The Conscience of a Liberal

3 THE GREAT COMPRESSION

In 1953 Time magazine, declaring that “the real news of the nation’s political future and its economic direction lies in people who seldom see a reporter,” sent one of its contributing editors, Alvin Josephy, on a national tour. His mission was to get a sense of America.

The portrait he painted bore little resemblance to the America of 1929. Where the America of the twenties had been a land of extremes, of vast wealth for a few but hard times for many, America in the fifties was all of a piece. “Even in the smallest towns and most isolated areas,” the Time report began, “the U.S. is wearing a very prosperous, middle-class suit of clothes…. People are not growing wealthy, but more of them than ever before are getting along.” And where the America of the twenties had been a land of political polarization, of sharp divides between the dominant right and the embattled left, America in the fifties was a place of political compromise: “Republicans and Democrats have a surprising sameness of outlook and political thinking.” Unions had become staid establishment institutions. Farmers cheerfully told the man from Time that if farm subsidies were socialism, then they were socialists.[1]

Though the Time editor’s impression that America had become a middle-class, middle-of-the-road nation wasn’t based on hard evidence, many others shared the same impression. When John Kenneth Galbraith called his critique of postwar American values The Affluent Society, he was being sardonic; yet its starting point was the assertion that most Americans could afford the necessities of life. A few years later Michael Harrington wrote The Other America to remind people that not all Americans were, in fact, members of the middle class—but a large part of the reason he felt such a book was needed was because poverty was no longer a majority condition, and hence tended to disappear from view.

As we’ll see, the numbers bear out what all these observers thought they saw. America in the 1950s was a middle-class society, to a far greater extent than it had been in the 1920s—or than it is today. Social injustice remained pervasive: Segregation still ruled in the South, and both overt racism and overt discrimination against women were the norm throughout the country. Yet ordinary workers and their families had good reason to feel that they were sharing in the nation’s prosperity as never before. And, on the other side, the rich were a lot less rich than they had been a generation earlier.

The economic historians Claudia Goldin and Robert Margo call the narrowing of income gaps that took place in the United States between the twenties and the fifties—the sharp reduction in the gap between the rich and the working class, and the reduction in wage differentials among workers—“the Great Compression.” Their deliberate use of a phrase that echoes “the Great Depression” is appropriate: Like the depression, the narrowing of income gaps was a defining event in American history, something that transformed the nature of our society and politics. Yet where the Great Depression lives on in our memory, the Great Compression has been largely forgotten. The achievement of a middle-class society, which once seemed an impossible dream, came to be taken for granted.

Now we live in a second Gilded Age, as the middle-class society of the postwar era rapidly vanishes. The conventional wisdom of our time is that while this is a bad thing, it’s the result of forces beyond our control. But the story of the Great Compression is a powerful antidote to fatalism, a demonstration that political reform can create a more equitable distribution of income—and, in the process, create a healthier climate for democracy.

Let me expand on that a bit. In the thirties, as today, a key line of conservative defense against demands to do something about inequality was the claim that nothing can be done—that is, the claim that no policies can appreciably raise the share of national income going to working families, or at least that none can do so without wrecking the economy. Yet somehow Franklin Delano Roosevelt and Harry Truman managed to preside over a dramatic downward redistribution of income and wealth that made Americans far more equal than before—and not only wasn’t the economy wrecked by this redistribution, the Great Compression set the stage for a great generation-long economic boom. If they could do it then, we should be able to repeat their achievement.

But how did they do it? I’ll turn to possible explanations in a little while. But first let’s take a closer look at the American scene after the Great Compression, circa 1955.

By the mid-1950s, Long Island’s Gold Coast—the North Shore domain of the wealthy during the Long Gilded Age, and the financial hub of the Republican Party—was no more. Some of the mansions had been sold for a pittance, then either torn down to make room for middle-class tract housing or adapted for institutional use (country clubs, nursing homes, and religious retreats still occupy many of the great estates.) Others had been given away to nonprofit institutions or the government, to avoid estate tax.

“What killed the legendary estates?” asks Newsday, the Long Island newspaper, in its guide to the structures still standing. Its answer is more or less right: “A triple whammy dealt by the advent of a federal income tax, the financial losses of the Great Depression and changes in the U.S. economic structure that made domestic service a less attractive job for the legions of workers needed to keep this way of life humming.”[2]

If the Gold Coast mansions symbolized Long Island in the Long Gilded Age, there was no question what took its place in the 1950s: Levittown, the quintessential postwar suburb, which broke ground in 1947.

