The Great Exception: The New Deal and the Limits of American Politics
by Jefferson Cowie
Princeton University Press, 2016, 288 pp.
The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War
by Robert J. Gordon
Princeton University Press, 2016, 784 pp.
In the early 1970s, many industrial societies began to unravel. Economic growth and productivity sputtered, and unemployment and inflation soared. States suffered fiscal crises and observers across the ideological spectrum spoke of the limits to growth and a creeping sense of malaise. Then the British elected Thatcher, and Reagan promised “morning in America” again. The Soviet Union could not lift itself out of the industrial doldrums and soon collapsed. In the afterglow of the end of communism, there was a brief moment when the long industrial crisis appeared resolved—at least in the United States. In the New Economy of the 1990s, rates of growth and productivity picked up again. Even median real wages, stagnant since the late 1970s, accelerated. But the boom was a financial bubble. The 2000s, for most Americans, was one of the worst decades on record in the entire economic history of the United States.
Today, in the wake of the Great Recession, with crisis now the norm, one wonders if the U.S. economy ever really recovered from the 1970s industrial crisis to begin with. Perhaps, instead of progressing, our economy has somehow regressed—returning to old patterns of the distant past. We live, writes the labor historian Jefferson Cowie in The Great Exception, in a “contemporary version of Grover Cleveland’s America.” That would be the 1880s and 1890s, the ignominious decades of the Gilded Age, when economic inequality ran rampant and concentrated wealth threatened democracy. Or, perhaps, the first Gilded Age, since the early twenty-first century, it is now often said, is the second one. The economic historian Robert Gordon has recently taken this gloomy line of reasoning further. We can, he warns, expect more stagnation, with little improvements to our economic standard of living in the future. In fact, improvement in the standard of living is likely to sputter, to a trend line worse than was the case in the 1880s and 1890s.
Why are things so bad? Cowie, in exploring the late-nineteenth-century origins of the troubled state of U.S. political economy, blames what he calls the “main contours” of American history, which stretch across the centuries and into the present. The catalog includes: a strong anti-statist tradition in American politics; a divisive politics of immigration; political conflict over religion and cultural values; racism; white male working-class unity; and the individualism of American political culture.
For Cowie, only the unique nature of the Great Depression created conditions so exceptional that these “contours” could be suppressed for a time. This led to what he calls the Great Exception of the middle decades of the twentieth century, when economic democracy flourished. Amidst the economic crisis of the 1930s, anti-statism and individualism waned. So did tensions over religion and immigration, following the passage of legislative quotas and restrictions in 1924, before the Great Crash of 1929. All of this enabled the federal government to defend what Cowie calls “collective economic rights.” Cowie’s Great Exception is really a narrow window, the “anni mirabiles of 1935–1938.” In 1935 Congress passed the National Labor Relations (or Wagner) Act, which saw the U.S. federal government fully legalize, and even encourage, collective bargaining. The next few years formed the “heroic period of industrial organizing,” with dramatic strikes and labor victories at iconic corporations such as General Motors and U.S. Steel. In 1936, FDR dramatically campaigned for reelection, calling out “economic royalists.” Then, in 1937, FDR foolishly balanced the budget, a double-dip recession ensued, and the Democrats, despite their embrace of white southern segregationists, politically hit a wall.
Because labor politics had peaked in the 1930s, to Cowie the New Deal had already reached high tide. In the decades after the Second World War—a time of economic growth, rising real wages, and historically low levels of income inequality—the “main contours” of U.S. history slowly began to reestablish themselves. But the 1970s was the watershed, an “anti-1930s” bookend. “Labor declined, the ideology of individualism became central to all things, race divided politics, tensions over immigration returned, and the state slipped back to being hostile to workers’ rights.” The Great Exception was over. With collective economic rights in retreat, economic inequality “returned with a vengeance” to levels not seen since the first Gilded Age. The country jumped into a spaceship and time-traveled back to Grover Cleveland’s America.
For Cowie the economic successes of the post–Second World War decades resulted from an unlikely confluence of political conditions. The United States, he writes, is a fundamentally “conservative” place. No doubt he is correct that anti-statism and individualism are as deeply rooted in the American past as white racism. Debates over immigration have also made inclusive democratic politics more difficult, and the culture wars have failed to aid the cause of economic justice. The question is whether all of these political divisions—which undermined labor politics before the 1930s and after the 1970s—warrant such deep pessimism about the underlying direction of historical change, about the state of the present as well as what the future might hold.
