TOWARD A REORDERED ECONOMY
Lekachman, Robert
Ideologically, this is a time of startling events and strange alliances. Increasingly prominent on the polemical scene are the new social-science conservatives, often former liberals or...
...Effective taxation of inheritances and gifts will in a generation limit the power of money over American legislation and elections...
...One may assume after A. A. Berle and J. K. Galbraith that the large corporation is a permanent presence economically justified by its contributions to research and development and the techniques of mass production and distribution...
...But it deserves a far wider audience...
...It follows that unless the United States accepts the presence of a permanent underclass of unemployed blacks, Puerto Ricans, and Southern whites, still another major federal initiative should be a vastly expanded, Iong-range program of publicservice employment...
...Many noble experiments don't work and rare is the prophet who can tell in advance which will succeed...
...A radical rethinking of the nature of strategic deterrence, NATO troop levels, the multipolar character of international politics, and the viability of American meddling in world affairs could, however, result in potential reductions of the Pentagon take closer to George McGovern's proposed $ 32 billion...
...Since I regard the large corporation as a central institution of both capitalist and socialist industrial society and radical antitrust as a policy nonstarter, I should want my man in the White House to urge upon Congress a permanent system of wage and price controls...
...By official estimate, the houses will cost the taxpayers $53,000 each or, if debt service is included, $76,000 each...
...Their de facto allies, for the time being at any rate, are chastened New Frontiersmen and Great Societarians, particularly the economists among them, who are passing their political exile in such locations as the Kennedy Institute and the Brookings Institution...
...To begin with, many of the popular criticisms are addressed to legislation passed in 1964 and 1965...
...To accept the vision of the real world shared by the new social-science conservatives and repentant Great Society economists is also to conclude that no president will in the next few years be capable of effecting any but the most marginal shifts in national priorities and their attendant shifts of federal resources...
...If Congress accedes to the Pentagon's demands—for new bombers, and submarines and modernization of existing landbased missiles—and if Congress eventually enacts some version of revenue-sharing and welfare reform, these add-ons plus the extra cost of an all-volunteer army, the upward creep of prices, and the predictable escalation of social security benefits will in the fiscal year 1975 generate a deficit at full employment of $17 billion and a still larger sum if we are operating at less than full employment...
...A liberal Democrat will presumably bug fewer phones, appoint more enlightened jurists to the Supreme Court, end the Vietnam war, and act more vigorously against unemployment— each an improvement over Nixon policies not to be scoffed at...
...Redistributionist strategies have not failed...
...It is a work of enormous scholarship, wholly accessible to the diligent layman, and concerned with all of modern economic thought...
...Nor have the specialists designed a national health scheme that satisfactorily combines such desirable objectives as delivery of good medical and hospital care to the entire population, protection of the victims of medical catastrophe from penury, and limitation of soaring hospital and physicians' charges...
...Galbraith expects that the enlightening influence of the educational and scientific estate will be exercised upon the technostructure administering the corporation...
...For radicals there is a more important moral to be derived from the 1960s...
...For how long are plutocracy and political democracy compatible...
...There is all the difference in the world between being on welfare and living off such respectable public benefits as social security, a veteran's pension, or unemployment compensation...
...A properly designed program will embody provision for advancement, integration into civil service, and substantial community control...
...In the courts there has been a strong tendency to define welfare as a gratuity paid at the discretion of public authorities...
...In the more generous states, FAP would reduce the benefits now paid...
...FAP aims at tighter factory discipline, an abundant supply of domestic labor to launder Russell Long's shirts, and regimentation of the poor—not at the redistribution of income from rich to poor persons...
...Ben Seligman read prodigiously, thought carefully about what he read, andhad something important and interesting to say about both author and work...
...There is a tradition in American economic theory which downgrades American dissenting thought...
...V in summary, then, if I were at the right (or better the left) hand of a new president of appropriate opinions, I should want him to cut the Pentagon down to size and restructure the tax system...
...One needn't endorse Daniel P. Moynihan's sweeping put-down of communityaction programs to recognize that with embarrassing frequency the rewards of new opportunity went to shake-down artists, rhetorical radicals, Black Power militants, and eager candidates for co-optation by the Establishment...
...Sharp reductions in military spending and still sharper increases in tax collections could plausibly release up to $90-100 billion for public programs...
