. . . .
.
I<1nu11es m t 1le top q fl
f I .
uhon who remained there 1 d .. d l .
.mn ' e o t le mcome distrib of families falling from
~c,1 e .at~[ <~lso mcreased, while the proportion

b~l

telcoln9o8~m0c

s~.u

;I

'I'
I

the top two quintiles into the l~ ~P q~mh e 1'.1t~ the bottom quintile, or from
t f
~ om wo qumhles, declined.2!1
Another ke
y pom o contention is the extent t I . I
.
reflects the j'ust rewards '1ccru1'11g to e d uc1hon
. . . 11ow
uc
l escalatmg inequality
1
l
1d k'll
omy. According to one co
. .
b,
'
s s m t 1e modem econ0
'cl
.
nservahve
o
server
N
.
)'
av1 Brooks
' etc
~k ,,..
i 1mes columnist
,
D

h<L~ed

the market isn't broken; the meritocrac is worki


on i id' 'd .1 .1 y
ng almost too well. It's rewarding peorJle
1 IVI um huents High

. . ere ucation pays off because


it provides technic;u knowle lg . d b
.c e ,m
ecause 1t sc
organized, self-motivated and sociul . d
reens out people who are not
, y ,\ ept. But even among people with
"Mobility, N b'l' "
.
: Beller and Hm;t (2006), 30; ~~10~1 ;ddo2)~Vt1sl1111gto11 l'osl, June 5, 2005, B07.

21"1
" ll'1
me1Kinslev,

Beller and Hout ('>006)


30 summarizing stu 1 b H .
and Mazumder (2005). See also Solon ("00") H c1(es y ardmg et al. (2005) and Aaronson
'B lb
- -; out 2004)
21 me ury and Katz (2002), 66.

idC'ntical education levels, inequality is widening as the economy favors certain


abilities .... \Vhat's needed is not a populist revolt, which would make everything worse, but a second generation of human capital policies, designed for
people as they actually are, to help them get the intangible skills the economy
rewards.'10

On the other hand, Brooks's liberal counterpart on the Times op-e<l page,
Paul Krugman, attacked "the notion that the winners in our increasingly unequal society are a fairly large group--that the 20 percent or so of American
workers who have the skills to take advantage of new technology and globalization are pulling away from the 80 percent who don't have these skills." Noting that the real incomes of college graduates have risen by less than 1% per
year over the past three decades, Krugman argued that "the big gains have
gone to a much smaller, much richer group than that." Nevertheless, the "8020 fallacy," <IS he called it, "tends to dominate polite discussion about income
trends, not because it's true, but because it's comforting. The notion that ifs
all about returns to education suggests that nobody is to blame for rising inequality, that ifs just a case of supply and demand at work. ... The idea that
we have a rising oligarchy is much more disturbing. It suggests that the
growth of inequality may have as much to do with power relations as it does
11
with market forces.':
Krug1mm cited economists lm1 Dew-Becker and Robert J. Gordon's detailed analysis of productivity and income growth over the past four decades.
According to Dew-Becker and Gordon, "most of the shift in the income distribution has been from the bottom 90 percent to the top 5 percent. This is
much too narrow a group to be consistent with a widespread benefit from
SBTC [skill-biased technical change}." They found that some of the occupations that should have flourished if the dynamic economy of the 1990s W<IS
simply rewarding technical skills actually saw very modest income growth.
For example, the earnings of mathematicians and computer scientists increased by only 4.8% between 1989 and 1997, while the earnings of engineers actually declined by 1.4%. In contn1St, the earnings of CEOs increased
100%.32 of a serious mismatch between skills and economic rewards
by Evidence
seems likely to fw concerns about the "fairness" of recent changes in the U.S.
income distribution. So, too, does the juxtaposition of rapid productivity
growth with stagnant mi<l<lle-ch1Ss wages. Dew-Becker and Gordon found
that economic productivity had incre<1Sed substantially over the period covered by their m1alysis, but that "the broad middle of working America has
:ll

~1

David Brooks, "The Populist M}ths on Income Inequality," New York Tiuw.,, September 7,

2006,A29.
Paul Krugman, "Grnduates versus Oligarchs," New li>rk 'fimes, February 27, 2006, Al9.
32

Dew-Becker and Gordon (2005), 73, 74.