William Levitt’s houses were tiny by the standards of today’s McMansions: the original two-bedroom model had only 750 square feet of living space and no basement. But they were private, stand-alone homes, pre-equipped with washing machines and other home appliances, offering their inhabitants a standard of living previously considered out of reach for working-class Americans. And their suburban location presumed that ordinary families had their own cars, something that hadn’t been true in 1929 but was definitely true by the 1950s.

Levitt’s achievement was partly based on the application to civilian housing of construction techniques that had been used during the war to build army barracks. But the reason Levitt thought, correctly, that he would find a mass market for his houses was that there had been a radical downward shift of the economy’s center of gravity. The rich no longer had anything like the purchasing power they’d had in 1929; ordinary workers had far more purchasing power than ever before.

Making statistical comparisons between the twenties and the fifties is a bit tricky, because before the advent of the welfare state the U.S. government didn’t feel the need to collect much data on who earned what, and how people made ends meet. When FDR spoke in his second inaugural address of “one third of a nation ill-housed, ill-clad, ill-nourished,” he was making a guess, not reporting an official statistic. In fact the United States didn’t have a formal official definition of poverty, let alone an official estimate of the number of people below the poverty line, until one was created in 1964 to help Lyndon Johnson formulate goals for the Great Society. But despite the limitations of the data, it’s clear that between the twenties and the fifties America became, to an unprecedented extent, a middle-class nation.

Part of the great narrowing of income differentials that took place between the twenties and the fifties involved leveling downward: the rich were significantly poorer in the fifties than they had been in the twenties. And I literally mean poorer: We’re not just talking about relative impoverishment, a failure to keep up with income growth further down the scale, but about a large absolute decline in purchasing power. By the mid-fifties the real after-tax incomes of the richest 1 percent of Americans were probably 20 or 30 percent lower than they had been a generation earlier. And the real incomes of the really rich—say, those in the top tenth of one percent—were less than half what they had been in the twenties. (The real pretax income of the top 1 percent was about the same in the mid-fifties as it was in 1929, while the pretax income of the top 0.1 percent had fallen about 40 percent. At the same time, income tax rates on the rich had risen sharply.[3])

Meanwhile the real income of the median family had more or less doubled since 1929.[4] And most families didn’t just have higher income, they had more security too. Employers offered new benefits, like health insurance and retirement plans: Before the war only a small minority of Americans had health insurance, but by 1955 more than 60 percent had at least the most basic form of health insurance, coverage for the expenses of hospitalization.[5] And the federal government backed up the new security of private employment with crucial benefits such as unemployment insurance for laid-off workers and Social Security for retirees.

So working Americans were far better off in the fifties than they had been in the twenties, while the economic elite was worse off. And even among working Americans economic differences had narrowed. The available data show that by the 1950s unskilled and semiskilled workers, like the people manning assembly lines, had closed much of the pay gap with more skilled workers, like machinists. And employees with formal education, like lawyers and engineers, were paid much less of a premium over manual laborers than they had received in the twenties—or than they receive today.

Economic statistics are useful, of course, only to the extent that they shed light on the human condition. But these statistics do tell a human tale, that of a vast economic democratization of American society.

On one side the majority of Americans were able, for the first time, to afford a decent standard of living. I know that “decent” isn’t a well-defined term, but here’s what I mean: In the twenties the technology to provide the major comforts and conveniences of modern life already existed. A modern American transported back to, say, the time of Abraham Lincoln would be horrified at the roughness of life, no matter how much money he had. But a modern American transported back to the late 1920s and given a high enough income would find life by and large tolerable. The problem was that most Americans in the twenties couldn’t afford to live that tolerable life. To take the most basic comfort: Most rural Americans still didn’t have indoor plumbing, and many urban Americans had to share facilities with other families. Washing machines existed, but weren’t standard in the home. Private automobiles and private telephones existed, but most families didn’t have them. In 1936 the Gallup organization predicted a landslide victory for Alf Landon, the Republican presidential candidate. How did Gallup get it so wrong? Well, the poll was based on a telephone survey, but at the time only about a third of U.S. residences had a home phone—and those people who didn’t have phones tended to be Roosevelt supporters. And so on down the line.

But by the fifties, although there were still rural Americans who relied on outhouses, and urban families living in tenements with toilets down the hall, they were a distinct minority. By 1955 a majority of American families owned a car. And 70 percent of residences had telephones.

