October 3, 2015
PERILOUSLY CLOSE TO INSIGHT:
A New Golden Age Part I: Why Your Grandparents Lived Larger than You Do (Tom Streithorst, September 28th, 2015, LA Review of Books)
Once upon a time, before you were born, there was a Golden Age. You didn't need an amazing resume to find a job. Even the lazy and ignorant got hired. And best of all, pay kept going up. One man working an ordinary job could support his entire family in middle class splendor. And he didn't have to work all that hard. Office workers left on the dot of five and factory workers got paid overtime. Getting drunk at work, if not de rigure, was certainly commonplace. And still everybody made more money than his or her parents. Everybody lived better than they had dreamed possible when they were kids.Corporations hired more than fired. Firms were happy to train new workers. A 30-year-old saw his earnings double by the time he hit 50. If you gave your youth to the firm, they generally took care of you until you retired. And when you did retire, your pension, which both the government and your employer recognized as your earned and sacrosanct right, was safe and generous. Millions escaped poverty. The middle class grew and grew until it was almost everybody. Inequality shrank.This isn't a fairy tale. Economic historians call the post-war years, 1950 to 1973, the Golden Age because those were the years the US and world economy grew faster than ever before or since. Neoliberalism's dirty secret is that its policies don't work that well. It isn't just since the financial crisis that growth has been stagnant. Even the boom was mediocre. The best year since the election of Ronald Reagan was 1999, when the economy grew an impressive 4.8 percent. Sounds good until you realize that economic growth was higher in 1950, 1951, 1955, 1959, 1962, 1964, 1965, 1966, 1968, 1972, 1973, 1976, and 1978. Even the 1970s, a byword for stagflation and economic turmoil, saw better growth than any decade since.According to today's conventional wisdom, the policies of the Golden Age should have doomed our economy to pathetic performance. Tax rates were spectacularly high, regulation was omnipresent, unions were strong, the financial sector miniscule. [...]Today, productivity continues it unstoppable rise but wages no longer move up in step. Since the financial crisis, close to 95 percent of the benefits of productivity gains have gone into the pockets of the top 1 percent. And since the rich don't have to spend all their income, inequality drains the system of demand. Our problem today is that with wages stagnant but productivity increasing, the economy's ability to supply far exceeds workers' ability to consume. Our problem is we can make more goods and services than our underpaid workers can afford to purchase. Supply outstrips demand.Every year, technology advances, making labor more productive. That means we can make more stuff with fewer hours of work.
In the post-Depression/post--WWII era of industrialization it was, indeed, almost impossible to have an economy that didn't grow. Even the USSR's economic performance was decent in those years. Likewise, if you look at the development of the rest of the Third World in recent decades, it appears that almost no level of government interference, corruption, etc. can prevent you from growing fairly rapidly--provided that you are engaged in the global trading system.
But a transition occurs by the end of the 70s/early 80s in the developed world and two kinds of economies diverge. By that point, unionization and wage demands have become a ratchet that drives inflation ever higher and productivity ever lower. As the author concedes, employees of the time were lazy, ignorant, drunk, etc., because employment was essentially a right, entirely divorced from the actual economic needs of business. Predictably, said businesses became sclerotic.
So began a great social experiment, wherein the nations of Southern Europe retained the old Golden Age model, with the result that their economies are now basket cases and their populations are aging too rapidly for their remaining workers to fund the social welfare programs that retirees expect. Meanwhile. the neoliberal nations of the Anglosphere adopted a new model (thanks to Thatcher, Volcker and Reagan) which tamed inflation, in large part by breaking the unions; re-privatized and deregulated businesses, lowered taxes, privatized retirement, and so forth, with the result that the econmies of the English-speaking world (which was soon joined by the rest of Northern Europe) vastly outperform their former peers and our societies buck their deadly demographic trends.
Considered this way, we can see that the author has missed his own point rather spectacularly, which is that : productivity continues its steady wealth-creating rise in economies, like ours, that decoupled productivity from jobs and wages. On the other hand, nations that stuck with high taxes, high regulation regimes, strong unions, and the like are dying.
We do face a bit of a quiandry as regards adopting a different means of distributing the added wealth that we realize by getting rid of make-work jobs to those who used to fill them. But, fortunately, we do have the rapidly increasing wealth. Those who stuck to the Golden Age model face a probably insoluble crisis : what, after all, is the point of having a job when there's ever less wealth to be distributed via them? And why maintain the system if the retirees aren't going to get the pensions and retirement benefits they feel entitled to? Worst of all, barring the importation of immigrants on a scale that would dwarf even the current wave, how would you revive the economies even if you adopted our more functional model? The Golden Age has turned to dross before their very eyes and it is too late for them to make the chantges we initiated four decades ago.
Posted by Orrin Judd at October 3, 2015 7:27 AM
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