Washington Bedtime Stories, by Herbert Stein

...They have effectively blocked imports of leading American products and subsidized their own exports to our lush markets...

...In short, severe disruptions in the allocation of American resources have idled people and machines, and not all of them are justified by the valid shifts in comparative advantage that Ricardo, and now Stein, had in mind...

...All of which, of course, does not prove that government debt is-a good thing...

...Partly because of bracket creep, the advance in taxes in the preceding ten years had been unprecedented, strangling business investment, individual enterprise, risk-taking, and productive effort in general...

...His zeal leads him to overlook three little words in his oversimplified version of the supplyside doctrine, which he states as follows: "A tax reduction, not accompanied by a reduction of government expenditures, will raise the total revenue, and will do so by operating on the supply side of the economy...

...The results have not in every instance been happy, as the inhabitants of Michigan, Minnesota, Illinois, West Virginia, and elsewhere can testify...

...So have the recipients of our financial aid and political comfort like South Korea...

...It is no surprise, therefore, that weighty endorsements sprouted like weeds in springtime, including those of Mondale...

...So what...

...Stein uncovers similar bugaboos in the fearful observations that the United States is becoming a service economy and a debtor nation to boot...

...I f Stein can be held to display a bias in these essays, it would be the understandable one of favoring the more technical members of his craft, commonly called the mainstream...

...By "Washington bedtime stories" Stein means tales "made up" by his professional colleagues to "amuse or frighten the citizenry," as he puts it in a brief preface...

...This is the proposition that the practical knowledge of economists is severely limited, so severely, Stein writes, that "on many questions of economic policy there is no bridge between theory and decision...

...Or is it...

...He concludes: "For the United States there is no disadvantage or danger in that people in the rest of the world find the United States a good place to invest...

...Lekachman's book, except as part of the title of a work by Milton Friedman...

...They are also unanimous in urging that reforms begin at once, especially in redistributing income...

...Stein makes no mention of the second element in supply-side doctrine (with which he probably agrees), but bluntly challenges its first, which he interprets as a blatant contradiction of mainstream wisdom...

...Nevertheless, for those who are fans of this former presidential adviser (under Richard Nixon), the book affords an opportunity to browse nostalgically among these samples of his output...

...during World War II he assisted Leon Henderson in managing price controls...

...Evidence of Stein's protective instincts, beyond the call of duty as it were, are rare but significant...

...To my utter astonishment, Stein passes the cup of hemlock to John Kenneth Galbraith, of whom he writes: "He promoted, and in some cases originated, many of the ideas which guided that wave [of social engineering] until recently: that fiscal policy should be used to achieve economic stability and high employment...

...The great majority of the contributions date back to the years 1980 through 1983, with a few of earlier vintage and a very few later...

...Collections of previously published essays are by definition retreads and justify resurrection between hard covers only to preserve the enduringly worthy—literary gems, classics of humor, philosophical wisdom, and the like...

...Why, to be utterly absurd, have any taxes at all...

...That kind of modesty wins Stein's approval...

...Moreover, its clarion call came like sweet music to the ears of campaigning politicians hungry for a "liberal" theme...

...What matters is only their magnitude...

...Perhaps he would be forced to agree, at least, that we know the allegations could not possibly have been true since, as Warren Brookes has pointed out, interest rates have plummeted, the inflation rate has fallen, and ten million new jobs have been created even as the federal deficit has risen to a record high of $220 bilUon...

...The three little words omitted from the supply-side dictum are "under certain circumstances...

...The people who were responsible are the famous names (rarely, if ever, mentioned in Stein's book) who populated the President's successive Councils of Economic Advisers and told the greatest bedtime stories in modern history...

...As most readers will recognize, supply-side economics arose with the Reagan Administration as a response to the "liberal" activist policies that had been increasingly dominant since the 1950s...

...The fact is, no matter who is writing, combining freedom with equality of result makes no more sense than applying whipped cream to a dill pickle...

...D 'See my "Open Secrets of the Deficit," TAS, July 1985...

