A Soldier From the Wars Returning: A Recap: And the First in a Series, It Looks Like

Chris Friedrichs reminds me of the need for a recap, which is nice, since mining my own archives is something that I don't need library time to do. 

It also makes me feel bad, because he also told me about hosting a TV event connected with the NDP childcare promise (which I totally support!) for Thomas Mulcair in his garden, because now I am going to be a bad student and betray my family's long tradition of NDP support by endorsing the Liberal Party. 

Bench Grass endorses the goober. Notasshole who is the second choice, and certainly not the asshole we have right now. And not the Greens, because, well, Kotos explains. This isn't a decision reached out of some deep commitment to principle. Bench Grass is very, very tired of scraping up labour at work, and sees a lot more of that in a future in which we elect a government committed to reducing the Canadian public debt. The problem is that there's too little debt already.

Moving right along, it's time for the recapping. What needs recapping? Technology? That's . . .kind of a big thing to recap. Also, if you've been paying attention, my view is that the history of technology is not exogenous to economic and social history; something of relevance to both 1945 and 2015. 

So, if there's a single thing that jumps out at me in the news from August of 1945 that doesn't involve the end of World War II, the atomic bomb, and the transformation of the Japanese state, it is Alvin Hansen's departure from the Federal Reserve. He's the soldier, and he's going home to teach at Harvard. Get it? Time to drink stone wine, etc? 

I tried. So. Time magazine is not kind to Professor Hansen in that 23 August, 1945 article. It's a coup against the old Keynesian by the President and his preferred monetary adviser, the superbly-named "Marriner Stoddard Eccles." (He's no Kennesaw Mountain Landis, but who is?) Hansen is a dangerous "left winger," whose policies are likely to stoke the inflation that Eccles sees coming. 

Well, my friend, consider that battle won. Inflation turned out not to be the problem. I might write a different sentence if this was the 1970s, but I'm choosing to declare 2015, instead, as the end of the short run and the moment when we have to face the problems that stem from mistakes made in 1945. .

The CSLP was introduced in 1964.  It was designed to supplement the resources of individuals and their families by providing loans to full-time students who could demonstrate need.  The Government of Canada set the interest rate, and paid the loan interest during. . . enrolment and for six months afterwards . . .  Borrowers were given up to 9.5 years to repay . . .

So, first off, I should acknowledge Marriner's victory.

Source

Hansen saw this coming! Too bad there's nothing he can do about it. It's one heck of a comedown for the man who first came to the attention of some imaginary educated contemporary who reads the papers that I have been reading over the last three years in the same way that I have.

Here is a summary, quoted here before:

"The course of American business activity never did run smooth. Nor has it ever run on orthodox lines. . . No completely satisfying explanation has ever been given, for instance, of the very sudden reversal of recovery in the autumn of 1937, long before it appeared to have reached its maturity. [Until recently, the received explanation was of a temporary interruption]. This theory appeared to be confirmed by the resumption of recovery twelve months ago. But since the beginning of 1939, this new recovery –or “re-recovery,” as the Americans call it—has faltered and given ground, long before it had attained the peak levels of 1937, let alone those of 1929. It is true that in the last few weeks there have been signs of a new improvement –a re-re-recovery, as it were— but it is too early to say whether they are prophetic or deceptive. And in any case there is no assurance that 1939’s improvement will go much further than 1938’s. There is prima facie evidence for the belief that each new peak is lower than the last.” 
One is left, the paper infers, to fall back in despair on the doctrine that it is for Government to repair the deficiency in private investment in capital….[But] the justification for a permanent programme of public works can only be a permanent lack of private capital investment…. 
[This] 'permanent lack of private capital investment' is due to America being a ‘mature economy," because its population has ceased to grow. 
“[But] If America is a “mature economy” because the growth of population is slowing down, how much more “mature” is Great Britain, where the growth of population has almost stopped?”  It would be much easier, The Economist says, to accept the defeatist doctrine of a permanent insufficiency of private investment if any convincing attempt had been made to investigate and remove the barriers to profitability. Business complaints do not encourage this inquiry. Taxes are too high, “anti-business” attitude of the Administration, “lack of confidence.” The Economist was not persuaded by these arguments in 1939 --which suggests that their point is not to convince.  
The Economist goes on to explain. The problem is the cost of investments. Specifically, wages are too high. As a consequence, payrolls are falling, for unemployment trumps increases. “The only remedy that has not been tried is a sustained attempt to lower the costs and encourage the expansion of the capital goods industry whose coma is, by common consent, the root cause of the laggardliness of the recovery.” Less money in the hands of buyers means more machine tools being produced to equip factories to supply buyers with the things they want."