Attention to political culture alone cannot satisfactorily answer these questions. Cowie invokes “economic structure,” but what his account largely neglects (that is, besides political subjects other than industrial labor) are epochal shifts in the structure of the U.S. economy since 1970. It is this inability to make sense of them and to grasp their direction that makes it so tempting to see the future as nothing more than a repetition of the distant and depressing past. But that economic past—the Gilded Age—is utterly distant. Nearly half of all Americans are not about to move back to living on family farms, like they did when Grover Cleveland was first elected president. Nor will the number of married women in the paid labor force drop to 5 percent—which was also the case under Cleveland—any time in the near future.
These irrevocable economic transformations, and many more, are the subject of Gordon’s encyclopedic The Rise and Fall of American Economic Growth, a new history of modern U.S. economic life, and perhaps the best yet written. If Cowie recounts a now familiar story about the political collapse of the New Deal order, centered on labor politics, Gordon provides a fresh narrative of economic change, with different emphases, different causes, and a different series of changes over time—though one that ultimately bends backwards too.
In Gordon’s book, it’s politics, not economics, that drops out of the picture. Economically, Gordon calls the century between 1870 and 1970 “special” because changes in the material standard of living were of a quality and magnitude unique to human history—and are not repeatable, let alone reversible. The changes that occurred between 1870 and 1940 amounted to a “revolution.” This was the era of the Second Industrial Revolution, when steam power and electricity drove technological and economic change. At first, urbanization and industrialization caused the deterioration of living conditions for most people (adult men were shorter than their predominately rural-born fathers). But then dramatic improvements occurred in the quality of food, clothing, and shelter, as well as in life expectancy, public health, and work safety. Gordon places special emphasis on the “networking” of the home. Around the turn of the twentieth century rich and poor all began to plug “into the same electric, water, sewer, gas, and telephone network.” Dramatic everyday improvements in the quality of life—indoor heat and plumbing, access to information and entertainment—followed.
Between 1940 and 1970 Gordon posits a “shift from revolution to evolution” still driven by technology, which brought about things like fast food, synthetic fibers, air conditioning, and air travel. The most notable changes concerned the elimination of household drudgery for women, including the almost complete elimination of manual laundry work and the onerous hauling of water and fuel. Then, after 1970, something like stasis in the improvement of the standard of living set in. Gordon admits technological innovation in information and communications continued—such as the development of personal computers and smart phones. But he argues that this Third Industrial Revolution, unlike the Second, is restricted to a relatively small sphere of activity and therefore cannot be nearly as transformative. He highlights the contrast by asking: would you rather have an iPhone in your pocket or indoor plumbing in your home?
Gordon’s analysis, in this register, is qualitative, because he says—refreshingly, for an economic historian—that standard measurements of economic welfare, like GDP, do not capture the most consequential changes to people’s lives. GDP does not “value the removal of horse droppings and urine from city streets”—let alone recognize the economic value of unremunerated household labor. But Gordon has another set of arguments to make about what he considers the most crucial quantitative metric—productivity.
In the final part of the book Gordon deals with the “sources of faster and slower growth,” and presents a quantitative history with a different chronology than that of his qualitative narrative. He splits this history into three periods—1870–1920, 1920–1970, and 1970–2014. Gordon’s numbers have earned much public attention, a rare thing for such painstaking counting. The period 1870–1920 looks very much like the period 1970–2014. The annual growth rate of output per person for each of these periods was 1.84, 2.41, and 1.77 percent respectively. The differences between these rates do not sound so stark until you learn that, after working hours rose during the first period (1870–1920), people worked fewer hours in the second period (1920–1970), and then after 1970, once again began working more. That means, output per hour worked—to Gordon and many others, the best measure of an economy’s productivity trend—was 1.79, 2.82, and 1.62 percent in each period. So, by this measure, we are doing worse than the first Gilded Agers. Statistically, the period 1920–1970 was something like a Great Exception.
