A new book by an award-winning journalist, Timothy Noah, draws on a broad range of social science research to illuminate the magnitude and causes of the growing income disparity between the most affluent segment of American society and everyone else. Its title is The Great Divergence: America's Growing Inequality Crisis and What We Can Do About It and it presents a compelling picture of those factors, including government policies, that created a steadily increasing equalization of income across all segments of American society from the 1940s until the late-1970s. He calls that period the Great Compression. The reversal of those trends from the Reagan era onwards he characterizes as the Great Divergence which has produced an alarming disparity of income between the richest Americans and not only the poor but also the rapidly growing ranks of the newly poor or nearly poor middle class. This income inequality is not only more pronounced in America than in comparable developed countries but it is growing more rapidly.
The studies that Noah draws upon make it clear that the steady reduction in income inequality during the three decades after World War II was the result of a number of factors. These included government policies that were more evenly balanced between labor and management, relatively tight regulation of the corporate and financial sectors, and social policies that supported families, including a fairly comprehensive social safety net and regular increases in the minimum wage. In addition, the labor unions were strong, our trading partners were comparable industrial nations with similar wage and benefit levels, and we made high investments in education, as well as research and development. Most importantly, we had an explicit national commitment to maintaining full employment.
These factors underwent a dramatic reversal during the following three decades with the ascendancy of Reaganomics, deregulation of corporate and financial activities, sustained attacks on the labor movement, shredding of the social safety net, disinvestment in education, privatization of government functions, an embrace of free trade globally, and the abandonment of a national policy of full employment. We are now reaping the bitter harvest of these developments with the highest unemployment rates since the Great Depression and fifty million Americans living in dire poverty.
Like many analysts of these developments, Noah believes that, unless reversed, they present a serious threat to the American democratic system. As he cogently puts it:
Americans believe fervently in the value of social equality and social equality is at risk when incomes become too dramatically unequal. ... Growing income inequality makes it especially difficult to maintain any spirit of e pluribus unum.
Or as Supreme Court Justice Louis D. Brandeis stated during an earlier period of growing wealth disparity:
We can have democracy in this country, or we can have great wealth concentrated in the hands of the few, but we can't have both.
So, what are the possible remedies that flow from the research studies that Noah reviewed? Among other things, but first and foremost, we need a massive national commitment to create more jobs, primarily in education and renewable energy since this can be done quickly provided there is the political will.
Which brings us to another interesting new book that complements and reinforces Noah's message. It is Back to Full Employment by the distinguished economist Robert Pollin. As Noah does, Pollin documents the fact that promoting full employment, however defined, was taken for granted by successive Federal Administrations from the end of World War II until the late 1970s. It was then de-emphasized and replaced with other national priorities of the type Noah identified. As a consequence, we are now seeing the most prolonged period of high unemployment in decades, causing great suffering to millions of American workers and their families, as well as inflicting serious damage to both the national and global economies. It is also undermining people's confidence in the fairness of the system and, unless corrected sooner rather than later, it will put the entire social fabric of the country at risk.
Pollin urges the immediate adoption of an aggressive national policy aimed at full employment (under four percent unemployed) which he believes can be achieved without fueling runaway inflation. Like Noah, he believes that education and renewable energy are the best options for both short-term and long-term investment since they produce a better return per dollar spent than either the military or the fossil fuel industry. In his view, the policies of the austerity and fiscal hawks have done nothing but prolong the Great Recession, causing untold suffering and damaging the economy. They have been completely discredited and need to be abandoned without delay. Aside from the moral arguments for full employment, Pollin makes a compelling case for the macroeconomic reasons for ensuring that all Americans seeking work have access to it. He is not alone in this regard. Similar arguments are being made by many highly respected economists, including Robert Reich, Joseph Stiglitz and Paul Krugman.
During the current presidential campaign, both candidates claim to have job creation at the top of their priority list. Clearly, Romney and the Republicans are selling snake oil, peddling the same policies that created the present crisis. Full employment has never been achieved by giving tax breaks to multimillionaires, huge global corporations, and similar self-designated job creators. It has had the opposite effect, further enriching the already wealthy and impoverishing working people.
The President has begun to speak up more forcefully for the people who need and expect him to be on their side and other Democrats are saying some of the right things. However, specific action continues to be held hostage to the fiscal and austerity hawks on both sides of the aisle. We cannot allow that to happen after November since the stakes are way too high for working people and their families, as well as the country as a whole.