Problem #18: A General Observation about the Economy

Problem #18: A General Observation about the Economy

First off, as I’ve tried to make clear, I’m an engineer, meaning that I don’t go for ideologies that don’t have some facts to support them. Economics is perhaps the least engineer-friendly field in the world, given that the chief achivement of most economics is to predict the past, and usually not at all well.

But I’m also interested in history, and history has much to say about how a good economy should work. A few general principles can be derived by looking at US history over the 20th century:

• The most broadly-prosperous period of US history during the 20th century- indeed, the most broadly-prosperous period of human history, all told- was in the first few decades following World War II. It should be noted that, of course, much of the US’ dominant position was due to most of the rest of the established world economies rebuilding themselves after the war, while the US was, largely, sheltered by 2 enormous moats called the Atlantic and Pacific Oceans. However, at the same time as the US economy was enormously productive, it was investing significant sums of US funds into rebuilding Europe and Japan.
• The US tax structure of the 1950s was sharply progressive, with the top marginal rate never dropping below 90%. To be clear, marginal taxation means that only income above a specified rate is taxed at the higher level; income below the specfied rate in the 1950s would not have been taxed at 90%.
• The 1950s were marked by high rates of union membership in the public and private sectors.
• The 1950s and 1960s were times of significant investment in infrastructure, including the Interstate system.
• The two greatest economic downturns since the beginning of the 20th century- the Great Depression and Great Recession- followed periods much flatter taxation than during the 1950s, of low union membership, and of less investment in public infrastructure.

The conclusion should be clear: following the policies of the 1950s and 1960s results in a much stronger economy than following those of the 1920s and 2000s. But, again, that’s just an engineer using pesky facts.