The Myth of America’s Golden Age

By JOSEPH E. STIGLITZ,

What growing up in Gary, Indiana, taught me about inequality.

I hadn’t realized when I was growing up in Gary, Indiana, an industrial town on the southern shore of Lake Michigan plagued by discrimination, poverty and bouts of high unemployment, that I was living in the golden era of capitalism. It was a company town, named after the chairman of the board of U.S. Steel. It had the world’s largest integrated steel mill and a progressive school system designed to turn Gary into a melting pot fed by migrants from all over Europe. But by the time I was born in 1943, cracks in the pot were already appearing. To break strikes—to ensure that workers did not fully share in the productivity gains being driven by modern technology—the big steel companies brought African-American workers up from the South who lived in impoverished, separate neighborhoods.

Smokestacks poured poisons into the air. Periodic layoffs left many families living hand to mouth. Even as a kid, it seemed clear to me that the free market as we knew it was hardly a formula for sustaining a prosperous, happy and healthy society.

So when I went off to college to study economics, I was astonished by what I read. The standard economic texts of the time seemed to be unrelated to the reality I had witnessed growing up in Gary. They said that unemployment shouldn’t exist and that the market led to the best of all possible worlds. But if that were the case, I decided, I wanted to live in a different world. While other economists were obsessed with extolling the virtues of the market economy, I focused a lot of my work on why markets fail, and I devoted much of my Ph.D. thesis at MIT to understanding the causes of inequality.

Nearly half a century later, the problem of inequality has reached crisis proportions. John F. Kennedy, in the spirit of optimism that prevailed at the time I was a college student, once declared that a rising tide lifts all boats. It turns out today that almost all of us now are in the same boat—the one that holds the bottom 99 percent. It is a far different boat, one marked by more poverty at the bottom and a hollowing out of the middle class, than the one occupied by the top 1 percent.

Most disturbing is the realization that the American dream—the notion that we are living in the land of opportunity—is a myth. The life chances of a young American today are more dependent on the income and education of his parents than in many other advanced countries, including “old Europe.”

Now comes Thomas Piketty, who warns us in his justly celebrated new book, Capital in the 21st Century, that matters are only likely to get worse. Above all, he argues that the natural state of capitalism seems to be one of great inequality. The inequalities of the 19th and early 20th centuries seemed to be diminishing. This conclusion appeared to be vindicated during the period from World War II to 1980, when the fortunes of the wealthy and the middle class rose together.

But the evidence of the last third of a century suggests this period was an aberration. It was a time of war-induced solidarity when the government kept the playing field level, and the GI Bill of Rights and subsequent civil rights advances meant that there was something to the American dream. Today, inequality is growing dramatically again, and the past three decades or so have proved conclusively that one of the major culprits is trickle-down economics—the idea that the government can just step back and if the rich get richer and use their talents and resources to create jobs, everyone will benefit. It just doesn’t work; the historical data now prove that.

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