The yawning financial gap of the gilded age

The Yawning Financial Gap of the Gilded Age

“We must make our choice,” warned the American jurist Louis Brandeis nearly a century ago, writing on the state of American society. “We may have democracy, or we may have wealth concentrated in the hands of a few—but we can’t have both.”[i] A few years later, as Brandeis joined the U.S. Supreme Court, the country was undergoing a major economic transition. With the passage of the federal income tax amendment, an increase in labor union membership, and the advent of the forty-hour workweek, the United States would soon leave behind the Gilded Age, an era when the titans of industry accumulated enormous wealth while the masses toiled for meager wages. In its place arrived the Great Compression, a period characterized by greater economic equality, shrinking income and wealth gaps between the rich and poor, and the rise of the American middle class. Between 1945 and 1974, incomes grew at a nearly uniform 3 percent each year for people at every level of society.[ii]

To most economists, the Great Compression was a welcome development, albeit an unsurprising one.

Hewing to the ideas of Simon Kuznets—the Nobel Prize–winning economist who theorized that income inequality is low in pre-industrial economies, sharply rises during industrialization (as happened during the Gilded Age), then drops in the post-industrial age—mainstream economic thinking assumed that post-WWII America would enjoy steady growth and prosperity shared by all.

Then something happened. America’s ride down the pleasant slope of the Kuznets curve bottomed out; sometime in the mid-1970s, the Great Compression began to unravel and then reverse itself.

In 2013, wealth distribution is even more unequal than during the height of the Gilded Age. Between 1979 and 2008, all income gains in the country went to the top 10 percent of earners, and more than 87 percent of those income gains went to the top 1 percent.

During the same period, average income for the bottom 90 percent actually declined.[iii]

Chronicling this reversal—and what it portends for our society writ large—come two new books with somewhat differing takes on how our growing economic disparity is transforming public life.

In Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else, Chrystia Freeland insists that we must overcome our discomfort and squeamishness about discussions of class if we hope to address the challenges that widening income and wealth gaps pose to social cohesion.

Meanwhile, Twilight of the Elites: America After Meritocracy by Christopher Hayes provides a tour of an America that has not only become less economically equal, but has also suffered an unprecedented crisis of authority.

According to Hayes, who writes for the Nation and hosts his own show on MSNBC, virtually every pillar of American society—from government officials and business executives to athletes and the media—has profoundly lost the trust of the citizenry through incompetence and corruption, or both.

The Income Tax, the Gilded Age, and What History Tells Us About a Wealth Tax

Hulton Archive/Getty Images

The Gilded Age gave America the income tax. Our current vast gap between rich and poor might give us the wealth tax. Proposals for one are already on the table.

Bernstein’s Philipp Carlsson-Szlezak took a look at how the Gilded Age, which lasted from the 1870s until the early 1900s, gave rise to the income tax to better understand why proposals for a wealth tax are popping up now, as well as how attempts to pass legislation and implement it might fare.

“Inequality was particularly pronounced during the Gilded Age…

a reading of history leaves little doubt that this propelled the income tax to fruition against all odds,” he pointed out in a research note on Friday.

“In our Digital Age, the megafortunes again contrast starkly with the bottom half of the distribution—an ‘experience’ compounded by the digital proliferation of the lives of the very rich.”

One lesson from the past is that substantial tax overhauls aren’t easy to achieve. Carlsson-Szlezak highlighted that although the impetus for the income tax—yawning inequality—was clear, it took a legal battle for it to take effect. A 14-year campaign to pass the 16th Amendment was required before the income tax could be ratified in 1913.

A second point is that taxes that start small can grow. Originally intended to tax the fortunes of robber barons, the income tax now reaches far down the ladder in terms of who pays it.

Democratic presidential candidates Sen. Bernie Sanders (I-Vt.) and Sen. Elizabeth Warren (D-Ma.) have each proposed a wealth tax. Sanders’ plan would put an annual 1% tax on household wealth over $32 million, increasing up to an 8% tax on wealth over $10 billion. Warren’s plan calls for a 2% tax on wealth between $50 million and $1 billion, with wealth over $1 billion taxed at 6%.

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Warren’s plan had previously called for that top rate to be 3%, but she doubled it as part of a proposal to raise revenue to pay for her Medicare for All plan.

The Edge of Anarchy Part One: The Gilded Age

Posted on October 25, 2018

It was Mark Twain who coined the term Gilded Age. He made it the title of a satirical novel about corruption and excess after the Civil War. Later, the Gilded Age became a label for years from about 1870 to 1900 and highlighted the period’s excesses and inequality.

The Yawning Financial Gap of the Gilded Age

One thing to remember is that the Gilded Age was not the Golden Age. It was a time of prosperity but the wealth was not evenly shared. Although it was a time of opulence, it was also a time of great hardship and destitution.

Economic growth was matched by tremendous inequality. The result was a period of contention,  turmoil, corruption, political rancor, and even doubts about whether American democracy was viable.

If that sounds familiar to us today—well, our own era is often referred to as the New Gilded Age.

One of the main dynamics of the Gilded Age had to do with scale. Before the Civil War, Americans lived in a small-scale world—farms, villages, small cities.

