Economic justice need not be at the cost of prosperity

The Twinkie, it turns out, was introduced way back in 1930. In our memories in the US, however, the iconic snack will forever be identified with the 1950s, when Hostess popularised the brand by sponsoring The Howdy Doody Show. And the demise of Hostess has unleashed a wave of baby boomer nostalgia for a seemingly more innocent time.

Needless to say, it wasn’t really innocent. But the 1950s – the Twinkie Era – do offer lessons that remain relevant in the 21st century. Above all, the success of the postwar US economy demonstrates that, contrary to today’s conservative orthodoxy, you can have prosperity without demeaning workers and coddling the rich.

Consider the question of tax rates on the wealthy. The modern American right, and much of the alleged centre, is obsessed with the notion that low tax rates at the top are essential to growth. Remember that Erskine Bowles and Alan Simpson, charged with curbing deficits, nonetheless somehow ended up listing “lower tax rates” as a “guiding principle”.

Yet, in the 1950s, incomes in the top bracket faced a marginal tax rate of 91, that’s right, 91 per cent, while taxes on corporate profits were twice as large, relative to national income, as in recent years. The best estimates suggest that circa 1960 the top 0.01 per cent of Americans paid an effective federal tax rate of more than 70 per cent, twice today’s rate.

Nor were high taxes the only burden on wealthy businessmen. They also faced a labour force with a degree of bargaining power hard to imagine today. In 1955 roughly a third of US workers were union members. In the biggest firms, management and labour bargained as equals, so much so it was common to talk about corporations serving an array of “stakeholders” as opposed to merely serving stockholders.

Executive lifestyles

Squeezed between high taxes and empowered workers, executives were relatively impoverished by the standards of either earlier or later generations. In 1955, Fortune magazine published an essay, “How top executives live”, which emphasised how modest their lifestyles had become compared with days of yore.

The vast mansions, servants and huge yachts of the 1920s were no more; by 1955 the typical executive, Fortune claimed, lived in a smallish suburban house, relied on part-time help and skippered his own relatively small boat.

According to economists Thomas Piketty and Emmanuel Saez, in 1955 the real incomes of the top 0.01 per cent of Americans were less than half what they had been in the late 1920s, and their share of total income was down 75 per cent.

Today, the mansions, armies of servants and yachts are back, bigger than ever – and any hint of policies that might crimp plutocrats’ style is met with cries of “socialism”. Indeed, the whole Romney campaign was based on the premise that Barack Obama’s threat to modestly raise taxes on top incomes, plus his temerity in suggesting that some bankers had behaved badly, were crippling the economy. Surely, then, the far less plutocrat-friendly environment of the 1950s must have been an economic disaster, right?

Actually, some people thought so at the time. Paul Ryan and many other modern conservatives are devotees of Ayn Rand. Well, the collapsing, moocher-infested nation she portrayed in Atlas Shrugged, published in 1957, was basically Dwight Eisenhower’s America.

Strange to say, however, the oppressed executives Fortune portrayed in 1955 didn’t go Galt and deprive the nation of their talents. On the contrary, they were working harder than ever. And the high-tax, strong-union decades after the second World War were, in fact, marked by spectacular, widely shared economic growth: nothing before or since has matched the doubling of median family income between 1947 and 1973.

Which brings us back to nostalgia. There are some in our political life who pine for the days when minorities and women knew their place, gays stayed in the closet and congressmen asked, “Are you now or have you ever been . . .?” The rest of us are glad those days are gone. We are, morally, a much better nation. And the food has improved, too.

Along the way, however, we’ve forgotten that economic justice and economic growth aren’t incompatible. America in the 1950s made the rich pay their fair share; it gave workers the power to bargain for decent wages and benefits; yet contrary to right-wing propaganda then and now, it prospered. And we can do that again. – New York Times service