Hindsight isn’t very comfortable: We’d rather strain our necks and see a better future, a brighter portfolio, a stronger economy. This behavior ignores a fundamental truth. If we don’t understand where we’ve been, we won’t know where we’re going.
Award-winning columnist for The Washington Post and Newsweek Robert J. Samuelson says that following the double-digit inflation of the 1980s, a wave of almost uninterrupted economic growth, rising stock prices, and growing home values actually contributed to the financial crisis by lulling us into complacency. It’s a provocative assessment, put forward in a new book, The Great Inflation and Its Aftermath: The Past and Future of American Affluence (Random House). The Fiscal Times spoke to Samuelson recently; here are excerpts from the interview.
The Fiscal Times (TFT): You’re not a history professor or an economist—you’re a journalist who’s covered economics and politics for many years. So explain why you’ve chosen to focus on the ‘great inflation’ of the 1960s and ‘70s .
Robert Samuelson (RS): History is important. We've forgotten the history of inflation, both the rise of double-digit inflation, which culminated in the early ‘80s, with inflation rates at the 13, 14, 15 percent level, and the significance of declining inflation. The decline of double-digit inflation in the ‘80s and ‘90s really ushered in a 25-year period of prolonged prosperity, with only two minor recessions. It was a time when the stock market boomed and people enjoyed higher living standards, and we became acclimated to that prosperity.
But it had perverse and paradoxical consequences. People became careless and complacent. That carelessness and complacency led to the financial crisis. People made loans that shouldn’t have been made, packaged them in securities which never should have been sold, and so on. The larger lesson is that if you don’t pay attention to history, you can't understand what's going on today.
TFT: Yet our society doesn't promote the importance of understanding that history.
RS: Americans are very future-oriented. My guess is that the kids in college today regard something that happened in the 1990s as pretty much ancient history, and the 1980s are probably completely off their radar screens. Never mind World War II, the Great Depression, the ‘50s and the ‘60s—they hardly existed. I don't say this condescendingly, because when I was in the college in the '60s, I felt the same way. Our generation knew almost nothing about the Great Depression. This is just a persistent part of our national character. I'm warring against it, although I know it's futile.
TFT: Does it have to be futile?
RS: I think it is. As people get older, they become more interested in history. I certainly have. It happens for two reasons. You begin to appreciate that you can't really understand the present unless you understand what came before it, and that not everything exists in the future. You ask yourself more often, ‘Did these things happen to other people? If so, what can I learn from that?’ But still there's a strong streak in the American character which is very forward looking. It tends to downplay history.
TFT: You say we’ve developed an expectation of affluence over time. Yet given today’s fragile economy and the enormous deficit, our children and our children's children may not experience that same level of affluence. How do we adjust their expectations while continuing to encourage them to strive for their highest goals?
RS: It’s a very interesting dilemma. I have three children, and they're in their early 20s. This is not a great time for them to begin a career. I think the word ‘entitlement’ really sums up the psychology of post WWII America. Entitlement is usually used, of course, in reference to government programs like Social Security and Medicare, to which people are entitled if they display certain characteristics, such as being over 65 and having paid Social Security taxes for years.
But the way I use 'entitlement' is as a state of mind, a mindset. In the postwar period, in the ‘50s and ‘60s, ‘70s and even the ‘80s, people developed this psychology where they felt that, as long as they behaved responsibly, as individuals they were entitled to certain things, to rising living standards and reasonably secure jobs. They had a pervasive safety net, provided by the government, so that if they became disabled or sick or unemployed, they would not just be thrown out on the street. Our sense of pride was very much connected to these higher living standards and greater security. I think what we're losing today, what my children don't have, and what I personally have less of than I did just five years ago, is that security—what we thought of as evidence of progress.
TFT: So it’s a state of regression, in a certain respect.
RS: It’s a loss of psychological comfort, a sense that if you worked for a reasonably big company and if you weren't too awful—or something awful didn’t happen to your company—you could basically expect to work for that company for the next 15-to-20 years. And if you started working there in your late 30s or early 40s, you'd probably retire there.
TFT: That brings to mind the IBMs or GMs of the past.
RS: Yes, IBM, GM, Delta Air Lines, Time-Life, and even the company I work for, The Washington Post Company. These companies once epitomized career employment. But the idea that responsible business managers can essentially insulate their career workforces against the business cycle—that’s almost a dead letter now. It means a much more unsettled future for my children. Maybe it's a good thing. I don’t know. But it's certainly unsettling to me on their behalf.
TFT: As for the advice from some career counselors who say you shouldn’t just think one or two jobs ahead, but ten ahead—your thoughts?
RS: That’s impossible. You can’t plan it like that. But today you do need to cultivate as many skills as possible. You don’t know whether the skills you currently have are the skills you will actually need. You need to be adaptable, within limits. You need to have a strong work ethic and the ability to deal with people—now that is a real skill worth developing.
An excerpt from The Great Inflation and Its Aftermath by Robert J. Samuelson (Random House):
Most capitalist systems, and certainly ours, mix private and government power in ways intended to promote growth, stability, and “fairness.” The trouble is that the essence of capitalism is change and upheaval. It is a massive system of trial and error that creates new technologies, products and forms of organization and markets.
So our efforts to pacify and control its energies—to channel them to make the system more humane and to advance larger social goals—pose a dilemma. If these efforts are too constricting, they will compromise or cripple capitalism’s capacity to increase wealth. But if we tolerate the system’s shifts without limit or succor for its victims, then we ordain constant and undesirable disruption. Some economic turmoil is always inevitable, and the very effort to suppress it may bring it about.
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