......_

~-----------18

CHAPTER I

reapt>d little of the gains in productivity O\'f'r the past :3.5 years .... The micro
data tPll a shocking story of gains accruing disproportionatpJy tu the top one
percPnt and 0.1 percent of the income distribution. They characterized the
first fivp years of the twPnty-first century as "an tmprPcedented dichotomy of
macroeconomic glow and gloom." On one liand, lahor productivity and output growth exploded; on the othPr hand, mPdian family income fell by 3.8
percent from 1999 to 2004.:~i
The "unprecedented dichotomy" noted by Dew-Becker and Gordon between booming output and stagnant or declining incomes for ordinary workers has been a rPcurrPnt political problem for the Bush administration. On
the eve of the 2CXl4 presidential campaign, the New fork Times announced
"A Recovery for Profits, But Not for Workers." A similar headline in the midst
of the 2006 midtPnn campaign asked, "After Years of Growth, What about
WorkPrs' Share?" Press reports noted that the president was making little
headway in convincing the American public that the Pconomy was prospering, despite robust output growth and increasing average wages. The "strange
and unlikely combination" of "strong and healthy aggregate macroeconomic
indicators and a grumpy populace," one report said, was "a source of befuddlPment to the administration and its allies.":11
Faced with this "grumpy populace" and an imminent election, Treasury
SPcretary Henry Paulson acknowledged that "amid this countrys strong economic expansion, many Americans simply aren't feeling the benefits.'' Paulson blamed that fact on "market forces" that "work to provide the greatest
rewards to those with the needed skills in the growth areas." Paulson's predecessor as treasury secretary, John Snow, spoke in similar terms about the
"long-tenn trend to differentiate compensation."
According to one observer, "'Long-term,' when used this way by this sort
of official, tends to mean 'fundamentally unstoppable.' And, in this case, inexplicable, like a sort of financial global-warming process that may be manmade or (who knows?) a natural cycle that we would welcome if only we
knew its function. Snow, a trained economist and former corporate C.E.O.,
doesn't pretend to be able to explain what's causing this whole compensation
differential. Nor does he seem tortured by his ignorance. '\Ve've moved into
a star system for some reason,' he said, 'which is not fully understood.' ":i.;
~Ibid., 60, 3, 1.
1

Louis lJchitelle, A Recovery for Profits, But Not for Workers," N,,rc fork Ti11ws, December 21, 2003, BU 4; Eduardo Porter, "After Years of Growth, What about Workers' Share?" Nt'fc
fork Times, October 15, 2006, BU 3; Daniel Gross, "When Sweet StatistiC's Clash with a Sour
Mood," N,,rc fork Ti11ws, June 4, 2006, BU 3.
:i

.t; Remarks Prepared for Delivery by 'freasury Secretary Henry H. Paulson at Columbia University, August 1, 2006, http://www.treas.gov/press/releases/hp41.htm; Walter Kim, "Way Upstairs, Downstairs," Mw fork Tinw.~ Aiflt!,flZiiw, April 16, 2006, 11.

THE NEW GILDED AGE

19

. .
. i is an inf'vitable, purely natural pheThe notion that econonuc mequl,1! ty. t'fi . p1tiin by a self-proclaimed
b
ven 1 pseu( o-sc1en I IC ' '
' k
k
nomenun has ,,een }g1 U..1vers1ty
' . o f MaryIan d ' Victor Yakovenko. "\:a oven o
"econophysicist at t ie n .
. 1 the dispersion of U.S. incomes
noted that, aside from a long up)~ .!a\;ution-the same kin<l of distribu~
C
losely approximates an exponential 11s n
l'l According to an account of
f
. turi p 1enome1 ' .
f'
tion characteristic: o i'.1any i_ia I 'Neu: York Times Magazine's 2<Xl.5 smvf'r_o
Yakovenko's work published m t ie I .. ,. t tl1e expone;1tial distribution of md
.. "Ti m econop 1ys1c1s ,

. 't
"The Year in I eas,
o' .
I
I
11th of most Americans is I . J .. 't suggests t iat t ie we,
. . I t
comes is no comc1 ence. I . . .
Y.1kovenko told Nerc Scientist t ia
self in a kind of thermal e~mlibnum.
e tlnn superficial dents in ine'
'short of getting Stalin,' efforts to ma e mor
'}
":lh
quality wou Id f ai

k. . '

ECONO.l\IIC INEQUALilY AS A POLITICAL ISSUE

. .
ll'lli lfe olitically c:onsequenthu because
Interpretations of econo.nuc u.1~.q , If~l:e diberences between rich an<l poor
they shape responses to mequa ity. dd
t hss h1rriers " if "the market
A
"do not 1
up 0 c '
'
'
J
in contemporary menc:a
. ' ki "
if "efforts to make more t um
'tocncy is wor ng, or
1 .
" d"
isn't broken an . n:ien . '. ,, are doomed to failure, then inequa ity is unsuperficial dents} m mequality .. -'
d M111y observers have been per. F
f tl politicm agen a. '
.
U'llity 1s a political issue in Amenca. or
likely to rise to t ie top o . ie
Plexed by the modest S<U1enc:e of meq '
'1 . . 1 eqU'llity in the American
'
} . "For all the emp ias1s 01
example, D<il1l wrote t iat,
ll behind 1 number of other demop ublic ideology, the United States la1?5 :-Ve ,.1ty It, is a striking fact that the
. . cl ,. g economic mequ,u1 .
l' . 1
I 1 . d . ome and so in po itica recratic countries m re ucm .
cl' . res m wea t l an me
,
..
.
f
. } I . 1 t ssue in Americm1 politics or, cerpresenc:e o vast ispan i
sources has never become a lug 1y s,1 ien Al
C'ms 1ssmne that "efforts to
'
.
..:3; Is tint bec:ause men ,
,
tainly, a persistent one.
' . .
U'llity" would fail?
make more than superficial dents m meq , . 1re co11siderably less unequal
}
I democracies ,
The fact that most ot ier nc: i
to think that political arrange. dS
vides some reason
.
b
r I futile in mitigating economic
than the Umte tates pro . .
men ts short of Stalinism nught not l"e ~n d1r~ yge of policies implemented in
en the umte ran
l
tt
inequality. Fort iat ma er, ev
f
} 15 h1d substm1thu effects on
ti
e
pist
ha! -century i,
'
d
the Unite States over l
'.
1 I 1 short politics matters.
prevailing levels of economic me~a i~ _1
b;bly because so much public
If this claim seems controve~s1a.' t ilat N1s proG'.lded Age ignores its political
111 t 1e
. me
. qll'llity
ew 1t dwell on the "econopIiys1cs
. "
discussion of economic
'
.
d
nment'ltors
may no
. ,
dimension. JoumaIists <Ul cm
'
. "New York Ti11ws Maga;:,i11e, De('ember 11, 2005, 67 .
Shea, Econophysics,
Dahl (1982), 175.

