A plaque remaining from the Big Apple Night Club at West 135th Street and Seventh Avenue in Harlem.

Above, a 1934 plaque from the Big Apple Night Club at West 135th Street and Seventh Avenue in Harlem. Discarded as trash in 2006.

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Entry from September 22, 2011
Great Compression

The term “Great Compression” was coined by Claudia Dale Goldin and Robert A. Margo in their book, The Great Compression: The wage structure in the United States at mid-century (1991). The authors argued that the period from the late 1930s to the mid-1940s was a “Great Compression” where income inequality lessened, caused by factors such as progressive taxation, corporate regulation and the labor movement. Economist Tyler Cowen, on his blog a href="http://marginalrevolution.com/marginalrevolution/2007/09/the-great-compr.html">Marginal Revolution in 2007, added ten questions to the “Great Compression” theory.

There is a 1981 use of the term “The Age of the Great Compression” in a Louis Rukeyser syndicated newspaper column, but this referred to the volatility of markets.


Wikipedia: Great Compression
The Great Compression refers to an economic event in the United States in the early 1940s in which the economic inequality as shown by wealth distribution and income distribution between the rich and poor became much smaller than it had been in preceding time periods. The economist Emmanuel Saez has used income tax analysis to show that the compression ended in the 1970s and has now changed in the United States, Canada, and England into greater income inequality metrics and wealth concentration . In France and Japan, who have maintained progressive taxation this end has not happened. In Switzerland, where progressive taxation was never implemented, it never occurred. Economist Paul Krugman gives credit to the policies of President Franklin Roosevelt as having deliberately caused the event and points out that its effects have lasted up until the 1980s. Decades of conservative economic policies beginning in the 1980s and beyond have slowly resulted in a re-emergence of the wealth inequality that had existed prior to the great compression. The end of the great compression has been called the great divergence in a Slate article by Timothy Noah.

Google News Archive
2 March 1981, Miami (FL) News, “Let-up needed in fast pace of markets” by Louis Rukeyser, pg. 12A, col. 2:
“With the increased volatility of the equity, fixed-income and commodity markets, it is becoming more and more evident that we are caught up in what future economic and market historians may well term ‘The Age of the Great Compression,’” Nurock says.
(Robert J. Nurock, vice president for market strategy at Philadelphia-based Butcher & Singer, Inc.—ed.)

OCLC WorldCat record
The great compression : the wage structure in the United States at mid-century
Author: Claudia Dale Goldin; Robert A Margo; National Bureau of Economic Research.
Publisher: Cambridge, MA : National Bureau of Economic Research, [1991]
Series: Working paper series (National Bureau of Economic Research), working paper no. 3817. 
Edition/Format:  Book : English

OCLC WorldCat record
Explaining black-white wage convergence, 1940-1950 : the role of the great compression
Author: Robert A Margo; National Bureau of Economic Research.
Publisher: Cambridge, Mass. : National Bureau of Economic Research, 1993.
Series: NBER working paper series on historical factors in long-run growth, no. 44. 
Edition/Format:  Book : English

OCLC WorldCat record
Increasing income inequality during the Great Compression : a study of physician wages
Author: Jason Peter Goldstein
Publisher: 1999.
Dissertation: Thesis (M.A. in Economics)--Vanderbilt University, 1999.
Edition/Format:  Thesis/dissertation : Manuscript Archival Material : English

New York (NY) Times
For Richer
By PAUL KRUGMAN
Published: October 20, 2002
(...)
The Great Compression—the substantial reduction in inequality during the New Deal and the Second World War—also seems hard to understand in terms of the usual theories. During World War II Franklin Roosevelt used government control over wages to compress wage gaps. But if the middle-class society that emerged from the war was an artificial creation, why did it persist for another 30 years?

New York (NY) Times
Wages, Wealth And Politics
By PAUL KRUGMAN
Published: August 18, 2006
(...)
Since the 1920’s there have been four eras of American inequality:

The Great Compression, 1929-1947: The birth of middle-class America. The real wages of production workers in manufacturing rose 67 percent, while the real income of the richest 1 percent of Americans actually fell 17 percent.

Google Books
Class in America: An Encyclopedia
By Robert E. Weir
Westport, CT: Greenwood Press
2007
Pg. 795:
Claudia Goldin and Robert Margo coined the term the “Great Compression” to describe how during the 1930s and 1940s income disparities were lessened through a combination of progressive taxation, regulating corporate behavior, and ensuring that the labor movement was strong enough to act as a countervailing power.

NYTimes.com: The Conscience of a Liberal by Paul Krugman
September 18, 2007, 11:45 pm
Introducing This Blog
(...)
The Great Compression: The middle-class society I grew up in didn’t evolve gradually or automatically. It was created, in a remarkably short period of time, by FDR and the New Deal. As the chart shows, income inequality declined drastically from the late 1930s to the mid 1940s, with the rich losing ground while working Americans saw unprecedented gains. Economic historians call what happened the Great Compression, and it’s a seminal episode in American history.

Marginal Revolution
The Great Compression
by Tyler Cowen on September 23, 2007 at 6:44 am
(...)
As you can see, the share of the top ten percent (not counting capital gains) falls steeply at about 1937 and flattens out by about 1942-43, with a slight uptick just afterwards.  But I am puzzled by Krugman’s description of the process.  A few points:

1. 1937-38 were disastrous years for the American economy and also for the middle class, mostly because of bad contractionary monetary policy.  This can be considered a second Great Depression and it aborted a recovery in process.  Robert Higgs has shown convincingly that World War II was an economic disaster, look at the figures at consumption don’t be fooled by aggregate gdp which is inflated by production for the war.

2. Therefore I am not sure when the “unprecedented gains” came during this period.  Yes 1940 was a year of recovery (and part of 1939) but is the claim that the middle class was created in that year?  Surely not but then I am confused.

3. Krugman cites “strong unions, a high minimum wage, and a progressive tax system” as driving the Great Compression — did these factors change so notably in 1937-44?

OCLC WorldCat record
War Mobilization and the Great Compression
Author: Carol A Scotese
Edition/Format:  Article : English
Publication: The B.E. Journal of Economic Analysis & Policy, v10 n1 (20100101)
Database: CrossRef

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