The Affluent (and Downgraded, Debt-Laden) Society

The late preeminent liberal economist John Kenneth Galbraith once complained in The Affluent Society that where Democrats once stood for an issue of great importance in emphasizing production, they lost that issue by misunderstanding why production was important.  For Galbraith, production was central to the modern American economy not to sustain impressive arrays of consumer goods but instead to provide economic security for its citizens.  Liberals failed to grasp the distinction, believing instead that “increased production remains the touchstone of political success even when it involves additions to an already opulent supply of goods.”  Half a century later, it might be argued that even if liberalism still insists it has no fixed principles, it now acts like it understands the distinction: Democratic alignment with anti-competitive and anti-democratic union agendas, labyrinthine regulations that stifle businesses and cramp innovation, and corporate income taxes among the highest in the developed world strongly suggest modern liberalism has de-prioritized production as the touchstone of progress.  Instead, today’s liberals speak a different language when they talk about the economy.  “Production,” though still widely traditionally understood as the economic activity that delivered man from scarcity to affluence, is for liberals today the economic activity that delivers man from the fear of unemployment into economic security.

The distinction is anything but hair-splitting.  Production in the first, traditional sense has been exceptionally good to Americans, improving our quality of life in ways previously thought unimaginable.  Compared to 1950, according to W. Michael Cox and Richard Alm, to earn the cost of a half-gallon of milk today we work only half as much; for the cost of a kilowatt of electricity, a third as much; an hour of air travel, a quarter; a refrigerator, a fifth; a three-pound chicken, a seventh; a home air conditioner, a tenth; and for the cost of a coast-to-coast phone call, just one-fiftieth the work it once required of us.  And yet it is sometimes suggested that industrialism has yielded little more since the 1950s than to underscore an increasingly garish display of affluence.  That suggestion is deeply counter-intuitive in light of the deep reduction of the instances of poverty also afforded by the low cost of production.  According to Wendell Cox of Demographia, from 1971 to 2001, the average income of the least affluent quintile of households rose 26 percent adjusted for inflation.  Not to mention the introduction of products such as home computers and microwave ovens, and innovations in medical science and technology that did not exist in the mid-twentieth century.

Still, those remain the two options on the menu: forsake or embrace productivity as the benchmark of a healthy economy. The establishment left’s unashamed support of poorly performing labor unions, burdensome and hyper-technical business regulations, and onerous permitting schemes—including making taxi cab operators pay hundreds of thousands of dollars for medallions, making florists and other business owners take detailed exams that have nothing to do with public safety, and shutting down children’s lemonade stands—leave little doubt as to modern liberalism’s tack.  Thus, if as Galbraith said “we are ruled by our ideas and by very little else,” it may be helpful to understand the ideas that have chilled our commitment to production and introduced us to debt-facilitated spending for the objective of “economic security.” 

The economic ideas that rule much of American politics “were not forged in a world of wealth,” but instead “were the product of a world in which poverty had always been man’s normal lot.” Throughout all of recorded history until the beginning of the eighteenth century, the standard of living of the average man in the major civilized centers of the world remained substantially unchanged, notwithstanding punctuated intervals.

By the eighteenth century, however, ideas gave an increasing number of average individuals access to wealth. Under the “unpredictable rule of competition and the market” many still suffered, though far fewer than under the “restraints and protection of feudal and mercantilist society.” But suffering had always existed. What changed was that now there was opportunity, and because of it, many were flourishing.

The market economy brought unprecedented production levels in the fourth quarter of the past millennium. Delivered from a world of “grim scarcity,” the ordinary individual now had “access to amenities—foods, entertainment, personal transportation, and plumbing—in which not even the rich rejoiced a century ago.” The new rich, for their part, saw their holdings increase in even greater measure. Wealth disparity grew to historic levels.  At the end of the eighteenth century, Adam Smith’s An Inquiry into the Wealth of Nations implicitly asked why any nation should be wealthy. By the end of the twentieth century, a new breed of liberal demanded to know why anyone should be poor.

