In a recent online column, "We’re in a Low-Growth World. How Did We Get Here?", Neil Irwin (@Neil_Irwin), senior economic correspondent at The New York Times's The Upshot and author of The Alchemists: Three Central Bankers and a World on Fire, notes the US's slow economic growth and writes:
This slow growth is not some new phenomenon, but rather the way it has been for 15 years and counting. In the United States, per-person gross domestic product rose by an average of 2.2 percent a year from 1947 through 2000 — but starting in 2001 has averaged only 0.9 percent. The economies of Western Europe and Japan have done worse than that.
Fifteen years is nothing compared to 100s of years, and—invoking economic Thomas Piketty—I said as much on Facebook in reaction to Irwin's article: slow growth has actually been the historic norm.
My friend Kurt Klein, formerly of BNY Mellon, basically agreed and provided a great summary, including a chart. (Yay, charts in Facebook comments!)
This chart shows that very well. (Click to view full size in a separate browser window.)
The historic norm is VERY low growth, period, going back as far as we have reliable data.
It sped up slightly in the late middle ages (in the West, at least, this was the paradoxical result of the black plague), and the early colonial era.
The real breakout was the Industrial Revolution, beginning a little over two centuries ago.
This crashed with the triple whammy of the two world wars and the Depression in between, followed by the tremendous spurt that lasted into the 1970s: what the French call the "les trente glorieuses." [The Glorious Thirty, i.e. 1945 to 1975... Kurt thinks I know French better than I do.]
Piketty's thesis is that the rentier class's disproportionate wealth and power, which had also historically been the norm, was greatly reduced by the multiple traumas of the 20th century's first half, undermining their political power.
This allowed a period of high wealth and income redistribution, through the combinations of unions and government mechanisms. In this relatively egalitarian period, the new economic heft of an expanded middle class created a virtuous cycle, with increased demand spurring higher levels of investment to meet it.
But there was a fly in the ointment.
Even with greater redistribution, in the absence of shocks like those which hit them until mid-century, the economic elite was able to gradually rebuild its wealth. Not completely, but enough that, by the 1970s they were strong enough to launch a counterattack, and the opportunity arose with the multiple problems of the decade.
Citing these as proof that more liberal policies had failed, they began to dismantle the redistributive systems which still stood in their way, and by the early 2000s had reestablished the wealth inequality levels of the 1920s.
These observations led Piketty to his most sweeping claim: that because the rich don't consume all of their income, reinvesting much of it instead, they will automatically grab a bigger and bigger share of the pie unless they are restrained, either by exogenous disasters or even stronger redistributive polices than those after the war.
If true, this is a very disheartening result.
It means the huge and growing power of the rich will be able to fight off sufficiently aggressive redistribution, unless and until big enough shocks again undermine their power.