How This All Happened
- Reference Note
- Dates: May 17th, 2020
- Connections:
- Highlights
- the short story of what happened over the last 73 years is simple: Things were very uncertain, then they were very good, then pretty bad, then really good, then really bad, and now here we are.
- 1947 This fear was exacerbated by the fact that exports couldn’t be immediately relied upon for growth, as two of the largest economies – Europe and Japan – sat in ruins dealing with humanitarian crises. And America itself was buried in more debt than ever before, limiting direct government stimulus. - The first thing we did to keep the economy afloat after the war was keep interest rates low.
- low rates also did something else for all the returning GIs. It made borrowing to buy homes, cars, gadgets, and toys really cheap.
- Consumption became an explicit economic strategy in the years after World War II.
- After 1945, America again diverged from patterns of savings promotion in Europe and East Asia … Politicians, businessmen and labor leaders all encouraged Americans to spend to foster economic growth.
- GI Bill, which offered unprecedented mortgage opportunities. Sixteen million veterans could buy a home often with no money down, no interest in the first year, and fixed rates so low that monthly mortgage payments could be lower than a rental.
- explosion of consumer credit, enabled by the loosening of Depression-era regulations. The first credit card was introduced in 1950. Store credit, installment credit, personal loans, payday loans – everything took off. And interest on all debt, including credit cards, was tax deductible at the time.
- the 1950s came around and we suddenly realized, “Wow, we have some amazing new inventions. And we’re really good at making them.”
- 1.9 million homes were built from 1940 to 1945. Then 7 million were built from 1945 to 1950. Another 8 million were built by 1955.
- The defining characteristic of economics in the 1950s is that the country got rich by making the poor less poor.
- income growth was so strong during this period that the impact on households wasn’t severe. And household debt was so low to begin with after the war.
- 1973 was the first year where it became clear the economy was walking down a new path.
- Everything keeps pointing back to this year.
- Many of the largest countries had their manufacturing capacity bombed into rubble. But as the 1970s emerged, that changed. Japan was booming. China’s economy was opening up. The Middle East was flexing its oil muscles.
- Baby Boomers began coming of age. A new generation that had a different view of what’s normal and expected hit at the same time a lot of the economic tailwinds of the previous two decades ended.
- sharp inequality became a force over the last 35 years, and it happened during a period where, culturally, Americans held onto two ideas rooted in the post-WW2 economy: That you should live a lifestyle similar to most other Americans, and that taking on debt to finance that lifestyle is acceptable.
- Quantitative easing both prevented economic collapse and boosted asset prices, a boon for those who owned them – mostly rich people.
- Tax cuts over the last 20 years have predominantly gone to those with higher incomes. People with higher incomes send their kids to the best colleges. Those kids can go on to earn higher incomes and invest in corporate debt that will be backstopped by the Fed, own stocks that will be supported by various government policies, and so on.
- stuff isn’t working for them within the context of the post-war expectation that stuff should work roughly the same for roughly everyone.
- History is just one damn thing after another.