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.
“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
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.
- Do we face secular stagnation or a new industrial revolution?
- 50 years of warnings about the new industrial revolution. It’s here. Ignore the naysayers.
- A new industrial revolution has begun. Research shows more robots = fewer jobs.
- AI will reshape the world. Films show how.
- The bright light of fusion might burn away climate doomsters’ fears.
- Prepare for the next singularity. It will change everything.
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.
- “Technobubbles: Ancient, recent, and future” at GIGAOM.
- “The Internet and past and future communications revolutions” in IEEE Internet Computing, Jan/Feb 2010.
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…
- Ignore the skeptics. America can still grow.
- Good news: here’s why we won’t run out of minerals (including oil).
- WWI warns us about markets’ ability to see the future.
- America does not need more people to stay prosperous.
- 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
“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.”
