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Why Isn’t Everybody Rich Yet?

The twentieth century promised prosperity and leisure for all. What went wrong?

Illustration by Jovana Mugosa

In 1930, John Maynard Keynes predicted that a hundred years hence—which is to say, right about now—“the economic problem may be solved, or be at least within sight of solution.” People would work perhaps three hours a day. “For the first time since his creation,” Keynes wrote, “man will be faced with his real, his permanent problem—how to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest will have won for him, to live wisely and agreeably and well.”

If only! It’s 2022, and most of us are still on the clock. Oddly, though, much of Keynes’s reasoning was correct. He estimated that, over the next century, annual economic growth would average, globally, 2 percent. That must have seemed insanely optimistic at the start of the Great Depression. But it was too low. The Yale economist Fabrizio Zilibotti has calculated that since 1930, annual growth has averaged, over the long term, closer to 3 percent. Keynes predicted the standard of living within the more advanced economies would increase by a factor of eight. In fact, according to Zilibotti, it increased by a factor of 17. Keynes was even right, up to a point, that the number of hours worked would fall, and that people would find other things to do. Observing this phenomenon in vthe 1960s, the journalist Tom Wolfe made his name chronicling a proliferation of leisure activities—surfing, stock-car racing, dropping acid—well beyond the imagining of Keynes and his Bloomsbury set. Wolfe called it a “Happiness Explosion.”

Slouching Towards Utopia
by J. Bradford DeLong
Basic Books, 624 pp., $35.00

What Keynes did not consider was how unevenly this Happiness Explosion would be distributed across nations and within them. Even in the United States, the richest nation on Earth, you can still find people who lack those two ancient basics, food and shelter. Keynes was right that the economic problem ought by now to be solved, or within sight of being solved. But it is not, and probably won’t be even a century from today.

A Brief History of Equality
by Thomas Piketty
Harvard University Press, 288 pp., $27.95

Keynes’s optimism was driven by the advent of what J. Bradford DeLong, in his new economic history, Slouching Towards Utopia, calls “the long twentieth century,” whose start DeLong sets at 1870. This was the period, DeLong writes, during which the maturing Industrial Revolution, combined with various social changes such as the advent of the modern corporation and the industrial research laboratory, “unlocked the gate that had previously kept humanity in dire poverty.” Those who lived through this period saw an unprecedented explosion of productivity and prosperity. They well understood this at the time. Keynes called it an “economic El Dorado.”

To understand why all this wealth wasn’t more broadly shared, DeLong looks beyond growth alone. How the economic cares of humankind were met, and not met, by the prosperity explosion that followed the Industrial Revolution depended, he shows, on noneconomic developments, including two world wars; on warring notions about what markets alone could achieve; on colonial legacies; and on the varying competence of governments to manage economies wisely. DeLong’s grasp of these individual subjects is extremely sophisticated, but it’s a lot to integrate into what he self-consciously calls a “grand narrative,” stretching from 1870 to 2010. If the story seems unwieldy by the end of his account, that may be because he piles onto his plate much more history occurring in many more places than one may easily digest.

It is easier to pinpoint when the story of this great change begins than when it ends. If your interest is in traditional manufacturing or in organized labor, it ends, in Europe and the United States, in the 1970s. If your interest is in the computer revolution, it ends around 2000. If your interest is in the rise of China, India, and the “tiger economies” of Southeast Asia, the story doesn’t begin until the 1970s and 1980s and has no end in sight. If your interest is in the economic awakening of the Southern Hemisphere, that story has scarcely begun.

It’s not hard to see why Keynes was so optimistic in 1930. A mere 60 years earlier, the global economy had still operated almost entirely on a subsistence basis. In 1870, more than 80 percent of the world population lived on what it farmed rather than what it purchased. When the French anarchist philosopher Pierre-Joseph Proudhon pronounced, in 1840, that property was theft, he was being less metaphorical than we might today suppose. You couldn’t enrich yourself without impoverishing someone else, because the economic pie barely expanded. Only after 1870 did transoceanic telegraph cables and screw-propeller steamships and railroads and improved power looms and the Bessemer steelmaking furnace, among many other wonders, conspire to accelerate economic growth to the point where one man’s wealth accumulation could increase wealth for others.

