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Brad DeLong's Grasping Reality 2019-10-07 15:15:00

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...Each time the forces that led to greater or less concentration were different and at no time did politicians excercise anything like perfect control, notwithstanding redistributionist impulses on the part of the Democrats and Republican eagerness to disclaim all responsibility for growing inequality. The end of Jeffersonian democracy came slowly.... Industrialization was initially a slow process—flour mills, cloth mills, iron smelters—that served local markets and created local fortunes. The age of moguls, which began in the late 19th century and culminated in 1929 in a frenzy of euphoria about capitalism's future, saw not just the creation of corporations, huge industries like oil, steel and meat-packing, and the birth of the mass market, but the emergence of a stock exchange that

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...Each time the forces that led to greater or less concentration were different and at no time did politicians excercise anything like perfect control, notwithstanding redistributionist impulses on the part of the Democrats and Republican eagerness to disclaim all responsibility for growing inequality. The end of Jeffersonian democracy came slowly.... Industrialization was initially a slow process—flour mills, cloth mills, iron smelters—that served local markets and created local fortunes. The age of moguls, which began in the late 19th century and culminated in 1929 in a frenzy of euphoria about capitalism's future, saw not just the creation of corporations, huge industries like oil, steel and meat-packing, and the birth of the mass market, but the emergence of a stock exchange that enabled the owners of capital to cash out. The growth of wages, meanwhile, was held down by a tidal wave of immigration.

In some ways, the 1980's resembled the Gilded Age and the era of robber barons. The wealthiest 1 percent reaped more than half of the 2.5 trillion rise in total net worth in the period, according to Professor Wolff, in part by building great empires in media, computers and financial services. The stock and bond markets boomed. But history had not, in fact, repeated itself. Government had played a much bigger role in enriching the wealthy. The supply side tax cuts slashed the highest tax bracket from 70 percent to 30 percent, the high interest rates that accompanied the budget deficit and the Federal Reserve's determination to restore the value of money all swelled the value of capital. The biggest difference, it turns out, had more to do with what was happening at the bottom than at the top. While the pay of corporate presidents soared to 160 times that of the average worker, union membership sank, and pay and productivity, which had advanced handily in the early 20th century, stagnated.... 'John D. Rockefeller was a nasty bastard, but he built the oil industry', said Professor deLong. 'It's the combination of rapidly rising wealth for the Forbes 400 and slow productivity growth for the average American that's worrisome'.

In the 1930's, 1940's and during the balmy postwar years, wealth also got dispersed in very different ways. The great leveling started with the 1929 stock market crash and continued, with pauses, well into the 1970's. Black Monday, bank panics and, most of all, the Great Depression destroyed fortunes. The New Deal took from the monied and gave to the poor and middle class. Washington collected more income and inheritance taxes. More important, the New Deal saved the homes, farms and businesses of millions of ordinary Americans. Less well known is that World War II squeezed wealth into the hands of the working classes. With millions of men in uniform, wartime labor shortages pushed up wages while price controls held down profits. What is more, the National War Labor Board—heeding F.D.R.'s directive to raise substandard wages -- tended to approve raises for poorer workers while turning down raises for the better paid. The rich, meantime, had nowhere to invest except in war bonds whose value evaporated when the country inflated its way out of its huge wartime debt. It was in the mid-1970s, after Vietnam, the oil crisis and a bad recession shattered business confidence, that the wealthy's share hit a low point—in no small part because of a 1973-1975 stock market collapse that was worse than 1929-1933 when the inflation of the 1970's and the deflation of the 1930's are taken into account. "Prices doubled, but so did wages and home values," said Professor de Long, "but holders of financial assets got hammered." In between, the 1950's and 1960's was a golden age. ...

Looking ahead, it's not clear whether there are forces now at work that would repeat the American past and spread wealth and income more evenly again. A pickup in productivity growth could boost the wages of lower paid workers and let more join pension plans. On the other hand, the technological revolution could easily keep holding down the pay of the young and less skilled. But neither the moguls nor the multitudes are acting as if they expect much change. The stock market, a barometer of the hopes of the well-heeled, continues to dance near all-time highs.... Consumer confidence, which measures the expectations of wage earners, remains unusually depressed....

Bradford DeLong
J. Bradford DeLong is Professor of Economics at the University of California at Berkeley and a research associate at the National Bureau of Economic Research. He was Deputy Assistant US Treasury Secretary during the Clinton Administration, where he was heavily involved in budget and trade negotiations. His role in designing the bailout of Mexico during the 1994 peso crisis placed him at the forefront of Latin America’s transformation into a region of open economies, and cemented his stature as a leading voice in economic-policy debates.

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