The following story is co-published with Freddie deBoer’s Substack .
Why does it feel like everything is breaking down, like something is fundamentally wrong with the American economy? Unemployment rates stay stubbornly low despite constant predictions, inflation is worse than recent history but not that bad compared to living memory, stocks are at all-time highs, manufactured goods remain remarkably affordable. So why is confidence in the economy so low? The answers to that question are many — oh, so many! — but I think a key reason is that the whole concept of the American dream was forged in a roughly 30-to-40-year period of unusual technological and productivity growth that we’ve been unable to replicate since. It’s strange that those 30-40 years or so have played such an outsized role in defining our cultural conception of the good life, but it seems clear to me that they have played such a role. And so we’re living with a conception of what ordinary people are owed by the system that’s out of step with what the system is currently willing or able to provide, and yet stuck in a political culture that’s unwilling to consider really changing the bargain, in a way that has inevitably created unhappiness.
Oftentimes, the post-World War II American economy is discussed in terms of the “Fordist compromise.” What was the Fordist compromise? A bargain among three parties:
- Companies/firms/employers accepted strong unions and the costs associated with them, monetary costs in the form of high(er) wages, pensions and health insurance and administrative costs in terms of having to bargain with the unions for what they wanted; in return, they enjoyed long periods of macroeconomic and local stability, large productivity gains and high profits.
- Workers accepted managerial control of the shop floor (not a guarantee in the pre-modern economy), the company making investment decisions that could have large local impacts on worker lives, and earning less than the boss; in exchange, they received unusual levels of financial security and workplace continuity (particularly as they gained seniority), as well as high wages for uneducated labor relative to most of the history of capitalism.
- The state accepted an enormous amount of public investment in terms of the New Deal and Great Society social programs, the role of continuing to build out the interstate highway system that made commerce possible, the underwriting of federally backed mortgages, the responsibility to practice Keynesian demand management and the job of maintaining the peace in the whole system; in exchange, we saw top marginal tax rates in excess of 80% to 90%, the ability to fund an enormous defense sector during the Cold War, a period of relatively stable labor relations compared to the first half of the 20th century and a profound lack of internal political competition from other major political and economic systems, particularly communism.
We must always take care to point out that there were a lot of exogenous factors that shored up the Fordist compromise. After World War II, our major European industrial rivals were in literal ruins, while later competitors like Japan, China and Korea had not yet risen; we enjoyed the growth benefits of truly Herculean industrial efforts in fighting the war, which now bore fruit in terms of factory capacity, technological development and a seasoned workforce. Meanwhile the Bretton Woods system had placed the dollar at the center of the financial universe. What’s more, it’s absolutely true and notable that women workers were effectively written out of this bargain entirely, Black men and other racial minorities faced systemic discrimination within the system, and agricultural and domestic workers did not enjoy many of these benefits and protections. All of that is true and important. But it’s also true that this period saw unusually high gross domestic product growth, unusually high productivity growth and unusually high socioeconomic equality — unusually and, it turned out, unsustainably.
I’ve talked a lot about the idea of a “great stagnation” in regards to artificial intelligence , but obviously the concept has far broader consequences. I most associate the idea with Robert J. Gordon and his book “The Rise and Fall of American Growth,” but other economists like Tyler Cowen have written about the same broad themes, and few doubt the overall picture: that the postwar boom years didn’t last. GDP growth is now a little more than half of what it was at its peak in the late 1960s. Productivity data is notoriously noisy, and as you can see, those figures re-peaked in the mid-2000s. But in the past half-century average productivity growth has certainly been lower than it was in the midcentury. We’ve also seen notoriously widening inequality during my lifetime. The result is a country where the pie is growing less quickly and the divvying up of the pie increasingly benefits the already enriched, a condition which has certainly helped inflame populist tensions, whatever you think of the larger analysis and whether you’re talking about Donald Trump or Bernie Sanders .
The Fordist economy was not some left-wing dream.
We should be clear that the Fordist economy was not some left-wing dream. From a Marxist perspective, all of the labor power in the world couldn’t change the fact that the system was still built on ownership capturing the surplus value of workers — workers who had no ability to stop the powers that be from blowing the whole thing up once it became profitable to do so. The identity-based exclusions I mentioned earlier were existential and morally damning, and the failure of gains in the industrial and manufacturing sectors to improve conditions in the service and agricultural industries created another axis of social inequality. Meanwhile a common conservative read of the stagflation crisis of the ’70s suggests that it fundamentally stemmed from the Fordist bargain: Workers were overempowered in that version of the story, both squeezing corporate profits in a way that killed growth and contributing to inflation by keeping prices high. When manufacturing was still largely domestic and manufacturing workers were well paid, manufactured goods were going to remain expensive to produce and buy.
The Marxist historian Robert Brenner’s article and subsequent book, “The Economics of Global Turbulence,” were published in 1998 and 2006, respectively. Brenner’s central argument, one of my favorite big-think treatises ever, was eerily prescient about the global financial crisis of 2008 and the subsequent recession, and its central contentions are also a fierce criticism of conventional portrayals of Fordism and its demise. For Brenner, the whole deal rested on those unique conditions of the post-war world — the physical destruction of America’s industrial rivals and impediments to global imports and exports (both legal and practical) allowed for a period of artificially high profits for American manufacturing that was never sustainable. As Germany and Japan rebuilt, their industrial muscle started to introduce manufacturing competition that eroded American profit margins and contributed to the 1970s crisis; in time, development in China, South America and other parts of the world generated even more competition for the creation of physical goods, with worker populations that had vastly lower wage expectations, meaning our own factories couldn’t compete. The deindustrialization wave and its human costs followed and (yes, folks) helped spur antiestablishment fervor in this country. Meanwhile, the ideas class enjoyed various protections from the kind of developing world competition the industrial class faced, leading to the two-tiered American economy that we have lived with this century.