On the other side F. Scott Fitzgerald’s remark that the rich “are different from you and me” has never, before or since, been less true than it was in the generation that followed World War II. By the fifties, very few Americans were able to afford a lifestyle that put them in a different material universe from that occupied by the middle class. The rich might have had bigger houses than most people, but they could no longer afford to live in vast mansions—in particular, they couldn’t afford the servants necessary to maintain those mansions. The traditional differences in dress between the rich and everyone else had largely vanished, partly because ordinary workers could now afford to wear (and clean) good clothes, partly because the rich could no longer afford to dress in a style that required legions of servants to help them get into and out of their wardrobes. Even the traditional rich man’s advantage in mobility—to this day high-end stores are said to cater to the “carriage trade”—had vanished now that most people had cars.

I don’t think it’s romanticizing to say that all this contributed to a new sense of dignity among ordinary Americans. Everything we know about America during the Long Gilded Age makes it clear that it was, despite the nation’s democratic ideology, a very class-conscious society—a place where the rich considered themselves the workers’ “betters,” and where workers lived in fear (and resentment) of the “bosses.” But in postwar America—and here I can speak from my personal memory of the society in which I grew up, as well as what we can learn from what people said and wrote—much of that class consciousness was gone. Postwar American society had its poor, but the truly rich were rare and made little impact on society. A worker protected by a good union, as many were, had as secure a job and often nearly as high an income as a highly trained professional. And we all lived material lives that were no more different from one another than a Cadillac was from a Chevy: One life might be more luxurious than another, but there were no big differences in where people could go and what they could do.

But how did that democratic society come into being?

Simon Kuznets, a Russian immigrant to the United States who won the Nobel Prize in Economics in 1971, more or less invented modern economic statistics. During the 1930s he created America’s National Income Accounts, the system of numbers—including gross domestic product—that lets us keep track of the nation’s income. By the 1950s Kuznets had turned his attention from the overall size of national income to its distribution. And in spite of the limitations of the data, he was able to show that the distribution of income in postwar America was much more equal than it had been before the Great Depression. But was this change the result of politics or of impersonal market forces?

In general economists, schooled in the importance of the invisible hand, tend to be skeptical about the ability of governments to shape the economy. As a result economists tend to look, in the first instance, to market forces as the cause of large changes in the distribution of income. And Kuznets’s name is often associated (rather unfairly) with the view that there is a natural cycle of inequality driven by market forces. This natural cycle has come to be known as the “Kuznets curve.”

Here’s how the Kuznets curve is supposed to work: In the early stages of development, the story goes, investment opportunities for those who have money multiply, while wages are held down by an influx of cheap rural labor to the cities. The result is that as a country industrializes, inequality rises: An elite of wealthy industrialists emerges, while ordinary workers remain mired in poverty. In other words a period of vast inequality, like America’s Long Gilded Age, is the natural product of development.

But eventually capital becomes more abundant, the flow of workers from the farms dries up, wages begin to rise, and profits level off or fall. Prosperity becomes widespread, and the economy becomes broadly middle class.

Until the 1980s most American economists, to the extent that they thought about the issue at all, believed that this was America’s story over the course of the ninteenth and twentieth centuries. The Long Gilded Age, they thought, was a stage through which the country had to pass; the middle-class society that followed, they believed, was the natural, inevitable happy end state of the process of economic development.

But by the mid-1980s it became clear that the story wasn’t over, that inequality was rising again. While many economists believe that this, too, is the inexorable result of market forces, such as technological changes that place a growing premium on skill, new concerns about inequality led to a look back at the equalization that took place during an earlier generation. And guess what: The more carefully one looks at that equalization, the less it looks like a gradual response to impersonal market forces, and the more it looks like a sudden change, brought on in large part by a change in the political balance of power.

The easiest place to see both the suddenness of the change and the probable importance of political factors is to look at the incomes of the wealthy—the top 1 percent or less of the income distribution.

We know more about the historical incomes of the wealthy than we know about the rest of the population, because the wealthy have been paying income taxes—and, in the process, providing the federal government with information about their financial status—since 1913. What tax data suggest is that there was no trend toward declining inequality until the mid-1930s or even later: When FDR delivered his second inaugural address in 1937, the one that spoke of one-third of a nation still in poverty, there was little evidence that the rich had any less dominant an economic position than they had had before World War I. But a mere decade later the rich had clearly been demoted: The sharp decline in incomes at the top, which we have documented for the 1950s, had already happened by 1946 or 1947. The relative impoverishment of the economic elite didn’t happen gradually—it happened quite suddenly,

This sudden decline in the fortunes of the wealthy can be explained in large part with just one word: taxes.

