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Looking backward: The nostalgia economics of Barack Obama

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When was Barack Obama proud of the American economy?

Certainly not the 2000s, as voters were once again reminded in the president’s Cleveland, Ohio speech yesterday. Obama said the economy of those years was “built on a house of cards” of overconsumption and debt.

But Obama doesn’t think things were going too well before the 2000s, either. Echoing his Osawatomie, Kansas, speech, the president said that during “the last few decades the income of the top 1% grew by more than 275% … [and] big financial institutions, corporations saw their profits soar. But prosperity never trickled down to the middle class.” So the Reagan-Clinton-Gingrich Boom, according to Obama, was a bust.

Really?  From 1981-2000, the U.S. economy grew by an average of 3.4% a year. And from 1979-2000, median household income grew by 30%. What’s more, countries that failed to embrace free-market policies – including lower marginal tax rates and deregulation — grew more slowly than America did during that period. For instance, while U.S. per capita GDP grew by 55% from 1981-2000, French per capita GDP grew by just 39%.

So when, in Obama’s view, was America’s economic Golden Age?

Get ready for some Baby Boomer nostalgia from our 21st century, ultramodern president: “In the decades after World War II there was a general consensus that the market couldn’t solve all of our problems on its own. …This consensus, this shared vision led to the strongest economic growth and the largest middle class that the world has ever known. It led to a shared prosperity. “

The 1950s and 1960s — taxes were high, unions were strong, incomes more equal. And the U.S. economy grew by 3.7% a year. So, Obama seems to suggest, let’s just dial up the economic Way Back Machine — raise taxes on the rich, reregulate industry, boost union power – and we can go back to the future.

In a recent piece on the presidential campaign in New York magazine, an Obama aide described Mitt Romney this way: “He’s the fifties, he is retro, he is backward, and we are forward.” Yet Obama is the one touting his economic vision as a bridge to the 1950s.

But there’s no going back, Mr. President. The post-World War II decades were affected by a host of unique factors, not the least of which was that they came right after a devastating global war that left America’s competitors in ruins. A National Bureau of Economic Research study described the situation this way: “At the end of World War II, the United States was the dominant industrial producer in the world. … This was obviously a transitory situation.”

And as former Bain Capital executive Edward Conard notes in his new book, Unintended Consequences, the size of the U.S. labor force was constrained during those decades by both the 1930s baby bust and casualties from the war. So a surge in jobs and a restricted supply of labor produced fat wage growth. Hoping for a return to that era is futile, Conard concludes:

The United States was prosperous for a unique set of reasons that are impossible to duplicate today, including a decade-long depression, the destruction of the rest of the world’s infrastructure, a failure of potential foreign competitors to educate their people, and a highly restricted supply of labor. For the sake of mankind, let’s hope those conditions aren’t repeated. It seems to me anyone who makes comparisons between todays’ economy and that of the 1950s and 1960s without fully disclosing their differences is deceiving their readers.

Demographics, technology and globalization — has Obama noticed how any of these have changed over the past half century? It was hard to tell from that Ohio speech. Instead of modernizing the American social insurance system, regulatory regime and tax code to shift the Welfare State into an Innovation State, the president seems to be doubling down on an obsolete economic model where growth is driven by expanding public sector union employment and a clean-energy version of industrial policy.

Looking backward — and drawing the wrong conclusions — is no way to move forward.

2 thoughts on “Looking backward: The nostalgia economics of Barack Obama

  1. Do these two quotes from above undermine your argument or did you suffer a typographical mistake?

    First quote, “From 1981-2000, the U.S. economy grew by an average of 3.4% a year.”

    Second quote, “The 1950s and 1960s — taxes were high, unions were strong, incomes more equal. And the U.S. economy grew by 3.7% a year. ”

    Both quotes cover a 20-year period, yet the high tax, strong union decades are quoted as having higher growth by 0.3%

    I think you have either inadvertently undermined your argument or suffered a typo. Hope it is a typo.

    • I don’t think its a typo or a undermining of the argument until and unless you isolate just those two sentences. A read of the rest of the article explains how the growth in the 1950s and ’60s was higher than in the ’80s and ’90s (*despite* the high taxes and strong unions) because of the fact that we’d just come out of a depression followed immediately by a global war which annihilated the industrial base of every other global superpower in the ’40s; there’d be no way in the ’50s and ’60s that we wouldn’t have surged ahead of the rest of the world given the circumstances of them working initially to simply rebuild their infrastructure after the massive losses of human and material capital they suffered during WWII… whereas we had merely suffered a depletion of human capital due to the low birth rates of the ’30s and the war casualties of the ’40s.

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