The Post-World War II American Renaissance Lightning Will Not Strike Twice

Tyler Durden's picture




 

There have been quite a few stories comparing the post-WWII American economic "renaissance" with expectations that the same confluence of beneficial circumstances may repeat now, resulting in the same benign outcome. Many of these stories touch upon the key points debated in today's everyday politics: taxes, massive debt overhang, and the treatment of private business. Sadly, most of these stories are also just that: mythical representations of an idealized reality, which however have no analogy to what actually happened in the 1950s. In other words, none of the conditions that were in place in 1950 which allowed net US debt to decline from 80% of GDP to just 46% in one decade, are here now.

JPM's Michael Cembalest opines on how the US dug itself out of wartime debt levels after WWII.

I find that there is a lot of misreporting about how US debt levels were halved during the 1950’s. As shown in the table below, government spending was not cut sharply; there was no radical increase in tax collections, either from businesses or from households; and the Fed did not engineer negative long-term real interest rates to jumpstart growth. In addition to the competitive advantage the US had over recovering Axis Powers, the US of the 1950’s benefited from pro-business policies that resulted in over 4% annualized GDP growth throughout the decade. This approach is not in play now, raising questions about how the US will deal with 80% net debt to GDP for only the second time in its 200+ year history.

 

His conclusion:

1950’s time capsule: taxes were regarded as a greater cause for small business failures than tight money. Eisenhower championed legislation which eased tax burdens on small business and which culminated in a bill eliminating double-taxation (Subchapter S); he also eliminated wage and price controls. In the 1950’s, the private sector accounted for a post-war peak of 86% of all employment, a level not seen since.

Of course, much of the Keynesian miracle of 1950-1960 had to do with the "broken window" that was Europe, and specifically its rebuilding. Which means that one key variable that is missing is a continent full of destruction that just needed America's helping hand and some Brady Bonds, leading to America reaping a disproportionate share of the benefits. We are confident the American Military-Industrial complex is well aware of this and is already on top of things.

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Tue, 07/17/2012 - 14:43 | 2625148 LawsofPhysics
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Simple questions;  1)  what was the tax rate structure post WWII, 2) what were the available resources and what was the cost to recover those resources?  and finally, 3) what are the current expenses (including ALL military operations) on the U.S. government?

No shit, this time is "different".  Tell us something we didn't know and something we can trade on, sheesh.

Tue, 07/17/2012 - 15:13 | 2625306 AustriAnnie
AustriAnnie's picture

4) What did the demographic curve look like then vs. now?

5) When did the average household begin to take on debt for purchases, starting the debt bubble we see popping today? 

 

"Ralph Schneider introduced the all-purpose credit card in the 1950?s to give a solution to carrying around a credit card for each store or merchant. Diner’s Club, American Express and Visa came into existance around this time, gaining popularity over the decades. Diner’s Club, for example, started in 1950 and was used for entertainment and travel. Diner’s Club claims it’s the first credit card that gained widespread use and had 20,000 cardholders by 1951. The cards were originally cardboard and were replaced by plastic in the 60?s. American Express, formed in 1850, didn’t get into credit cards until 1958 when they introduced the world to a purple charge card. A year later they introduced the first plastic credit card.


In 1966, Bank of America started their BankAmerica Service Corporation and a national credit card system was formed and called the InterBank Card Association. ICA is now Mastercard Worldwide."

 

Tue, 07/17/2012 - 15:16 | 2625327 LawsofPhysics
LawsofPhysics's picture

Yes!!  Credit expansion is a bitch, especially if no real value is created.

Tue, 07/17/2012 - 15:36 | 2625447 The Monkey
The Monkey's picture

If we did not have good urban myths, then we would not get awesome tops to short.

Tue, 07/17/2012 - 16:09 | 2625643 zaphod
zaphod's picture

The government did not actually pay off that debt. Look at the money in vs money out. The government still ran deficits as always.

The only thing that happened is the debt was inflated away. Just look at nominal GDP, doubled in that time period. That was what halfed the debt.

The inflationary aspects didn't kick in until later in the 60s and 70s, but the seeds were already sown.