Automation will save us by creating a post-scarcity economy! Or, in less anachronistic language, we just need to achieve higher levels of technical efficiency. It is thus all the more interesting that Hansen diagnosed another aspect of the malaise of 1939: a decline in the rate of technological progress. (I can't even . . . But what if he was right?) 

On another line of argument, I think we can all, or most of us, come together in agreement that Geoffrey Crowther's prescription is not particularly attractive. No, no, we don't think that the solution to the current problem is a wage cut. Nor did it turn out to be the solution --in 1945. In the thirty year short term, it was never the solution. Of course, it does seem to have been the solution for the last forty, so there's that. Or not --it hasn't brought robust growth back, after all, and forty years is a good run.

So it is at least worth exploring the possibility that Hansen was right in 1939, wrong, or at least irrelevant, in 1945. In the six years between, things changed, not through wage cuts, but through the effects of World War II. There are a number of arguments against this, and this recap could be about many of them, but I am going to cut to the chase and single out one particular exogenous event, the Baby Boom. 

Sure, we could have an argument. But I'm the one in the bind for in-store labour due to a shortage of teenagers, and I'm the one writing this blog. Now, it could be objected that however much the "trente annes glorieux" can be attributed to Keynesianism-Hansenism, Baby making's not in Keynesianism, unless someone has clipped the centerfold out of the editions of the General Theory?

The historian answers that that's what you get for trying to reduce the complexities of a historical episode to statistical series. The historian demands more complexity, which kind of makes it the historian's job to supply it. 

So, Marriner Eccles stands before the door, laughing cruelly as a dejected Richards Hansen walks out into the pathetic exile of an endowed Harvard chair.

He jiggered up some orbital mind control lasers, as you do.

The Luce press wasn't always so hostile to Hansen, and the turn away from him is as marked as its turn towards Friedrich Hayek, the new intellectual flavour of the month. A bust of Hayek adorns, for some reason, George Terbolgh's demolition case against Hansen, George Terborgh, “The Bogus Case of Economic Maturity: Washington Spenders Claim that Capitalism is Moribund Because Savings Tend to Outrun Investment Opportunities: Theirs is a Flimsy Case," published in the June, 1945 number of Fortune. Terbolgh is both a bit of an opportunist, and an interested party, since he runs a research group associated with the American capital goods industry, and wants to see reductions in depreciation times. (Which --snore-- turns out to be incredibly relevant! Just ask Mr. Terbolgh.)

I type the full subtitle of the article because it gets Mr. Terbolgh’s brief off to a running start. Although he then throws the brakes on hard by wandering back to the summer of 1929, and the Engineer presiding over the Committee on Recent Economic Changes of the President’s Conference on Unemployment with not a thought of what lay before. Hoover, spectacularly wrong, saw economic opportunity shining before it at the precipice of disaster, while in 1945 Washington sees stagnation ahead at the dawn of economic opportunity. Wrong as Hoover is not something anyone weants said of them.

So, Dr. Hansen says, with technology giving ever less “room for revolution,” and population growth tapering off, opportunities for investment taper off, investment, and savings accumulate as idle funds, and only government spending can save us. It is curious, Mr. Terbolgh thinks, that while the theory is drawn from Keynes, its elaboration into a theory of stagnation was by Dr. Hansen, an American. What a turnabout for former, boundless American optimism. 

Moving on to the “four horsemen of the apocalypse,” the first one which Mr. Terbolgh wishes to dispatch is the idea that a declining rate of population growth has anything to do with the case. I think we can move along quickly on that one.

Second, there is the passing of the American frontier. Anyone still care about the "Closing of the American Frontier?" Because if they do, I have some Alaskan farmland to sell them.

Third is technological innovation, which Terbolgh elides into major new industries selling new stuff. So that's what Hansen means? Given television, refrigeration, and so on, we arguably now see exactly how Hansen is wrong. It is not that invention is about to stop, apparently, in 1939, and is reinvented in 1945. It's that, somehow, new technological industries are about to become possible. Definitely a subject for another recap!

Fourth is “the increasing importance of depreciation reserves,” See what I mean? So, to the subject of population.

