The Fall and Rise of U.S. Inequality, in 2 Graphs
npr.org
npr.org
My take: Makes a huge difference between a stable money supply spread across a growing population, vs unrestricted money growth which can be "firehosed" to a small group.
Talking about the rise of the 1% without a single mention of moving away from the gold standard and the finance industry is misguided at best.
In other words, the "gold standard" that some have alluded to made absolutely no meaningful restrictions on the growth of the money supply; there were more foreign-held dollars than the United States had gold, anyway.
According to http://en.wikipedia.org/wiki/Nixon_Shock: At the time, the U.S. also had unemployment and inflation rates of 6.1% (Aug 1971) and 5.84% (1971), respectively. ... On the afternoon of Friday, August 13, 1971, [Federal Reserve chairman Arthur Burns, incoming Treasury Secretary John Connally, and then Undersecretary for International Monetary Affairs and future Fed Chairman Paul Volcker] along with twelve other high-ranking White House and Treasury advisors met secretly with Nixon at Camp David.
Which meant Nixon was already facing the very real prospect of the American dollar being fully undermined. For no other reason than the fact that nations and banks were generally accustomed to settling accounts with gold, he had no choice but to hold on to whatever gold was left.
The real issue was that foreign investments were paying off, America was no longer doing the lion's share of the production, and Bretton Woods made it possible for foreign nations to acquire gold from US currency. You'll note that the graph shows data-points from 1966 thru 1985 more-or-less clumped in the area of ($300K-$400K, $30K-$35K). The break-away, if you will, starts after 1986. That is quite coincident with the Tax Reform Act of 1986 under Ronald Reagan (see http://en.wikipedia.org/wiki/Reaganomics).
Per Wikipedia: The primary effect of the tax changes over the course of Reagan's term in office was a change in the composition of federal receipts, towards more payroll taxes and new investment taxes, and away from higher earners and capital gains on existing investments. Federal revenue share of GDP fell from 19.6% in fiscal 1981 to 17.3% in 1984, before rising back to 18.4% by fiscal year 1989. Personal income tax revenues fell during this period relative to GDP, while payroll tax revenues rose relative to GDP. President Ronald Reagan's 1981 cut in the top regular tax rate on unearned income reduced the maximum capital gains rate to only 20%—its lowest level since the Hoover administration. In 1986 President Reagan set tax rates on capital gains at the same level as the rates on ordinary income like salaries and wages, with both topping out at 28 percent.
My own take on all this is that the gold standard factor is minor compared to the "tax efficiency" advantages that Reaganomics gave to unearned income over earned income. Getting into the unearned income game requires capital to play. Raising that initial capital is the first hurdle. Once achieved, it is then possible to maintain and grow this unearned income. Since the 1986 tax reform tremendously lightened the load on higher earners and on capital gains on existing investments, that made it easier for higher earners to get into the game, and easier for the holders of existing investments to grow their unearned income.
On the other hand, "income growth of bottom 99%" has the same issue, but it is less the problem, because 99% is a much more stable group of people. It's like "achievement growth of all students (except the best one)".