Anyone buying bonds today is a monkey.

Tue, 07/17/2012 - 18:02 | 2626112 The Alarmist
The Alarmist's picture

"Anyone buying bonds today is a monkey."

 

Anyone doing so voluntarily ...  you might see another article nearby which discusses the severe underfunding of defined benefit pension plans, and you might sense where a likely source of capitve funds will be sourced.  

"Sure, Pension Fund fiduciaries, we will hold you harmless for the severe damage you have done to the fund with your poor investment choices ... your safe harbor will be to invest in our new perpetual paper.  Sign here."

Wed, 07/18/2012 - 00:32 | 2627026 FreedomGuy
FreedomGuy's picture

What is the government's credit card made out of?

Tue, 07/17/2012 - 14:41 | 2625151 GeneMarchbanks
GeneMarchbanks's picture

We are confident the American Military-Industrial complex is well aware of this and is already on top of things.

That is scary stupid.

Tue, 07/17/2012 - 14:49 | 2625193 Ghordius
Ghordius's picture

scary stupid or stupid scary?

Is it me or are we often seeing statistics from the good 'ol times? though what I am missing is the US corporate taxes %ofGDP and the US personal tax rates of the '50s and '60s.

Nobody will ever make the unpopular statement that this "golden age" was financed with a marginal rate of 70% for the highest bracket - at a time when US MegaCorporations still paid taxes. Upps!

Tue, 07/17/2012 - 14:52 | 2625217 LawsofPhysics
LawsofPhysics's picture

You are correct sir.

Tue, 07/17/2012 - 15:16 | 2625321 FreedomGuy
FreedomGuy's picture

Those were the marginal rates and not the actual percentages collected. Deductions and non taxable benefits were far more common. There is a tax on virtually everything you can name, now, along with fees, special fees and taxes by other names. Social Security alone was only 1.5% to the individual. I can still remember deducting credit card and all loan interest payments. All are gone, now.

I submit that the real tax rate is all of government spending as the private sector, whether citizens or businesses must carry this burden. Right now government has swelled to nearly half the size of the private sector ($5t vs $10t). When you look at that it is obvious that taxes have never been higher regardless of rates. With Obamacare they will be stratospheric..and the books still won't balance.

If your ridiculous assertion is that higher rates are good, go for it and start ssending the extra checks to the treasury.

Tue, 07/17/2012 - 16:01 | 2625611 Ghordius
Ghordius's picture

No, my (albeit foreign) assertion is that having CEOs paying less percentages than secretaries, or the great corporations paying less percentages than the small and medium companies is (the technical term is regressive) NOT sustainable. And very deleterious for the moral fibre of any nation engaging in such policies.

In itself, the effect is worse than austerity (which usually hurts non-productive people most), because it hurts the *growing* part of the population and economy most.

Since technology, efficiency, quality, profitability and entrepreneurship are interwined and spring usually out of small/medium companies and the middle class, it's also quite...daft, in the long run.

Wed, 07/18/2012 - 00:43 | 2627048 FreedomGuy
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Ghorius, I will meet you halfway on this. In terms of fairness I do not agree with loopholes allowing anyone to escape. I saw that Buffet paid an effective tax of 11%. I would cautiously support higher taxes IF the dividends from which he derives his income become tax deductible to the business and are not double taxed. I would support eliminating loopholes...real loopholes as well. In a fascist state, though you get favors from government through influence and power.

The other side of this where I categorically disagree it that the wealthy by any measure, including their share of the total national revenue  disporoportionaltely carry the tax burden. Also, regardless of how much we want to shake Buffet, Gates, or anyone else down for it really doesn't help you, me and the 99% of us workers who are employees get a raise or a better job. If Buffet has to pay tens of millions more to government then he ain't puttin' that into a new business, updating the machinery in a factory or even giving you and me a measley 2 or 3% raise. In fact, there is more pressure to do with less of us and flatten our salaries and move stuff to China or a friendlier climate.

I say this as one who has been through more layoffs and restructurings than you can imagine.

