The Liberals and Inequality, Then and Now

Articles on income equality sometimes note that the U.S. economy hasn’t faced the current level of disparity since 1928, on the eve of the Great Depression.  There has been much less discussion of the responses to the issue back then, even though income inequality was a major concern for policymakers as the Depression deepened and even figured prominently in one of the central pieces of New Deal legislation.

This isn’t just interesting history.  A look back at the 1930s provides an important perspective on the concern that liberal journalists and economists are now expressing over inequality — and suggests ways for U.S. progressives to move beyond the liberal position.

There are many differences between the Depression and the downturn that followed the financial crisis of 2008, but the two periods share one basic problem: a stagnating economy.  Then as now some economists and others viewed income inequality as the main cause of the stagnation, and a more balanced income distribution as the way out.

Marriner Eccles, the banker who headed the Federal Reserve from 1934 to 1948, summed up this view in a 1951 book:

As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth . . . to provide men with buying power equal to the amount of goods and services offered by the nation’s economic machinery.  Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth.  This served them as capital accumulations.  But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants.

The Economic Poker Game

Eccles compared the situation to “a poker game where the chips were concentrated in fewer and fewer hands. . . .  [T]he other fellows could stay in the game only by borrowing.  When their credit ran out, the game stopped.”

One solution to the problem would obviously be to get more chips into the hands of “the other fellows” — that is, raise wages — and an effective way to do this, some policymakers realized, would be to allow workers more freedom to unionize.  In June 1935 the U.S. Congress passed the National Labor Relations Act — the NLRA, also known as the “Wagner Act” after its sponsor, New York senator Robert Wagner.  The law remains to this day the main legislation protecting, within limits, the right of most U.S. workers to organize.

The NLRA’s authors had to forestall rejection by a conservative Supreme Court, so they included a preamble citing justifications in the U.S. Constitution.  The nation’s well-to-do creators had little interest in workers’ rights, of course, but because of their concern with maintaining trade they gave Congress authority to regulate commerce between the states.  This power is what the New Dealers seized on as a rationale for the proposed legislation.

“The inequality of bargaining power” between employers and employees, the NLRA preamble reads,

substantially burdens and affects the flow of commerce, and tends to aggravate recurrent business depressions, by depressing wage rates and the purchasing power of wage earners in industry and by preventing the stabilization of competitive wage rates and working conditions within and between industries.

In other words, the right of U.S. workers to organize, such as it is, isn’t based on any abstract concept of labor rights; its legal justification is that it can help preserve workers’ purchasing power.

“Industrial Strife and Unrest”

The NLRA preamble cites an additional constitutional justification.  Reducing wage earners’ ability to consume isn’t income inequality’s only drawback: it also makes them angry.  It can even, in combination with other factors, make them rebellious.

By the time the NLRA was passed, social tensions had risen to the point where many on the U.S. right were afraid that there could be a revolution, while many on the left were hoping for one.  Both the hopes and the fears were exaggerated, but the upsurge of labor activity was real.  The Census bureau reported that the year 1934 brought the country 1,856 work stoppages involving 1.47 million workers.  These numbers may be an underestimate, and they do nothing to convey the intensity of the upheavals that year: the bloody strike against Electric Auto-Lite in Toledo, Ohio; the Teamsters’ shutdown of crucial trucking operations in the Minneapolis area; and a West Coast dockworkers’ job action which culminated in a major general strike in San Francisco.

This labor upsurge provided the second justification for the NLRA.  Much as employers might not want to deal with unions, policymakers began to see orderly collective bargaining, however distasteful, as preferable to actual battles between strikers and police in the streets of U.S. cities.  “Experience has proved,” the act’s preamble continues,

that protection by law of the right of employees to organize and bargain collectively safeguards commerce from injury, impairment, or interruption, and promotes the flow of commerce by removing certain recognized sources of industrial strife and unrest. . . .

