or “things aren’t like I expected them to be and I’m made as hell about it”. Or “Waddaya know? Different people have different opinions!”
I encourage you to read this post by Morgan Housel at Collaborative Fund, a brief history of the post-war American economy titled “How All This Happened”. I think it’s largely accurate. No real heroes or villains.
Here’s the conclusion:
But a central theme of this story is that expectations move slower than reality on the ground. That was true when people clung to 1950s expectations as the economy changed over the next 35 years. And even if a middle-class boom began today, expectations that the odds are stacked against everyone but those at the top may stick around.
So the era of “This isnt working†may stick around.
And the era of “We need something radically new, right now, whatever it is†may stick around.
Which, in a way, is part of what starts events that led to things like World War II, where this story began.
History is just one damn thing after another.
I would sum it all up a bit differently with several observations. First, when you produce a lot you can consume a lot. And second there are declining returns to investment in what the present administration refers to as “human capital”. The difference between an illiterate working age population and a literate one is huge. The difference between a working age population that ended its formal education at 8th grade and one that graduated high school is real but less. And so on. You can do a similar analysis of healthcare. The difference between a life expectancy at birth of 54 and one of 68 is substantial. Boosting that to 72 is not such an enormous improvement and even with the enormous increases in spending life expectancy is actually declining. And that’s true of all social spending.
And relying on China for all production while we specialize in consumption is not a workable strategy.
I skimmed the article, mostly. Basically, we are too stupid to know how good we have it. “Don’t iss down my back and tell me that it’s raining.”
It is irrelevant how much money or credit a returning GI has. As you noted, you cannot buy what is not on the shelves. That should be painfully obvious. The post-war production capacity fueled the consumer boom. Hence, European shelves were bare.
The Modern Monetary System (MMS) is an amalgamation of money and credit, with the overwhelming portion being credit in many forms. Monetarily, 1968 was the pivotal year. Economically, it was 1971, and financially, it was 1998. Each of those years begin a trend that “seemed like a good idea at the time.”
People who can extend credit will become wealthier than people who use credit, and the more credit being used means that the creditors become richer and the creditors become poorer. I do not understand why that is such a difficult concept to grasp.
MMT does not alter this simple fact of the MMS. In fact, MMS seeks to accelerate the disparity. The modern economy is a credit based system, and simply, printing more money cannot alter this fact. Giving people money to buy shit does not build factories.
It will only get worse from here. Debt is being created and used to destroy production capacity. This is insane, and anybody who thinks this will work should be locked in an insane asylum.
(My use of the word credit is technically inaccurate, but I am tired of being technical.)
Great article as an overview, I enjoyed reading it.
I wonder that the author didn’t mention that during WWII Americans WERE equal. A great many of our political leaders and future leaders served.
Wouldn’t happen today.
Of the government actions mentioned, the GI bill seems to me to be the most important.
We’re in a housing boom today, with low interest rates and skyrocketing prices.
But entry level young people can’t play.
Most are burdened with student loans, high rental prices and Obamacare premiums.
The housing boom today is among baby boomers moving from four to six or eight bedrooms.
The roomiest homes are owned by those who don’t need them, often more than one home. They’re a great investment.
In fairness to MMT real MMT proponents also say that extending credit beyond the increase in production will increase inflation. The problem is those I’ve called “folk MMT” which includes every politician who argues for it.
and branding consumption as production will not help matters, either. Remember Lincoln’s remark.
In the 1960’s, my father, a union pipe fitter in Boston (Dorchester), earned enough money to own a home and a POS used car and to feed and clothe five children and a stay-at-home wife/mother.
That today is impossible. Peak USA for the working class was about 1965. Real wages for the working class have declined steadily since (down more than 20%), and middle class incomes have stagnated. The upper classes have captured every penny of income growth since 1965, including clawing income away from the working class.
As to equality, yes the upper class served, too, as it had done in every war since early colonial period. That stopped after Korea, and now few upper class boys serve, they are a privileged caste. The military is a working class outfit.
E. g., the Kennedy’s had three sons in the military: Joseph, John, and Robert. Joseph was a naval pilot, and was killed in Europe. John commanded a PT boat in the Pacific, and was seriously wounded. Robert served in the US. Ted was the reprobate black sheep of the family, and his debauchery and depravity have been used by “conservatives” ever since to defame the true heroism of Joseph and John.
Neocons, Friends of Israel, and numerous flag officers are agitating for a war with China or Russia or Iran or Venezuela…Anybody at all or all four. You can bet the farm that no Harvard or Yale or Stanford grad will serve.
BTW. My father served in WW II from Normandy to the Battle of the Bulge and into Germany. He travelled through much the same country my grandfather did a quarter century earlier.
@Dave Schuler
I agree that folk-MMT is a misunderstanding of MMT, deliberate or not, but if you could time inflation, it still would not work. Because the MMS is far more robust than most people imagine, hyper-deflation seems impossible.
Malinvestment is the problem. It is inherent in capitalism, and debt fueled investment worsen the problem. When that debt is financed by the government, it is much worse, and at some point, government financed malinvest becomes catastrophic.
Even theoretically, it is not possible. Determining the exact moment inflation begins would still create malinvestment. Inflation is a lagging indicator, and reliably predicting the start of inflation is almost impossible.
For example, a PE Investor decides to make a product because MMT fueled consumer spending is increasing, and he/she invests in a factory to produce that product. This investment is based upon consumer spending rising, but when MMT fueled spending stops, the expected ROI will be lost.
Even if inflation could be perfectly timed and malinvestment could be eliminated, natural disasters cannot be predicted – crop failures, hurricanes, floods, etc.
