prosperity

Prosperity Isn’t Everything

There is no denying that per-capita income rises with specialization and trade; for example:

  • A is a farmer with land that’s good for growing fruit trees; B is a farmer with land that’s good for raising cattle.
  • The total output of both apples and butter will be greater if A specializes in growing apples and B specializes in making butter than if both A and B grew apples and made butter.
  • A and B can then trade apples for butter so that of them is better off than he would have been in the absence of specialization and trade.

Sometimes A and B live in different cities, different States, and different countries. If the raison d’etre of specialization and trade is the maximization of income, it would be foolish to exclude international trade while allowing inter-State and inter-city trade. (Note that the preceding sentence begins with if.)

The combination of specialization, trade, invention, innovation, and entrepreneurship has wrought much good. Here’s Megan McArdle’s testimony:

By the standards of today, my grandparents were living in wrenching poverty. Some of this, of course, involves technologies that didn’t exist—as a young couple in the 1930s my grandparents had less access to health care than the most  neglected homeless person in modern America, simply because most of the treatments we now have had not yet been invented. That is not the whole story, however. Many of the things we now have already existed; my grandparents simply couldn’t afford them.  With some exceptions, such as microwave ovens and computers, most of the modern miracles that transformed 20th century domestic life already existed in some form by 1939. But they were out of the financial reach of most people.

If America today discovered a young couple where the husband had to drop out of high school to help his father clean tons of unsold, rotted produce out of their farm’s silos, and now worked a low-wage, low-skilled job, was living in a single room with no central heating and a single bathroom to share for two families, who had no refrigerator and scrubbed their clothes by hand in a washtub, who had serious conversations in low voices over whether they should replace or mend torn clothes, who had to share a single elderly vehicle or make the eight-mile walk to town  … that family would be the subject of a three-part Pulitzer prizewinning series on Poverty in America.

But in their time and place, my grandparents were a boring bourgeois couple, struggling to make ends meet as everyone did, but never missing a meal or a Sunday at church. They were excited about the indoor plumbing and electricity which had just been installed on his parents’ farm, and they were not too young to marvel at their amazing good fortune in owning an automobile. In some sense they were incredibly deprived, but there are millions of people in America today who are incomparably better off materially, and yet whose lives strike us (and them) as somehow objectively more difficult.

Much of that is true of my parents, who were of the same generation as McArdle’s grandparents. More of it is true of my maternal grandmother, who was born in 1880, wed in 1903, bore and raised ten children, and was widowed at the age of 60. I remember well the years before she reached the age of 70; until then she cooked on a wood-fired range, pumped water from a well in her backyard, and went to the outhouse for calls of nature. And yet, the following things, and much more, came to pass in her lifetime: alternating-current electricity, a telephone in most homes (though my grandmother lacked one until she was in her 70s), automobiles (though she never learned to drive), airplanes (she first flew at the age of 93), movies, radio, movies with sound, television (she never owned one), radar, penicillin, vaccinations against various debilitating diseases, electric typewriters, and early transistorized computers.

Because my dominant memories of my grandmother and her way of life in a small village are boyhood memories, it’s tempting to characterize them as nostalgic and somewhat romanticized. But I know that she was more or less typical of the residents of her village. Though she was far from rich, she wasn’t poor by the standards of the village. She certainly didn’t feel impoverished or resentful about her lack of material goods.

Today, however, relatively poor people in America have far, far more in the way of material goods than my grandmother ever dreamt of owning, yet they are anxious and even miserable, because… Here’s McArdle’s view:

[Not] everything has gotten better in every way, all the time. There are areas in which things have gotten broadly worse….

  • … Substance abuse, and the police response to it, has devastated both urban and rural communities.
  • Divorce broke up millions of families, and while the college educated class seems to have found a new equilibrium of stable and happy later marriages, marriage is collapsing among the majority who do not have a college degree, leaving millions of children in unstable family situations where fathers are often absent from the home, and their attention and financial resources are divided between multiple children with multiple women.
  • Communities are much less cohesive than they used to be, and while the educated elite may have found substitutes online, the rest of the country is “bowling alone” more and more often—which is not merely lonely, but also means they have fewer social supports when they find themselves in trouble.
  • A weekly wage packet may buy more than it did sixty years ago, but the stability of manufacturing jobs is increasingly being replaced by contingent and unreliable shift work that is made doubly and triply difficult by the instability of the families that tend to do these jobs. The inability to plan your life or work in turn makes it hard to form a family, and stressful to keep one together….
  • Widespread credit has democratized large purchases like furniture and cars. It has also enabled many people, particularly financially marginal people, to get into serious trouble.  Debt magnifies your life experience: when things are going relatively well, it gives you more options, but when things are going badly, it can turn a setback into a catastrophe—as many, many families found out in 2008….