So, my best rational answer is that government first has to get way smaller, cheaper and with less graft like Solyndra. All of us, including Buffett can then pay less. When tax rates are 5, 10 or even maybe 15% no one spends a lot of time and energy trying to avoid them. Even Confucius noted this hundreds of years ago.

Wed, 07/18/2012 - 02:36 | 2627167 Ghordius
Ghordius's picture

+1 I agree in principle

I was already thinking I would have to make a big post about how size matters - i.e. big companies and big wealth has all the loopholes in the international environment as I noticed there is a whole new article on ZH on this matter: http://www.zerohedge.com/news/guest-post-coming-terms-borderless-world-e...

Tue, 07/17/2012 - 16:12 | 2625664 sschu
sschu's picture

The answer to the rates question is right there in the table.  Government receipts have been pretty much about 18% of GDP since 1950.  The problem has always been spending, which now is over 25% IIRC.

Raise tax rates too high and people will figure out how not to pay.  Why is this so hard to comprehend, it has only been true for about 60 years.

sschu

Tue, 07/17/2012 - 16:40 | 2625794 Ghordius
Ghordius's picture

This means that if we were talking of balancing the US budget in the manner of Russia, or many other eastern european countries which have a flat tax rate, both private and corporate US taxes would have to be in the ballpark of 35-40%? Without any excemptions or rebates, of course...

Tue, 07/17/2012 - 16:44 | 2625817 sschu
sschu's picture

No, what it means is that federal expenses need to be kept within the limits of revenue.  Attempting to increase revenue (as a percent of GDP) has been a fools game.

You really do not think corporations pay taxes, do you?  Taxes are an expense, to be minimized, but ultimately passed on to buyers.  

sschu

Tue, 07/17/2012 - 17:31 | 2625946 Bring the Gold
Bring the Gold's picture

Perhaps, but the immediate benefits of low taxes for the great corproations and financial entities allows them to plow that money into the most profitable sector of all...political donations.

Tue, 07/17/2012 - 18:08 | 2626123 The Alarmist
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But all of this ignores the simple reality that taxes on corporations/businesses/etc. are passed through to the end consumer by being built into the price.  In the never ending quest to "stick it to someone," all we have done is added to the complexity of the system and thereby empowered and enriched the political class, the lobbying class, the tax practitioner class, and an army of swat-team-armed agents.  I'd just as soon go for a consumption tax, scrap the income tax, and be done with it.

Tue, 07/17/2012 - 17:11 | 2625937 Bring the Gold
Bring the Gold's picture

Pretty sure they are talking about taxation on the wealthiest and corporations, not small businesses i.e. the engine of REAL growth.

Tue, 07/17/2012 - 18:09 | 2626125 The Alarmist
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Small businesses are the hardest to manipulate and police, so they will be destroyed.

Tue, 07/17/2012 - 15:29 | 2625407 AustriAnnie
AustriAnnie's picture

Interesting that Ron Paul's heroes include the likes of Mises, who also warned about/predicted the end of the bubble in the 1920's.  Mises, too, was ignored.  Still is.

Same as it ever was: extraordinary popular delusions and the madness of crowds.

Tue, 07/17/2012 - 14:42 | 2625157 Winston Churchill
Winston Churchill's picture

Rehearsing in the Gulf as you speak.

Tue, 07/17/2012 - 14:42 | 2625159 asteroids
asteroids's picture

Of course it won't happen. Don't be stupid. Look up demographics. I see a LOT of people retiring into poverty in the next decade.

Tue, 07/17/2012 - 14:42 | 2625160 tony bonn
tony bonn's picture

the cancer upon the economy is irremediable with the present buffoons, kleptocrats, and bush crime syndicate in power.

Tue, 07/17/2012 - 14:43 | 2625163 dbTX
dbTX's picture

Another world war may be just what's needed

Tue, 07/17/2012 - 14:46 | 2625184 insanelysane
insanelysane's picture

We don't need another world war.  We just need a few well placed missiles and bombs that wipe out our industrial rivals infrastructure; China, Germany, etc.  Of course they can be accidentally launched/dropped onto these targets.

