This chart comes from a new paper by Shawn Fremsted, “Talking about Poverty in a Jobs and Economy Framework,” published by the Center for Economic Policy Research. Fremsted’s aim is to to re-cast the debate over poverty, which opinion polls show most Americans don’t care about, to one of “jobs” or the “economy,” which appeals to a much broader cross section of the population. This chart goes to the heart of the problem. In the first two decades following World War II, worker pay rose with productivity, and all income classes shared in the rising income. Then, around 1980, the relationship between productivity and pay diverged, with an increasing share of income going to the wealthiest Americans. (Click on chart for a more legible image.)
Explaining that divergence and responding to it appropriately, it seems to me, is one of the great challenges of our era. The left-of-center narrative is that the divergence represents a trend that can be corrected by redistributive policies. A right-of-center narrative suggests that the divergence can be attributed to the dysfunctions created by an ever-growing government that consumes an increasing share of society’s resources. Whichever side you favor, the graph does help clarify the debate.
Robert Reich thoughtfully addressed the Great Divergence from a leftist perspective. In “Supercapitalism,” he blamed the evolution of the capitalist system from a syndicalist arrangement in which America was dominated by industrial oligarchies and trade unions to divvy up the economic pie more justly into a hyper-competitive capitalist society. He captures elements of reality in his explanation.
But I think there’s a lot more to the story. The Great Divergence in worker pay and compensation began well before 1980 — it began in the mid-1960s, although it markedly accelerated in the 1980s. What happened in the mid-1960s? President Johnson launched the Great Society, the greatest expansion in the size, scope and activism of government since the Great Depression. Coincidence? I think not. Even those who would lay the blame elsewhere (globalization, automation, the rapacity of the private sector, supercapitalism) have to confront this basic fact: The unprecedented growth in the size and intrusiveness of government has failed to reverse the Great Divergence.
I will concede that government may not be the only factor accounting for the divergence. The 1960s also marked the rise of the counter culture and the assault on traditional boring, “bourgeois” middle-class values such as thrift, self-reliance, traditional family structures and the deferral of gratification. The “Save for a Rainy Day” ethic was replaced by the “If It Feels Good, Do It” ethic. Those who clung to the work ethic tended to prosper. Those who rejected it tended to fail. Just a theory.
— James A. Bacon
