The American Middle Class Was a 50-Year Anomaly
Scott Galloway argues history typically sees a small group gather power and wealth, and the postwar middle class broke that pattern.
The Prof G Pod with Scott Galloway · Scott Galloway: Stop Demonizing Billionaires and Start Taxing them | Office HoursScott Galloway, answering a listener's email question about how to tax billionaires, had just argued that the answer was not scolding the rich but restoring steeply progressive taxes. Then he zoomed out to history to explain why he thought the stakes were so high.
“Middle classes typically don’t happen,” he said.
What he meant, he explained, was that the American middle class that emerged from 1945 to about 1995 was an accident. In his telling, the normal pattern is what he described as “Typically, a small group of very talented, very lucky people aggregate a lot of power and wealth and use that power and wealth to aggregate even more at the cost of the bottom 99.9.”
He pointed to what he sees as a return to that pattern. Over the last 30 years, he said, “there's been an enormous transfer of wealth from labor and consumers to shareholders,” or put another way, to the wealthy, and he said the top 1 percent had beaten everyone else on every measure.
He called it an accident, but also said the country decided together that it would not let that concentration happen. That period, which he called “the most productive society in the world,” coincided with what he described as a time “when we had marginal tax rates of 60 70 and even 90% at one point on the super wealthy.”
He contrasted that with today, when he said asset owners see their holdings compound tax deferred while high earners pay as they go. His example was a couple earning $1.5 million combined from pay and clinic income, with one parent a high performer at a law firm and the other running a chiropractic clinic, who own no investment assets that compound yet pay 52 to 53 percent in tax on that income in New York, New Jersey, or California.
In his view, progressive taxation was the one safeguard history has had against the corruption that comes from concentrating all power in a small number of people. Without it, he said, the country is “reverting to the laws of the jungle” and going back to “a small number of people controlling everything.”
Questions people ask
Were tax rates really 90 percent in the 1950s?
Top federal income tax rates were above 90 percent in the 1950s, fell to 70 percent in the 1960s and 1970s, and dropped sharply after the 1981 and 1986 tax cuts. The rates applied only to income above very high thresholds, so few households paid them on much of their income. Economists still debate how much those rates caused postwar growth versus other factors like wartime savings, education, and limited foreign competition.
Has wealth really become that concentrated again?
By most measures, the share of income and wealth going to the top 1 percent and top 0.1 percent has risen substantially since around 1980, while middle class wage growth has been slower. Globalization, slower union membership, changes in pay for executives and finance, and lower taxes on capital have all played a role. Researchers disagree on the exact size of the shift because taxes, transfers, and household size change the numbers.
Why did the middle class grow so fast after World War II?
It expanded for several reasons, including the GI Bill for education and home loans, interstate highways and suburban building, strong unions, a large manufacturing base, and public investment in science and universities. Racial segregation and gender barriers also meant Black Americans, women, and other groups shared far less in the gains. The result was broad, but uneven, upward mobility.