:J6 Christopher

37

If~

20

~------------
~

CHAPTER I

o~ the~mal equilibrium as reflected in ti


.
.
1 . ic exponential distribution but ti
often frame discussions of .
mequa 1ty Ill .1 c I
,
iey
. .
(1istmctly apolitical way. The st111d1 I
' ur.10us y passive, tPclmical ind
.,
' ' 1re perspective
h r 11
''
s tory Ill T11e Eco110111ist o11 "I
.
. is
;]Jtnec J)' a 2006 cov
I
nequa 1ty m An ,, Tl
er
trem s in the American economy over ti
iencl'.l.
ie report summarized
. le precec mg decade:
Thanks to a jump in productivity growth after 1995 A
. ,
paced other rich countries' f. . cl
I
. , mencas economy has out. or ,1 ecac e. Its wo k .
more each hour they work ti. t
r e1s now produce over 30%
Mn en yeITS 1go In ti
I
I1 .
' ' .
le ate 1990s everybod
sIiare cl in this boom Tl
wug mcomes were risin f; t
Y
wages far outpaced inflation.
g ,1s est at the top, all workers'
. chan ed. The ) .
. .But '1fter -"OOO so met Iung
. .
nsmg again, but now it seems to b: !'fit J,ice of productivity growth has been
f 't
. I
. I mg iewer bo1ts
Tl f
1v1 y gams iave been skewed t . I I
.
' . . . . ie ruits of produc ow,1rc s t 1e lughest .
.
e,1mers, and towards compames, whose profits have reached . cl I
recor evels as a share of CDP.:111

:he re1~ort 1:rovided no hint of what "somethin " .


2000. Nor did it offer my expli t' fi

g nught have chanaed


ifter
0
'
, na 10n or why "Am . .
'
sudd Pn Iy widPned after 1980,, nor wh "
.
encas mcome disparities
wards the end of the decade ti11t .
Yb.f urmg the 1990s, particularly tonarrowed."
., ' g.1p sta 'ized and, by some measures, even

. i

Hello? George W Bush? Romld


the report offered no sug~estio ' ti .~eagan? ~ill Clinton? In 3,000 words
e.lected officials might have con~~-b1,~ ~ny plohcy choice by these or othe;
nzed. Rather, "the main c1use w1 It u ~ to t ie economic trends it summafor ski!.led workers relativ~ to th~:r ;~ m~Io~, which increased the demand
effect. The report also sugg t d I PP y, With freer trade reinforcing the
ti
k
es e t nt '" ft t'
I
ie wea ening of unions," mi ht lnve '.. ms I u iona changes, particularly
the bottom" and that "greed g b '.
made the going harder for people it
J
Y usmessm " I b
'
sa anes for eacl1 other at thee
. f Jen nug it e "sanction[ing] huge
Reports of ti .
b . xpense o s iareholders."
.. .
us sort o v10usly do little
.
"
?anties Ill wealth and income" n t d b , to 1~,1ke. the presence of vast dis~can ~olitics." Indeed, the autho~seof ~1Dahl a lu~h?' salient issue in Amerde Econonusts cover story beg111 by
assurmg their readers tl11t "A . .
.
'
men cans
.
'
.
o not go Ill for envy. The g1p hetween nch and poor is bigger ti
J
ian
m
any
othe

cl
d
'

p eop e are unconcenied. \.YI


. E
r cl vance country, but most
nomic pie is divided An1 . iere,1s uropeans fret about the w1y tl1e eco
. ,
encans wm1t to . . I .
,
out o~ ten, more than anywhere el . b /om t ie nch, not soak them. Eight
poor, '.f you work hard, you can ma~: o~ ieve that tho~gh you may start out
American Dream.":l!J
P of money. It is a central part of the
:i.-rhe Rieh, the fl
. d I
2006, 28.
oor ,u1 t le Growing Gap between Them "
.
:lfi Ibid.
' Tlie l'..f:o110111isf, June I7,