Here’s how to think about what happened. In prewar America the sources of high incomes were different from what they are now. Where today’s wealthy receive much of their income from employment (think of CEOs and their stock-option grants), in the twenties matters were simpler: The rich were rich because of the returns on the capital they owned. And since most income from capital went to a small fraction of the population—in 1929, 70 percent of stock dividends went to only 1 percent of Americans—the division of income between the rich and everyone else was largely determined by the division of national income between wages and returns to capital.

So you might think that the sharp fall in the share of the wealthy in American national income must have reflected a big shift in the distribution of income away from capital and toward labor. But it turns out that this didn’t happen. In 1955 labor received 69 percent of the pretax income earned in the corporate sector, versus 31 percent for capital; this was barely different from the 67–33 split in 1929.

But while the division of pretax income between capital and labor barely changed between the twenties and the fifties, the division of after-tax income between those who derived their income mainly from capital and those who mainly relied on wages changed radically.

In the twenties, taxes had been a minor factor for the rich. The top income tax rate was only 24 percent, and because the inheritence tax on even the largest estates was only 20 percent, wealthy dynasties had little difficulty maintaining themselves. But with the coming of the New Deal, the rich started to face taxes that were not only vastly higher than those of the twenties, but high by today’s standards. The top income tax rate (currently only 35 percent) rose to 63 percent during the first Roosevelt administration, and 79 percent in the second. By the mid-fifties, as the United States faced the expenses of the Cold War, it had risen to 91 percent.

Moreover, these higher personal taxes came on capital income that had been significantly reduced not by a fall in the profits corporations earned but in the profits they were allowed to keep: The average federal tax on corporate profits rose from less than 14 percent in 1929 to more than 45 percent in 1955.

And one more thing: Not only did those who depended on income from capital find much of that income taxed away, they found it increasingly difficult to pass their wealth on to their children. The top estate tax rate rose from 20 percent to 45, then 60, then 70, and finally 77 percent. Partly as a result the ownership of wealth became significantly less concentrated: The richest 0.1 percent of Americans owned more than 20 percent of the nation’s wealth in 1929, but only around 10 percent in the mid-1950s.

So what happened to the rich? Basically the New Deal taxed away much, perhaps most, of their income. No wonder FDR was viewed as a traitor to his class.

While the rich were the biggest victims of the Great Compression, blue-collar workers—above all, industrial workers—were the biggest beneficiaries. The three decades that followed the Great Compression, from the mid-forties to the mid-seventies, were the golden age of manual labor.

In fact, by the end of the 1950s American men with a high school degree but no college were earning about as much, adjusted for inflation, as workers with similar qualifications make today. And their relative status was, of course, much higher: Blue-collar workers with especially good jobs often made as much or more than many college-educated professionals.

Why were times so good for blue-collar workers? To some extent they were helped by the state of the world economy: U.S. manufacturing companies were able to pay high wages in part because they faced little foreign competition. They were also helped by a scarcity of labor created by the severe immigration restrictions imposed by the Immigration Act of 1924.

But if there’s a single reason blue-collar workers did so much better in the fifties than they had in the twenties, it was the rise of unions.

At the end of the twenties, the American union movement was in retreat. Major organizing attempts failed, partly because employers successfully broke strikes, partly because the government consistently came down on the side of employers, arresting union organizers and deporting them if, as was often the case, they were foreign born. Union membership, which had surged during World War I, fell sharply thereafter. By 1930 only a bit more than 10 percent of nonagricultural workers were unionized, a number roughly comparable to the unionized share of private-sector workers today. Union membership continued to decline for the first few years of the depression, reaching a low point in 1933.

But under the New Deal unions surged in both membership and power. Union membership tripled from 1933 to 1938, then nearly doubled again by 1947. At the end of World War II more than a third of nonfarm workers were members of unions—and many others were paid wages that, explicitly or implicitly, were set either to match union wages or to keep workers happy enough to forestall union organizers.

Why did union membership surge? That’s the subject of a serious debate among economists and historians.

