Our Ancestors Thought We’d Build an Economic Paradise

HThe human history up to 1870 was often awful. After 1870, however, we started to get out of the traps we had fallen into. If they had been able, most people would have predicted that our technological advances and sophisticatedity would have made our world a paradise.

It is evident that we do not.

Was there something wrong?

History in a Sweep

Before 1870, the human population was too high relative to technology’s low level and limited ability to extract natural resources. Why? Because poverty made infant mortality very high, and patriarchy meant that women’s durable social power (with a few exceptions) came pretty much from being mothers of surviving sons. Technology was slowly improving, so there wasn’t much space for each generation to become more successful and people could still eat. Do the math and you will see that in this world about one in three women was without any surviving children. Hence the drive to reproduce more—even if you already had living sons, to have another as insurance—was immense. That drive kept population growing whenever any technological headroom to support higher productivity emerged—breed strains of rice that grow more rapidly so you can get two crops a year, and find in a few centuries that the population of wetland Asia has doubled. It kept people poor. This world used to be Malthusian before 1870.

There was worse. There is enough. Only a few people could have enough to feed their families and themselves. They had to be able, by force and fraud to grab a large portion of what others were making. That meant that those who directed human society’s energies did so not toward making humanity more productive but, rather, making the force-and-fraud exploitation-and-extraction system run better for themselves. That meant that those ideas that were promoted and that flourished were not those that made humanity capable of doing more things more efficiently and effectively, but rather those that shored up the force-and-fraud exploitation-and-extraction system. The rate of technological progress was therefore slow.

My crude guess is that there has been as much proportional technological progress—useful ideas discovered, developed, deployed, and then diffused throughout the global economy—making humanity more productive in the 150-year span since 1870 as there were in the entire nearly 10,000-year span since the beginnings of the creation of agriculture around the year 8000. From 8000 to 1870, poverty and patriarchy kept mankind under the control of the Devil in Malthus. Nearly all the benefits of technology were lost due to population growth and the resulting scarcity of resources. Think of something like $900/year—the living standard of the poorest half-billion of our eight billion today—as the living standards of a typical human back before 1870.

Everything changed after 1870.

Economics historians have debated and will continue to debate the reasons for 1870’s change. They debate whether the change could have come earlier—perhaps starting in Alexandria, Egypt back in the year 170 when Emperor Marcus Aurelius Antoninus ruled in Rome, or in the year 1170 when Emperor Gaozong ruled in Hangzhou. They debate whether we might have missed the bus that arrived in 1870 and still, today, be trapped in a Malthusian steampunk, gunpowder-empire, or neo-mediæval world.

But we did not. A lot of things had to go right and fall into place to create the astonishingly-rich-in-historical-perspective world we have today. Three key elements—modern science and the industrial research lab to discover and develop useful technologies, the modern corporation to develop and deploy them, and the globalized market economy to deploy and diffuse them throughout the world—fell into place around 1870.

There are hopes for the Post-1870 Era

Since then, science has been transformed into technology through industrial research laboratories, which have been deployed by large corporations and distributed throughout the globe by the amazing crowdsourcing mechanism known as the global market economy. Global technological advancement has been at an average rate of 2.1% per calendar year since 2000, from a pace that averaged 0.05%/year prior to 1500, 0.15/year between 1500-1770 and 0.45%/year between 1770-1870. The deployed-and-diffused technological capabilities of humanity have thus roughly doubled every generation since 1870.

The people realized something was wrong soon after 1870. Looking back at 1870-1914, economist John Maynard Keynes was to write between the world wars of how it had been “economic Eldorado… economic Utopia… that Devil [of Malthus]… chained up and out of sight…. What an extraordinary episode!” The forces unleashed in 1870 meant that “the economic problem may be solved, or be at least within sight of solution, within a hundred years… is not… the permanent problem of the human race… [which will be] how to occupy the leisure, which science and compound interest will have won for him, to live wisely and agreeably and well…”

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Humanity before 1870 had been stymied because anæmic technology, limited natural resource, patriarchy, and poverty had kept us from being able to bake an economic pie sufficiently large to even raise the possibility that everybody could have **There is enough**. But surely, all of that will disappear when there is the ability to create a large enough economic pie.

John Maynard Keynes had certainly thought so: “We shall once more value ends above means and prefer the good to the useful. We shall honour those who can teach us how to pluck the hour and the day virtuously and well…”

Friedrich Engels also thought so: with a sufficiently-large economic pie, with **There is enough**, the power system of exploitation-and-extraction “ceases of itself. The government of men is replaced by the administration of things.… Ruling is not ‘abolished’, it atrophies.”

They all thought that once you had solved the baking problem, the slicing and tasting problems—sharing and enjoying the pie, using our material resources to make us all healthy, secure, safe, and happy—would be straightforward also. Many people who were alive before 1870 wouldn’t be surprised to find us here in what is clearly not paradise, and how much the difficulties of cutting and tasting the economic pie has frightened us.

What went wrong?

Then what? What happened?

