The relative distribution of family income has changed very little over the last generation. The nation took a big step towards equality during World War II; Throughout the post-war period, the higher income groups received a significantly smaller share of total income than they did in the boom years of the 1920s.
It was the historical period that economists Claudia Goldin and Robert A. Margo would describe, a decade and a half later, as the Great compression. For half a century, the distribution of income in the United States has become more equal or has remained stable. What Okun couldn’t know was that this era was drawing to a close. Beginning around 1979, the Great Compression gave way to a period of worsening income inequality that Paul Krugman called the Great Divergence (a phrase I borrowed for the title of a book 2012 I wrote on the subject). This is the time we live in today, and it lasted almost as long as the Great Compression (which some simply call “the Golden Age”).
American life during the Great Compression had more than its share of problems. These included the worst economic depression in U.S. history, the deadliest foreign war in the history of the United States, a series of gruesome political assassinations and levels of racism, sexism, homophobia and other types of fanaticism – often expressed with violence – that today would be mind-boggling.
But it was also a time when prosperity was widely shared among the (admittedly small) group that fully participated in the economy. Around this time, many mainstream economists came to believe that income inequality would naturally continue to decline forever. It was just what happened in an advanced civilization. Writer Brink Lindsey skillfully summed up contemporary nostalgia for this period in a 2006 New Republic trial. “The rival ideologies of the left and the right,” he writes, “both yearn for the 1950s. The only difference is that the Liberals want to work there, while the Conservatives want to go home there. “