America’s so-called Golden Age

Visit any bookstore and your eyes are assaulted by scores of books explaining the meltdown that plunged America into a major economic crisis, and prescribing what must be done to return to the glory days from the end of World War II through the early-1970s, when the United States enjoyed the greatest boom in modem history.

The economy grew at an annual rate of over 3 percent, and the median family income almost doubled. But the circumstances that produced that growth were an historical aberration.

World War II destroyed the industrial capacity of the main belligerents. It was not fought on American soil, however. Here, the war ended the Depression and put everyone back to work.

It also produced wartime savings that helped fuel the boom when those savings turned into post-war consumer spending. For example, the automobile industry exploded after years of producing military hardware, and new industries such as aviation and electronics grew by leaps and bounds. At the same time, the post-war “baby boom” increased the number of consumers, and more Americans joined the middle class.

A number of programs were enacted that also contributed to the economic boom and enabled American business to exploit the lack of global competition. These would include:

The GI Bill: This gave millions of veterans the opportunity to enjoy middle-class living standards thanks to things like free college educations, the ability to buy their own homes with low-cost mortgages, and capital to start businesses. This expanding American middle class created an ever-growing market for consumer products and provided businesses with trained managers and professionals.

The Marshall Plan: Over five years during the late 1940s, the federal government invested nearly $13 billion to rebuild the devastated economies of Europe and Asia. This was a deliberate Cold War strategy aimed at strengthening the economies of the non-communist world and binding them to the U.S. It is a form of vendor financing that the Chinese have successfully copied.

The Federal Government/Fortune 500 Compact: During the late 1940s and 1950s, the federal government effectively subsidized corporate America with tax benefits, lucrative defense contracts, and various kinds of market protection. In return, Fortune 500 companies diverted some profits from shareholders to employees by giving them steadily rising purchasing power, free medical coverage, generous pensions, and other welfare benefits that Europe depended on government to provide. In the immediate post-war era, the view was that corporations had responsibilities to employees and the local and national community as well as to shareholders.

Things began to change when the oil crises of the 1970s hit.

By the late 1960s, our allies’ economies had recovered from World War II. Initially, those countries’ exports only penetrated low-end industries, giving us foreign goods on the cheap while leaving our high­ value industrial sectors unharmed. But intensifying global competition brought excess capacity and reduced profit margins. Steadily rising real wages gave way to a business model focused on  “maximizing shareholder value ,”under which firms were run solely to serve their owners’ interests.

A confluence of circumstances allowed the United States economy to emerge from World War II with no real global competition. Those circumstances, which resulted in decades of prosperity, were not sustainable. As they fell away, so did assurances that each generation of Americans would enjoy a better standard of living than the one that preceded it.

originally published: July 20, 2013