Something Seems Unbalanced
BROCKWAY, GEORGE P.
The Dismal Science SOMETHING SEEMS UNBALANCED BY GEORGE P. BROCKWAY I have waited in vain for editorial comment on one of the most astounding public pronouncements of recent times,...
...The Dismal Science SOMETHING SEEMS UNBALANCED BY GEORGE P. BROCKWAY I have waited in vain for editorial comment on one of the most astounding public pronouncements of recent times, prompted by the news that Michael R. Milken had made $550 million selling junk bonds in 1987...
...The constant danger is that the demand side will be inadequate to consume what the supply side can produce...
...At the other end, we can say that no one is essential and deserving of unlimited income...
...Gordon and Thomas E. Weiskopf, who tell us that "Conservatives have been waging an economic revolution since the late Carter years," and ask, "Have they succeeded...
...Since I have no academic reputation to protect, I shall rush in and announce that the conservative revolution is and always will bea failure, except in the spirit ? f the old Peter Arno cartoon with the caption, "Let's all go down to the Trans-Lux and hiss Roosevelt...
...It is easy enough to get labor off your back, but you are liable to rip your shirt in the process...
...It is enough to tolerate them...
...The first, which conservatives rely on, is that it creates jobs...
...In this conservatives prove themselves not only mean-spirited butfoolish...
...The astounding thing about the pronouncement, however, was its pronouncer: David Rockefeller...
...Our aim should be to bring the ends steadily closer together...
...Keynes' observation that an economy can save itself into recession does not merely apply to one phase of the business cycle...
...It answered them, affirmatively and emphatically...
...Since we can't afford to buy them, business can't afford to make them...
...This is a problem that is with us always...
...only 16 per cent of the people would have theirs sapped (most only marginally), and a considerable portion of that 16 per cent did not work for their money, anyhow...
...Our authors support their mildly class-conscious conclusion with an ingenious display of statistical analysis that is obligatory in contemporary professional economics...
...What interests me now is the general question of the distribution of income and wealth in this country, and in the world...
...A measure of how much the economy has suffered is provided by an article in the Spring 1989 issue of the Journal of Post Keynesian Economics, where Professors John F. Walker and Harold G. Vatter ask, "Why has the United States operated below potential since World War II...
...The knee-jerk response to the idea of any leveling of income is that it would so sap the incentive of the wealthy that they would quit working, depriving the nation of the leadership of its best minds, and generally reducing the GNP...
...Indeed, Walker and Vatter show that we have, in general, been most prosperous in periods of highest taxation...
...They're wrong, regardless of their intentions...
...Ironically, the conservative program was (and is) class-conscious, too...
...In 1987 the total of personal incomes in the United States was $3,780 billion...
...What could possibly have given him reason to suspect that there is something unbalanced in the way our financial system is working...
...Lust for power or popularity, perhaps...
...In accordance with it we have steadily cut taxes, especially corporation taxes, and have enacted many sorts of incentives to investment...
...Now, you' d think that the making of goods would itself be good...
...Yet unemployment has been high for decades, utilization of our industrial plant has been low for decades, and our cities and infrastructure are decaying...
...Nevertheless, investment has fallen in relation to GNP The reason for the fall is that investment has two effects...
...But before going to other matters, I would point out that he was one of the leaders in pressing impossible loans on eager Latin American republics, that he denied loans to New York City to do so, that he has not taken a lead in repairing the disasters his misjudgment (speaking mildly) has created, and that, to boot, he pressured Jimmy Carter into his misadventures (again speaking mildly) with the late Shah of Iran...
...It also means reduced tax collections and increased welfare costs...
...The conservative aim was to get government and labor off business' back...
...It took more than firing the air-traffic controllers to weaken labor...
...This may once have been true, but it is far from the truth today...
...There are plenty of trustworthy and competent people ready to step into the jobs of those who call it quits...
...A couple of recent learned journal articles illuminate different aspects of it...
...The quality of life they deny includes their own...
...Like Rockefeller, they got it in the good old-fashioned way: They inherited it...
...Taxes have been raised from time to time, but no one has ever tried to prove that production has fallen as a result...
