Despite the scary levels of political polarization in America, the vanguards of both left and right agree that the goal of economic policy should be to recreate the economy of the immediate post-war boom. The left and right also have their preferred social conditions they’d like to resuscitate based on the 1950s and 60s. The problem is that their goal is impossible.
Nostalgia is a central feature, if not the defining feature, of the populist-nationalist movement. The slogan, “Make America Great Again” alludes to a utopian America that has been lost, buried under what we can assume must be mountains of political correctness. Judging by how frequently former President Trump and other Republican politicians have emphasized manufacturing as an economic and political necessity, one of the greatest features of this America was that it manufactured everything it needed for itself. Indeed, America actually manufactured most things for most everyone in the Western world. If only manufacturing could be brought back, they argue, then the America of old might return.
You don’t have to be a high-minded intellectual to scoff at this idea. There is certainly some historical truth to America having been a global industrial superpower during the first few decades of the postwar era. But the context is vital. After World War II, most of Europe and Japan lay in ruins. The few countries that remained unscathed, like my home country of Sweden, were simply too small to manufacture everything needed to rebuild the continent and restore a normal way of life. In these unique circumstances, American manufacturing grew to world dominance that it had not achieved before and will never achieve again short of another world war. No policy can change that.
On the left, this attempt to resurrect past glory days, a sort of political-economic necromancy, mostly revolves around unions and the minimum wage. It has been pointed out that the minimum wage in 1968 was $11.65adjusted for purchasing power (in 2018 dollars). This isn’t that far off from the “living wage” of $15, so what is the problem?
There are several. America in 2021 is not the America of 1968. Economic circumstances have changed, and just as in the case of manufacturing, this is due to external factors that can’t be reversed through policy.
The minimum wage in 1968 was indeed higher than today, but in 1968, America had been booming for over two decades, with economic growth frequently exceeding 6 to 7 percent—levels we today associate with China and other developing countries. Unemployment was at 3.4 percent, and had never been higher than 6.6 percent in the preceding 20 years. By contrast, unemployment has been at or above 6 percent for 92 months since 2001.
But most importantly, in 1968, “automation” and “outsourcing” were still terms only engineers and economists knew. Faced with higher minimum wages, grocery stores couldn’t buy self-checkout machines, burger joints and pizza parlors couldn’t buy touch-screen ordering systems, and car factories couldn’t buy robots. Businesses had no choice but to pass some of the costs of higher wages onto consumers or shut down. Today, many of the jobs these businesses create can be automated or outsourced. This is why over the last three decades, as America manufacturing has shed jobs, output has increased. A higher minimum wage would accelerate this trend—some employees would make a “living wage,” but there would be far fewer of them.
Half a century ago, the unusual boom in wealth and ever-increasing foreign demand for American products meant that when workers demanded pay raises, employers generally didn’t bother to pick a fight or look for other options. Beyond automation and outsourcing, the very existence of serious foreign competition, which America didn’t have in 1968, means that employers can no longer take such a generous approach.
Banning automation and outsourcing isn’t feasible or desirable. The best way to slow down (but not stop) automation may be to cut income and payroll taxes to make human labor more competitive. The current tax system, as Bill Gates and others have pointed out, makes it economically advantageous for businesses to pursue automation even when the robots and software are no more efficient than the human labor they replace, because the taxes a company has to pay on human labor are far higher than on their robot counterparts.
Reversing the decline of unionization will also not bring America back to its glory days. It’s true that unionization was far higher back in the 1960s, but organizing labor only works when the workers who organize are irreplaceable. Ultimately, what gives workers leverage in collective bargaining isn’t the existence of a union, but the value of their work. That’s what the British coal miners learned during their extended struggle with Margaret Thatcher. By overplaying their hands, the unions arguably hastened the decline of the coal mining industry in the U.K. Unionization is all well and good when it makes economic sense for the workers, but most of the workers earning less than $15/hour would not gain from unionizing. They would simply be replaced faster.
Like so many economic phenomena, the miracle economy of 1949-1970 wasn’t caused by anything Americans did, apart from win World War II, but rather by external factors which neither left-wing nor right-wing populist policies could ever replicate. If America is to be the leader the world needs it to be in the 21st century, its leaders must resist the allure of economic necromancy and accept the challenges that America, and its workers, face today.