Simon Kuznets’s Happy Prognosis Crushed in an Ideological Coup

Abstract

In 1955, economist Simon Kuznets suggested that, while inequality increases during early economic development, in later stages it declines. However, this felicitous hypothesis has been contradicted by inequality’s explosion since the 1970s. This explosion was energized by President Ronald Reagan’s declaration in 1981 that “government is the problem.” Turning popular sentiment against government was an ideological coup, because only government policies can decrease inequality. Government was not reduced in size or in its intervention into the workings of the economy, but policies shifted radically in favor of the wealthy. Taxes were cut for the rich, the economy was significantly deregulated, and welfare measures were trimmed. This chapter unfolds the dynamics that enabled laissez-faire ideology to revive and become more entrenched than ever before. It clarifies how this ideology managed to survive the Great Recession following the financial crisis of 2008, during and after which inequality has continued to explode.