The twentieth century sure was different. Mostly in ways we’d like to forget. But one way we shouldn’t forget is that, at least for American workers, it was a fabulous time. Real GDP per capita grew from about $6,300 to about $46,500. The US economy was growing fast before the twentieth century, too, but economists who look at late 19th century growth can explain most of it through capital spending and population growth. In other words, 19th century growth is better explained by the nearly 200,000 miles of railroad we built—and the millions of people we imported to build them—than by the invention of the steam locomotive.
Nineteenth-century economists could model the economy pretty simply, or could have, if they’d had the tools: workers times productivity equals output, where productivity is a function of capital. In the 1950s, Solow and Swan developed a more robust model, where economic growth came from population growth, capital, and “Total Factor Productivity,” where TFP is an extremely high-class way to describe the growth that the basic model can’t explain. Like a lot of economics, this sounds either stupid or tautological as a statement of fact, but economic models are about illustrating the bounds of our ignorance: of those three variables, TFP is the one to explain.
There are a couple versions of what TFP is. Economists usually think it’s some combination of:
- More education: in 1900, around 51% of people ages 5-19 were enrolled in school. In the 90s, the number topped out above 90%.
- More human capital and trust: if you know your employees and business partners won’t slack off or try to rob you, you can save money on supervisors and Pinkertons.
- Better technology—a million current dollars worth of factory equipment or trains goes a lot further than it did a century ago.
Each of these is unsatisfying in its own way. Take schooling: there’s ample evidence that schooling is more about demonstrating that you have traits employers desire, not creating those traits. While some school is useful, we’ve reached the point where everyone smart enough for high school has a shot at spending at least a few years(‘ worth of tuition) at college. If education caused higher TFP growth, we’d see productivity growth accelerating throughout the twentieth century. Instead, we see a decline after the 1970s.
Human capital and trust are surely part of the equation. It’s hard to build a big enterprise in a company where bigness makes you a target for shakedowns. Look at Russia, The Mark Zuckerberg of Russia doesn’t live in Russia’s Silicon Valley; he lives in Dubai. He doesn’t own much of the Facebook of Russia, either; a friend of a friend of Putin’s bought it from him.
Human capital is a better theory, because we’ve seen serious declines in trust and social cohesion in the last generation. The timing works, too: the US was pretty monocultural (relatively) in the first half of the century, had a surge of disorder in the 60s and 70s, and has evolved into a tense Cold War-style standoff today. But if that were the dominant explanation, you’d see homogeneous countries like Japan put up excellent numbers. Japanese TFP grew rapidly until 1970, and has been down and then flat since. Weird!
Technology is the best explanation, but “technology” is not one monolithic explanation. It’s thousands and thousands of tiny innovations, all of which slowly nudge productivity growth upwards. And, again, we have to explain the curve of TFP: higher growth from the 30s through the 70s, slower growth ever since. We can explain the slowdown in a couple ways: maybe the world gradually got more regulated, or we slowly picked the low-hanging fruit. But what of the acceleration? If low-hanging fruit is the issue, there’s always more of it in the past.
The Top 1% of the Middle 90%
I disagree with the alt-right on a whole lot, but give a broken clock credit where credit is due: I blame the Jews. Specifically, I believe that the best explanation for the growth in TFP, and the subsequent slowdown—and a few other phenomena I’ll get to—is the fact that from the 1930s through the 1950s, elite schools dropped their aggressively discriminatory admissions policies, and switched to admitting students based on objective measures of talent. Another way of saying this is that the started admitting Jews, and another way of saying that is that they stopped discriminating against a group whose IQ is about a standard deviation above the mean. Malcolm Gladwell, in another broken-clock moment, has a great piece about this:
In 1905, Harvard College adopted the College Entrance Examination Board tests as the principal basis for admission, which meant that virtually any academically gifted high-school senior who could afford a private college had a straightforward shot at attending. By 1908, the freshman class was seven per cent Jewish, nine per cent Catholic, and forty-five per cent from public schools, an astonishing transformation for a school that historically had been the preserve of the New England boarding-school complex known in the admissions world as St. Grottlesex.
