In the 1980s, 1990s, and 2000s, the American economy experienced long periods of prosperity, in which GDP growth performed quite well. At the same time, inequality rose rapidly. Yet rather than seeking to correct the inequality through redistributive policies, American governments steadily redistributed less and less. They cut capital-gains taxes and the top marginal income-tax rate, ended welfare (as we knew it), failed to keep the minimum wage even with inflation, and so on. The result is that the increase in inequality after taxes and redistribution from 1979-2008 was even greater than the increase in inequality before taxes and redistribution. The Economist; September 21, 2010

In reviewing Winner-Take-All Politics: How Washington Made the Rich Richer – And Turned Its Back on the Middle Class, by Jacob S. Hacker and Paul Pierson, David Holahan in the Christian Science Monitor asks, “Ever wonder how it came to this: Republicans and Democrats behaving like Sunnis and Shiites in Iraq, ever more gridlocked and unable to address national problems in a rational, bipartisan way? Or why the middle class is treading water, at best, while the super-rich wax inexorably richer? Why would the Republican Party, which lost the last two elections in dramatic fashion, react by continuing to grow, as it has for decades, ever more conservative and obstructionist, rather than giving moderation a chance?”

Those are good questions, and I’ve got a few of my own: Why didn’t the vast majority of Americans cheer for the stimulus package, the health-care bill and the financial-regulation law? Why is there no public outrage over Republican plans to adopt a scorched earth stance in order to ensure that the wealthiest American’s retain Bush tax cuts that would cost as much as the entire Social Security shortfall over the next 75 years?

We all know part of the answer as well as the chilling statistics that narrate the story. 2009, a terrible year for almost all Americans, was a very good year on Wall Street where the 38 top firms earned a total of $140 billion. Goldman Sachs had its best year since 1869 and paid its employees an average of $600,000 each. Meanwhile, ordinary people were in many ways worse off than they’ve been since the Great Depression as a result of decreased job security, higher unemployment, a vast reduction of value of retirement savings, the mortgage crisis and increases in personal debt.

It’s the culmination of a thirty-year trend, and this new book provides an abundance of economic and policy data to explain how and why the ongoing economic meltdown has failed to prevent the rich, and more importantly the super rich (actually the filthy uber-rich) from getting richer and richer and richer.

Some of the facts:

  • The share of [national] income earned by the top 1 percent of Americans has increased from around 8 percent in 1974 to more than 18 percent in 2007. The only time since 1913 that this share has been higher was 1928.
  • The top 1/10th of one percent of Americans has done even better: In constant 2007 dollars, the 15,000 American families in this bracket enjoyed an average income in 1974 of about a $1 million – and $7.1 million in 2007. This same group now earns over 7% of all after tax income, up almost 500% from 1.2% they earned in 1970.
  • In the top 1/100 of 1 percent, or one in 10,000 households, annual income soared from $4 million in 1974 to $35 million on average in 2007.
  • Tax rates on executive pay, have been cut in half since 1970; from 1985 to 2004, taxes on the top 0.1% fell from 42% to 34%.

Since the late 1970s, these individuals and families have primarily allied with the Republican Party to dramatically reduce taxes on income, estates, capital gains, hedge fund profits and other forms of wealth in hundreds of ways. They have also worked together to suppress the labor movement and to decimate government attempts to regulate the environment and fancy financial transactions like those subprime mortgage derivatives that brought the world to the brink of economic collapse.

Holahan says that, “Republicans, by marrying populist rhetoric to elite action, have been able to stitch together a constituency that includes moderate income supporters—Christian conservatives, tea partiers, and elite-wary blue-collar workers—while pursuing policies catering almost exclusively to business and moneyed elites.”

Despite the obviousness of this truth, the reasons for America’s ongoing economic massacre are usually disguised by those who hope we won’t know any better. They’re said to be the result of skills-biased technological change, as Thomas Friedman details in The World is Flat. They’re blamed on the low motivation of unemployed workers, a poor educational system, the exporting prowess of low-wage countries and/or an overzealous regulatory climate unfriendly to American business.

Elsewhere, ordinary people have fared better. From the early 1970s to the late 1990s, the top one percent’s share of income in Germany was static; in Ericsson’s Sweden and Sony’s Japan it barely budged. In France, it actually fell. In the United States, however, it doubled, from 8% to 16%. (Indeed, France had a more unequal income distribution than the United States until the 1970s.) Hacker and Pierson think skills-biased technological change only explains a very small part of the increase in income inequality, and accounts for virtually none at the very top end of the curve, where most of the shift has taken place.

Have executives at American companies greatly outperformed executives at companies in countries where the income share of the top 1% did not rise, such as Germany and Japan? Are American executives being paid more because shareholders are getting their money’s worth? The answer is clearly no.

Writing in the Wall Street Journal, Michael Barone, a resident fellow at the American Enterprise Institute, describes the best part of Winner-Take-All Politics as its clarification of our often distorted notion of the historical role America’s political parties have played in the creation of these problems. Barone notes that Hacker and Pierson describe how “the unexpected liberalism of Nixonland turned into the unexpected conservatism of Carterland” and write that Jimmy Carter’s first Congress, with a 2-1 Democrat advantage in the House, rejected a big-labor bill to increase unions’ power, refused to create a proposed consumer protection agency and cut the capital gains tax rate.

Winner-Take-All Politics details a series of overlooked facts like these that litter the last four decades and explains exactly how we find ourselves today in the most unequal society in the world. While the authors don’t provide an explanation of how to get out of the situation, and the abundance of their best material can be found in the first 136 pages, the book is nevertheless a critical read for anyone seeking to understand how recent history has created the mess we’re in today.

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