What's Behind America's 'Great Divergence' Over the past 30 years, the growing divide between rich and poor has become an American crisis, Timothy Noah writes in his latest book. The Great Divergence is part descriptive, laying out shifting economic trends, and part prescriptive, offering several solutions to help ease the crisis.
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What's Behind America's 'Great Divergence'

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What's Behind America's 'Great Divergence'

What's Behind America's 'Great Divergence'

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This is TALK OF THE NATION. I'm Neal Conan, in Washington. Thirty years ago, CEOs of America's largest businesses earned an estimated 42 times as much as their average employee. These days, that number's jumped to more than 200 times as much, by many counts. Since the economic crisis of 2008, there's been much more focus on income inequality, not just from economists and social scientists, but politicians and from protestors who occupied Wall Street.

And while there's no argument about what happened, you can get plenty of debate on why and what - if anything - we should do to correct it. In a new book, journalist Timothy Noah traces the causes of the growth in inequality and prescribes some solutions that may or may not prove politically palatable.

What have been the effects of income inequality on your job, on your town and among your friends? Give us a call: 800-989-8255. Email us: talk@npr.org. You can also join the conversation on our website. That's at npr.org. Click on TALK OF THE NATION. Later in the program, the ball four declaration. Jim Bouton joins us. But first, the Great Divergence.

Timothy Noah is the TRB columnist with The New Republic. His new book is "The Great Divergence: America's Growing Inequality Crisis and What We Can Do About It." He's joining us here in Studio 3A. Welcome to TALK OF THE NATION.

TIMOTHY NOAH: Thanks for having me, Neal.

CONAN: And your argument, I think, the effect of this income inequality is that it is corrosive on many levels.

NOAH: Yes, I think it leads to a great deal of alienation, separation among - a sense of separation between classes. The affluent and the middle class are - really constitute two separate cultures, now, that are deeply alienated from one another. Even conservatives have started to recognize this. Charles Murray's last book is, to a great extent, about this phenomenon, and he documents it.

He doesn't agree that it has an economic cause, which I think is wrong, but he is willing to discuss this sense of breakdown in a sense of unity among the public.

CONAN: But the corrosive element, so many parts of the American dream, if you will, the American idea is work hard and play by the rules, you can get ahead. Your children will do better than you could do, that there is great opportunity out there for immigrants, for people in the lower classes to rise, and...

NOAH: That's right, and that was the American story for a very long time. I mean, from the early 1930s through 1979, incomes were growing more equal - or at least they were relatively stable to one another, and a whole economic theory was built around this observation.

It was concluded by Simon Kuznets, a Nobel Prize-winning economist, that this is what happened in mature economies, mature, democratic nations with industrial economies, that after the initial disruptions of the Industrial Revolution, when incomes grew less equal, you would see incomes grow more equal. He didn't put it quite this way, but the - he communicated the idea that this was the mark of an advanced civilization.

CONAN: And many economists, even those you choose to cite in your book, would argue that this - there needs to be some difference between income, between those who succeed and those who are just hard workers - or journalists and radio broadcasters, maybe in the lower category. But how much of a difference? I guess that's where the argument lies.

NOAH: Right. Well, it's hard to say, and a lot of mischief has been done in the past trying to come up with too specific an answer to that question. But the lesson of most of the 20th century was that incomes could become more equal, and you could still have a very robust capitalist economy.

We would kill today for an economy that was as productive and that prospered as much as the economy in the post-war years, and yet incomes were becoming more equal - or, as I say, in some years they were remaining stable with regard to one another.

That all changed in 1979, and that's what I call the Great Divergence.

CONAN: Well, you say the economy that was as prosperous and robust. All right, I'll give you robust, but as prosperous as the economy in the 1950s? There was Jim Crow in the 1950s. A lot of people were dirt poor and struggled to get even the most basic education, even food.

NOAH: Well, that's the paradox. You had much greater economic equality in those years, but, of course, much less equality based on other factors, such as race. These were not good years to be African-American. They weren't good years to be women. They weren't good years to be Jewish. They certainly weren't good years to be gay. They were also not particularly great years to be 18 years old and male, because you could get drafted.

