Are we living in a new “Gilded Age” of income inequality?

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Dear Cecil: Lately I’ve been hearing that the difference between the haves and have-nots in the U.S. has been increasing, and that unequal distribution of incomes has been approaching that of the Gilded Age. Is this literally true? While I understand that Bill Gates and corporate CEOs and such are taking home some serious cash, are we really seeing a return to the era of the robber barons, when a tiny percentage of the population controlled a huge chunk of the national wealth? Betsy Schorsch, Chicago


Illustration by Slug Signorino

Cecil replies:

Questions like this always irritate the man of science (and no doubt the woman too) because the answer depends on how the issue is framed. Is the degree of inequality in the distribution of income “approaching” that of the Gilded Age? Sure. If I take one step south I’m approaching Patagonia, too. Doesn’t mean I’m necessarily close. So let’s tighten things up a bit. On November 20, 2003, the New York Review of Books contained the following statement by Paul Krugman: “Recent statistics confirm that income inequality in the United States has returned to Gilded Age levels.” Krugman, a New York Times columnist and Princeton economics professor, has been a leading publicist of the idea that we’re not merely returning to the Gilded Age, we’re already there. But are we?

Right off the bat we run into more ambiguity: What do we mean by “Gilded Age”? According to the Britannica, the phrase refers to the 1870s, a “period of gross materialism and blatant political corruption in U.S. history.” Mark Twain and Charles Dudley Warner christened the era in a book of that name published in 1873.

Setting aside the question of what period in U.S. history has not been characterized by gross materialism and blatant political corruption, we note that a lot of people construe the term to cover a much longer period than the 1870s. Krugman is one of them. If we judge from his writings on the Web, he thinks the Gilded Age properly ended with the stock market crash of 1929. Understood in this way, Krugman’s thesis is … well, a bit of a reach, but not flat wrong. He cites a 2001 study by economists Thomas Piketty and Emmanuel Saez, “Income Inequality in the United States, 1913-1998.” Using federal income tax data, Piketty and Saez have compiled a tall stack of charts, one of which tracks the share of national income earned by the top 0.1 percent of the population. It shows that the superrich went home with almost 10 percent of the national take (less capital gains) in 1916, the modern peak. Having dropped a bit after World War I, the Fortunate One Thousandth’s share spiked up to more than 8 percent in 1928, then declined to less than 3 percent in 1953 and less than 2 percent in 1973. Thereafter it rose again, most sharply in the latter Reagan years, reaching 6 percent by 1998.

Well, 6 percent is a lot more than 2 percent. In France and the UK, which had concentrations of wealth similar to ours in the early 20th century, the superrich have done nowhere near as well — they take home a steady 2 percent of the national income in France, 3 percent (and climbing) in the UK. On the other hand, 6 percent is still well shy of 10 percent, and merely gets us back to the circumstances that prevailed in 1938.

You may say I’m quibbling. Look, I said if you defined the Gilded Age broadly enough, Krugman wasn’t flat wrong. Ignoring the peak years, today we’re roughly where we were in the interval between the first and second world wars, when plenty of Americans were dirt poor. Is that the Gilded Age, though? I don’t think so. One big difference is that Bill Gates and company have to contend with federal income tax, whereas 19th-century robber barons didn’t. (It was instituted in 1913.) Piketty and Saez write, “Top capital incomes are still lower in the late 1990s than before World War I. A plausible explanation is … steep progressive taxation.”

Other differences include 20th-century antitrust policies and the vastly increased scale and complexity of modern American business. The robber barons weren’t just rich, they controlled the U.S. economy to an extent that today’s superrich can only dream about. Today Microsoft may dominate the operating-system market with Windows, but in the context of the total U.S. economy the company’s a drop in the bucket. In contrast, when Standard Oil had a 64 percent market share in 1911, John D. Rockefeller’s net worth amounted to more than 2 percent of annual U.S. output and in inflation-corrected dollars was more than twice that of Bill Gates. That’s not to sugarcoat the present situation. As Krugman points out, since 1979, while executive compensation has soared, the income of the bottom fifth of Americans has fallen slightly in constant dollars, which hardly contributes to the stability of the republic. Still, today’s tycoons aren’t in the same league — yet — with the giants of the past.

Cecil Adams

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