Brad DeLong (1996): Should Reagan Have Been Impeached? Yes, But for Lack of Control Over His Administration
J. Bradford DeLong (1997), "American Fiscal Policy in the Shadow of the Great Depression"

J. Bradford DeLong (1997), "Review of Daniel Cohen's The Misfortunes of Prosperity"

J. Bradford DeLong (1997), "Review of Daniel Cohen's The Misfortunes of Prosperity," in the Federal Reserve Bank of Boston Regional Review 7:1 (Winter), pp. 25-6:

Brad DeLong: The Misfortunes of Prosperity (12/21/1996): New England Economic Review (1997):

Cohen, Daniel. The Misfortunes of Prosperity: An Introduction to Modern Political Economy. Trans. Jacqueline Lindenfeld (from French). An expanded and revised edition of Les Infortunes de la Prospérité (Julliard, 1994). Cambridge, MA: M.I.T. Press, 1995.

Daniel Cohen has written two very good books. He has managed to stuff them both into a very small space: the 134 8' x 5' text pages that make up his The Misfortunes of Prosperity: An Introduction to Modern Political Economy.

The first book is about the coming of the New Iron Age (as distinguished from the Old Iron Age that began in roughly 1500 B.C.)--the Industrial Revolution that the OECD countries went through in the past two centuries--and the coming of the New Silicon Age--the Post-Industrial Revolution that is now underway.

The second book is of necessity narrower in scope: its subject is modern macroecnomic policy, the very long shadow cast by John Maynard Keynes, and whether the Keynesian doctrines that--still--govern the thoughts of most policy-oriented economists can deal with the world in which we find ourselves. The result is remarkably short and remarkably readable. But this is not a book that should be read quickly. It is a book that wants to make you think. And you should read it slowly enough that it has time to do its task and make you think.

The Industrial and Post-Industrial Revolutions

Perhaps the best part of his first book is his observation that the Industrial Revolution proper--the coming of the New Iron Age--was a great surprise. The classical economists--even the relatively optimistic Adam Smith--did not believe in economic growth. They followed Malthus, saw prosperity bringing rising life expectancies and higher birth rates, and predicted that prosperity would be followed by rising population until once again the standard of living of the typical family fell back to bare subsistence. A small minority at the top of society might live very well indeed; the masses might live well during periods of 'improvement'; the progress of the useful arts might support a larger--poor--population on a given resource base; but the idea of rising living standards for all over a period of centuries would have struck them as perverse, bizarre, and impossible.

How very different is the world in which we appear to live!

The productivity of French agriculture leaped twelve-fold in the thirty years after World War II. The average French citizen today has something like sixteen times the purchasing power of the average French citizen of two centuries ago. And rather than setting in motion a rapid increase in population, once countries have industrialized the rate of population growth falls: it is unclear whether the population of France in a century will be greater or less than it is today.

Malthus may, ultimately, have his revenge. Ozone depletion, global warming, or simply a failure of large parts of the world to undergo the population growth-slowing 'demographic transition' may bring us back to a future in which life for the bulk of human beings is nasty, brutish, and short. But Malthus's revenge is only one of the possible futures that we now see: the other is of expanding growth and increasing opulence.

The fastest economic growth of this--or of any--century came in what Jean Fourastié has termed the 'thirty glorious years' that followed World War II, during which, as Daniel Cohen writes:

modernity came to... French village[s] like a bolt of lightning.... [The] remote [rural] parts of [western] Europe... went from the pre-industrial era to modernity in thirty years...

The immediate post-World War II decades also brought an end to Marxism as an economic theory--although Marxism as a political movement did not finally die until 1989. The claim that the wealth of the rich and the power of modern industry could flourish in a market economy only alongside the misery of the working class was shown as absurd. The working class became clearly unmiserable, bought automobiles, and in large part moved to the suburbs.

It is one of the misfortunes of our prosperity that we in the industrial west were so spoiled by the post-World War II boom that we are disappointed by the current, slower pace of economic growth. Any previous epoch would take economic growth at the pace we experience it now as a miracle. Yet we all compare it to the pace of growth over 1945-1973, and find it wanting.

The Shadow of Keynes

The economic problem of the Great Depression--when John Maynard Keynes wrote his most influential works--was mass unemployment. The economic problems of our age are, in the United States, rising income inequality; in the European Union, high unemployment; in the developing world, a failure to rapidly adopt the productivity-multiplying technologies of the industrial revolution; in eastern Europe, the difficulties of shifting from a command to a market economy.

Daniel Cohen concentrates on the European Union, with only occasional sidelong glances across the Atlantic at the United States or across the Baltic at the Scandinavian social democracies.

His conclusion is that the European Union has had high unemployment because unemployment has been 'feared less than the remedies that would have been necessary to contain it.' The 'ultra-liberal' remedy--the United States--increases the speed with which those who seek jobs find them because 'those who have jobs are forced to compete with those who do not'; one consequence is great insecurity on the part of the employed, and steady downward pressure on their wages from this competition that has led to widening income inequality. The 'ultra-corporatist' remedy--Sweden--finds jobs for the unemployed by boosting public employment and spending large sums on reentry programs for the jobless; these costly reentry programs must be paid for by higher taxation, and the fear is either that higher taxation will slow economic growth or that programs for the unemployed will crowd out other social benefits. The European Union is stuck in the middle.

As Cohen writes, in the European Union:

The war on unemployment is in the hands of governments which represent first and foremost the point of view of the people who have jobs and fear losing them.

Is there a way out of this dilemma? Cohen does not see one. And in fact he is significantly pessimistic about the ability of governments to manage the economy in the future.

He sees the post-World War II supposed success of Keynesianism--policies to boost production and maintain full employment by managing aggregate demand--as in large part due to the fact that Keynesian policies came as a surprise. After the first generation, Keynesian policies generate not faster growth and higher employment but stagflation--the combination of high unemployment and high inflation--as individuals and businesses:

learn to foil the effects of a government-induced boost to the economy by indexing their wages to inflation before the fact.

The reaction to the rise of stagflation has been the temporary dominance in European economic policy of monetarist orthodoxy and austerity, which Cohen sees as temporary because it is proving as inadequate to deal with a changing world full of surprises as its Keynesian predecessor.

But Cohen also sees a more serious 'second crisis of Keynesianism' on the horizon: industrialized economies are now 'painfully discovering that prosperity created Keynesianism' and that all the social insurance institutions created during the 1950s and the 1960s on the assumption that the rapid spurt of post-World War II growth would continue indefinitely have to be reconsidered.

The European Union has at least four options that Cohen sees:

  1. Continue to muddle along unsatisfactorily, with high unemployment, slow growth, and a slow ebbing away of the social insurance state.

  2. Move right--abolishing the minimum wage and letting the market create new areas of employment as the government withdraws from some areas of economic regulation and lets the market resolve conflicts over distribution.

  3. Move left--commit large-scale resources to helping the jobless find work, at the price of reducing the benefits the social insurance state provides to others.

  4. Move backward--adopt policies of militant protectionism to try to defend the status quo of society against continued economic and social change.

For Daniel Cohen, pursuing either the first or fourth of these would be unfortunate, and worse than either the second or the third.

Which of the remaining two is better? In Cohen's view, that is not the right question: the better option will be the one that turns out to be more politically acceptable.