Unlikely Dash to Hell
DAVIDSON, PAUL
Unlikely Dash to Hell Beyond Our Means: How America's Long Years of Debts, Deficits and Reckless Borrowing Now Threaten to Overwhelm Us By Alfred L. Malabre Jr. Random House. 174 pp....
...these Depression-inspired programs have become...
...The Reagan revolution is apparently a mere detour on the "Road to Serfdom...
...The difficulties of debt servicing and the fragility of the banking system should not be ignored...
...He is not the first to make heavy weather of Americans' spendthriftiness...
...debt will lead to a regimented economy by 1989, as Malabre foresees...
...Reviewed by Paul Davidson Professor of economics, University of Tennessee...
...Given such pronouncements, it would be easy to write off this book as just another conservative diatribe— against the FDR legacy in particular, and government economic intervention in general...
...Hence, in a slack economy spending more is a spur to capital accumulation and economic growth, not an obstacle...
...This hardly constitutes "living beyond our means...
...He similarly alleges "countless instances of 'welfare' for the well-off," citing as an example the fact that over one-fourth of the recipients of FHA loans earn more than $40,000 annually...
...Even if personal savings went to zero, total U.S...
...But Malabre is different: He actually tries to marshal "objective" data to prove his point...
...What Malabre's thesis finally comes down to is his gut feeling that "In the very long run ...a tendency to spend too much and save too little hobbles economic growth...
...Only then is it true that an increase in consumption must involve a reduction in investment...
...The author also spends much time attacking the growth of "transfer payments," such as Social Security, as a symptom of national extravagance...
...I do not want to leave the reader with the impression that there is nothing at all to Malabre's argument...
...Malabre fills many pages with gruesome statistics purporting to show how America has abandoned the virtues of hard work and parsimonious consumption to become a nation of welfare cheats, wastrels and bum credit risks...
...savings would be substantial...
...The probable end result, in his view, is a regimented, governmentregulated economy (shades of 1984...
...But it is not the discrepancy between the two methods of computation that matters...
...His litmus test for indicating whether we are "living beyond our means" is debt—personal, corporate and government...
...He notes, with unhidden moral indignation, that "one out of every two Americans depends entirely or in part on some variety of governmental 'transfer' payment...
...Malabre's litany of economic sins makes one think of a TV evangelist haranguing his audience...
...The author neglects to mention that most of the 25 per cent increase is due to the growth of four sub-populations: retired recipients of Social Security, the disabled (who tend to live longer because of modern medicine), children supported by the Aid to Families with Dependent Children program, and the involuntarily unemployed (whose numbers have risen from4.8 percent of the workforce 15 years ago to about 7 per cent today...
...The ultimate "source of today's problem," he says, "is the New Deal and the fact that Americans now feel entitled to the handout[s...
...Our growing international debt is indeed disturbing, since it entails ever-increasing interest payments abroad...
...There is, moreover, no guarantee that the national income data used to calculate the savings decline accurately reflect people's behavior...
...Malabre maintains that the United States is currently suffering from a very low savings rate, about 2 per cent of personal income...
...A 1973 Brookings Institution study by E. Philip Howrey and Saul H. Hymans used an alternative measure: the ratio of personal cash savings to personal cash and noncash income after taxes...
...rather, they "reflect a very different sort of tendency: to live beyond our means...
...Puritanical in temperament, Malabre sees the seeds of economic damnation in our prodigal consumption habits...
...Does Malabre really want these groups to work for their government checks...
...Without pausing to spell out "our means," Malabre then overwhelms the reader with gloomy statistics, stories and hypothetical illustrations to "demonstrate" our 50-year headlong dash to economic hell...
...many have tried to blame the low investment in plants and equipment, at least over the last half decade, on insufficient personal savings...
...No doubt most readers will resist equating the buying of a home through an FHA mortgage with wanton consumption...
...editor, "Journal of Post Keynesian Economics" Alfred L. Malabre Jr., the economic news editor for the Wall Street Journal, has written a provocative book...
...The only real costs occur when a family defaults on its mortgage—not a very common occurrence in the $40,000+ income bracket...
...On the first page he proclaims that the "high living standard of most Americans" and the "profusion of goods and services that most Americans enjoy" are not a tribute to our "know-how and industriousness...
...That is like saying over two-thirds of the people who have ever lived are alive today—a useful statistic for impressing audiences, but not so significant as it first sounds...
...So the habit is, it seems, compatible with both high and low rates of saving, despite what Malabre wants us to believe...
...The relevant point is that the personal sector is a minor source of savings in our society...
...In any event, I doubt that the "awesome" U.S...
...Yet the Social Security Trust Fund does not run a deficit, it merely channels income from workers to retirees...
...Certainly most of the unemployed would prefer a working wage to the niggardly compensation they get for a maximum of 26 weeks...
...Granted, the personal savings rate was much higher in the '50s, '60s and '70s...
...What they have overlooked is that personal savings are only 28 per cent of private sector savings...
...For all of my searching, however, I was unable to discover what it might be...
...But it is not an insoluble problem...
...If an economy is operating at less than full employment—as the United States has for the last 15 years—then aboost in consumption spending creates additional profit opportunities for entrepreneurs, who will respond by gearing up their investment programs...
...They found that this was only 0.22 per cent for the period 1951-72, while the usual national accounts measure, based on the ratio of all reported personal savings to disposable personal income, was 6.36 per cent...
...He notes that in the United States these three categories add up to an "awesome" $7 trillion worth of obligations...
...Such a misleading use of statistics does not inspire confidence in his book's conclusions...
...Were President Reagan to consult me, he would get a rather different set of recommendations than his advisers have been giving him, and a less roseate prognosis, but nothing so despairing as Malabre's scenario...
...17.95...
...which should appear after the 1988 Presidential election...
...Still, even if we keep on our present course, we are likely to muddle through to the 1990s...
...Nonetheless, it should be pointed out that FHA loan guarantees cost the government next to nothing...
...largely unrelated to need," and that in the past 15 years "the number of Americans living largely or entirely off a government check for which they perform no labor has risen some 25 per cent...
...And what he asks us to put on the proverbial collection plate is nothing less than the Welfare State...
...It is not the mere existence of debt that concerns Malabre, though, it is the process of "going more deeply into debt than our resources will safely allow.' His words seem to imply that there is some level of total debt he deems safe...
...This ancient fallacy, which the Keynesian revolution tried to lay to rest—apparently without success —presupposes that all of a nation's resources are fully employed...
...But those decades are part of the half century when we have supposedly been living beyond ourmeans...
Vol. 70 • May 1987 • No. 7
