The New Gilded Age

Larry Bartels’s new book Unequal Democracy: The Political Economy of the New Gilded Age helps explode some persistent myths about income inequality. We are frequently told that inequality–even the extreme growth in inequality witnessed over the past 30 years–is an inevitable concomitant of globalization, or is necessary for economic growth, or can’t be remedied by politics. Bartels’s work complements the growing consensus–led by people like David Cay Johnston, Jacob Hacker, Stephen Gosselin, Barbara Ehrenreich, and Robert Frank, among many others–that all these complacent contentions are not merely unsupported, but actually reverse the true causes and effects at work. Political change has accelerated US inequality–and only political change can address it.

This quote doesn’t do Bartels’s book justice, but it discloses one foundation of his argument:

[T]he 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. . . .

[E]scalating in equality is not simply an inevitable economic trend—. . .a great deal of economic in equality in the contemporary United States is specifically attributable to the policies and priorities of Republican presidents. . . . .Voters’ seemingly straightforward tendency to reward or punish the incumbent government at the polls for good or bad economic performance turns out to be warped in ways that are both fascinating and politically crucial.

Insights like this should not be news–one need only to look at how lopsidedly the tax cuts of 2001 and 2003 helped the very wealthy in order to see real partisan differences in attitudes about inequality. But it turns out that the same political ignorance that libertarians like Ilya Somin and Bryan Caplan have been complaining about turns out to be quite helpful to their fiscal strategy:

[P]ublic 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 taxpayers; egalitarian values reduced support for the tax cut, but only among strong egalitarians who were also politically well informed.

A well-fed (and math-phobic) media elite doesn’t like elevating the raw numbers here into salience–as Bartels notes,

[A] social gulf has been exacerbated by the economic trends of the New Gilded Age. . . [It] constitutes a significant obstacle to political progress in responding to those trends. One can only wonder how many affluent readers [and owners of an ever-more concentrated media] will get around to pondering “The Inequality Conundrum” as soon as they return from the Cayman Islands.

There are also some choice refutations of bien-pensant complacency about inequality throughout Bartels’s first chapter:

Many ordinary Americans believe that “large differences in income are necessary for America’s prosperity,” as one standard survey question puts it. However, economists who have studied the relationship between in equality and economic growth have found little evidence that large disparities in income and wealth promote growth. There is not even much hard evidence in support of the commonsense notion that progressive tax rates retard 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.

Much of the economic argument for in equality 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 house holds in the top 5% of the income distribution fell by more than half from 1990 through 2006 (from 13.6% to 6.2%), while real sales growth in the luxury retail industry averaged more than 10% per year.

Well, the huge appetite of ultra-wealthy investors for subprime paper in the early 2000s did some good, right? Expanding opportunities for homeownership via option ARMs, “pick-a-pay,” and NINJA loans? Oh, wait. . . .

There’s only so much words can say. Bartels’s charts really paint the picture of inequality starkly. Here are trends in family incomes overall:


And here are how things look among that top 1% that was doing so well in the graph above:


In other words, we live in a world of fractal inequality, where chasms of income open up even within already elite circles. Bartels shows the mutually reinforcing relationship between a winner-take-all economy and a polity where “elected officials are utterly unresponsive to the policy preferences of millions of low-income citizens, leaving their political interests to be served or ignored as the ideological whims of incumbent elites may dictate.” His perceptive scholarship is a reality check for a media entranced by the petty personality disputes of the long campaign.

Frank Pasquale

Frank is Professor of Law at the University of Maryland. His research agenda focuses on challenges posed to information law by rapidly changing technology, particularly in the health care, internet, and finance industries.

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5 Responses

  1. Patrick S. O'Donnell says:

    Let’s give the indefatigable Kevin Phillips credit too (especially in light of his conservative background) for calling attention to these matters in a way accessible to non-academics. And that other Frank, Thomas, might be added to the mix as well (cf. One Market Under God, 2000).

  2. A.J. Sutter says:

    I’m skeptical that things are so simple. There are policy-makers on both sides of the aisle who embrace Pareto equilibrium and economic efficiency; I don’t see how this can lead to better distribution of wealth. Among the Democratic advisers of Cabinet members with scary ideas: Cass Sunstein, Robert Solow, Larry Summers, the folks who pushed for carbon trading, …. And many of the problems with the subprime situation arose from Clinton-era deregulation; this could just as easliy have happened during Al Gore’s second term, (though maybe we’d have had more money available to help borrowers, assuming that Gore would have skipped the war in Iraq).

    Moreover, one sees inequality rising in many countries, not just ones controlled by Democrats or Republicans. Often these are countries whose governments or elites embrace the same “neoliberal” flavor of economics. (Does Bartels refute this?) While Republican administrations may exacerbate things, I think both parties share certain fundamental assumptions that help to create these problems.

  3. A.J. Sutter says:

    Sorry, typo: should be “advisers **or** Cabinet members”.

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