...Just because the elder John D. Rockefeller was the most efficient (and pious) buccaneer of his age, why should various Rockefellers be actual or potential governors and the unelected urban planners of metropolitan New York...
...Snobbishness hassomething to do with it...
...What ought to be recalled is not only the Vega but the Vega assembly line...
...I do not respond, but the book thatalways comes to my mind is Ben B. Seligman's Main Currents in Modern Economics...
...After the euphoria, the audit...
...With many others, I had come to look eagerly for each new book of Ben Seligman's...
...In this view, the therapy is radical antitrust action, directed against all corporations whose size is not justified by economies of scale...
...Like the reform of the tax system, the controls are desirable both in themselves and as the prerequisite to other desirable policies...
...And almost nobody believes that social services have substantially benefited large numbers of welfare recipients...
...Coming as they did fromWisconsin or Texas, they were never deemed quite respectable...
...A left-liberal administration should emphasize redistribution of both power and resources because equality is preferable to inequality...
...Although a larger program is desirable, Cranston–Hawkins promises 10 times as many jobs as the Emergency Employment Act that was reluctantly signed by Nixon...
...Had these men begun their scholarly careers in Vienna orBudapest or even Oxford or Cambridge, they would have been great figures on theAmerican scene...
...My student of DISSENT and Michael Harrington would be at least as eager to redistribute power as income...
...Whether job training programs actually help their clients to get and keep better jobs is still another unresolved issue...
...What may enhance self-respect and promote self-assertion even more than an assured income is the guarantee of a decent job...
...He finds much in those ideas with which he most disagrees...
...Broadly speaking, the decade's failures in social change, alleged, actual, or probable, coincide with its service strategy...
...The Great Society was neither proclaimed nor operated as an exercise in the redistribution of income and wealth...
...One of the most important is a generously funded Negative Income Tax, with stress upon the words "generously funded...
...The unskilled blue-collar job, traditional point of entry for newcomers from other countries or our own South, is diminishing in relative importance...
...III fiscal limitations upon substantive change will be greatly relaxed if the changes are sufficiently large...
...For those who seek further to humble the mighty, there are two available strategies...
...With the proceeds, he should finance income redistribution via a negative income tax, public jobs, and a variety of programs designed to protect the environment, protect consumers, and enlarge housing, training, and job opportunities...
...So many startling events have in recent years occurred, that this may actually be the year in which South Dakota populism persuades an electoral majority...
...But it would also be hard to imagine a man less dogmatically inclined than Seligman...
...Of the two other major strategies of social intervention— redistribution of resources and redistribution of power—Lyndon Johnson can be said not seriously to have tried the first and to have done some unexpected things with the second...
...JOM.R KENNETH GALBRAUTH Preface, © by John Kenneth Galbraith, to Main Currents in Modern Economics, by Ben B. Seligman, published in three volumes, in paper, by Quadrangle Books in 1971...
...But for some time to come caution and experiment, rather than massive financial injection, are the recommended policies...
...In some ways the Great Society did encourage a limited redistribution of institutional power, but not always to the right people...
...581 Still more can be done with regard to revenue...
...Perhaps I am wrong in saying that it wasoverlooked...
...The only way, third, to cope with the inflationary implications of market power plus full employment is through the aid of a permanent structure of wage and price controls...
...They have scarcely been tried...
...What tarnishes private affluence and casts increasing doubt on the assurances of the income statisticians that per capita real income is on the increase are environmental deterioration, inadequate school, hospital, and medical services, rickety public transportation, insecurity of person and property, and the general decline in public amenity...
...On the whole, Galbraith prefers regulation and taxation to the dismemberment of major corporations...
...By comparison with most more or less civilized lands, the United States is a lightly taxed country and the results are visible...
...They are featured in the Public Interest, Commentary, and the New York Times Magazine—able scholars and publicists like Nathan Glazer, Roger Starr, James Q. Wilson, Irving Kristol, and Daniel P. Moynihan...
...Nevertheless, community-action programs and the encouragement given in housing and model-cities legislation to tenant groups helped train a new generation of black leaders and triggered Nader's accountability revolution...
...These can scarcely have been the results Lyndon Johnson expected when he declared war against poverty in late 1963...
...Large new actions will be frustrated by exceedingly severe financial limitations...
...The necessity is then to civilize and regulate these powerful social organisms...
...The appalling rates of unemployment in inner cities, partly concealed in official statistics, reflect a crisis of the internal migration of poorly educated and racially persecuted Southern blacks...