Tue, 07/17/2012 - 15:12 | 2625295 Bunga Bunga
Bunga Bunga's picture

We only need to wipe out those criminal war fucktards along with all the psychopaths and sociopaths in governments and corporations.

Tue, 07/17/2012 - 14:44 | 2625168 BillyBoy22
BillyBoy22's picture

I think we should wage war on Europe, I think we'd do pretty well.  And then we could rebuild it again.  Problem solved!

Tue, 07/17/2012 - 14:45 | 2625173 mrktwtch2
mrktwtch2's picture

dont forget that the industialized world of europe was left in ruins..there weren't any factories or industrial base left..nobody had the ability to build anything for 25 yrs so who did the building of machninery?? the usa of course..why is this FACT  never mentioned??

Tue, 07/17/2012 - 14:55 | 2625232 Whoa Dammit
Whoa Dammit's picture

And after globalization, the industrialized nation of the USA was left in ruins, without the ability to build anything.

Tue, 07/17/2012 - 15:02 | 2625254 duo
duo's picture

we have to import the presses used to print our money.

Tue, 07/17/2012 - 15:21 | 2625354 FreedomGuy
FreedomGuy's picture

They actually PAID for their own rebuilding, too. Iraq, Afghanistan and others will not.

Tue, 07/17/2012 - 20:15 | 2626429 Stoploss
Stoploss's picture

Because we started the PONZI WAR to make that happen.

We're just out of shit to blow up right at the moment...

Tue, 07/17/2012 - 14:48 | 2625177 Chuck Walla
Chuck Walla's picture

After WW2, there were a lot of people who wanted to go back to work.  That is antithetical to Obama who needs masses dependent so that they can be antithetical subservient down the road.  Thats a good explanation for the continuing mal-allocation of capital to the rats and not the productive.

 

 

In politics, few talents are as richly rewarded as the ability to convince parasites that they are victims. ... generosity is seen as an admission of guilt, and the reparations as inadequate compensation for injustices – leading to worsening behavior by the recipients.

 

~ Thomas Sowell 

 

Tue, 07/17/2012 - 15:24 | 2625366 FreedomGuy
FreedomGuy's picture

Excellent quotation by Sowell! It is why no one in the "hood" ever says "Thanks!" but instead carjacks you. Redistribution by a more efficient method.

Tue, 07/17/2012 - 17:19 | 2625975 Bring the Gold
Bring the Gold's picture

Right because people in the "hood" aren't dealing with structural repression to go along with internal oppression. Should they work hard and learn? Absolutely! Do they have the same chance of doing well as someone born in New Haven Connecticut? Fuck no!

The biggest group of people in this country with entitlement mentality are the upper crust...period.

If you have no chance (live in the hood) and someone gives you free stuff, you're gonna fucking take it then look around at all the crack/meth houses and female family members who are prostitutes and perhaps, just perhaps you might STILL feel a tad angry. Unlike most people on this board I've lived in wealthy areas, and in third world countries and in shitty parts of the US. I've interacted with children of trust fund types and hood rats. Hands down the elite kids are far FAR more insufferable in their prickishness and have far less respect for their fellow human beings. Hood rats are just desperate and angry at not ever having a chance. The others are angry that they don't have EVEN MORE control over other people up to and including wiping out the hood rats. The difference is, the upper crust kids might very well be in position one day to do the harm on others that they so freely talk about.

Tue, 07/17/2012 - 17:22 | 2625984 Bring the Gold
Bring the Gold's picture

BTW rich folks, feel free to take away entitlements from poor people. See what happens I'm sure that will work out great. Its not like entitlements began as a cynical attempt to placate active and restless minority groups right? Oh wait...

Let them eat cake.

Wed, 07/18/2012 - 00:56 | 2627070 FreedomGuy
FreedomGuy's picture

Well, I grew up poor along side the hood, dude! I have lived in the Caribbean and I have been to third world countries.

I do not disagree with the fact that people will take free stuff including Social Security, Medicare, farm subsidies, etc. It is natural and it has its consequences. That is what Sowell is saying.