The difficult part, however, was coming up with a way of keeping Jews out, because as a group they were academically superior to everyone else. Lowell’s first idea–a quota limiting Jews to fifteen per cent of the student body–was roundly criticized. Lowell tried restricting the number of scholarships given to Jewish students, and made an effort to bring in students from public schools in the West, where there were fewer Jews. Neither strategy worked. Finally, Lowell–and his counterparts at Yale and Princeton–realized that if a definition of merit based on academic prowess was leading to the wrong kind of student, the solution was to change the definition of merit.
The admissions office at Harvard became much more interested in the details of an applicant’s personal life. Lowell told his admissions officers to elicit information about the “character” of candidates from “persons who know the applicants well,” and so the letter of reference became mandatory. Harvard started asking applicants to provide a photograph. Candidates had to write personal essays, demonstrating their aptitude for leadership, and list their extracurricular activities. “Starting in the fall of 1922,” Karabel writes, “applicants were required to answer questions on ‘Race and Color,Religious Preference, Maiden Name of Mother, Birthplace of Father, and ‘What change, if any, has been made since birth in your own name or that of your father? (Explain fully).'”
All very socially acceptable in 1922. Not so socially acceptable post-1945. James Conant, Lowell’s successor, slowly eased restrictions, and eventually the quota dissolved. Now, Harvard admits Jews, Blacks, Hispanics, a carefully-pruned subset of qualified Asians, Catholics, Atheists, Marxists, Republicans who turn their time as a Republican at Harvard into their entire identity, and pretty much anyone else with extraordinarily high standardized test scores and GPAs. They admit the smartest and hardest-working 18-year-olds in the country, basically.
This didn’t magically change the number of well-educated people. Harvard undergraduate enrollment was about 1,100 people in the early 1940s and about 1,200 in 1975. What it did, though, was give talented people with poor pedigrees much more access to high-status, high-impact jobs where they could quickly contribute. (Where were all the talented Jewish students going back when Harvard wouldn’t have them? Fun trivia question: CCNY had eight Nobel Prize-winning alumni, all of whom graduated between 1933 and 1954.)
History gives us frustratingly small sample sizes. N is usually around 1. But we do have another test of what happens when a country integrates a high-IQ minority, then changes its mind: in early twentieth-century Germany, German Jews were highly integrated into German society. How highly-integrated? During the First World War, Jewish investment banks in the US got boycotted by clients—because it was assumed that they were loyal to the Kaiser. Even into the 1930s, there were Jewish Germans who supported Hitler, on the grounds that he was the only person who could defeat the communists, and anyway the Jew-baiting was just a way to appeal to Johann Q. Öffentlichkeit, not a serious policy proposal.
19th century Germany had a stellar academic reputation (I don’t have good information on how much of this was Jews, though). Since the Second World War, they’ve done… okay. But I tend to like Steve Sailer’s theory about Rammstein’s Amerika, that it’s a wistful song about how Germany, not America, should be the center of the scholarly and technological universe.
Of course, scrappy outsiders didn’t gatecrash the WASP party instantly. There was a long transition period, during which some fields bifurcated into mostly-WASP and mostly-not companies.
In clothing, for example, gentiles owned the big factories (to run a factory with a lot of expensive capital equipment, it helps to inherit money and inherit a close relationship with a banker). But the low-margin, asset-light middlemen were disproportionately Jewish. In advertising, WASPs dominated brand ads—the kind you buy to get some vague halo of prestige—while direct-response firms who actually got hired and fired based on the sales they could produce were more Jewish and Catholic. In finance, Morgan Stanley didn’t hire a single Jewish employee until 1963(!), even though J.P. Morgan himself had been chummy with one of the Salomons of Salomon Bros. Once again, the WASPs ruled the part of the business that was driven by connections (underwriting large bond issues from blue-chip companies), while Jewish firms excelled in market-making, smaller company underwriting, and other subfields where there’s skin in the game. As Michael Lewis puts it in Liar’s Poker,
In 1979 a good guess at who would revolutionize finance in the coming decade would have been made as follows: Search the unfashionable corner of Wall Street; eliminate everyone who appears to have just emerged from a Brooks Brothers catalog, everyone who belongs or claims to belong to exclusive clubs, and everyone who comes from a good WASP family. (Among the leftovers would have been not only Milken and Ranieri but Joseph Perella and Bruce Wasserstein of First Boston, the leaders in corporate take-overs and, coincidentally, the other two men who helped Ronald Perelman chase Salomon Brothers.)
