The Complacent Century

Looking backwards, it’s possible to see a number of turning points in the political zeitgeist.  America moved toward (left wing) liberalism around 1964, then swung back toward (right wing) neoliberalism in the late 1970s, and then toward nationalism in recent years.  And these were worldwide trends, with nationalism also on the rise in Europe, Russia, Turkey, India, China, Japan, and many other places.

Tyler Cowen pointed me to an article that suggests another turning point, which many people missed at the time.  The new millennium ushered in an Age of Complacency:

The eminent political economist Ross Garnaut says the Great Australian Complacency, as he calls it, took hold of the political system from 2000. This locates it halfway through the Howard era.

How can he be so specific? Because, after John Howard and Peter Costello enacted their landmark reform of the tax system in 2000, they lost interest in further reform, on Garnaut’s reckoning.

And this marked the end of not only Howard-Costello reforms but an entire generation of near-continuous reform efforts that started in the years of the Hawke-Keating governments.

As is so often the case, people put far too much weight on specific local factors when thinking about these changes.  Thus America’s move toward liberalism was not triggered by the Kennedy assassination, nor was the neoliberal era triggered by the elections of Thatcher and Reagan.  These were worldwide trends.

The Aussies have done very well in recent decades, and have a right to be complacent.  But the same thing happened in the US.  Here is government spending as a share of GDP, which rose sharply after 2000:

I know what you are going to say; “That’s due to special factors—G/GDP rose due to the 2001 recession and 9/11.

There is some truth in that, but it’s not the whole story.  G/GDP did not fall back when we recovered from the recession.  And indeed both Bush and Gore were promising bigger government than Clinton—the country was getting tired of neoliberalism by 2000.  Soon we would have Sarbanes-Oxley, a big new Federal education program, and a massive expansion of Medicare.  And that was under a GOP President—once Obama took office we moved even further towards big government.  And yet if you read pundits on the left all you hear about is endless “austerity”, which is nowhere to be seen in the data.

The UK was not hit by recession in 2001, nor was it impacted by 9/11.  But at almost exactly the same time the Labour Party got tired of austerity, and began rapidly boosting government spending:

You need a trained eye to read these graphs properly.  The G/GDP ratio usually tends to be somewhat countercyclical, rising during recessions and falling during booms. The sharp rise in the UK’s G/GDP ratio after 2000 was an exception, and is a tell tale sign that fiscal policy was dangerously out of control.

This might suggest that neoliberal reforms require economic distress, so that the public will see the need for changes.  But of course the economic distress of the 1930s led to the exact opposite—the rise of statism.

Rather, it seems that neoliberal reforms require both economic distress and a perception that the problem is caused by bad government policies.  The stagflation of the 1970s is one example.

Neoliberal reforms can also be triggered when countries are doing poorly relative to their neighbors.  Thus back in 2004 the Germans compared their 11% unemployment rate with the 5% rate in the UK, and concluded that excessively high labor costs were the problem.  This led to one of the last successful policy reforms of the neoliberal era.  Today, those amazingly successful reforms are politically unpopular in Germany

PS.  Over at Econlog I comment on the two (rumored) new Fed picks.



30 Responses to “The Complacent Century”

  1. Gravatar of Lorenzo from Oz Lorenzo from Oz
    4. June 2017 at 13:26

    Vaguely relevant about policy complacency. Another triumph for the war on drugs — evidence suggest cannabis is a preventative against Alzheimers.

  2. Gravatar of Steve F Steve F
    4. June 2017 at 14:46

    Your final point may be the most important. Complacency comes when you’ve sat at the top of the ladder for a while; reform, innovation, and the competitive spirit comes when you have your sights on the guy at the top and you’re climbing the ladder.

    Derivative from this may be that a healthy dose of nationalism is important.

  3. Gravatar of Major-Freedom Major-Freedom
    4. June 2017 at 15:09

    This view of “Complacency” in the articles cited, and as is almost always the case on this blog, stems from the statist and special interest view, not the every day hard working citizen view.

    The complacency derives from the fact that with sustained economic growth (in the private sector, but I repeat myself) the same leeching percentage brings sustained growth in the return from leeching.

    Statist philosophers from ancient Greece, up until the present age, such as the neocon intellectual figurehead Leo Strauss, believed that society will degrade and people will lose their spirit, without periodic bloody wars to freshen them up. Strauss for instance called upon people to look back to Plato and other philosophers who praised “the warrior” ideal type, and looked down upon “the merchant” ideal type. The warrior life was deemed as somehow more “noble” and more worthy of respect, than the money making producer life.