I
I,

~~~~'--

THE NEW GILDED AGE

21

The political economy of inequality might be very different if, contrary to


Dahl's observation, the presence of vast disparitiPs in wealth and income teas
a highly salient issue in American politics. How likely is that, and how might
it happen?
One admittedly unsystematic barometer of the popular zeitgeist is the annual "\Vhat People Earn" issue of Parade Maga:::;i11e, a popular Sunday newspaper supplement claiming 71 million readers. For several years, Parade has
published annual "Special Reports" including dozens of Americans' names,
photos, occupations, and salaries. Most are ordinary people with five-figure
incomes; some are immensely wealthy celebrities like Michael Jordan, Donald Trump, and SpongeBob Squarepants. (Interestingly, more conventional
affluent professionals and businesspeople seem to be distinctly underrepresented.10) The stories accompanying these "salary surveys" have attempted to
summarize the current economic climate and job prospects. In doing so, they
have also provided some insight into the shifting resonance of economic inequality in contemporary American culture.
In early 2002, Parade depicted "the mood of the nation" as "resolutely confident despite wage freezes, benefit reductions and shrinking job security."
An accompanying essay by financial writer Andrew Tobias put the gulf between the incomes of the rich mid famous on one hand and ordinary people
on the other in reassuring perspective, noting that in "Uganda or Peru ...
plumbers and librarians earn a whole lot less" than in the United States. "Yes.
Life is unfair,'' Tobias wrote. "But for most of us, it could be a lot worse. And
in America there's at least a fighting chance that, if you work at it, you-or
your kids anyway-can close the gap."11
The following year, Tobias's essay "How Much Is Fair?" revisited the issue
of economic inequality, but in a rather different tone. Tobias remained sanguine about the millions earned by Ben Affleck, Madonna, and Stephen
King. ("I don't mind a bit. This is America! More power to them.") However,
he was more skeptical about the earnings of CEOs, acknowledging that
"most would agree it is best left to the free market to decide" how much they
should be paid, but adding that in some cases "the market isn't really free and
the CEO largely sets his own pay." Noting that one modestly paid CEO
earned more than "the Joint Chiefs of Staff and the presidents of Harvard,
Yale and Princeton-combined!" Tobias concluded, somewhat defensively,
40 'l11e 2007 survey included 97 people with incomes below $100,000, 16 with incomes between $100,000 and $750,000, and 29 multimillionaires (mostly entertainers and professional
athletes). The modestly wealthy group included three political celebrities (Nancy Pelosi, John
McCain, and Karl Rove), a professional golfer, and a ~bronc rider," as well as a uni\'ersity president, a judge, two photographers, a railroad conductor, an architect, three real estate brokers, a
mortgage broker, and a physidan's assistant.
41 Lynn Brenner, "How Did fou Do?" l'arrufe Maga;:;i1w, March 3, 2002, 4-5; Andrew 'lbbias,
Are They Worth It?" Pamde Maga;:;iue, March 3, 2002, 8.

22
CHAPTER I

that "it is not class warfare to face these facts, obseJVe these trends and raise
the,e q neHom. Many will conclude that >UI ;, it lmnld be. Othe.., Will "Y
things have gotten out of whack. The ability to confront, debate and occasionally course-correct is one of our nation's greatest strengths."
12
By 2004, Parade headlined that "Tl1e economys growing again, and we're
spending more-but jobs and wages aren't keeping pace." Some :30 paragraphs later, the report mentioned that "The gap between Americas highest.
and lowest-paid workers ... got wider last year" and that the latter "lost
ground to inflation." In 2005, the Parade report noted that productivity "has
risen steadily; but economists say that, so far, the resulting benefits have gone
into corporate profits."1:1

'~

By 2007, the disparity between "government statistics" and the "daily experience" of workers had become a major theme of Parades annual report on
the state of the U.S. economy. One prominent subhead announced that
"most Americans didn't see the long economic boom reflected in their paychecks"; another reported that "the salary gains of the last five years have
gone to the highest-paid workers." The body of the story reported that "many
Americans are troubled by the income gap between the nations highest eaniers
and everyone else-a gap that has grown dramatically in recent decades."11
Meanwhile, in a very different segment of tl1e Sunday magazine market,
the Neu: York Times Magazine in 2007 published a special "Money Issue" titled "Inside the Income Gap." Lengthy articles focused on class disparities in
schooling, John Edwardss "poverty platform" in the 2008 presidential race,
and the implications of an increasingly global labor market. However, the impact of these weighty examinations of the sociology and politics of economic
