This project examines how wealth inequalities in the U.S. have changed over time. We will look back at the Gilded Age through urbanization, into the Great Depression and World War II years and up until today. It will explore the economic, political and social changes that took place during these periods in U.S. history and how these changes affected the wealth disparity between the rich and poor.
As the United States entered the Gilded Age, inequalities between classes became more noticeable after millions of immigrants moved to the States. At this point, the United States had shifted from an agricultural economy to an industrialized economy, led by captains of industry such as the Rockefellers and the Carnegies. While these so called “robber barons” provided many jobs and sparked tremendous economic growth, it also led to an increased wealth disparity. The average annual wage per industrial worker rose from $380 in 1880 to $564 in 1890, however, the concentration of wealth was clearly visible as millions of immigrants and minorities still lived in poverty. (Saez) Many of the problems faced by society, especially the poor, during the Gilded Age gave rise to attempted reforms in the following Progressive Era. During this period there was widespread social activism and political reform across the United States which aimed to eliminate the problems caused by industrialization, urbanization, immigration, and political corruption. The movement primarily targeted political machines and ending the corruption taking place. One of the most significant changes that the movement achieved was the imposition of an income tax with the Sixteenth Amendment and the regulation of monopolies and corporations through antitrust laws. (Acemoglu & Robinson)
Economically and socially the United States was making great improvements during this time and led to the Roaring Twenties. The decade continued to thrive in the modern mass-production and consumption economy, which created remarkable profits to investors while also raising the living standard of the urban middle and working class. However, for the large minority of Americans who made their livelihoods in agriculture, the decade roared only with the agony of prolonged depression. From 1920 to 1921, farm prices fell at a catastrophic rate. The price of wheat, the staple crop of the Great Plains, fell by almost half. The price of cotton, a huge industry in the south, fell by almost three-quarters. (Piketty & Goldhammer) Farmers, many of whom had taken out loans to buy efficient new agricultural machines like tractors, were unable to make their payments. Throughout the decade, farm foreclosures and rural bank failures increased at an alarming rate. Agricultural incomes remained flat, while the incomes of their urban counterparts skyrocketed. It’s no exaggeration to say that for rural America, the Great Depression began not in 1929 but in 1920, and continued for an entire generation. (Kochhar & Cilluffo) Urban America only began to share the pain felt in rural areas late in 1929, when the stock market crash caused billions of dollars in assets to disappear. While the Great Crash itself directly affected only the small minority of affluent Americans who owned stock at the time, later cutbacks in industrial production caused a nationwide economic downturn unparalleled in its depth and length. The descent from the Roaring 20s into the Great Depression was steep, and this is evident considering unemployment levels in the U.S. rose to 25% and international trade plunged by more than 50%. (Kuznets)
The pains many Americans felt during the Great Depression did not start to become alleviated until the start of World War II, when the U.S. transformed into a wartime economy. Millions of Americans were sent into the military, which left millions of jobs unfilled. This void was filled by millions of previously unemployed citizens. Many of historians suggest that the massive spending during the wartime is what ended the Great Depression however, this is not the case. The expense of funding the war increased national debt from $49 billion in 1941 to almost $260 billion in 1945. (Stone, Trisi, Sherman & Taylor) In other words, the war had only postponed the issue of recovery. Although President Roosevelt implemented his New Deal programs to help with the Great Depression, he halted these programs during the war to focus on winning. After the war, congress and citizens did not want to revive the New Deal. Instead, they cut taxes to encourage entrepreneurs to start businesses in hopes of creating more jobs. In 1945 and 1946, Congress repealed the excess-profits tax, cut the corporate tax to a maximum 38 percent, and cut the top income tax rate to 86 percent. In 1948 Congress sliced the top marginal rate further, to 82 percent. (Piketty & Goldhammer) Those rates were still high, but they were the first cuts since the 1920s and sent the message that businesses could keep much of what they earned. The year 1946 was not without ups and downs in employment, occasional strikes, and rising prices. But the “regime certainty” of the 1920s had largely returned, and entrepreneurs believed they could invest again and be allowed to make money. With freer markets, balanced budgets, and lower taxes, this plan seemed to work. Unemployment was only 3.9 percent in 1946, and it remained at roughly that level during most of the next decade. (Piketty & Goldhammer) Even though the economy seemed to have stabilized, wealth disparities were still visible and continued to rise.
From 1980 to the present, the wealth gap has been on a steep rise. Gaps in earnings between America’s most affluent and the rest of the country continue to grow year after year. The United States still exhibits wider disparities of wealth between rich and poor than any other major developed nation. This has been a topic of discussion amongst Americans for decades and is recognized by most of society as a great moral hazard. Income disparities have become so pronounced that America’s top 10 percent now average more than nine times as much income as the bottom 90 percent. (Saez) Americans in the top 1 percent tower stunningly higher. They average over 40 times more income than the bottom 90 percent. But that gap is nothing in comparison to the divide between the nation’s top 0.1 percent and everyone else. Americans at this level are taking in over 198 times the income of the bottom 90 percent. (Piketty & Saez) The top 1 percent of America’s income earners have more than doubled their share of the nation’s income since the middle of the 20th century. Analysts have called the period from 1920s to 1970s the “great compression”. The past 30 years are known as the “great divergence”. (Sowell) Bring the 19th century into the picture, however, and one sees not isolated movements so much as a rhythm. In other words, when looked at over a long period, the development of wealth inequality in the US appears to be cyclical. Our society seems to be on a rollercoaster where objective social forces bring our economy and overall well-being up, only to be followed by a seemingly inevitable plunge. This can be seen when looking at the state of the economy during the Great Depression compared to the economy during and following World War II, where the United States emerged as an economic powerhouse and overall morale in the U.S. was high. It seems unlikely, maybe even impossible, for there to ever not be wealth inequality in the United States but the inverse relationship between well-being and inequality can be seen throughout American history, which leads me to suggest that the U.S. government can learn from the past and possibly discover ways to mitigate inequalities in this country.
“The days . . are full of fraud, corruption, bargain, and sale. Men are not pushing to the battlefield to die for an idea; they are pushing into place.” – from The New York Tribune, 1880