Forgotten Generation of Prosperity Time Period
America’s Forgotten Generation (of Prosperity)
– by Paul Krugman
How and why the postwar boom got memory-holed.
So the don’t-know-much-about-history gang are at it again, asserting that the Gilded Age was an era of unique prosperity. I wasn’t planning on another post today, but this really needs addressing in a short note.
This isn’t a new claim; Milton Friedman used to say the same thing all the time. What’s different now is that the, um, gilding of the Gilded Age is being used as an argument for tariffs; in the past it was used as an argument against progressive taxation and regulation.
What all such arguments require is that we memory-hole the era in which America actually achieved its most rapid progress: the astonishing boom that followed World War II.
The comparison isn’t even close. Here (using data from Historical Statistics of the United States, Millennial Edition) are growth rates of real GDP per capita and real wages during the Gilded Age and the postwar generation:
But here’s the thing: from the point of view of either a conventional conservative or a Trumpist the great postwar boom shouldn’t, maybe even couldn’t have happened. If you believe that progressive taxation destroys incentives, you can’t understand how the economy could have done so well during a period when the top marginal tax rate never fell below 70 percent. If you believe unions are bad for the economy, you can’t understand how we prospered when a quarter or more of U.S. workers were unionized:
And if you believe that tariffs are the key to prosperity, you can’t understand how we did so well over a period when successive rounds of trade negotiations were bringing tariffs steadily down.
So if you’re either an old-school conservative or a Trumpist, how do you deal with the challenge the great postwar boom poses to your economic doctrine?
Simple: you pretend it never happened!
Interesting, the Trumpers will come back with how many people paid at the top marginal rate with loop holes and tax lawyers?
The next Trumper observation: from 1945 until Truman up armed for the Cold War in 1951 Federal expenditures plummeted.
Also from 1946 until the late 1970’s US enjoyed the huge advantage of not having been bombed to rubble…..
Krugman avoids observations that don’t help his screeds.
paddy:
Yes the US did rebuild Europe rather than hold them hostage. “The United States spent approximately $13 billion to rebuild Europe through the Marshall Plan, which provided economic aid to European countries following World War II; this amount is equivalent to roughly $150 billion in today’s dollars.” WE really profited off of that reconstruct, heh?
We are old enough to remember CARE packages…… made/grown in the USA.
paddy:
Done such. Always have extra food too.
It’s the era economists hate to talk about. Wealthy people may have avoided paying the highest tax rates, but they did that by investing in things, doing research at places like Bell Labs and Xerox PARC, raising employee wages and so on. If you only get to keep 2/3 of the profit, it’s cheap to fund that kind of stuff. Lower marginal tax rates make it a zero sum game, so the wealthy will grab everything they can and they can grab a lot.