Conventional wisdom has long held that public policy has worked to reduce income inequality in contemporary America, or that, at least, it has the real capability of achieving that goal (Thurow, 1971). For example, the evidence is strong that there was a pronounced decline in measured inequality during the 1930s and 1940s, a period of greatly increased governmental intervention on both the tax and expenditure side designed to reduce inequality (Lindert and Williamson, 1980). Increased government expenditures went, or so it was argued, largely to alleviate the plight of the poor and, thus, greater federal public aid expenditures brought about greater equality. Similarly, it commonly has been maintained that higher and more progressive federal taxes serve to further reduce inequality in America.
There is another view, however, which holds that governmental intervention in markets may have a different impact. While he believes the modern welfare state has clearly reduced incomes for the extremely wealthy, Tullock (1983) has suggested that many government transfers are not transfers from higher to lower income groups, but rather transfers within the middle class, allowing at least the possibility that governmental transfer activity might not in the aggregate increase income equality in any significant manner. Perhaps the citizenry are interested in promoting income equality, but only to some limited extent. In that regard, evidence compiled by L ebergott ( 1975) is interesting: since the midnineteenth century, there has been a remarkable rough constancy in government payment levels to the poor relative to wage levels of common laborers. To be sure, there have been some periods of increased support for the poor, such as during the heyday of the War on Poverty in the late 1960s, but as Tullock has expressed in private correspondence with us, 'the body politic has spasms of feeling more than usually charitable, and then goes back to normal.'
The conventional wisdom had previously been questioned by Reynolds and Smolensky (1977) and, for that matter, by Bastiat (1848Bastiat ( , 1964)), who said that the state 'produces more poverty than it cures.' Along similar lines, Lebergott (1975: 15), speaking of poor elderly Americans, observed: 'they are not impoverished in spite of the American capitalist welfare state. They are in poverty because of it.'