This is the fourth part in my utterly uncredentialed and hopelessly eccentric review of recent economic history. I will end up claiming that not only were Donella Meadows and Norbert Wiener right all along, but the the person who first picked up the thread of a civilized and sensible macroeconomics was no less than Bertrand Russell.
Previous parts are here:
Suppose you have a given proposition for public policy: more renewable energy, more highways, smaller teacher-to-student ratios, startup funding for entrepreneurs, public hospitals, whatever. No matter what the question, an ancillary debate always arises. Those opposing the effort will say “it is too expensive”, and those supporting it say “it is not expensive at all: it creates jobs”.
I was taught in US history in a Canadian high school that in the early days of the WPA, before federal work was well-organized, there were instances of work crews engaged to fill in ditches that other work crews has dug up. I wonder if this is true. I sort of hope it is, because there is the dignity of labor for you.
The hard-working protestant populace would not countenance paying unemployed people for their idleness, but they could tolerate paying them to undo one another’s work, as long as it raised a sweat.
By the 1970s, I had read Wiener’s The Human Use of Human Beings and was steeped in the ideology of the Leisure Crisis. At about this time I was subjected to an introduction to a Keynesian education at the hand of a then well-known economist who taught the introductory sequence at Northwestern. I’m afraid I’ve forgotten the fellow’s name. I believe George McGovern intended to appoint him to his cabinet. Maybe someone can refresh me.
I clearly recall the argument that deficit financing in a recession was harmless, “you’re borrowing from yourselves”. Indeed Nixon said “we’re all Keynesians now”, and this counterintuitive spending-when-you’re down was regarded as an intellectual breakthrough of Galilean proportions. This is how we would avoid financial crises for ever and ever. We would employ ourselves when we were poor, build up our nest egg, and once we had reached prosperity we would pay ourselves back! Nobody would be there to complain because there would be no “them”, just “us” huzzah!
But I was unable to reconcile this with my idea that if one work gang digs a trench and another one fills it in, you might as well just fork over the mony and forego the trench-digging. Why all this fascination with full employment?
The other question, though, is demand. What exactly would people demand if they were endlessly wealthier. It wasn’t clear. For awhile, there was creeping featuritis: the three channel TV became the five channel and the twenty channel and the three hundred channel TV, but the actual demand for television didn’t change. The thousand square foot house became the five thousand square foot house, four thousand feet of which were only occupied by ill-disciplined children and their plastic detritus. Your word processor could do a god-awful job of being a spreadsheet, a desktop publishing program, and an illustration program, though when you made a numbered list in it all the enumerated items would be mysteriously numbered “5”. (Eventually Steve Jobs became fabulously wealthy by helping people finally understand that the thing they most wanted from non-professional user interfaces was fewer features that they could remeber and understand.)
In the Keynesian scheme (and the Monetarist scheme which followed it, which I don’t claim to understand as well) economic growth is the primary objective of governance, policing, education, transportation and security notwithstanding.
Such growth is expected to be substantial in “normal” times and is fueled by free choice of people to always have more, more, more.
But in the early 1970s, alarming signs of economic satisfaction began to emerge along with various ethical and spiritual dissatisfactions. “Demand” was going away. Young people, in particular, were not bending over backward in pursuit of “careers” so the trend looked bad. The dread “stagflation” emerged.
Stagflation basically derailed the Keynesian gravy train, because slow growth required stimulus while inflation required cutting back. They were not supposed to happen at the same time. (If I recall correctly, there was some mismanagement, petty by our standards, at the banks at the time which emerged as rapid inflation which in turn led to unaffordable mortgages which in turn led to – horrors – less employment and less demand!)
I believe this threat was eventually beaten back in the 1980s during the Reagan administration using a pair of interesting artifices. The first was to use the military as an instrument of economic revival. Unquestioned American technical superiority could be converted to unquestioned military superiority. The hidebound Soviet economy could be bled dry keeping up. In retrospect this part was, perhaps inadvertently, quite clever.
(Reagan himself was the first of the transparently unintelligent national republican figures, but he was following closely in the footsteps of the clever and ambitious Barry Goldwater, and now we’re getting perilously close to the LBJ story which I’ll forego at this point, except to advise you in the strongest terms to visit his memorial library when you are in Austin.)
But the second part of it was developing a new pillar of “conservative” “ideology”: that “greed is good”. Go ahead. Have the big house. So you only use that boat once a year. Buy it anyway! Think how it will impress everyone. Have houses in several states just like J. P. Morgan. We can all be fabulously wealthy, except perhaps for the famous friends and getting invited to all the right parties. But we can fake that too!
In short, a few years after the first talk of limits to growth, a few years after the emergence of an anti-materialistic counterculture, the problem was solved. Ignore the damn filthy hippies and party on! Despite the Christian posturing, I sometimes think the zeitgeist and the commercial classes were pretty much in the grips of a cocaine psychosis and an accompanying base cynicism of unprecedented proportions. (cf. Enron.)
And so, the questions of leisure and of limits and sustainability and of human ethics and of what sort of a society we wanted to build were all triumphantly subsumed in the Reagan administration by an orgy of celebrated excess and desperate growth. And still, there were these nagging episodes of flagging of demand. Would people buy ten thousand square foot houses? What to do, what to do?
Enter Private Sector Keynesianism, or Tobis’s Theory of the Requisite Kluge, also known as Microsoft. Stay tuned.