The “Roaring Twenties” were an epic era, molded by optimism and excess. The First World War was over, as was the Spanish flu. And now, one hundred year later, we are again fighting a pandemic. Are there parallels? Nicoletta Cimmino (SRF) spoke with Joachim Voth, UBS Foundation Professor of Macroeconomics and Financial Markets.

This the translation of a transcription of an interview (in German), presented in the program “Echo der Zeit” on Swiss Radio SRF on February 4, 2021.

Nicoletta Cimmino: The parallels are often drawn between the 1920’s and the 2020’s. Are we looking forward to a prosperous decade, as was the case one hundred years ago, or are these eras even comparable?

Joachim Voth: As Mark Twain once so eloquently said: history does not repeat itself, but it often rhymes. And there actually are similarities that extend beyond the coincidence that the number “two” happens to be in the ten column. But a large and very important dimension that differs entirely is the speed of technical advancement that we actually measure in productivity statistics. The twenties were truly a time when technology guaranteed the fastest increase in economic output, but we are currently not in this phase at all, despite the internet and all the other possible upheavals. Instead, if at all, there is actually a lot less progress that is economically useful.

Do you believe that a large boom will happen after the lockdown, in the sense of consumption, both economic and social?

I really do not believe this. Of course, there is a lot of saved money and backlogged need for consumption, and that will surely be unloaded six to twelve months after the worst of the pandemic is over. If we happen to get out of it reasonably well. But if this will really lead to a broad, long-term economic boom, like that that actually occurred in the twenties – driven by this increase in productivity – I dare to doubt this.

The 1920’s, the roaring twenties, are looked back on quixotically. But who really benefitted from this period between the wars? Was it really everyone, or was there an elite that took advantage of the situation?

Of course, the elite benefitted. Many people got rich, in particular with stocks, which increased in value dramatically. However, we can truly doubt the wealth the people had. Most of them did not sell their stocks, and all the unrealized gains were again lost in the 1930’s, when the stocks crashed. However, there are also other groups that truly improved their situations in the 1920’s. For example, we must consider the introduction of the eight hour workday in many countries. In many nations, unions were recognized for the first time, and working conditions improved greatly everywhere; this is particularly visible, for example, in the share of the economic pie that workers were able to garner – the so-called wage share – which increased everywhere. This contrasts with what we have seen over the last ten to fifteen years in most OECD nations, where the share of workers’ income as a fraction of the gross domestic product has shrunk constantly.

However, we do see some parallels here. You said earlier in fact that the workers had an eight hour day for the first time, and today this is working from home, due to the pandemic. In other words, other work methods are now in the foreground. This might be a disadvantage for many – but an advantage for many others as well. There are certain parallels here – could we perhaps say innovations in the labor market?

There are innovations in working life, there is no question about that. However, the largest similarity is the introduction of the production line in the 1920’s. That was perhaps an innovation that is comparable to working from home today. It was a completely new way of organizing work, with very specific challenges that were very good for some people, and particularly demanding for others. But I dare to doubt that working from home is such a huge advantage for a large share of the populace, while the eight hour workday at the same salary was of course a tremendous advantage.

These “golden twenties” also had subsequent years that were far from golden – in Germany, the end of the Weimar Republic came, and with it, the rise of the National Socialists. The economy left some people behind: losers. Who are the losers of this pandemic or these twenties?

We obviously do not know this exactly. It is fairly clear, for example, that technical progress left many people behind in the last ten to fifteen years, even though it actually did not do so much for productivity. This means that there were a large number of actually reasonable office jobs, for example, that computers can now do. I believe that it is an open question whether all these displaced workers can find new jobs. In contrast, it was not technical progress that destroyed jobs in the 1920’s, even though this progress was relatively strong. Instead, it was the enormous economic collapse that simply removed demand from the system and then led to political discontinuity in several countries. This was not all bad, we must honestly admit – there was the New Deal in the USA, for example, that formed the basis for the American social state, the welfare state, and that actually created a new social cadence that has served the USA well for one hundred years.

Would it now be time for a new New Deal?

Perhaps. There are certainly countries where we could imagine that a new New Deal with more social rights, etc., would be a good idea. We can argue if this is necessarily the correct approach in Europe now. There are many scars on the numerous new dimensions of the welfare state that we introduced in the last one hundred years.