One story about the surge in union membership gives most of the credit (or blame, depending on your perspective) to the New Deal. Until the New Deal the federal government was a reliable ally of employers seeking to suppress union organizers or crush existing unions. Under FDR it became, instead, a protector of workers’ right to organize. Roosevelt’s statement on signing the Fair Labor Relations Act in 1935, which established the National Labor Relations Board, couldn’t have been clearer: “This act defines, as a part of our substantive law, the right of self-organization of employees in industry for the purpose of collective bargaining, and provides methods by which the government can safeguard that legal right.” Not surprisingly many historians argue that this reversal in public policy toward unions caused the great union surge.

An alternative story, however, places less emphasis on the role of government policy and more on the internal dynamic of the union movement itself. Richard Freeman, a prominent labor economist at Harvard, points out that the surge in unionization in the thirties mirrored an earlier surge between 1910 and 1920, and that there were similar surges in other Western countries in the thirties; this suggests that FDR and the New Deal may not have played a crucial role. Freeman argues that what really happened in the thirties was a two-stage process that was largely independent of government action. First the Great Depression, which led many employers to reduce wages, gave new strength to the union movement as angry workers organized to fight pay cuts. Then the rising strength of the union movement became self-reinforcing, as workers who had already joined unions provided crucial support in the form of financial aid, picketers, and so on to other workers seeking to organize.

It’s not clear that we have to decide between these stories. The same factors that mobilized workers also helped provide the New Deal with the political power it needed to change federal policy. Meanwhile, even if FDR didn’t single-handedly create the conditions for a powerful union movement, the government’s shift from agent of the bosses to protector of the workers surely must have helped the union drive.

Whatever the relative weight of politics, the depression, and the dynamics of organizing in the union surge, everything we know about unions says that their new power was a major factor in the creation of a middle-class society. According to a wide range of scholarly research, unions have two main effects relevant to the Great Compression. First, unions raise average wages for their membership; they also, indirectly and to a lesser extent, raise wages for similar workers, even if they aren’t represented by unions, as nonunionized employers try to diminish the appeal of union drives to their workers. As a result unions tend to reduce the gap in earnings between blue-collar workers and higher-paid occupations, such as managers. Second, unions tend to narrow income gaps among blue-collar workers, by negotiating bigger wage increases for their worst-paid members than for their best-paid members. And nonunion employers, seeking to forestall union organizers, tend to echo this effect. In other words the known effects of unions on wages are exactly what we see in the Great Compression: a rise in the wages of blue-collar workers compared with managers and professionals, and a narrowing of wage differentials among blue-collar workers themselves.

Still, unionization by itself wasn’t enough to bring about the full extent of the compression. The full transformation needed the special circumstances of World War II.

Under ordinary circumstances the government in a market economy like the United States can, at most, influence wages; it doesn’t set them directly. But for almost four years in the 1940s important parts of the U.S. economy were more or less directly controlled by the government, as part of the war effort. And the government used its influence to produce a major equalization of income.

The National War Labor Board was actually created by Woodrow Wilson in 1918. Its mandate was to arbitrate disputes between labor and capital, in order to avoid strikes that might disrupt the war effort. In practice the board favored labor’s interests—protecting the right of workers to organize and bargain collectively, pushing for a living wage. Union membership almost doubled over a short period.

After World War I the war labor board was abolished, and the federal government returned to its traditional pro-employer stance. As already noted, labor soon found itself in retreat, and the wartime gains were rolled back.

But FDR reestablished the National War Labor Board little more than a month after Pearl Harbor, this time with more power. The war created huge inflationary pressures, leading to government price controls on many key commodities. These controls would have been unsustainable if the labor shortages created by the war’s demands led to huge wage increases, so wages in many key national industries were also placed under federal controls. Any increase in those wages had to be approved by the NWLB. In effect the government found itself not just arbitrating disputes but dictating wage rates to the private sector.

Not surprisingly, given the Roosevelt administration’s values, the rules established by the NWLB tended to raise the wages of low-paid workers more than those of highly paid employees. Following a directive by Roosevelt that substandard wages should be raised, employers were given the freedom to raise any wage to forty cents an hour (the equivalent of about five dollars an hour today) without approval, or to fifty cents an hour with approval from the local office of the NWLB. By contrast increases above that level had to be approved by Washington, so the system had an inherent tendency to raise wages for low-paid workers faster than for the highly paid. The NWLB also set pay brackets for each occupation, and employers were free to raise any worker’s wage to the bottom of the pay bracket for the worker’s occupation. Again this favored wage increases for the low paid, but not for those with higher wage rates. Finally the NWLB allowed increases that eliminated differences in wages across plants—again raising the wages of those who were paid least.

