Where on - or beyond - the Spectrum from FDR to Reagan Do We Want Our Grandkids to Live?

 

This chart is one more sign of the world Reagan helped shape. Boomers began their careers in an America still defined by FDR’s systems: higher taxes on the wealthy, stronger labor protections, greater public investment, and thicker safety nets. The extremes of the market were softened, so the average Boomer built more wealth relative to the richest Boomer.

Millennials, by contrast, entered adulthood after Reagan’s market individualism had become the norm: lower taxes, weaker unions, thinner safety nets, and less public investment. For example, when Reagan became governor of California, tuition at the state’s world-class universities was still free; today, one of the few guarantees of a college education is student debt. The result was a more polarized America. The richest Millennials at age 35 are wealthier than the richest Boomers at the same age, but the average Millennial is 30% poorer than the average Boomer. Reagan’s world gave individuals more exposure to the raw consequences of markets — more opportunity for the fortunate, more hardship for the unlucky.

And note the etymology: fortune and fortunate share the same root. Looking across history, the biggest determinant of how well you live is when and where you live. Sixteenth-century Bulgaria or twenty-first-century Palo Alto? People born in times and places that allow them to create a fortune are, quite literally, the most fortunate — not just because of their own beliefs, actions and choices but because of something they did not choose: the systems, circumstances and culture they are born into. Fortune and fortunate is hard to disentangle.

That leaves us with a persistent political question: to what extent do we want to mitigate the extremes of the market or simply embrace them? Reagan’s philosophy trusted the market to mete out justice through reward and punishment. The alternative, largely defined by Roosevelt, had been to design systems that checked those extremes and gave more people a chance at dignity, stability, and progress while also asking the best, brightest and most fortunate to pay more in taxes to support those less fortunate. In FDR’s world it was harder to become extremely rich or extremely poor. By the end of FDR’s presidency, the highest marginal income tax rate was 94%. (This was not all social engineering; the US was engaged in World War 2, the costliest war – in lives and dollars –in the history of the world.) During Reagan’s presidency, the top marginal tax rate dropped from 70% to 28%.

Nearly everyone agrees that rewards should vary with results. The unresolved debate, from FDR through Reagan to today, is how much we should moderate the market’s extreme feedback. Boomers and Millennials have lived on opposite sides of that pendulum — one in a world of thicker safety nets, the other in a world of thinner ones. The question now is what balance they want to design for their children and grandchildren — the Alpha Generation, born since 2013 — who will inherit both the risks and the returns of the system we choose to build. Because these systems? It is easy to blame or credit an FDR or Reagan but really, we're the ones who build the world our grandkids live in.