Inequality is a central issue in the 2016 presidential campaign — at least among the Democratic candidates. The role of the 1% became a political issue when the Occupy Wall Street movement highlighted it in the wake of the 2007-2009 Great Recession. Its continuing political significance is testimony to that fact that so many Americans are suffering in an economic system that has left wages stagnant for four decades, mounting personal debt and a bleak-looking future.
Both Bernie Sanders and Hillary Clinton have targeted the 1%. Clinton has called for an aggressive tax policy to”topple” the super-rich, while Bernie Sanders has largely built his entire presidential campaign on the issue of wealth inequality.
Sadly overlooked in the political debate about the current state of inequality is that it is not new. Most troubling, inequality — and the power of the 1% — has been a distinguishing feature of US life since the nation’s founding.
The great post-WWII recovery gave birth to the “American Dream” and its seductive false consciousness that — at least for a quarter-century — gave the baby-boom generation a belief in their historical exceptionalism, and that they could pass on their good fortune in their children and grandchildren.
The days of US “greatness” are over and more and more people know it. The backers of Sanders and Donald Trump know it, but in very different ways; those supporting Clinton pretend it’s not so. Whoever wins November’s electoral beauty contest will be faced with deepening inequality, and how they address the problem will do much to determine the nation’s fate during the 21st century.
Tyranny of the 1%
Inequality is an all-American condition dating from the nation’s founding. Two leading economists of the colonial era, Jeffrey Williamson and Peter Lindert, argue that inequality (among non-enslaved Americans) at the time of the Revolution was roughly the same as it was in 1980.
Their assessment of inequality from the Revolution to the Civil War is illuminating. “Around 1774, the top one percent of free wealth holders in the thirteen colonies held 12.6 percent of total assets, while the richest ten percent held a little less than half of total assets,” they write. The US was a new nation clustered along the East Coast and still very much a rural, agricultural country with port cities slowly growing in size and importance. It was a male-dominated society in which slavery persisted. Most challenging, there was no national money system and people exchanged British and other currencies that were valued different in each state.
Nevertheless, as Williamson and Lindert note, “Between 1774 and 1800 American incomes declined in real per capita terms, so that any rapid growth after 1790 failed to make up for a very steep wartime decline and the ‘lost decade’ of early independence.”
Other observers offer snapshots of the changing condition of wealth in the early nation. No less a champion of the new nation was Alexis de Tocqueville. In Democracy in America, he praised “the general equality of condition among the people.” However, as the nation recovered from the revolution during the pre-Civil War Jacksonian era, inequality rose. The sociologist G. William Domhoff points out: “Numerous studies show that the wealth distribution has been concentrated throughout American history, with the top 1% already owning 40 to 50 percent in large port cities like Boston, New York, and Charleston in the 1800s.”
Between 1800 and 1860, the US population increased six-fold, from only 5.3 million (including 1 million African Americans, of whom 900,000 were slaves) to 31 million (including 4.5 million African Americans, of whom 4 million are enslaved). Equally important, the nation more than doubled in size following the Louisiana Purchase of 1803; by 1860, about half of all Americans lived west of the Appalachian Mountains.
While much of the nation remained agricultural (especially in the West), early industrialization began in New England textile mills, driven by steam power and operated by what were called “mill girls.” However, repeated economic instability — culminating in the panics of 1834 and 1837 — made life difficult.
However, “In 1860, the richest percentile held 29 percent of total American assets, and the richest decile [10 percent] held 73 percent,” Williamson and Lindert argue. They add, “Thus, the top percentile share more than doubled and the top decile increased its share by half again of its previous level.”
In the decades following the Civil War, the US was transformed. Symbolically, the transcontinental railroad, completed in 1869, represented this change; by 1890, the nation had 161,000 miles of railroad tracks. More revealing, the population jumped from 31 million in 1860 to 76 million in 1900, and this growth was spurred by large increase in Eastern European immigrants. During the period, the American workforce shifted from farmers and farm laborersto manufacturing and mining wage workers. It was also a period that witnessed the growth of cities. Some estimated that following the Civil War, the era of the Robber Barons — the nation’s wealth became greatly concentrated, with the top 1% of households controlling about 45 percent of the wealth.
The 20th century can be divided into very different eras. The first era lasted from 1900 to 1945 and WWI, Prohibition, the stock market crash, the Great Depression and WWII. The second era can also be divided into two phases; the first is represented by the idea of the “American Dream,” that this phase lasted until the mid-1970s, and it was followed by an era of wage stagnation that we are still living with today.
Domhoff provides valuable data on wealth of the 1% for the period from 1922 to 2010. The following sampling is suggestive:
1922 = 36.7%
1929 = 44.2%
1976 = 19.9%
1995 = 38.1%
2004 = 34.6%
2010 = 35.4%
Not surprisingly, the high point of inequality — when the 1% controlled the greatest share of the nation’s wealth — was 1929, just as the stock market crash occurred and the country began to collapse into the Great Depression. And the highpoint of equality was in 1976 — when the 1% controlled the smallest share of the nation’s wealth — that marks the end of the post-WWII recovery and the “American Dream.”
The 1% Are Different
In one of the great literary exchanges that apparently never happened, F. Scott Fitzgerald supposed proclaimed, “The rich are different from you and me,” and Ernest Hemingway allegedly quipped, “Yes, they have more money.”
Today’s rich are different than they were in the days of Fitzgerald and Hemingway. Today, their wealth comes less from actual work and salaried income than from stocks and other investments. Derek Thompson, in a 2014 Atlantic article, points out, between “1992 and 2007, the average salary of a top-400 tax return doubled, but average capital gains haul increased 13X. Wages are for normal people. The richest get richer from their investments.”
Without fundamentally addressing the structural nature of inequality that has defined US society since the nation’s founding, none of the well-intentioned pledges by the Democratic presidential candidates will matter — and inequality will likely only get worse. Only through a radical revision of the tax code (especially for capital income) and changes in income distribution (especially for bankers, stock traders and corporate executives) is some containment of inequality possible.