ABSTRACT
Economists who are in favor of the redistribution of income also typically subscribe to the empirical claim that the distribution of income in the United States became much more unequal in the 1980s. Symmetrically, there is a strong correlation between economists who reject egalitarian tax and welfare policies and those who argue that many standard measures of inequality overstate the concentration of income and wealth among the richest Americans. This chapter tries to depart from this traditional arrangement of the camps in this dispute. It stipulates, if only for the sake of argument, that some of the key evidence that ostensibly demonstrates the “pro-rich” tilt in U.S. policy that halted the postwar progress of the poor and middle class, as presented by those who favor income redistribution, is true. However, rather than attribute the abrupt change to the tax rate reductions of the Reagan era, it focuses instead on the enormous change in monetary policy that occurred in 1971, arguing that this alternative hypothesis fits the data much better. Since the alleged divergence between net productivity and average worker pay began in the early 1970s, which is also when Richard Nixon closed the gold window, this chapter argues that this drastic change in U.S. monetary policy is a far more plausible explanation for the sudden change in the distribution of economic gains rather than the successive reductions of the top marginal income tax rate that would not occur until the early and mid-1980s.
