american economy

1945 – 1970: The Golden Age Of American Capitalism?

645px-family_watching_television_1958

Family watching television, c. 1958 (by Evert F. Baumgardner via Wikimedia Commons)

The era between 1945 and 1975 is often described as the ‘Golden Age’ of capitalism. During this period the economy of the United States, Western Europe and Japan grew at an unprecedented pace.

The post-war economic miracle was made possible by the parallel growth of productivity, capital stock per worker and real wages, which ensured a balanced development of production and consumption.

Despite the rapid increase in the volume of international trade, in the post-war period developed countries mostly relied on their domestic market to boost growth (see The Golden Age of Capitalism: Reinterpreting the Postwar Experience, eds Stephen A. Marglin, Juliet B. Schor).

But were the nearly three decades that followed the Second World War really a ‘golden age’? Were people better off than we are now? Let us look at some facts.

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In 1960-61 the average household income in the United States was $6,691 (about $57,400 in 2017 US$), 57.9% higher than in 1950. Average family expenditures stood at $5,390, an increase of 41.5% from 1950.

Median household income in 1960 was $5,620 (circa $46,345 in 2017 US$). In terms of income distribution, 36.1% of families had incomes below $5,000 ($41,232),  while 18.9% had incomes under $3,000 ($24,739). Food, clothing, and housing accounted for 64.2% of family spending, a decrease from 1950.

In 1970 the median household income had risen to $9,870 ($64,673), while poverty had decreased, with only 8.9% of families having incomes lower than $3,000 ($19,657).

In 2016 the median household income was $59,039 and the official poverty rate was 12.7%. These figures suggest that median income levels have actually stagnated or decreased since 1970, while poverty has risen.

According to the World Bank unemployment stood at 5.5% in 1960, 3.6% in 1968, 4.9% in 1970. In 2016 it stood again at 4.9% (see chart below).

MyChart (1)

 

Annual growth was robust in the 1960, peaking at 6.5% in 1966, while 2.5% in 1967 was the lowest figure of that decade. The highest growth in the 2000s was 3.4% in 2004. After the 2008 financial crisis, which saw the economy shrink by 2.8%, it returned to modest, but sustained growth (see chart below).

MyChart

 

The below chart shows that the US federal deficit peaked during WWII, but was reduced in the 1960s and 1970s. It is interesting to note that the war deficit did not hinder subsequent economic growth and did not prevent the government from reducing the deficit after the conflict.

federal_debt_held_by_the_public_1790-20131

Federal Debt Held by the Public (as a percentage of gross domestic product) from 1790 to 2013 (Congressional Budget Office)

 

When it comes to the overall economic situation, there are other important aspects that contribute to the general welfare. Let us examine two of them: job insecurity and education.

The post-war labour market was dominated by white -collar (office workers and professionals) and blue-collar (manual labour, particularly manufacturing) jobs. Between 1940 and 1970 the number of white-collar workers increased from 27.8% to 48.3% of the workforce, while the number of blue-collar workers fell from 46.1% to 35.3%.

White-collar workers enjoyed on average not only higher wages, but also job security. Blue-collar workers had less job security and relatively lower wages, but they also  experienced substantial wage growth and had access to pensions (Michael French: US Economic History Since 1945, pp. 84-85).

In 2016 the number of people employed in traditional blue-collar jobs (manufacturing, mining and construction) amounted to only 12.6% of the workforce, while 80.3% were employed in the service sector.

The decline in the number of blue-collar jobs is far from being an indicator of progress, because they offered opportunities for less skilled workers to earn a relatively good income. On the other hand, the service industry has experienced fragmentation and a deterioration of working conditions.

Job insecurity now affects a large number of people. “With the nature of work changing continuously, job insecurity is now a fact of life,” wrote Kristalina Georgieva, Chief Executive Officer of the World Bank.

As BBC Capital pointed out, the labour market is now full of terms describing precarious employment: temporary, fixed-term, seasonal, project-based, part-time, on a zero-hours contract, casual, agency, freelance, peripheral etc. More and more individuals face permanent insecurity about their future and lack of a stable living income.

Recent surveys have shown that around 80% of adults in the United States “struggle with joblessness, near-poverty or reliance on welfare for at least parts of their lives.” Job insecurity is one of the main causes of work place stress as well as depression and anxiety.

According to a recent study, job insecurity has a deep negative impact on individuals’ identity. Employment is not only a way to make a living, but it is also an integral part of who we are. For instance, people often ask about our jobs when we introduce ourselves. Telling others that we are unemployed or have a precarious job can be an embarrassing, sometimes even humiliating experience, and can lead to loss of self-esteem.

For some time education appeared to be the key to a stable and successful career. But here we encounter another problem: the cost of education.

In 1971-72 the annual tuition fees for higher education averaged $1,684 for private institutions and $376 for public ones. The corresponding figures for the years 2016-2017 are $3,520 and $33,480. If one includes room and board, transport and other expenses, the costs are much higher: $17,000 (community college); $24,610 (in-state students at a four-year public college); $39,890 (out-of-state students at a four-year public college); $49,320 (private non-profit four-year college). One of the factors explaining the rise in high education costs is the reduction in public funding since the 1970s.

Furthermore, given the volatility of the job market and the large number of people with higher education, even a college degree is no longer a guarantee of good job opportunities.

Considering various indicators such as GDP growth, unemployment, job security, education, job opportunities and wage growth, we may conclude that the 1945-1970 period saw a substantial improvement of the standard of living of the population, while economic development since the 1970s has been characterized by income stagnation or decline as well as growing job insecurity among a large section of the workforce.


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