The Dangerous Consequences of Inequality

The trickle-down theory suggests keeping wages low in hopes of boosting profits, which is supposed to create investment, which will eventually allow prosperity to trickle down to the rest of society. The historical record is not kind to the trickle-down theory of economics. In 1980, when Jeffrey Williamson and Peter Lindert published what was the definitive study of inequality in U.S. economy at the time, they offered their brief overview of the history of inequality in the United States, which is worth quoting again:

The period from 1860 to 1929 is thus best described as a high uneven plateau of wealth inequality. When did wealth inequality hit its historic peak? We do not yet know. We do know that there was a leveling across the 1860s. We also know that there was a leveling across the World War I decade (1912–1922), which was reversed largely or entirely by 1929. This leaves three likely candidates for the dubious distinction of being the era of greatest inequality in American personal wealth: c. 1860, c. 1914, and 1929. That each of these pinnacles was followed by a major upheaval—civil war and slave emancipation, world war, or unparalleled depression—suggests interesting hypotheses regarding the effects of these episodic events on wealth inequality (or perhaps even the impact of inequality on these episodic events). (Williamson and Lindert 1980, 51)