What Piketty Leaves Out


Robert Kuttner in The American Prospect:

Despite some losses to financial capital during the Great Depression, the more powerful era of equality in the U.S. began during World War II. The war was a massive macroeconomic stimulus; it produced full employment, stronger unions, and investment of public capital. The government’s wartime policies also repressed private finance in multiple and reinforcing ways, including the Fed’s pegging interest rates on Treasury bonds at a maximum of 2.5 percent, marginal tax rates set as high as 94 percent, and an intensification of the anti-speculative financial regulation of the New Deal. All of this did not end with the war. It had a half-life well into the postwar era, until unions were bashed and finance deregulated beginning in the 1970s.

Piketty mentions some of this briefly but doesn’t focus on the political dynamics, and he is surprisingly blasé about the role of deliberate policy. “Neither the economic liberalization that began around 1980 nor the state intervention that began in 1945 deserves much praise or blame,” he contends. “The most one can say is that state intervention did no harm.” But this can’t be true. The key difference in the two trajectories of non-recovery after World War I and robust recovery after World War II was in the policies pursued.

The aftermath of the first war led to depression and fascism, while World War II was followed by a boom of widely shared prosperity. In the reconstruction period of 1944-1948, policymakers, cognizant of the mistakes of the Treaty of Versailles and the deflationary 1920s, deliberately created the conditions for domestic full-employment welfare states. There was a great deal more to the anomalous era of shared growth than the shrinkage of inherited wealth, though it’s certainly the case that the weakening of financial elites made possible a politics of broad gains for the wage-earning class.

More here.