Moving from our current fragmented world to some sort of golden age seems impossible for now. But at similar turning points in previous rises, it also seemed impossible. In the depression of the 1930s, it was hard to imagine those hungry, unemployed people queuing up at soup kitchens, owners of a suburban house with a car in front of the door. And yet, it happened in a surprisingly short period of time. The virtuous cycle of the Golden Age began to break in the late 1960s, in part because of its own successes. Years of low unemployment have convinced workers that they have little chance of losing their jobs. Their demands for improved working conditions and higher wages have lowered the rate of profit. The post-war agreement and its justification for enlarging the cake escaped a contest over the size of the piece that each group could get. This laid the conditions for the period of combined inflation and stagnation, called stagflation and which will follow. High investment, rapid productivity growth, rising wages and low unemployment defined the golden age. How did this virtuous cycle work? Figure 17.17 shows the evolution of productivity (output per hour) and real wages in U.S.
manufacturing since the beginning of the Golden Age. Index figures are used for each series to highlight real wage growth relative to output growth per hour of work. Real wage growth in harmony with hourly output is not inevitable. In Unit 2, Figure 2.1, when considering real wage growth in England since the thirteenth century, institutions (social movements, changes in voting rights and laws) have been instrumental in implementing productivity growth into real wage growth. Skidelsky devotes ten pages of his 2009 book Keynes: The Return of the Master to a comparison between the Golden Age and what he calls the Washington Consensus Period, which he dates from 1980-2009 (1973-1980 as a transition period):  Follow the steps of the analysis in Figure 17.12 to see how these four enumeration points, which explain the golden age, can be translated into shifts in the price formation curve and wage setting. Remember unit 16 that the price-setting curve shows the real wage that corresponds to employers who keep investment at a level that keeps employment constant. This means that a real wage below the price-setting curve will encourage firms to make or increase their investments and employment will increase. In the face of the Great Depression, after World War II, most advanced economies adopted a policy that strengthened the bargaining power of workers and unions. . . .