Mister Bush, Meet Mister Hoover
BROCKWAY, GEORGE P.
The Dismal Science MISTER BUSH MEET MISTER HOOVER BY GEORGE P. BROCKWAY Mister Herbert Hoover Says that now's the time to buy; So let's have another cup o' coffee And let's have another piece o'...
...That is to say, he has practically no policies at all...
...Michael Boskin, chairman of the President's Council of Economic Advisers, testified the other day that we spend more on elementary and secondary education than any other industrialized country, except maybe Switzerland, and that our kids still perform toward the bottom...
...Inventories have been lean and clean for several years now...
...Herbert Hoover's...
...In the meantime, be sure you have plenty of sweat socks...
...Factories, warehouses, office buildings, stores, motels, apartment buildings—all are overbuilt...
...Every industrialized and partially industrialized country in the world is, too...
...Today the richest 1 per cent of American families have as much income as the poorest 40 per cent...
...Businesses as remarkable as Pan Am will fail, but there will be no panic selling of assets, because big government will, budget agreement or no, prevent a free fall...
...Even the fact that business is bad puzzles them, because the "indicators" they take seriously have not been ominous...
...Bush's, it accounts for almost 25 per cent...
...The glut of capital goods that caused the Great Depression was not absorbed until World War II...
...Economists persist in calling our present experience a recession, and they are puzzled by its failure to perform like the others...
...In another column I'll try to suggest some specific things to do about our predicament...
...The current downturn is expected to be short and shallow," wrote the Council of Economic Advisers a year ago...
...The Levys argue that what we have now is a depression...
...Since capital goods typically are expensive and take a long time to produce, more money is tied up in them, and the tieup lasts longer...
...S Jay Levy and David A. Levy, respectively chairman and vice chairman of the Jerome Levy Economics Institute of Bard College, have a simple yet comprehensive explanation: This downturn is not a recession at all, it is a depression...
...George Bush's economic policies have a lot in common with Mr...
...The tentative appeals to "fairness" that the Congressional Democrats made in the budget debate are only a faint promise of a beginning, as are some proposals now coming before the Joint Committee on Taxation...
...In any case, the buildup is necessarily blind and eventually o'erleaps itself, whereupon it recedes by stumbling down the up staircase...
...The way to put the over supply of capital goods to use is to draw the bottom two-fifths of us into full participation in the economy...
...That will not be easy, especially since we have, for the past 15 years, been going hell-bent in the opposite direction...
...In the modern world, where most production is for sale, not for use, economies of scale are everywhere, and output is exponentially increased, as Adam Smith showed with the manufacture of pins...
...According to the Levys, a depression, like a recession, is cyclical, and proceeds in a similar manner...
...Hoover's day, the government accounted for less than 3 per cent of GNP...
...In Mr...
...The increases in plant utilization naturally require increases in employment...
...That's outrageous...
...Indeed, they are already choking us with them...
...Yet I detect a glimmer of hope...
...As I have said before ("The Productivity Scam," NL, May 28,1984), I don't take seriously the underlying notion of productivity...
...They call it a "contained depression...
...More to the point, the United States of America is not the only nation that is smothered in overcapacity...
...With that high percentage of GNP assured, plus its multiplier effect on the rest of the economy, we will not drop to the lowest depths...
...yet the downturn came, and it refuses to go away...
...I'm not opposed to doing something about education (though I am opposed to Mr...
...Newly employed workers have new money to spend and encourage greater production...
...We are,inamanner of speaking, 10 times better off now...
...in Mr...
...That sounds enough like the state of our medical services to be true...
...I suppose the President's handlers meant the sweat socks?worn by some working stiffs inside metal-toed boots and by all preppies while jogging or playing racquet ball—to remind us that the President is a regular guy as well as a consumer doing his part to get the economy going again...
...If you wantedapairof boots, you didn't go to a store and buy them off a shelf, the way Oliver North picked up revolutions...
...In such a system there might be a glut of agricultural produce (though there seldom was), but manufactured goods were never over-supplied...
...Hoover's, but it may well last as long, or even longer...
...Bush's scheme of making schools compete for students were to be immediately successful, it would take 12 years for the full effects to be realized and then there would still be the problem of the colleges and graduate schools...
...Yet all are opposed by Mr...
