Alexis de Tocqueville began his classic description of democracy in America by remarking that what struck him most about the strange new country he visited in the early 1830s was “the general equality of condition among the people.” Much of the rest of what he wrote was an elaboration of what this equality meant, and why it mattered. Tocqueville saw, of course, that some Americans had more money, and enjoyed greater social status and political influence, than others. But “though there are rich men,” he explained, “the class of rich men does not exist; for these rich individuals have no feelings or purposes, no traditions or hopes, in common.”
Tocqueville also warned, however, of a force that threatened in time to undermine this democracy grounded on equality. The danger he saw was economic, arising from the increasingly hierarchical structure of business activity: eventually, he feared, “the master and the workman have then here no similarity, and…are connected only like the two rings at the extremities of a long chain…. What is this but aristocracy?” He concluded that “if ever a permanent inequality of conditions and aristocracy again penetrates into the world, it may be predicted that this is the gate by which they will enter.”
Many observers of America today think Tocqueville’s fears have become reality. The gap between “masters” and “workmen” has widened beyond anything he could have envisioned. And, in contrast to what Tocqueville observed in the still-new republic, today there certainly is a “class of rich men.” No one doubts that the children and grandchildren of today’s top hedge fund managers and Internet entrepreneurs will enjoy privileged positions for generations to come.
The problem is threefold. First, contrary to what most economists of the early post–World War II generation expected, inequality in the United States has now been widening for the past four decades.1 Especially at the very top of the scale—not just the top 1 percent, but even more so the top 0.01 percent—the increases in income and wealth have been enormous. For most other Americans, incomes have been stagnant; with the decline in house prices, so has their wealth. In the recent setting of only modest overall economic growth, this widening inequality has meant that almost all of what economic gains have occurred accrued to those at the top. From 2000 until the financial crisis hit in 2007, total production in the United States expanded by 18 percent after allowing for inflation; the income of the family just at the middle of the nation’s income distribution rose by not even one half of one percent.
Second, the spectacular successes of a few entrepreneurs notwithstanding, it has become harder for Americans to move up (or down) the economic scale than it used to be. Measuring economic mobility is notoriously difficult, but the evidence increasingly suggests that movement along the economic spectrum, from…
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