The “Right Amount” of Inequality

Sincere concern for social justice may have motivated many individual New Dealers, but the NLRA and other reforms in the 1930s were mainly an effort by the more enlightened sector of the elite to preserve the system at a time of crisis.  It’s reasonable to wonder whether liberal policymakers’ current worries about income inequality are any different — whether their goal isn’t just to bring the level of inequality back to what National Public Radio has called the “right amount.”

As it happens, many of the people talking and writing about income inequality now are implicated in the policies that contributed to the problem.

The growth of U.S. wages began to slow down in the 1970s, and the Ronald Reagan and George H.W. Bush administrations made the situation worse, but Bill Clinton’s team, egged on by the media, did its own part to promote inequality.  The Clinton White House pushed NAFTA — the North American Free Trade Agreement — through Congress in 1993, encouraging the outsourcing of relatively well-paid industrial jobs to Mexico; it “ended welfare as we know it” in 1996, forcing millions of economically vulnerable mothers into the domestic job market; and it gutted New Deal financial regulations in 1999, aiding the superrich as they cornered an ever greater share of the national income.  The New York Times and economists Robert Reich and Larry Summers may worry about the disparity between rich and poor now, but we shouldn’t forget that Reich was Clinton’s labor secretary from 1993 to 1997, that Summers served Clinton as deputy treasury secretary and then as treasury secretary, and that the New York Times championed NAFTA as a policy in “the higher national interest.”

It’s hard not to suspect that if these liberals are worried about inequality now, it’s for the reasons given in the NLRA preamble.  Summers has been explicit about this.  “Demands for action [against inequality] are hardly unreasonable,” he wrote in 2014, citing evidence that inequality leads to “reduced demand for goods and services and increased alienation from public institutions.”

Going Beyond Inequality

As might be expected, the recommendations the liberals make for dealing with inequality are mild — actually less radical than some New Deal programs.  Summers, for example, basically limits his suggestions to plugging tax loopholes.  The Times runs op-eds promoting fixes like a wealth tax.  Reich, probably the most sincere and most radical of the mainstream commentators, doesn’t go far beyond calling for “an activist government that raises taxes on the wealthy, invests the proceeds in excellent schools and other means people need to become more productive, and redistributes to the needy.”

And of course, the liberals don’t advocate militant labor actions in the style of the 1930s.  At most, they might support comparatively moderate organizing drives like Fight for 15 and populist political actions like the Bernie Sanders campaign for the Democratic presidential nomination.

It could be argued that the current situation isn’t as dire as it was eighty years ago.  At the start of the Depression the U.S. government lacked many of the mechanisms it has now for economic control, and the U.S. population faced a much more drastic unemployment rate with a safety net that was even flimsier than the current one.  But today’s crisis is magnified by other global crises: climate change, the availability of nuclear weapons, a world population three times what it was in 1930.  What we need now is much more than the redistribution of a few “poker chips” or the “right amount” of inequality; we need an economy that actually works for us, and for the planet.

Still, despite its shortcomings the mainstream discussion of inequality provides an opportunity to talk seriously about economic issues.  Bernie Sanders’ economic program exemplifies these opportunities.  It falls short of New Deal efforts, and no serious economic agenda can simply ignore, as this one does, the U.S. military machine, our number one waste of resources and number one polluter, or overlook the economic costs — as well as the human costs — of systemic racism and of the relegation of immigrants to an underclass status.  But the Sanders program at least calls for public works, for greening the economy, and for ending the wage disparity for women; this opens up space for important discussions.

Even the best economic program wouldn’t be enough by itself, however.  Just as in the 1930s, change will come through organizing and struggle.  If the liberals are focused on inequality now, it’s largely a result of people taking to the streets in movements like Occupy Wall Street and in militant actions like the 2009 Republic Windows plant occupation.  We need to build on these efforts, and also to learn from the experiences of the 1930s, from the unemployed leagues, the self-help cooperatives, the sit-down strikes.

It’s going to be a big fight, and we may have to resort to some “industrial strife and unrest” if we really want to win.

David L. Wilson and co-author Jane Guskin are working on a revised edition of The Politics of Immigration: Questions and Answers (Monthly Review Press, July 2007).