...As such it is not prone to keep a reader turning pages, nor is its choppy succession of newspaper columns, magazine articles, and addresses likely to prove especially educational...

...For this role, it would replace government and its capacity for redistributing income and subsidizing favored activities, with private enterprise and its capacity for producing the goods and services people want...

...Equally brusque is Stein's response to the other members of this school, as in the closing words of his review of Lekachman's Economics at Bay: Why the Experts Will Never Solve Your Problem: It is symptomatic that the word "freedom" does not appear in the index of Mr...

...The theory of the causes of the alleged condition is inadequately supported...

...For there is no doubt, as Ricardo was the first to prove, that unfettered trade would optimize allocation of the world's resources and maximize the supply of goods and services for all...

...The new doctrine had two elements...

...He never knew one to be ruined by a book...

...in the dynamic scene of modern politico-economics, public issues and opinions about them obsolesce almost as rapidly as newspaper headlines...

...Q.E.D...

...I do not think that the word appears in the text at all...

...The output of durable goods was a larger proportion of total output than it had been at any time since World War II...

...Stein's well-known position is that the menace of the deficit should be banished as soon as possible by a brisk increase in taxes...

...In perhaps the longest essay in the book, "Bricks Without Straw," Stein provides examples...

...Hart, and affiliated Democratic stalwarts...

...As broad generalizations Stein's points are well taken, and would require no quaUfication at all if free trade prevailed as fully in practice as it does in the literature of professional economists...

...As he sees it, any possible depressing effect on our business activity or employment can be easily dispelled by a proper monetary policy: specifically, one that would generate "enough demand to absorb all the goods and services produced domestically plus the goods and services imported from abroad...

...The prescription is, with some exceptions, unpersuasive...

...The tax cut of 1981, although smaller than proposed, did in fact expand federal revenue and restore prosperity...

...Nevertheless, Reich's voice emanated from that citadel of intellectual authority...

...reducing the cost of leisure to make goofing off a national pastime...

...Nevertheless, there is an underlying theme of seminal interest that in some degree holds together all the otherwise disparate and ephemeral contributions...

...Hence there is that inescapable risk for author and readers...

...Harvard...

...The fragility of economic knowledge once again captures Stein's interest in his essay on "The Deficit-Dollar-Trade Nexus...

...The knowledge of economists is far short of what would be reasonably needed for making a decision...

...They seem to rejoice at this, since from the ashes of our present society they see the ascent of their own glowing vision of central planning come to life, with of course unprecedented progress and equal shares for all...

...One might imagine that if professional responsibility were assigned for whatever faults are acknowledged in this pre-Reagan span of economic history, it would lie with FDR's famed "Brain Trust" and, more definitively, with the highly visible mainstream economists, like Walter Heller and Arthur Okun, who promoted and applied "Keynesian" theory in a vainglorious effort to make business cycles obsolete...

...His most recent contribution to The American Spectator was a review of Lester Thurow's The Zero-Sum Solution...

...Asecond evidence of Stein's protective proclivities appears in his essays, "Some Supply-Side Propositions" and "What Happened to the Supply Side...

...Whether he holds reporters or their professional sources responsible isn't disclosed, but for one who cautions restraint in the expression of opinions, he is forceful about the possible harm done...

...Melville J. Ulmer is professor of economics at the University of Maryland...

...He quotes one unidentified source—"a leading government economist'2—as saying that he was certain that the upcoming budgetary deficit would have a significant effect on business activity, but he didn't know whether it would push it up or down...

...Quite accurately, Paul Craig Roberts, Bruce Bartlett, Arthur Laffer, and others judged that the circumstances were especially propitious for a tax cut at the end of the 1970s...

...and in the councils of government he has not been heard from since...

...With just three exceptions—devoted to doomsaying radicals—all forty-four of the essays in the book deal with current economic issues and their proposed solutions— current, I should hasten to add, when Stein wrote them...

...The deed is for a solution of another kind...

...Second, on a broader canvas, the new doctrine questioned the identity of the prime source of economic welfare—not the only but the prime source...

...A brisk reduction in the tax burden was intended to reverse all these effects...

