Capitalism: Golden Ages?

Compare and contrast the analysis of the rise and fall of the Golden Age of Capitalism/Social Democracy in Bowles and Carlin’s CORE-ECON Chapter 17, “The Great Depression, the Golden Age Of Capitalism and the Global Financial Crisis”, with the analysis favored by your instructor. In what ways are they the same and in what ways are they different? Are the views of Bowles, Carlin and your instructor consistent with Thomas Piketty’s view that the Golden Age was an aberration, unique and non-repeatable, the result of a special set of historical circumstances (chiefly, the two world wars and great depression) and that the years after 1980 (the era of Neoliberalism / hypercapitalism) have been a return to normal?

 

Langer notes that there were several defining traits in the so-called golden age of capitalism. He emphasizes that they are a strong safety net; a high minimum wage; a situation where a good number of workers are in unions; a high top marginal tax rate; strong regulations on wall street; and low inequality. These were all caused through various mechanisms. First was the existence of the labor movement as a countervailing power. There was also the communist threat, so the postwar capitalist order was determined that a fair deal was possible under capitalism. Then there was the need to rebuild the economy and physical infrastructure after the destruction of war, so labor peace was needed. Then there were a couple self-reinforcing ideological where the decadence of the nineteenth century was seen as the result of rampant capitalism and greed, and Keynesianism was seen as the key to economic policy.   

For Langer, this all fell apart with the rise of Reagan’s and Thatcherism. This was pushed thorough with the decline of the labor movement and increased union busting, anti-labor legislation and the growth of globalization. Corporate profits had been squeezed, so there was pushback from big business and the wealthy. Geopolitically, the end of communism in the Soviet Union as a countervailing political / economic structure decreased the incentive to create an equitable social system.

A somewhat alternative view of the postwar economic utopia is seen in Bowles and Carlin’s CORE econ book. In their formulation, the defining traits of the golden age are low unemployment; high productivity growth; high growth rate of capital stock; falling tax rates on corporate profits; and falling inequality (7). Additionally, they note relative labor peace, as Langer does (21). They also note the falling profit rates (25) as a reason for the end of the golden age but seem to lay that more on worker militancy rising and less on government policy pushback. Overall, they seem to rely more on a productivity-led explanation for the growth than Langer does, as well as noting the effect of the outside oil shock (25-6).

One of the big questions in economic policy is if we can return to the period where everything worked. It is called a golden age because prosperity was shared between the workers and the capitalists in a sort of treaty (The treaty of Detroit on a grand scale perhaps?). But the returnability is under debate still. Thomas Piketty draws a giant asterisk on most of the 20^th century, saying that the period of 1914 to 1980, most of the whole “short twentieth century” at least does not count. Now, this feels mighty presumptuous to exclude a huge chunk history when your time period of examination is maybe 450 years. That is with dating the modern era generously. How far back do you go, Watt, Luther, or Columbus? Piketty is wrong, and that perhaps Langer and Bowels would agree in that we could get back to the economic conditions around the golden age of capitalism. However, Langer’s class-based analysis is closer to the key. Looking at how much emphasis Bowles et al put on productivity growth is to remind me that TFP is more a “measure of our ignorance” than someth8inga that can be gunned for in policy. Add to that my sympathy towards Robert Gordon’s argument that we have picked the low hanging fruit of productivity growth already, and the CORE golden age is less re-attainable. Of course, history does not repeat itself, it merely rhymes.  I hope that we are fortunate enough to come out the other side of the current crisis with a reevaluation of our economic priorities. I am just not that optimistic that we will.