The great hope of some reform-minded Americans is that there will be, sooner or later, a political backlash against rising inequality in America. Kevin Phillips, a former Republican adviser, is one of these. A principal aim of his wise if sprawling new book, Wealth and Democracy, is to show that the growth of private wealth in the 1990s was analogous to the rise of private wealth in previous eras, especially the Gilded Age of the late nineteenth century and the 1920s.
In all these periods, Phillips argues, great fortunes had the effect of undermining democratic values and creating difficult economic times for many and perhaps even most other Americans. In the past, the nation always seemed to alternate between the domination of private and of public interests, and it is possible that it will do so again. The Gilded Age of Vanderbilt, Rockefeller, Carnegie, Astor, and Morgan was followed by new regulations on business and commerce, progressive income taxes, and the establishment of the Federal Reserve under Presidents Theodore Roosevelt and Woodrow Wilson. The 1920s of the Fords, Mellons, duPonts, and Joseph Kennedy, among others, were followed by Franklin D. Roosevelt’s New Deal, which adopted further serious restrictions on business, established Social Security and unemployment insurance, created a minimum wage, and raised income taxes. Joseph Kennedy himself was the effective first chairman of the newly created Securities and Exchange Commission. “The early twenty-first century should see another struggle because corporate aggrandizement in the 1980s and 1990s went beyond that of the Gilded Age,” Phillips writes.
But why hasn’t it happened yet? To the contrary, between 1979 and 1995, American workers accepted widening inequalities in income and wealth and rapidly rising corporate profits with equanimity and even, it seemed, self-reproach. There was surely voter frustration in this period of slow economic growth, but it generally favored Republican tax-cutters like Ronald Reagan or centrist Democrats like Bill Clinton, and it was channeled toward re- straining government rather than business. Most Americans seemed to take satisfaction from breaking up unions, such as the air traffic controllers’ union, and from reforming welfare, although it saved the federal government much less than 1 percent of the Gross Domestic Product a year, and from cutting taxes, mostly for the rich. There were hardly any serious attempts to regulate business. Even conservative populists like Patrick Buchanan or Ross Perot could not attract a wide following. The expansion of the earned income tax credit, which has helped countless low-income workers, seemed almost to sneak in under the radar.
The economic boom of the late 1990s, in turn, suppressed almost completely any lingering concerns about the power of the rich as wages, after stagnating for two decades, rose for all income levels. Unemployment rates fell to 4 percent and the soaring stock market, though it still significantly benefited only a small percentage of the population, became the national sport. The 1997 and 1998 international financial crises, the bursting of the stock market bubble in 2000, and even …