Top notch analysis from a brilliant commentator.
Does economic inequality lead to political polarization or is it the other way around? Krugman believes that political change ultimately forms economic reality more than the reverse.
He says that the middle class of the post war era was a creation of government policy and not a naturally event arising from economic rules. He calls the postwar period, in which income extremities were both pushed towards the middle The Great Compression. He looks in some detail at how the south remained Democratic even in the face of social welfare programs. It turns out that those programs helped the south and the taxes to support those programs fell more heavily on the north. The limiting factor was racism, however. When faced with programs that would have removed race barriers the bigots of the south balked. One example was Truman’s attempt to institute a national health insurance plan. It would have meant that hospitals had to offer the same care to all regardless of race.
Over the course of the 1970s, radicals of the right determined to roll back the achievements of the New Deal took over the Republican Party, opening a partisan gap with the Democrats, who became the true conservatives, defenders of the long-standing institutions of equality. The empowerment of the hard right emboldened business to launch an all-out attack on the union movement, drastically reducing workers’ bargaining power; freed business executives fom the political and social constraints that had previously placed limits on runaway executive paychecks; sharply reduced tax rates on high incomes; and in a variety of other ways promoted inequality.
P 61 – Quoting FDR
“We have always known that heedless self-interest was bad morals; now we know
that it is bad economics.”