Kirt Sechooler March, 1996
Historic Note: The Real Incomes of a Majority of Americans
Has Been Stagnant since 1973.
Stagnant Incomes and Republican Politics
An article in a recent edition of a major metropolitan newspaper described how many of the
current candidates for the GOP Presidential nomination, in a reversal of the party's
previous position, were now beginning to acknowledge the fact that the real incomes of
a majority of Americans have been stagnant since 1973. The fact that any politician
changes his position is certainly not news, but the growing general realization that the
standard of living for the majority of Americans has in fact been stagnant for over twenty
years represents the confirmation of one of the most important themes in the model now
being outlined in The Millennial Files.
This newsletter has in previous files
proposed a model of economic history based around the technological cycles of development
of the Industrial Age. This model, in fact, explains why real income has been stagnant
for so long. And even more importantly, only by using a model such as this will it be
possible to construct the policies necessary to deal with the destructive problem of
stagnant living standards. To begin this analysis, it must be understood that the problem
of stagnant real incomes, now being accepted by the GOP candidates, is not a new
phenomenon in American history, but one that has occurred three other times in the last
two hundred years.
The Three Previous Declining Phases
All three of the great prior technological cycles that have defined the industrial age
in America have been marked, in their declining phases, by stagnating standards of living.
The current era can only be understood in light of the experiences of these previous
historical periods. To begin to see this, we need to go back to the first technological
cycle of the Industrial Age, the Textile Cycle.
1st: Textile-Cotton Cycle
The declining phase of this technocycle began at a clearly identifiable moment in time,
1819. In that year an unprecedented event shook the towns and villages of New England, the
event was the first financial panic and economic depression in U.S. history. Beginning in
1819, the declining phase of the Textile Cycle lasted over twenty years, through the
economic turmoil that resulted in Andrew Jackson's election as President, and then through
the so called Biddle Depression of the 1830s and into the 1840s, a decade referred to by
those that lived through it as the hungry forties, exactly the type of epithet
that could be expected to describe the declining phase of a technological cycle.
2nd: Railroad-Western Expansion Cycle
The declining phase of the second technocycle, the Railroad Cycle, was inaugurated by the Cook
Panic of 1873, and continued on from that year until it ended around 1896, three years
into the Depression of 1893. The two decade long period was marked by an almost
unrelenting downward pressure on the prices farmers received for their crops and an
equally unrelenting downward pressure on the wages industrial worker received for their
labor. The extremely difficult economic climate of these years resulted in a prolonged
period of agrarian and labor unrest and agitation. This agitation lead to the creation of
the Populist and labor movements, two of the most important and far reaching
socio-economic movements in American history.
3rd: Mass Production-Mass Urbanization Cycle
The next declining phase was that of the third technocycle, the Cycle of Mass Production
and Mass Urbanization, that phase was the devastating Great Depression of the 1930s. As explained in file #2 of this newsletter,
the sudden and almost complete collapse of the financial structure at the very onset of
the third cycle's declining phase turned the Great Depression into a economic nightmare of
declining production, employment and income.
The critical point to understand here is that all four of the nation's technological
epochs are united by the fact that each has been driven by a set of technologically
dominant industries, technological complexes that were powerful enough to have shaped and
ultimately defined their respective eras. But as dominant as these technological complexes
were, they nevertheless remained subject to the normal lifecycles that all industries
naturally experience. In other words, the declining phase of a technological era is the
natural and inevitable by product of the lifecycle of the era's historically dominant set
of industries, and further than that, the downward pressure on real incomes and living
standards, that the country is experiencing again today, for the fourth time in its
history, is itself the inevitable by product of this technological cycles declining
The Downward Pressure on Real Incomes and Living
Standards Is the Inevitable By-Product of a Technological Cycles Declining Phase.
4th: The Current Cycles Decline
This brings us to the fourth cycle, the Automotive-Petroleum Mass Suburbanization Cycle.