Before 1870, economic life was governed largely by the principle, laid out in 1798 by the gloomy English cleric Thomas Robert Malthus, that population growth (in DeLong’s loose but apt paraphrase) “ate the benefits of invention and innovation … leaving only the exploitative upper class noticeably better off.” For the vast majority, material conditions never changed. The wages of a construction worker in England were, after inflation, exactly the same in 1800 as they’d been six centuries earlier. By 1870, they had risen more than half, yet even that gave little taste of what was coming. By 2000, they had risen more than thirteenfold. Much of that increase was driven by international trade. In 1850, cross-border trade represented about 4 percent of total world production—scarcely more than the proportion 150 years earlier. By 1880, it represented 11 percent of world production. Today, it represents 30 percent.

The long twentieth century refuted the Malthusian construct that population growth outpaces food production and pushes down wages. Today’s world population is six times the size it was in 1870; crop yields are about eight times greater; and per capita income is nearly nine times greater. Technological and organizational progress came much faster, and with far greater benefits, than Malthus could imagine. Since 1870, DeLong calculates, the pace of that progress has been four times faster than from 1770 to 1870, 12 times faster than from 1500 to 1770, and 60 times faster than before 1500. This acceleration enabled the long twentieth century to become “the first century ever in which history was predominantly a matter of economics.”

The great benefits of this change bypassed what we call today the global south. Prosperity was largely confined to the great imperial powers of Britain, Western Europe, and the United States. (The United States, itself a former colony, is sometimes excluded from this group because it practiced a more limited colonization—mainly in the Philippines, Cuba, and the South Pacific. But its violent seizure of the North American continent from Native Americans and its enslavement of Africans, through violence and the threat of violence, to perform farm labor in the New World, situated the United States in the front rank of imperialist nations, albeit in a way that required little travel.)

European colonization had begun around the sixteenth century, but as the North Atlantic economies matured, their need for raw materials from abroad grew more urgent. Trees are a good example. European nations were deforested, the University of Chicago historian Kenneth Pomeranz has noted, and wood became scarce even as demand for it as a building material increased. In the mid-sixteenth century, 33 percent of France was covered by forest; by 1789, that was down to 16 percent, and by 1850, forested areas in Great Britain, Italy, and Spain were all down to 10 percent or less. In the mid-eighteenth century, Britain built no fewer than one-third of its merchant ships in its American colonies, simply because it needed American timber for its masts.

“I have had no peace of mind since we lost America,” King George III says in Alan Bennett’s 1991 play, The Madness of George III. “Forests old as the world itself, meadows, plains, strange, delicate flowers, immense solitudes, and all nature new to art. All ours. Mine. Gone. A paradise lost.” The king sounds as though he’s grieving the loss of a pastoral wilderness. But as his speech continues (this part isn’t in the 1994 film adaptation), it becomes plain he’s grieving the loss of England’s opportunity for plunder. “Soon we shall lose India, the Indies, Ireland even,” he says, “our feathers plucked one by one, this island reduced to itself alone, a great state moldered into rottenness and decay.” The wealth of his kingdom lay outside it.

Why didn’t countries in the global south follow the North Atlantic example and turn to manufacturing? “When I am asked,” DeLong writes, “I say that the initial cost advantage enjoyed by Britain (and then the United States, and then Germany) was so huge that it would have required staggeringly high tariffs in order to nurture ‘infant industries’ in other locations. I say that colonial rulers refused to let the colonized try. I say that the ideological dominance of free trade kept many others from even considering the possibility.” In summary, the advantage that came from being first to industrialize made North Atlantic countries so rich so fast that they were able to make the rules, and the rules they preferred set the price of entry too high for latecomers. Not until the second half of the twentieth century were the nations of Southeast Asia able to raise their manufacturing capacity to the level of the North Atlantic countries—and then surpass it.

We think today that economic prosperity is a stabilizing alternative to war, but for a very long time it had the opposite effect. As the nineteenth century turned into the twentieth, and Western European nations grew ever wealthier, they built up ever more powerful military forces that eventually gave us two world wars. DeLong suggests World War I was a last hurrah for aristocrats who could find no place in the new economic order. To preserve their position, they whipped up nationalistic fervor. Neither the Central Powers nor the Allied nations fully grasped, until it was too late, that with weaponry more destructive by several orders of magnitude than was previously deployed, and with each side matched evenly in wealth and strength, the result was bound to be a very long and unimaginably bloody stalemate. Even Keynes understood this only in retrospect.

