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The Great Compression – Disparity in Wealth

January 4, 2011

From the Slate Series: The United States of Inequality

The Great Compression ended in the 1970s. Wages stagnated, inflation raged, and by the decade’s end, income inequality had started to rise. Income inequality grew through the 1980s, slackened briefly at the end of the 1990s, and then resumed with a vengeance in the aughts. In his 2007 book The Conscience of a Liberal, the Nobel laureate, Princeton economist and New York Times columnist Paul Krugman labeled the post-1979 epoch the “Great Divergence.”

It’s generally understood that we live in a time of growing income inequality, but “the ordinary person is not really aware of how big it is,” Krugman told me. During the late 1980s and the late 1990s, the United States experienced two unprecedentedly long periods of sustained economic growth—the “seven fat years” and the ” long boom.” Yet from 1980 to 2005, more than 80 percent of total increase in Americans’ income went to the top 1 percent. Economic growth was more sluggish in the aughts, but the decade saw productivity increase by about 20 percent. Yet virtually none of the increase translated into wage growth at middle and lower incomes, an outcome that left many economists scratching their heads.

In his 2008 book Unequal Democracy, Larry Bartels, a Princeton political scientist, writes:

[T]he narrowly economic focus of most previous studies of inequality has caused them to miss what may be the most important single influence on the changing U.S. income distribution over the past half-century—the contrasting policy choices of Democratic and Republican presidents. Under Republican administrations, real income growth for the lower- and middle-classes has consistently lagged well behind the income growth rate for the rich—and well behind the income growth rate for the lower and middle classes themselves under Democratic administrations.

Source: Slate

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