The following is a rough transcript which has not been revised by The Jim Rutt Show or Brad DeLong. Please check with us before using any quotations from this transcript. Thank you.
Jim: Today’s guest is Brad DeLong. Brad’s a professor of economics at the University of California at Berkeley, and is best known for his studies of irrational noise traders in financial markets and the shift from the commodity to the information attention economy. Welcome, Brad.
Brad: Thank you. I’m incredibly happy to be here. For one thing, I hope I’ll be able to sell some people some books.
Jim: Always a good thing. And as always, a link to Brad’s book will be on our episode page at jimruttshow.com, so check it out. In fact, getting onto his book today, we’re going to be talking about his pretty new book called Slouching Towards Utopia: An Economic History of the 20th Century. And I must say, I think Brad took a big risk here. He may well get kicked out of the economists’ union for writing a very readable book.
Brad: Well, thank you very much.
Jim: It was even fun. It’s definitely got style. So listeners who think this might be some dreary-as economics tome, it’s not. It’s fun. It’s good to read.
Brad: Yeah, as my first cousin, Phil Lord says, this is the funniest economic history book he’s ever seen.
Jim: Who said that?
Brad: My first cousin, Phil.
Jim: Oh, right. And it does have some actual history. Fortunately, I know you try to straddle a line between economics and history. At least some historians like their prose lively, so maybe they’ll embrace you even if you are ex-communicated by the economists for writing too well.
Anyway, let’s get rolling. Before we actually hop into the body of the book, there’s a few things I’d like to talk about. First, to kind of set the ground for our listeners, and that is, even though your title says History of the 20th Century, rather than following the calendar, you’ve defined a long 20th century starting in 1870 and ending in 2010. Why did you decide to do that?
Brad: Because everything changed around 1870. Because before 1870, it was impossible for humanity to even think of baking a sufficiently large economic pie for everyone to have enough. And yet after 1870, within half a generation, it became clear that soon, we were well on our way and soon would get to a point where we would be sufficiently productive and have sufficient resources to collectively bake a large enough economic pie that everyone in any previous century would say, “That’s it. That’s more than enough for everyone.”
Jim: And then why end it at 2010 rather than 2000?
Brad: Well, I could have ended it in 2000. That 9/11 and the return of forms of religious war and terrorism that we thought humanity had outgrown several centuries ago would certainly be a good stopping point, albeit an alarming one, it ended on September 11th, 2001.
But Columbia historian Adam Tooze has this term polycrisis in which lots of things hit at once, and maybe no one of them is decisive, but all of them together add up to a shock that is more than enough to derange everything. I would argue that a whole bunch of things hit the world between 2000 and 2020. Together, they jumped us off the track of 1870 to 2010, which is humanity becoming vastly richer and more powerful using its powers for good and also for ill and us trying and failing to figure out a way to slice and taste our sufficiently large economic pie and rapidly-growing economic pie, to properly, to equitably distribute and properly utilize the great wealth that our society has accumulated and continues to accumulate.
Jim: The listeners to this show, many of our guests on here talk about the meta crisis, which is another take at the polycrisis, and there’s a third version of that as well. Our audience is well familiar with the concept that something is happening in 2010s, no worse date than any other to say when these multiple threads have started to come together in a rather unpredictable fashion that we need to figure out how to manage here quicker. We’re going to be in a world of hurt. But we’re not going to solve the meta crisis of the poly crisis today, so let’s move on.
Two dramatist persona show up in your book quite often and let’s chat about them a little bit so we don’t have to bog down the story later with who these characters are. The first one was Friedrich von Hayek, who appears in your book 78 times, how about that?
Jim: Who’s he and why is he important to the story?
Brad: He was born in Vienna, I think, moved to England to work at the London School of Economics, then moved to the United States to Missouri to get a quickie divorce, after which he wound up as a professor at Chicago and as one of the leading lights of the world right between 1944, when he published his classic book Road to Serfdom, and his death.
If you want to take Friedrich Hayek’s point of view, it was that the market system is an absolutely wonderful thing. Command and control requires that you’ve got somebody at the top who decides everything and everyone else is simply a robot. But the person at the top never has good information.
In a bureaucracy, you have everyone following a rule book, like software bots, but the rule book has been written by a committee and the rule book covers only one third of possible cases and you have to improvise and cover up for the rest.
But if you have a market economy, if you assign people control over things, property rights, and if you empower them to trade and exchange, then if you can set market prices equal to what is desirable for humanity, then everyone will have a strong incentive to take action. That increases human wealth because they make money by doing so. Everyone will also have the power to do so without having to check with other people because they will own and control resources and can use those resources as they see fit.
So the market economy, Friedrich von Hayek argued, is the best possible system for crowdsourcing collective human intelligence to solve human problems by providing everyone with extremely powerful incentives, not to think globally, to act locally. And because things are owned, things are distributed, people at the periphery where the information is can actually take action. The “act locally” that they undertake will not be in vain.
Friedrich von Hayek said, “This is a wonderful thing. This is a powerful thing. This will make us rich. This can’t do any more.” The market distributes wealth randomly to the lucky, and we need to accept this fact and chomp it down and swallow it because if we try to say, “Wait a minute, that isn’t fair,” and start monkeying with the market, we’ll wind up destroying its ability to make us prosperous and we’ll wind up with neither social justice nor prosperity. That basically, we can eat of the tree of prosperity, but then we cannot eat of the tree of fruit of social justice, and that’s the way it is, and we need to just shut up, sit down and accept that.
Jim: Interesting. Now, one of the core theoretical ideas behind high X [inaudible 00:07:39] thinkings, I understand it, is the so-called calculation problem that was published by Ludwig von Mesis in the early ’20s, as I recall, where he demonstrated that the amount of calculation necessary to coordinate production, distribution, consumption, savings and investment was just exponentially too large for any core or centralized or even bureaucratic organization, at that time at least, with pencil and paper and electromechanical calculators at best to resolve. And that the peripheral deciding at the edge was the best we could do. Is that fair enough?
Brad: That is fair enough, yes.
Jim: Yeah, it’s interesting. There are some folks today saying, “I wonder if that’s still true with real-time telemetry and lots of really fast, really cheap computers.” But we’ll maybe defer that one till the end of our discussion.
Brad: There’s a knowledge problem and an incentivization problem. The knowledge problem is not just a problem of looking around and figuring out what it is and of aggregating the knowledge, but of accurately transmitting it. The problems of incentivizing people to accurately transmit knowledge, and then they’ll also incentivizing people to take the proper action. Those are perhaps as great as the problem of collecting the knowledge somewhere at the center where someone can calculate. But I digress.
Jim: Yeah. And I’ll digress a little further, which is because the information is often about human preferences which are not visible and predicting future human preferences when you’re building something that never existed before, there’s an element of calculated risk-taking, which is not really subject to gathering of information and making well-informed decisions because it’s not a hundred-percent-intelligence game, as we might say.
Let’s move on to our second person, Karl Polanyi. Do I get that pronunciation right? I’ve read his name many times. I don’t think I’ve ever heard it pronounced.
Brad: Well, it wasn’t really his name. His name was something more like Pollacsek, a Slavik rather than a Magyar name. And indeed, his father never changed his name. But his father thought that his sons were making their living in the Austro-Hungarian empire, they would kind of have an advantage if they washed their Slavik ethnic origins and ran around with names that sounded like they were kind of Hungarian-Hungarians who had spoken Hungarian since birth. So there may be no correct way to pronounce Polanyi in that sense.
I think he was born in Budapest, although he spent most of his youth in the Austro-Hungarian empire and then in Austria after World War I, until he too wound up first in Britain and then in Bennington College in Vermont, and then at Columbia University before he had to, not flee but I guess move, to Toronto because his wife Ilona had been a Leninist back in 1916 when Lenin had only six followers. So she was an object of extraordinary interest to FBI and CIA, and was not allowed in the country, as I understand it.
Jim: And his perspective on these questions of the economy and the people and the politics?