This, by the way, is a great heuristic for sanity-checking racist hiring, or nepotistic hiring (same thing, smaller family). The people being discriminated against will sort themselves into hard-to-fake, easy-to-quantify fields like engineering or sales. Nepotistic hires will cluster in fields that are impossible to judge (“strategy”), or where success comes from making few mistakes rather than from contributing something new and excellent (HR, PR).
In the arts, the picture is blurrier. Non-WASP writers were plenty successful at both prestigious and popular writing, so the same dynamic didn’t play out in precisely the same way. Perhaps we can blame Playboy: by packaging naked breasts together with fine writing, Hugh Hefner managed to publish what was, by orders of magnitude, the world’s highest-circulation literary magazine, thus blurring the boundaries between mass market and hoity-toity:
By 1967, the magazine had gold-plated contributors like Vladimir Nabokov, James Baldwin and Ray Bradbury; a booming circulation of 4 million; and, to a remarkable degree, mainstream acceptance.
There are two puzzles in late twentieth century American economics: why did productivity growth slow down, and why did intergenerational income mobility slow, too? The mid-century meritocratic sort, coupled with heritability of intelligence, conscientiousness, openness, and other success-maximizing traits, explains both. In 1960, a smart kid from a poor family could get into Princeton on test scores alone, and go on to have a good career. By 2018, nearly all the smart kids are the children of people who got accurately sorted early. Go down the Forbes 400, and try to find someone born after 1960 who grew up poor. I’ll tell you what you’ll find: second-generation immigrants. The only person I can think of who was born after the Sort, grew up poor, and got rich is Marc Andreessen. And even then, it’s hard to tell from his background the extent to which his parents were poor, as opposed to practicing a neurotically extreme variant of Protestant asceticism.
Compare recent Physics Nobelists to a few generations ago.
- Donna Strickland, 2018: daughter of an electrical engineer and an English teacher.
- Arthur Ashkin, 2018: son of Russian immigrants; dad ran a dental laboratory (and his older brother worked on the Manhattan Project).
- Barry Barish, 2017: unclear what his dad did, but his mom had a college scholarship, but wasn’t allowed to attend.
- Kip Thorne, 2017: his dad was a chemist, and his mom was the first woman to earn a PhD in Economics at her alma mater.
- Rainier Weis, 2017: son of a “physician, neurologist, and psychoanalyst,” per Wikipedia, and an actress.
Let’s try a half-century earlier:
- Richard Feynman, 1965: dad was a sales manager.
- Julian Schwinger, 1965: dad was a garment manufacturer.
- Shin’ichirō Tomonaga, 1965: dad was a philosopher (I didn’t say zero sorting, just less).
- Charles Townes, 1964: son of a lawyer.
- Alexander Prokhorov, 1964: Wikipedia says his parents were “revolutionaries.”
You see some elite children of elite parents here and there in the past, but plenty of upward mobility. In the more recent crop, everyone is either the child of recent immigrants or the child of upper middle-class and above parents.
If you start measuring things from the 1960s, you see a collapse in social mobility and a coincident drop in productivity growth. But go back another century, and you see a coherent story: we used to give people authority based on who their parents were, but in the early twentieth century we made a concerted effort to find all the smart people and give them prestigious credentials and good jobs. Now, almost all the smart people were discovered a generation or two before they were born; if we want productivity growth and intergenerational mobility to re-accelerate, we’ll have to find some new force to make it happen.
When it comes to productivity growth, I’m worried, and I believe it’s important to reverse the trend. But intergenerational inequality is another matter: it shifted, once, and then it settled. To make the Fifties happen again, you need another massive untapped reservoir of smart people, but somehow you have to find the smart people Harvard has overlooked in its century-long quest to admit the thousand people most likely to earn a gazillion dollars and donate some of it to Harvard.
Good luck with that.