After World War I, the economic circumstances of the North Atlantic nations diverged. The United States, where the war had not been fought, experienced the frenzied economic growth of the Roaring ’20s. Europe, still digging itself out of the rubble, struggled through economic hardship and social unrest. These were especially destabilizing in Germany, where the armistice had imposed ruinous economic reparations. The paths of the two continents were rejoined in 1929 when the stock market crashed and economies went bust all over the world. After Adolf Hitler became German chancellor in 1933, he pulled Germany out of the Depression faster, DeLong reports, than any other nations save the Scandinavian countries and Japan. “With the Gestapo in the background to suppress agitation for higher wages, better working conditions, or the right to strike,” DeLong explains, “and with strong demand from the government for public works and military programs, unemployment fell during the 1930s.” Fascism worked, until it didn’t.

Hitler was of course the most evil dictator in world history, or close to it. (Stalin and Mao murdered more people.) One benefit of looking at Hitler through an economic prism is learning that the Führer was also a Malthusian. In Mein Kampf, Hitler worried that Germany’s growing population would “ultimately end in catastrophe.” Hence the Anschluss, the Nazi annexation of Austria, and Lebensraum, Hitler’s program of expansion to the East. The United States entered the war at the end of 1941. The economic mobilization this required restored the United States to economic health. Hitler’s defeat and Germany’s loss of its territories were Stalin’s gain, as countries occupied by the Nazis were absorbed into the USSR and the Eastern bloc. The Allies moved in the opposite direction, losing colonies over the following decades. War-impoverished Western Europe in many cases saw more cost than benefit in the imperial project. Eventually, a crumbling Soviet Union would follow a similar course and cut its satellites loose. Russian President Vladimir Putin’s recent Ukraine invasion is a brutal and foolish attempt to reverse course yet again, with no obvious economic benefit to anyone.

What DeLong self-consciously calls his “grand narrative” falters as he shifts into the postwar years. He lays in a lot of Cold War history that, while fascinating in itself, is related indirectly at best to the economic story, and he gropes for a satisfactory answer—maybe there is none—to why postcolonial regimes in the global south have stumbled politically and economically. DeLong’s book is, in fact, fairly undisciplined throughout. It’s loaded with infelicitous witticisms; variations on “blessed be the market” appear no fewer than 16 times. For pages on end, DeLong argues with himself. For even longer stretches, the economic thread vanishes completely. There are many fascinating trees—intriguing facts and sharp insights—but not much forest. That’s especially true of the book’s second half.

The postwar story is actually fairly simple. For the next 35 years, the North Atlantic economies grew at a phenomenal pace, and, within those nations, the benefits were distributed more broadly than ever before. The French call these years Les Trente Glorieuses; the Germans call them the Wirtschaftswunder (“economic miracle”); Americans call them the Great Compression. The French economist Thomas Piketty, in his tidier and more lucid new book, A Brief History of Equality, writes they were characterized by “a massive and relatively egalitarian investment” across society: in education and health care, transportation and other infrastructure, pensions, and “reserves, such as unemployment insurance, for stabilizing the economy and society in the event of a recession.”

The economic boom was the fulfillment of demand that had built up in the United States since 1929 and in Western Europe since 1914. But it was also the logical result of government spending not, as previously, in service of large private fortunes (greatly diminished, especially in Europe, by two world wars and the Depression), but rather to strengthen a newly prosperous middle class. The root of this change was a democratizing trend that, in those nations that resisted fascism, had been gathering strength since around 1900, with such advances as women’s suffrage, the direct election of senators in the United States, diminishment of the House of Lords’ power in the United Kingdom, and growing union power everywhere.

Part of this story was progressive taxation. It was an old idea, but it didn’t really take root, Piketty writes, until early in the twentieth century. The United States led the way in 1913 with its progressive income tax, followed by progressive income and inheritance taxes in Europe. The two world wars drove taxes higher—especially the second—and after World War II, taxes fell only somewhat. Piketty trumpets the societal benefit of imposing “confiscatory” (his unapologetic term) top marginal rates of 80 to 90 percent in the United States. These put an end to “the most astronomical remunerations.” There was no reason for companies to push a top executive’s wages above the threshold for the top marginal tax bracket, because the federal government would collect nearly all that additional cash in taxes. That helped prompt companies to spend any surplus on the rank and file instead. Conservatives today argue that when marginal tax rates rise too high, that chokes off innovation. But through the 1950s and 1960s, “confiscatory” taxes choked off only excessive wage growth at the top. Productivity climbed briskly anyway, and so did per capita income.