...They agree with the majority of other economists that a recession is essentially an inventory glut, which comes about in a quasi-natural fashion in the modern economy...
...Bush's scheme), but it won't make us internationally competitive overnight...
...In the unlikely case that Mr...
...This starts slowly, as optimistic producers expand output to take advantage of economies of scale...
...But in 1929, on the eve of the Great Depression, the richest 0.1 per cent had as much as the bottom 41 percent...
...The American over supply is probably greater now than it was then, and the worldwide over supply is certainly greater...
...It all came back to me as I gazed in wonder at the TV coverage of President Bush's Thanksgiving demonstration of the propensity to consume, during which he showed how to buy four pair of sweat socks for $8.00...
...It is a capital goods glut, however, rather than an inventory glut...
...Stepped-up orders gradually push manufacturers to capacity, heighten competition for time on the machines, and result in ever larger orders (see "What Happened to Jimmy Carter," NL, November 27, 1989, for the way this "defensive buying" works...
...There is no reason to expect our present glut to be more tractable...
...Now, fashionable commentators say our problem is that we no longer compete successfully in the world market, partly because our interest rates are too high (they still are), and partly because, all of a sudden, our educational system has fallen apart...
...The banks and insurance companies and pension funds that financed the construction are in trouble—unless they have already failed...
...In that time, many things can go wrong (and some can go surprisingly well), because the future is unknowable...
...Plants everywhere are standing idle because plants everywhere are capable of choking us to death with steel, automobiles, TVs, cameras, toaster ovens, and sweat socks...
...Among the things that can go wrong is an inventory glut...
...In the ancient and medieval worlds, most nonagricultural goods were made to order...
...You went to a cord wainer, who would run up a pair to fit your last...
...Because Mr...
...The song was the high point (or perhaps more accurately, the sardonic point) of Face the Music, a Broadway hit of 1932—just 15 Presidential terms ago...
...Such inventory corrections accounted for much of the decline in output in earlier postwar recessions...
...On the other hand, we may be truly depressed for years or decades to come...
...Manufacturers participate in the buildup in self-defense as well as in search of profit...
...Bush thinks his 25 per cent too much (as Mr...
...To the Levys, a depression is not, as it is in ordinary speech, merely a very severe recession...
...Bush and his men...
...At the other end of the spectrum, most manufacturers have long since learned how to order "just in time...
...Their biggest worry has been that inventories might get out of hand...
...So let's have another cup o' coffee And let's have another piece o' pie...
...For what we are now mired in is something quite different from the half dozen or so recessions we have gone through since World War II...
...but if true, it is clear that we will not be able to correct the situation in the present century...
...In addition, of course, few economies of scale were available...
...production was slow, expensive and weak...
...Not only are President Hoover's and President Bush's policies similar, but so are their depressions (and ours...
...Those that don't participate find themselves squeezed out by their more aggressive competitors...
...Banks will see inflation and raise the interest rate, thus intensifying the inflation, further depressing demand, and perhaps throwing the cycle into reverse...
...Bush's depressionis "contained," it is not likely to be so deep as Mr...
...To be sure, it is a new sort of depression...
...Most firms have kept inventories low relative to sales, reducing the need for a sharp cut in production to work off excess inventories...
...Nevertheless, our depression will, as the Levys put it, be contained...
...At this point, manufacturers are likely to seize the opportunity to raise prices, thus depressing demand...
...The above text for today's lesson was composed (words and music) by that universal philosopher of the American way of life, Irving Berlin...
...The smallest mom-and-pop novelty store today boasts a computer at the cash register that scans bar codes, not simply to generate sales slips but also to indicate when and how much to reorder...
...In the United States, banks fail and will fail, but there will be no runs on them, as there were in the Great Depression, because the Federal Deposit Insurance Corporation exists...
...Hoover thought his 3 per cent), but it is our true safety net...
...This worldwide overcapacity means that there is no quick solution to our depression...
...But time is necessarily introduced between the start of production of goods for sale and the purchase and use of those goods by the eventual consumer...
...Even without inflation an inventory glut will develop, for our irrational income distribution and usurious interest rates guarantee that workers cannot earn enough to buy what they produce...
...But it reminded those who didn't laugh at the spectacle that Mr...
Vol. 75 • January 1992 • No. 1