What we might call the Tom Sawyer world that Mark Twain remembered from his youth. Food was local. Manufacturing was local. News was local. People were provincial.

Travel was by stagecoach, which has a romantic image in the movies but was a god-awful way to get around.

Then came the railroads. The golden spike was pounded to complete the first transcontinental line in 1869, and suddenly citizens could cross the country in a week instead of months, and the scale of America was forever changed.

The frontier, which had always defined what America was about, disappeared. Businesses became national in scope.

By the 1890s, three quarters of all the meat in the country came from a few enormous slaughterhouses in Chicago—our first industrial scale food.

Suddenly citizens could cross the country in a week instead of months, and the scale of America was forever changed.

We can’t overlook the great strides the country made during the period in spite of rampant inequality. The middle class benefitted. Who wouldn’t want electric lights and indoor plumbing?  Telephones and train travel? Even the first moving pictures?

The gilding of the Gilded Age was supplied by the wealthy. Having succeeded in business either by hard work or sheer luck, they imagined themselves a class apart—privileged, pampered, and powerful.

They owned gaudy mansions, had plenty of servants, and generally lived the American version of royalty. One couple in New York gave a five-hour party for 800 guests that cost $400,000—that’s $9 million in today’s money.

They downed an average of five bottles of vintage champagne per person—so it was quite a party.

Continue reading The Edge of Anarchy Part 1: The Gilded Age on the Unknown History channel at Quick and Dirty Tips. Or listen to the full episode below.

The Dark Side of the Gilded Age

The phrase “America's Gilded Age” typically brings to mind the financial exploits and consequent dazzling wealth of the “robber barons”: Vanderbilt, Rockefeller, Morgan, Carnegie, and others.

The fortunes they made have left us with lasting monuments that, in most of our minds, exemplify the era: mansions in Newport, great camps in the Adirondacks, treasure-filled libraries and museums in Manhattan.

But in his new book, Age of Betrayal, Atlantic senior editor Jack Beatty paints a much different picture.

“This book,” Beatty begins, “tells the saddest story: How, having redeemed democracy in the Civil War, America betrayed it in the Gilded Age.” The era began with Reconstruction and with the promise that blacks would not only rise up in status but be included in the nation's civic life.

It opened new avenues for the working man to improve his station by starting his own business, or by moving out west to work his own farm.

And it set forth the ideal that for the first time in the nation's history, rather than allowing disenfranchised slaves to count toward a given state's representation in the federal government (thereby politically empowering Southern slave-owners), each man would be accorded a single vote.

Yet by century's end, sharecropping had replaced slavery as a way to keep blacks working in penury, and the voting rights so recently granted were taken away.

The industrialization of the country, which brought so much wealth to so few, left most of the rest struggling to get by as wage laborers, working for someone else in the factory or on the farm.

And wealth influenced and co-opted the government at all levels, through unregulated campaign contributions, vote buying, and similar machinations.

Beatty leaves it to others to describe the glamour of the Gilded Age.

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Instead he makes viscerally clear the grinding poverty, the bloody racial hatred, the violent labor strikes, and the corrupt politics that also characterize that era.

And he makes clear, too, the parallels with our own time, where once again a yawning gap has opened between rich and poor, and political influence is available for the taking by anyone willing and able to pay.

Beatty lives in Hanover, New Hampshire, and is a news analyst with On Point, a National Public Radio news and public affairs program. We spoke by phone on May 10.

—Katie Bacon

The Yawning Financial Gap of the Gilded Age
Jack Beatty

Why the title Age of Betrayal? Who—or what—exactly was betrayed?

I deal with three betrayals: of democracy, of the freed people of the South, and of what Lincoln called “the right to rise.”

Government for the people, a despairing Rutherford B. Hayes noted in his diary, was supplanted in the Gilded Age by “government of the corporation, by the corporation, and for the corporation.

” It was an era when government held the keys to corporate and private fortunes—land and subsidies for railroads, tariff protection for manufacturers, mountains for mining companies, timber lands for lumber kings, court orders to prevent strikes, and state militia and federal lawmen and U.S.

Army regulars to break strikes and shoot strikers. “Government by campaign contributions,” in Henry Demarest Lloyd’s words, gave America the most violent strikes in the industrializing world.

From the archives:

“Reconstruction” (December 1866)

“No republic is safe that tolerates a privileged class, or denies to any of its citizens equal rights and equal means to maintain them.” By Frederick Douglass

Fifteen years after emancipation, the party of Lincoln betrayed the nearly four million former slaves in the South. Following the tied Hayes-Tilden election of 1876, the Republicans kept the presidency in return for ending Reconstruction.

And the Lincoln-appointed justices of the Supreme Court effectively gelded the protections for the freed people that Congress had written into the Fourteenth Amendment.

Instead of using the amendment as Congress intended—to strike down state laws abridging the rights of southern blacks—the court granted those protections to corporations, using the due-process clause of the amendment to strike down regulatory and labor laws.

The Yawning Financial Gap of the Gilded Age

(Getty/Lewis W. Hine)

It’s not a new Gilded Age after all.

