Paul Krugman referred to the period between 1930 and 1980 as the Great Compression, referring to a flattening of the incomes from the very rich and the very poor of the Gilded Age and the growing income inequality from the Reagan era onward.

In “the Conscience of a Liberal” he credits this compression to FDR’ New Deal and its higher taxes on the wealthy and on the rise of unions in the American workplace.
He further notes that the higher wages and benefits had no negative consequence for the auto and steel industries. While that seems foolish in light of GM and Chrysler being bankrupts wards of the government it is correct for the period between 1930 and 1980.

But that economic environment was also very different. The stock market crash like our recent collapse brought the rich down much faster and further than the poor. And while the unions were able to bargain better conditions and wages they were bolstered by the wartime demand stimulation and more so because all of American industry’s overseas competition was destroyed by the war.

The growth of global completion changed everything as we tended to import low wage jobs and export high wage jobs, increasing the wage spread. The growth of the technology sector added to the spread.

Like the Crash of 1929 we are seeing a replay of a flattening of incomes but it should not be compared to a period stimulated by war and protected by the destruction of its trading partners.

There has been outrageous bonuses and pay on the high end, but the market will likely correct it without government interference.

Higher taxes and union pressure should not be expected to yield the same result as it did in very different time. Without the protections enjoyed during the Great Compression it would have just been call a longer Greater Depression.