Nostalgianomics, A Cato Gem
I enthusiastically recommend Brink Lindsey’s “Nostalgianomics.” It’s just plain interesting, well-written, and edifying. In a just world, it would have appeared in The New Yorker. The springboard of the piece is Krugman’s recent love letters to the 1950s. Brink grants that the values of the 50s were different than today’s and had important economic effects. He denies, though, is that the values of the 50s were better than today’s or had good overall economic effects.
Paul Krugman and his fellow proponents of nostalgianomics deserve credit for calling attention to the role that changes in economic policies and social norms may have played in the rise of income inequality. They fail, however, to offer a full accounting of the relevant changes; instead, they have cherry-picked particular policies and norms from the past that allow them to portray the early postwar decades as a model of enlightened social order.
Brink has a fascinating psychological reinterpretation of the “crisis theory” of the growth of government. Instead of blaming interest groups for “the tyranny of the status quo,” he blames a generation of experiences that cemented a collectivist group identify:
The heavy emphasis on group cohesion was further strengthened by the experiences of the Great Depression and World War II. According to social psychologists, our sense of group identity is heightened when membership in that particular group is especially salient–as it is when, say, the group is faced with an external threat.
The successive cataclysms of economic collapse and total war engendered a strong sense of shared national identity and resulting group cohesion. We experienced something similar in the wake of the 9/11 terrorist attacks: for weeks and months thereafter the visceral feelings of patriotism and “we’re all in this together” were both powerful and widespread. In the 1930s and ’40s, circumstances conspired to keep national solidarity highly salient, not just for weeks or months, but for 15 years. Thus, the young office workers and suburbanites of the early postwar years were facing novel social challenges that put a premium on group-mindedness.
How does Brink defend his “cherry-picking” charge?
[W]hat made the Treaty of Detroit distinctive was its pervasive restrictions on competition in product, capital, and labor markets. Consider high trade barriers, farm price supports and production limits, price and entry regulations in transportation and energy, interest rate caps and branching restrictions, national-origin immigration quotas — does Paul Krugman really wish to defend such things? Yet all of those policies–along with the labor laws, high minimum wage, and progressive tax rates that Krugman does celebrate–were constituent elements of the postwar economic order. All shared the same bias in favor of producer welfare at the expense of consumer welfare. And it was that pro-producer, anti-competition bias that served to promote income convergence: first, by limiting competition among less skilled workers; and second, by limiting competition for the highest-skilled workers.
Along the way, Brink treats the reader to many fascinating asides inspired by his voluminous reading list. Enjoy.