Letting the market economy rip to solve the problem of making **There is enough** had consequences. This is the triumphant half of the Big Story in twentieth-century economics history. Friedrich von Hayek was a genius. His vision was that the only way to break the cycle of poverty in the world was through the market economy. This, along with the industrial research labs and modern corporations, is what Friedrich von Hayek believed. He thus preached the gospel: “The market giveth, the market taketh away: blessed be the name of the market.” We should, he thought, be satisfied with the fact that there was a large-enough pie, count our blessings, and ignore the problems of slicing and tasting it properly.

However, people refused to and could not stand for such a thing. They demanded, instead: “The market was made for man; not man for the market.” Karl Polanyi saw this most clearly: that humans thought they should have more rights and, indeed, needed more rights than just property rights. The market’s treating those whom society saw as equals unequally, or those whom it saw as unequals equally, brought social explosion after explosion, blocking the road to utopia.

The New Deal Order & Its Collapse

Perhaps humanity came close to an institutional-societal setup to tackle the problems of slicing and tasting. The Global North, which historian Gary Gerstle refers to as the New Deal Order after World War II, produced at most the greatest economic and social advancement ever recorded. John Maynard Keynes blessed the shotgun union of Friedrich von Hayek with Karl Polanyi. It worked.

The New Deal Order, however, failed to meet its sustainability tests in the 1970s. The Neoliberal Turn was a success.

There were many complaints. There was inflation—most notably oil shock-driven rising gasoline prices. There were also business cycles. There was overbureaucratization. And there were too many programs and too many institutions that people saw as seeing giving too much money to people—from greedy Teamster union members to “welfare queens”—who had no proper right to it. Society may not know what “social justice” is, but it knows what it is not. The New Deal Order fell prey to the neoliberal challenges of the 1980s. The New Deal Order fell.

Yet the New Deal Order had delivered a lot—the slow productivity growth and inflation of the 1970s notwithstanding, the Vietnam War notwithstanding. Yes, there were some mistakes. Yes, there were mistakes. But the effect—the discrediting and replacement of the New Deal Order—seems disproportionate to the causes.

In 1993-1995, I worked for the Clinton administration. We hoped that things would be resurrected. The 1981-1993 period was seen as a misguided diversion. We wanted to reverse our course and go back to what worked well for the first post-WWII generation.

We placed our bet, guided by Bill Clinton: First, that economic policies would reverse Reagan’s growth retarding mistakes. Bush administrations; second, hope those would create a fast-growth high-tech high-investment high-employment future for America; third, with faster growth would come greatly reduced economic anxieties—and so burn the thread that the uppity undeserving were getting ahead of themselves out of American politics—then, forth, once again pursue a pragmatic politics of what worked equitable growth, rather than a destructive politics of finding and punishing enemies.

Trump spoke at the rally in Wilkes-Barre on Saturday September 3, 2022. Trump vented his frustration at the FBI raid of his Florida house and President Joe Bidens attacks on politics extremism to make his case for his election opponent in 2024.

Michelle Gustafson-Bloomberg

The Neoliberal Order

It didn’t work. It was replaced by a Neoliberal Order that was **Hegemonic**, in Gary Gerstle’s terms: it shaped the core ideas of politics and governance not just for those who cheerled for it, but even and perhaps especially for those who resisted it. It was impossible to restore the New Deal Order. We could not even restore a simulacrum of it in Left-Neoliberal sheep’s clothing.

The New Deal Order had required rapid growth, so that worries that its social-insurance system allowed the undeserving to take advantage of the hard workers and the job creators were drowned out by the music of “it’s getting better all the time.” The New Deal Order required a politics of coalitions in which people agreed they had a good thing going, and the big question was whether they should (as the center-right wanted) prioritize fixing the leaks in the roof or (as the center-left wanted) prioritize completing the addition.

It would not be sustainable without them all.

So we found ourselves, rather than working alongside Bill Clinton, doing the Neoliberal Order cementing, much like Eisenhower was back in the 1950s. Global North governments pursued a highly aggressive pursuit for free trade, globalization and deregulation. This led to a significant weakening in unions and privatization and deregulation and an exceptional reduction in progressivity within the tax system. It was a belief that the market mechanism is almost always more efficient than political or bureaucratic mechanisms. And, for many, a belief that income inequality needed to be increased in order to reinvigorate economic growth, and that that greater inequality was not an unfortunate necessity but rather a positive good—giving the job-creators and the hard-workers what they deserved.

Did the New Deal transition to Neoliberal Order seem inevitable? I still think that, on the west side of the Atlantic, it might well have worked, had George W. Bush’s team not gotten him elected by a 5-4 vote, and had all the Republican worthies not followed Newt Gingrich down the road that has led them to their current thralldom to Donald Trump and his fellow grifters. I still think that, on the east side of the Atlantic, it might have worked, had Britain’s Liberal Party been willing to support centrist technocrat Gordon Brown rather than rightist ideologue David Cameron.

The Neoliberal Order, however, has firmly established itself within the Global North. It failed to live up to its promises.