    The notion of “complacency” is a tacit call to states to increase their violence and coercion.

  4. Gravatar of Saturos Saturos
    4. June 2017 at 16:35

    So what caused the simultaneous worldwide complacency? The internet?

  5. Gravatar of Ryan Murphy Ryan Murphy
    4. June 2017 at 17:03

    I’ve argued that the recent patterns in declining economic freedom have been uniform across the G7 and possibly even the OECD:

    I didn’t speculate that it was due to complacency, because, you know, that wasn’t a thing yet.

  6. Gravatar of E. Harding E. Harding
    4. June 2017 at 17:58

    “Thus America’s move toward liberalism was not triggered by the Kennedy assassination, nor was the neoliberal era triggered by the elections of Thatcher and Reagan. These were worldwide trends.”

    This is basically correct. The 1954 and 1958 midterms provide further evidence the Midwest and Northeast were shifting toward the Democratic party even during the Eisenhower era, before JFK was even nominee. Nixon’s parallel move toward liberalism in 1972 provides further evidence that he would have done the same had he won in 1960.

    Also, how one can look at that U.S. government spending graph and think anything good about Paul Ryan is beyond me.

  7. Gravatar of Benjamin Cole Benjamin Cole
    4. June 2017 at 18:34

    Does complacency stem from a wealthy rentier class deeply satisfied with the ways things are?

    In old Japan and the Philippines, the leftie Douglas MacArthur instituted land reforms.

    Basically, before MacArthur, elites controlled so much land and were so wealthy (to the exclusion of most others), why would they ever want anything ever to change? Progress was not necessary to the elites.

    In the U.S., why this infernal federal tax code year after year? Who benefits? Offshore bank accounts and entities? Property zoning? Rural subsidies? A US military reduced to being a $1-trillion-a-year guard service for multi-nationals?

    Time for a nap.

  8. Gravatar of ssumner ssumner
    4. June 2017 at 19:01

    Lorenzo, Interesting.

    Steve, You said:

    “Derivative from this may be that a healthy dose of nationalism is important.”

    Aren’t you confusing nationalism with patriotism?

    Saturos, If I knew the answer, I’d deserve a Nobel Prize.

    Ryan, Yes, these changes tend to occur in many countries at the same time. There must be a reason for that, but I have no idea what it is.

  9. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    4. June 2017 at 19:26

    The graph for the U.S. shows a clear break from the trend of rising Govt/GDP after 1980. Prior to that (from the end of WWII onward) it was steadily rising.

    During the Reagan years that trend stopped and we dropped a little until the boom when the denominator rose so fast that the numerator couldn’t keep up. That trend was broken at the end of the nineties when the ratio rose until the 2001 recession ended.

    Spending was flat during the Geo. W. Bush years. Until 2008 when it exploded upward, then dropped as GDP (the denominator in the ratio) recovered.

    Too soon to say what the new trend is going to be.

  10. Gravatar of Steve F Steve F
    4. June 2017 at 19:36

    Scott, yes, you are right that patriotism is in play. And it being that patriotism is when you protect your nation, nationalism is also in play.

  11. Gravatar of Steve F Steve F
    4. June 2017 at 19:47

    If I may add, Bryan Caplan’s interview with Dave Rubin — in which he explained his open borders stance — is fantastic. He made the case for how in order for open borders to work we need security against criminals and no welfare. For a society to sufficiently enact those ideals, they must be nationalistically promoted. Immigration is not a solution in and of itself; immigration that promotes productive values held by a nation of people is in itself a solution.

  12. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    4. June 2017 at 19:47

    I was born in 1948. In the first 34 years of my existence there were 8 recessions. That was during the clear trend of rising Govt/GDP, according to the graph (from 22% to 34%)

    Since then there have only been three. During the period of declining govt spending (up to 2008) there were only two.

  13. Gravatar of Jerry Brown Jerry Brown
    4. June 2017 at 21:49

    In my view of history, America started moving left-liberal after the onset of the Great Depression and continued slowly along that way until after the civil rights battles and LBJ’s war on poverty in the late 60’s. And then it went slowly back the other way, but faster under Reagan, (despite the bump up due to the 82 recession and government military spending), all the way until we got to the great recession. I am not sure how to characterize the last 9 years. Maybe it turned or maybe it is still going neo-liberal. Or maybe something worse will happen.

  14. Gravatar of Major-freedom Major-freedom
    5. June 2017 at 03:28

    Where are the blogposts of the rise of globalist statism?

