World and domestic events are now driven by history. As we have seen in previous articles on Russia attempting to be “great again” by bringing former parts of their lost Soviet Empire back within their sphere of influence and China’s attempts to overcome the humiliation they suffered from recent centuries of Western Imperialism and restore the dominance they once enjoyed when they merited the title “Middle Kingdom” (center of the earth).

World and domestic events are now driven by history. As we have seen in previous articles on Russia attempting to be “great again” by bringing former parts of their lost Soviet Empire back within their sphere of influence and China’s attempts to overcome the humiliation they suffered from recent centuries of Western Imperialism and restore the dominance they once enjoyed when they merited the title “Middle Kingdom” (center of the earth). Our leaders are attempting to regain the economic leadership domestically and in global markets we once enjoyed. There is great dissatisfaction with the present and nostalgia for past greatness.

Shakespeare said history is not destiny e.g., “It is not in the stars to hold our destiny but in ourselves.” But, ignorance of history preventing us from avoiding its errors is also dangerous as Edmund Burke said e.g., “Those who don’t know history are doomed to repeat it.” This is an illustrated history column so it is good to begin this New Year with an exploration of the historical antecedents of the quest to return to an era we consider “great.” When were we presumably “great,” why, and can we bring back those days?

When was the U.S. “great?”

In two recent bestsellers Tyler Cowen used the metaphor of “low-hanging fruit” to illustrate how our nation grew economically for 300 years from innovations that were ‘easier’ because they could be performed by individuals and on the basis of common sense not higher education and teams of specialists. [2] Those gains brought new wealth and lifestyle improvements to the public whereas today’s innovations tend to be more team and organizational efforts benefitting private interests—a major driver of inequality of income and wealth.

Cowen identified five eras creating America’s economic growth: free land; immigrants providing plentiful, skilled labor; transportation and communication systems; abundant fossil fuels; and ‘institutions’ like the Constitution providing a benevolent legal environment for economic growth. [3] Other innovations such as part-time, temporary jobs and contracting out and offshoring work have eviscerated middle-class jobs. Employers ceased paying defined-benefit pensions and health insurance premiums—shifting their risk from companies to workers the “Great Risk Shift.”[3]

Most believe we were “great” in mid-twentieth century aka the “golden age.” It was the 20-25 years after WWII when we had great monopoly power in global markets because the war had destroyed the industry and economies of both friends and foes leaving ours intact. After 15 years of privation and conservation (1930-45) people felt deprived and entitled to some redress. It was in that interval that the Greatest Generation repaid itself with entitlement programs (Social Security, unemployment, medical insurance, etc.)

When did we cease to be “great?”

As advanced economies rebuilt their industry and economies and again competed with us in global markets so also developing nations copied some of our capitalistic methods (state capitalism) stealing both our companies and customers in what was known as the “rise of the rest.” By the mid-70s we no longer enjoyed dominance in world markets and were in a Darwinian competition everywhere. Hedge firms engineered mergers and acquisitions to re-monopolize American industry. After gaining control they eliminated jobs not adding value (downsizing) and outsourced work to non-union firms in the Sunbelt and foreign firms we would label “sweatshops.” The result was creation of industrial ghost towns in the Rust Belt and hordes of under and unemployed workers.

Baby Boomers in a new normal economy expected their parents’ lifestyle, then not earning it, realized it by borrowing $20 trillion of public debt to be repaid by their descendants. When we actually enjoyed good economic times governments at all levels created permanent programs that now we cannot pay for in this new normal economy.

How can we be great again?

We need to heed the advice of philosopher Eastwood, “A man’s got to know his limitations.” The conditions that brought about our golden era of peace and equally-shared prosperity are non-repeatable. Greatness now will come only by repairing flaws in our current economy and governance. We need to make our government work as designed, change entitlement programs designed when each retiree was supported by 22 workers to one in which each is supported by only two workers. In general, we need to pay more and receive less. Children need to be raised with dreams consistent with the America they will live in.

Our economy requires innovations to prosper, but they create casualties in a process called “creative destruction.” Waves of innovation like this have occurred throughout our history producing winners and losers. The American Dream was possible then because there was a safety net provided for the losers. [4]

Conclusion

If we don’t find ways to more equitably distribute income from those working, the unemployed underclass will lose faith in our democracy and seek other means to make them great again. The American Dream is the glue that has held American society together. If our youth retain that dream while failing to realize it and there is no adequate social safety net for them, we shall lose an entire generation and the center will no longer hold.

[1] Potter, David M. Potter, People of Plenty, Univ. of Chicago Press, 1954, 100.

[2] Cowen, Tyler, Average is Over, 2011, and The Great Stagnation, 2013, NY: Dutton.

[3] Hacker, Jacob S., The Great Risk Shift, Oxford U.Press, 2006. [3] Acemoglu, Daron, and James A. Robinson, Why Nations Fail, NY: Crown, 2012, Ch.3.

[4] Friedman Thomas L., Michael Mandelbaum, That Used to Be Us,” NY: Farrar, 2011, 24-39.