This list illustrates why public policy seems to be struggling to come up with a plan of attack against our current insecurities. The welfare state is relatively good at giving people money: you collect the taxes, write a check, and now people have money. The welfare state has proven very bad at giving people stable jobs and stable families, a vibrant community life, promising career tracks, or a cure for their drug addiction. No wonder so many hopes now seem to be pinned on early childhood education, far in excess of the evidence to support them: it is the only thing we have not already tried and failed at.

But I think this list illustrates the poverty of trying to measure living standards by staring at median wages. Many of the changes of the last century show up in that statistic, but others, like the time no longer spent plucking chickens, or the joys of banishing lye from the pantry, appear nowhere.  Nor do the changes in job and family structure that have made the lives of people who are indisputably vastly materially richer than my young grandparents were, nonetheless feel much more precarious.

Where did it all go wrong? And I do believe that it went wrong. I say that as a man who has lived more than his three-score and ten years, remains in good health, lives comfortably, has a loving wife of 52 years, has two fine children and twelve joyous grandchildren, and is by nature an optimistic achiever who isn’t easily thrown off course by a setback.

It didn’t go wrong because of globalization, though globalization may have hastened the rot. It didn’t go wrong because of prosperity per se, though it was helped by the fevered pursuit of prosperity. It went wrong because of the fraying of the social ties that bound much of America for so long — even with the Civil War and its decades-long residue of bitterness.

Why did those ties fray? And why are they now weaker than than have been since the eve of the Civil War?

Let’s begin with social norms, which are the basis of social ties. If you and I observe the same social norms, we’re likely to feel bound in some way, even if we’re not friends or relatives. This, of course, is tribalism, which is verboten among those who view all of mankind as brothers, sisters, and whatevers under the skin — all mankind except smarty-pants Americans of East Asian descent, Israeli Jews and American Jews who support Israel, Southerners (remember the Civil War!), and everyone else who is a straight, non-Hispanic white male of European descent. To such people, the only legitimate tribe is the tribe of anti-tribalism.

You may by now understand that I blame leftists for the breakdown of social norms and social ties. But how can that be if, as McArdle says, “the college educated class seems to have found a new equilibrium of stable and happy later marriages”? The college-educated class resides mostly on the left, and affluent leftists do seem to have avoided the rot.

Yes, but they caused it. You could think of it as a non-suicidal act of terror. But it would be kinder and more accurate to call it an act of involuntary manslaughter.  Leftists meant to make the changes that caused the rot; they just didn’t foresee or intend the rot. Nor is it obvious that they care about it, except as an excuse to “solve” social problems from on high by throwing money and behavioral prescriptions at them — which is why there’s social rot in the first place.

The good intentions embedded in governmental acts and decrees have stealthily expanded and centralized government’s power, and in the process have sundered civil society. Walter Williams puts it this way in “Culture and Social Pathology” (creators.com, June 16, 2015):

A civilized society’s first line of defense is not the law, police and courts but customs, traditions, rules of etiquette and moral values. These behavioral norms — mostly transmitted by example, word of mouth and religious teachings — represent a body of wisdom distilled over the ages through experience and trial and error. They include important thou-shalt-nots, such as thou shalt not murder, thou shalt not steal and thou shalt not cheat. They also include all those courtesies that have traditionally been associated with ladylike and gentlemanly conduct.

The failure to fully transmit these values and traditions to subsequent generations represents one of the failings of what journalist Tom Brokaw called “The Greatest Generation.” People in this so-called great generation, who lived during the trauma of the Great Depression and fought World War II, not only failed to transmit the moral values of their parents but also are responsible for government programs that will deliver economic chaos….

For nearly three-quarters of a century, the nation’s liberals have waged war on traditional values, customs and morality. Our youths have been counseled that there are no moral absolutes. Instead, what’s moral or immoral is a matter of personal opinion. During the 1960s, the education establishment began to challenge and undermine lessons children learned from their parents and Sunday school with fads such as “values clarification.” So-called sex education classes are simply indoctrination that undermines family and church strictures against premarital sex. Lessons of abstinence were considered passe and replaced with lessons about condoms, birth control pills and abortions. Further undermining of parental authority came with legal and extralegal measures to assist teenage abortions with neither parental knowledge nor parental consent….

If it were only the economic decline threatening our future, there might be hope. It’s the moral decline that spells our doom.

The undoing of traditional mores began in earnest in the 1960s, with a frontal assault on traditional morality and the misguided expansion of the regulatory-welfare state. The unraveling continues to this day. Traditional morality is notable in its neglect; social cohesion is almost non-existent, except where the bonds of religion and ethnicity remain strong. The social fabric that once bound vast swaths of America has rotted — and is almost certainly beyond repair.

The social fabric has frayed precisely because government has pushed social institutions aside and made dependents of hundreds of millions of Americans. As Ronald Reagan said in his first inaugural address, “In this present crisis, government is not the solution to our problem, government is the problem.”