inequality was diminished by the distracting interspersion of colorful advertisements for investment companies, exotic consumer goods, and high-end
real estate. One three-page article on "The Inequality Conundrum" ("How
can you promote equality without killing off the genie of American prosperity?") was woven around advertisements for a private bank and financial planning company ("an entire team of wealth experts"), high definition flat-screen
televisions ("the ultimate 1V experience"), the national airline of tl1e Cayman
Islands ("Endless beauty. Non-stop flights"), and luxury apartments on New
Yorks Fifth Avenue ("From $10.25 million"). 15
The lifestyles of New 101* Times Magazine readers are emblematic of
a striking social gulf between the people who are most likely to read lengthy
1

Andrew Tobias, "How Much Is Fair?" l'rmu/e Mflf!,flZiue, Mardi 2, 2003, 10-11.
"- Lynn Brenner, "How Did fo" Do?" l'flmr/e lllflf!,flZi11.e, Mareh 14, 2004, 4-12; Brenner,
"How
1 1 Did fo11 Do?" l'flmr/" Mflf!,flzbw, March 13, 200.5, 4-10.
5
i

~l:gJ:nd

Lynn Brenner, "How Did li111 Do?" l'rmu/" Mflgflzbw, April 1.5, 2007, 4-8.
"Inside the Income Gap," New liirk Ti111"s Mfl{!,flZiitll, June 10, 2007.

th~

.
. 11ty m<l
the people who have
I
b ct of mequa
'
t '30
articles (or books!) mi t \e
of escalating inequality in
pa} ti1e
thelllselves been on t ie os11
. . . rbated b the econolllic tren s o
,.
S Tll
1t
social
gulf
has
been
exace.
r
iyt
obst1cle
to
political
progress
year
'
.
t t .1 s1gm icm
'
.
<l
N .GlJde<l
Acre; and it constJ u es '
I o icier how many affluent rea
ew
. o
d 0 ecmonyw I .
ti
in responding to those tredn ~ '..~h; Inequality Conundrulll" as soon as iey
11 get uoun<l to pon ermg
ers w1
'
I d
I
t
rn frolll the Caylllan Is an s.
. <l onspicuous consumption Ill t ie
re u
f
,. 1! concen1 an c
f ti New
If the juxtaposition o. soc1,
. es the alllbivalent resonance o ie
New York Times Maga;:::,11.ie symb~hz~irious conflicting themes in the Parade
Gilded Age among its wmners:. t ie<l ~score the complexity of cultural norms
re orts on "\.Vhat People Earn un e
omic inequality among the people
value haping thinkiulg abm;t
Amccican wo,km are ulfni'ng

m~
e'.~~d
~hose
economic fo"uue;, '"';;' 't:;;,~ md luinking job ecucity; but t '?
from wage freezes, bene it re uc
~ an<la or Peru. Celebrities are en 1I

. ,

ue better off than their counterparts m . g something troubling abo~t CEOs


;led to thci< million>; but pe,har .:\'.:'.:,"or the Johd Chief, of Stall and t:>e
earning more than the con;bme
The income gap
presidents of IIaJVard, Ya ed <~n . tic1lly but in America, you-or your I s
rich and the rest has grown oramaybe' ll~t
anyway-can cIuse tl ie g'1p. r nM

d'~;int~ton.

between:.~'

INEQUALI.IT AND AMEIUCAN DEl\lOCH.ACY

.
erver of nineteenth-century Ame~ica,
To a famously perceptive for~i?n ~b: uality was the hallmark o.f ~lllenc<~n
Ale><i de Tocqueville, the 'P"" o
would t"<>ntet the irre,.,hble
cultme: "Any man and any powe' d detrn ed by it." Howeve" Tncquev..
of equality will be overturned an . I 11<l pyolitical realms could coexist w1tl l
1ty the .socia
,1
recognized
lity "There
are just as many weaJtl iy peopfae
t <le that equa I . 1~1
a grea
'1l of econonuc mequ,1
l
... J e o b seJVe d "I '1n1 not even aware Io
in the United States as elsew ierel, l. I ger place in men's hearts or w iere
1 I
iastheory
cl ar of a permanent equaJ'ty
of poscountry where t ie ove ~ f money
for the
I
they express a deeper scorn
. I
16
sessions." .
. I utlity and econmmc
'
. ms
m
eqU'lhty
Tocqueville's juxtapos'.tion of soci~1 e~n,the place of equality i.n Amencm~
been a recurrent theme .m commebi~taryd Orren, for example, or<lmary Alller
.
A . . dmg to Ver a an
.
political culture.
ws 1bout the value of equality:
icans have complex vie '
.
. is tlnn in others. They
T
tlitrrhn m some ,ire,
,
f,
heir sentiments <lfe far more eg< ' I ,
of j'ustice There are spheres or
. d'frerent
goods to d{'
meren
<lSSlgil
I 11
{'
t sp 1eres

wh~h

cc~r

42

23

THE NEW GILDED AGE

41;

Tocqueville (2003), 587, 64.

fo~e

24
CHAPTER I

money, political power, welfare, leisure time, and love .... The aim of egalitarianism is not the elimination of all differences, which would be impossible, nor
even the elimination of differences within any one of these spheres, which
might also be impossible unless the state continually intervened. Rather, the
goal is to keep the spheres autonomous and their boundaries intact. Success in
one sphere should not be convertible into success in another sphere. Political
power, which is the most dangerous s<x:ial good because it is the easiest to convert,
be constrained against transmutation into economic power, and vice
17
versa.'must
One of the most important questions explored in this book is whether
political equality can be achieved, or even approximated, in a society marked
by glaring economic inequalities. \\'hen push comes to shove, how impermeable
are the
American
life?boundaries separating the economic and political spheres of
At some points in American history, at least, those boundaries have been
