The reviews of this book attracted me because its theme is a conclusion that my amateur reading of history for the last half century has led me to. I have thought for some time that the expectations of almost everyone in this country, regardless of age, class, education or background are predicated on the illusion of the boom from the post-war era. It was temporary, and that is this author's premise. And quite depressingly, he asserts that the boom is not going to come back.
The author cites the quarter century from 1948 to 1973 as a time when the world economy expanded faster than ever before or since. In 1973, the average income per person around the world leaped 4.5%. "The almost universal feeling of prosperity quickly faded." The primary reason was a slowing down of productivity, without which economies and living standards do not improve. Theorists and politicians of every stripe have offered solutions, none of which have worked. Perhaps governments and central bankers can't fine tune economies. As this came to pass, most wealthy societies turned right and no longer saw collective solutions to problems. "Political leaders frequently understate the connection between large global trends and the individuals' well-being, first so they don't seem hapless while in power and second so they can blame the incumbents for economic troubles while in opposition." "As the Golden Age became a memory, so did the boundless optimism of an era of good times for all."
At the end of the war, 2 million mules plowed US farms and one in 175 Japanese homes had a telephone. By the mid-70's you could cross the Atlantic on a super-sonic plane in less than four hours. The US -funded Marshall Plan in 1948 jump-started the economies of the free world. Part of the reason for the beginning of the boom was pent up demand after almost twenty-years of depression and war. Millions moving from farms to factories was equally critical. It seemed as if labor, capital and government were together marching toward the future. Trade barriers fell, infrastructure was modernized, education became more universal and productivity doubled in the US, tripled in Europe and quadrupled in Japan. Capitalism and economic planning seemed to have created a new world.
The Seventies brought some new challenges to that prosperity. A US-based rise in inflation spread around the world because of the Bretton Woods system. Environmentalism raised its head for the first time and many, many people and nations began to reconsider just how they profited from the planet. Exchange rates became unglued after the US abandoned the gold standard in early 1973. The Yom Kippur War in October led to an almost doubling of the price of oil and an embargo on Israel's supporters. Add in the above-mentioned productivity decline (which this author cannot ascribe to anything in particular), and the party was over.
The mid to late seventies saw two defining changes. The first was the Japanese onslaught in almost very manufacturing sector that wreaked havoc throughout industrial Europe and America. Globalization had begun. The governmental response were protectionism, tariffs, and quotas, all of which raised the cost of living in the US and Europe by protecting failing businesses. The west's first and truly effective response was deregulation in energy, telecommunication, transport and finance. Better and better technology now came into play. Economic growth would no longer be driven by the massive industries of old. "The era of well-paid factory jobs for all was over; in the new economy, value would come from innovation, design, and marketing, not from the physical process of turning raw materials into finished goods."
As matters deteriorated, reducing the welfare state was not an option and in many countries tax burdens rose to provide continued support. This led to the swing to the right embodied by Kohl, Thatcher and Reagan. Thatcher's privatization of British industry moved 650,000 workers from state-subsidized jobs to the private sector and ushered in the UK's transformation to a service economy. She is deemed to have reversed Britain's slide, but to have only barely set it on an upward trend. In late 1979, in the US, Paul Volcker, Fed Chair, shifted the focus from monetary supply to bank reserves and saw interest rates skyrocket. Two years later, the Fed Funds rate was over 20%, the economy was in free fall and Ronald Reagan initiated a small tax cut, while borrowing heavily to increase the size of the navy. In August of 1982, Wall Street concluded that inflation had been contained and the great bull market in stocks and bonds began. The Reagan Revolution tamed inflation (thanks to the Democrat Paul Volcker) but made little difference to the well-being of the common man. "What the Reagan Revolution could not do was restore the broad improvement in living standards that Americans expected." Referring to the leaders of the eighties, the author states, "When it came to restoring the sense of economic security that had vanished along with cheap oil, their efforts were no more effectual than those of the less market-oriented politicians they drove from office."
In the closing chapter, Levinson again returns to the productivity theme. It boomed, then slowed down and no one knows why. He acknowledges that the micro-processor provided a temporary increase in productivity in the 90's, but has not established a long-term trend. He closes with a quote from Paul Samuelson. "The third quarter of the Twentieth Century was a golden age of economic progress. It surpassed any reasoned expectation. And we are not likely to see its equivalent soon again."
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