Now for an ironic twist. Were the central government less profligate and intrusive, Americans would become much more prosperous.

*     *     *

Related posts:
Social Norms and Liberty
Whiners — Left and Libertarian
The Adolescent Rebellion Syndrome
“Intellectuals and Society”: A Review
Government vs. Community
The Left’s Agenda
The Left and Its Delusions
The Destruction of Society in the Name of “Society”
The Spoiled Children of Capitalism
Politics, Sophistry, and the Academy
Society and the State
Are You in the Bubble?
The Culture War
Ruminations on the Left in America
God-Like Minds
Non-Judgmentalism as Leftist Condescension
An Addendum to (Asymmetrical) Ideological Warfare
Democracy, Human Nature, and the Future of America
1963: The Year Zero
Society
How Democracy Works
“Cheerful” Thoughts
How Government Subverts Social Norms
Turning Points
The Twilight’s Last Gleaming?
How America Has Changed

The Illusion of Prosperity and Stability

For reasons I outlined in “The Price of Government,” the post-Civil War boom of 1866-1907 finally gave way to the onslaught of Progressivism. Real GDP grew at the rate of 4.3 percent annually during the post-Civil War boom; it has since grown at an annual rate of 3.3 percent. The difference between the two rates of growth, compounded over a century, is the difference between $13 trillion (2009’s GDP in 2005 dollars) and $41 trillion (2009’s potential GDP in 2005 dollars).

As I said in “The Price of Government,” this disparity

may seem incredible, but scan the lists here and you will find even greater cross-national disparities in per capita GDP. Go here and you will find that real, per capita GDP in 1790 was only 4.6 percent of the value it had attained 218 years later. Our present level of output seems incredible to citizens of impoverished nations, and it would seem no less incredible to an American of 1790. In sum, vast disparities can and do exist, across nations and time.

The main reason for the disparity is the intervention of the federal government in the economic affairs of Americans and their businesses. I put it this way in “The Price of Government”:

What we are seeing [in the present recession and government’s response to it] is the continuation of a death-spiral that began in the early 1900s. Do-gooders, worry-warts, control freaks, and economic ignoramuses see something “bad” and — in their misguided efforts to control natural economic forces (which include business cycles) — make things worse. The most striking event in the death-spiral is the much-cited Great Depression, which was caused by government action, specifically the loose-tight policies of the Federal Reserve, Herbert Hoover’s efforts to engineer the economy, and — of course — FDR’s benighted New Deal. (For details, see this, and this.)

But, of course, the worse things get, the greater the urge to rely on government. Now, we have “stimulus,” which is nothing more than an excuse to greatly expand government’s intervention in the economy. Where will it lead us? To a larger, more intrusive government that absorbs an ever larger share of resources that could be put to productive use, and counteracts the causes of economic growth.

One of the ostensible reasons for governmental intervention is to foster economic stability. That was an important rationale for the creation of the Federal Reserve System; it was an implicit rationale for Social Security, which moves income to those who are more likely to spend it; and it remains a key rationale for so-called counter-cyclical spending (i.e., “fiscal policy”) and the onerous regulation of financial institutions.

Has the quest for stability succeeded? If you disregard the Great Depression, and several deep recessions (including the present one), it has. But the price has been high. The green line in the following graph traces real GDP as it would have been had economic growth after 1907 followed the same path as it did in 1866-1907, with all of the ups and down in that era of relatively unregulated “instability.” The red line, which diverges from the green one after 1907, traces real GDP as it has been since government took over the task of ensuring stable prosperity.

Only by overlooking the elephant in the room — the Great Depression — can one assert that government has made the economy more stable. Only because we cannot see the exorbitant price of government can we believe that it has had something to do with our “prosperity.”

What about those fairly sharp downturns along the green line? If it really is important for government to shield us from economic shocks, there are much better ways of getting the job done that they ways now employed. There was no federal income tax during the post-Civil War boom (one of the reasons for the boom). Suppose that in the early 1900s the federal government had been allowed to impose a small, constitutionally limited income tax of, say, 0.5 percent on gross personal incomes over a certain level, measured in constant dollars (with an explicit ban on exemptions, deductions, and other adjustments, to keep it simple and keep interest groups from enriching themselves at the expense of others). Suppose, further, that the proceeds from the tax had a constitutionally limited use: the payment of unemployment benefits for a constitutionally limited time whenever real GDP declined from quarter to quarter.

Perhaps that’s too much clutter for devotees of constitutional simplicity. But wouldn’t the results have been worth the clutter? The primary result would have been growth at a rate close to that of 1866-1907, but with some of the wrinkles ironed out. The secondary result — and an equally important one — would have been the diminution (if not the elimination) of the “need” for governmental intervention in our affairs.

Related posts:
Basic Economics
The Economic and Social Consequences of Government