REFLECTIONS
Nossiter, Bernard D.
REFLECTIONS Bernard D. Nossiter Fat Cats and Dog Days Somewhere, the shades of Andrew Mellon, Ogden Mills, and Henry Morgenthau look on and smile. More than half a century after these three...
...Mellon, Mills, and Morgenthau succeeded, at least until 1938, in helping turn a crisis into a catastrophe...
...Over the past two years, the real level has been near 10 per cent, counting those driven from the work force in despair and the large number working part-time because they can't find full-time employment...
...Official figures always understate true unemployment...
...This made the dollar expensive in exchange markets and increased the cost of goods made in the land of the dollar...
...Thus, consumption creates savings—a troubling corollary to Say's Law, which holds that production creates consumption...
...Much the same sort of thing was done in Britain and West Germany...
...At Ford, the numbers were $8.11 in and $3.85 out...
...It has been estimated that each percentage point of unemployment adds $30 billion to the budget deficit, so if real unemployment were reduced by six percentage points, the budget deficit would disappear...
...The point is clear: Every time you buy a GE toaster, a Ford Mustang, or an IBM word processor, you contribute unwittingly to the new plant and equipment of America's corporate giants...
...The high unemployment rate that Volcker created with tight money reduces income-tax collections...
...Government guarantee bonds to bail out commercial banks from their lending follies in Latin America...
...Another articulate spokesman for the flagellant economy is Peter Peterson, who rose from the advertising world to become Bernard D. Nossiter, a former reporter for The Washington Post and The New York Times, has covered politics and economics at home and abroadfor forty years...
...Rohatyn is modest...
...It is because the corporations do not see a cash demand—consumers with sufficient spendable income—to justify enlarging a factory or buying a new cost-cutting tool...
...They know that the best way to achieve this is by imposing regressive consumption taxes that bear most heavily on the worst off...
...As joblessness grows, therefore, Federal expenditures increase—a form of automatic stabilization that economists used to welcome...
...As receipts fall and spending rises, deficits grow...
...on a lessening of the will to work...
...he simply disguises them better...
...The shortfall is part of a Reaganite design...
...One such is Felix Rohatyn, a partner in Lazard Freres, the man who saved New York's rapacious bankers from a well-deserved bath...
...More recently, thanks to falling interest rates, the dollar has come down...
...Richard Nixon's Commerce Secretary and rose again to head Lehman Brothers before he was forced out...
...Treasury has done for up to $10 billion of dubious Mexican debt...
...Stripped of the rococo, Peterson is saying he thinks other citizens spend too much on pleasure at home and abroad...
...This faltering of capital goods, they say, has dulled the competitive edge against lean and hungry foreign producers...
...At long last, and after a slump on top of the Great Depression, Roosevelt followed Eccles's advice and the whole mad episode came to an end...
...But Volcker's vigorous attack on high employment also had an unintended consequence: Interest rates were pushed up to Eighteenth Century levels, and they attracted loose yen, marks, pounds, and francs...
...auto market and must frantically invest in anything to reverse its fortunes...
...It was crude but it worked, for several years anyway...
...it is the passive consequence of idle workers and idle plants...
...above all, on a decline of savings to pay for enlargement and improvement of the nation's plant and machinery...
...In Mel-Ion's day, sound men worried about a loss of gold, a consequence of a payments imbalance...
...Peterson is Rohatyn in a more glamorous package...
...Both notions are a sham...
...This will do much more to close the deficit than ill-advised and imaginary spending cuts...
...Through incredible mismanagement, GM has lost its stranglehold on half the U.S...
...and force us to live within our means, slicing 8 per cent or more off living standards—four times as much as in the worst postwar recession...
...Contrary to orthodox opinion, demand is not too strong but too weak...
...By choosing this organ rather than, say, Barron's, Rohatyn demonstrates higher purpose...
...But what is cause for alarm is the fact that there is virtually no debate, no countervailing view to the prevailing orthodoxy that seeks to reduce production, income, and employment...
...Hoover and Roosevelt had to endure two remarkable central bankers, Eugene Meyer and Mar-riner Eccles, who tirelessly preached the doctrine of expansion...
...Despite variations in detail, what Rohatyn, Peterson, Thurow, and many other eminences like them are saying is not very different from the Mellon, Mills, and Morgenthau line of two generations ago...
...The fact that this counsel comes largely from well-heeled folk—bankers, columnists, members of Congress, tenured professors—who have no intention of reducing their consumption does not diminish the intensity of their advice...
...So the lack of American competitiveness has as little substance as the shortage of savings...
...In New Perspectives Quarterly, Thurow argues that foreigners will soon stop buying U.S...
...To be fair, Rohatyn is capable of advancing equally outrageous schemes...
...Rohatyn does not spell out exactly what Thatcher did, but I'll try to rectify that omission here: BP's underwriters, the banks that served as wholesalers for the stock issue, faced heavy losses...
...They blame this sinful state on America's soft belly, its gluttonous appetite for such consumer goods as food, clothing, and shelter...
...So the Bank socialized any losses, putting a floor under them, but imposed no ceiling, of course, since that would have limited profits...
...He helped install the great budget deficit that so disturbs all right-minded thinkers...
...So far, there has been no repetition because President Reagan's is a largely mindless Administration, safely immune to ideas...
