There really was a Golden Age*

The claim that the mid-20th century represented an economic Golden Age of near-full employment and economic equality, compared to both earlier and later periods, commonly meets two kinds of critical responses. Over the fold, I respond.

The first objection, which is addressed in the draft chapter I posted, is that the benefits of this period were largely confined to white men. Certainly, at the beginning of the Golden Age, the US and many other developed countries were characterised by legally institutionalised racism and sexism. Blacks in much of the US were denied the right to vote, and subject to many other kinds of legal and social discrimination. The same was true of indigenous people in many countries including Australia, and of the treatment of colonial subjects of the European empires. Women were subject to a range of discrimination, including lower wages, exclusion from a range of jobs and much more.

But the Golden Age saw all of these forms of discrimination challenged, and a great many were abolished. US examples include desegregation of the armed forces under Truman, the Civil Rights Act of 1964, and the Voting Rights Act of 1965 along with legal decisions including Brown vs Board of Education 1964, Loving vs Virginia 1967, Reed vs Reed 1971 and Roe vs Wade 1973. The Equal Rights Amendment was on the edge of ratification by the early 1970s

Since the end of the Golden Age in the early 1970s, progress towards racial and gender equality has been glacial at best, and in some cases, has gone into reverse. The Voting Rights Act has been gutted, Roe v Wade has been chipped away and the Equal Rights Amendment blocked, or at least stalled.

To sum up on this point, there’s nothing to suggest the economic benefits of the Golden Age came through reliance on structures of racial and gender discrimination. On the contrary, those benefits created an environment where resistance to greater social equality was more easily overcome than it is today.

The second argument is that standards of living for most people are higher than they were in the 1950s and 1960s. Because of technological progress, standards of living have generally improved over time, even in periods (like the past 40 years or so) when most of the benefits have accrued to those at the top of the income distribution, and even when unemployment is high.

This is broadly true. In describing the mid-20th century as a Golden Age in economic terms, I am saying that relative the productive possibilities available with given technology, the economy generated a higher standard of living for the majority of people than before or since. As far as policy is concerned, this is the relevant criterion. If we could recreate the economic conditions of the Golden Age, the Internet and other technological innovations of the past 50 years would not disappear. Rather, the benefits generated by these innovations would be more widely shared.

16 thoughts on “There really was a Golden Age*

  1. thinking about this the other day, two sayings ,one from USA and one from USSR,seemed to encapsulate the vibe.

    USSR……useful idiot.
    USA…… follow the money.

    a leetle sweeping but there you are.

  2. I never got around to commenting on the draft chapter, but one point I was going to raise was this: wasn’t the ‘Golden Age’ necessarily temporary because it developed in something of a competitive vacuum? Once Japan and Germany had recovered from wartime damage, they began to produce manufactured goods at a higher quality and/or lower cost than America and other European nations (and Australia) could match. This steady erosion of international competitiveness inevitably led to domestic pressures to cut labour costs.

    The effect of this was amplified by local businesses who saw commercial opportunities in evading the costs of providing worker benefits. In America, many manufacturers moved to the southern, union-free states. Employers embraced labour-saving technological change. Incentives to change were increased by pressures in the broader society – everything from demands for equal pay for women to campaigns for worker control of industry to the hippy culture of abandoning the capitalist system completely.

    In short, the Golden Age depended on an equilibrium that could never last. Countries that were excluded were going to try to bridge the gap. People who enjoyed the benefits ‘rocked the boat’ by wanting to acquire an even greater share of the national wealth, or (more nobly) by seeking to correct longstanding social injustice. While there are no doubt valuable lessons we can learn from studying the era, assuming we can replicate it if only we apply the right measures is chasing a chimera.

  3. The German economic miracle was a central part of the Golden Age, as in the rest of Europe. Japan doesn’t fit the picture quite as well, since it didn’t hit the skids until 1990, but it shared in the benefits from very early on.

  4. I thought the story of Japanese stagnation more or less disappears once you make the two demographic corrections (a falling population and ageing). Output per hour worked puts Japan back in the pack.

  5. You might note that the era was not just one of less inequality and widespread social provision but also of stringent capital controls and managed trade – which allowed a lot of countries to move up the skills/productivity ladder locally.

  6. In reply to kenalovell. Assuming that I can replicate the full fitness of my youth by eating, sleeping and exercising properly is false. However, assuming that I will be better off than otherwise by eating, sleeping and exercising properly today (at age 66) is still a correct assumption, according to all the current medical and physiological knowledge.

    If we could recreate today the institutional economic conditions of the 1960s economy, generating greater economic equality leading to greater social equality, then it is a good assumption according to the best of economic knowledge, that the greater good of the greater number will follow. The people will be better off than otherwise.

    It is also the case that greater economic power for the majority will lead to more policies demanded by that majority being enacted. In other words we would see more action on social equality and environmental sustainability. The majority want these policies enacted but are thwarted by the control of our economy, politics and societies by the rich elites. Inequality is inefficient on all counts; economically, socially and environmentally.

  7. Peter Thomson,

    Agreed. We need stringent capital controls and managed trade. Not only should nations implement tariffs on goods produced by producing high CO2 emissions, they should also institute tariffs on goods produced by under-payed labor and environmental damage.

    The world needs a more distributed manufacturing capacity anyway. A world system with over-centralised production is non-robust. A world system with excessive reliance on international trade is also non-robust and higher in CO2 emissions. (Admittedly, the efficiency of sea transport reduces the validity of this last statement somewhat.)