I guess I was less enamored with the piece than others, as I think he unnecessarily reduced himself to a scribe, and not an analyst. The result is that he builds to an observation about how great it all was, but is left with no lessons learned about what happened. And I do think there are heroes and villains.
He sets up his piece by noting:
1. There is tremendous pent up demand.
2. There is easy mortgage and consumer credit. (and the corollary, relative disincentive to save)
3. The US by default had the superior manufacturing footprint in the world, driven by the effects of the war on Europe and Japan (and China is still a feudal enterprise) and a deferred productivity step jump.
He forgets the first cousin to #1, previously noted, that the young group returning from the war, and the subsequent baby boomers, all had their lifetime consumption functions reasonably aligned. Spend young; save late. This is a substantial omission as it has affected the US for many decades as the bulge went through the snake.
He concludes with the joyous notion that we all participated relatively equally and ain’t things grand?
Surely any reader can see the obvious issue. Yes, all four of these factors aligned to create a boom, but they were all transitory in nature. Pent up demand normalizes. Lifetime consumption functions mature. Competitors’ decimated productive capacity footprints are rebuilt. And as for debt….
Anyone with a sense of credit knows certain things. Dave often criticizes the use of debt by government for funding operating expenses. He is correct. I then cite businesses doing same. Its called funding losses. You take on debt to acquire an enterprise (the equity), fixed assets or working capital. Those are investments. You do not take on debt to pay salaries or keep the lights on. Separately, any credit officer will tell you “the deal has to get better over time.” What that means is that the ratio of debt to cash flow must decline over time. A perpetual state of high leverage will result in disaster; at some point a disruption to cash flow will occur. Now you have an existential problem. Not just consumers, but governments. (“Debt rose tremendously. But so did incomes, so the impact wasn’t a big deal.” – That’s just flat damned stupid.) And then we have the effect on savers…..but I digress.
In my opinion what really happened is that people, and the politicians capitalized on that, got drunk on the high. They believed in forever. So we had the guns and butter of a war and the Great Society. And we got inflation. We created a dependency class. (How have blacks, particularly the black family, fared pre and post 1965? How about those in the hollers of KY or WVA?) We undercut our manufacturing base at the alter of environmentalists and globalists. We encouraged and subsidized useless degrees at college level schools, creating mountains of debt for some, and profits for administrators and construction contractors who built Taj Mahals on campus. Free medical for all turned into a subsidized, third party payor boon for the medical industries. And now we wholesale disrupt the wage structure of the bottom tiers with willy nilly immigration for perceived political gain. And lastly, (at least I’ll stop) in an energy intensive society we hand over energy independence, or at least a proper vector, to idiots peddling end of the world theories that haven’t been right since the 70’s, and surely won’t in this century.
The author then goes off into an incoherent juxtaposition of investment bankers and a bank branch manager. The real question is identifying what was going on in society during the drunken party phase that resulted in us waking up one day and discovering that the wages for digging ditches or pulling a lever on an assembly line didn’t keep up with the wage commanded by an entertainer, or a top level professional. Or an investment banker vs a local bank branch manager. I tried to hit on a few factors. We, and our politicians, shot ourselves in the ass. If you care about income inequality you have to grapple with the issue of evolving returns to talent, education, hard work, risk taking etc and what we are doing about it. The progressive/Democrat solution of putting people on the dole or semi-dole, and creating government bureaucracies to deal with these issues has failed miserably. Its absolutely a sparkling endeavor for politicians, but not real people.
My main criticism of MMT has been the impossibility of timing the policy response they propose. They’re flirting with causing hyperinflation which I don’t think they understand properly.
My support of the GI bill rests upon the experience of older men I knew, whose modest three bedroom homes quickly built equity they leveraged to buy rentals which provided them a secure retirement.
Our home, purchased in 1984 at 18% has never been anything but a liability.
A low interest nothing down NEW home
would have been a great benefit compared to a high interest, 92 year old former rental which was what we could afford.
What “black family”? It’s an endangered species. In 1950 more than 80% of black babies born were born to parents who were married and they were reared by their biological parents. Now about 30% are.
Just about every black sports figure, entertainer, or politician you’ve ever heard of including Michael Jordan, Muhammed Ali, Venus and Serena Williams, Beyonce, Denzel Washington, Chadwick Boseman were born to and reared by their biological parents who were married to each other. The exception is rap music but even there Sean Combs’s parents were married. His father was murdered when he was very young.
Link goes to US debt from 1966 to present. What you see is is debt that was decreasing from WW2 up until about 1981. Then from 81-94 a doubling of debt. This looks to me like the normalization of using debt to cover ongoing expenses. It probably also helped goose economic growth, but not enough to make up for the debt generated. It was during this era which everyone looks back to as the world having been so wonderful that this became the norm. Yes, we had a brief decrease in the last half of the 90s but then back to debt financing.
While we might disagree on the role of govt debt in a recession and recovery that we saw after 2009 look at how debt again increases by the beginning of 2020, pre-pandemic. Again associated with a period of good economic performance like in the 81-94 period. Paying for normal day to day functions with debt.
https://fred.stlouisfed.org/series/GFDEGDQ188S
Steve
Cutting taxes without cutting spending or encouraging additional production sufficiently has become a very bad habit.
In the event of a shortfall in aggregate demand a properly timed and structured increase in government debt may make up for it. For that to be accompanied by a multiplier depends on an increase in production. Subsidization of consumption resulting in an expansion of production has been pretty rare for decades.
In the most recent downturn declines in aggregate demand have been almost entirely been due to business lockdowns. Treating such a decline like a cyclical decline in demand has been an error.