...Stein staunchly contends that an excess of imports over exports is a welcome symbol of American prosperity...

...I n three of the essays—entitled "Economics at the New Yorker," "Baying at Economists," and "Industrial Policy a la Reich'—Stein deals with a group of economists whose knowledge, he feels, falls well below the average...

...But actually, though there is ample criticism in these pages, there is little if any reference to the publicity-seeking alarm-bell ringers that one might expect from this introductory comment...

...The description of our condition is grossly exaggerated...

...Travel between theory and decision is not a bridge but a flight of fancy...

...Here he is especially concerned with economic judgments about foreign trade as popularized in the media...

...The same essay points to the familiar allegations that the huge federal deficits, rising so sharply since 1982, would "crowd out" private investment, raise interest rates and inflation too, and Stein concludes that we still really do not know...

...Stein says that he would have found this "frightening" except when he "thought of politicians what Jimmy Walker thought about girls...

...and for others there are a few interesting economic questions raised and answered...

...They populate most of the university economics departments today and embrace nearly all the actual or potential Nobel prize winners...

...Concerning Reich's magnum opus of 1983, The Next American Frontier, Stein writes: This book has three elements: a description of the terrible present state and future prospects of the American economy, a theory of the causes of that dreadful condition, and a prescription for rescuing us...

...he asks, and promptly replies: In the first place, there is nothing particularly wrong with being a service economy...

...On that basis Stein reasonably asks, wouldn't that feel so good that we'd want to do it again and again endlessly...

...These are the radically inclined economic planners whom, in an abbreviated list, he identifies as Robert Reich, Robert Lekachman, Michael Harrington, and Robert Heilbroner...

...First, under certain circumstances, a reduction in taxes would actually increase total revenue collections...

...The first has to do with the wave of social engineering that began with the New Deal and culminated in the ridiculous pretenses for "finetuning" fiscal policy, leading to a roUer coaster of deepening unemployment and flaring inflation and ending only with the arrival of Ronald Reagan...

...There he properly points out that Lekachman's book does not mention the word "freedom" even once...

...In the second place, however, we are not becoming a service economy...

...But no...

...Herbert Stein's Washington Bedtime Stories, despite its intriguing title, more closely resembles the scrapbook of a witty and uncommonly skillful economist...

...Similarly, although there is admiring exposition of Marx's vision, there is no reference to the Soviet Union, the living embodiment of that vision, except as a country to which Richard Nixon sold wheat...

...What he fails to note is that the same word is missing from the works of Arthur Okun, James Tobin, and Lester Thurow—mainstreamers all— who happen to share the radicals' zeal for planning and income equality...

...But under pressure from their own mishandling of domestic affairs and embarrassing unemployment at home, our treasured allies and major trading partners have not behaved Uke the best of friends...

...In summary, what these writers have in common is a vision of capitalism as an already feeble system drawing ever closer to its inevitable demise...

...in the 1950s he was out completely...

...Yet if the latter's position is, even in part, another bedtime story, adding a dose of protective retaliation would indeed produce a truly grim fairy tale...

...Now, despite his public eminence, Galbraith has much to answer for in his writing, most grievously his dangerously naive view of the Soviet Union...

...in the 1960s John Kennedy shipped him off to India...

...If the rest of the world will simply supply us with steel, oil and other hard goods in exchange for reruns of "Dallas" and essays on economics, and if the terms are good, there is nothing wrong with that situation...

...In 1984, the output of goods was as large a proportion of total output as it had been in any year since 1957...

...But he had virtually no influence on policy in the 1930s...

...Why the budget deficit rose is another story.' A final example of Stein's concern for the repute of his mainstream colleagues requires a return to his critique of'the radical economists described above...

...As regards our novel (for modern times) role as a debtor nation, he argues that the location of a nation's assets and the nationahty of its creditors are immaterial...

...encouraging tax shelters, other forms of tax avoidance, and the illegal activities of the underground economy...

...Contrary to the complaint that American purchasing power has been drained by a predilection for bargain-priced cars, steel, and textiles from abroad...