For a number of years now, leading economists such as Thomas Piketty, Joseph Stiglitz, and Paul Krugman have been comparing our own time to the late-nineteenth century decades that U.S. historians, following Mark Twain’s lead, call the Gilded Age.

The parallels are striking, especially when it comes to the distribution of wealth.

Since roughly 1968 the gap between rich and poor—which shrank dramatically in the immediate post-World War II years—has widened into a chasm so yawning it might impress even the robber barons of old.

Consider that the Wall Street bonus pool these days is more than double the combined total income of all minimum-wage workers. Or that CEOs, who made 20 times more than the average worker in 1965, now make 303 times more.

(That’s somewhat less than the 345 times more they made before the 2008 recession, but—rest assured—their rates of pay are recovering rapidly.

) Little wonder that, in 2015, the nation’s 20 richest people commanded more wealth than the poorest 152 million.

But whatever the similarities between the days of Carnegie, Rockefeller, and Vanderbilt and those of Gates, Buffett, and Bezos, there is this fundamental difference: Our late-nineteenth century forebears were less inclined to give economic inequality their “amen.

” In the face of the Gilded Age’s notorious disparities, working people built movements that challenged the underlying structures of industrial capitalism, contributing along the way to an unprecedented, nationwide ferment regarding the shape of a moral economy—and it is on these crucial fronts that the analogy to our own time falls apart.

The late-nineteenth century was continually rocked by working-class unrest. Outraged at the seeming injustice of the emerging industrial order, working people experimented with new forms of solidarity, organizing trade unions, craft federations, and big-tent alliances such as the Knights of Labor.

To be sure, the early American labor movement was seriously hampered by the racism, ethnocentrism, and chauvinism that were pervasive in its own ranks, but even still, it succeeded, among other things, in making “the labor question” the defining issue of the era.

It no doubt helped that, for two months in the spring of 1871, radicalized workers seized control of Paris, appearing to confirm Karl Marx’s insistence that a proletarian revolution was taking shape in the wings.

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In the United States, an aghast elite followed the news in France and for decades thereafter entertained nightmares of a similar movement rising up in its very midst.

How American Inequality in the Gilded Age Compares to Today

It was a party, but also a paradox. As discussed in this exclusive clip from the new PBS American Experience documentary The Gilded Age, premiering Feb.

6, the ball held in New York City in 1897 exemplified both sides of the period in which it was held.

The very wealthy flaunted their newly extravagant lifestyles, viewing their riches — a result of that century’s great social and technological changes — as proof that the U.S. was on the right track. Meanwhile, others in the city struggled to get by.

That’s why that term for that late-19th-century period in American history — the Gilded Age — is so apt. As historian Nell Irvin Painter explains, “‘Gilded’ is not golden. ‘Gilded’ has the sense of a patina covering something else. It’s the shiny exterior and the rot underneath.”

But, while the original Gilded Age inspired a wave of political change, from the first march on Washington to the rise of the Populists, its fallout did not lead to the end of inequality in the United States. As Painter tells TIME, there have been several major cycles of inequality in the U.S.

since then: the mitigation of inequality during the Progressive era, the return to inequality in the 1920s, the great equalizer that was the Great Depression and the New Deal, and then the rise of inequality once again in the late 20th century.

That trend has continued to this day, and Americans are now living in an era that has been called a new Gilded Age.

“We’re in these cycles in which we learn and forget and learn and forget,” Painter says.

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It’s difficult to find a precise comparison between the level of inequality in the Gilded Age and that of today, because it hasn’t been tracked consistently and the modern income tax did not exist in the 19th century. Many studies that do compare over time start later, for example in the 1920s. What’s clear, however, is that both periods are marked by extreme wealth gaps.

One statistic cited by the Gilded Age documentary is that, by the time of that 1897 ball, the richest 4,000 families in the U.S. (representing less than 1% of the population) had about as much wealth as other 11.6 million families all together.

By comparison, as of November 2017, the three richest individuals in the U.S. had as much wealth as the bottom half of the population. According a recent CNN analysis of Federal Reserve data, as of the end of 2017, the top 1% of Americans held 38.

6% of the nation’s wealth.

But that doesn’t mean that today’s wealth gap is the same as that of more than a century ago.

For example, that 1897 ball might go down a little bit differently today. “One of the hallmarks of the Gilded Age is the flaunting of great wealth,” Painter tells TIME, pointing out that today’s wealthy Americans may be reluctant to expose just how much they have. “I think perhaps the roots of embarrassment over great wealth may go back to the 1930s, but that’s a really long time ago.”

One explanation could be that many of the people who are really wealthy today remember the 1960s, a time of not only greater wealth equality but also great idealism about the potential for equality, and not just economic equality. Even as equality has faded, she says, the nostalgia for that time remains. But, in the face of another round of technological and social changes, nostalgia only counts for so much.

“Capitalism makes some people really rich, and democracy is not strong enough to counter the power of great wealth,” Painter says. “Capitalism helps a lot of people in a lot of ways. Capitalists aren’t just robber barons and the very rich. It’s not all bad, but it’s very powerful.”

Write to Lily Rothman at [email protected]

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