The Two Decades That Created Our World’s First Mass Middle Class

Amazing things can happen when societies realize they don’t need an awesomely affluent.

What sort of amazing things? Take what happened in the United States between 1940 and 1960, as economists William Collins and Gregory Niemesh do in a just-published research paper on America’s mid-century home ownership boom.

Over a mere 20-year span, the United States essentially birthed a “new middle class.” The share of U.S. households owning their own homes, Collins and Niemesh note, jumped an “unprecedented” 20 percentage points. By 1960, most American families resided in housing they owned “for the first time since at least 1870” — for the first time, in effect, since before the Industrial Revolution.

This home ownership surge, the two economists posit, rested in large part on an equally unprecedented surge in worker earnings. Median annual incomes in the mid-20th century “nearly doubled” as Americans realized wage gains “both large on average and widely spread across workers.”

This “widespread and sustained increase in the level of income,” Collins and Niemesh detail, “allowed more people to afford and select into owner-occupied housing than in previous generations.”

What brought about that “widespread and sustained” income increase? That question lies beyond the scope of the new Collins-Niemesh paper. But not much mystery surrounds the answer. The years of the mid-20th century saw a vast expansion of America’s trade union movement. The struggles of new unions — in major basic industries ranging from auto to steel — essentially forced the rich to begin sharing the wealth workers were creating.

This massive mid-century labor surge also changed the face of the American political landscape. Union-backed lawmakers put in place programs that helped average families on a wide variety of fronts, everything from making mortgages affordable to expanding access to higher education.

And those union-backed lawmakers helped pay for those new programs by raising taxes on America’s wealthiest. Between 1940 and 1960, the federal tax rate on income in the nation’s top tax bracket consistently hovered around 90 percent.

That worker-friendly world of the mid-20th century has, of course, long since disappeared. Over the past half-century, we’ve witnessed an enormous redistribution — upwards — of the nation’s income and wealth.

Back in 1982, in the early stages of that redistribution, Forbes began publishing an annual compilation of the nation’s 400 grandest private fortunes. The initial Forbes 400 list included just 13 billionaires. Their combined wealth: $92 billion. Over the next four decades, Forbes notes, the combined net worth of America’s richest 400 would rise to “a staggering $4.5 trillion — making them nearly 50 times better off than their 1982 counterparts, far outpacing the consumer price index’s near tripling.”

Overall wealth in the United States, the Federal Reserve relates, now totals $140 trillion. The bottom half of Americans hold just $4 trillion of that.

The United States, adds the New York Times in a new analysis, is approaching an unprecedented “intergenerational transfer of wealth” that “will largely reinforce” this current record inequality. Households worth over $5 million, the Boston-based Cerulli Associates financial research firm calculates, make up just 1.5 percent of total U.S. households. Between now and 2045, this tiny share of the nation’s households will account for 42.5 percent of expected wealth transfers.

Making that top-heavy transfer even worse: Under existing U.S. tax law, wealthy married couples can pass on to their heirs as much as $26 million without paying a penny in federal estate tax.

Meanwhile, observes a top research exec at the Vanguard Group, tens of millions of American workers aging into their seventies can’t afford to retire. “All but the most wealthy” among us, Vanguard’s Fiona Greig tells the New York Times reporter Talmon Joseph Smith, appear to be — to some degree — financially unprepared for retirement.

Smith’s conclusion? The headline over his economic preview published earlier this week tells it all: “The Greatest Wealth Transfer in History Is Here, With Familiar (Rich) Winners.”

But our upcoming transfer of generational wealth doesn’t have to play out that way. The vast 1940-to-1960 expansion of America’s middle class, we need to keep in mind, didn’t just happen. Advocates for greater equality made it happen. Back before the Great Depression, those advocates confronted a maldistribution of income and wealth just as severe as the maldistribution we confront today. They battled for greater equity, and their success in that battle held up for a generation.

The challenge we confront today? We need to do more than create a much more equitable distribution of income and wealth. We need to create a much more equitable distribution of income and wealth that can last.

Sam Pizzigati co-edits Inequality.org. His latest books include The Case for a Maximum Wage and The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970. Twitter: @Too_Much_Online.