Ed Westcott
History is infinitely complicated. Too much stuff has happened for anyone to chronicle, so historians are forced to pick and choose. And wherever there's picking and choosing, there's the delicate art of interpretation.
Sometimes the best approach to complication is to strip things down to the broadest points. It's how you get a decent sense of what happened without getting lost in the details.
When I think about the U.S. economy over the last 70 years, here's basically what happened.
World War II ends. Twelve million U.S. soldiers are demobilized and sent back to an economy that's only a few years out of the Great Depression.
This looks dangerous. Many smart economists think we'll slip back into the depression. Two recessions hit within three years of the war ending as wartime spending falls.
So, we did something. Interest rates are kept low, access to household credit is expanded, and the GI bill provides education to millions.
It works. America is the only major power whose industrial base isn't bombed out by the war, which limits competition. Post-war currency agreements and businesses that learned new operating efficiency during the war sparks an economic boom. It's driven in part by pent-up consumer demand after years of wartime retooling that halted production of things like cars and toasters. Consumer spending rises from 56% of GDP in 1950 to 65% by 1970 to 70% by 2000.
Class evens out. There are huge skews by race, but wage growth and employment within races is pretty good and evenly distributed, party due to unionization and perhaps a wartime ethos of cooperation toward a common goal. Real income for the bottom 20% of wage-earners grew by a nearly identical amount as the top 5% from 1950 to 1980. Economic classes within races narrow dramatically. The laborforce participation rate for women jumps from 32% in 1948 to 58% by 1990, adding more fuel to growth.
Things work pretty well for about three decades. There are recessions, busts, and race wars. But the 1950s-1970s create prosperity and opportunity that, within social groups, fosters a sense of fairness and togetherness. The rich clearly had more money, but lived lives not drastically different from the masses. Normal people drove Chevys; Rich people drove Cadillacs. Hard work paid off and provided a lifestyle that, measured against almost all your peers, you could be proud of.
Growth continues, but spreads unevenly. The economy booms in the 1980s and 1990s, but real wages for the bottom 10% of workers fall 5% from 1980 to 2013, while wages for the top 5% of workers rise 41%.
Technology and globalization pushes this further. A more connected world – which takes off after the collapse of the Soviet Union – brings huge rewards for business winners (thanks to more customers) while suppressing wages in the developed world (thanks to competition from global workers).
This causes a cultural consumption problem. Rising income inequality sparks up the Keeping Up With The Joneses effect as the lifestyle of a small group of legitimately rich people increases the aspirations of everyone else. More of your peers become wealthier and start living in bigger homes, driving nicer cars, and sending their kids to private schools. Everyone else feels entitled to not fall behind them, because they're used to the 1950-1980 culture of equality and togetherness.
To compensate, more households turn to debt. Household debt surged as soon as income inequality took off – that was how the masses kept up with the Joneses as their income fell behind. Household debt to disposable income was flat from 1960 to 1980, at about 60%. The ratio jumped to 80% by 1988, 90% by 1996, and 125% by 2007.
Instability rises. Insatiable appetite for debt, huge savings among the richest sliver of society, and loose Fed policy increases the prevalence of bubbles.
It reaches a tipping point, then collapses. The 2007 financial crisis was the culmination of two decades of Americans using debt to fund a lifestyle they couldn't afford, inspired by a sliver of society who could.
Policies necessary to combat the financial crisis kept the trend going. Almost everyone would be worse off without quantitative easing, but no one gained more than the richest group of Americans who own the most stocks and bonds.
The result is a three-front storm. After wages stagnate for two decades, the financial crisis takes away the last of what many Americans held onto – the stuff they bought with debt. What remains is a new economy that offers even less employment, income, and stability, and more inequality.
The Tea Party, Occupy Wall Street, Brexit, and the rise of Donald Trump are ideologically different, but each represents a group of people shouting, "Stop the ride, I want off." And they're shouting for the same reason: An economy that set a precedent of working for them in the three decades after World War II doesn't anymore, and they're tired of it.
Almost none of this was intentional. It's just what happened, unplanned and unforeseen. "One damn thing after another," a historian once said of his field.
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