Look ahead to America’s next great boom!

Summary: History shows that America might have a great future, as explained by one of our top polymaths. He shows how Britain in 1840 was much like America today, with many of the same problems. Yet they leaped ahead into an era of unprecedented prosperity and social progress. We too can do so.

Industrial Revolution - Dreamstime-115705787
ID 115705787 © Ievgeniia Ocheretna | Dreamstime.

Crushing national debts, economic revolutions,
and extraordinary popular delusions.

By Andrew Odlyzko, Professor of Mathematics, University of Minnesota.
Posted with his generous permission.

Introduction.

A superpower with crippling debt, exorbitant taxes, glaring inequality, wages far exceeding those of competitors, high and persistent unemployment, lack of basic workplace skills, malnutrition, a rapidly growing rival across the ocean to the West, heated debates about the role of government in the economy, and widespread pessimism about the future.

Could that be any country but the U.S. today, with China as the looming threat? Toss in costly military misadventures in the Middle East, Greece unable to pay its debts, a sclerotic domestic legal system clogging up the economy, and the rising competitor flouting copyright and other property rights and relying on slave labor, and the case seems clinched. Yet this is also an accurate description of Britain around 1850, with the U.S. as the transatlantic rival. Surprisingly, what followed was an explosive acceleration of the Industrial Revolution that saw the UK sprint ahead of others during the “Great Victorian Boom” of the third quarter of the 19th century. …

Britain in the 1840s.

Britain in the 1840s was the world’s leading power, militarily, economically, technologically, and financially. However, there was pervasive doubt as to whether it could maintain its leadership. By far the most vociferous debates on economic topics were about trade barriers, especially for food. One of the arguments that protectionists used for the maintenance of high tariffs was that the British advantage in trade and manufactures was a fleeting one, earned by success in the Napoleonic wars, and that rising powers (the United States, in particular) were bound to forge ahead.

A key reason for the pessimism about Britain’s future was its national debt. It did emerge victorious from over a century of wars with France, but at a staggering cost. In 1815, national debt was over twice the country’s GDP, possibly as high as 250%, and even in the 1840s, it was around 150% of GDP, a level that is currently exceeded among the large industrialized countries only by Japan. (The joke was that half the debt was incurred pushing the Bourbons off the throne of France, and half putting them back in.)

This burden was far higher than it seems by modern standards. The economy of the time was barely industrial, and hence taxes, although regarded as the world’s highest and barely tolerable, brought in only about 10% of GDP to the national government (and another 2% to local ones). …National debt was about 15 times the annual spending by the UK government, as opposed to perhaps 7 times for Japan today. Interest on the debt took about half of the national budget. This debt burden was a national obsession, and figured heavily in almost all policy discussions.

Military spending was also heavy, as the Pax Britannica was not easy to maintain. One of the greatest of Britain’s disasters in Asia took place in 1841, during the first AngloAfghan War, when only one person escaped a massacre of a fifteen-thousand person British column retreating from Kabul. The central government spent very little aside from paying for the military and the debt service. …

Poverty in Britain was widespread, and malnutrition was rife. The malnutrition was not the kind that has led to the recent epidemic of obesity in the United States and many other modern countries, but one of hunger. Contemporary readers of Dickens’ Oliver Twist were not shocked by the famous scene where the request by Oliver in a workhouse, “Please, sir, I want some more,” was treated as an outrageous impudence. Outright starvation was becoming less frequent, but was common. …

About half the population was illiterate, and lack of skills was a topic of frequent discussion and complaints. Inequality was glaring. The middle class was growing, but it was small, and a wide gap separated it from the bulk of the “lower classes.” The Brontes were lower middle class, but their £200 annual income was equivalent, on a GDP per capita basis, to about $500 thousand for the U.S. today, and they had servants. (Charles Darwin and John Stuard Mill by this standard lived on about $2.5 million per year, yet were only upper-middle class.) The truly rich were far richer yet, and lived opulent lives. …

Yet out of such unpromising circumstances came the full flowering of the Industrial Revolution, and it was Britain, with its huge national debt and other handicaps, that was the leader. …

Conclusions.

…While there are frequent claims that debt levels exceeding 90% of GDP are dangerous, it is worth remembering that the UK had periods with debt more than twice as high; not only in the early 19th century, but also after World War I and World War II. On the other hand, Greece has been in default for about half of its modern history, since gaining independence in the 1820s! So it is not just the absolute level of debt that matters. Other factors also play important roles. …

—————— Read the full article ——————

Editor’s afterword: America today – and tomorrow

Much like Britain in 1840, America is (perhaps) on the verge of leading the world into a new industrial revolution. A host of new technologies are appearing: fusion, nanomaterials, smart machines, genetic engineering, space travel, 3-D printing, robots, biotechnology – and others.

As in 1840 Britain, this will happen amidst a sea of gloomy predictions. Britain’s Victorian boom brought it unprecedented prosperity and social harmony. It could do the same for America.

  1. Do we face secular stagnation or a new industrial revolution?
  2. 50 years of warnings about the new industrial revolution. It’s here. Ignore the naysayers.
  3. A new industrial revolution has begun. Research shows more robots = fewer jobs.
  4. AI will reshape the world. Films show how.
  5. The bright light of fusion might burn away climate doomsters’ fears.
  6. Prepare for the next singularity. It will change everything.
Andrew Odlyzko
Presentation at Kent State, 10 October 2014.

