Book Reviews

Credit-Welfare Trade-off

Monica Prasad

The Land of Too Much: American Abundance and the Paradox of Poverty

Harvard University Press, Cambridge, Massachusetts, 2012, 344 pp., $39.95 (cloth).

Easy credit has been the U.S. alternative to a welfare state. The United States has more poverty and a less-developed welfare state than western Europe because it chose between the 1890s and 1930s to promote consumption-driven economic growth made possible by easily available credit. So argues Monica Prasad, a Northwestern University sociologist, in her compelling new book.

Prasad presents interlocking arguments about credit, taxation, consumption, regulation, welfare state development, interest-group politics, overproduction, and poverty in explicating the past 120 years of U.S. economic history and how it differs from that of continental Europe. She asserts that the United States is not the laissez-faire market economy of political lore; it has a strong interventionist history characterized by more regulation and more-progressive taxation than France, Germany, or Scandinavia.

Whereas Europeans, particularly since World War II, constructed elaborate welfare states that provided universal health care, generous public pensions and social insurance, and redistributive social spending, the United States has used regulatory and tax policy to stimulate consumption and economic growth. The flip side of this trade-off between credit and welfare, according to Prasad, is that European countries restrained wage growth and consumption to facilitate higher investment in social spending, while the United States developed a more rudimentary welfare state that has left more of its population poor.

Prasad traces these differences to late 19th and early 20th century agricultural overproduction that led to bouts of deflation and the concurrent growth of large industrial enterprises. This galvanized agrarian reformers such as the Populists and their successors to advocate for regulation and a progressive income tax system, rather than more regressive but more efficient consumption taxes. The course of reform in the United States between the 1890s and 1930s, from William Jennings Bryan to Huey Long and Franklin Roosevelt, becomes the story of democratizing credit so much that mid-20th century U.S. growth was propelled by what Prasad calls “mortgage Keynesianism.”

Historians such as Lizabeth Cohen and Meg Jacobs have argued that U.S. policymakers from Franklin Roosevelt...