...Quite the contrary...
...Above all, public jobs offer decent work, a chance to advance, and a revival of self-esteem...
...The failures of Great Society policies were failures of custodial liberalism, not of radiROBERT LEKACHMAN cal policies...
...his commitment was real and notverbal...
...Although the Great Society retained and enlarged older income maintenance programs for pensioners, veter ans, the blind, the unemployed and welfare clients, its cherished novelties usually fo cused on provision of greater quantities of ROBERT LEKACHMAN education, job training, housing, medical services, and counsel to selected groups...
...National policy molded by Galbraith would restrict antitrust action to flagrant cases of financial manipulation, epitomized by some of the conglomerate mergers of recent years...
...Fifty-four families will enjoy better living quarters, and a whole clutch of land speculators and builders will enrich themselves...
...It is highly desirable to finance the transfer by slightly higher taxes on $12,000–$20,000 incomes, moderately higher levies on $20,000–$50,000 incomes, and sharply increased imposts on incomes above $50,000...
...T IV he right to an income guarantee substantially enhances the legal and political situation of its recipients...
...In its original form, the McGovern minimum-income grant, a version of the NIT, would have 582 junked present welfare programs and furnished families of four below the $4,000 poverty line with $14 billion in cash grants and granted families between $4,000 and $12,000 either cash supplements or tax remissions worth an additional $29 billion...
...It was a loss not in the personal sense for I did not know him well...
...Moreover, argue the Brookings experts, even if the money were available, a responsible man in the White House would be sobered by the programmatic failures of the recent past and the lack of evidence that superior alternatives are available...
...Free choice is the governing principle not only of market economies but of free peoples...
...In the latter situation, beneficiaries are citizens possessing full constitutional rights...
...Increasingly prominent on the polemical scene are the new social-science conservatives, often former liberals or radicals...
...Yet another requirement of redistribution is the attainment and maintenance of full employment, still the most powerful of antipoverty programs...
...Its cherished managerial techniques may have faltered or what amounts to almost the same thing, the liberals seem to have lost their nerve...
...These are rendered both essential and administratively feasible by the location of market power in a relatively few places...
...In keeping with this concern, hespent most of his life in the trade unionmovement...
...A Tribute AT intervals, I am asked by a book editor who has suffered from a failure of imagination to write an essay on the most overlooked book of the last ten or twenty or fifty years...
...Economists are divided between one group that thinks sufficiently aggressive fiscal and monetary policies will create genuine full employment, and a second group arguing that structural unemployment—the mismatch of unemployed persons with the available jobs—is for a variety of educational and social reasons a permanent feature even of boom periods...
...The first priority for the new Administration must be the budget...
...The destitute would receive cash grants...
...A return to the federal tax levels of 1962 would generate $45 billion of new 1973 revenue...
...How redistributionist this income strategy is depends on where the cut-off point is located, the size of individual benefits, and the manner in which new revenue to finance the scheme is extracted from those above the cut-off point...
...q Also—an important thing in a history of economic ideas—he is always concerned tolet the authors speak for themselves...
...Had Ito single outthe most important contribution of thisbook, it is the brilliant and sympathetic study of Thorstein Veblen, John R. Commons, and such more recent American scholars as Clarence Ayres and GardinerMeans...
...But he did leave behind this truly remarkable book—a book I firmly believe to be one of the most valuable works in economics of our generation...
...His supplementary policies include nationalization of defense contractors and close price regulation of the unnationalized remainder...
...No doubt public services—supportive, rehabilitative, or restrictive—must continue to be available for alcoholics, drug abusers, psychotics, and criminals...
...There hasbeen no other economist in recent times quite like him...
...Great Society liberalism was a well-intentioned prescription for the better preparation of poor people for the same old capitalist rat race...
...Thus, the most activist of presidents would in his initial term be hard-pressed to finance new programs for mass transit and environmental protection, or to enlarge older subsidies to the public schools, universities, and hospitals...
...Onlyafter their ideas are in view does he enter with his own judgments...
...Movements for welfare rights, women's liberation, gay liberation, ecological action, and convict protection attest to the rising political consciousness of formerly quiescent or apolitical groups...
...This is neither paradox nor play upon words...
...Individuals and families above as well as below the poverty line will benefit—the working poor as well as the unemployed, but also a segment of lower-middle-income America...