Poverty, as understood by classical liberals, was not “the elegant torture of the spirit which comes from contemplating another man’s more spacious possessions.” It was instead “the unedifying mortification of the flesh—from hunger, sickness, and cold.” The modern liberal, however, admits of no objective meaning in the word. Galbraith, for example, refused to stipulate that anyone could be “sure that the deprivation which afflicts him with hunger is more painful than the deprivation which afflicts him with envy of his neighbor’s new car[.]” For the new liberal, poverty cannot be limited to the provision of man’s physical needs when “his soul may have become subject to a new and deeper searing.”

The “conventional wisdom,” then, no longer sufficed in the affluent society. Despite the debt of gratitude owed to classical liberalism, Galbraith argued it can no longer well serve contemporary America. Life’s basic necessities having now been abundantly provided through private production, purchase, and sale, Americans began to desire other things, the provision of which did not lend to private production, purchase, and sale.  Betty Friedan described the existential crisis in The Feminine Mystique, writing that “[e]ach suburban wife struggled with it alone. As she made the beds, shopped for groceries … she was afraid to ask even of herself the silent question — ‘Is this all?"

Nonetheless, production became its own raison d’être, its urgency regarded as quite independent of its volume. Man’s desires being “no longer even evident to him,” Galbraith argued that service of the single-minded end of production required novel and non-obvious desires were being “synthesized, elaborated, and nurtured by advertising and salesmanship.” If this was the case, then those things could not be very urgent.  “Few people at the beginning of the nineteenth century,” Galbraith famously observed, “needed an adman to tell them what they wanted.”

Despite the admen’s best efforts, however, urgency for production fell. This was reflected in the shrinking work week. Almost 70 hours in 1850, the work week fell to 40 hours by 1950. Galbraith was puzzled by the reluctance to draw the conclusion that production had become less urgent. “[S]uch is the hold of production on our minds that this explanation is rarely offered. The importance and rewards of leisure are urged, almost never the unimportance of goods.” Instead, it is insisted that the work week has declined because “we are able to reduce the work because more is produced in less time. No mention is made of the fact that even more would be produced in more time.”

More important than production itself, Galbraith contended, was the excuse it gave Americans to engage in activity historically referred to as work. That activity provided an excuse to distribute to Americans what was historically referred to as a wage. “The income men derive from producing things of slight consequence is of great consequence. . . . [I]ncome and employment rather than the goods have become our basic economic concern.”  This pattern of activity for distribution—what we used to call work for wages—constituted what Galbraith contended was the raison d’être of the new economy: economic security. (If this is the case, then a substitute for production as a source of income must be found. Galbraith offered “that unemployment compensation should be increased as unemployment increases and should be diminished as full employment is approached.” This would help solve the inflation problem as it would keep the number of dollars in the economy more nearly constant, rather than relative to current unemployment levels.)

Does not all this suggest, then, that we are now ruled by different economic ideas? “If the modern corporation must manufacture not only goods but the desire for the goods it manufactures, the efficiency of the first part of this activity ceases to be decisive. One could indeed argue that human happiness would be as effectively advanced by inefficiency in want creation as efficiency in production.”  Production thus ought to be regarded less as an end in itself and more as an instrument to achieve the demands of a new kind of society. The primary benefit of increased output, Galbraith argued, is not the goods themselves but the economic security afforded by productive enterprise. “Whether we need or even wish the goods that are produced, their assured production means assured income for those who produce them.”

Besides, it was not as though research programs designing “selling points” and “advertising pegs” and “planned obsolescence” were bringing actually useful things into the world. The actually useful things that required substantial investment and long time horizons—atomic energy and space travel, Galbraith offered as examples—were of little interest to private enterprise. Even the modern air transport was the stepchild of the military airplane.” Besides, a production-oriented economy already depended on public education. Since education widens the span of individual wants without the need for other conditioning by the market, education stimulates investment in and production of more important things. “Thus the effect of education and pro tanto of social balance is to increase the range of wants to be satisfied and to lessen the dependence on those which must be contrived.”

