Economics 101

Are the 2020s Going to be Like the 1970s?

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Editor’s Note: This is an excerpt from Dr. Bradley’s recent article in the journal, Religion & Liberty Volume 35, published by the Acton Institute. Read the full article here. Republished with permission.

It is an amazing time to be alive. The past 250 years have witnessed a remarkable and unprecedented level of economic growth. Most countries today are richer than they were 50 years ago, and in the U.S. we are far richer. Economic growth is not the only relevant factor for human flourishing, but we cannot experience flourishing without it. Economic growth is sustained by open markets that provide ordinary people with the incentives they need to discover better ways of doing things. This learning and discovery are rooted in the constant refining of the division of labor and ensuing specialization. Adam Smith knew this was possible and witnessed it as early as the mid-18th century. The optimism he had for the extension of opulence to the most destitute has come to fruition. Yet we seem afraid to embrace it. Pundits on both the right and the left decry the opulence they rely upon daily. Adam Smith, too, worried about the spiritual and ethical effects of opulence. Money can’t save our souls, after all. But what is lost on both sides of the political aisle is a recognition that unfettered markets have brought universally increased standards of living.

What’s more curious is how these pundits suggest we fix the wealthy society we enjoy. On the left you hear arguments for extreme progressive taxation and indictments of corporate greed as the source of inflation. This leads some, including Elizabeth Warren and Janet Yellen, to demand a global corporate tax. There are also calls for price controls as a mechanism for mitigating inflation and more universal government programs in healthcare, daycare, and higher education. On the right we hear rants against globalism and among some a call to return to an economic nationalism that is just modern mercantilism, another idea as old as the sun.

Declining Divorce Rates

Markets are not simply stylized supply-and-demand abstractions. They are neither robotic nor removed from human action—they reflect individual choices. Thus, the sociological context of an economy matters greatly. The 1970s were a time of great change in family dynamics. The divorce rate began to increase rapidly starting in 1964, a trend that increased after 1974 but at a decreasing rate. Approximately 1,077,000 divorces were granted in 1976, bringing the divorce rate to 5.0 per 1,000. The divorce rate per 1,000 married women increased 94% between 1962 and 1973 (from 9.4 to 18.2).

Today, however, divorce rates are far lower. Both marriage and divorce rates declined from 2009 to 2019. In 2019 there were 16.3 new marriages for every 1,000 women aged 15 and over, down from 17.6 in 2009. Simultaneously, the U.S. divorce rates fell from 9.7 new divorces per 1,000 women aged 15 and over in 2009 to 7.6 in 2019.

Divorce rates are declining but, alas, so are marriage and birth rates. Wealthy countries whose birth rates fall too low risk falling short of the creation mandate to be fruitful and multiply, and so put their economic growth at risk. People are good for the planet. Human flourishing requires humans, and we need an economic and political environment that supports work.

Turbulent Unemployment Rates

Workers had a much tougher time in the 1970s. Unemployment reached a high of 9% in 1975. Any occasion in an economy when there are large numbers of employees who cannot find work brings social and political pressure for solutions. Looking to the 1970s and today, we often see that these policy solutions often harm the very people they intend to support and grow the size of the government at all levels, which is a promise for a less dynamic economy both now and in the future. In February 2020, prior to COVID-19 lockdowns, U.S. unemployment was the lowest it had been, particularly for African Americans and Latinos, in 40 years. The pandemic erased that success, with a 14.7% unemployment level in April of 2020 during the worst part of the lockdowns. But U.S. unemployment has rebounded as the economy has reopened. The 1970s represented persistent levels of higher unemployment, something to keep in mind.

Julian Simon explained human capital the best—people are not just mouths to feed but hands to work. Human capital is the most essential type of capital because it’s the source of ideas and innovation. When we see an economy with people willing to work but who cannot find jobs, there is cause for concern. But that is not what we are seeing now.

The Misery Index

The Misery Index, aptly named, combines levels of unemployment with inflation that gives us some sense of the quality of life for ordinary people. Inflation represents the decline in the dollar’s purchasing power, and growing levels of inflation hurt those toward the bottom of the income distribution the most. The Misery Index experienced a large increase over the 1970s, reaching its all-time peak of 21.9% in 1980, a significant jump from 11.67% in 1970.

The index was turbulent during the 1970s, rising to 19.90 percent in 1975 then dropping and rising again around 1978. Even the Great Recession did not have the impact on the Misery Index that the decade of the 1970s did. In 2006 it sat at 5.71%, and by 2011 was 12.73%. From 2015 to 2019, it hovered near 5%, and then the COVID-19 pandemic and its accompanying policy responses were unleashed on the economy. In April 2020, the Misery Index reached 15% and now sits around 11.48%—half its 1970s peak. Even a global pandemic that induced politicians on both the right and left to usher in unprecedented levels of tyranny, including lockdowns of businesses, churches, and schools, did not raise unemployment and inflation to 1970s levels.

What the COVID-19 pandemic, the Great Recession, 9/11, or any other crisis, whether natural or manmade, reveals is that the more things change, the more they stay the same. Tyranny waits for a crisis; it always has. Economic freedom and economic growth insulate us from the unmitigated growth of power. That is the largest difference between today and the 1970s—we are all richer.

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