...Full-employment fiscal and monetary policy, buttressed by guaranteed public jobs, will rapidly restructure labor markets and enhance job satisfactions...
...Potentially, several objectives will be served...
...First, economic managers who deliberately create recession do not cure inflation when powerful corporations and advantageously situated trade unions possess the market power to push prices and wages upward even at the cost of sales and jobs...
...584 The alternative way of handling the large corporations is to fragment them, on the ground that the case for the economic efficiency of the corporate goliaths is unproven, competition is destroyed by their presence, and politics are distorted by their activities...
...They play contemporary variations upon such traditionally conservative themes as the inflexibility of human behavior, the durability of institutional arrangements, the pervasiveness of social class, and the consequent limitations of the results that can reasonably be anticipated from government efforts at social meliorism...
...I dont know when I have felt quite such a sense of loss as when, while in Europe last year, I read of his death...
...Enlarged public employment is an opportunity to improve our shoddy public services...
...I am myself a convert to the structuralist hypothesis...
...Berle hoped that corporate managers would develop social consciences...
...This is the message from Lordstown...
...Any rational person would have expected at least a decade of modification before Great Society innovations operated as well as the Social Security Administration, the Veterans' Administration, and the Internal Revenue Service...
...Among knowledgeable economists it is well known and greatly admired...
...He was a liberal...
...The working poor would benefit from income supplements...
...Although for a few years the Warren Court broadened the legal rights of welfare clients, the Burger Court has retreated on this point...
...Liberalism may have reached a dead end...
...Title 1 of the Elementary and Secondary Education Act, celebrated as a resolution of church-state quarrels over parochial education, now turns out to suffer from grave misallocations of appropriated funds and wide 580 departures from its stated emphasis upon assistance to inner-city schools...
...A guarantee of public employment, finally, promises radical change in the organization of labor markets...
...If, by some minor miracle, George McGovern is inaugurated next January, he will lack neither the policies nor resources to initiate a number of significant steps toward genuine social democracy...
...One of them is the agony of the Democrats over the McGovern—Fraser rules for delegate selection...
...The current disarray of economic management in England and this country and President Nixon's ludicrous experiments with three successive economic prophets—Friedman, Keynes, and Galbraith—teaches three lessons...
...As a resident of Washington, D.C., he is likely to be shaken by such episodes as the city's adventures in the construction of small town houses for low-income families...
...Two other benefits of massive public job creation are of great importance...
...Milton Friedman's NIT, as adapted by the present Administration's Family Assistance Plan, sets benefit levels at little more than half of poverty-line income and conditions even these meager sums upon fulfillment of onerous work and training requirements...
...He had an instinctive sympathy for the underdog and the manof modest means...
...Men and women engaged in useful work will reassure partisans of the puritan ethic...
...The first is a refocusing of American preferences for consumer durable goods toward the human services...
...A correlative is the declining legitimacy of older institutions, e.g., the large corporation...
...Possibly because they hope soon to leave their comfortable Elbas and reassume responsibility in Washington, the social-science liberals have not given up hope, like the conservatives, that better programs will yet be devised, perhaps by the same individuals now identifying the inadequacies of social engineering in such volumes as Setting National Priorities: the 1973 Budget, the Brookings study I have mentioned...
...Once public policy dissipates this fear, the challenge will be to design work that offers some human gratification to ordinary men and women...
...Radicalism American-style has yet to be tried...
...Even TOWARD A REORDERED ECONOMY the success of OEO Legal Services attorneys, young, bright, and devoted, in expanding the legal rights of welfare recipients is being eroded by the conservative majority on the Supreme Court...
...In education no one knows whether compensatory effort, integration, community control, or an appropriate combination represents an acceptable, let alone the optimum, means of teaching the children of the poor enough for financial survival in a technological society...
...The most generous measure now before Congress is the CranstonHawkins bill which proposes an annual appropriation of $10 billion to finance 1.6 million new public jobs, approximately a third of the officially unemployed...
...In St...
...Too often the education and skills of the unemployed fall beneath the standards set by a meritocratic society...
...I suppose that an optimist might conclude that once the Vietnam abomination were halted, a Democratic president could shift his constituents' attention back to domestic concerns...
...In the writings of James Tobin and other liberal economists, the Negative Income Tax emphasis is upon redistribution...
...Louis the Pruitt– Igoe project, now partially demolished, was once hailed as model public housing...
