America emerged from the Great Depression and the Second World War with a much more equal distribution of income than it had in the 1920s; our society became middle-class in a way it hadn’t been before. This new, more equal society persisted for 30 years. But then we began pulling apart, with huge income gains for those with already high incomes. As the Congressional Budget Office has documented, the 1 percent — the group implicitly singled out in the slogan “We are the 99 percent” — saw its real income nearly quadruple between 1979 and 2007, dwarfing the very modest gains of ordinary Americans. Other evidence shows that within the 1 percent, the richest 0.1 percent and the richest 0.01 percent saw even larger gains.

By 2007, America was about as unequal as it had been on the eve of the Great Depression — and sure enough, just after hitting this milestone, we plunged into the worst slump since the Depression. This probably wasn’t a coincidence, although economists are still working on trying to understand the linkages between inequality and vulnerability to economic crisis.

Here, however, we want to focus on a different question: Why has the response to the crisis been so inadequate? Before financial crisis struck, we think it’s fair to say that most economists imagined that even if such a crisis were to happen, there would be a quick and effective policy response. In 2003 Robert Lucas, the Nobel laureate and then-president of the American Economic Association, urged the profession to turn its attention away from recessions to issues of longer-term growth. Why? Because, he declared, the “central problem of depression-prevention has been solved, for all practical purposes, and has in fact been solved for many decades.”

Yet when a real depression arrived — and what we are experiencing is indeed a depression, although not as bad as the Great Depression — policy failed to rise to the occasion. Yes, the banking system was bailed out. But job-creation efforts were grossly inadequate from the start — and far from responding to the predictable failure of the initial stimulus to produce a dramatic turnaround with further action, our political system turned its back on the unemployed. Between bitterly divisive politics that blocked just about every initiative from President Obama, and a bizarre shift of focus away from unemployment to budget deficits despite record-low borrowing costs, we have ended up repeating many of the mistakes that perpetuated the Great Depression.

Nor, by the way, were economists much help. Instead of offering a clear consensus, they produced a cacophony of views, with many conservative economists, in our view, allowing their political allegiance to dominate their professional competence. Distinguished economists made arguments against effective action that were evident nonsense to anyone who had taken Econ 101 and understood it. Among those behaving badly, by the way, was none other than Robert Lucas, the same economist who had declared just a few years before that the problem of preventing depressions was solved.

So how did we end up in this state? How did America become a nation that could not rise to the biggest economic challenge in three generations, a nation in which scorched-earth politics and politicized economics created policy paralysis?

We suggest it was the inequality that did it. Soaring inequality is at the root of our polarized politics, which made us unable to act together in the face of crisis. And because rising incomes at the top have also brought rising power to the wealthiest, our nation’s intellectual life has been warped, with too many economists co-opted into defending economic doctrines that were convenient for the wealthy despite being indefensible on logical and empirical grounds.

Let’s talk first about the link between inequality and polarization.

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Our understanding of American political economy has been strongly influenced by the work of the political scientists Keith Poole, Howard Rosenthal and Nolan McCarty. Poole, Rosenthal and McCarty use congressional roll-call votes to produce a sort of “map” of political positions, in which both individual bills and individual politicians are assigned locations in an abstract issues space. The details are a bit complex, but the bottom line is that American politics is pretty much one-dimensional: Once you’ve determined where a politician lies on a left-right spectrum, you can predict his or her votes with a high degree of accuracy. You can also see how far apart the two parties’ members are on the left-right spectrum — that is, how polarized congressional politics is.

It’s not surprising that the parties have moved ever further apart since the 1970s. There used to be substantial overlap: There were moderate and even liberal Republicans, like New York’s Jacob Javits, and there were conservative Democrats. Today the parties are totally disjointed, with the most conservative Democrat to the left of the most liberal Republican, and the two parties’ centers of gravity very far apart.

What’s more surprising is the fact that the relatively nonpolarized politics of the post-war generation is a relatively recent phenomenon — before the war, and especially before the Great Depression, politics was almost as polarized as it is now. And the track of polarization closely follows the track of income inequality, with the degree of polarization closely correlated over time with the share of total income going to the top 1 percent.

Why does higher inequality seem to produce greater political polarization? Crucially, the widening gap between the parties has reflected Republicans moving right, not Democrats moving left. This pops out of the Poole-Rosenthal-McCarty numbers, but it’s also obvious from the history of various policy proposals. The Obama health care plan, to take an obvious example, was originally a Republican plan, in fact a plan devised by the Heritage Foundation. Now the GOP denounces it as socialism.

The most likely explanation of the relationship between inequality and polarization is that the increased income and wealth of a small minority has, in effect, bought the allegiance of a major political party. Republicans are encouraged and empowered to take positions far to the right of where they were a generation ago, because the financial power of the beneficiaries of their positions both provides an electoral advantage in terms of campaign funding and provides a sort of safety net for individual politicians, who can count on being supported in various ways even if they lose an election.

Whatever the precise channels of influence, the result is a political environment in which Mitch McConnell, leading Republican in the Senate, felt it was perfectly okay to declare before the 2010 midterm elections that his main goal, if the GOP won control, would be to incapacitate the president of the United States: “The single most important thing we want to achieve is for President Obama to be a one-term president.”

Needless to say, this is not an environment conducive to effective anti-depression policy, especially given the way Senate rules allow a cohesive minority to block much action. We know that the Obama administration expected to win strong bipartisan support for its stimulus plan, and that it also believed that it could go back for more if events proved this necessary. In fact, it took desperate maneuvering to get sixty votes even in the first round, and there was no question of getting more later.

In sum, extreme income inequality led to extreme political polarization, and this greatly hampered the policy response to the crisis. Even if we had entered the crisis in a state of intellectual clarity — with major political players at least grasping the nature of the crisis and the real policy options — the intensity of political conflict would have made it hard to mount an effective response.

In reality, of course, we did not enter the crisis in a state of clarity. To a remarkable extent, politicians — and, sad to say, many well-known economists — reacted to the crisis as if the Great Depression had never happened. Leading politicians gave speeches that could have come straight out of the mouth of Herbert Hoover; famous economists reinvented fallacies that one thought had been refuted in the mid-1930s. Why?

The answer, we would suggest, also runs back to inequality.

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It’s clear that the financial crisis of 2008 was made possible in part by the systematic way in which financial regulation had been dismantled over the previous three decades. In retrospect, in fact, the era from the 1970s to 2008 was marked by a series of deregulation-induced crises, including the hugely expensive savings and loan crisis; it’s remarkable that the ideology of deregulation nonetheless went from strength to strength.

It seems likely that this persistence despite repeated disaster had a lot to do with rising inequality, with the causation running in both directions. On one side, the explosive growth of the financial sector was a major source of soaring incomes at the very top of the income distribution. On the other side, the fact that the very rich were the prime beneficiaries of deregulation meant that as this group gained power — simply because of its rising wealth — the push for deregulation intensified.