  • The Neoliberal Order did not restore the rapid growth of prosperity by reinvigorating entrepreneurship—rather, growth slowed further as the cult of short-term financial results undermined the ability of businesses and governments to make long-term mutually-reinforcing common-prosperity investments.
  • The Neoliberal Order did not properly distribute prosperity to the deserving and their just deserts to the undeserving—instead, rent-seeking strengthened among the plutocracy, to which kleptocracy added itself.
  • The Neoliberal Order did not restore moral order and solidity to Global North society—things continued to fall apart and the center held less. and even less.

Its only promise to the Neoliberal Order in Global North was that it would greatly increase inequality in income and wealth. This led to plutocracy with an added touch of kleptocracy.

Yet, the Neoliberal Order was not weakened. It was triumphant up until 2008. It has remained stubbornly strong and resilient to erosion ever since.

It hung on after 2003, even after George W. Bush’s breaking of the Concert of the World and even of the Western Alliance in favor of a “Coalition of the Willing.”

It continued to exist after 2006. However, the hopes that information technology could restore economic growth rates of golden-age eras waned.

It survived despite the fact that the old claim of depressions being extinct was quashed in 2008.

It survived despite the fact that the great-and the good did not abandon the job of restoring full employment but removed it from the kitchen.

Thinkers like Robert Kuttner blame relatively small groups and individuals for the persistence of the Neoliberal Order: “cultural leftists”, especially high-tech ones, who welcomed de-bureaucratization; Ralph Nader, who welcomed deregulation; Bill Clinton, who was opportunistic; Barack Obama, who was inexperienced and cautious. These do not appear to be sufficient reasons. And yet since the 1980s each moment of the Neoliberal Order’s failure to reinvigorate economic growth, restore society to its proper moral center, redistribute wealth to the deserving in an appropriate way, or strengthen a world order in which America is the benevolent dominant power has been met by a common response: we must not replace the Neoliberal Order. Instead, we must double down on our efforts and work harder.

The Tentative Diagnosis

Some say that the wheel has finally turned—that we now live in the ruins of the fallen Neoliberal Order. That is not my opinion. Although it may not be as dominant in forcing opposing movements to dialogue with and contend with it, Neoliberalism remains. It continues to exist.

My diagnosis is that, at least in the Global North, potential voters are, today: (a) profoundly unhappy with a neoliberal world in which the only rights that people have that are worth anything are their property-ownership rights and they are thus the playthings of economic forces that value and devalue their property; but (b) are anxiously unsatisfied with social democracy that gives equal shares of access to valuable things to those whom they regard as “undeserving”; and (c) while that economic anxiety can be assuaged by rapid and broad-based growth, it is also (d) stoked by those who like the current highly unequal distribution of wealth and thus seek to make politics about the discovery of (external and internal) enemies rather than about equitable prosperity.

So here we are. Current situation: In the richest countries there are enough, but we are all miserable. We are all trying to figure out the true enemies who stole our wealth and gave us bland lentil stew as a substitute. This is the second part of the great story of the 20th century. It’s the most difficult. Can you even eat or taste satisfactoryly without slicing? As Richard Easterlin wrote a generation ago, humanity’s is a “hollow victory”: “In the end, the triumph of economic growth is not a triumph of humanity over material wants; rather, it is a triumph of material wants over humanity…”

Trump’s anti-Mexican rants have caused the collapse of the Neoliberal Order. He has slammed Chinese, Mexicans, their imports and sentencing to Mexico. Trump was the first person to make a significant purchase to try to undermine the Neoliberal Order. But since Trump’s election in 2016 many politicians—Bolsonaro in Brazil and Johnson in England ex-London, Orban in Hungary and Modi in India, and many others—have been taking notes.

The potential alternatives to the Neoliberal Order today seem much less appealing than they actually are. Ethno-nationalist populism and authoritarian state surveillance capitalism are frightening, as well as the surviving Neoliberal remnants. And the problems we face are frightening as well: Global warming, ethno-national terrorism on all scales from the individual AR-15 to the Combined Arms Army, revived fascism, techno-kleptocracy—at all of these new and very serious problems that will mark the 21st century.

We have not resolved the dilemmas of the 20th century—as is shown right now most immediately by the failure of governments to manage economies for equitably-distributed non-inflationary full-employment prosperity. Our goal should be to elect government leaders capable of managing technocratic tasks such as squaring circle, stabilizing prices and increasing productivity. But it’s there.

WhatSubscribeWhat’s next?

This moment feels a lot like the 1920s. Back then, John Maynard Keynes remembered the then-past era of 1870-1914 in which the world moved toward what he called “economic Eldorado”, looked at his then-present in which opportunities were not being grasped, and wrote: “We lack more than usual a coherent scheme of progress, a tangible ideal. All the political parties alike have their origins in past ideas and not in new ideas…. There is no gospel. The next move is with the head…”

Our immense technological capabilities must be used to make a positive society. We have to think hard about this.

Adapted from DeLong’s new book, Slouching Towards Utopia: An Economic History of the Twentieth Century, published by Basic Books

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