As Goldin and Margo say, “Most of the criteria for wage increases used by the NWLB served to compress wages across and within industries.” So during the brief period when the U.S. government was in a position to determine many workers’ wages more or less directly, it used that power to make America a more equal society.

And the amazing thing is that the changes stuck.

Suppose that Democrats in today’s Congress were to propose a rerun of the policies that produced the Great Compression: huge increases in taxes on the rich, support for a vast expansion of union power, a period of wage controls used to greatly narrow pay differentials, and so on. What would conventional wisdom say about the effects of such a program?

First, there would be general skepticism that these policies would have much effect on inequality, at least in the long run. Standard economic theory tells us that attempts to defy the law of supply and demand usually fail; even if the government were to use wartime powers to decree a more equal structure of wages, the old wage gaps would reassert themselves as soon as the controls were lifted.

Second, there would be widespread assertions—and not only from the hard right—that such radical equalizing policies would wreak destruction on the economy by destroying incentives. High taxes on profits would lead to a collapse of business investment; high taxes on high incomes would lead to a collapse of entrepreneurship and individual initiative; powerful unions would demand excessive wage increases, leading to mass unemployment, and prevent productivity increases. One way to summarize this is to say that the changes in U.S. policies during the Great Compression look like an extreme form of the policies that are widely blamed today for “Eurosclerosis,” the relatively low employment and (to a lesser extent) economic growth in many Western European economies.

Now, maybe these dire predictions would come true if we tried to replicate the Great Compression today. But the fact is that none of the bad consequences one might have expected from a drastic equalization of incomes actually materialized after World War II. On the contrary, the Great Compression succeeded in equalizing incomes for a long period—more than thirty years. And the era of equality was also a time of unprecedented prosperity, which we have never been able to recapture.

To get a sense of just how well things went after the Great Compression, let me suggest dividing postwar U.S. economic history into three eras: the postwar boom, from 1947 to 1973; the time of troubles, when oil crises and stagflation wracked the U.S. economy, from 1973 to 1980; and the modern era of reasonable growth with rising inequality, from 1980 until the present. (Why start in 1947? For two reasons: The Great Compression had been largely accomplished by then, and good data mostly start from that year.)

During the postwar boom the real income of the typical family roughly doubled, from about $22,000 in today’s prices to $44,000. That’s a growth rate of 2.7 percent per year. And incomes all through the income distribution grew at about the same rate, preserving the relatively equal distribution created by the Great Compression.

The time of troubles temporarily brought growth in median income to a halt. Growth resumed once inflation had been brought under control—but for the typical family even good times have never come close to matching the postwar boom. Since 1980 median family income has risen only about 0.7 percent a year. Even during the best of times—the Reagan-era “morning in America” expansion from 1982 to 1989, the Clinton-era boom from 1993 to 2000—family income grew more slowly than it did for a full generation after the Great Compression.

As always these are just numbers, providing at best an indication of what really happened in peoples’ lives. But is there any question that the postwar generation was a time when almost everyone in America felt that living standards were rising rapidly, a time in which ordinary working Americans felt that they were achieving a level of prosperity beyond their parents’ wildest dreams? And is there any question that the way we feel about the economy today is, at best, far more cautious—that most Americans today feel better off in some ways, but worse off in others, than they were a couple of decades ago?

Some people find the reality of how well the U.S. economy did in the wake of the Great Compression so disturbing, so contrary to their beliefs about the way the world works, that they’ve actually rewritten history to eliminate the postwar boom. Thus Larry Kudlow, who preaches his supply-side doctrine every weekday night on CNBC, tells us that thanks to Ronald Reagan’s tax cuts, “for the first time since the post–Civil War period (but for the brief Coolidge-Mellon period in the 1920s), the American economic system became the envy of the world.” I guess the prosperity reported by that Time editor, not to mention all the available economic data, was simply an illusion.

But it was no illusion; the boom was real. The Great Compression, far from destroying American prosperity, seems if anything to have invigorated the economy. If that tale runs counter to what textbook economics says should have happened, well, there’s something wrong with textbook economics. But that’s a subject for a later chapter.

For now let’s simply accept that during the thirties and forties liberals managed to achieve a remarkable reduction in income inequality, with almost entirely positive effects on the economy as a whole. The men and women behind that achievement offer today’s liberals an object lesson in the difference leadership can make.

But who were these men and women, and why were they in a position both to make such large changes in our society and to make those changes stick?