The good times for the North Atlantic nations ended in the 1970s, through a combination of oil shocks, out-of-control inflation, falling productivity, and deceleration of economic growth. By the end of that decade, manufacturing was shifting decisively to Southeast Asia, creating competition for the United States and Europe. In his influential 1975 book, Equality and Efficiency, Arthur Okun, chairman of President Lyndon Johnson’s Council of Economic Advisers, argued that you could increase economic equality or you could increase economic efficiency, but you couldn’t do both at the same time—a view that paved the way for market fundamentalism. (The favored term in the economics profession is “neoliberalism,” but I reject it because many critics of market fundamentalism with a more diffuse political agenda also called themselves neoliberals, wholly unaware of its other meaning.)

DeLong makes a strong case that the turn in the 1980s to market fundamentalism was a dismal economic failure. He notes that President Ronald Reagan and British Prime Minister Margaret Thatcher, in cutting taxes and reducing regulation, achieved no discernible improvement for employment, wages, investment, or economic growth. Inflation came down, stimulating a cyclical economic expansion, but that was the doing of Paul Volcker, chairman of the Federal Reserve Board. Meanwhile, the deregulated banking industry created first a savings and loan crisis that caused $160 billion to evaporate, with most of that tab picked up by taxpayers, and, later, a mortgage crisis that caused $3.3 trillion in home equity to evaporate, very little of it reimbursed by the government. Reagan and Thatcher’s true legacy, mostly through tax cuts, was to extend and accelerate the late-1970s return to ever-growing economic inequality, a trend that continues today—and that, contrary to Okun, yields absolutely no benefit to economic efficiency.

I take the somewhat conventional view that the long twentieth century ended around 1980. Cherry-picking from DeLong and Piketty, here is my summary of the long twentieth century. At its start, rapid economic growth hypercharged imperialism and militarism. The latter spun madly out of control from 1914 to 1945, killing about 100 million people. After 1945, democratization dating to earlier in the century matured to the point where industrialized nations moved steadily toward greater economic equality. But by 1980, both the rapid economic growth and the egalitarian trend were over. Applause, curtain.

DeLong, however, extends his long twentieth century to 2010. That allows him to include the computer-driven economic boom of the late 1990s, which hyper-globalized the economy and pushed manufacturing, unevenly, into the global south. But the computer revolution was, I think, less a culmination of the long twentieth century than a distant echo of its beginnings. It seems a big deal to us because we witnessed it. But the late–nineteenth- and early–twentieth-century convergence of telephones, electrification, cars, radios, motion pictures, airplanes, and so on altered economic life much more dramatically. The computer boom mimicked the effects of the Industrial Revolution but fell well short of its breadth and magnitude. The wealth it created boosted middle-class incomes for a few years in the late 1990s, but it boosted incomes for the superrich much more, and, after 2000, pretty much exclusively. That made it a less transformative event than the Industrial Revolution, whose benefits were, during most of the twentieth century, shared widely.

The economic story of the twenty-first century will not, forecasters typically say, be a happy one. One school of thought says the economy has entered a long period of what Harvard economist Larry Summers calls “secular stagnation,” or slow economic growth due to a reluctance to invest. Another school, led by the Northwestern economist Robert Gordon, says productivity growth will be sluggish because future technologies can’t possibly be as transformative as those of the long twentieth century. Yet another school of thought says that the economic story of the next 80 years will be China, and that the rest of us will just be along for the ride. A virtue of both DeLong’s book and Piketty’s is that they avoid such crepe hanging. Piketty is guardedly optimistic about the prospects for future social progress—a pleasant surprise after the pessimism he expressed in his 2014 book, Capital in the Twenty-First Century—and DeLong says we just can’t know what lies ahead. He’s right.

But whatever our next grand narrative turns out to be, the economic problem won’t be solved. How can it be, when inequality is still rising throughout the industrialized world, and when most of the global south hasn’t even started to address the economic problem? We’ll all be richer, but to vastly unequal degrees. Even if we succeed in reversing the trend toward growing economic inequality, and even if we find ourselves speaking, in awed tones, of the tiger economies of Africa and Latin America, the economic problem will remain unsolved because today’s notions of sufficiency will (one hopes) be too stingy to serve a more prosperous future. So don’t give up your day job just yet.