Just as the declining phase of the Textile Age began with a clearly identifiable event,
the Financial Panic of 1819, and the declining phase of the Railroad Age started with the
Cook Panic of 1873, and the Great Depression of the 1930s was triggered by the stock
market crash of October 1929, the declining phase of the fourth cycle itself began
with a very specific event the Arab Oil Embargo of 1973. This event inaugurated the
declining phase of the Automotive-Petroleum Mass Suburbanization Cycle by instantaneously
rendering obsolete the entire transportation infrastructure of the United States, the
infrastructure that was at the very heart of the era's economic prosperity.
Historic Deflation and Inflation
The nation's four technological eras share many important features, there is, however, a
critical distinction between the Automotive-Petroleum Mass Suburbanization Cycle and the
three preceeding ones. In the first three cycles, the declining phases were manifested in
a powerful deflationary cycle. This was particularly apparent in the declining phase of
the third cycle, when as previously mention the financial structure of the day collapsed.
In the fourth cycle, however, the development of the financial structure since the days of
the Great Depression made it possible for that intangible structure to withstand the great
stress that the unprecedented rise in oil prices posed for the American economy.
Because the modern financial structure of today is stronger then in any previous era,
the declining phase of the fourth cycle has manifested itself not, as the other three had,
as a deflationary period, but rather began as a period of seemingly intractable inflation.
This fact has obscured the overall similarities of all four cycles. Nevertheless, the fact
remains that the underlying technological factors that produced a decline in real
income in the three prior cycles pertain for the fourth. This is true even though
during the declining phase of the Automotive-Petroleum Mass Suburbanization Cycle, the
economic stresses of the period, as just stated, manifested themselves initially not, as
in the other three cycles, as deflationary pressure, but as a powerful inflationary surge.
The reality behind all of this is that in the declining phase of the first three
technological cycles living standards stagnated because for a majority of Americans wages
declined faster then prices. While in the fourth cycle real income for a large majority of
Americans has gone down because it has not kept up with inflation. In either case the
majority of Americans have experienced the declining phase of all four technological eras
as a period of stagnant living standards.
The 1980s & 1990s, Periods of
Unprecedented Debt Accumulation
Inflation Instead of Deflation
Despite the overall similarities of all four eras there is, in fact, a fundamental
difference between the first three eras and the last one that remains critically
important. And this distinction, does indeed, revolve around the different effects that
deflationary periods and inflationary periods produce. To fully understand this critical
difference, one must understand that deflation and inflation provide diametrically
opposed incentives for borrowing. This is because if overall prices are declining, as
they do by definition in a deflationary period, the borrower will have to repay the lender
in dollars that are in effect, of ever increasing value. This is why in the Great
Depression of the 1930s there was very little borrowing even when at one point interest
rates ranged as low as 1.5 to 2.5 %. In an inflationary environment, however, the exact
opposite is true. During inflationary periods there is every incentive to borrow, because
the borrower will pay the lender back in dollars that are decreasing in value. This is
true for individuals, businesses or governments.
Historic Debt Liquidation or Accumulation
The ultimate effect of this basic economic reality has been to create one of the most
important differences between the first three technological cycles and the fourth cycle.
This difference is that the declining phases of the first three cycles were, as
deflationary periods, also periods of debt liquidation, whereas the declining phase
of the fourth cycle, as an inflationary period, was also a period of massive and
completely unprecedented debt accumulation. Thus the price we have paid to avoid the
devastating deflation of the 1930s has been the massive increase in the Federal debt in
the 1980s and 1990s. This, in turn, has meant that in the fourth cycle alone, the future
has been mortgaged to pay for the declining phase of a receding technological epoch. The
implications of this fact have yet to be dealt with.
America is now, clearly, at the end of the fourth and final cycle of the Industrial Age,
but the nation has not yet made the transition to the next Age. The Millennial Files is however,
dedicated to the successful completion of that task; we will in future files address what
must be done to enter the post Automotive-Petroleum Mass Suburbanization Cycle and to once
again see an increase in the real incomes and standard of living of the majority of
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