Brad: Well, that high X market is a very stark utopia. It’s a place where the only voice you have is if you have the money to offer to buy something. And so the only people with social power are the rich and the only rights that it recognizes and vindicates are property rights.
But anytime you get a society of people today, together, they are going to start insisting that they have other rights than simply property rights, and that people who are not rich should have a social voice. So if you try to enforce von Hayek’s prosperity from the market as best, we can get, “Set up and shut up and sit down,” it simply will not work. You will have a social explosion.
It may be fascist, it may be communist, it may be syndicalist, it may be fundamentalist that somehow people are going to say, we have to curb and perhaps replace or abolish the market in some way because these people have rights, those rights deserve to be vindicated, and the market is not vindicating them. And so we cannot, as human beings, comfortably live in high X utopia and we have to find some other way to organize humanity, than simply to let the market run rough shot over everything.
Jim: And so these two characters pretty much recapitulate the history of economics and politics between sharpen-the-tooth-and-claw economics and politics will decide.
Brad: And these, Polanyists and Hayekians of various flavors, and God knows how many sects of people saying that we have rights that aren’t connected to our ownership of property and being rich. But they are innumerable such sects, all appealing to their own conceptions of social justice, many of which look to outsiders as among most unjust things imaginable. That particular fight between von Hayekians and Polanyists of various stripes, I’d say, organizes most of the political economy history of the long 20th century.
There’s a lot of history there that with the coming of 1870 and the industrial research lab, the modern corporation, the globalized economy, we really do get a new economy every generation. So the old patterns of human interaction and economic organizations simply do not fit. We have to rewrite the human interaction, econo-social software code of society every generation, so it runs on the new forces of production hardware. The process of doing that on the fly without time is what produces the struggles, that even if you thought you’d settle the struggle between Hayekian and Polanyists a generation ago, it’s back again in the next generation as you frantically try to rejigger your institutions. Once again, you face the same von Hayekian versus Polanyian and trade-offs and dilemmas.
Jim: Got it. All right. Another item before we jump in is you’ve defined or talked about a quantitative index of the global value of useful human knowledge.
Jim: That was a clever move. I like that. Tell us what that is.
Brad: It’s simply a bold and unsustainable claim that humans have technologies, so why not attempt to quantify it? In some ways, this is a stupid thing to do, that if you want to say that Queen Victoria was a better queen, but not a happier woman than Queen Elizabeth, and here we have quantitative indexes of how much this is true, you’re just doing something silly.
You might also say that it’s silly to try to take all of human technology and box it down to a first principle component and quantify that in some way, but I think it’s worth the exercise, simply to fix ideas. If you do that, and say that the level of human technology in 1870 was one, if you index it to one, and if you say that the level of technology is proportional to average income times the square root of population, which I think is very defensible, then our level of technology now today in 2023 is 27. Jump from 1 to 27. And our level of technology back in the year minus 7000 was a little less than 0.04. So that we’ve had as much technological change, as much proportional increase in our powers to manipulate nature and productively organize ourselves to make and do things since 1870 as we had in all time between minus 7000 and 1870.
Jim: Yeah, I found that to be very interesting.
Brad: That’s a very striking and important fact that all of historians should center their analyses on, and yet, by and large, they don’t.
Jim: Yeah, it’s funny you mentioned that because when I saw that, I said, that’s extraordinarily interesting that 1870 was the exponential center, essentially, of this range. Of course, such numbers don’t mean anything absolutely, it is very interesting nonetheless, that if you think of those exponential unfoldings as representing some amount of pressure against entropy, we essentially accomplished as much in 10,000 years as we’ve accomplished in 150 years, which is kind of amazing.
Brad: Yeah, it is amazing. That means before 1500, we had less technological progress in a century than we have in two years these days.
Jim: And just get a few other numbers to fill in there, around the year one, you figured that we were about 0.25, I think it is.
Jim: And in 1500 at 0.43. So it only sort of doubled in 370 years, and then it went up by a factor 27 since then.
Brad: But even from 1500 to 1870, that pace of growth got people really excited that Sir Francis Bacon in 1600 could write about how the compass, gunpowder and printing have upset the order of society and opened the possibility of serious study and investment in new technology for the enlarging of the human empire and the affecting of all things possible. Karl Marx, writing in 1848, talked about how the bourgeoisie has, in the past century, revolutionized the economy and society to a degree never before seen, and yet the pace of technological growth that Marx had seen for two generations before 1850, that was less than one fifth of what we got worldwide after 1870.
Jim: Quite remarkable. All right, let’s hop into the book itself. Your introduction, you cheekily subtitled, my Grand Narrative. I expect there’s a few post-modernists ready to picket in front of your office or some such thing. Did you intentionally…
Brad: I’m not so sure.
Jim: Did you throw that out there to poke the post-modernists a little bit?
Brad: I do, but then also agreeing with them by saying it’s false, as all grand narratives must be. I mean, look, I’m writing a book. I could write a book simply because doorstops are useful and there are lots of tables and such that need things. And if you’re on a Zoom call, you really need three big books to put underneath the laptop so the camera isn’t looking at your chin. That books are useful objects even if people aren’t going to read them in many circumstances.
But if I want people to read a book, there has to be something on every page that makes them sit up and say, “Wow.” There also has to be enough of a forward sense of narrative thrust that when they reach the end of a page, they think, “I want to know what happened next,” And so turn the page. Third, as they read the book, they have to feel, not like they’re simply at sea being thrown factoid after factoid, but they have to think that they’re building a structure of knowledge and understanding that makes sense.
At the core of that structure of knowledge and understanding, there has to be a big, simple story with a beginning, a middle, an end, characters, protagonists and so forth that satisfies formal criteria of cause and effect and of some form of it’s a moral and human sociological end. Either virtue rewarded and vice punished or the wicked flourish like the Green Bay Tree or whatever.
That last thing, the core narrative, and you have to have a simple core narrative because we are animals that think by narrative. We can’t do otherwise. We are storytelling animals. Provide people with statistics about leopard attacks and the size of the group of people at the moment, and a set of charts and tables and people will ignore it. But say, Fog went down to the water hole alone at dusk, and the leopard got him.
Jim: That gets people’s attention.
Brad: It gets people’s attention. You want to put people’s statistics about how you don’t stand outside on the top of the hill in a rainstorm and people still. But you say that there’s this big huge guy, red-bearded, up in the sky and he rides in a cart driven by two goats, and he has this huge magic hammer named Mjölnir. The guy has very serious anger management problems. Remember the lightning strike last month? That was Thor getting angry and throwing his hammer at that tree. You do not want to attract Thor’s attention, and when the thunder is there, he is close by.
That story exists for a reason. You could say that in social evolution, those people who didn’t pay attention to the fact that there’s a guy Thor out there, wound up fried or wound up fried in sufficient numbers. The story caught on and has now been told for millennia, albeit we now tell it in kind of weird ways that lose the connection with, “Don’t stand on the hilltop in a lightning storm,” but it’s the story.
So I needed a grand narrative if I was going to hold people’s attention and make them think that they were building a coherent structure of knowledge, and be happy that they’d turned the page because of the narrative thrust in response to the interesting fact that they’d seen on the previous page.
So as I understand the book-writing process, I had to do it. And yes, it’s a false grand narrative, but it’s a useful one. Even though it is false, you can learn things from it. It is at least partly a good way to think about the history of the long 20th century because you’re in a better position to act and understand if you do.
Jim: All right, to foreshadow things a little bit, why don’t you see if you can render your grand narrative in a paragraph or two?
Brad: All right. Okay.
Jim: Which you don’t actually do in the book, by the way.
Brad: No. Before 1870, we kind of have patriarchy. We have serious patriarchy. And because technology growth is so slow, population growth is so slow as well. You can’t feed that many more people off the land if your technology’s not getting better fast. Before 1870, one third of women wound up not having surviving sons, and under a patriarchy, if you don’t have a surviving son, you are at serious risk of being close to social death. So whenever there are extra resources, humanity spends them increasing the population as women try to raise the chances of having a surviving son.
