The Mythical 70s: It’s actually even worse than Matt [O'Brien] says. For the 1970s such people remember as a cautionary tale bears little resemblance to the 1970s that actually happened. In elite mythology, the origins of the crisis of the 70s, like the supposed origins of our current crisis, lay in excess: too much debt, too much coddling of those slovenly proles via a strong welfare state. The suffering of 1979-82 was necessary payback. None of that is remotely true. There was no deficit problem: government debt was low and stable or falling as a share of GDP during the 70s… a runaway welfare state more broadly just wasn’t an issue — hey, these days right-wingers complaining about a nation of takers tend to use the low-dependency 70s as a baseline.
What we did have was a wage-price spiral… exacerbated by big oil shocks… a case of self-fulfilling expectations, and the problem was to break the cycle.
So why did we need a terrible recession? Not to pay for our past sins, but simply as a way to cool the action…. Was there a better way? Ideally, we should have been able to get all the relevant parties in a room and say, look, this inflation has to stop; you workers, reduce your wage demands, you businesses, cancel your price increases, and for our part, we agree to stop printing money so the whole thing is over. That way, you’d get price stability without the recession. And in some small, cohesive countries that is more or less what happened. (Check out the Israeli stabilization of 1985). But America wasn’t like that, and the decision was made to do it the hard, brutal way. This was not a policy triumph! It was, in a way, a confession of despair….
No, America didn’t return to vigorous productivity growth — that didn’t happen until the mid-1990s. 60-year-old men should remember that a decade after the Volcker disinflation we were still very much in a national funk; remember the old joke that the Cold War was over, and Japan won? So it would be bad enough if we were basing policy today on lessons from the 70s. It’s even worse that we’re basing policy today on a mythical 70s that never was.
One thing going on is that the 1980s did see (a) a reduction in the progressively of taxation and (b) the start of the huge surge in overclass income. For overclass people--or people who are now part of the overclass and who then identified with the overclass like Michael Kinsley--the 1980s were pretty good (as, by the way, were the 2000s up until 2007).