So what happened, and what do these numbers mean? Gordon says that on the eve of the Great Depression, the productivity gains made possible by the Second Industrial Revolution had yet to be fully realized. The Great Crash of 1929 sent output and employment reeling, but, surprisingly, did not stop the torrid pace of productivity gains, which surged across the 1930s (here Gordon follows up on the path-breaking work of economist Alexander Field). In part, Gordon hints, this happened because the New Deal enforced what Cowie calls “collective economic rights.” Gordon spends little time on politics, simply noting that the Wagner Act supported collective bargaining, and that the Fair Labor Standards Act of 1938 established a minimum wage and reduced the work week to forty hours. These changes made labor more expensive, resulting in a business preference for capital inputs over labor inputs. Putting more capital—the capital goods of the Second Industrial Revolution, the plant and machinery of electrified assembly lines—into the hands of workers increased productivity by leaps and bounds because the same workers began to tend more productive plant and machinery. This also made possible postwar housewifery, which indirectly contributed to the decline in hours worked per person across the Golden Age of postwar economic expansion.
Still, it was only the Second World War—oddly, lying on the other side of Gordon’s qualitative divide of 1940—that did the job. The pressure war put on production led to many miracles in productivity. In 1942, for instance, a naval shipyard was scheduled to complete a Liberty freighter in eight months. A year later, it took two weeks. Wartime debt-financing forced household savings, increasing the rate of domestic capital formation and public and private investment. Only the Second World War ended the Great Depression, bringing about a productivity bonanza. In 1944, when military spending accounted for 80 percent of the entire U.S. economy, real GDP was almost double that of 1939. The U.S. economy coasted on these accomplishments for decades. The Second World War represents the anni mirabiles of Gordon’s Great Exception.
By the 1970s, the productivity gains of the Second Industrial Revolution were exhausted. Productivity flagged, contributing to wage-push inflation and the wider sense of industrial malaise. It has not revived—aside for the period 1996–2004—because technological innovation has occurred in the relatively narrow sector of information technology. The narrowness of the Third Industrial Revolution means eight years of solid productivity growth was all this revolution could muster. Is the Third Industrial Revolution over, at least in terms of productivity? It’s too early to know. But what Gordon can document is the absolutely putrid statistical performance of the U.S. economy since 2004. Pick your metric—productivity, real median wage growth, inequality—it’s all very bad. Add to this the qualitative history (nothing so momentous as rural electrification will ever happen again) and, for Gordon, it gets even bleaker. He concludes the book with pessimistic economic projections. Growth is likely to remain slow because of five “headwinds”: disappointing technological innovation, rising inequality, an aging population, a mediocre education system, and too much public and private debt.
Clocking in at more than 750 pages, Gordon has really written two books—a qualitative history of the material standard of living and a quantitative history of productivity growth. They have different periodizations, and, implicitly, different causes. Like Cowie, Gordon is pessimistic about the future of the U.S. economy, but for different reasons. Still, both of Gordon’s histories might easily warrant less downbeat conclusions. Gordon makes a powerful case that the Second Industrial Revolution made possible many one-shot improvements in the material standard of living that cannot be repeated. But it’s not clear why that should leave us pessimistic about the economic future, as opposed to simply being grateful for having running water (for those Americans who can still safely drink it). Likewise, while economists, underscoring the wonders of compound interest, rightly point to the drastic long-term consequences of seemingly slight differences in annual growth rates in GDP, the absence of growth today does not obviate past growth. Americans are still, by any standard of historical comparison, very, very rich. We are not about to start riding horses again or become as poor as many of the men and women of the Gilded Age simply because our underlying productivity growth resembles theirs.
The U.S. economy has changed a lot since the 1970s. But we are still stuck with old concepts and old categories for assessing it, and old politics for improving it. Growth is one of these old concepts. The Second Industrial Revolution brought about an economy that could produce, in the same given unit of time, ever more stuff. What the New Deal and the Second World War did was to channel investment into capital goods—the factories—that, over a generation, realized the potential productivity gains inherent in such an economy. It was easy to see it, possible to measure it—abundance rolled off the assembly lines and into U.S. split-level homes and two-car garages, as well as into only recently invented national income accounts, leading to higher productivity and GDP growth trends. Largely because of the labor politics of the New Deal order that Cowie emphasizes, organized labor remained in a good position after the War to capture a decent share of the income that resulted from the industrial economic process. And it did for three decades—even if it funneled that income overwhelmingly into the hands of white male breadwinners.
Cowie is too careful a historian not to add the qualification that the postwar decades were a good time to be a worker, but only if you were white, male, and straight. While Cowie dutifully blames white working-class racism (and presumably sexism and homophobia) for the limits of the Great Exception, his account—arguing that the social movements of the 1960s and 1970s “expanded the individual rights tradition” and therefore “made the 1980s celebration of the economic individual possible”—still veers uncomfortably close to blaming civil rights movements for the Great Exception’s end.