    The replacement of countries electing their own leaders, with countries having leaders imposed on them from abroad?

    Summer appears to not know history. German fascism was not a “nationalist” movement. It was a globalist movement. Hitler wanted to destroy the nation states of Europe, and eventually the world, and replace it with the third reich. He did not respect national borders. He did not want a world of states, he wanted a world with one state.

    Sumner appears to want them same as Hitler.


  15. Gravatar of Benjamin Cole Benjamin Cole
    5. June 2017 at 06:18

    Has Bryan Caplan proposed elimination of all property zoning and decriminalization of pushcart, motorcycle-sidecar and truck vending to go along with his proposals of open borders and no welfare?

    Polygamy too. Bring it on.

  16. Gravatar of Cooper Cooper
    5. June 2017 at 06:46

    It might be worth creating a distinction between military spending, health care spending and “other” spending.

    Over the last half century, health care spending has grown rapidly everywhere. Military spending has fallen everywhere. “Other” spending has gone up or down in various places at various times.

    In the US, government health care expenditures have been crowding out the rest of the most of the last decade. US net public investment is at its lowest point since the 1940s.

    In the UK, net public investment is at its lowest point since the late Thatcher years.

  17. Gravatar of Steve F Steve F
    5. June 2017 at 09:43

    Benjamin, I don’t recall him stating as such, though it is probably something he wants regardless. His no welfare point regarding open borders is because being on sufficiently enough welfare is a main ingredient for how immigrants don’t assimilate. Even though he did not state this explicitly, it appears that he agrees that immigrant assimilation into the nation in which they immigrate is important.

  18. Gravatar of Dots Dots
    5. June 2017 at 12:55

    I’m surprised, because I think of an open borders policy where immigrants don’t get welfare but pay for native welfare as a sort of equilibrium point that would maximize acceptance of immigration and welfare in ways most agreeable to immigrants and welfare recipients

  19. Gravatar of Christian List Christian List
    5. June 2017 at 14:23

    I agree with Jerry Brown. The overall trend is more a move towards the Left. And this trend started long time ago. Think of the 60s, the Great Depression, Bismarcks Sozialgesetzgebung, Karl Marx and the French Revolution. And while we are at it, let’s go all the way back to Jesus.

  20. Gravatar of Gordon Gordon
    5. June 2017 at 14:35

    Scott, could changing demographics and the wars in Iraq and Afghanistan driven a good amount of the spending growth in both the US and UK? Given changes in fertility rates and life expectancies, both countries have probably seen a rise in the percentage of senior citizens starting in the late 90s. Poking around the internet, I found that US social security expenditures went from 2.2% of GDP in 2000 to 3.5% of GDP by 2010. And US defense spending went from around 3.5% of GDP in 2000 to around 5.7% of GDP by 2010. I’m not saying this is the whole story behind the spending increases. It’s just that these could be significant contributing factors.

  21. Gravatar of Patrick Sullivan Patrick Sullivan
    5. June 2017 at 15:05

    Complacency? How about reinventing the wheel:

    ‘The first channel is the earnings heterogeneity channel. The relevant inequality here is inequality of income, as the marginal propensity to consume tends to decrease as incomes increase. In other words, individuals with low incomes are more likely to spend another dollar of income. Monetary policy boosts consumption through this channel if, in boosting total income, it pushes income more toward lower-income individuals. This channel seems plausible given research on the effect of monetary policy on income inequality.’

    When will someone drive a stake through the heart of vulgar Keynesianism.

  22. Gravatar of Benny Lava Benny Lava
    5. June 2017 at 15:21

    Why do you focus so much on the numerator rather than the denominator? Could it be that data is easier to parse for the numerator?

  23. Gravatar of Benjamin Cole Benjamin Cole
    5. June 2017 at 16:17

    Steve F- for a true libertarian there is no need for immigrants to assimilate, only that they do not receive welfare. Immigrants may choose to migrate to America in very large numbers and live in very low material standards, perhaps in exchange for religious freedom.

    Indeed, with the elimination of compulsory education, religion might become a primary force again in America, as it is in the Mideast.

    Still, do you never ponder why the topic among American libertarians is always the minimum wage and never property zoning?

  24. Gravatar of Steve F Steve F
    5. June 2017 at 16:29

    Benjamin, maybe the topic is minimum wage because that’s intellectually easy instead of property zoning because that’s intellectually hard.

  25. Gravatar of Benjamin Cole Benjamin Cole
    5. June 2017 at 21:06

    Steve F-

    You are a very generous person.

