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Against Apocalypse Economics

Marc Levinson's new book is the latest to argue that the good times are gone forever.

Spencer Platt / Getty Images

Lionel Shriver’s new novel, The Mandibles: A Family, 2029-2047, is set in Brooklyn, but not the borough we associate with hipsters, n+1, and “Girls.” This is, instead, a place overtaken by catastrophic economic events, punctuated by a “Great Renunciation,” in which the United States has repudiated its national debt and the dollar has become worthless. North America is now a fourth-world country, where scrounging for food, running out of toilet paper, and stealing shoes are everyday events. One of the characters—she’s the failed novelist whose books are burnt like firewood, to boil water—asks “Will there be an other side of this?” A page later, Shriver claims in her own voice that “natural forces” will always undermine the urban abstractions of money and affluence for all: “Most people liked the prospect of justice, and confused what was appealing with what was available.” 

With An Extraordinary Time: The End of the Postwar Boom and the Return of the Ordinary Economy, former Economist editor Marc Levinson has written a non-fictional concordance to Shriver’s dystopian depiction of the near future. The moral of both stories is real simple: Get used to hard times, because, well, because that’s just the way the world works. Do not tamper with the laws of the market in the name of justice, or equilibrium, or full employment, for these laws are inviolable. To bend them to social purposes by political means is to risk even harder times, every time.   

Or at least the world worked that way, Levinson says, until the unprecedented interruption of the postwar boom—a deviation from historical precedents, which lasted roughly from 1946 to 1973, when productivity soared, income inequality narrowed, and we began to expect growth and prosperity. No longer. Welcome to the new normal, which, by this accounting, began with the Great Stagflation of the 1970s, not with the 2008 crisis. In Levinson’s view, the Great Recession is, instead, a reminder that the postwar boom and its attendant prosperity were an anomaly that we are helpless to replicate.

By now, it’s a familiar genre. These aren’t the end times, Levinson explains, these aren’t even exceptional times—they’re just a “correction,” a reversion to the pre-industrial mean that once made economic growth seem a departure from the static norm. Get used to it, people! Robert Gordon and Tyler Cowen have perfected the tired vocal pitch required by this operatic form, but there are dozens of others, from Left to Right. Thomas Piketty, the favored tenor of our time, has only the most famous of these voices. His argument, in Capital in the 21st Century, is unassailable: Without political measures that will change the distribution of income, inequality will increase. Levinson goes all of them, even Shriver, one better, by claiming that any political measure is doomed to make things worse.

When the financial crisis was still unfolding in July 2009, however, Levinson’s fellow editors scolded economists for their inability to predict it, or merely address it. “Economists misread the economy on the way up, misread it on the way down, and now mistake the way out.” These editors called for “a change of mindset,” and they cited John Maynard Keynes, not Adam Smith—he of the invisible hand—as their exemplar. The citation is significant because Keynes argued in the 1930s and 40s that government spending to the point of deficits, and even central planning, were essential when economic crisis struck; the point was to restore the incomes and the confidence of consumers and investors alike. He argued that amending the laws of the market by political means was both possible and necessary.  

Basic Books, 336 pp., $27.99

Apparently Levinson never got that memo from his fellow editors. Or if he did, he didn’t sign on to it. His assumptions are derived instead from Keynes’s mid-century nemesis, Friedrich von Hayek, who argued that unbound markets make individual liberty possible; any attempt to master them—in the pursuit of that elusive “prospect of justice”—would compromise, and probably destroy, the very possibility of freedom. To manipulate the market for any reason except to assure investors that the future was secure was also to guarantee penury for the benighted masses.   

Now, this is not a uniformly conservative aria. So-called neo-conservatives such as Irving Kristol and Alan Greenspan have offered strenuous objections to it, on the grounds that the market is a social device that must serve the “prospect of justice” Shriver ridicules and Levinson ignores. In 1978, Kristol came right out and said that Hayek and Friedman were wrong—the “historical accidents of the marketplace” couldn’t be the justification “for an enduring and legitimate entitlement to power, privilege, and property.” Greenspan, who is like Shriver a big fan of Ayn Rand, said pretty much the same thing in his autobiography of 2007: “Remember, markets are not ends in themselves. They are constructs to assist populations in achieving the optimum allocation of resources.”

