Lessons from the Great Compression

Economists have learned a lot studying the Great Depression and the Great Recession. But it’s the Great Compression era that some believe holds the most relevant and necessary lessons for today. Lasting roughly from the end of World War II to the early 1970s, it was a period marked by a dramatic narrowing of the gap between the rich and the poor. In between create a strong and historically equitable middle class. Fast forward to today, when the contrast with our record-high levels of inequality, K-shaped economy, and hollowed-out middle class couldn’t be more stark. But what exactly drove the Great Compression? 

Economics for Inclusive Prosperity co-directors Ilyana Kuziemko and Suresh Naidu wanted to look past the standard explanations like strong unions and New Deal policies to a darker force: the Cold War. In their research. Kuziemko, a professor at Princeton, and Naidu, a professor at Columbia, used enhanced digitization techniques and AI to resurrect box after box old paper records and uncover never-used data. They found that the effects of government spending on military equipment, the military draft, and other Cold War-related factors made a significant contribution to the economic progress of the era. But it came at a cost, most tragically the estimated 14 million people, many of them civilians, who were killed during the proxy wars of the period. But the two economists say their research on the era may still hold lessons for today on how to get the benefits of the Great Compression without the dark side—through investments in areas such as health care, infrastructure, and green energy. 

About our Guests:

Suresh Naidu is the Jack Wang and Echo Ren Professor of Economics and a professor of international and public affairs at Columbia University. He’s a former Alfred P. Sloan Research fellow who’s been recognized for his groundbreaking scholarship in labor economics. Naidu previously served as a Harvard Academy Junior Scholar at Harvard University, and as an instructor in economics and political economy at the University of California, Berkeley. He holds a BMath from University of Waterloo, an MA in economics from the University of Massachusetts, Amherst and a PhD in economics from the University of California, Berkeley.

Ilyana Kuziemko is the Theodore A. Wells ’29 Professor of Economics, co-director of the Griswold Center for Economic Policy Studies, and co-director of the Princeton Program in Public Finance at Princeton University. She is a former associate professor at Columbia Business School served as assistant secretary for economic policy at the U.S. Department of the Treasury, where she worked primarily on the development and early implementation of the Affordable Care Act. She has been a co-editor at American Economic Journal: Applied Economics since 2015. Kuziemko earned her A.B. in economics from Harvard University, a second B.A. in mathematics from Oxford University (where she studied as a Rhodes Scholar), and a Ph.D. in economics from Harvard.

Economics for Inclusive Prosperity (EfIP) is a network of academic economists from Harvard, Princeton, Columbia, and other leading universities who are committed to an inclusive economy and society. EfIP members are working to transform their field around a new vision of prosperity—a vision that includes traditional economic metrics, but also expanded measures of wellbeing including access to health, to democratic participation, and to a livable planet. They’re also highlighting the important changes in economics that are already underway.

Host Ralph Ranalli is a podcaster, entrepreneur, and former journalist, who has also hosted “HKS PolicyCast,” the award-winning flagship podcast of the Harvard Kennedy School. He holds a BA in political science from UCLA and a master’s in journalism from Columbia University.

The Economics for Inclusive Prosperity Podcast is recorded at the Malcolm Wiener Center for Social Policy at the Kennedy School of Government at Harvard University. The show is co-produced by Ralph Ranalli and Tony Ditta.