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Levinson memo

Michael Smitka
September 25, 2017

Marc Levinson, An Extraordinary Time: The End of the Postwar Boom and the Return of the Ordinary Economy, Basic Books, November 2016.

An Extraordinary Time traces economic growth from World War II into the early 2000s, with economic disarray in the mid-1970s dividing the period into two contrasting eras. The first half was one of strong growth. No more! Instead Levinson argues we must collectively pare our expectations of rising and widely-shared incomes. Failure to adapt will make our prospects worse: across the developed world, for example, governments ran up high levels of debt, under the expectation that we can have our cake and eat it, too. That was (perhaps) the world of our grandparents. It will not be ours.

Strong growth with low unemployment and manageable inflation marked the post-WWII recovery. Come 1974, however, and Europe, Japan and the US were all in recession, with high unemployment and also sharply rising prices. That flew in the face of the then-reigning orthodoxy in economic thought. While inflation was eventually tamed, subsequent growth remained low and unemployment chronic, while conservative ideologies gained traction. In particular, the macroeconomic disarray of the 1970s undermined received “Keynesian” economic thought, and opened the way to heterodox approaches, exemplified by the monetarism of Milton Friedman. He and less accomplished economists added to poor monetary policy a diagnosis of excessive government.

Ambitious politicians hitched their carts to this new horse in a broad array of countries. While they espoused a broader conservative agenda, tax cuts were their signature electoral policy. By 1980, the latter message undergirded the electoral success of Margaret Thatcher in England and Ronald Reagan in the US. Unfortunately, neither deregulation nor tax cuts revived growth. Slow growth appears endemic: the baby boom and technology revolutions have run their course, and we have as yet no new orthodoxy to guide our way. The extraordinary postwar growth era will not return.

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