But when you just look at the economic factors, you saw a greater stability and a greater sense of shared benefit with the growth of the economy. The economy boomed, and the middle class shared in that.

CONAN: So an economy and country that has become fairer on any number of levels is still developing a new inequity in income divergence, and therefore a class inequity?

NOAH: Yes, absolutely. I think that we are seeing a greater economic divide, even as we are seeing greater equality in these other realms. And it's remarkable that we have seen so much advance in these other areas, and yet we seem to be moving backwards on incomes.

CONAN: We're talking with Timothy Noah, a lead columnist for the New Republic, about his new book "The Great Divergence: America's Growing Inequality Crisis and What We Can Do About It." 800-989-8255. Email: talk@npr.org. We'd like to know how this economic income inequality has affected your job, your town and those of your friends. 800-989-8255. Jay is on the line, Jay with us from Jacksonville.

JAY: Good afternoon.


JAY: I want to say that the problem is that economic inequality essentially can lead to the violence on the streets, that when you have people who are desperate and looking for any opportunity to survive, that you're going to see a rise of violence. And Jacksonville, Florida, unfortunately is - or has been known as the murder capital of the state, and (technical difficulties) the job opportunities here are very (technical difficulties), even for people with college educations and whatnot.

So if we can't address this issue, then we are going to have to - we're going to be dealing with things that are much worse than if you can't find a job. It's going to be: Is it safe to go out in your own neighborhood?

CONAN: And I understand that things are - could be tough there in Jacksonville, Jay, but across the country, we've seen a drop in violence, certainly any kind of social violence, and it's been precipitous in many places.

JAY: Well, I think you have to look at it in a more - not just in terms of violence where there is maybe a gun involved, but things like robberies and people - a lot of crimes go unreported, where people have their cars broken into, things that people can do to get immediate fixes. And I would be surprised to see that - as people are losing their jobs and aren't making income, they aren't simply going to sit down on the side of the road and be hungry.

You know, we have to - there's going to be another impact where they're going to do something to make income, whether that's legal or illegal.

CONAN: Jay, thanks very much for the call. Appreciate it. The statistics may not bear him or may not bear him out yet, is possibly what he might say.

NOAH: Yes. I mean, I think people are very dispirited. Certainly, there is a loss of faith in institutions of the United States, a cynicism about government, and I think a lot of that is driven by income inequality, people feeling as though they are not part of the larger society, that they're being left behind.

CONAN: Here's an email from Lisa in Mentor-on-the-Lake in Ohio: As a social worker for the past 19 years, I've seen what not having an adequate income can do. If you have nothing, you can qualify for Medicaid and receive Medi-Healthcare. If you're over the limit, you go without. People die without health care.

I'm skeptical of Obamacare to ensure those who fall between the cracks. This will probably increase my health insurance costs, and I'm not wealthy, by any means. So where is the happy medium? A lot of questions in there. But one of the questions is: Do extreme incomes by a few zillionaires, does that necessarily mean that the income is stagnant or declining for those in the middle class?

NOAH: Well, I - when you look at something called income share, the percentage of the collective income of the United States that goes to the famous 1 percent, the top 1 percent, that income share has doubled. It went from about 9 percent to about 20 percent between 1979 and 2010.

So there is less money being allocated to the rest of the population, to that other 99 percent. Now, obviously, it's not a zero-sum game. The economy works in complex ways. But it does seem as though it is harder and harder to get a piece of the pie when you're in the middle class. A really remarkable statistic that was produced in March by Emanuel Saez, who's a leading scholar in this area, he was looking at the recovery, and he found that the 1 percent - which actually lost some ground during the recession, because rich people do lose a lot of money during recessions - they bounced back in 2010, and they were just about the only people to bounce back.

He found that 93 percent of the recovery in the year 2010 ended up in the pockets of the top 1 percent.

CONAN: But is it cause-and-effect? In other words, is the enormous incomes from a few the cause of the stagnation or even decline of income in the middle?