So human population goes from maybe 50 million in minus 1000, to maybe 500 million in 1500, to 1.3 billion in 1870 as technology advances. And yet, come 1870, you look around and as John Stewart Mill said, what you have mostly is a larger population living the same life of drudgery and imprisonment because better technology on the one hand, a bigger population in smaller farm sizes on the other, they offset or very close to offset.
Then in 1870, we have an explosion of knowledge followed by an explosion of its application, followed by an explosion of wealth. So after 1870, we now can have the prospect of soon being able to bake a sufficiently large economic pie so that everyone can have enough, which we did not have back in the pre-1870 Malthusian ages. So we face what previous centuries would’ve seen as the second order, less difficult problems of slicing and tasting the economic pie, of equitably distributing it, and then using it wisely and well so that people feel safe and secure and are healthy and happy.
And we reached 2010 and yes, wealth far beyond the dreams of the biggest avarice of previous…
Brad: Far beyond the dreams of the biggest avarice of previous centuries is what humanity has. But as for equitable problems of equitable distribution and wise and well utilization, those continue to flummox us more or less completely. That is the grand narrative.
Jim: You mentioned in your grand narrative, Reverend Malthus, he makes his appearance 12 times in the book.
Brad: He does.
Jim: He is certainly a dominant effect prior to 1870, but he’s always lurking there. Tell us a little bit about Reverend Malthus and the Malthusian problem.
Brad: There were all these people in the 18th century, all of these liberal thinkers who believed in the enlightenment, human knowledge, democracy, atheism, and so forth. Malthus read them, and Malthus read them. Malthus got really mad, and he thought that this would not work. That people really, really liked to make love, Malthus thought, and technology improves only slowly. If you get better technology, people will keep making love. And because they’re richer, more of their babies will survive, the population will increase, and farm sizes will decrease. Pretty soon, you will find that farm sizes are so small that once again, people are barely getting by. That women are so skinny, that ovulation is hit or miss, and that children are so malnourished, their immune systems are so compromised that they are taken off by the common cold.
Indeed, people before 1800, adult males averaging something like 5’4. If you had fed your children a diet that left them at 5’4 at adulthood, Child Protective Services would’ve come and taken your children away, and you would not have seen them again. Infant mortality rates around 40% or so, one in seven women dying in child bed. Women routinely losing two teeth during pregnancy as they’re calcium-deprived and the infant to be leeches the calcium out of their bones. Human life, not too great, back in a Malthusian equilibrium, and an awful lot of people were. So there was, Malthus thought, only one way to get a relatively good society, given this fecundity, slow technology growth, and limited natural resources world. And that was to double down on patriarchy, monarchy, and orthodoxy. You needed patriarchy so that the father of the bride would say, “You cannot marry my daughter until you have a farm of your own.”
That the father of the groom could say, “You’re not marrying that hussy until she has a substantial dowry of her own.” And if you push the age of first female marriage up to 27 or 28 or so, then the high fertile time between 28 and 40 rather than between 18 and 40, you don’t run the risk of a population explosion if the population actually has enough to eat, that they’re not massively protein- and calorie-deprived. But how do you keep them? How do you keep the young couple from actually starting doing the deed before they’re 28? You need monarchy to reinforce the authority of patriarchy. The king is father to the people as the father is father to the household. All of this democracy stuff, which undermines the authority of the father, that’s definitely out.
You also need orthodoxy. You also need people to be really scared that they’re going to hell for premarital sex. All of this atheism stuff destroys your possibility of a good society. So Malthus said, “A society of patriarchy, monarchy, and orthodoxy with a late age of female first marriage typically around 28 can be healthy, happy, prosperous, well-nourished, and relatively rich.” But you follow these enlightenment liberal guys, and you get rid of the church, get rid of the king, get rid of the authority of the father. They run off and start having babies at 18. Then the only population explosion, and then the population settles at that level where women are so skinny that ovulation is hit or miss and infant mortality is back up to 50% and female mortality in child bed is one in seven.
That’s what you liberals will do if we let your enlightenment ideas rule the world, which is why we have to suppress the French Revolution immediately. That’s a view. It is certainly the case that Malthus was absolutely wrong after 1870. That technological progress was so fast, and women’s changing ideas about fertility were so great, and infant mortality fell so completely, that the Malthusian mechanism simply does not apply to the world at all after 1870. But in 1919, John Maynard Keynes is fearing that it might come back. Before 1870, the Malthusian analysis looks pretty good as an empirical matter, even if you might not buy all of his patriarchy, orthodoxy, monarchy conclusions.
Jim: Right. Let’s now start with a little bit of pre-history of 1870, and you lay out, starting maybe around 1500, some people could argue a little earlier, that the globalization of the world started to set the stage for what came next. Is that fair to say?
Brad: Yes. So where do you want me to go for that?
Jim: Why don’t you just draw the picture quickly, the world from 1500 to 1870, and then we’ll start digging in a little deeper?
Brad: Things are breaking. You’ll figure a world in 1500 where, after a century, you can say that, on average, the world has maybe 5% better technology and a 10% higher population than it had the world before. Along comes 1500. First we get a huge present, the Columbian Exchange. All of a sudden, everyone in the old world gets access to all these wonderful new world biotechnology elements, especially the potato and corn. Also chocolate, which is a wonderful thing. Tobacco, which is a less wonderful thing although useful for concentration, a whole bunch of other things. The new world, in exchange, it gets European diseases and plague on a magnitude never before seen, genocide, conquest, and so forth. But when everything is over, they also have domesticated animals, which are a wonderful thing for a civilization. From 1500 to 1770, maybe the rate of technological growth doubles from 5% to 10% a century because you have the Columbian Exchange whereby you’re getting all these extra crops in animals and using them a new places.
Maybe you get another increment, a tripling, because you now also have cheap world trade. Instead of having to go through a very complex caravan route, different regions can cheaply buy the productions of other regions, even though they’re far away, because ships are now quite reliable. And this leads people to wake up and see, “Hey, the world is actually getting better century by century.” Or at least humanity is becoming more technologically competent, century by century, which you really didn’t have before 1500. Before 1500, people might talk about how in the distant past there had been a golden age or about how we are unworthy inheritors of the Roman or the Han empire. The idea of progress just wasn’t obvious. It wasn’t obviously around. Then come 1770 for a bunch of reasons, development and reinforcement of a scientific worldview, although we had a scientific worldview in bunches of places, development of a market economy, although we’d had a market economy before in a bunch of places.
The fact that Britain was an island. Since Britain is an island, it doesn’t really need an army. So the British government can spend all its money on a navy, which means that the navy sweeps the seas clean of everybody else, which means all of the profits from international trade flow through England. That, plus the late marriage pattern of English women, pushed English wages up very high. Because they chopped down all the trees in England, they had to burn coal for their fireplaces. The last glaciers had served as giant bulldozers to scrape off all the rocks, so the good coal was there at the surface, and you could easily float it to water wherever you needed.
A scientific tradition, extremely high, real wages, no trees, so you need to mine coal. Combine that with the fact that coal mines are wet and need pumps to get them out of water, or even an early steam engine is a very good pump. That meant that, boom, you had the steam engine. Once you have the steam engine, automatic textile machinery becomes very, very useful. And automatic, once auto… And you also have the potential for having a mobile steam engine for making better kinds of iron, and you have the railroad, and the world was off to the industrial revolution of 1770 to 1870.
Jim: Interesting. Then we could go through a whole series of improvements. The original steam engine was only useful at the coal, at the mine head, and only useful for raising water.
Jim: But over a series of innovations, it got better and it could be used for industrial purpose.
Brad: Not better, but even so, that from… You look at the world rate of technological progress from 1770 to 1870, and it’s probably a little less than half a percent per year. Of that, maybe one third is a dividend that comes from the fact that the last round of glaciers had been such good bulldozers and the coal in the Rur and in England was so uniquely cheap. But by 1870, the really cheap coal was mined out, and you had to start digging deeper, which was expensive, so maybe that third of it would go away. A second third of the half a percent per year technological growth from 1770 to 1870, it came from globalization and world commerce and the fact that Britain was so efficient that making textiles, ironwork and machines. From 1770 to 1870, you concentrated nearly all of the manufacturing production of the world into one small island, plus a couple of surrounding regions, the New England, Northern France, Western Germany, Belgium, et cetera.
