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By Root 1605 0

the top 10 percent of earners in the United States back to 1913. They found that starting in the mid-1980s this share climbed from just over 30 percent, where it had been through most of the postwar era, to almost 45 percent by 2002, the same as it had been through the 1920s. The picture is even more dramatic looking at the data for the top 1 percent of the income distribution: we are talking about a phenomenon of the superrich, not the ordinarily rich.24 It is striking that the increase occurred in two big jumps, coinciding with two Republican Administrations (Reagan and George W. Bush), which made a virtue of their policies to encourage enterprise by the well-off and thereby stimulate growth. As I describe below, other forces have contributed to rising inequality but so exceptional is the pattern in the United States that it is certain that politics and distinctive cultural attitudes to wealth in America will have played a part as well.

Paul Krugman, the prominent liberal voice of the United States throughout the administrations of George W. Bush, has emphasized the relevance of social attitudes and political decisions in shaping the pattern of inequality. At a broad level, the differences between countries with similar average levels of GDP per head and similar economic structures means that actual measured inequality must result from differences in the ways their labor markets and tax and welfare systems operate. These economic institutions clearly embed social and political attitudes. And it has been frequently noted and confirmed that the United States does have a different culture of money making and an admiration for financial success. For example, Alberto Alesina and Edward Glaeser set out convincing evidence on different attitudes to inequality in the United States and Europe.25

Figure 8. America has once before seen today’s extreme inequality.

Krugman’s point was that the recent increase in inequality went well beyond the traditional spirit of can-do and aspiration in America. He argues that partisan political choices have contributed substantially to the massive enrichment of the rich, including tax reductions on capital gains and legacies.26 In addition—and I think this is more interesting in terms of the long-term trends—he has argued that social norms, the unspoken agreement in society about what is acceptable, have shifted toward acceptance of excessive reward for the few and a tolerance of the extremes of poverty and wealth. He noted that in his youth, corporate executives were not that different from their workforces, and people expected everyone to lead a similar lifestyle. By the 1990s that expectation had completely changed, and the very rich and their lifestyles had become celebrated. As Krugman put it in a long 2002 magazine article:

The New Deal had a more profound impact on American society than even its most ardent admirers have suggested: it imposed norms of relative equality in pay that persisted for more than 30 years, creating the broadly middle-class society we came to take for granted. But those norms began to unravel in the 1970’s and have done so at an accelerating pace. . . . Much more than economists and free-market advocates like to imagine, wages—particularly at the top—are determined by social norms. What happened during the 1930’s and 1940’s was that new norms of equality were established, largely through the political process. What happened in the 1980’s and 1990’s was that those norms unraveled, replaced by an ethos of “anything goes.” And a result was an explosion of income at the top of the scale.27

At the other end of the political spectrum, former Federal Reserve chairman Alan Greenspan has actually made a similar point, both about the social acceptability of greed and about the institutional failures that permitted it. Commenting in the wake of the collapse of Enron, he said: “An infectious greed seemed to grip much of our business community. Our historical guardians of financial information were overwhelmed. Too many corporate executives sought ways to “harvest