But the stock market has grown to a remarkable degree, in the last quarter century, and the richest quintile and 1% and .01% are vastly more wealthy than they once were. Where is that money coming from, if the “real” American economy of the production of material goods is broken? From financialization. The post-industrial United States has been the site of an immense amount of innovation in the financial section, with all manner of new money-making instruments for banks and lenders and investors. The 2008 financial crisis was infamously driven by an alphabet soup of byzantine Wall Street vehicles, collateralized debt obligations and credit default swaps, “tranches” of mortgages packaged and repackaged, all kinds of leveraged plays. Indeed, a remarkable portion of the overall growth in our economy in this century has stemmed from the finance industry and its various ripple-down effects. Take it away, Brenner argues, and you’d likely conclude that the stagflationary 1970s never really ended. Unfortunately, this period has also seen regular, successive financial bubbles, busts and subsequent recessions — the S&L scandal of the 1980s, the dot-com bubble of the late 1990s and early 2000s, the subprime mortgage crisis and Great Recession of the late 2000s, the dizzying bubble of the AI buildout now. It’s “the economics of global turbulence” because in an era dependent on increasingly arcane financial chicanery there’s always another crash coming.
Enron is a remarkably perfect example of the perils of the financialization era. Enron was once firmly a part of the “real” economy — it was an energy company that built physical infrastructure like pipelines and power plants, moving fossil fuels around its service areas for a profit. But under Jeffrey Skilling, it became essentially a financial firm, a trading firm, a “market maker.” Enron’s great market advantage ceased to be the value of the stuff it actually physically built but rather its ability to price and sell contracts . But this stuff always comes with instability attached and the sky-high profits evaporated once the inherent skullduggery was inevitably revealed. That’s the story of the 21st century American economy: the demise of the profitability of the actual physical product leading to increasing reliance on abstruse financial machinations, which provide short-term profits but long-term vulnerability. You could look at the great example of America’s lost manufacturing dominance, the car companies, for another object lesson. Detroit now hosts in-house financing arms that produce a vast amount of profit for the automakers, profits which help obscure the declining fortunes of actually just making and selling cars.
In an era dependent on increasingly arcane financial chicanery, there’s always another crash coming.
Whatever version of critiques of the Fordist economy you prefer — and we know that bargain was unsustainable, given that it was not sustained — you can also see why the current era is so unsatisfying to so many. It gets at the big-picture cultural stuff I’m always talking about: the demise of the respectable ordinary job; youth addiction to get-rich-quick schemes and the broader sense of gambling (in one form or another) as the only way to be successful; the burning desire not just for success but for wealth and fame, and for those to come early in life; the disease of endless comparison to others; the devaluation of maintenance relative to the endless obsession with innovation; spiraling personal debt loads; the dominance of large firms, which have the ability to secure financial arrangements newer and smaller competitors can’t; the pervasive feeling that the economy is rigged, even among the economy’s winners; generational warfare; the death of the very concept of having enough. I was talking to a professor friend of mine recently and he was telling me that what’s striking to him is the degree to which his students aren’t looking for success within the labor market or traditional economy but for exit from them, that success isn’t a good job but rather getting rich enough to not have one. However flawed the old way was, and however much we might believe that its demise was inevitable, the vibes now are bad indeed.
The important question is whether we can build something better, via evolution or revolution. The question that nags at me, though, is why that period has proven to be so influential for so long. We’ve been in the post-Fordist economy now for significantly longer than the Fordist bargain ever held. You say that this is a product of cultural propaganda, that it’s because of the persistence of the dream as nostalgia (“The Wonder Years,” “American Pastoral,” “Roger & Me”), as a lament for what’s been lost (Bruce Springsteen, “Born on the Fourth of July”), as irony (“Mad Men,” “Revolutionary Road”) or as all three (“Back to the Future,” “The Simpsons”). But I think this just brings us circling back to the question of “why then?” I don’t have a good answer for you today, other than that I think the 20th century was a period of remarkable mythmaking potential, while the 21st is decidedly not, and that’s part of what has made so many people unhappy. But clearly we’re living in the shadow of definitions of the good life that many now feel are not available to them, and rising nominal GDP and swollen valuations on the S&P 500 aren’t getting it done either. The unhappiness is deep and the malaise continues and, as you know, I am very skeptical that large language models are going to change that anytime soon.
What comes next? Not the Fordist compromise; history doesn’t actually repeat, not in those kinds of particulars. But we continue, in the Trump era, to be a country that can’t shake its yearning for that past, whether it’s real or imagined, and I am reminded of the lines Lenin probably did not say: “There are decades where nothing happens; and there are weeks where decades happen.” The trouble is that it’s almost impossible to know which is which when you’re living in them.
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Fordism’s 50-Year Hangover
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