...This pitch has been swallowed with scarcely a murmur by most respectable newspapers, mesmerized Democrats, and virtually all European opinion to the right of the Marxists...
...There's nothing like a stiff dose of unemployment to ease the class war—and that's precisely what happened in the United States and Western Europe...
...His latest book, The Global Struggle, was published last year by Harper & Row...
...What a pity it is that we have no real conservatives in our public life today...
...The trade gap began closing late in 1987...
...Both are deeply admired at the Council of Foreign Relations, where Peterson is chairman...
...Exxon was equally well placed, taking in $4.75 a share and investing $3.76...
...In an election year, the Administration will seek less slack, so unemployment should decline...
...he created an overvalued dollar and the deficit in the nation's trading accounts...
...If American corporations haven't invested enough in new machinery to compete with Taiwan, it is not because dividends, capital gains, or interest are taxed too heavily...
...lower taxes for doctors, lawyers, bankers, and the inheritors of wealth...
...Starting in 1980, Paul Volcker's Federal Reserve Board embarked on a deliberate campaign to shrink demand, creating unemployment to restrain rising prices...
...Peterson is more rapacious...
...This is not the inflationary budget deficit caused by excess demand...
...For a typical professor, try Lester Thu-row, who taught economics but is now dean of MIT's business school...
...On the Continent, food and a few other necessities are exempted, but Peterson mentions no exemptions...
...Instead, he proposes to reduce taxes on dividends, interest, and capital gains, the principal sources of income for his demographic group...
...Volcker was responsible not only for the high unemployment that marked the decade...
...In fact, it is largely nonsense...
...He has said this will save the nation and the world in The New York Review of Books, a paper deservedly praised for its literary reviews...
...From Wall Street, Washington, and the better-endowed academies, the warnings pour forth in a flood: Disaster confronts us unless profligate habits are re'placed by abstinence...
...The demand for high-yielding dollars was insatiable...
...In fact, large corporations finance virtually all of their capital spending through the profits, from retained earnings, on the high prices they can charge consumers...
...Unlike Thurow, a mainstream economist (which is to say, an amplifier for the well-heeled), the genuinely wealthy contributors to this continuing symposium on public policy really know what they want: They want to complete the Reagan-Congress assault on the progressive income tax, replacing what is left with a single low rate...
...It assumes that large corporations which account for the overwhelming share of foreign trade pay for their new plant and equipment by raising money through issues of stock on Wall Street...
...A quick look at the balance sheet of any big concern tells the tale...
...There is a splendid symmetry here: higher taxes for clerks, stenographers, farm laborers, and assembly-line workers...
...The new Calvinists are led by some of the nation's most conspicuous consumers...
...Today, Rohatyn is crusading for higher taxes on consumption and three successive years of cuts in real Federal spending...
...General Motors was an exception, investing $25.55 and collecting only $15.33...
...In a long manifesto for The Atlantic, Peterson proclaims that "deficit spending, of course, has been the primary engine behind this consumption bacchanalia...
...In 1986, the last year for which data are available, IBM paid for all its expenses and dividends and still had $ 10.67 a share left over...
...He wants the United States to "avoid a disaster" in the stock markets by imitating Prime Minister Margaret Thatcher's gentle concern for the banks that underwrote British Petroleum's recent stock issue...
...Happily, business-school professors can multiply their incomes indefinitely by sprinkling holy water on some corporation's doctrine...
...If Democrats and Republicans insist on pursuing the line originated by Mellon and Mills and refreshed by Rohatyn and Peterson, what is now sluggish growth could become a deep recession...
...Those who have been laid off need not pay taxes on an income of nothing, and society must pay them unemployment benefits...
...This is precisely what the U.S...
...Most Democrats offer views indistinguishable from those of bankers and economists...
...They had paid more for the shares than they could hope to sell them for...
...Today, the new Calvinists claim to be frightened about two deficits—the U.S...
...So the Rohatyn plan to have the Federal Government save Lazard Freres and other underwriters from ever losing on any deal may yet be adopted as enlightened policy...
...It may seem unlikely that Rohatyn could transfer Britain's corporate socialism to the United States, but he should not be underrated...
...Though it will not be believed in years to come, the Democrats' 1984.Presidential candidate actually called for an increase in taxes while unemployment was high and inflation almost nonexistent...
...The deficit has not been created by the self-indulgence of the less-well paid, but by the slack economy...
...He now writes from London...
...For GE, the figures were $3.14 in and $2.24 out for tools and factories...
...For now, he urges only a twenty-to-twenty-five-cent tax on each gallon of gasoline...
...This was more than enough to cover IBM's capital spending of $7.62 a share...
...But Thatcher came to the rescue by instructing the Bank of England to weave a safety net, offering about $1.30 a share and serving as a buyer of last resort...
...He was one of the first to propose that the U.S...
...He demands a 5 per cent value-added tax, the hidden sales tax deployed in Europe...
...More than half a century after these three Treasury Secretaries of the Hoover-Roosevelt years urged Americans to curb consumption and balance the budget in the depths of a depression, their perverse prescription has been revived everywhere...
...bonds (at any price...
...The problem is not a shortage of savings but a shortfall of income...
...The widely admired former chairman of the central bank caused even more trouble...
...budget and the balance of trade...
...The practitioners learned a lesson: To keep unions in their place, to crimp the wage demands that push up prices, you need a slack economy...
Vol. 52 • March 1988 • No. 3