...Moreover, we already have the capacity to make more goods than we use—not more than we might use, but more than we can afford to buy...
...We can say, at one end, that everyone's self-respect depends on making a contribution to society—that is, on having a paying job...
...Walker and Vatter consider the conservative theory that prosperity depends on investment and contrast it with a theorem independently developed by Roy Harrod and Evesy Domar some 40 years ago...
...Likewise it is easy to get government off your back, but business' back would atrophy without the exercise of filling the orders of big government...
...Why have we getup-and-go Americans done so poorly...
...Common knowledge is against it, and there are no statistics to support it...
...If this sum had been equally divided among the 65.1 million American families, every family would have had an income of $58,065...
...Actually in that year only 16 per cent of families had incomes that large (and 11 per cent of families were below the poverty level...
...The catch is, the new industry can make goods faster than the new workers can consume them...
...The trouble is that millions of people are hurt by the attempt to make the program work...
...The second, which the HarrodDomar theorem emphasizes, is that it makes goods...
...The professors have many strings to their bow, but the following one in particular caught my ear: "The net effect of the low levels of capacity utilization and the high real interest rates which prevailed over the 1979-1987 period was to dampen investment even in spite of the beneficial effects that slack labor markets and the high demand for the dollar had on the power of capital to strike favorable deals with workers, citizens, and the rest of the world...
...They allow it will be a while yet before we know the outcome of the ReaganVolcker revolution...
...Very few of the really important movers and shakers of the world have been primarily moved by lustformoney...
...The authors try to be, so to say, conservative in the inferences they draw...
...Eightyfour per cent of the people would have their incentive stimulated...
...Indeed it does...
...It could have taken up more, and should have done so, and will have to do so in the future...
...My sentiments exactly...
...The Winter 1988 issue of The Journal of Economic Perspectives has an article by Professors Samuel Bowles, DavidM...
...The standard conservative theory has dominated American economic policy, even in Democratic years, ever since the end of World War II...
...Hardly anyone proposes absolute equality of income, or anything closely approaching it...
...I quote in full: "Such an extraordinary income inevitably raises questions as to whether there isn't something unbalanced in the way our financial system is working...
...If people really responded primarily to money, think of the great leap forward that would follow from raising everyone's realistically attainable income to $58,065...
...Entrepreneurial capital shot itself in the foot...
...We are told at every hand that we never had it so good, that the present "recovery" is the longest on record, and so on...
...it took the threat and actuality of unemployment...
...But it would not be difficult to suggest reasonable guidelines enforceable by steeply progressive income and inheritance taxes...
...The villain, again, is the conservative theory, but this time there is no need to suggest a mean elitist or antilabor spirit on the part of conservatives...
...But unemployment means slackened demand, which means constricted sales, which means constricted profits...
...A financial incentive is certainly prominent in the case of wheelers and dealers of the first rank (not to mention scoundrels), but a wise society does not devote much effort to encouraging such people...
...In any case, the incentive argument proves too much...
...Nobody reallybelievesthis...
...it describes a general condition of modern industrial production in a market economy...
...Big business needs big markets and big government...
...It is often said that the gap beween the rich and the poor is not really significant because taking from the rich and giving to the poor would not give the poor a great deal more than they have now...
...Has it ever occurred to him to wonder whether his extraordinary inheritance raises such questions...
...Well, not exactly, because I don't think the news raised questions...
...In our current pallid recovery, with bankers becoming alarmed at the slightest improvement in business, big government has taken up some of the slack...
...New York's Democratic Senator Daniel P. Moynihan suspects, and he is in a position to know, that conservatives deliberately let the budget deficit grow in order to make politically difficult or impossible the expansion of social welfare, ecological and other programs designed to do good and to improve the quality of life...
...But it seems to me to stand very well on its own...
...lust for money, no...
...The conservative program is self-contradictory...
...consequently investment languishes, regardless of incentives, and so does employment...
...But unless we want to go all the way toward some form of socialism (here G m speaking in my own voice and not that of the articles referred to), we're going to have to make a serious effort to redistribute income and wealth...
...This column, Ishould hasten to note, is not going to be about David Rockefeller (even though I admit to a personal grudge against him...
Vol. 72 • September 1989 • No. 14
