The Golden Era of the 1950s/60s Was an Anomaly, Not the Default Setting

The 1950s/60s were not “normal”–they were a one-off, extraordinary anomaly.

If there is one thing that unites trade unionists, Keynesian Cargo Cultists, free-market fans and believers in American exceptionalism, it’s a misty-eyed nostalgia for the Golden Era of the 1950s and 60s, when one wage-earner earned enough to buy all the goodies of a middle-class lifestyle because everything was cheap. Food was cheap, land was cheap, houses were cheap, college was cheap and most importantly, oil was cheap.

The entire political spectrum looks back at this Golden Age with longing because it was an era of “the rising tide raises all ships:” essentially full employment, a strong U.S. dollar and overseas demand for U.S. goods combined to raise wages while keeping inflation low.

The nostalgic punditry quite naturally think of this full-employment golden age of their youth as the default setting, i.e. the economy of the 1950s/60s was “normal.” But it wasn’t normal–it was a one-off anomaly, never to be repeated.Consider the backdrop of this Golden Era:

1. Our industrial competitors had been flattened and/or bled dry in World War II, leaving the U.S. with the largest pool of capital and intact industrial base. Very little was imported from other nations.

2. The pent-up consumer demand after 15 years of Depression and rationing during 1942-45 drove strong demand for virtually everything, boosting employment and wages.

3. The Federal government had put tens of millions of people to work (12 million in the military alone) during the war, and with few consumer items to spend money on, these wages piled up into a mountain of savings/capital.

4. These conditions created a massive pool of qualified borrowers for mortgages, auto loans, etc.

5. The Federal government guaranteed low-interest mortgages and college education for the 12 million veterans.

6. The U.S. dollar was institutionalized as the reserve currency, backed by gold at a fixed price.

7. Oil was cheap–incredibly cheap.

All those conditions went away as global competition heated up and the demand for dollars outstripped supply. I won’t rehash Triffin’s Paradox again, but please readThe Big-Picture Economy, Part 1: Labor, Imports and the Dollar (September 23, 2013).

In essence, the industrial nations flattened during World War II needed dollars to fund their own rebuilding. Printing their own currencies simply weakened those currencies, so they needed hard money, i.e. dollars. The U.S. funded the initial spurt of rebuilding with Marshall Plan loans, but these were relatively modest in size.

Though all sorts of alternative global currency schemes had been discussed in academic circles (the bancor, etc.), the reality on the ground was the dollar functioned as a reserve currency that everyone knew and trusted.

But to fund our Allies’ continued growth (recall the U.S. was in a political, military, cultural, economic and propaganda Cold War with the Soviet Union), the U.S. had to provide them with more dollars–a lot more dollars.

Federally issued Marshall Plan loans provided only a small percentage of the capital needed. As Triffin pointed out, the “normal” mechanism to provide capital overseas is to import goods and export dollars, which is precisely what the U.S. did.

This trend increased as industrial competitors’ products improved in quality and their price remained low in an era of the strong dollar.

Long story short: you can’t issue a reserve currency, export that currency in size and peg it to gold. As the U.S. shifted (by necessity, as noted above) from an exporter to an importer, a percentage of those holding dollars overseas chose to trade their dollars for gold. That cycle of exporting dollars/importing goods to provide capital to the world would lead to all the U.S. gold being transferred overseas, so the dollar was unpegged from gold in 1971.

Since then, the U.S. has attempted to square the circle: continue to issue the reserve currency, i.e. export dollars to the world by running trade deficits, but also compete in the global market for goods and services, which requires weakening the dollar to be competitive.

In a global marketplace for goods and services, all sorts of things become tradable, including labor. The misty-eyed folks who are nostalgic for the 1950s/60s want a contradictory set of goodies: they want a gold-backed currency that is still the reserve currency, and they want trade surpluses, i.e. they want to export goods and import others’ currencies. They want full employment, protectionist walls that enable high wages in the U.S. and they want to be free to export U.S. goods and services abroad with no restrictions.