...Brookings pessimism is based upon the political judgment that only small changes are possible either in the tax system or the expenditure structure...
...It is only the fear of unemployment and income loss that enables industrial engineers to subdivide work into meaningless assembly-line and clerical tasks...
...I have mentioned the rising political consciousness of new groups...
...For the rest of us the guarantee of money or a job will turn the trick...
...Without getting bogged down in the Internal Revenue Code, I simply note that it is possible to transfer $43 billion from the affluent to the vast majority of Americans who earn less than $12,000 annually...
...he believed in greater security, greater equality, and more personalliberty...
...A liberal and compassionateview of the needs of man informs his judgment of the work he discusses...
...Hence, second, decent attention to the efficient operation of the economy, as well as common humanROBERT LEKACHMAN ity to the unemployed, requires stimulation of aggregate demand by an appropriate blend of budget deficit and monetary ease...
...Those jobs that do remain are located in distant suburbs where low-cost housing does not TOWARD A REORDERED ECONOMY exist...
...There people are rediscovering how limited are the resources available to the federal government and reassessing the impact of liberal Democratic efforts during the 1960s to improve the condition of the poor and the black...
...He would pick up where Lyndon Johnson left off before pursuing that coonskin to hang on the White House wall...
...Social democrats require, as Lyndon Johnson did not, structural change in the ownership of resources and the location of power...
...Taxation of inheritances larger than $500,000 at 77 percent rates (another McGovern scheme), imposition of an effective minimum tax on total income, treatment of capital gains as ordinary income, phasing out of mineral depletion allowances, repeal of the investment tax credit, and closure of expense-allowance loopholes might recover for the Treasury a third to a half of the $60-70 billion tax benefits now enjoyed mostly by the wealthy...
...The recent valuable Brookings analysis of the budgetary framework of national action amounts to a confession, topic by topic, of liberal bewilderment...
...I am attracted by Seligman's work, I amsure, because I find his point of view congenial...
...In 1963, 1964, and 1965, profits most agreeably swelled, the stock market surged ever upward, and conglomerateurs and performance-fund wizards enjoyed the brief fame chronicled by Adam Smith in The Money Game...
...But the upshot of the Brookings study is that if he tries to do much more he will risk serious inflation and the failure of insufficiently tested new programs...
...Once this assumption is denied, resources suddenly become available on a substantial scale...
...The diversion of psychic energy from domestic reform to an increasingly unpopular foreign war was more damaging to the Great Society than the shortage of cash...
...The implicit social contract upon which Lyndon Johnson proceeded until Vietnam swallowed up available revenues was tax reduction for the prosperous and social benefits for the less fortunate, both financed by rapidly growing tax revenues, even at reduced rates, from a booming economy...
...The slightly more fortunate would enjoy tax remissions...
...In the long run, the most essential feature of the redistributionist strategy is limitation of inheritance...
...Seligman accords them the place they have rightfully earned in the American pantheon...
...Conservatives accurately fear what radicals should rejoice in: assured jobs and incomes will fatally disrupt the coercive management of labor...
...These programs were fiscally stunted and deprived of adequate congressional attention by the national obsession with Vietnam...
...All that the housing experts assert with any confidence is that urban renewal and public housing are complete or partial disasters...
...I had rather the feeling that one of the main sources of my education had somehow disappeared...
...It is possible, at length, to discern the possibilities of comparatively radical political action...
...Brookings proposes to cut the Pentagon budget at most by $12 billion...
...As I earlier suggested, the timid stabs by the poverty program at transfers of political power to constituencies of poor and black persons often had startling effects...
...It is well to be clear that Great Society programs were not financed by heavier taxes on the affluent...
...Still, on the present evidence and despite the best efforts of the Nixon administration, the revolt against public and private bureaucratic power shows every sign of continuing and growing in vigor...
...Service strategies inevitably stigmatize their presumed beneficiaries by the income testing that surrounds them...
...The welfare population is in a much less happy situation...
...Few famous victories have been won...
...The cure is not more durable goods: it is a larger supply of the missing human services...
...The radical trustbuster believes that once the market power of large corporations is dissolved, cost-push inflation will no longer be troublesome and, in a truly competitive environment, there will be no need for wage and price controls...
...IT n ennedy-Johnson social programs are, naturally, susceptible to a different interpretation...
Vol. 19 • September 1972 • No. 4
