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Opinion: The U.S. economy will never have another Golden Age

MarketWatch logo MarketWatch 9/1/2017 Howard Gold

Workers’ higher standard of living and the Cold War with the Soviet Union ignited the greatest consumer economy the world had ever seen. © Provided by Dow Jones & Company, Inc. Workers’ higher standard of living and the Cold War with the Soviet Union ignited the greatest consumer economy the world had ever seen.

Editor’s note: The opinions in this article are the author’s, as published by our content partner, and do not necessarily represent the views of MSN or Microsoft.

It was the Golden Age of the U.S. economy, the quarter century between 1948 and 1973, when the U.S. reigned supreme, manufacturing flourished and the American middle class prospered.

During those 25 years, real GDP rose 169%, employment increased by 75% and manufacturing jobs by 30%, while per capita personal income almost doubled.

People of all incomes and education levels could live the American Dream and came to believe that being an American meant your children and grandchildren were almost guaranteed to be better off than you were.

It was, in retrospect, an impossible dream, which ended with the Arab oil embargo and the Great Inflation of the 1970s, followed by the deep recession of the early 1980s.

What came next were a technological revolution and a transformation of corporate America that killed the American Dream for millions, and created the anxious, uncertain economy we live in now, in which too many people long to bring back a lost world that cannot be restored.

For this special Labor Day column, I’m looking back at that era because I think it has had an enormous impact on how Americans still think about the economy, and because we need to understand it to move forward.

Post-World War II

The great postwar boom was inevitable only in retrospect. True, Europe and Japan were in ruins, while the American mainland was unscathed by World War II, and the Arsenal of Democracy that built the tanks and planes that won the war had U.S. factories in high gear.

But there was great concern about what more than 10 million GIs would do when they came home, and as industry converted back to civilian production, there were big questions about who would buy the goods they manufactured.

“The war has proven that production is not our problem; our problem is consumption,” United Auto Workers President Walter Reuther wrote in The New York Times Magazine in September 1945. “… We have found it impossible to sustain a mass purchasing power capable of providing a stable market for the products of a 20th-century technology.”

Wartime wage and price controls lingered, causing workers to fall behind, and unions flexed their muscles: More than two million workers went on strike in the winter of 1945-46.

Meanwhile, the Truman administration tried and failed to create a national health system. The stars were aligned for a new social contract, which Reuther and far-seeing General Motors (GM) President Charles Wilson forged in 1950.

Related video: The American Dream is in danger (provided by CNBC)


Called the Treaty of Detroit, it gave GM labor peace for five years and complete control of production in exchange for cost-of-living wage increases and — this was new — medical and pension benefits for its blue-collar workforce. Other industries, unionized or not, followed suit.

“The political impasse drove American trade unionists toward negotiation of their own firm-centered welfare state,” wrote Reuther’s biographer Nelson Lichtenstein.

Workers’ higher standard of living and the Cold War with the Soviet Union ignited the greatest consumer economy the world had ever seen. Massive national and local highway building led to the explosion of the suburbs, and the suburban dream of a stable job and a house with a white picket fence became the American Dream.

As veterans of World War II and Korea sent their Baby Boomer kids to well-paying factory jobs or to college in record numbers, permanent affluence had become an American birthright, even an entitlement.

Stagnant 1970s

It all came crashing down in the fall of 1973, when in the wake of the Yom Kippur War, Arab oil-producing countries instituted an embargo against the U.S. for supporting Israel. Oil prices quadrupled (to $12 a barrel). That and subsequent price increases throughout the 1970s stoked already simmering inflationary fires: The consumer price index (CPI) rose 10% in early 1974.

As gasoline prices soared, Japanese and German auto manufacturers, fully recovered from the war, sold smaller fuel-efficient vehicles while the complacent Big Three produced gas-guzzling boats. By 1977, Americans bought two million imported vehicles a year.

Still, manufacturing employment kept rising throughout the 1970s, peaking at 19.6 million in June 1979, but inflation was way out of control, and Federal Reserve Chairman Paul Volcker pushed the federal funds rate to an all-time high of 19.1% in June 1981. That crushed inflation but caused the deep recession of 1981-82.

Profits above all else

After that recession, the personal-computer revolution brought advanced analytical tools to office desktops. The academic idea that a corporation’s sole mission was to create shareholder value became a potent weapon in the hands of corporate raiders like T. Boone Pickens and Carl Icahn, who dethroned CEOs of prominent companies.

The bottom line was everything now, foreign competition was fierce, and big U.S. corporations could no longer afford to be private welfare states. They cut benefits and shed jobs to boost earnings and share prices. Steady, well-paying jobs with good benefits became increasingly rare because they were economically unsustainable — and technology enabled employers to outsource work to developing economies like Mexico and China.

Meanwhile, a digital revolution was moving us from an industrial economy to one based on services, technology and leisure. Since 1990, manufacturing has lost five million jobs while professional and business services, health care and restaurants have added 25 million.

So we now have low unemployment and good job growth, but minuscule wage increases and minimal job security. The skills that got people good, middle-class jobs two generations ago just won’t cut it anymore.

Unfortunately, too many Americans, especially those in areas where mines and factories were shuttered, still feel they “deserve” the jobs of yesteryear. But no matter who’s president, those well-paying, unskilled jobs won’t come back and give them the middle-class life to which they believed they are — there’s no other word for it — entitled.

The postwar American boom was a Golden Age for millions, but it came out of unique circumstances that will never be repeated. Unfortunately, it spoiled too many of us to think that’s the way things would always be. As the old song goes, “yesterday’s gone,” folks. Time to move on.

Howard R. Gold is a MarketWatch columnist and founder and editor of GoldenEgg Investing, which offers exclusive market commentary and simple, low-cost, low-risk retirement investing plans. Follow him on Twitter @howardrgold.

Related gallery: These countries will rule the world in 2050 (provided by Lovemoney)

Future powerhouse economies: Wonder which major industrialized countries will be richer or poorer 33 years from now? Accountancy firm PwC has just released a report outlining growth forecasts to 2050 for 32 of the largest economies in the world. We count down where it says these countries will be in 2050 from 32 to 1 based on GDP at Purchasing Power Parity (PPP), which allows for a more accurate measure of what countries will be producing. Decline of the West: These countries will rule the world in 2050


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