How Piketty's Bombshell Book Blows Up Libertarian Fantasies [View all]

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http://www.alternet.org/economy/how-pikettys-bombshell-book-blows-libertarian-fantasies



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How did libertarians get it all so backwards? Well, as Piketty points out, people like Milton Friedman were writing at a time when inequality was indeed less pronounced in the U.S. than it had been in previous eras. But they mistook this happy state of affairs as the magic of capitalism. Actually, it wasn’t the magic of capitalism that reduced inequality during a brief, halcyon period after WWII. It was the forces of various economic shocks plus policies our government put in place to respond to them that changed America from a top-heavy society in the Gilded Age to something more egalitarian in the post-war years.

As you’ll recall, if you watched the movie Titanic, the U.S. had a class of rentiers (rich people who live off property and investments) in the early part of the 20th century who hailed from places like Boston, New York and Philadelphia. They were just as nasty and rapacious as their European counterparts, only there weren’t quite so many of them and their wealth was not quite as concentrated (the Southern rentiers had been wiped out by the Civil War).

The fortunes of these rentiers were not shock-proof: If you remember Hockney, the baddie in James Cameron’s film, he survives the Titanic but not the Great Crash of ’29, when he loses his money and offs himself. The Great Depression got rid of some of the extreme wealth concentration in America, and later the wealthy got hit with substantial tax shocks imposed by the federal government in the 1930s and '40s. The American rentier class wasn’t really vaporized the way it was in Europe, where the effects of the two world wars were much more pronounced, but it took a hit. That opened up the playing field and gave people more of a chance to rise on the rungs of the economic ladder through talent and work.

After the Great Depression, inequality decreased in America, as New Deal investment and education programs, government intervention in wages, the rise of unions, and other factors worked to give many more people a chance for success. Inequality reached its lowest ebb between 1950 and 1980. If you were looking at the U.S. during that time, it seemed like a pretty egalitarian place to be (though blacks and many women would disagree).