    What is hard to understand about eliminating property zoning?

    BTW, John Cochrane recently had a nice post on property zonin., One study concludes real US GDP could be 50% higher without property zoning!

    You would think the libertarian-right wingers-free marketeers would have daily jihads against property zoning, and the related violation of property rights; the right of property owners to pursue happiness; and that Lucifer gloats and wrings his hands in glee at the results of his socialist property zoning.

    Instead, we get stony silence.

    And decriminalizing to the maximum extent possible push-cart, motorcycle sidecar and truck-vending? What lulu talks about that?

    Here is the gag: “We believe in free markets (as carefully defined and circumscribed by us)!”

  26. Gravatar of Major-Freedom Major-Freedom
    6. June 2017 at 03:16

    Benjamin Cole, poor choice of word “jihad.”

    “Here is the gag: “We believe in free markets (as carefully defined and circumscribed by us)!””

    That “gag” applies to you yourself, and everyone else who is not an absolute anarchist in all production, including security and defense.

  27. Gravatar of ssumner ssumner
    7. June 2017 at 05:28

    Patrick, When you adjust for the business cycle, spending trended upwards during the Bush years. Even without a cyclical adjustment, spending was higher in early 2009 than early 2001.

    Steve, I don’t think you know what either patriotism or nationalism mean.

    Jerry, I think we started moving left (on economics) in the late 1800s. In a broader sense, the whole world’s been moving left for 100s of years.

    Cooper, Yes, the sort of spending that left wingers like has risen faster than overall spending.

    Gordon, That’s part of the story in the US, but so is Bush’s big expansion of Medicare, and his huge expansion of federal spending on education.

    The war was less important in the UK, which spends only 2% of GDP on defense.

    Benny, I am focusing on the ratio, not the numerator.

    Ben, Your posts are becoming increasingly silly. There is discussion of zoning all over the blogosphere.

  28. Gravatar of Patrick Sullivan Patrick Sullivan
    7. June 2017 at 11:38

    ‘Patrick, When you adjust for the business cycle, spending trended upwards during the Bush years. Even without a cyclical adjustment, spending was higher in early 2009 than early 2001.”

    Looking at the graph YOU provided us, there’s an increase in govt. spending/GDP beginning in, or just prior to, the year 2000 (Clinton’s presidency) continuing into 2001 and beyond, when W. Bush is handed a recession at the start of his presidency. So the increase is a normal occurrence during a recession. Bush wasn’t even inaugurated until Jan. 2001, so his policies had little/nothing to do with that.

    Then, during the expansion of the Bush years, YOUR graph shows a flat trend, even with the Gulf War II. Until 2008/09 when the denominator of the fraction plunged. During the Bush expansion the deficit was steadily declining as a % of GDP. Then we got Cash For Clunkers, Shovel-ready Stimulus, 99 weeks of UI….

  29. Gravatar of Benjamin Cole Benjamin Cole
    8. June 2017 at 05:35

    Scott Sumner–

    If you are still reading…

    I guess at his late date I cannot deny being silly…but not for the reason you state!

    Libertarians bringing hammer and tong to property zoning? Well, rarely. As for the criminalization of push-cart vending, no one cares.

    Let’s take Cafe Hayek.

    Google “Cafe Hayek minimum wage.” How many days have you got just to read the headlines?

    Then Google “Cafe Hayek property zoning.”

    Rather skimpy fare. In fact, close to nothing, and no headlines.

    Kevin Erdmann is an exception in the world of bloggers, and addresses property zoning, but he may not be libertarian. I do not know his views on, say, polygamy or drug use or conscription vs. a mercenary military. He seems open to push-cart vending.

    Actually, property zoning, and exploding real estate values are coming close to undermining sensible monetary policy. See Australia, Canada, even the U.S. (remember 2008).

    Central bankers see property values going up, scream about financial stability, and raise rates. This is serious, no?

    I may be a lulu, but blogging more about property zoning, and less about Trump might be a good idea.

    The above link links to scholarly articles positing property zoning has cut US GDP by 50%. Seems like a stretch to me, but even if half true….

    50%? Sounds serious to me….

    Silly old me.

  30. Gravatar of ssumner ssumner
    9. June 2017 at 06:12

    Patrick, You keep saying “your” graph, but I’m referring to the cyclically adjusted change, which was up under Bush. It’s not even debatable.

    The ratio is not supposed to be flat during a recovery, so your claim that it was flat during the Bush recovery merely proves my point.

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