You can only do that concentration of manufacturing where the manufacturing most productive wants and take those two out in the underlying rate of technological progress. While it’s still only about the 15% century that you had over the commercial industrial revolution age. That’s not enough to get people rich enough that children are healthy enough, that infant mortality falls fast enough, that women look around and say, “Hey, wait a minute, I don’t need to go through eight pregnancies to have a two-thirds chance of having a surviving son.” Without something else happening in 1870, it looks to me like we might well have been in a Malthusian world, but a steampunk one. In one with dirigibles and engineers and so forth, but still a world in which standards of living are something like less than $5 a day on average.
Jim: That year ended, now we get to 1870. You make the point that we weren’t all that rich. Only 2% of Americans had flush toilets, nobody had electricity. Some probably tiny percent of people had businesses, I think, had a few telephones. But no, maybe not in 1970.
Brad: Things were approaching slowly. You get the steam engine, 50 years later you get automatic textile machinery, 50 years later you get the railroad, and 50 years later you get better ways of making steel. The big inventions are coming, but are coming only one every half century. After 1870, it goes boom, boom, boom, boom, boom.
Jim: All right. Why did it do that? What changed? And what allowed it to change?
Brad: It looks to me like what allowed it to change was that we finally got the idea that maybe there should be an industrial research lab. That someone didn’t have to be as your Lord Kelvin, William Thomson, had to be. Someone didn’t have to be a scientist, inventor, technologist, financier, manager, salesman, and so forth, all at once, in order to try to put together a telegraph consortium. That someone like Nikola Tesla, George Westinghouse could hire him and put him off in a corner of a lab, and then pay other people in the lab handsomely to put up with the extremely irascible and nasty Tesla when he hurled insults at them and take the hundred ideas that Tesla had. Take the 10 that might actually be right, and then, of that, pick up the one that was absolutely gold. After 1870, we revolutionized the process of discovering and developing technology through the industrial research lab. Then we revolutionized the process of the development and deployment of new technology through its rationalization and routinization in the form of the corporation.
The globalized world market then gives everyone an incentive to see what other people are doing, pick it up, try to copy it, rationalize and routinizes, and so revolutionize the deployment and diffusion of new technologies. Big, huge, important technological innovations that shake the world start coming every 10 years. Telephones, internal combustion engines, organic chemicals, electrical machinery, artificial silk, artificial fibers, airplanes, radios, advanced materials, stainless steel. You know what Robert Gordon calls the one big wave of the second industrial revolution, as you don’t have a scientist and someone who is a genius scientist and inventor discovering something and then having to spend the rest of his life doing things. He’s not that suited to try to actually commercialize and deploy it. But instead, you get idea after idea, after the idea coming out of the industrial research labs from science and then tested and deployed, and a jump up in the pace of worldwide technological growth from less than half a percent per year to 2% per year or more worldwide, on average, after 1870.
Jim: I’m going to suggest one other thing. You put it in your stew, but I’m going to call it out, make it a little bit more explicit. Prior to 1870, in general, technology was ahead of science.
Jim: A lot of the work on thermodynamics, et cetera, was actually trying to study what the technologists were doing. But around, between the time of Faraday and Maxwell, and particularly around electricity, science now got ahead of technology and was-
Brad: We’ll accept that there are only one guy who understood what Maxwell’s equations actually meant.
Jim: Indeed. But one guy did and-
Brad: Tesla was the only guy who understood what Maxwell’s equations meant for the possibilities of high-voltage alternating current. Every single other electrical engineer at the time believed in Maxwell’s equations and used them, but was still desperately trying to push DC electrons through a hot wire.
Jim: That was, of course, the Edison-Tesla fight. But then, and from that point forward, however, things like radio were a much more obvious case of technology following science. And science-
Brad: I do think there’s a quote from Andrew Carnegie about how, after 1880, people would say, “Why are you employing a scientist?” And after 1880, they knew they understood.
Jim: Exactly. I think that’s an underestimated part of the story. At the same time, as these technological, scientific organizational changes are happening in the market, which Hayek would approve of, presumably, there was also changes in governance. Essentially, a democratization, at least in parts of the world. Why don’t you tell us a little bit of that story?
Brad: I would like to say I do have 10 pages on the cutting room floor about Michael Polanyi’s analysis of science as an institution. That if the market economy is an institution to make money, science is an institution to spread knowledge through providing absolute priority of status to first discovery. That there were 15 people working in the early 1960s on what we now think of as the Higgs boson. And there were six people who were actually publishing serious things there. Of those six, Peter Higgs was not the smartest or the one who saw it most clearly. But he was the one who saw that you could identify that this particular way of understanding mass, if it were true, it would create a particle that you might someday be able to find in the results of accelerator experiments.
Lo and behold, it’s the Higgs boson. And it will be the Higgs boson as long as humanity remembers. That there is something like the Higgs field that governs the distribution of mass among what would otherwise be massless particles. That’s what science does. It’s unfair, it’s incredibly effective. But those basic books is in the business of publishing 300-page books, not 600-page books. Actually, I’m still amazed they published this one rather than telling me to go to a university press, but those pages didn’t make it off the cutting room floor, alas. I take your point. I think you’re completely right. If they allowed me to publish it in two volumes, I think that should have been in there.
Jim: Great. That’s good. I read between the lines then on that one.
Jim: Let’s go on to the changes in governance that were occurring in parallel.
Brad: Before 1870, economic pie, way too small to have enough. How are you personally going to have enough? You could try to become a technologist and push technology forward. But the industrial research lab, the corporation, the institutions to do that on a large scale really are not there. Although there are some people who do, some people who do right. You do have scientists, inventors, and so forth. You do have Hero of Alexandria and his experiments with steam pressure around the year 150, and so on and so forth. But due to the general way to become rich and powerful, or rich and powerful enough so that you have enough food for yourself and your family, is to find an elite that’s running a successful force and fraud, exploitation, and domination game on humanity and join it. Ideally, you become a boss of thugs with spears somehow, or later on, a boss of thugs with gunpowder weapons.
Jim: Or a henchman for a…
Jim: The biggest number was a henchman to the head of these thugs.
Brad: Also, you can be one of the thugs with spears yourself.
Brad: Provided you’re well enough nourished as a child. That you’re some good. And provided you practice long enough so that you’re quite good at sticking things with a spear, especially people, you’ll have a nice, secure place.
Jim: That’s essentially, of course, the British system of nobility. William the Conqueror and his henchman,-
Jim: … literally. A criminal gang of 5,000 people or something. They overthrew a nation-state. The queen, the current queen, is actually a direct descendant of William the Conqueror.
Brad: But in the process of the next 25 years, he replaces the 3000 Saxon thegn henchmen of the previous dynasties, the dynasty of Alfred of Wessex and the dynasty of Knud of Denmark, with his own 300 most favored thugs with spears, each of whom has their own 10 knights to replace the housecarls and the thegns.
But the thugs with spears, they also need thegn accountants, bureaucrats, and propagandists, so even if you’re not that coordinated, if you’ve managed to get yourself smart and literate, there will be a place for you. Where you can do such things as write down over and over again how Gilgamesh is the favorite of the gods, how he himself is two-third God and one-third man. About how all the people in the city of Uruk owe obedience to Gilgamesh and owe him the first and the best fruits of the earth, so that he gets to drink unlimited amounts of beer, eat unlimited amounts of meat, sit on soft wool cushions, and even send major military expeditions out of Uruk in order to cut down cedar trees and bring back cedar boards so he can have cedar wood walls in his palace. The accountants bureaucrats and propagandists are very important parts of keeping this force and fraud, exploitation and domination game going. That really is governance up to, and in many places, beyond 1870.