The Economist covers this better than the American press. The second week of October, 1943, saw the release of vital statistics for 1943 showing a crude birth rate of 17.5/1000 versus an average of 15.7 for the same quarter over the last 5 years. The paper does not think that this will last, as the marriage rate has fallen, and in these quaint old days, a falling marriage rate is an advance indicator of falling birth rates. The next return, made available in January of 1944, shows that the birth rate has jumped up to the 1930 level, but Crowther doubles down on the "marriage" explanation.

 “This simply reflects the high rate of marriage in the early years of the war, now well past its peak, and offers no evidence of any likely turn in the downward trend in the population, which depends, first, on the number of mothers-to-be, and, secondly, on the size of families. The number of marriages in the quarter actually fell lower than in any September quarter since 1917, which makes the maintenance of the number of births unlikely.”

No explanation is needed in June, because the fact that Britain has the highest number of babies in twenty years (5687,130 versus 1925’s record 843,405) can be turned into a joke about a shortage of rubber bottle nipples. (In other hilarious news, the Prime Minister has read Road to Serfdom and is very impressed.)
 

Time, reacting to the same news, gives us The Lancet's view. Whatever you think of Henry Luce's organs, this is an easy way to see that some British commentators are more deranged on the subject than the editor of The Economist: If, in spite of the war, the world’s birth rate for the past four years has been higher than usual. it might have been caused by “an unexpectedly high level of mental stability,” or a shortage of contraceptives, or an insecure world to raise children as a “shock absorber.” Also, the fact that it was a general trend (although don't tell the French that!) is . . . interesting.

In an interesting synchronicity, Fortune covered the demographic future shortly after The Economist engaged it.

“Two Billion People: A Portfolio Showing the Population of the World, Now, and in 1970” is fascinating at a number of levels. First of all, it presents a "demographic transition" model for explaining the population expansion of the last century. 

In primitive societies, death and birth rates were both high, holding population at a virtual stasis. An improving economy brings lower death rates, and, consequentially, rising population. In Europe, where the Industrial Revolution wrought a demographic revolution, population increased 189% during the Nineteenth Century in spite of high emigration rates. The skyrocket of US population is due to immigration as well as  high birth rates. Yet during this period, the population of Asia increased by only 98%.

Well, knock me over with a feather. I grew up in the middle of the "population explosion" crisis, which was very, very clearly explained to me in terms of poor Third Worlders having too many babies because reasons, most of which look pretty sad on re-examination. The "demographic transition" was a new kind of thinking, a way of understanding things which drastically undercut the population bomb thesis. Only, it turns out, this model predates the panic. This is not a historiography-worthy revelation and Alison Bashford has been doing some great work on the subject, but it does illuminate what was really going on during the "Population Explosion" era. 

Fortune goes on to explain that, eventually, high levels of living begin to compete with reproduction.  (Because subtle misogyny is a Forties thing.) Social pressure and the independence of women, later marriages and birth control cut down birth rates until they again approach death rates and the natural increase diminishes. Industrial Europe, the British dominions, and the United States have reached this stage and their populations are growing more steadily and probably will become stationary or begin to decline in another generation, the paper, hilariously wrong, explains. The recent rise in birth rates in England and the U.S. is presumably is the usual early-war phenomena. It will not greatly change the long-term trend, the paper thinks. Japan, the one Asiatic country in the second stage of the cycle, the paper say, had a gradually declining birth rate in the thirties, and the growth of its population will not continue past 1970. So note that even Japan, poster child for modern depopulation, gets a reprieve. 

Finally, a bit of Russia envy: the Soviet Union alone has both an industrial economy and a rapidly increasing population. It will continue to grow on momentum alone to over 200 million in 1970, with the graphical projection (pictured) showing 251 million, but not taking into account war losses. (The Economist talks about the "astonishing fertility of the steppes." It's the kumiss.) 

So hot.

More than half the world’s population lives in Asia, but low levels of living, high birth nd death rates, and overcrowding  complicates things. It is estimated that China has 450 millions, India is known to have 350. It is unlikely that these countries will enter the second stage any time soon, so their populations will likely increase. India is projected by Hans Weigert, Professor of Political Science at the University of Pittsburgh, to reach 500 million in 1970. (Top Google Search item, because what the heck.)

Have a chart:

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 Now have two ads:

Remember defined-benefit plans? I don't want to boast, but I've got one.

ii).

Look! Technology is going to change our lives, but not in a way that will make your husband less of a jerk.

These two images suggest explanations for why the business press will turn out to be wrong about the rising birth rate trends of the previous five years will turn out to be wrong. Prosperity? Technology changing things? A reassertion of patriarchy? They may not be good explanations, but they're better than The Lancet's!

But it is time to have a look at them.