Monday, October 07, 2013

Paul Krugman's 1950s Revival

In the first post in his New York Times blog, Paul Krugman explained the central idea of his blog, saying:

“I was born in 1953. Like the rest of my generation, I took the America I grew up in for granted – in fact, like many in my generation I railed against the very real injustices of our society.... It’s only in retrospect that the political and economic environment of my youth stands revealed as a paradise lost, an exceptional episode in our nation’s history.”

Then Krugman contrasts the broadly shared prosperity of the 1950s and 1960s with today's economy, where the very wealthy now get a much larger share of income than they did.

It is tempting for liberals to be nostalgic about the post-war economy, reacting against today's inequality, but we also need to remember the other side of the post-war economy: It deliberately promoted consumerism - often in ways that we now know were destructive.

For example, the federal government encouraged suburban sprawl, by offering FHA guaranteed mortgages only for new suburban construction and by building interstate highways that sliced through older neighborhoods for the commuters from those new suburbs. 

Sprawl was such a key part of the post-war prosperity that the period is symbolized by suburban homes and by over-sized cars with tail-fins. Sprawl was a major part of a larger effort to promote rapid economic growth by stimulating consumer demand.  Yet now we can see that sprawl not only has damaging environmental effects, paving over open land and contributing a large chunk of our greenhouse gas emissions, but also has damaging social effects: The new auto-dependent suburbs had less public life and less sense of community than the older streetcar suburbs that the replaced.

Two graphs can help us get a more balanced view of the post-war economy, both its relative equality and its runaway consumerism.

The first is a graph that Krugman uses to show how much inequality has increased.

There are distinct economic periods on this graph, and Krugman has labeled them: 
  • The long gilded age was a time of extreme inequality which extended through the 1920s, beyond what we usually think of as the gilded age.  
  • The great compression was the time when inequality declined dramatically. The chart shows that this occurred during the Roosevelt administration, as a direct result of New Deal policies such as higher taxes on the rich.  
  • Middle-class America was the time when these policies bore fruit. By giving all income levels a fair share of prosperity, they brought us the prosperous middle-class nation of the post-period. 
  • The great divergence began in the 1980s, as a result of Reagan administration policies, including sharply lower taxes on the rich. These policies have brought us to the point where we have as much inequality now as in the gilded age. 
I agree completely with Krugman's point, but let's take a more balanced view of this post-war "paradise lost" by looking at a chart of the average work week in American manufacturing, where we have the best historical data.

 Work hours declined steadily from the beginning of the industrial revolution through the 1920s. Then hours dipped sharply during the Depression and rose during World War II. Then hours suddenly stopped declining during the post-war period.  Today, we still have the standard 40-hour week of 1950s.

During the post-war period, the Gross National Product was considered an index of well-being, so economic growth was considered an unalloyed good. All through our history, we had taken the benefits of prosperity in a balanced way, both in the form of shorter work time and in the form of more income and economic growth.  But in the post-war period, the only goal was growth.

We can imagine how different the country would be today if post-war America had continued to take the balanced approach of our earlier history.  Rather than deliberately promoting sprawl and automobile use to "stimulate the economy," we could have built walkable, transit-oriented suburbs - and taken advantage of the money we saved to work shorter hours.

I would be very happy to go back to the tax policies of the Eisenhower era, with its high taxes on the rich, but I don't think we want to go back to other policies of the Eisenhower era, such as building freeways through cities.  In fact, we still need to get beyond some of the policies of the Eisenhower era, such as using the GDP as a measure of well-being.

 Inequality makes if more difficult for moderate-income people to cut their work hours, since many of them are struggling to get by.  But the two graphs show that work hours went down rapidly during the 1920s, when inequality was at its highest point.  If they chose more free time back then, when incomes were much lower than ours, we should be able to do the same today.