The American Ascendancy
I Shop, Therefore I Am
A curious incongruity in our halcyon era is the American savings rate: It hit exactly zero a year ago, in early 1999, as consumption outran savings for the first time, and continued going south. Meanwhile, in Japan the savings rate remains high, as always, but bank interest rates are just above zero for preferred customers, and last March the government handed out free coupons worth about $160 each in hopes that consumers would go out and spend them. If the Japanese couldn't sell in the vast American market (like just about every other exporter), their economy would expire. What gives? Basically the Japanese do not get it: Capitalism is about spending, not about saving--and the United States pioneered incomparable ways to spend money, not yesterday but eighty years ago. The "Roaring Twenties" were not just an era of flappers and the Charleston, but years of pioneering innovation when Americans first sampled the seductive possibilities of mass consumption and mass culture that the rest of the world now absorbs as part of its own lifestyle: automobiles, radios, Hollywood films, professional sports and "consumer durables" like refrigerators. At that time American industry perfected both mass production and the means to digest the same goods--en masse.
That decade capped an amazingly quick American rise to world power: The United States had 29 percent of global industrial production in the 1880s, 36 percent by 1913 (compared with Britain's 14 percent) and 42 percent in 1929--the highest percentage ever, save for the abnormal period just after World War II when all the advanced industrial economies had suffered extensive war damage, except for the unscathed United States--which temporarily held half of all global production. This period witnessed the fruition of assembly-line mass production, as is well known, with Henry Ford's Model T, demonstrating the capacity to turn out automobiles like cookies, and his high, $5-a-day wage, which enabled Ford's workers to purchase them. Less appreciated was the pioneering combination of salesmanship, mass advertising and easy credit that General Motors used to compete with Ford and to saturate the American market with automobiles (from 1920 to 1929 the per capita auto-ownership rate went from 1 in 13 people to 1 in 5, a level not reached by other industrial countries until the sixties).
In the same decade a Russian immigrant named David Sarnoff, a self-taught engineer working in wireless communications for the Navy, had the vision of a radio in every home. In the twenties RCA emerged under his leadership, and American firms paid for the free radio programs by advertising their wares--in every home. Seventy years later another government invention, called the Internet, also plastered with advertising, would invade the household. Historian Olivier Zunz, whose book Why the American Century? is a useful contribution amid the current hailstorm of self-congratulation, reminds us that as early as 1914 Walter Lippmann linked democracy to "the right to purchase consumers' goods at low prices"; Zunz highlights a pragmatic American coalition of business, science and government yielding a huge variety of applied technology oriented toward mass consumption and commercialism, in the twenties and after--"an array of original achievements in science and industry" that led to "a concurrent and deliberate reorganization of society."
A Great Leap Forward?
It was Austrian thinker Joseph Schumpeter who best understood the extraordinary growth spurt of the twenties. Schumpeter was, among other things, a theorist of business cycles of all kinds who understood this new burst of wealth to be a combination of new technologies (the assembly line), cheap credit (like GMAC) and cheap energy (petroleum, gushing into the market as American firms developed California and Texas wells) combining to produce a "leading sector" or flagship industry: automobiles. He focused on structural changes in the economy, qualitative changes that conventional economists--with their emphasis on incremental quantitative change and equilibrium models--have trouble explaining.
Now think about our era: For the past several years economists, not least among them Federal Reserve Chairman Alan Greenspan, have been trying to figure out how the American economy can grow so fast with effective full employment, and yet not create inflation. The conventional explanation would look for gains in labor productivity, but (at least until recently) the data did not show gains sufficient to account for this phenomenon. Chairman Greenspan has frequently speculated, therefore, that something new must be happening--perhaps the efficiencies of the information age could not be captured by conventional data-gathering, or they would show up in the future. Lo and behold, productivity gains began climbing again in 1996; productivity rose 2.8 percent in 1998, then leaped forward 5.4 percent in the last half of 1999.
Were Schumpeter alive, he would say that we have a new leading-sector technology (the microchip), cheap energy (gasoline costs about the same today as it did in the fifties) and a unique combination of the two in that the silicon chip requires raw-material inputs that are no more than 3 percent of its cost (compared with 40 percent for automobiles), and the energy to run them is so minuscule that computers can be turned on all the time; that the information courses through fiber-optic cables, which can transmit many times the number of messages of copper telephone wire yet require 5 percent of the energy to produce as compared with copper; and finally that credit and wealth creation has been so dizzying (American credit drove the domestic and world economy in the nineties, with Internet stock offerings jumping 500 percent in one day) that entire cities seem to be transformed almost overnight--like San Jose, for example, now undergoing a growth spurt worthy of Los Angeles in the twenties and one of the larger exporting cities in the United States.
America's contemporary prowess, of course, is sticking badly in the craw of any number of Europeans these days, as editorials like this one from London's centrist Independent illustrate:
the dumb certitude; the contempt for the poor; the facile amiability; the ostentatious religiosity; the callous laws; the love of guns; the Hollywood sensibility; the all-consuming fetish for material success; the showy insubstantiality of its politics; the celebrity junk; the infantile literal-mindedness; and the faith, withal, in America's planetary moral superiority.
I might be inclined to agree with this critique--I certainly recognize my fellow Americans in it--but so what? The historian in me would point out that the same thing could have been said (and was more than once) by Sinclair Lewis and other writers--back in the Roaring Twenties.