It may well be that the contemporary mood of economic pessimism has something to do with the increasingly dire economic fates of poor white men—the population the post–Second World War economy was designed to generate income gains for. White men still enjoy many absolute economic advantages over other groups, ranging from employment to income and wealth. But the trends are striking. White men are leaving the labor force, while white women, who are increasingly better educated (the percentage enrolled in U.S higher education had already surpassed men by 1980) continue to enter it (although it is true that women’s participation in the labor force has plateaued since the 1990s). The real median wage for men is lower in 2015 than it was in 1969 (women closed the wage gap across these decades by 20 percent). The post-1970 collapse of the urban manufacturing economy accompanied, not coincidentally, the criminal incarceration of the black subproletariat, but black incomes after 1970 have still risen faster than white incomes (although that gap has stabilized too, again, since the 1990s). So what has come to an end is a golden age for white men with nothing more than a high school education. Which means that many of them now experience economic suffering much like the hardships endured during the Great Exception golden age, only by other demographic groups. Some of these trends help explain Trumpism.
Gordon notes the “social crisis” of poorly educated white men, and he is very good on the entry of women into the labor force (better than Cowie, who is a labor historian), which helps explain why hours worked per person have increased since 1970. Gordon notes, almost in passing, that “In recent years faster progress for women has been accompanied by slower progress for men,” before concluding his book by tackling economic stagnation in rates of productivity growth across that same period.
Of the many informative tables and figures that grace Gordon’s book, the most significant in assessing the direction of economic change in recent years comes near the end, in the figure “Five-Year Moving Average of Ratio of Net Private Business Investment to Private Business Capital Stock, 1950–2013.” This figure shows the rate of investment in the U.S. economy, the trigger that should, in principle, initiate productivity growth and increase incomes, however distributed across the population. The rate has been trending steadily downward ever since 1970, and plummeted after 2000. This has continued while, at the same time, entering 2016, U.S. corporations sat on some $1.9 trillion in cash, which they have not yet invested. Gordon does not include the broken state of U.S. investment as a “headwind”—even as so much money sloshes around domestic and global financial markets, inflating asset prices and thereby contributing directly to the growth of wealth and income inequality.
Yet, while he doesn’t say it, Gordon’s book makes clear, in countless ways, that both qualitative improvements in the material standard of living and quantitatively measurable productivity growth occurred when capital was actually invested in physical infrastructure. Despite his relative inattention to politics and ideology, he also inadvertently demonstrates the large role historically played by public authorities in carrying out such investments. It was municipalities and public utilities that made many of the investments in sewage systems and water treatment facilities. The New Deal state was responsible for electrifying much of rural America. The Second World War state outfitted the U.S. economy—especially in the Pacific West—with a generation of productive capital stock. These were achievements of collective political action in response to the Depression and in the effort to win the War as much as underlying trends in productivity and growth.
What would happen if some authority induced investment, whether public or private, once again? There would be many prosaic options to choose from—crumbling bridges, rusted water pipes. Maybe Peter Thiel would finally get his flying cars, instead of 140 characters. Perhaps we would invest in robots, which may or may not emancipate us from drudgery, and which may or may not then take over. Maybe through investments in a different energy infrastructure the rate of global warming, a much more critical future trend line than GDP or productivity growth, could be slowed. It was fossil fuel inputs that made the productivity leaps of the Second Industrial Revolution possible after all. Could productivity growth return to Great Exception levels? We don’t know, but there’s little reason to think we should care. The chief economic problem today is not that we do not have enough wealth, but that we do not have the ability to direct it towards the most worthy of human aspirations. An economy of white male breadwinners is not one of them. Neither is a fixation on growth.
To begin to invest—and in the right things—will again require mass politics of some sort, and hopefully not the mass politics of popular support for another total war, one trigger of the mid-twentieth-century U.S. investment boom. The labor politics that Cowie very nearly romanticizes, which focuses upon the distribution of the income that results from industrial economic activity, is not the only possible labor politics. We also need investment, or that which initiates the economic process to begin with, so that wealth is produced. The investment function has a history too, which Gordon has skimmed, but it is by nature forward-looking. It demands imagination about our economic future. Letting go of unwarranted nostalgia for the postwar decades and avoiding melancholic flights back to Grover Cleveland’s America can only help.
Jonathan Levy teaches history at the University of Chicago. He is currently completing a book on the history of American capitalism.