All those goodies are contradictory. You can’t have high wages protected by steep tariffs and also have the privilege of exporting your surplus goods to other markets. That’s only possible in an Imperial colonialist model where the Imperial center can coerce its colonial periphery into buying its exports in trade for the colonies’ raw commodities.

And very importantly, oil is no longer cheap. The primary fuel for industrial and consumerist economies is no longer cheap. That reality sets all sorts of constraints on growth that central states and banks have tried to get around by blowing credit bubbles. That works for a while and then ends very badly.

The 1950s/60s were not “normal”–they were a one-off, extraordinary anomaly. Pining for an impossible set of contradictory conditions is not helpful. We have to deal with the “real normal,” which is a global economy in which no one can square the circle for long.

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  • Name

    I wonder whether the golden age wasn’t due to a loosening of pursestrings at the top to avoid another Bonus Army situation when millions of battle-hardened soldiers and sailors returned home with no jobs.

    Prices hit rock bottom after the crash of 1929 and didn’t start coming back until after 1945. Is this because the dollar was strong during the depression, or was it because government and business put the brakes on price inflation?

    You can have high wages if you don’t park over a trillion dollars offshore, use excess cash for speculation, pour it into slush funds, or hide it off the books.

    The cost of oil should be in proportion to the cost of extraction, refining, and transportation. The reason it isn’t cheap is because of either profiteering, speculation, or extortion.

    The only pent up demand I remember my grandparents having was for a well stocked cupboard. I certainly don’t remember them showing off the glitzy trash they bought because their pockets were bursting with money. When they bought something they expected it to last. We’ve been conditioned to accept being ripped off all day every day. That’s why our money is disappearing, not because there isn’t enough to go around.

  • Name

    I wonder whether the golden age wasn’t due to a loosening of pursestrings at the top to avoid another Bonus Army situation when millions of battle-hardened soldiers and sailors returned home with no jobs.

    Prices hit rock bottom after the crash of 1929 and didn’t start coming back until after 1945. Is this because the dollar was strong during the depression, or was it because government and business put the brakes on price inflation?

    You can have high wages if you don’t park over a trillion dollars offshore, use excess cash for speculation, pour it into slush funds, or hide it off the books.

    The cost of oil should be in proportion to the cost of extraction, refining, and transportation. The reason it isn’t cheap is because of either profiteering, speculation, or extortion.

    The only pent up demand I remember my grandparents having was for a well stocked cupboard. I certainly don’t remember them showing off the glitzy trash they bought because their pockets were bursting with money. When they bought something they expected it to last. We’ve been conditioned to accept being ripped off all day every day. That’s why our money is disappearing, not because there isn’t enough to go around.

  • Griebel

    In addition to what’s been said, I think there’s a general socio-strategic factor going on here.

    A working class with middle class perqs is an expensive thing to maintain from the perspective of a financial and industrial elite. Back then, given the problem of the Soviet Union existing as an alternative, it was worth it to maintain such a thing in order to prevent those bonus armies and socially-engineer a more pliant population.

    Now that they’ve squashed the alternative and vigilantly clamped down on the threat of good examples popping up throughout the world, they feel that this extravagance is annoying and unnecessary. They have social, cultural, political, and economic hegemony. Most people don’t even have a clue how to think outside the box, and can “comfortably” think in sanctioned ideological terms all the way to the poor house or even suicide (usually blaming themselves), and they probably feel rather proud of this long con job.

    Either way, it has obviously gotten even more expensive and unsustainable within this socio-economic structure, and thus it’s time for its real consequences to come out.

    • lorkoos

      Yes it’s more expensive to maintain a working class that can actually enjoy the fruits of the labor, however the eventual revolution will be even more expensive.

  • UniverseWeAre

    The golden era ended when US oil production peaked in October 1970.

    The biophysical causes of the golden era are very simple. Large amounts of cheap fossil fuels.