Surplus: The Changes

Changes in technological and economic conditions is the primary underlying cause for the income redistribution. In 1945 at the end of World War II things were a lot different than they are now. TVs had just come on the market. Planes had propellers. There were no Jets. With the exception of Bakelite, there were no plastics. Nylon, the first of the synthetic fibers, had just come on the market. Microwave ovens had not arrived yet. Business machines used punchcards. The IBM machines, with 90% of the market, used cards with rectangular holes. Remington Rand’s, with the remaining 10%, had circular holes. We did have adding machines and desktop calculators, but no computers. They had not yet come into existence.

In 1952 I was an economist at the Federal Trade Commission. At the time there were five computers in the world. They were powered by cathode-ray tubes, not transistors, and each filled a large room. IBM, the National Bureau of Standards, MIT, the University of Illinois and the University of Pennsylvania each had one. The U of P computer was developed by Eckert and Mauchly. In order to get into the computer business Remington Rand acquired their company.

The amended Sect. 7 of the Clayton Act prohibits acquisitions where their effect may be to substantially lessen competition or tend to create a monopoly. I was asked to determine the competitive effects of that acquisition. By reaching into your pocket I’ll bet you can pull out a computer that is much, much smaller and considerably more powerful than anything that existed in 1952 or even 2002 for that matter! Neither I, nor anyone else, could have imagined what things would be like 65 years later. And here I am talking to my computer to create this blog post.

At the time the world was different in many other ways as well. There were no Interstates, no Internet, no GPS, no Smartphones, no selfies and no Apps, just to mention a few of the products and processes of production we are familiar with today that did not exist then.

Furthermore, companies at the top of today’s list that are household words — like, Microsoft, Apple, Google, Amazon and Walmart — did not exist at the time. Others that were large national companies –like, A&P, the Great Atlantic and Pacific Tea Company –are no longer around. Moreover, because of the changes in technological and economic conditions more of today’s companies are of international scope. Their operations extend beyond national borders. US companies sell abroad and firms that were originally foreign-based companies — like, Honda, Toyota and Samsung — sell in the US.

During the prosperous recovery period after World War II all sectors of the economy benefited about equally. Beginning in 1973 that changed. The upper-end of the income distribution grew more rapidly, while the lower-end have about the same percentage share as they did in the earlier years. Reports have shown that the top 1% of the population has 70% of the national income, while the bottom 50% barely has 1% of it. You can learn more about the changes in my book entitled: Making the Poor Richer: The Causes, Consequences and Potential Remedies for the Greater Inequality in the Income Distribution.

In the next blog post entitled “The Winners and the Losers” let’s take a look of the broader effects on society that the changes in technological and economic conditions brought about.

 

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