What I DO disagree with is the results the centrally planned welfare state gets. That is my point about the "hood". It does not produce anything useful. In fact, it subsidizes dysfunction. Without a centrally planned state the economy can breathe in and out on its own and individuals can find their space in it without automatic resort to any sort of crime.

As far as the rich go, I have met many and the first generation wealthy are not bad. They made their way to wealth and are often rather nice no nonsense people. It gets lost in the following generations and what happens is human nature. Kids suppose they are superior because of a status and wealth they did not earn. Statistically, they will lose it by the third generation. Think Paris Hilton if you will.

Last, men always and everywhere try to exert power and advantage over their fellow men. Men love power more than sex and fame. The genius of our nation is that we gave government only limited power because we know powerful men are easily corrupted. We specifically stated the purpose of OUR government was to protect the citizenry and our civil rights...NOT to be our rulers as the monarchs and privelaged classes of old.

We have decided that is no longer a good idea and now we give government nearly unlimited power because somehow people in government are closer to the angels than citizens in the private sector. This is the statists' dilemma that they never answer.

Tue, 07/17/2012 - 14:51 | 2625180 Landotfree
Landotfree's picture

It's over.  The world is seeking yield which can't match the amount needed by the equation.

It's an unwinable war against basic Math, all victories against the equation are only battles... the equation always wins.

WW2 was the forest fire which allowed new growth to rise, unfortunately you are going to have to light a fire bigger than Europe and parts of Asia like last time.   100 million had to go last time, you are probably talking 1-2 billion this time.   Most of the world will have to go up in flames this time.

All I see are 7+ billion unfunded liabilities walking around, to the system that is dead weight once peak has occurred.

 

 

Tue, 07/17/2012 - 15:01 | 2625247 LawsofPhysics
LawsofPhysics's picture

And people call me cynical.  But, alas, a correct and truthful assessment in the absence of a change in work ethic and social attitude.

What cannot be sustained, won't.  Nature does not give a shit, period.

Tue, 07/17/2012 - 15:05 | 2625267 Landotfree
Landotfree's picture

"Nature does not give a shit, period."

Damn straight.  It's over and all the lemmings are pointing their fingers on their march to the dark pit.


Tue, 07/17/2012 - 17:23 | 2625993 Bring the Gold
Bring the Gold's picture

Even if everyone in the world was allowed to work for wages (unemployment is key in wage suppression FYI) it wouldn't make a difference. There are too many of us and too few resources, arable land, fresh water, energy etc. etc.

We're at Peak Fucked.

Tue, 07/17/2012 - 14:47 | 2625192 dannynewmexico
dannynewmexico's picture

the end to all this shennanigans will be when war breaks out in the middle east...

 

 

the big one is coming soon

 

 

survivingsurvivalism.com

Tue, 07/17/2012 - 15:03 | 2625259 kito
kito's picture

danny from new mexico, how does one survive survivalism?..... is that like capitalizing capitalism?...............or cannibalizing cannibalism?.....

Tue, 07/17/2012 - 14:49 | 2625197 Snakeeyes
Snakeeyes's picture

Funny, M2 Money Velocity is at post WWII levels. Will there be a renaissance in bank lending? PROBABLY NOT! And capacity utilization stuck under 80%? We werent as massively regulated post WWII as we are now.

http://confoundedinterest.wordpress.com/2012/07/17/capacity-utilization-stalls-at-78-9-will-the-fed-change-its-focus-to-job-creation/

Tue, 07/17/2012 - 15:16 | 2625330 Bunga Bunga
Bunga Bunga's picture

Food stamp usage is at much higher now then post WWII = renaissance!

Tue, 07/17/2012 - 14:54 | 2625224 Yancey Ward
Yancey Ward's picture

Sheesh.  That table should go back to 1944 or so.  The stage for the 50s was set as WWII ended- not 5 years later.  In other words, government spending fell rapidly after 1945.  By 1950, the hard part of "austerity" was done.

Tue, 07/17/2012 - 15:01 | 2625252 LawsofPhysics
LawsofPhysics's picture

correct, and what were the tax rates again?

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