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The Great Compression
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Tyler Cowen gives his jaundiced view of what caused the great compression of the American income distribution in the 1937-47 period:
I don't really buy that, but it does seem that whatever elements of the World War II era policy climate laid the groundwork for the relatively egalitarian thirty postwar years are unlikely to be repeatable short of some comparably scaled world-historical calamity. On the other hand, the more important issue analytically may really be the post-war policy climate, which was much more catastrophe-free, that sustained the compressed distribution.
Crush the incomes at the top and then make the fat cats pay much higher wages to protect the world and become a superpower. Impose wage and price controls as well. See how long it takes before these distributional effects -- which don't exactly match the distribution of economic talent-- reverse themselves in the aggregate.
I don't really buy that, but it does seem that whatever elements of the World War II era policy climate laid the groundwork for the relatively egalitarian thirty postwar years are unlikely to be repeatable short of some comparably scaled world-historical calamity. On the other hand, the more important issue analytically may really be the post-war policy climate, which was much more catastrophe-free, that sustained the compressed distribution.
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