NOAH: I think they are related. I mean, one thing we know is that there is more - more money is going to capital, relative to labor than used to be the case. This has been documented by economists working for Wall Street banks. And surely that reflects the decline of labor unions. Why should bosses pay workers a penny more than they have to when they don't have unions?

CONAN: Here's an email to that point from Michael in Jacksonville: The problem with income inequality is due to the developing fact that shareholders are more important to company leadership than employees. When the leadership of the companies around the country start sharing the profits of the companies with the employees, who are responsible for those profits, or at minimum reinvesting it into the company rather than hogging it all for themselves, then equality will start to return.

Employee salaries have not gone up in proportion to the success of the companies they work for. And again, you get into that corrosive effect, people seeing: This is just not fair.

NOAH: That's right. But, you know, for years, economists, when they were trying to figure out this trend, they would say: Look, the United States has seen a dip in productivity. When productivity goes up, we will see the median income go up, too, very briskly.

And productivity did go up. It went way, way up in the aughts, and yet in the aughts, the median income stayed flat. It even fell a little bit. So I think there's something very wrong with an economy when workers aren't receiving any gains from productivity. It baffles economists.

CONAN: We're talking about the growing gap between rich and poor in this country, Timothy Noah's new book, "The Great Divergence." What have been the effects of income inequality on your job, your town and among your friends? Give us a call: 800-989-8255. Email us: talk@npr.org. Stay with us. I'm Neal Conan. It's the TALK OF THE NATION, from NPR News.


CONAN: This is TALK OF THE NATION, from NPR News. I'm Neal Conan. The seventh chapter of Timothy Noah's new book opens with this quote: "When business really tries, when it's fully unified and raring to go, it never loses a big battle in Washington."

That's a line from former lobbyist Bryce Harlow and, in this context, sets the stage for an argument that the growing power of business interests in Washington played a significant role to increase the gap between rich and poor in recent decades. You can read more about Harlow and the growth of the influence industry in politics in an excerpt at our website. That's at npr.org. Click on TALK OF THE NATION.

The book is titled "The Great Divergence: America's Growing Inequality Crisis and What We Can Do About It." What have been the effects of income inequality on your job, your town and among your friends? 800-989-8255. Email us: talk@npr.org. You can also join the conversation on our website. That's at npr.org. Click on TALK OF THE NATION.

And let's go to Dave, Dave's on the line with us from Grand Rapids.

DAVE: Hi. I work for a big company in Grand Rapids, Michigan, and they bought out a bunch of employees that were making a wage, $18 an hour. Now they've got a bunch of people working in there with no benefits at $10 an hour. And then they come to the fulltime employees. They want you to contribute to the United Way. I told them: You're the reason we need the United Way. You're not paying a fair wage. So it all boils down to corporate greed.

CONAN: And how do they explain this to you?

DAVE: Well, they just tell us that it's easier to balance workload with production schedules and this and that. But every day, they're bringing in a new batch of people and paying them nine, $10 an hour.

CONAN: All right, Dave. Thanks very much. Appreciate the phone call. Good luck.

DAVE: You bet.

CONAN: And that's one of the arguments you make in your prescriptive chapter, is to reinvigorate the labor movement, which in the private sector, where I gather Dave works, is down to, what, 7 percent of the workforce.

NOAH: It's 7 percent. I write in the book it's as if the New Deal had never happened, because that's the unionization rate that prevailed in 1933. Now, that's the private sector unionization rate. Obviously, we've seen an expansion of unionization in the public sector.

CONAN: Yet you also point out that many Democrats, particularly in the Senate, don't necessarily see a future for the labor movement in this country, that it's a dwindling force and just about a spent one.

NOAH: Yes. It's very dispiriting that there is very little interest, even among liberals, in reviving labor. And I think it's one of the most difficult challenges facing liberals, but I think it's also one of the most important. One interesting idea - one problem, I should say - is that existing labor law is pretty hostile to organizing, and has been since passage of the 1947 Taft-Hartley Law.