But after 1870, humanities becoming rich enough that people can look around and say, “Wait a minute, this is really not how we need to live anymore.” Even in old-world countries that aren’t lucky enough to be relatively rich and rapidly expanding due to a very favorable labor-to-land ratio because the plagues that carried off the indigenous inhabitants haven’t yet seen enough of a population to fill it up. That process of democratization, of the distribution of social powered doubt, once it’s no longer the case that the only way to have enough is to figure out how to join the force and fraud gang. That is a major, major change that happens after 1870.
It leads to such things as the populist and the progressive movement. That we in Nebraska, farmers should be able to stand on our own and should not have to pay such huge sums to the railroad or to the bank. That we need social power of our own. And even when the market economy, the Hayek and market economy, that is the source of a lot of this successful prosperity, of a lot of the successful deployment of technology, and even that motivates the invention of it. That we deserve other rights. We deserve our Polanyian rights. And one of those rights is not to have to pay all that the market will bear for railroad services. That really takes off with the democratization of the world after 1860.
Brad: … democratization of the world after 1860 or so, I would put.
Jim: Yep. And then we also next see the rise of the labor movement. Again, a classic Polanyian reaction to the working out of the Hayekian marketplace.
Brad: Yep. Yeah. One way to view it is that the year 1,000, you had the feudal economy and technology level of a third and by the year 1700 or so, you had the commercial society economy. And the first was a hierarchical one in which you had your place. And the surf paid the grain to the Lord who offered him protection against roving bandits and the Lord ate the grain and the meat and practiced with the sword and the spear so he could be effective. And you had your place and what you did depended on your place and you stayed in it and your place did not change because technological progress was so slow. And that taught the importance of hierarchy, obedience status, class status, and hierarchy. But by 1700 you had a commercial society economy with a lot more roles, and you were an individual producer with property.
And so you’d enter into contracts with other people and find your place in the market division of labor. And were an independent person who had to think for yourself and find your own social role, and you use your property and buy and sell and a certain kind of person and a certain kind of market oriented society. But by 1870 we had Steam power society in which it was pretty clear that it was not any one person who was productive. But the system as a whole organized around the steam engine and the fact that together we were enormously productive, but individually none of us was essential, and all of us were replaceable. Well, that should teach people that we were all, in some sense equal and both useful and also shouldn’t get above ourselves. And so we should address in identical blue overalls, call each other comrade, join a labor or a socialist party, form a free society of associated producers, wear identical blue overalls and eventually rotate through the administrative jobs, which would be simplified so that pretty much anyone could do them.
The problem was that technology moved on after 1870 and this we are all pretty much the same worker, all subject to the steam engine, all herded into these giant factories because the steam engine is the only effective way to get non-human power and they are big, clunky things that require a big factory. And you can look around and see pretty much everyone else is a worker like you, except for the few bosses and clerks. That form of the economy then disappeared between 1870 and 1910. And with it, I suppose hopes for a very dominant labor movement leading some kind of socialist revolution.
Jim: We’ve talked about so far the evolution of technology and trade and governance and governance within a country. At the same time, global empires were arising. Talk about that a little bit for us.
Brad: Well, there were several theories as to why they rose and one, I guess theory of economist Joseph Schumpeter, was that they arose simply because the technology gradient between the largely European economies, which had been lucky enough to have the engineers and so have the technology and because they had the technology, they had the manufacturing, which meant that they then had the engineers and could push it forward. The technology gradient became so great that you very small European armies could conquer and administer very large parts of the rest of the world. And you had these surviving military aristocracies from pre-1870 and they wanted something to do and empire was an easy thing to do that no one at home would complain about, really. And that really was the source of empires. It was the last gasp of the old imperial force and fraud aristocracies. And that as society grew up and as humanity grew up, they would naturally ebb away.
The second view was that of the British economist, John Hobson, who said that governments had a problem, which is they had to maintain full employment and yet demand for the products of their increasing regrowing manufacturing sectors was not guaranteed. And yet conquering someplace else and requiring that they buy your manufacturers in return for their raw materials was a straightforward way to get more demand for the products of your factories and that would keep your government in office longer because unemployment would be lower, and that was the second. To which the solution for that would be to have progressive taxes and redistribute income so that your own middle class could afford to buy the products of your factories.
And the third was theory of Norman Angell, which was that war was really completely out of date, that there was no point to a war, that it was much cheaper to make stuff and trade for it than to conquer someone, and then to grab stuff from them. And that you really didn’t want to get bogged down in a land war in Asia or in an insurgency. And that governments were rapidly realizing the move to empire had been a mistake and that they would ebb away. All three of these theories have considerable weight to them. The problem was that the empires didn’t agree or didn’t agree until 1960 or so when there was a substantial change of heart and saying, “Why are we actually doing this?” And so up until 1960, you have Europe essentially ruling the rest of the world except for Latin America but I think of Latin America as being internally colonized by its own notionally, Castilian generating elite, which meant not until 1960, the governments of all of what are now called emerging markets pretty much were uninterested in economic development.
They had other fish to fry. So they really didn’t accept when it was useful for the colonizing country. They really didn’t build the ports and the railroads and the infrastructure. They didn’t establish the schools. They didn’t build the banking system to assemble savings from people and channel it to enterprise. And most of all, they didn’t allow a country to do what it had to do if it wanted to join the industrial world, which is to put on tariffs on those manufactured goods in which you might be competitive in 10 years. So your engineers had a chance to make some money experimenting with them and selling them to a middle class that had little options and so gaining the knowledge about how industrial technologies worked so that they would be able to compete with British centered manufacturers after 10 years or so. And this process of empire, it close to froze industrialization throughout much of the world up until the 1960s, which was why we went from a world where maybe Western Europe was 10% richer than the rest in 1500 to maybe 30% richer than the rest in 1770 and twice as rich as the rest in 1870 and five times as rich as the rest in 1975, that the period from 1870 to 1975, it sees the whole world become richer.
But the richness is concentrated in the first world, in the developed world, in the North Atlantic world, in the circle around Dover and in the countries that join that civilization so much so that they grow three, three and a half fold while still living standards in the rest of the world are growing by 50%, maybe doubling in the years between 1870 and 1975.
Jim: One of the things I had never read before because I haven’t read as extensively in this field as some others, was a concept that you put forth that these other states were unable to build communities of engineering practice. And you repeated that a few times as a core thing. That’s really an interesting idea.
Brad: I don’t know where I got that actual phrase from. The idea very much comes from Nate Rosenberg and David Maori here at Berkeley with their studies of the machine tool industry in the 1840s, 1850s and 1860s in America. And how you build up machine tools and a competence of people making and using machine tools. And this then becomes a very key community in figuring out how to push technologies forward and also how to apply other technologies. Indeed, the origins of engineering starting in 1730, you have a steam engine and you get more and more steam engines and you need people who understand the steam engines and can fix them and can tune them. And so what do you call the people who understand steam engines? See there’s no word for it before 1800 and around 1800 there becomes an obvious word for the guy who understands the steam engine, can tune it, can fix it, figure out whether it’s working right, thumb knows what it means. And that word is engineer, just as you had musketeer and canineer as earlier creations from earlier technologies.
Jim: And by the way, teamster interesting.
Brad: Yes. The EER ending. And so the engineer is the guy who understands the steam engine and who you run and who you yell for help when the steam engine goes awry. And yet now what? Apple computer has a vice president of software engineering and the word engineer has drifted very, very far away from its original meaning.
Jim: I’m going to interject something here. That’s a perfect time to do it. You mentioned Apple, Tim Cook when he was pushed on, why don’t you build your iPhones in the United States? He said that in the United States, a number of industrial manufacturing engineers would fit in two conference rooms. In China, the number of industrial manufacturing engineers would about fill a large football stadium. And he said that is the reason. So this is interesting. If the reason the periphery fell behind the north of Europe and North America was lack of engineers for steam engines, what’s that tell us about our world if the West no longer has anywhere near industrial engineers.
Brad: Industrial engineers tells us we need to train a lot more. It tells us that our attempt to throw 50 billion at Intel over the next decade as Joe Biden wants to do, is probably doomed.
Jim: Indeed. But this industrial engineers, according to this story is this semi-invisible but absolutely critical joint point that makes what comes next possible.
