Between 1973 and 1993, the standard of living for average Americans rose more slowly than in any previous twenty-year period since the Civil War. Although the economy grew, the benefits of this growth were largely enjoyed by the rich. Average wages and salaries grew because the earnings of those belonging to the highest income categories increased rapidly. But there was not a commensurate gain in median family income—the level at which half of American families earn more and half less, and probably the best overall measure of the standard of living. In fact, median family income rose only slightly over these years, and it did so largely because of the rapid increase in two-income households.
By contrast, in the preceding twenty years, starting in 1953, median family income doubled. Then, between 1973 and 1993, the average wage of non-management workers fell nearly 25 percent, from $615 a week in today’s dollars to only $479. Family incomes fell well behind rapidly rising health care costs, and an ever-higher proportion of Americans went without coverage.
Nor did the income of the typical family keep up with the rising costs of higher education, public transit, and drugs; and of course the situation of the poor was even worse. It is true that the federal government’s earned income tax credit, which largely absolved low-income workers from taxes and supplemented their wages, became more generous over these years. But the incomes of minorities stagnated, and the gap in income and education between black and white Americans remained wide. Since a small number of well-to-do Americans had much larger incomes and built and increased enormous fortunes, inequality reached the notorious levels attained in the Roaring Twenties.
Despite the strained conditions for most Americans, there was no broad progressive political reaction, as there had been during the Depression. On the contrary, the social programs and regulations of the New Deal and Lyndon Johnson’s Great Society were increasingly attacked, pared down, and eliminated. Government regulation of airlines, truckers, and communications became more permissive under Presidents Jimmy Carter and Ronald Reagan. The regulation of banks, brokers, and other financial services was relaxed under Bill Clinton. Laws protecting organized labor were weakened or poorly enforced. Besides cutting income taxes sharply and making them more regressive, Reagan reduced the proportion of people covered by unemployment insurance. Federal support of education fell as a percentage of Gross Domestic Product as well. Affirmative action programs were circumscribed by the courts, and Clinton limited the scope of federal welfare programs.1 The minimum wage was raised only a few times over these decades, and in purchasing power adjusted for inflation it is now the same as it was in the 1950s.
Some economists and policymakers have argued that reduced taxes, deregulation, weaker labor unions, and a lower minimum wage were just what was needed to revitalize the economy. The benefits of more rapid growth would, they…
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