Levinson overrules such objections on Hayekian grounds. By his accounting, the market is an externality that is, by definition, impervious to our reasoning and our social purposes. As though to underscore this odd notion, his book tells the stories of the men and women—from Mitterand to Thatcher, Volcker to Nixon—who have tried, in vain, to bend the market to social purposes. Every chapter begins or ends with a brief biography of an economist, a prime minister, a banker, someone with his or her hands on the levers of economic change and power, trying to make a difference.  And every chapter ends the same way, with the failure of that attempt. “There was little that anyone could have done to set the world economy to rights” during the debacle of the 1970s, he writes, claiming “but no politician could have admitted the fact.” He does not mention that this was the same moment when the world’s leaders, Left to Right, decided to privatize the future. 

Levinson argues that labor’s share of national income declined in the western world after 1973 because productivity did. That’s that. We can sing along with Piketty about income inequality, but we can’t do anything about it except solicit more private investment, presumably with more tax cuts on corporate profits, which will somehow improve productivity. So in this opera, as in all such tragic compositions, every recent disaster sounds inevitable. From Japan’s lost decades to the “deep downturn fed by excessive lending to unqualified borrowers” that began in 2008—“all can be traced to political efforts to make economies grow faster than productivity advances would allow. It was a fool’s errand.”

But Levinson doesn’t seem to have noticed that prominent voices in the debate about inequality, including bona fide conservatives like Alan Greenspan and Martin Wolf, have noted a divergence between labor productivity and income distribution, and lamented its awful effects. Once upon a time—during the postwar boom—these categories matched up, so the difference between CEO salaries and shop floor wages wasn’t both ridiculous and unjustifiable. Now productivity keeps increasing but real wages and median family income stagnate. What happened to pry them apart? He never asks the question.

Nor does Levinson’s proposed solution—more private investment—hold up. The fact is that net investment and capital stock per worker declined after 1919, but labor productivity kept increasing—as many economists including Simon Kuznets, Robert Solow, and Harold Vatter, not to mention the Keynes of The Treatise on Money, have noted. Why then does he say we need new additions to the capital stock, the thing we call net private investment, which is financed out of corporate profits? If productivity increases regardless of investment decisions by corporations, why do we need corporate executives to make those decisions?

This is not rocket science. “Other things being equal,” the distribution of national income is determined by the relation between labor productivity and real wages.  If real wages are increasing and productivity is not, capital’s share of national income—profits—will decline. And vice versa. But this relation isn’t a function of anonymous or unmanageable market forces: Other things are never equal. It’s politics all the way down, or rather, culture all the way up. In the late nineteenth century, for example, when labor unions were barely alive, capital’s share of national income declined because the bosses couldn’t figure out how to wrest control of the shop floor from skilled workers, whose allies included their middle-class neighbors, the shopkeepers, editors, and lawyers who thought of capitalists and corporations as parasites on the body politic.

In the late twentieth century, capital’s share of national income increased because real wages declined even as labor productivity was rising.  How come?  What “other things” weren’t equal? You would never know from reading his book that politics served the purpose of increasing profits at the expense of wages after 1980, in accordance with the Hayekian hymnal, and yet crisis after crisis followed.        

Levinson never asks another obvious question. What, exactly, is ordinary about our time? We’ve seen no net gain in employment since 2000, half of the labor force is eligible for food stamps, and economists from MIT and Oxford are announcing that two-thirds of existing job classifications—including “non-routine cognitive tasks,” you know, like thinking—will be gone in twenty years. How can anyone with an interest in the economic future call this ordinary?

Of course, writers like Levinson—neo-Malthusians who believe that economic growth cannot, ultimately, keep pace with the population’s needs—claim that technological innovation has slowed, bringing down productivity and the rate of economic growth with it. But do they actually know what the rate of growth is? Does anybody? GDP reflects or registers fewer and fewer transactions, as the costs of information (including, for instance, music) trend toward zero. Nowadays, more information and more music get produced and distributed, but their value in the market, as commodities, is less and less. So GDP measures a declining proportion of the goods we make and share. And why is that? Because the internet has increased our productivity exponentially.

In 1930, in two very different venues, Keynes noticed that something new, and quite possibly revolutionary, was unfolding. In his Treatise on Money, an abstruse theoretical tome, he remarked on the absence of investment that informed the rapid growth of the 1920s, citing figures from the United States. In “Economic Possibilities for Our Grandchildren,” a reader-friendly translation of his findings, he predicted that productivity increases would soon permit a new era of leisure, when the “somewhat disgusting morbidity” of the profit motive would no longer distort modern social life. Marc Levinson never got those memos, either.