Brad: It seems to be. It really does seem to be. And also AnnaLee Saxenian wrote this great book about Silicon Valley, a piece of which is engineers meeting for drinks at the wagon wheel bar and grill and boasting about what they were doing and showing each other what ideas that they had had. And that integrated and communal engineering community of communication was what gave Silicon Valley its big long-term edge over Route 128 in Boston.
Jim: And one other thing that people don’t talk about too often, which is California outlawed the non-compete contract.
Brad: So we did. So we did.
Jim: That was a long time, quite a while ago and no, hardly any other states have done. And that’s always given the California system a gigantic evolutionary advantage. It probably slightly sub optimizes an individual firm, but it gives the whole ensemble tremendous evolutionary power.
Jim: Anyway, so we now have advanced technology, feisty citizens demanding stuff, and to some degree controlling the elites. And we now have global empires which are starting to collide. They’ve essentially filled up the whole world. And you pointed out one book, I hadn’t read that one, but I’d read others that were written right before World War I, where everybody thought, everybody thought, general war was now impossible because it made no economic sense. War hadn’t been profitable since 1870 so why do we do it? The Boar War had been an economic disaster for the Brits, and yet the catastrophe was about to happen.
Brad: And yet the catastrophe happened.
Jim: What happened?
Brad: Well, a piece of it was social Darwinism was that as industrial society grew and became unequal, people had to find some reason that it made sense that incomes were so unequally distributed. And so you have the Andrew Carnegies writing that the law of competition is very hard for the race, but it is the only way for humanity to progress forward. And the rich are in some sense the fit and they deserve to dominate just as you have the survival of the fittest in Darwinian biology. And so then the question though, the thing becomes, it’s not just the rich who are the fit. Aren’t there countries that deserve to be rich too and isn’t one way for a country to be rich for it to dominate its neighbors? For the Germans to take over the good natural resources of coal and iron on the Franco German border, and also for the Germans to turn Russia into their India, which they will conquer and rule.
And that feeling that your life was one of industrial struggle and so you had to have inequality on the domestic sphere. Combine that idea as it leaks over to the idea that the old nations should also struggle. And war is a principle way of doing so. Plus the fact that you had all of these remaining aristocracies that needed a social role, and to show that they could defend the country and conquer other provinces for the country would be a good way to do so.
And so in 1914, there is this assassination of, to the Austrian throne, the Archduke Franz Ferdinand by terrorists very closely connected with the intelligent service of the kingdom of Serbia. And Serbia and Austria are dinking around about exactly how much of the investigation into Serbian links of this terrorist crime should Austria be allowed to conduct. And your Russia gets in bullying people as protectors of Serbia saying, “Wait a minute. You Austrians, you are subsidizing Polish terrorists who live on the Austrian side in Kraków and Austrian Poland, and you’re sending them up to Warsaw to excite discontent in the Polish-speaking regions of the Russian Empire.”
“We want to be sure that you don’t use this as an opportunity to disrupt and destroy the kingdom of Serbia.” And while Austria and Russia are dickering over these issues, Germany attacks Belgium and later Australia sends an army to Turkey to attack Turkey. It really is that crazy. World War I really was that crazy.
Jim: And yet we’re still living in the shadow of World War I.
Brad: You still are living in the shadow.
Jim: That’s really, really just an amazing because it’s, as you pointed out, and others have pointed out highly contingent, it could easily have not happened. And it’s not even clear. Anything equivalent would’ve happened, and yet we’re still living it deeply. The Russian-Ukraine thing is clearly a resonance from World War I.
Jim: So anyway, let’s skip over World War I though I am going to make one point that I’d forgotten that you pointed out that Max Weber, who we generally think is a progressive guy, was actually a hard-nosed German chauvinist when push comes to shove.
Brad: Well was saying that Germans, the Germans who leave agricultural jobs in Eastern Germany growing rye at extremely low yields for much higher paying industrial jobs in Hamburg and Frankfurt and leaving spaces in the labor force that are then filled by Polish-speaking peasants moving west in from Poland into Germany where wages are twice as high as they are in Poland, where the landlords are happy to hire them, that this is handing Germany a defeat in the long twilight struggle for the Germanness of the rye growing lands of the yeast.
Jim: Well, sounds like German chauvinism to me, but anyway.
Brad: But it’s not that I want to stop the Germans from moving to Hamburg. It’s not at all clear what he wants.
Jim: Just doesn’t want a bunch of poles hanging around. That’s what it is.
Brad: Yes. Does he want them turned back into prairies and forests so the oryx can roam? It’s just not at all clear.
Jim: Anyway, let’s set aside, let’s move on. World War I fucks up everything.
Brad: 10 million people dead, two years worth of total destroyed. Everyone thinking we somehow have to rebuild that structure of peaceful economic progress we had before 1914, but no one really knowing how to do it and a lot of people not trusting the aristocracies and the elites that had led them into World War I.
Jim: Yeah. 1913, the level of global trade had been about 15% of global GDP which as I understand it was never equaled again until 1980 or thereabouts. And that’s how bad the disruption was and as you point out, people still had this golden epoch from 1870 to 1913 in mind, but with the changing of circumstances, they couldn’t figure out how to get there.
Brad: Right. And there were some people who simply wanted to turn back the clock, among other things, restoring currencies to their pre-war values in terms of gold.
Jim: That was Churchill’s idiotic idea, which was one of the great stupid ideas of all time.
Brad: It was, and it led to a general strike and to an awful lot of unemployment in the industrial districts of Britain as an overvalued pound sterling meant that Britain’s coal and steel and textile industries could not find markets sufficiently around. There was Lennon who thought you had to get rid of the market economy completely and run the entire country the way Germany had run its war economy during World War I. And that didn’t work too well either, although Stalin eventually cobbled something together, which involved shooting lots and lots of people in order to get enough grain moving from the countryside to the cities so you could build factories including buying the machine tools from Ford’s Model T assembly line, moving them to Russia and reassembling them in Russia.
You had the very fascist movements, which said the big problem with restoring order was that people were much too class ridden and instead, we need the people, teach people that they are Italians and German first and Proletarians and bosses second, that the big important thing is to get people struggling not against other rich people, but against rich nations and realize that our primary allegiance has to be to us as members of the national community. There were fights between sectors. In the United States, the Bella Park hung on for an extra decade with the Roaring ’20s, but then you had the stock market crash of 1929 and the Great Depression.
Basically it was a mess because the old commercial society and steam power society ways of trying to organize society simply no longer worked and everyone had an idea about how you should rewrite the socioeconomic, political, cultural software of society running on top of the new technological hardware and no one’s really worked at all well, in the interwar period.
Jim: Now, and this is one of the interesting punchlines of your book, do you hint at the fact that you have a possible idea of how it could have been done better? You talk about the shotgun marriage of Hayek and Polanyi that you said Keynes had a little bit of insight into.
Brad: Keynes handling the shotgun. Yes.
Jim: Yeah. If you could tell the people what the hell they should do and have them believe you, what would you have told people to do in 1921?
Brad: As you say, do in 1921 what the United States wound up doing by accident in 1933. That is, and the US really wound up doing it by accident, that FDR comes into the presidency and it’s the middle of the Great Depression and things are horrible and he knows he has to do something, but as no idea what. So basically if you could get into FDR’s office with a half plausible idea, you would leave with an agency and a budget. And what FDR was good at was not just trying things, but also reinforcing success and cutting short failure.
So John Maynard Keynes thought what you really wanted to do was technocrats running monetary policy and also spending government money to promote investment so as to maintain full employment. And Keynes thought if you maintain full employment, then a whole bunch of the Hayek-Polanyi problem goes away because the Hayek-Polanyi problem arises because in a market economy there are people who have no wealth and so no voice and no social power and they feel that’s unfair and it is unfair. But if you have full employment, then your every worker has a valuable piece of property, has themself in an environment in which demand for labor is high. And so the Polanyi Von Hayek divide is not bridged, but at least lessened if you have a government committed to full employment.
