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Because it's not actually true?

The official ET line is 'Do renewables, raise taxes to redistribute wealth, and everything will be fine."

Consider the possibility that perhaps there's more involved, and the post-war boom was created by a number of distinct circumstances that either don't apply now or only apply partially. Specifically:

  1. A relative energy glut leading to cheap energy. (I'll agree with the premise of the original piece here. I think it makes a difference - but I'll add that this not only makes economic activity possible, it also creates faith in the future, because it's possible to believe that your business isn't going to get the rug pulled out of it. It's much harder to believe that now, because the oil price crash is temporary and renewables aren't fully established yet.)

  2. Good local infrastructure that can make use of available resources. The US freeway system made it easier to think about shipping physical items nationally. Globalisation hadn't happened yet, so the economic activity stayed inside the US and Europe. This gave labour more local bargaining power, which raised wages. Now that globalisation has happened, labour competes internationally, which is very bad for everyone.

  3. A research-led culture in science and engineering, supported by trophy-project national policy (see also Manhattan Project, Internet, Concorde, the Space Program, and others). This is a huge deal. It was deliberately created during WWII, nurtured further during the Cold War, and then it was thrown away during the financialisation of the 80s.

  4. Low-hanging fruit in science and engineering. Aerospace, nuclear power, and computing (after Turing) were relatively accessible. Today we have quantum computing, which is hard, fusion, which is hard, and wacky hypothetical starship drives, which are somewhere between really, really hard and impossible.

  5. A compliant population inspired to consume by propaganda marketing. This is still true today. But because of the wage squeeze personal wealth has crashed for most of the population.

Bottom line is you need a combination of circumstances to create a boom. Spending tax money on its own probably won't do it, because the money will either flow out of the country, or it will end up pushing up prices of essentials (e.g. rents from property) without creating new kinds of economic activity.

There's certainly a case for Keynesian pump priming which can create infrastructure (physical and intellectual) that can sow the seeds for a boom in a decade or two. But it's not an instant fix, and it needs policy decisions that understand the return will take a while.

Obviously we've had the opposite of that, with financialised policies destroying future growth prospects. But I don't think throwing money at the problem ten years ago would have done any more than provided a quick and very temporary growth blip.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Nov 4th, 2014 at 09:31:11 AM EST
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