Economics

Financially Speaking, the Best Time to Be Alive Was During the Great Compression

From a financial point of view, the best time to live, work, or open a business in the United States was between the 1940s and the 1960s. Although racism, sexism, and anti-communist witch hunts were significant social issues, overall income equality was higher than at any other point in American history. This period is called the Great Compression because it immediately followed (and undid the effects of) the Great Depression.

Related Video: The History of Income Tax in America

What Was the Great Compression?

During the Great Compression, the top 0.01 percent of income earners in the U.S.  held just over one percent of the country's wealth. For comparison, the same portion earned more than five percent of the country's total wealth in 2015. Since the 1960s, the richest of the rich have come to earn a greater and greater portion of the country's overall wealth for themselves. Today's income gap is so large that the top 0.01 percent have nearly 200 times the wealth as the bottom 90 percent. The income gap has been growing at an accelerating rate by every major statistical measure and shows no signs of stopping.

Why Did the Great Compression Happen?

So why were the 1940s, 50s, and 60s so special, and why can't we all work together now to make the economy more equal? There's a short answer and a long answer to this question. The short answer is "World War II," and the long answer involves the increased demand for unskilled labor during and immediately following the war, newly strengthened unions, and the residual effects of a highly progressive wartime taxation rate. But there's more to the story than that. World War II left almost every country in the world indebted to the United States as a result of the Lend-Lease Act of 1941. The solution? Have every country peg the value of its currency to the U.S. Dollar. During this time, American goods occupied a premium slot in global markets, and everyone had to buy American-made cars, food, and other products because their own economies were destroyed in the war.

So What Happened to Income Equality?

Economists disagree on the principal cause of today's unequal economy. One thing that's clear is that on a global manufacturing scale, the United States of America now has competition that it simply didn't have back then. With Europe recovering from the war, China in the upheaval of Mao's Cultural Revolution, and the Cold War still a few years off, American workers during the Great Compression lived and worked in a bubble of economic safety that doesn't exist today. Now American companies looking for unskilled labor can search overseas, set up a remote office, and earn much higher margins than their predecessors ever could. There are fewer American union workers today than back then, and those that do work in unions don't hold the same leverage that they used to.

Could we ever return to a Great Compression? It's hard to say. But it's good to keep in mind that economies rise and fall with the times — today's economic climate won't last forever, but there's no knowing which way that will go.

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Written by Austin Jesse Mitchell February 11, 2019

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