On the art of economic prediction, John Kenneth Galbraith has said, “There are two kinds of economists: those who don’t know the future, and those who don’t know they don’t know.” The good news is, Galbraith is right. And it’s good news because of the bad news–that our economy’s two worst problems have seemed all too predictable for the past 20 years. The United States (along with most other industrialized countries) has seen slower growth and greater inequality of both income and wealth since the early 1970s. And Galbraith’s skepticism is about the only reason to hope that the future doesn’t hold more of the same.
If anything unites Mother Jones readers, it may be their hopes for economic equality and humanity’s ability to achieve it. That’s what has always characterized the left: a belief in the improvability of humankind toward a universal goal–share and share alike. The 1980s were sobering in this regard, and the continuing trends toward lower growth and higher inequality may be more sobering still.
Lots of explanations have been offered for the low-growth, low-equality road we seem to be taking. I’ll offer one myself. But the real purpose here is to describe the trend and to suggest why it’s got us so rattled. To sum it up in a phrase, we’re suffering from Great Expectations. And if ever-escalating, ever more unrealistic expectations are part of the problem, then part of the solution may be to modify not just actions, but attitudes as well.
IT MAY BE OK to think of history as progress, at least for humans. But beyond a few key innovations–fire and the wheel–the path to prosperity really began with agriculture. Around 9,000 years ago, people finally settled down and began to produce surplus food and invest in the future. Nonetheless, from the neolithic revolution to about 1800, economic growth was so paltry as to be unnoticeable on a time line like the one above. These days, we deplore 2 percent a year. How about .00002 percent?
THE SHAPE OF ECONOMIC EQUALITY. Imagine the ancient economy as a pyramid, with almost everyone on the bottom in terms of income and wealth, and ever fewer as you move toward the top. The next picture is prettier: a diamond-shaped economy featuring a broad middle class. America came closest to this shape after World War II. The danger is that we’re headed for an “hourglass economy,” with lots below, lots above, and few in between.
IN 1809 WILLIAM BLAKE wrote of “dark Satanic mills,” but England was so agricultural that the Industrial Revolution went largely unnoticed. Average wealth per person grew at just above 1 percent a year, but the gap between rich and poor had begun to widen considerably.
BY THE MID-1800S growth was picking up a bit. The income gap had actually narrowed slightly. But it had already become so wide (and wage slaves so abused) that Karl Marx could urge the world’s workers to unite in the name of total sharing, through the abolition of private property.
AT CENTURY’S END, the world’s center of economic gravity was shifting to the United States. The economy was growing at a rate of about 2 percent per person a year, with rich and poor moving further apart. Sound familiar?
BY 1929 the U.S. economy was really expanding. So was the rich-poor divide. Then came the crash. One Marx was wiped out (Groucho, who played the market). The other seemed vindicated.
DURING THE 1940S, it took government spending on World War II to really get us out of the Great Depression. Americans shared the pain and the effort. And after winning the war (on the soil of others), the United States had the world economy largely to itself. The merely “semiskilled” in Detroit, or even in Cleveland, were in the right place at the right time.
THE 1950S AND 1960S have been called the golden age of capitalism. And so it was for the postwar United States. Average incomes rose as never before, and the rich-poor gap narrowed as never before. Some called it “the Great Compression”; others, a repudiation of the idea that capitalism leads to an ultimate showdown between the ever richer and the ever poor. Karl Marx was losing his luster (and Groucho was making a comeback on TV).
IN 1973, expectations were at their height, and with good reason. Unions had delivered, negotiating a larger share of economic growth for the working class. The economy had delivered, growing much faster than its historical rate. A prosperous nation was now promising to deliver–to everyone, especially the minorities so long relegated to the economic bottom. Economic equality was the goal of the sizable American left. It really did seem attainable. And then. . .
FROM 1973 TO THE PRESENT, amid great expectations, growth slowed and inequality speeded up. Unions were losing their clout, the diamond, its middle. Twenty years later, a specter is haunting america: the hourglass. Yet great expectations persist, fueled by the rhetoric and reality of the golden age and propelled by tv advertisers, who appeal to those in the top half of the hourglass with commercials watched avidly by those below. “America isn’t about the Chevy anymore,” a prison inmate told me a few years ago. “It’s about the BMW.”
“INVESTMENT.” It’s the economist’s juju. Save wealth and invest it for the future–in factories that will produce more, in technologies that will improve efficiency. That’s been the traditional explanation for the industrial revolution, and for economic growth ever since. There’s only one catch. Suppose you invest in the wrong things? The United States wildly overinvested in real estate in the 1980s (office buildings, shopping malls, industrial parks). That could mean investors were stupid. Or maybe there weren’t enough good investment opportunities out there. Maybe there still aren’t.
A heresy: what about lower expectations?
Who’s to say where the time line goes from here? The picture below depicts one thing that’s been happening–automation replacing the well-paid, semiskilled jobs of the recent past. Maybe we can reverse the trend by regaining the growth rate of the Golden Age; then again, maybe we can’t. Maybe we’ve simply reverted to America’s long-term historical growth rate of 2 percent, or the even more gradual trend of world history. It could even be that we’ve reached a greenhouse limit and are headed back down.
So, what is to be done? Economists hope to trigger another spurt of fast-paced growth; hence, they exhort us to invest. Progressives urge investment not only in physical capital, such as factories and real estate, but in “human capital,” especially for those humans at the bottom of the hourglass.
But the skeptic will rightly ask, Invest how? If education were the answer, shouldn’t highly educated Russians be on their way to prosperity instead of to the poorhouse? Doesn’t America spend plenty on education as it is? The classic left response would be to do it all: invest in public goods, improve our schools, tax the wealthy, and so on, arguing that America can pay to fix inequality now, or pay later, in unfairness, demoralization, and crime.
I would add a more modest, perhaps more radical suggestion. We need to lower our expectations. Not our expectations for economic equality (that would be throwing in the towel), but for the giddy growth rate of the Golden Age. Rather than trying to devise solutions that depend on a rapidly expanding economy, perhaps we need to accept the possibility that the Golden Age is over. And that might mean actually living more modestly, sharing more of what we do have.
The sustainable-agriculture folks, for instance, talk about a change of pace as well as of technology. Many of us, I imagine, can in fact make do with less–less stuff for Christmas, fewer electronic gadgets, even, let’s face it, less food. (Those who can’t are to be the beneficiaries.) Self-denial would no doubt require a psychological sea change for many Americans. But who doubts that the effects are likely to be tonic, particularly if the money (and time) saved is put to good use?
“Good use,” if one is trying to combat inequality, translates into sharing–traditionally, sharing material wealth. But maybe we should share something more. Our time, for example; our education; our know-how. Maybe we should volunteer a whole lot more and take on apprentices at work who otherwise wouldn’t have a chance. Strictly speaking, this may not be “economic” advice. But then, strictly economic advice has done precious little to address the widening gap between the haves and the have-nots.
A journalist I know was once asked what he would do if he were anointed “economic czar.” Would he lower interest rates? Balance the budget? Devalue the dollar? “I would ask the media to come with me to the local hospital,” he said. “There, I would give blood. In the America of the 1990s, that would be an economic act of the first order.”
Paul Solman is business correspondent for the “MacNeil/Lehrer NewsHour.”