remarkably permeable. The original Gilded Age in the late nineteenth century is a dramatic case in point. Rapid economic expansion and transfonnation coexisted with intense partisan conflict and political corruption. Social
Darwinism provided a powerful ideological rationale for letting the devil take
the hindmost. The mordant novel by Mark Twain and Charles Warner that
gave the era its name portrayed a political process in which the greedy and
cynical preyed on the greedy and gullible. 41i

In \Venlth and Democmetj: A R>litical l/istory of the American Rich, political


analyst Kevin Phillips called attention to a variety of striking economic and political parallels between the "capitalist heydays" of the Gilded Age, the Roaring
Twenties, and the contemporary era. Economically, he argued, all three periods
were marked by "major economic <Uid co.rporate restructuring," "bull markets
<uid rising, increasingly precarious levels of speculation, leverage, and debt,"
"exaltation of business, entrepreneurialism, and the achievements of free
ente1prise," mid "concentration of wealth, economic polarization, and rising
levels of inequality." Politically, all three periods featured "conservative politics
mid ideology," "skepticism of government," "reduction or elimination of taxes,
especially on corporations, personal income, or inherit<uice," mid "high levels of
corruption," among other factors. 411
Having smveyed the rise mid fall of great economic fortunes through more
than two centuries of American history, Phillips emphasized the regularity
with wl1ich concentrations of wealth in new industries, regions, and families
have been spurred, subsidized, and supported by government policies: "From
the nursery years of the Republic, U.S. government economic decisions in

\~rba and Orren (1985), 7-S.


Twain
and Warner (1873).
111
17

Phillips (2002), 297. For an earlier exploration of si111ilar themes, see Phillips (1990).

25

THE NEW GILDED AGE

. . ns debt management, banking, tr'.tde


of tuntion central hank operatJ<~I , I .
been keys to expandmg,
matters
' '
'
1
es or hu outs J,tve
.
lly
and tariffs, and finan.cia rescu.. . 's . ' rivately held assets .... Occa~1.011.a

~!~~

'

c1~,c,, '~

"i:'.:;'.,

Jel'.r"1~~:

,(uinldng,
malignmg
,.;,<l mid<lle
undec
public policy tHtc<l .t<>Wac ~';.,,,.i, Moot often, in the Unit<>d State' an kemd
Jackson, and Frnnklm D. Rdooll . s have been explored, every noo '

~~:.:~;. ;~;:~ea~::,efit
.

Illes an

fina::~i~a:~~.'.~;:,:~::,ft;:;~:;,pmtance

a eyway

of the

1 . . . ...;o

of 'ocial

In the same vein, Paul ~rug1l11, . o111ic trends of the past 75 years:
. 1 tpmg t ie econ
and political forces m s \,
'
.. . . eated by what has
,
. b ' 1cddmt. It ''.is er
l
M' !<lie-class America didn t emetge ). '
tint took place during Work
. tl
C
. ssion of mcomes '
<l
Jt
been c;Jled the Great ompt e . . b sod;J norms that favore e<fU< I y,
\
\' r II m<l sustaine<l for a gener.1t10n .Y s ce the 1970's, all of those sus'1 labor
,'
.
strong
umons
'm<l progressive
.
' taxation. m .

govenfun~lt~

t policies have consistently favore<l


hining forces have lost tlwtr pm' er.
' Since 1980 in particular, U.S.
"ltl<l under the current [George
king amt tes-,
I I ..
f
the wealthy at the e:-v~'nse o w~t r. n has become extreme am! re ent ess.
\v
Bush] administration, that favon ts1k t. "reform" that punishes the un.
I I to bm rup cy
J
From tax cuts that favor t ie nc t . '
. t l<le<l to accelerate our mare I
lud.y, ;Jmost every <lomestic_ policy seems m et
back to the robber baron era:'

f l I ly energy describing
t
.
ood
deal
o
ar .
.
1.ity In
\Vhile economists have spen a~
.. htionscofio economic
meqna
and attempting to explain the stn ~~~-ses~:~ have paid remarkably little atthe United States over the past 30 y ' ti s:i.t cited bv Krugman. For ex:un-

tention to 'ocial m<l p~litid

facto"~~ t~~e

compie< fitemture .on. ea<mT

pie one comprehensive sunm~ar~\Vl 1t shifts in demand, shifts m supp~


attempted to
i u:ions are responsible for the observe
d/or Cll
"'ncres
in
wage
settmg
mst
. to tl1e 11bor
market of the well
an
" o
d
"tl t entry m
'

trend?" The authors pointe ~o ...1e cl "a long-term trend towa~d increa~mg
educated baby boom genern~101~ an rkers" as important causal factors. T ~eir
relative demand for
sk1lle
was a passing reference to a
closest approach to a pol~hca.l
'v1lue of the minimum wage between 1 f
that "the 25 percent declme m t ie 1;t of the drop in the relative wages o
. d 1988 accounts for a s1!1all P'
an
0 ''.52
dropouts during the 198 s.

ine~uality

asc~rta~n

high.I~

er1:~1ti;n

find~~~

50

. 214.
Ibid.,

. ,T111ws,
. . June 10' 2005, A21.
"New }ork

les of eco(1991)
. (1992),1 13. I. de Bhnk
and Blmder
.
(1986), Cutler an d Temin
1 z pro-'
:12 Levy and M
urn.me
1 0 f w1ge inequa itv me u
,
bl" I d p1per by Levy an
nomic ana yses
I , , /( 2001). A recent unpu is ie . ' . . of government policy
'
and Hines, Haynes, am ~ruege t concluding that "only a reonent,1t10n e equit-1ble distrivides a rieher institution< aecoun ' f I >0stw1r boom, can recreate a mor
'
em restore the general prosperity o ~ ~egl tide l~fts all boats" (2007, 41).
b'ution of productivity gains where a nsm

