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An Extraordinary Time, economic history, establishment, living standards, manufacturing, Marc Levinson, per capita GDP, Populism, productivity, Robert J. Barro, technology, The Wall Street Journal, {What's Left of) Our Economy
As a close friend once sagely told me, “If you take the most cynical possible interpretation of something, you’ll rarely be wrong.” He surely would agree, “That goes double for politics and policy.” So I hope you agree that it’s reasonable to predict that Marc Levinson’s upcoming economics book An Extraordinary Time will attract an inordinate amount of establishment attention – including of course from the Mainstream Media – because it so conveniently absolves that establishment of any significant responsibility for the economic mess in which the nation finds itself. And of course, if American (and, to be sure, other leaders) can’t rightly be blamed for sluggish (at best) economic growth, stagnant wages and incomes, or even (presumably) the financial crisis, then there’s no justification whatever for the populist revolt sweeping America and Western Europe.
Although I haven’t read Levinson’s book yet, I’m assuming that the long article-length adaptation published in yesterday’s Wall Street Journal is a representative summary. The author’s main argument is that the American (and other) high income economies don’t “roar anymore” because since the early 1970s, they’ve been experiencing a return to historically normal economic performance that mainly looks terrible because it followed a post-World War II boom that was unique and – most important – irreproduceable.
Worse, the principle reason for this return to normal is a productivity slowdown that’s been inevitable because it results overwhelmingly from the impossibility of recreating that favorable combination of circumstances that era enjoyed. As Levinson writes:
“The workforce everywhere became vastly more educated. As millions of laborers shifted from tending sheep and hoeing potatoes to working in factories and construction sites, they could create far more economic value. New motorways boosted productivity in the transportation sector by letting truck drivers cover longer distances with larger vehicles. Faster ground transportation made it practical, in turn, for farms and factories to expand to sell not just locally but regionally or nationally, abandoning craft methods in favor of machinery that could produce more goods at lower cost. Six rounds of tariff reductions brought a massive increase in cross-border trade, putting even stronger competitive pressure on manufacturers to become more efficient.
“Above all, technological innovation helped to create new products and offered better ways for workers to do their jobs.”
What both politicians and publics refuse to realize, he continues, is that
“Once tens of millions of workers had moved from the farm to the city, they could not do so again. After the drive for universal education in the 1950s and ’60s made it possible for almost everyone in wealthy countries to attend high school and for many to go to university, further improvements in education levels were marginal. Projects to widen and extend expressways didn’t deliver nearly the productivity pop of the initial construction of those roads.”
More fundamentally, however, “Productivity, in historical context, grows in fits and starts. Innovation surely has something to do with it, but we have precious little idea how to stimulate innovation—and no way at all to predict which innovations will lead to higher productivity.
“Moreover, the timetable cannot be foreseen.” And there is no “secret sauce that governments can ladle out to make economies grow faster than the norm.”
Not that Levinson’s theory is devoid of virtues. Especially admirable is his willingness to argue that neither Big Government liberalism nor Small Government conservatism has consistently managed to halt, much less reverse, the productivity deterioration over any length of time.
But at least on the basis of this article, he seems to have overlooked America’s historic economic record. Productivity, as RealityChek regulars know, is the area of economic performance about which economists display the least confidence. But the consensus view appears to be that America’s productivity growth glory days started somewhat earlier than Levinson suggests – according to widely accepted data, 1913. (To be fair, this paper in which they appear also suggests that the boom ended in the 1960s, not the 1970s. Moreover, although Levinson is referring to labor productivity, the data cited here present the broader measure of multi-factor productivity, which looks at a broad range of inputs needed to generate a unit of output.)
Further, what’s astonishing about the data in this study (I’m talking about Table 1) is that the era of peak productivity identified (1928-1950) includes both World War II and the Great Depression. Just as you’d expect unusually strong productivity performance during the former, thanks to the numerous major technological innovations generated by the war effort), you’d expect unusually weak performance during the latter, because all economic activity was slumping at historic rates. And yet the net result was productivity advance that puts that of later decades to shame.
In addition, although the return to peace brought multi-factor productivity growth back down to levels not seen since before the 1880s, the falloff from roughly the 1960s to the 1970s was much greater – even though no comparably epochal change took place.
Even more telling is how America’s economic growth performance contrasts with the framework described by Levinson. A recent report from Harvard University economist Robert J. Barro contains historical data on America’s per capita GDP growth – that is, how quickly or slowly the economy has expanded adjusting for population, and therefore the growth improvement that tends to result simply from greater numbers of workers.
According to Barro’s numbers, the 1939-1979 period does represent the nation’s best stretch of creating wealth per person. So that tracks well with Levinson’s argument. But the dropoff is pretty gradual through 1999 – when it really nosedives. That doesn’t bolster the Levinson view. Nor does the fact that lots of pre-1939 decades saw much faster per capital economic growth than either the 1999-2009 period or the the 2009-2015 period.
Levinson supporters can observe that these trends are roughly consistent with his emphasis on the productivity-enhancing role played by demographic movement (from countryside to city). And as a result, they’re consistent with the idea that productivity has been enhanced by the higher rates of high school and college graduation that have resulted.
But most Americans still don’t graduate college nowadays, and major questions have arisen about the value of a four-year college degree. It’s also widely argued that the typical American high school graduate is more poorly prepared for college than in the past. Isn’t is possible that poor public policies lie behind at least some of these failures? And what about technological progress? Many theories suggest that it should be speeding up, as it feeds on its own momentum. Instead, the opposite seems to be happening, at least in terms of technology’s record in raising living standards. Are there no policy decisions bearing at least some responsibility?
Finally, Levinson pays no attention to a possible explanation for slowing productivity growth that at least deserves some consideration: As I’ve suggested, the problem’s emergence coincides with the American government’s decision to start viewing with at most indifference to major losses suffered by domestic U.S. manufacturing – first due to the predatory trade policies of high-income countries like Germany and Japan, and then due to trade agreements that actually encouraged the offshoring of manufacturing production to super low-cost, low-regulation countries like China and Mexico. Since manufacturing has historically led the economy in productivity growth, is it surprising that official decisions to reduce its domestic footprint has undermined its overall productivity performance?
Levinson is surely right in noting that much about productivity – like much else about the economy – is beyond the control of politicians. As a result, voters should definitely hold realistic expectations about the economic changes that politicians can foster. But can anyone doubt that Levinson’s overarching claim, that the economy’s current overall performance is the best that reasonably can be hoped for, logically lets nearly all of the nation’s leaders off the hook – and will only deepen the despair and cynicism of all those Americans that “ordinary economic performance” is leaving behind?
RealityChek 