A recent Paul Krugman column on America's dysfunctional urban housing situation briefly mentions an article from a 1955 issue of Forbes magazine that is genuinely worth your time if you're interested in understanding what that era of greater economic equality looked like. Of course, you can see this "Great Compression" on various kinds of charts if you like. But the Forbes piece really tells a story of how the successive events of the Great Depression, the New Deal, World War II, and then the new postwar consensus served to flatten out the American elite:
Twenty-five years have altered the executive way of life noticeably; in 1930 the average businessman had been buffeted by the economic storms but he had not yet been battered by the income tax. The executive still led a life ornamented by expensive adjuncts that other men could not begin to afford, a life attended by a formality that other men did not have time for. In Boston, which set the highest tone if not the fastest pace, the archetype of the high-salaried executive of 1930 arrived at his office in his chauffeur-driven Pierce-Arrow, uncompromisingly attired in dark suit and detachable stiff collar. For weekend lounging white flannels were de rigueur.
By contrast, in 1955 top executives generally led lives that resembled the lives of the middle class. They drove their own cars and lived in modestly sized suburban homes that did not accommodate lavish parties:
The executive’s home today is likely to be unpretentious and relatively small–perhaps seven rooms and two and a half baths. (Servants are hard to come by and many a vice president’s wife gets along with part-time help. So many have done so for so long, in fact, that they no longer complain much about it.) The executive who feels, as apparently Robert R. Young does, that to be completely happy he needs a forty-room "cottage" in Newport and a thirty-one-room oceanside villa in Palm Beach is a rare bird these days. The fact that Young paid only $38,000 for his Newport place, Fairholme, which cost Philadelphia banker John R. Drexel nearly a quarter of a million dollars to build in 1905, demonstrates the decline in the market for such outsize mansions.
As executives’ homes have dwindled in size, so have their parties. Frederick J. Thibold, catering manager at Sherry’s in New York, can remember dances for 2,000 with a "sumptuous supper" twenty-five years ago. A big dance today is one for 400, and at some of these, Thibold confides in a whisper, Sherry’s has served hot dogs and hamburgers. Today’s executive entertains at his country club, or at small dinner parties at home. The New York executive who entertains at smart restaurants, where a dinner party for six may cost $125, usually does so on an expense account.
For context, the $38,000 paid for that Newport mansion would be about $340,000 in today's money. That's about twice the price of the median house in the USA today, and a bit less than the median price of a house in California. By contrast, a quarter of a million of 1905 dollars would be almost $6.5 million in today's terms.
This illustrates something important about the economics of luxuries, like vacation homes in beach communities. Under any set of economic arrangements, these are going to be expensive in the sense that the typical family probably wouldn't want to pay for them. But under egalitarian economic conditions, there is a de facto ceiling on their price. If nobody has the money to spend $6.5 million on a Newport getaway, then Newport getaways will have to be a lot cheaper. Consequently, while high levels of inequality clearly benefit the people at the top of the economic food chain, they benefit them a lot less than it might superficially appear.
Even under a much flatter distribution of income, all those beaches would still be there, and someone would own the beach houses — they'd just be cheaper.
But equality had been bad news for the yacht industry:
The large yacht has also foundered in the sea of progressive taxation. In 1930, Fred Fisher (Bodies), Walter Briggs, and Alfred P. Sloan cruised around in vessels 235 feet long; J. P. Morgan had just built his fourth Corsair (343 feet). Today, seventy-five feet is considered a lot of yacht. One of the biggest yachts launched in the past five years is the ninety-six-foot Rhonda III, built and owned by Ingalls Shipbuilding Corp., of Birmingham, Alabama. The Rhonda III cost half a million dollars to build, and the annual bill for keeping a crew aboard her, stocking her, and fueling her runs to around $130,000. As Chairman Robert I. Ingalls Jr. says, only corporations today can own even so comparatively modest a craft. The specifications of the boat that interests the great majority of seagoing executives today are "forty feet, four people, $40,000." In this tidy vessel the businessman of 1955 is quite happily sea-borne.
These days, of course, the business press is full of articles about the booming superyacht industry — a seaborne manifestation of our return to 1920s-style economics.
The whole story is worth a read, so I won't excerpt any more of it. I will, however, note something that doesn't appear in the story — much talk about fundamental economic trends. There's no thesis that equality suddenly appeared because of a surge of new inventions or a dearth of new inventions. There's not much interest in whether trade was freer in the 1950s or in the 1920s. The take is very simple — back in 1955 the top marginal income tax rate was 91 percent, so there simply weren't any people with monstrous pay packages.