~ Paul Krugman, "Losing Our Co3u5ntryl3,36 .1363-1364. Other prominent exadmK1~. t

2()

TllE ~EW Gil.OED AGE

CHAPTER I

It probably should not be su11Jrising, in light of tllf'ir scholarly expertise


an<l interests, that economists have tendPd to focus much less attention on
potential politirnl explanations for escalating economic inequality than on
potential economic explanations. In a presidential address to the Royal Eco-

nomic Society, British economist A. B. Atkinson criticized his colleagues' tendency to ignore or downplay the impact on the income distribution of social
and political factors, arguing that "we need to go beyond purely economic explanations an<l to look for an explanation in the theory of public choice, or
'political economy'. \Ve have to stu<ly the behaviour of the government, or its
agencies, in determining the level an<l coverage of state benefits."
Atkinson went on to criticize economists who /wee consi<lere<l political factors for their uncritical reliance on the rather mechanical assumption that
government policy responds directly to the economic interests of the socalled median voter-the ideological centrist whose vote should be pivotal in
any collective decision arrived at, directly or indirectly, by majority rule. He
urged them to go beyond this simple framework, to gauge the extent to which
redistributive policies are shaped "by the ideology or preferences of political
parties, or by political pressure from different interest groups, or by bureaucratic control of civil servants or agencies.";:i
Atkinson's criticism seems apt, since political economists wedded to the familiar majoritarian model have remarkable difficulty even in explaining why
the numerous poor in democratic political systems do not expropriate the
unnumerous wealthy. If taxes are proportional to income and government
benefits are distributed equally, for example, everyone with below-average
income-a clear majority of the electorate in any democratic political system
with enough capitalism to generate a wealthy class-has an economic incentive to favor a tax rate of l00%:'H Even if redistribution entails some waste,
most people should favor some redistribution, and poorer people should prefer more. Furthermore, increases in economic inequality should result in
higher t<txes and more redistribution:o;.5
Of course, the reality is that very few people-even very few poor peoplefavor aggressive redistribution of the sort implied by these simple economic
models. Nor is aggressive redistribution anywhere in sight. Writing 25 years
ago, before most of the substm1tial increase in economic inequality documented
:i:i Atkinson (199i), 31.5. 316. On the importanl'e of the "median voter" for electoral C"ompetition see Downs (1957).
~ Ml'Carty, Poole, and Rosenthal (2006, 124) l'aleulated that the 1m1y1ge inl'ome of Ameril'an families in 2000 exl'eeded the 11wdim1 inmme (exduding nonl'itizens) by about 40% . .Even
if nonvoters are exduded from the l'aln1lation of the median, the a\"erage ineome of all families
exC"eeded the median inl'ome of i:oters bv more than 20%.
5
~ Meltzer and Ridiard (198.1) pro\"id~d an influential formalization of the political economy
of redistribution. Recent applications and extensions indude Roemer ( 1999) and McCarty,
Poole, and Rosenthal (2006, chapters 3-4).

27

.
.
eel that, "After half a century of the Anwric.'m
in figures 1.1 and 1..3, ~ahl not d". ribution of \Walth and incollle remams
welfare state ..._the a!terl~tax tl iste < t11rters of a centurv of the Alllerican
'"il' Now 1 ter in - i '
'
11
highly unequal . '
,' .
f
ltl 1 id incollle are even more unequ,
welfare state, the distri~utio;o~e.\~~~re~~~r, systematic analyses :ugg:st ~ha~
than they were when. D.ahl \ . l"ty has little illlpact on the extent of red1stnbu
the extent of econon11c lllequa I . l . l U 'ted St1tes.5i Certainlv, recent
. .
r wit 11n t ie Ill
'
. .,
1 r
tion either across n,1tions o
t tl . t esC'lhting econmmc merpm it)
'
. . . ply demonstra es 1,1
' '
.
l
er
American experience am . of nn or olicy initiatives further ac vantaglllt>
need not prevent the adoption
d.1 P The massive tax cuts of the Bush
'd lle chss an poor.
i 1
the wealthy over t lie im c
'
l
tl top of the incollle c istn me near ie
tly to peop
iins
went
mos

era \vllose g'


. 58
tio;1 are a dramatic case in pmnt:
l .
l . g dis1unctions between the
'
.
I cnlore t 1ese g ,ulll
.
.
k
In the followlllg pages, exr:
1 l 111cl 1ctll'll patterns of policy ma .. oritanan moc e s '
'
'
. d tl
f . l
Predictions o . snnp e nMJ tl e past lialf'-cent u ry. As Atkinson sunmse , 1 ie.
incr in the Umted States over l . . d l t do with "the ideology or pre e1cli~junctions turn out ~o ~~aveda ~r~:1~ ~~~ic~l pressure from different interest
8 tl11t 1lthoucrh Americans liave
ences of political parties an ~t lp
l I fi 1d m c iapter
' '
t>
l
For
examp
e,
11
d
.
.
tl
e fedenl minimum wage, t ielf
roups."
g
.
tl fwore ra1smcr l . . '
,t
strongly and cons1sten y '
. 1 l t> " l v1lue of the minimulll wagt o
. . l . e allowec t ie rt.1 '
l " .
"1oreover my ana ys1s m
