The Only Solution to Stop the Incoming Depression? It Requires New Physics...
Fixing the economy isn't that hard, after all. According to Nobel Prize-winning economist Edmund S. Phelps, all it will take is a return to economic growth.
Now, I know what you’re thinking – that’s sort of like saying, in order to get out of debt you need to spend less money. That’s equally true! Though it sounds more like the level of advice your grandpa would offer – not exactly what you’d expect from an economist who was awarded the 2006 Nobel Prize in Economic Science, and a tenured professor at prestigious Columbia University…
So what’s the plan?
The good old days of real economic growth
Dr. Phelps, director of the Center on Capitalism and Society at Columbia, said during a recent interview that the U.S. needed to “boost public spirits.” The best way to do that?
We badly need to get back to economic growth. By that I don’t mean an artificial temporary boom or a slower descent into lower employment, I mean that we’ve really got to get productivity growth on an upward climb approaching what it was in the 50s and 60s.
This period he’s referring to is legitimately called the Golden Age of Capitalism. Consider a few of the major macroeconomic forces involved…
The entire U.S. industrial infrastructure was operating at peak efficiency to manufacture Roosevelt’s “arsenal of democracy.” In late 1943-1944, the U.S. made as much war-fighting materiel as the rest of the Allies, and the Axis nations, combined. Ford built the B-24 Liberator, Chrysler built more tanks at their Detroit facility than the entire Third Reich did during the war.
This feverish production drove the nation’s unemployment rate to 1.2% in 1944 – the lowest in history. Meanwhile, some 16 million Americans served in the armed forces (and another 3.5 million as federal civilian employees).
Meanwhile, the nation’s greatest minds were developing new technologies for the war effort. “Necessity is the mother of invention,” remember? Nothing creates necessity like a global war… So American scientists invented synthetic rubber (to replace the old-fashioned stuff after the Japanese seized rubber plantations). And the atomic bomb. And super glue, duct tape and blood plasma donation. Mass-produced penicillin and flu vaccines. Electronic computers.
When the war ended, wartime factories retooled to make civilian goods. Those millions of soldiers came home and got on with their lives. Got married, bought homes, furnished them, took jobs in a completely new world made possible not only by massive industrialization but also by the brand-new inventions that came out of the war effort. Those inventions were, in large part, what powered the productivity growth of the 50s and 60s.
The first nuclear power plant, a direct civilian application of atomic weapons technology, went live in 1951. Electronic computers replaced hundreds of people called “computers” who worked out complex math by hand.
With all this in mind, how exactly is the U.S. supposed to replicate the Golden Age of Capitalism?
I mean, in terms of a big-picture idea, it’s on par with Sam Wilson’s advice to the government in the season finale of Falcon and the Winter Soldier:
Okay, great – but HOW?
Does anybody have a time machine?
In what way is this useful advice? I mean, the man won a Nobel Prize in economics and THIS is his advice?
One key economic difference between the Golden Age of Capitalism and today
Other than the lack of a global war, universal conscription and comprehensive rationing of everything from food and fuel to nylon, there’s one major economic difference between today and the Golden Age of Capitalism that jumps right out at me.
This part of Dr. Phelps’s interview triggered this insight:
But I think it’s really important for people’s morale that they come home from time to time with better pay checks than they had before. It boosts their morale, it makes them less worried about how they’re doing compared with other people.
Lest we forget – the Golden Age of Capitalism ran on gold. Not the Ponzi scheme of modern finance.
In the 1950s and 1960s, paycheck dollars were tethered to something tangible. They held value. Granted, civilians couldn’t exchange their paper money for physical gold (and silver certificate exchange was suspended on June 24, 1968). Right up until 1964, our silver pocket change was minted with silver. Those hard-working men and women who collected paychecks during the 50s and 60s were confident their money was sound. They could even open a savings account at the local bank without fretting about inflation compounding faster than interest!
Fast forward to today…
Each month’s direct deposit just doesn’t go as far as last month’s. Yes, overall worker pay is going up – but not as quickly as prices are going up, too (for 16 consecutive months now).
One thing, at least, hasn’t changed.
Back then, gold held its value as well as it does today.
Maybe the best way for the American economy to boost worker morale is to pay them in something other than dollars?
I’ll tell you this – if I was being paid in gold bars and silver coins instead of electronic deposits of hypothetical Federal Reserve Notes moving from one computer to another, my personal productivity would absolutely skyrocket!