There are legions of sages on the Internet who all know exactly what needs to be done to cure the economy. Their theories are simple, easy to grasp, and certain to work. The only problem is, they don’t agree with each other. Half the sages tell us to cut taxes and government spending. The other half calls for a bigger government that would tax more and oversee a “just” redistribution of the loot. To sort things out, it sometimes helps to escape the narratives of today and have a look at those of days gone by. It turns out there have been a couple of quantum flips in the narrative(s) within living memory.
During the Great Depression, there were many converts to the narrative of the left, especially among the “well-informed” of society, and that narrative became quite extreme. Its adherents were, if anything, more cocksure they had a monopoly on the truth than those of either the right or the left today. In those days, opinions that would be considered dangerously radical today were a commonplace in the intellectual journals. The American Mercury is a good example. Started in 1924, by H.L. Mencken, the great sage of Baltimore, and his pal George Jean Nathan, the Mercury was taken over by Charles Angoff late in 1933, following Mencken’s resignation. As will be seen in his contribution below, Angoff was decidedly to the left of Mencken, and would steer the journal sharply in that direction. A similar, if less extreme, lurch to the left can be discerned in The New Republic, the Nation, Century, and many another “serious” publication of the day. Here are some examples, all from the Mercury. Remember, they appeared in a highly respected journal, and not some transient occupant of a socialist bookstore:
“Under the present economic system it is impossible for our farms and factories ever to absorb all the millions of unemployed… When the government can grant no more concessions to appease its hungry, then revolt on a national scale will be inevitable, with its ensuing chaos, during which some group, knowing what it wants to do, will seize control. At present the only political party which seems to know what it wants is the Communist Party.” John L. Spivak, “Bitter Unrest Sweeps the Nation,” August 1934.
“The belief that capitalism is immortal is as superstitious as the belief in witchcraft… The world, as I have said, is moving in the direction of collectivism… As for Germany, the disillusionment of the people there with Hitler’s brand of Fascism is widespread and rapidly becoming more articulate. It is by no means impossible that soon after these lines reach your eye, the lunatic house-painter will be fleeing for his life. In a way, his insane regime will have done his country good: it will have hastened the coming of genuine socialization… What of the United States? The New Deal is bankrupt. It was impossible for it to succeed. Socialism cannot be made to work in a capitalistic society, as any schoolboy could have told Mr. Roosevelt. The New Deal will inevitably have to move in the direction of Fascism, however much Mr. Roosevelt personally may dislike the Mussolini-Hitler brand of governing. If the Republicans win in 1936, there will be no more camouflage. There will then be open and above-board Fascism. The Republican party, like the economic system it so well represents, will not give up the battle easily. But its brand of Fascism will be no more immortal than Mussolini’s or Hitler’s… The Americans are in a rebellious mood… They will demand, and I believe they will get, some form of real collectivism.” Charles Angoff, “The End of an Epoch,” August 1934.
“Collectivism has made the army and the navy of the United States. Why should the spirit that inspires it be anathema?” Ernest Boyd, “Drugged Individualism,” November 1934.
Not everything that appeared in the Mercury would seem so novel today. Here are some remarks about taxes that have a decidedly modern ring:
“But now the United States Federal government and most of the States and their subdivisions are confronted with another financial crisis in many ways more serious than the one we went through in 1917-18. Can we provide the revenue to meet the new social obligations which have been thrust upon us by the depression and avoid run-away inflation in the process? Can we find the ways and means of raising money which will help us out of the depression instead of pushing us further back into the mire.” Harold M. Groves, “Taxation in America and England,” June 1934.
Fast forward 18 years. The Soviet purge trials and a World War had intervened to upset the apple card for the sages of 1934. Prosperity had, after all, returned, and a new hubris pervaded society. Now it seemed, we were marching forward to a bold new capitalist future, moderated by unabashed redistribution of wealth, in which the gap between rich and poor was shrinking, and becoming increasingly insignificant. Class economic standards were falling by the wayside, and would be replaced by what Frederick Lewis Allen, a sociologist of that era, called “The All-American Standard.” Allen caught the spirit of the times in his book, “The Big Change.” After reviewing statistics on the distribution of wealth and income at the time, he wrote:
“What do these figures mean in human terms? That millions of families in our industrial cities and towns, and on the farms, have been lifted from poverty or near-poverty to a status where they can enjoy what has been traditionally considered a middle-class way of life: decent clothes for all, an opportunity to buy a better automobile, install an electric refrigerator, provide the housewife with a decently attractive kitchen, go to the dentist, pay insurance premiums, and so on indefinitely… At the top of the scale there has likewise been a striking change. The enormous lead of the well-to-do in the economic race has been considerably reduced… Let us see what has happened to the top five per cent of the population, income-wise… According to the elaborate calculations of Simon Kuznets of the National Bureau of Economic Research, during the period between the two wars the people in this comparatively well-off group were taking a very big slice of the total national income – no less than 30 per cent of it, before taxes; a little over 28 per cent after taxes. But by 1945 their slice had been narrowed from 30 to 19.5 per cent before taxes, and from 28 to 17 per cent after taxes. Since 1945 this upper group has been doing a little better, relatively, but not much… A question at once arises. Have we, in reducing the slice received by these upper classes, and increasing the slice received by lower groups, simply been robbing Peter to pay Paul? The answer is that Peter has been getting a smaller relative slice of a much larger pie. Even after one has made allowance for rising prices, one finds that the total disposable income of all Americans went up 74 per cent between 1929 and 1950. That is a very considerable enlargement. So that although the well-to-do and the rich have suffered relatively, it is much less certain that they have suffered absolutely.”
Here is supply side economics turned on its head! Instead of wealth trickling down from the upper classes, Allen sees it trickling up to them from the classes below. Allen continues:
“Much more impressive, however, than the narrowing of the gap in income between rich and poor has been the narrowing of the gap between them in their ways of living… the rich man smokes the same sort of cigarettes as the poor man, shaves with the same sort of razor, uses the same sort of telephone, vacuum cleaner, radio, and TV set, has the same sort of lighting and heating equipment in his house, and so on indefinitely… The differences between his automobile and the poor man’s are minor… What has been responsible for this convergence between the ways of living of rich and poor? The causes are numerous and complex…”
That is certainly true, and the keepers of the narratives in our own day would hardly agree on them. Allen wrote those words in 1952, when the upper bracket tax rate had been hovering between 88 to 90 percent for some time. Still, US manufacturing and productivity were both at unprecedented levels, and showed no sign of turning back. The expected post-war recession that had been a feature of WWI had not materialized, and there seemed to be no turning back for the economy. High taxation seemed nearly irrelevant to economic expansion.
Come our own day. As the graph taken from Visualizing Economics shows, the gap between rich and poor began widening again shortly after Allen had published his book, and the “All American Standard” is a thing of the past. The explanation for this in our own day will vary, of course, by which flavor of the narrative the explainer prefers.
And the moral of the story? Narratives change. Facts, events, and experience render old ones obsolete, and bring new ones to the fore, and that in relatively short order, depending on how quickly real economic and social conditions, the facts on the ground, or “experiment,” if you will, changes perceptions. Old certainties become new delusions. We learn, if we have the capacity to learn, that we are not as smart as we thought we were.