Elected rerxesentatwes MV
O'* . the late 19''0
o s. '"
'
decline by more than 4 o ~111~~ " 1 voting on a minimum wage increase
clnpter 9 shows that electe o 1c1.1 s f
. le poor enough to be directly
a~d no attention at all to the vie,bvs o dpe~p11l.ysis indicates that this sort of
.
l
.
l ge My roa er ,u '
affected by that policy c ian "
. r common pattern in Amencan po unresponsiveness is no anomaly, but ,1 ve Y

icy making.
. .
f conventional political-economic moclThe gap between the pred1ct1ons o .
d.e111ocr1cy also reflects the prok
f Amencan
'
1
l
els and the actua wor mgs o d'
t s in connecting specific po icy
. 1 . f d by or mary c1 izen
1
t k
found dill icu ties ace
d .
t Economic analvses o ten a e
.
'
.
l es m mteres s.
lielf
roposals
to
t
own
va
u
'
c
eople on many issues t1iey me
P
.
c
. t d- but ior many p

such connections ior gr,m e ,


1 . . np11lses often fail to get trans.
g Ega itanan n

.
misconstrned or snnp1y nussm . . . . d
t grlSp the polic:y imp1icabons
d' . ry citizens o no '
hted into policy because or ma
l . l . t r 7 I show that almost two~ exm1p e m c MP e
'
'
.
1
of their egalitanan va ues. or '
' l tl . tl1ey should in ta.xes nevertl
rich
pay
ess
ian
.
.l
thirds of the people wl10 say ie
. t tl 1t only affects the nc iest
.
l c d . l est-ite tax-a ax i,
theless favor repealmg t ie ie era . ,
d st"nd the political economy
.f
.
attempt to un er "
.
vith the political psychology 0
1-2% of taxpayers. Any seno~s

1
of the New Gilded Age reqmres grapp mg \

Dahl (1982), li2.


. z (1999 2004).
I
Bembou (1996); Perotti (19%); Rodrigue .
, of the American political system tot 1e
'
f ti responsiveness
51<QntheBushtaxcutsasatesto ie
~1 k ndPierson(2005).
.
,0 t see 1 ac er ''
d
policy preferences of the me um ' er,
;;c;

s;

)..'

........

~----------28

CllAPTER I

American votffs and with the real li111ihtions .


.
. .
democratic policy making.
'
. of public opm1on as a basis for
Escalating Pconomic inequality . . . . . .
ocratic ideals. The nature of ti .pto~le~ 1'11 c. l uc1al challenge to America's dem1 I I
l,1 c l,l enge Ins bee
. I
i" IC iae
Kinsley: "Accordina t
f.
.1. . '
. n mce y captured by
t-> o our ouuumg cloet
t
I
myt Il, we are all created eqll'll 111cl ti
t
mien anc our national
ti .
.
' '
leu I s up to us I
1 .
ungs is mitigated in two ways: first b
.I
. . n.eq ua ity Ill material
second, by full civic equ1lity I .. t , y eq.u,1 opp01 tumty at the start and
'
c esp1 e material <lifle
\Vi 1
'
'
Iiave achieved all this but ti
..
.
I ences.
e c on't claim to
.
,
iese ,ue our national go1l . .1
mg toward them.".;!J
' s .l!lu we are always mov-

_ _ _ _ _ _ _ _ _ CHAPTER

2---------

The Partisan Political Economy


... as our economy grows, mm-ket forces work to
proville the greatest rewards to those with the
needed skills in the growth areas .... This trend ...
is simply an economic reality, and it is neither fair
nor useful to blame any political party.
-Treasury Secretary Henry Paulson, 2006 1

It is a nice sentiment-but is it true?~


. .
.
the evidence is far from reassuring. . or p.1rhsans of American democrac.y
"'Kinsley. "'I
" 0 lJi Jity ,s. Nobility." B07.

SECRETARY PAULSON'S ATTRIBUTION of increasing economic inequality to


impersonal "market forces" is politically convenient, given his prominent
position in an administration that has presided over booming corporate profits but stagnant wages for most working people. Nonetheless, his perspective
is symptomatic of a much more general tendency to think of the economy
as a natural system existing prior to, and largely separate from, the political
sphere.
In the run-up to the 2004 presidential election, for example, the Associated
Press (AP) reported that, "Over two decades, the income gap has steadily increased between the richest Americans, who own homes and stocks and got
big tax breaks, and those at the middle and bottom of the pay scale, whose
paychecks buy less." While the AP story noted that Democratic presidential
candidate John Kerry was attempting to make the economy a campaign issue,
the last word went to the chief economist for \Veils Fargo: "This really has
nothing to do with Bush or Kerry, but more to do with the longer-term shift
in the structure of the economy." Similarly, in the run-up to the 2006
midterm election business columnist Ben Stein noted that "there is extreme
income inequality in this country. It is hard to say whether it's the fault of
President Bush, since there was also extreme income inequality under former
President Bill Clinton, and in fact there has always been extreme income inequality."2
The tendency to think of economic outcomes as natural and inevitable is
politically significant because it discourages systematic critical scrutiny of
1 Remarks

Prepared for Delivery by Treasury Secretary Henry H. Paulson at Columbia University, August 1, 2006, http://www.treas.gov/press/releases/hp41.htm.
2 Associated Press, "Gap Between the Rich, Others Grows," 'fnmto11 'fi111es, August 17, 2004,
A6; Ben Stein, "You Can Complain, or You Can Make Money," New fork 'fiuws, Oetober 15,
2006, BU 3.