About the author

“Andrew Odlyzko has had a long career in research and research management at Bell Labs, AT&T Labs, and most recently at the University of Minnesota, where he headed the Digital Technology Center and the Minnesota Supercomputing Institute. He is now a Professor in the School of Mathematics. He has written over 150 technical papers in a wide range of fields, and has three patents.

“In recent years he has also been working in electronic commerce, the economics of data networks, and economic history, especially on the diffusion of technological innovation.”

More information, including papers and presentation decks, is available on his web site. See other posts about his work, his fascinating articles about financial bubbles! Also see these articles.

For More Information

Ideas! For shopping ideas, see my recommended books and films at Amazon.

If you liked this post, like us on Facebook and follow us on Twitter. See all posts about forecasting, about economic growth, about the coming industrial revolution, about government debt, and especially these…

  1. Ignore the skeptics. America can still grow.
  2. Good news: here’s why we won’t run out of minerals (including oil).
  3. WWI warns us about markets’ ability to see the future.
  4. America does not need more people to stay prosperous.
  5. Prepare for the coming changes. Changes in everything.

To better understand what lies ahead for America…

I recommend reading The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War by Robert J. Gordon (Prof economics, Northwestern U). From the publisher…

The Rise and Fall of American Growth
Available at Amazon.

“In the century after the Civil War, an economic revolution improved the American standard of living in ways previously unimaginable. Electric lighting, indoor plumbing, motor vehicles, air travel, and television transformed households and workplaces. But has that era of unprecedented growth come to an end?

“Weaving together a vivid narrative, historical anecdotes, and economic analysis, The Rise and Fall of American Growth challenges the view that economic growth will continue unabated, and demonstrates that the life-altering scale of innovations between 1870 and 1970 cannot be repeated. Gordon contends that the nation’s productivity growth will be further held back by the headwinds of rising inequality, stagnating education, an aging population, and the rising debt of college students and the federal government, and that we must find new solutions.

“A critical voice in the most pressing debates of our time, The Rise and Fall of American Growth is at once a tribute to a century of radical change and a harbinger of tougher times to come.”

 

13 thoughts on “Look ahead to America’s next great boom!”

  1. I might have missed it here, but there was a huge leap forward from the mid 19th century that cannot be replicated today; OIL.The energy boost from such a resource cheaply available is behind all of the gains right up until 40 years ago.

    1. John,

      “oil is behind all of the gains right up until 40 years ago.”

      No, the Great Victorian Boom was largely powered by coal.

      Yes, cheap oil powered the 20th century. No, it was not “behind all the gains.”

      Yes, a new cheap clean power source would help boost a new industrial revolution. Which is why I mentioned fusion – see the post I cited.

      No, a new energy source is not immediately needed. The other new techs listed would transform the world; none of those are energy-intensive – as were many of the new techs that drove 20th C’s progress. But the oil supply will taper off during the middle of the 21st century, and a replacement will become necessary.

      1. UK started decline by mid 1870s. US and Germany leapt ahead. US was fjnanced by the City of London financiers (see also Buckminster Fuller who noticed US flag inspired by the East India Company Flag)and a country enjoying early benefits of continental benefits.

      2. Winston,

        “UK started decline by mid 1870s”

        There are no metrics by which Britain was in decline after 1870. That’s nuts.

        “US was fjnanced by the City of London financiers”

        Less developed nations are usually financed by more developed nations. One has surplus capital; one needs capital. Investment flows are not a zero-sum game. Both can benefit. That’s an Econ 101 level error.

      1. Larry,

        Perhaps. They’re all considered “flying machines”. Look how far we’ve come in a little over a century.

  2. “One of the greatest of Britain’s disasters in Asia took place in 1841, during the first AngloAfghan War, when only one person escaped a massacre of a fifteen-thousand person British column retreating from Kabul.”

    If its the massacre of Elphinstone’s army then the correct date is 1842 :)

    P.S. Great article!

  3. American debt is about 22T. Americans have about 22T in retirement accounts. All it takes is a simple law to take care of it. Of course they’ll promise us something in exchange for it.

    1. Sven,

      “American debt is about 22T.”

      The net Federal debt is $16.8 T. That is the gross Federal debt offset by holding of Federal debt hold by Federal agencies. Write an IOY for a billion dollars from your Right Pocket. Put it in your Left Pocket. Are you broke?

      “All it takes is a simple law to take care of it.”

      I’m sure you realize that that comparison is absurd. The US can easily handle the current Federal debt load. The debt would be almost gone if the GOP didn’t attack the government’s solvency with giant tax cuts (ie, Reagan, Bush Jr., Trump). Bill CLinton had set the US on the path to paying off the debt in a decade or so. We can do so again, if we choose.

      1. Also, before that Jimmy Carter was setting the standard of paying the debt and running a surplus. One of the many reasons he was hated by the Democratic leaders of the Senate. Also, worthy of note is that R Reagan used “not generally accepted” accounting practices when the economy tanked. It was a footnote about 4 layers down in the US annual fiscal report.

      2. John,

        ” Jimmy Carter was setting the standard of paying the debt and running a surplus.”

        Carter did nothing to reduce the Federal deficit, nor did the US run a surplus during his administration. The deficit was stable, and economic growth reduced the Deficit/GDP ratio from 3.9% in 1976 to 1.6% in 1979 – then the 1980 recession hit. The improvement in the Deficit/GDP ratio was from the rapid economic growth and inflation (which pushed people into higher tax brackets).

        He advocated higher spending, but resisted the Democrat-run Congress’ demands for much higher spending.

        https://en.wikipedia.org/wiki/Presidency_of_Jimmy_Carter#Budget_policies

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