Moreover, a government committed to full employment is also going to be a government running a low interest rate policy. And Keynes thought that if you had low interest rates, you would have lots of investment and you’d have low profit rates too. And if there are low profit rates, well then if you’re a plutocrat, even though your wealth is great, your profits are small. And so if you want to actually exercise your social power, if you want to dominate society by spending your money on something, you have to spend down your capital and when you spend down your capital, you cease to be a plutocrat. Hence, when interest in profit rates are low, plutocrats either focus on preserving their wealth and growing it a bit, in which case they really aren’t a disturbing element in society because they’re not wrenching things out of their proper proportion with conspicuous consumption or they are, or they are then.
Brad: Right. Or they are then spending down their wealth and so ceasing to be plutocrats. Combine this with progressive taxes, with bounties and taxes to align market prices with what’s of social welfare, and with a large social safety net so that those who wind up without jobs do still have the power to buy what they need. And Keynes said you would have a good society that could hold itself together and be free without becoming either communist or fascist.
Jim: And, of course, the Northern Scandinavians did something fairly close and they came out of the Great Depression pretty quickly.
Brad: They did.
Jim: And also-
Brad: And they’re still angry that John Maynard Keynes and FDR did not give enough credit for what they understood how to do first.
Jim: Of course on the other side, the Nazis also pulled it off, shocked the main finance guy in Germany. Basically, took a pretty radical monetary theory, invented a second form of currency, drove interest rates way down, inflated the … Generated very rapid growth in the monetary supply and they had full employment within a year.
Brad: And kept telling Hitler, “I can’t sustain this.” And Hitler kept saying, “Can you sustain this for six more months by various cobbled together means?” And he would say “Yes” and did [inaudible 01:16:30]-
Jim: Did it for three and then he quit.
Brad: And more and more.
Jim: And then Hitler said, “Well, now we’ll do rearmament instead,” right? And that worked as well. Just as the US didn’t really come out of the recession, I mean, out of the Great Depression until we started building up for World War II.
Brad: Partly, partly. It didn’t get real until World War II was almost there. You know what Hjalmar Schacht’s middle names were?
Brad: Horace Greeley.
Brad: Hjalmar Horace Greeley Schacht.
Jim: How did that happened?
Brad: People who thought anti-slavery activist and Taurus Greeley as a great man, clearly, and yet the person without whom Hitler would’ve been not certain Hitler would’ve fallen, but at least Hitler would’ve had a much rougher ride. His position as up well applauded dictator of Germany who leads them into disastrous World War II. Yep.
Jim: Yep. Let’s now skip, we’re going to have to skip way ahead here. We’re going to skip over World War II. Believe it or not. We all know the history World War II, and let’s talk about the 30 glorious years of social democracy.
Brad: Yeah. Yeah. In which everything seemed to work, which income distribution was fairly equal. More and more people were getting social rights, some coming of feminism, fall of reduced levels of racial discrimination, rapid economic growth, mass production. Everyone gets a washing machine and a refrigerator. And most people get an automobile. 2% per year growth worldwide, decolonization, even the Third World seems to start to grow. And yet by the 1970s, people are very unhappy with it. Say, we really need something new.
Jim: Yeah. For the audiences, we’re talking about the 30 years from ’45 to ’75, right?
Jim: And I remember a fair bit of that change. I’m just old enough to remember when I was a very little kid, we had a hand powered ringer washing machine and that and a refrigerator were the two household appliances we had. And then we first got an electric washing machine, and then we got a, what did we get next? I think a freezer. We still put our clothes out on the line. And then the next thing we got was a dryer. And then when I was a teenager, we got a dishwasher, but it was a pretty crappy one. So you still had to wash the dishes before you put the dishwasher.
Brad: Before you put them in. Yes. This is the bad dishwasher as a dysfunctional family member.
Jim: I always argue-
Brad: Keep making excuses for it.
Jim: Exactly. So I actually remember the fact that there was this fairly rapid, and my parents were working class, my father was a cop and my mother was a housewife, and they carefully husband their cash flow to about once every three years, once they paid off the previous one, take a loan out from their neighborhood bank and buy another one, right? And then rapid order, and then I think the capstone is about 1978. They bought a microwave oven and that was about that, right?
Brad: Yes. Yes.
Jim: And nothing much new changed after that. So this was this golden age. And then it started to come apart around 1975 for various reasons. The financial system got in trouble. Nixon took the US off the gold standard, oil shocks and then stag.
Brad: Inflation, stagflation and so forth. Yes. So on and so forth.
Jim: And then what happened?
Brad: Well, Paul Krugman believes if you had successfully managed the inflationary shocks of up to 1973, and not had the inflation of the late 1970s, it all would’ve hung together. And we would continue of progressed rapidly, at least in the direction of utopia, even if we just travel hopefully and never arrive. But the stag for the fact that you had high unemployment and also, I wouldn’t call it high inflation, right? It topped out at about 10% per year. But still, if there’s inflation at 10% per year, everyone feels that the government has broken its contract with them. That the contract is the government is going to run the economy so that you can buy the things you want to buy at the prices you expect. And all of a sudden, for reasons you don’t understand, the prices are 10% higher. So you make your plans and you go and you look for it, and you have to spend 10% more. You can buy 10% less. And you say, “What’s going on? The government must be incompetent.”
And there was also a general belief that the government was giving away too many of the good things to politically powerful people who could get votes and lobby for representatives and not distributing enough to the truly productive, who found themselves facing high tax rates and had to spend a bunch of time doing financial hopscotch in order to avoid some of the higher taxes they were paying. And a great sense that things were over bureaucratized, that the government and the corporations put you in a little box and demanded you fill out forms and obey and do this and you rent the telephone and so on and so forth. And this was true mostly on the right, I suppose. But also on the left, that maybe the key moment in understanding the neoliberal turn and the idea that we needed to step back from social democracy and have a more Hayekian, have a more market oriented economy, have one in which people were less bureaucratized and freer to do what they wanted to no matter what the union or the firm, the big firm or whatever government said. The 1984 McIntosh launch commercial.
Jim: Oh, I remember the swing and hammer. Woo.
Brad: Which says, buy a McIntosh and you take control of your own information and then you’re not subject to some bureaucracies you don’t understand that, have control of the computers and the information and tell you where to go and what to do, and which gray suit to wear and where to stand in line. Instead, you will know stuff and be able to control stuff and understand society, and that this computer will be a bicycle for the mind, an instrument of personal liberation, a way that you can live your own life free of bureaucratic impediments and of bureaucratic controls. And it was a very powerful message that both Reagan and Thatcher founded enduring political dynasties and substantial movements precisely running on this. We need to lower tax rates on the productive and we need to cut back bureaucracy, regimenting everyone, that Reagan’s was the most scary words in the world are, “I’m from the government and I’m here to help you.” Even though Reagan would say the government bureaucrats certainly thought that he was there to help.
Jim: Interestingly enough, the impetus from both Reagan and Thatcher and the equivalence in other countries was “conservative,” quote unquote, including a strand of cultural conservatism. But it turned out, once you liberated the market, the first thing that evaporated was cultural conservatism, right?
Brad: Yeah. Yeah. Yeah. The kind of neoliberal turn, the kind of let’s do less through the government and more through the market. And even where we have social democratic ends in mind, relying on market forces properly tuned to attain them is often a much better way than having the government boss people around. Those kinds of ideas. They sounded good. They still sound very good to me. And yet nevertheless, when you add up the policies all in all, the tax cuts on the neoliberal turn, the attempts at investment increases, it didn’t restore economic growth to its golden age levels. And it didn’t produce any kind of moral recentering of society as people were told they should bear more of the consequences of their own decisions. It didn’t even produce a notably fairer or a less politically gamed distribution of things. Instead, all it produced was a huge leap up in income and wealth inequality.
Jim: That’s the biggest one. Most working class people basically have had no pay raise since 1975.
Brad: Well, it’s white males with only a high school education who have had no increase since 1975.
Jim: Which is-
Brad: Women have had a pretty good increase. Blacks have had a pretty good increase. College educated have had a pretty good increase.
Jim: That’s true.