And it's been very difficult to roll back any of the provisions in Taft-Hartley or the similar laws that were passed afterwards. But there's an interesting idea that's been floated recently by Richard Kahlenberg of the Century Foundation - I mention this in my book - that because there is very little interest in workers' rights, maybe the labor movement ought to try and get the right to organize declared a civil right that is affected by the civil rights law. And I think that's an interesting idea.

CONAN: This from Carey(ph): I work for an aviation training company, and to meet growth goals, we work twice as much for half the money because managers would say: Where else are you going to work? I quit.

NOAH: Right. Again, a case for - I don't know if they have a union, but I'm going to guess that they don't. You know, people say, well, look. This is global competition. This is happening around the world, and that is certainly true. But if you look at a number of other countries in the world, they have managed to maintain much more of a manufacturing base. They've managed to maintain median income at a much higher level.

The leading example would be Germany, where rather than participate in a race to the bottom, trying to compete with other countries in manufacturing, less technologically advanced items, they've gone high-tech. They are manufacturing things at the high end that require an educated workforce, and they've done pretty well by that.

CONAN: Let's go next to Rocky, Rocky with us from Cedar Rapids.

ROCKY: Hi. Hey, I just wanted to get your comments on this. But, like, I've been in the sales business for about 10 years - well, about 14. I started in sales because my viewpoint was the more you sell, the more you make. And I've been with the same company for about 10 years. And I started out with a $1.4 million territory, and now I'm at a $4.4 million territory.

And basically, what's happening in my industry and with other sales reps that I'm seeing is the company goes OK, well, you're - you did $2 million last year, so we're going to decrease your commission rate. So you're only making - they're controlling what you make instead of just giving you, like, a straight percent commission. And 10 years later, you're making $440,000, you know, you're only making - I mean, basically, what they're doing is just they'll lower it to 5 percent, 3 percent, 1 percent to keep you right in that middle-class area or below.

And meanwhile, that money still gets added into your budget. And that's how I see that they're controlling the middle class. But yes, the CEOs and the company, you're showing profits, and the CEOs are getting, like, a million dollar raise a year, and that's what I'm seeing. And I just wanted to hear your comments on that, and I'll take that off the air unless you have any questions.

CONAN: All right, Rocky. Thanks very much.

NOAH: Well, you certainly hear a lot of sanctimonious talk, particularly among Republicans, about the need to provide sufficient incentive to wealthy people in order to create jobs. What you don't hear a lot about is the need to create incentive for middle-income people to feel as though they are being rewarded for their work, and particularly to deny incentives to people who work in sales seems, to me, madness.

CONAN: Here's an email from Robert in Lewisburg, West Virginia: How is it that attempts to ameliorate the disparity in incomes has successfully been labeled class warfare, whereas the purposeful creation of the current unequal situation is not itself recognized as class warfare? Well, that presumes that the current unequal situation was a conscious creation.

NOAH: Mm-hmm. No, I don't think it as a conscious creation. I don't think anybody set out to say let's have an unequal society, except insofar as - I should make a caveat. There was a great deal of alarm among American corporations in the late '60s and early '70s about the political direction that the United States was going in.

And Bryce Harlow, who you mentioned earlier, who was a lobbyist for Proctor & Gamble, went around the country evangelizing in favor of a larger corporate presence in Washington, D.C., and he really helped make that come about. And what's remarkable about Harlow, who was a very plainspoken, very honorable man, who was very straightforward about his beliefs. And he said, quite directly, that at the heart of what he was concerned about was the government's push towards greater equality.

CONAN: Here's an email from Jen in St. Louis: Income inequality? How about effort inequality? Income is relative to the work and educational effort one puts forth. People who haven't put forth as much effort over the long term should not see the same income results. Additionally, this idea of middle class left behind implies someone else is responsible for your success and failures. People need to take control of their destiny and stop waiting for someone else to carry them along.