Galbraith’s influential insights and arguments may be stated straightforwardly enough, and accordingly meet his own preliminary requirement of economic thought:

In the case of economics there are no important propositions that cannot, in fact, be stated in plain language… Complexity and obscurity have great professional value; they are the academic equivalents of apprenticeship rules in the building trades… They exclude outsiders, keep down the competition, preserve the image of a privileged or priestly class.

John K. Galbraith in Writing, Typing, Alcohol and Coca Cola, from a speech at Harvard as it appeared in the Nieman Reports. (1978, The Atlantic) (cheers to Tom Van Dyke for the reference).

Still, his ideas, now more than half a century old, remain profoundly counter-intuitive. Man has always committed some share of his efforts to the production of novelties and engagement in fanciful activities. Galbraith himself acknowledged that the classical economic tradition was “a system of morality” based upon the moral code that “the world owed no man a living.” “Failure to work, even when it could be afforded, was offensive to what came to be called the Victorian, but could as well have been named the economic, morality. ‘To live in idleness, even if you have the means, is not only injurious to yourself, but a species of fraud upon the community.’”

Indeed, no one can say that anything that is consumed is not “useful” to the one who consumes it. Galbraith disparaged “the worker who applies maroon and pink enamel to the functionless bulge of a modern motorcar,” apparently because he personally was unpersuaded to offer his own productive energies in exchange. But certainly other people are happy to offer their energies for the painted bulge that Galbraith holds in such contempt.  So long as it is possible that such an exchange involves some labor that Galbraith does not regard as “functionless,” the bulge-painting worker has helped introduce real value into the economy.

Also missing is a viable answer to the land problem first presented by David Ricardo. Because economic growth presses upon the land supply, rents are forced up to the advantage of the landowner, who became a passive beneficiary to progress. It was the anticipation of rent increases and attendant speculation in land values that fueled the Great Depression. “So long as there was private property in land,” Galbraith summarized, “poverty and depressions were the prospect. Progress would make them worse.”

A century after Ricardo, American socialist Henry George identified the same problem, calling for the nationalization of land, or more precisely, the imposition of a tax “equal to the annual use value of real property ex its improvements, so that it would now have no net earnings and hence no capital value.” Ricardo, for his part, never offered this or any other remedy. And as Galbraith acknowledges, nationalization “was a very drastic prescription.”

Finally, production even during the age of affluence is not strictly directed at insatiable consumer appetite. Economic production also served as a “measurable and tangible” benchmark of progress. According to the conventional wisdom, at least, “[w]hat is measurable is better.” “Since investment in individuals, unlike investment in a blast furnace, provides a product that can be neither seen nor valued, it is inferior.”  If an unguided market should not serve as a benchmark of the appropriate level of economic progress, then what?

America’s economy faces unprecedented problems.  While it clings to its status as the world economic leader, China’s threat to that hegemony looms ever larger.  Internally, America’s political leaders are stalemated as Democratic leaders refuse to move beyond hostile rhetoric.  Faced with the prospect of raising the debt ceiling to allow American debt to surpass GDP for the first time since World War II, members of the Republican caucus, observing conventional economic wisdom and the mandate of their constituents, predictably balked.  Instead of acknowledging the divergence of their underlying economic principles with mainstream thought or attempting to engage at the level of economic theory to justify their Keynesian approach, Democratic leaders called their ideological opponents “terrorists.”  There is quite possibly some merit to liberal economic principles were modern liberals to admit of holding to any and to engage in the tough-minded work of conforming their actions to them.  But without an academic explanation that purports to justify the continued borrowing of money we don’t have to fund spending that isn’t strictly necessary, the left’s proposals sound more like religion than economics.  No wonder they call the Tea Party “terrorists” for making clear the precariousness of our current trajectory.  As Galbraith put it, “[t]he man who makes things clear is a scab. He is criticized less for his clarity than for his treachery.”

[Cross-posted at the main page]