Brad: But if you are a white blue collar male with just a high school education, your real wages today are smack at what your predecessors were back in 1975.
Jim: And those people have always been the historic core of the American body politic. They aren’t anymore, but they thought they are and thought that were deserved to be.
Brad: And starting in 1975, Bruce Springsteen makes a career about how I thought there was a valuable place for people like me in society who liked to drive fast cars and drink beer at night and had to work in the factory and bring home a good paycheck and so forth. Nevermind that when Bruce Springsteen was writing, was writing about how Rosalita needs to climb into the car, he didn’t have a driver’s license.
Jim: And still has never driven a car, or hardly ever.
Brad: Still never?
Jim: He drives motorcycle. I don’t know about-
Brad: He drives motorcycles.
Jim: He’s got motorcycles, but he’s not much been a car man. Even though he’s got some fancy cars. Hell, he’s rich. So anyway, now roll-
Brad: So nobody has ever climbed in, even today?
Jim: I’m not sure of never. But he has confessed to not being a car guy despite writing all those classic car songs.
Brad: Car songs, yes.
Jim: I love it. So anyway, we get into this new world where we have reglobalization at a very rapid rate starting in the ’70s. Information technology and then hyperglobalization and things are just kind of going, I don’t know what you’d call it, but so what’s going on here?
Brad: Oh, technology. It’s very nice. Technologically, it’s very nice. For one thing, starting in 1975, we see first China and then India actually begin to industrialize. And so for the first time since 1500, the global income distribution between nations has actually become more equal rather than less. And there’s a possibility that the benefits of industrialization and modernization are not just going to overwhelmingly flow to a few countries, but flow to most of the world. And that’s very nice.
On the other hand, there is the failure of neoliberalism in the global north to actually deliver on any of its promises, except that we’re going to make the rich richer to incentivize the job creators. Which stores up lots of kind of trouble for our age, especially since it becomes clear in 2007 that part of the side effects of neoliberalism is we’ve really forgotten how to handle financial crises. And then it becomes clear in 2010 that we’ve forgotten how to prioritize a quick return to full employment.
And so that no one is then, after 2010, happy with the neoliberal order of things, but also nobody has a good idea of how to replace it. And so we’re kind of like we were back in 1924, when John Maynard Keynes was writing about how the old system clearly no longer worked, but right now nobody has a plan. And that we need to think hard with the head about what a good plan would be. Or in the words of Antonio Gramsci, the Italian communist who died in Mussolini’s prisons, that the old order of things is dead. The new order of things has not yet been born. And as a result, it is a time of monsters.
Jim: And some of us call it the liminal age, where there’s something being a born, but it hasn’t been born yet.
Brad: Clear what it is.
Jim: Yep. And-
Brad: Hence now we get back to my title, which was William Butler Yeats’ reference to that feeling just after World War I in his poem, The Second Coming. But the second coming was not going to be a wonderful thing, not was going to be a new Jerusalem descending from the sky, adorned with jewels like a bride. Instead, it was some rough beast slouching towards Bethleham.
Jim: [inaudible 01:29:59] Bethleham. One of the great lines. One of the great lines.
Brad: Yes, it is indeed. And I did not have a title for my book, so I thought I’ll steal and I’ll steal from the best. And I never could think of a better title than that as the working title for it. So it became the final title.
Jim: It’s quite good. And then of course we have had madness essentially since 2000. We had the interregnum of Obama kind of bland and relatively weak. And then we’ve had madness, Trump.
Brad: Pretty crazy.
Jim: And how the hell could Donald Trump become president of the United States or Boris Johnson, right? I mean, what the hell, right? And then now we have another interregnum of an octogenarian kind of mediocre hack politician named Joe Biden. So the full implications of 2018.
Brad: At least he’s a working class boy from Scranton, right?
Jim: Yeah. Yeah.
Brad: At least he feels the people, the problems of the people that [inaudible 01:30:59] kind of in his own level.
Jim: That’s of course not quite true. His dad was actually a somewhat corrupt defense contractor and semicon man.
Jim: So that’s shtick of, yes, the working class kid from Scranton is really not true.
Brad: Okay, I see.
Jim: Not very true. He’s a smarmy politician, like rest of them. And now let me throw out a thing that goes beyond your book or hint to at only in the very little bit throughout the book, one of the main themes has been the power of exponential growth and the results of differentiating exponential growth, right?
Brad: Yes. Yes. Yes.
Jim: At least some of us think we maybe gotten to the point where we have actually reached the carrying capacity of our world with eight billion people each consuming 10 times as much per person on average as the 650 million people that existed in 1700. And that the idea of growth in the macrocosm, in the macrocosm, in materials and in energy and in soils and in species eradication and acidification of the oceans, climate change, we’ve got to stop being on the exponential growth.
Brad: [inaudible 01:32:13] the places that are actually resources people can own, right? And thus steward properly, the prices of those things keep falling. It’s the fisheries and the ocean acidification and the global warming, and for a while, the ozone layer, all those things that can’t be owned. And so because they aren’t seen by the market, the market takes absolutely no account of them. The market votes for wealth rather than for an ozone layer, or [inaudible 01:32:48] rather than for-
Jim: Yes, it would much prefer to use externalities to make money.
Jim: I mean, as it’s always been.
Brad: Yes, no cod fisheries left because you can make money by catching a cod. And there’s no one who makes money by ensuring that the codfish are in fact there. We’re not going to have a salmon season here out in California next year because the fishery experts have decreed that the salmon population has fallen too low off of California. And we need to give them a chance to restock. And we keep cutting the crab season short because the crabs are very tasty. And as it is, you aren’t allowed to dive for abalone with oxygen. On the grounds that if you want catch a wild abalone, you got to risk death from drowning.
Jim: That’s kind of cool. That’s kind of an interesting arbitrary rule. I like that.
Brad: Yes. Yes.
Jim: Well, next time I go out to Pescadero, I will keep that in mind when I have an abalone sandwich for lunch with a [inaudible 01:33:52].
Brad: Although they do allow you to farm to farm abalone, provided you’ve already caught them.
Jim: Interesting. Interesting. So what do you think?
Brad: Global warming above all, right? We’re 30 years late to dealing with global warming, and we may well still continue to have exponential growth in our technology over the next 50 years. But most of that is going to be eaten up by dealing with the costs of global warming, which are likely to be very high. Already this past year, the monsoon, the Asian monsoon was 300 miles off. And there are three and a half billion people who depend on the monsoon being in the right place at the right time with the right amount of rainfall, at the right temperature. Either because they live directly in regions watered by the monsoon, or because they live in the great river valleys of Asia, and the snow pack from the high plateaus of Asia needs to come down at the right time, at the right temperature, in the right volume, or they either get flooded out or droughted out.
This past year, the Yangtze River was 15 meters below its normal depth. And Pakistan went underwater pretty much completely because the monsoon was off by 300 miles. And we don’t know what global warming is going to do to the monsoon, but it’s going to do something to where, when and how and what temperature it’s at.
Jim: Alrighty. Well, I think none of us know what in what’s going to come out the other side of this liminal epoch, but there are some lessons from knowing about … it’s always useful. It may not be lessons, but it’s at least useful to know about the past. And I really will say, I really enjoyed your book.
Brad: Oh, thank you.
Jim: It not only was well written, but it was a bit more thematic than some such thank popular books.
Brad: Thank you. Thank you.
Jim: And I had two little mini epiphanies. One, the idea of the community of engineers being critical, but hard to put your finger on thing. And the idea that the whole [inaudible 01:36:00] Hayek compromise could have been done between the wars and completely changed the trajectory of the world. Those are both interesting ideas.
Brad: Okay, thank you very much.
Jim: So anyway, I think we’ll wrap it here. We’ve had, I think, a good conversation. There’s lots more in the book. As I mentioned, I skipped over three or four chapters about little things like socialism and communism and World War II and things like that. So do pick up the book and it’s Slouching Towards Utopia. And as always, it will be a link to it on the episode page at jimromeshow.com.
Brad: All right, excellent. It’s been wonderful to be here.