NOAH: Well, that is the American religion. Barbara Ehrenreich wrote a wonderful book a couple of years ago called "Bright-sided," which was about how the - this belief in the individual and the individual's 100-percent mastery of his destiny has really taken hold in recent years. And, obviously, up to a point, it is a very sound principle. But if you take it to an extreme point, it basically becomes an argument against collective action.

CONAN: Let's go to Dawn(ph), Dawn with us from South Bend.

DAWN: Yes, I am. I'm here. Thank you.

CONAN: Go ahead, please.

DAWN: My background is that I am from the manufacturing field. I'm a union member. And we have, as workers, who do a good job and have had to be more productive, as the gentleman said, we are facing stiff competition from across seas, where they undercut us, where they can afford to take a loss sometimes as far as steel and things like that. I'm from the automotive industry.

We have seen where we compete for contracts and things with companies like China - I mean, countries like China, and it's not a fair playing field. And American workers are worthy of their hire. That's what the scripture(ph) says, that we're working ever higher(ph). And until the tariffs change, until the rules change and the laws change, I think you're going to see it get worse.

CONAN: You're talking tariffs. So, in other words, put protective tariffs, you know, on imported cars.

DAWN: Well, those things. Then there's NAFTA and all the other different things that have gone on. Other countries protect their - Japan protects their industries, but we don't in the United States. And we have this fallacy, it's now a marketing thing almost, so the same thing(ph) as you're talking about, to make it look like workers from unions and things are greedy. They are non-productive. They're - they think they should be paid for not doing any work.

I worked hard for 25 years in the automotive industry, and I had a great employer, though, and he - and they did well by us. And that's why I do have, right now, benefits and things like that. But my children will never see that kind of income. They'll never see that kind of ability to purchase things and things that I have over the years.

CONAN: Dawn, thanks very much for the call. Appreciate it, and good luck.

DAWN: All right. Thank you.

CONAN: And that is a comment you hear from a lot of people, that this globalization and the opening of markets overseas has been unfair to American workers.

NOAH: Right. Well, it's been unfair to workers around the world, and different countries have had different ways of dealing with it. Many of them have been much more successful at protecting the interests of their workers. I'm not a very protectionist guy. But, you know, Dean Baker, an economist, makes a very interesting argument about this, because part of the issue is trade, part of the issue is off-shoring jobs. And, really, the big issue going forward is going to be off-shoring jobs.

And the economist Alan Blinder has estimated that, in the future, as offshoring becomes less about manufacturing and more about the service sector, you are going to see other countries taking off-shoring jobs for highly skilled labor. And he thinks, actually, that slightly more highly skilled labor than medium skilled labor will be off-shored.

And what Dean Baker has said was, gee, do you think all of these sanctimonious, affluent people who like to lecture about the virtues of free trade, what are they going to say when a radiologist in Bangalore wants to take the job of somebody who's working as a radiologist in Kansas City?

The - we're talking about a constituency that's much more politically powerful. Will the same consensus be preserved for free trade when the ox that's being gored is that of the affluent? It's an interesting question.

CONAN: Here's an email question from Joel(ph): Why have we heard nothing from this guest about the role of technology and illegal immigration?

It's not because it's not in his book. You have to blame me for that, Joel. I haven't asked him about it yet.


NOAH: Well, technology - those are two complicated questions. Let me start with technology. Throughout the 20th century, you saw technological - technology become much more sophisticated. And as technology became more sophisticated, you needed a better and better educated workforce. The technological change at the beginning of the 20th century was, in fact, much more dramatic than the technological change at the end of the century.

The advent of electricity, of airplanes, of motion pictures, of telephones - that was all happening at about the same time in the United States. At the end of the century, the economy just had to deal with computers - also a very big change, but not as big.

Now what happened to the 20th century was that as the technological demand on the typical worker rose, and rose and rose, requiring more and more skills, the production of skilled workers by our K-12 education system increased. The number of high school graduates increased, and increased and increased until the 1970s when it leveled off. It actually dipped a little bit and then leveled off.

Now the technological demands continued to increase, but, suddenly, the United States was not producing enough skilled labor to fulfill the demand, and that bit off the price of skilled labor. So that is how the - that was a big driver of income inequality.