  8. Missing: the Cold War. The struggle took the form, as was well understood by both sides, of a competition of systems. Up to the 1970s, the Soviet model was formidable and attractive to many in the self-labelled Free World, with electorally strong Communist parties in several countries. This put capitalist and social-democratic parties on their best behaviour domestically (abroad was a different matter). The resurgence of hard conservatism mirrored the decline of the communist model in the Brezhnev senescence. Communism collapsed under the weight of its internal contradictions, as prophesied by Kennan (or mutated into Leninist state capitalism in China). The collapse of capitalism took a little longer.

  9. James: Japan isn’t an outlier now. It was during the 1980s, when the boom continued there, while failing elsewhere.
    I have left explanation for later, but the Cold War is definitely part of the story.

  10. Is there not a baseline effect here in that the Long War (WWI and II) destroyed so much that what you are describing here is effective catch up that has subsequently petered as diminishing marginal returns become more and more evident.
    (Also is not the era that we remember in our youth always suspiciously the Golden era)

  11. Also missing for the period is rapid growth of demand for and supply of cheap abundant energy prior to the oil shocks of the “70s.

    Post WW2 came widening access to that energy via air transport, road building and personal ice powered transport increasing mobility and mixing. Also came rapidly increased powered forms of land clearing – bulldozers and chainsaws – and numerous agricultural applications. Another instance was that horse drawn carts, albeit with pneumatic tyres, could occasionally still be seen delivering services along the streets of even heavily industrialised parts of urban Australia as late as ca 1960, eg., driver optional Clydesdale(ish?) drawn junk collector, ice, and fruit and vege pedlars’ drays. Confectionary and ice cream pedlars, milk and bread vendors, and local grocery shop delivery had all made the economic switch to ice powered delivery vans by then. Bicycle mail delivery continued for some longer time until Mr Honda took over by the ’80s.

  12. The topic of your post, JQ, is a difficult one, IMHO, even from the perspective of someone like me, who is neither totally ignorant of economics nor young enough to not have memories of times past. For example:

    There wasn’t a Golden Age in all locations in what we now call ‘the global economy’, even though ‘the economy’ was global in the sense of one Earth. Moreover, the Golden Age, in terms of the variables considered in the post, extended over longer periods in some countries or even regions than in others.

    Equality, as measured by some income or wealth distribution indicator within a country versus equality between male and female income earners doesn’t quite fit the narrative of the Golden Age.

    The German miracle happened in the Western part but not in the Eastern part. However, the East was much advanced compared to the West in terms of equality between male and female income earners. (It still is; the first female Chancellor, Angela Merkel, was borne in the West but educated in the East – PhD in Physics).

    Equality between male and female customers in pubs in Australia happened while the Golden Age was still in progress in Australia. A footnote perhaps?

    “The second argument is that standards of living for most people are higher than they were in the 1950s and 1960s.”

    Does this statement rely on economic development in China?

    As for countries like Australia (eg Canada), I am not convinced that the standards of living are higher for most men and many women now than they were in the 1960s. How does one account for the loss of living space and gardens that comes about with living in small units? How does one account for the endless hours of unpaid work required to keep IT facilities in working order, search for specials, compare energy and telephony plans, etc, etc.?

  13. More secular, more attention on rights and tolerance or;
    …” future tipping points may not be readily predicted from 20th century trends (1). ”

    “Religion, Secularism & the Golden Age.

    “Our recent paper in Scientific Advances shows that, in the 20th century, secularisation occurred before economic development and not the other way around.

    “Religious change preceded economic change in the 20th century
    “… also indicate that tolerance for individual rights predicted 20th century economic growth even better than secularization. These findings hold when we control for education and shared cultural heritage.

    “Our observation that secularization preceded economic change further rules out a bicausal relationship between income and religion (13–15) as well as the theory that socioeconomic advances cause religious practices to be phased out (3, 4, 17).

    “Our findings do not mean, however, that secularization was the ultimate cause of economic development. Both secularization and economic growth may have been driven by something else, with secularization responding faster than GDP. This likely rules out technological advances as the ultimate cause, as it is hard to imagine how religion could respond faster to technological change than GDP.

    “Tolerance of individual rights appears to be closer to an ultimate driver, in that more people are included in economic activity, especially women (24, 25). The tolerance factor, which is most highly loaded on individual rights for divorce and abortion (table S11) and therefore likely to correlate with women’s rights generally, was a better temporal predictor of GDP per capita than the secularization factor. 

    “Our results showed that education is predictive of future GDP, but not of future secularization. 

    …” we used EFA to allow the patterns of variation to emerge from all the WEVS data. 

    … “That is, the persistence of generational values is consistent with both the theory that intergenerational change is a coherent mode of value change (5, 17) and the theory that demographic shifts, rather than economics, drive modern cultural change (1).

    “Controlling for shared history did not substantially alter our findings, 

    “The pace of change and its causality are important dimensions for future study. … In the 21st century, however, cultural transmission has been accelerated and reconfigured by technological changes (33), and future tipping points may not be readily predicted from 20th century trends (1). 

    “We find evidence that a rise in secularization generally has preceded economic growth over the past century. Our multilevel, time-lagged regressions also indicate that tolerance for individual rights predicted 20th century economic growth even better than secularization. These findings hold when we control for education and shared cultural heritage.

    “Our observation that secularization preceded economic change further rules out a bicausal relationship between income and religion (13–15) as well as the theory that socioeconomic advances cause religious practices to be phased out (3, 4, 17).

    18 Jul 2018:
    DOI: 10.1126/sciadv.aar8680

    “U.S. Church Membership Falls Below Majority for First Time

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