On a drizzly evening in Zuccotti Park this week, where the Occupy Wall Street protesters are camped out, I spotted one young man wearing a T-shirt with an image of Ronald Reagan and the words "Bad Religion."
It was the right outfit for the occasion. That's because the greatest significance of the wave of leftist demonstrations that started in Lower Manhattan and has rippled across the United States is the potential challenge it poses to the Reagan Revolution.
The triumph of Reaganism and the doctrine of small-l liberalism over the past 30 years was remarkable. In the U.S. and Britain, taxes shrank; regulation, especially of the financial sector, was pruned back; state companies were sold off. Soviet Communism collapsed; China converted to capitalism and entered the world economy. Emerging-market economies in Latin America and Africa embraced liberalization as the path to growth.
"The ideology drove everything that happened in the next 30 years," said Branko Milanovic, a World Bank economist and author of The Haves and the Have-Nots. "Deng Xiaoping captured it best: 'To get rich is glorious.' "
The biggest beneficiaries of the global economic boom were some of the world's poorest people. Shaohua Chen and Martin Ravallion of the World Bank found that between 1981 and 2005, the number of people living in poverty in the developing world fell by 500 million. The West prospered as well, with relatively consistent economic growth over the past 30 years.
But something else was happening, too: a sharp increase in income inequality. Although it has been most striking in the U.S. and China, income inequality has grown in most developed countries.
"What we now call the Reagan Revolution was a turning point in the American economy," said Jacob Hacker, a political science professor at Yale University in Connecticut. "These patterns of rising inequality were established then."
Economists have been pointing out the growing gap for a decade. But, particularly in the U.S., the increasingly skewed distribution didn't catch fire as a political issue. One reason is suggested by University of Chicago economist Raghuram Rajan in his 2010 book Fault Lines – that the credit bubble of the 1990s and 2000s masked the stagnating wages of the American middle class.
The 2008 financial crisis ended that self-deception. While the U.S. middle class is still in the doldrums, the top 1 per cent has largely recovered, thanks in part to muscular intervention by the state. That's why the taboo on talking about income distribution is lifting, particularly in Zuccotti Park.
" 'Class warfare' has seldom had much traction in American politics because Americans tend to idealize the 'free market' as a separate sphere of life, with its own [rough]justice," Larry Bartels, a political science professor at Vanderbilt University in Tennessee and author of Unequal Democracy, wrote in an e-mail reply to my questions.
"Escalating inequality and the wreckage of the Great Recession may now be focusing increasing anger on that top sliver – especially bankers, who are, conveniently, prominently implicated in the malfeasance that led to the financial meltdown of 2008 and [still]immensely rich."
But the left shouldn't declare victory just yet. The middle-class anger is also being harnessed by the right, and with greater and more focused political effect. Consider the remarks this week by Tea Party heroine Sarah Palin. In a speech in Seoul, she railed against "crony capitalism," complaining that "well-connected banks get bailed out" and "certain companies get special deals through governments."
Her remedy is to double down on the Reagan Revolution – to lower taxes and shrink government further. The standard prescription of Progressives – higher taxes, more regulation, a stronger social welfare net, more investment in education – may be sensible. But it lacks the rallying power of Ms. Palin's call to smash crony capitalism by depriving the elites of their political tool – big government.
Even the protesters in Zuccotti Park know their populist movement has found its complaint – "We are the 99 per cent" – but not its remedy. After a lecture about income inequality delivered on the square by Sara Burke, a policy analyst at a New York research organization, one listener said she was keen to "educate" people about the issue. But she wanted Ms. Burke's help with something: "What's my sound bite?"
The politician who answers that question will be the Reagan of the left.