Now with respect to immigration, immigration is - has not actually been a major factor. It has been a small factor in income inequality. It's been a much smaller factor than most of us would expect.

George Borjas, who's a pretty conservative, pretty anti-immigration economist at Harvard, has estimated that, really, the only group that has been affected in a meaningful way by immigration, is high school dropouts. Otherwise, the rest of the population has been largely unaffected by immigration.

Another interesting point about immigration, is that in the last couple of years, we've seen a falloff in net immigration from Mexico. And there's a new report out, in fact, from Pew, about this.

CONAN: Just this week, yeah.

NOAH: Yeah. And there are a number of reasons for this. It may have a lot to do with the recession, but we've had recession over the last 20 years and it never happened before. It may be because the economy in Mexico is becoming much stronger. So this may be a problem that's in the process of going away.

CONAN: We're talking with Timothy Noah of The New Republic. He's the author of the new book "The Great Divergence." You're listening to TALK OF THE NATION from NPR News.

And I wanted to go back to your prescriptions, and this is in the last chapter of your book, What to Do, and I'm just going to run through them quickly. One: Soak the rich. Two: Fatten government payrolls. Three: Import more skilled labor. Universalize preschool. Impose price controls on colleges and universities. Re-regulate Wall Street. Elect Democratic presidents. Revive the labor movement. We talked about some of the difficulties of that. And then I think that's it. And I'll give you a maybe on elect the Democratic presidents.

NOAH: Well, elect the Democratic presidents sounds awfully partisan, I know, but that's based on the work of Larry Bartels, who does not vote. He says he does not vote for - in presidential elections. The last president he voted for was Ronald Reagan.

But he did a study. He compared economic performance under Democrats and Republicans in the White House, going back to 1948. He found opposite trends. Under the Democrats in the White House, going all the way back to 1948, you saw the biggest income gains at the bottom. They tapered off as you moved up the income scale. Opposite for the Republicans.

CONAN: I hear your argument, and I hear your arguments for all of those things. I say maybe elect a Democratic president might happen. The rest of them are not happening.

NOAH: Oh, I see. You're talking about whether they will happen.

CONAN: Why have you and other liberals lost this argument?

NOAH: Well, you know, it's interesting. I'm not social - you know, let me take you - let me give you an example of what I thought was the most out there proposal, which was price controls for colleges and universities. When I wrote that, I thought, OK, this will be the one that will really set everybody's hair on fire. People will say, I've never even heard about such an idea.

Well, I sent my manuscript off to the publisher. And then a couple of months later, the president of the United States gave his State of the Union address. President Obama, in the State of - in this year's State of the Union, he didn't explicitly say price controls on colleges and universities, but he did very sternly say to colleges and universities that the government was going to use its leverage to try and get tuition increases under control.

CONAN: I didn't see the committees in the Republican-controlled House beavering away on price control legislation for colleges and universities, however.

NOAH: Although - but interestingly, you also didn't hear Republicans screaming and yelling about this, you know, absolutely old-fashioned liberal - they would, no doubt, say socialist - proposal. I think it's - I think there are a couple of reasons for that. I think one is that Republicans have no great love for America's colleges and universities. And the other is that...

CONAN: Graduates tend to vote for the other party.

NOAH: That's right. What a snob, as Rick Santorum said. And the other issue is, I think, to the extent that they do pay attention to this consumer issue of rising college costs, choking off opportunity, even they are somewhat appalled by what's happening.

CONAN: Well, Timothy Noah, thanks very much for your time today. We appreciate it.

NOAH: Thank you, Neal.

CONAN: The book again, "The Great Divergence: America's Growing Inequality Crisis and What We Can Do About It." Timothy Noah, the columnist for the New Republic, joined us here in studio 3A. Up next, the tell-all that changed the way we follow major league baseball and all of sports. Jim Bouton's "Ball Four" re-released in digital format, the former pitcher joins us next. Stay with us. I'm Neal Conan. It's the TALK OF THE NATION from NPR News.

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