Rebuilding the world has to rank at the top of economic low-hanging fruit of the last century. America, its forces marshaled, played a leading role in piecing together the shattered globe in the wake of WWII. Yes, four decades of unfortunate tax rates, globalization, automation and the demise of unions have all abetted the decline of the U.S. middle class, but just as true is that the good times simply ended, the job completed (more or less), the outlier ran headlong into entropy. The contents of this half-empty glass finally spilled all over the world in 2016, provoking outrageously regressive political shifts, with perhaps more states becoming submerged this year.
As An Extraordinary Time author Marc Levinson wrote in 2016 in the Wall Street Journal: “The quarter-century from 1948 to 1973 was the most striking stretch of economic advance in human history. In the span of a single generation, hundreds of millions of people were lifted from penury to unimagined riches.” In “End of a Golden Age,” an Aeon essay, the economist and journalist further argues the global circumstances of the postwar era were a one-time-only opportunity for runaway productivity, a fortunate arrangement of stars likely to never align again.
Well, never is an extremely long stretch (we hope), but the economic-growth-rate promises brought to the trail by Sanders and Trump, which have made it to the White House with the unfortunate election of the latter candidate, were at best fanciful, though delusional might also be a fair assessment. If I had to guess, I would say someday we’ll see tremendous growth again, but when that happens and what precipitates it, I don’t know. Nobody really does.
When it comes to influencing innovation, governments have power. Grants for scientific research and education, and policies that make it easy for new firms to grow, can speed the development of new ideas. But what matters for productivity is not the number of innovations, but the rate at which innovations affect the economy – something almost totally beyond the ability of governments to control. Turning innovative ideas into economically valuable products and services can involve years of trial and error. Many of the basic technologies behind mobile telephones were developed in the 1960s and ’70s, but mobile phones came into widespread use only in the 1990s. Often, a new technology is phased in only over time as old buildings and equipment are phased out. Moreover, for reasons no one fully understands, productivity growth and innovation seem to move in long cycles. In the US, for example, between the 1920s and 1973, innovation brought strong productivity growth. Between 1973 and 1995, it brought much less. The years between 1995 and 2003 saw high productivity gains, and then again considerably less thereafter.
When the surge in productivity following the Second World War tailed off, people around the globe felt the pain. At the time, it appeared that a few countries – France and Italy for a few years in the late 1970s, Japan in the second half of the ’80s – had discovered formulas allowing them to defy the downward global productivity trend. But their economies revived only briefly before productivity growth waned. Jobs soon became scarce again, and improvements in living standards came more slowly. The poor productivity growth of the late 1990s was not due to taxes, regulations or other government policies in any particular country, but to global trends. No country escaped them.
Unlike the innovations of the 1950s and ’60s, which were welcomed widely, those of the late 20th century had costly side effects. While information technology, communications and freight transportation became cheaper and more reliable, giant industrial complexes became dinosaurs as work could be distributed widely to take advantage of labour supplies, transportation facilities or government subsidies. Workers whose jobs were relocated found that their years of experience and training were of little value in other industries, and communities that lost major employers fell into decay. Meanwhile, the welfare state on which they had come to rely began to deteriorate, its financial underpinnings stressed due to the slow growth of tax revenue in economies that were no longer buoyant. The widespread sharing in the mid-century boom was not repeated in the productivity gains at the end of the century, which accumulated at the top of the income scale.
For much of the world, the Golden Age brought extraordinary prosperity. But it also brought unrealistic expectations about what governments can do to assure full employment, steady economic growth and rising living standards. These expectations still shape political life today.•