Explaining the Great Compression

The Great Compression is the extreme fall in income inequality that happened in the late 1930s, early 1940s in the US. The one that has largely reversed in recent decades (although I would prefer it if the people complaining about said reversal were willing to note that the earlier inequality was driven by returns to financial capital and the current by returns to human capital). Various explanations for all of this are put forward but I have to admit that I like Tyler Cowen\’s:

Crush the incomes at the top and then make the fat cats pay much higher wages to protect the world and become a superpower.  Impose wage and price controls as well.  See how long it takes before these distributional effects — which don\’t exactly match the distribution of economic talent– reverse themselves in the aggregate.

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