Monday, October 31, 2016

How A Ho-Hum Economy Fueled A Vicious Campaign Cycle

By Robert J. Samuelson
The Washington Post
October 31, 2016

To understand this nasty and nutty campaign, you have to go back to 1973, which is before roughly 60 percent of today’s Americans were alive. The backward trip in time illuminates how the United States and, indeed, most advanced nations became addicted to rapid economic growth and how this, in turn, polluted our politics. It bred disillusion and disappointment that go well beyond the mud-slinging style of Donald Trump and, to a lesser extent, Hillary Clinton.

On the whole, 1973 was a good year for the U.S. economy, with one large exception: sharp rises in global oil prices. Otherwise, many indicators were upbeat. Unemployment averaged 4.9 percent . Gross domestic product — the economy’s output — grew an astonishing 5.8 percent. The U.S. trade surplus was almost $2 billion.

We expected a stellar economy; that had been our experience since the late 1940s. Unfortunately, the powerful boom created expectations of perpetual (and rising) prosperity that can’t be met. The year 1973 was a turning point, argues Marc Levinson in his provocative book “An Extraordinary Time: The End of the Postwar Boom and the Return of the Ordinary Economy.” After the early 1970s, there were good times and bad, but rapid growth faded (one exception: the late 1990s).

Levinson reminds us how mesmerizing the post-World War II boom was. In 1946, the outlook was grim. An estimated 4.5 million Americans went on strike for higher wages. Europe and Japan were devastated. But the recovery was overwhelming. In the United States, the number of housing units increased by two-thirds by the 1970s; 22 million families became homeowners. Suburbanization was in full swing. Over the same time period, “the amount of factory equipment . . . nearly quadrupled.”

In Europe and Japan, gains were even more notable. In Japan, average incomes rose nearly 600 percent by the early 1970s. “West Germany’s economy grew four times over during those same years, France’s a bit less,” writes Levinson, an economic journalist turned historian (and a friend and ex-colleague of mine). Trade boomed, helped by tariff reductions. One study found that exports by five European countries had increased 700 percent from 1946 to 1957.

This economic bonanza had many sources. In the United States, there was pent-up demand for consumer goods (cars, appliances, clothing) and housing after the long buying drought of the Great Depression and World War II. Similarly, there was a backlog of new technologies to be commercialized: television, synthetic fibers, jet travel. In Europe and Japan, massive reconstruction created jobs, and the migration of workers from poor farms to cities and more productive factories raised output.

Not surprisingly, people in advanced countries began to take rapid economic growth for granted. Their political and social systems were premised on it. The welfare state assumed that prosperity would produce the tax revenues necessary to pay generous benefits. Free-trade policies also presumed prosperity. Imports might cost some jobs, but a strong economy would soften the blow by creating new jobs.

The trouble, argues Levinson, is that the strong growth of the early postwar decades was an aberration. Indeed, that increasingly seems to be the case. The growth slowdown is worldwide, according to estimates by the late economic historian Angus Maddison. Since 1870, global per capita income growth, adjusted for inflation, has averaged about 1 percent annually in most periods, Maddison found. There’s one big exception: from 1950 to 1973, when per capita growth averaged nearly 3 percent a year.

This is a huge difference. At 3 percent annually, living standards double every 25 years; gains are visible. At 1 percent, the doubling takes about 70 years; sluggish gains often seem nonexistent. The political contradiction is obvious. People expect the fruits of rapid economic growth (rising incomes, protected welfare benefits, ample jobs), but the economy isn’t delivering. Its performance is ordinary, not awful, but people believe they’ve been promised more.

Writes Levinson:

“Rising anger at the state’s inability to deliver average citizens the prosperity it has promised [has] manifested itself in uncomfortable ways: resentment of immigrants . . . vociferous opposition to paying sufficient taxes . . . relentless criticisms of public services . . . [and] the rise of dissident movements on the fringes of the political mainstream.”

Sound familiar?

Government could relieve the strain by raising economic and productivity growth. In practice, this is hard. “The rate at which innovations affect productivity is almost totally beyond the ability of government to control,” writes Levinson. “Turning an innovative idea into commercially useful products . . . may involve years of trial and error.”

There’s a monstrous disconnect between economic realities and political imperatives. It would be refreshing if our political leaders acknowledged that we have moved into an era of limits — for how long, no one knows — but they prefer to evade unpleasant truths and engage in personal attacks. The result is a vicious campaign that emphasizes slurs over substance and, in addition to its coarseness, has been exceptionally uninformative.

Article Link To The Washington Post: