NCPA - National Center for Policy Analysis


July 12, 2010

In 1930, with the Great Depression in its early stages and British unemployment already around 15 percent, John Maynard Keynes wrote an essay about the economic glory to come.  As bizarre as it seemed with banks failing all around, Keynes believed that, while there would be turbulence along the way, living standards would soar to unimagined heights thanks simply to the power of compounding applied to historic rates of growth.  As it turned out, Keynes was right.  In the United States, average real disposable income per person -- the purchasing power of the money that's yours to spend or save -- tripled between 1960 and 2009, says James K. Glassman, former undersecretary of state for public diplomacy and public affairs, and current executive director of the George W. Bush Institute in Dallas. 

Keynes asserted that while the "struggle for subsistence" had been the most pressing problem, humans, or at least humans of developed nations, had cracked the code.  But what happens after the economic problem has been solved, as it has been in such places as the United States, Japan and Europe, asks Glassman? 

Italians, for example, are six times richer now than their grandparents were in 1950. For many Europeans, satiety has been achieved, and therein has arisen a new problem, one not anticipated by Keynes, says Glassman: 

  • Prosperity, it seems, can bring sloth, which in turn disrupts the virtuous cycle, though not immediately.
  • There is a period, which we are in right now, where the disruption is not apparent, where it can be obscured through government monetary and fiscal manipulation.
  • But eventually, a simple rule will prevail: you can't live well if you don't work. 

The paradise of leisure that Keynes predicted is impossible in stasis.  To keep it going, a country has to keep growing. This is an important lesson for Americans as well, says Glassman:  

  • The Congressional Budget Office (CBO) is predicting GDP increases of only 2.2 and 2.3 percent beginning the middle of this decade, compared with the 3.5 percent average for the quarter-century that began in 1983.
  • With such anemic growth and with reasonable assumptions of spending and taxes, the CBO projects that America's debt-to-GDP ratio will rise to 200 percent -- triple its current level -- by 2032. 

Source:  James K. Glassman, "Free Enterprise Key to Continued Economic Growth," Commentary Magazine, July/August 2010. 

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