Economic Revolution Fosters Ignorance

For all the good things that are supposed to flow from it, the economic revolution now being forged in Congress does not, in the end, promise very much.

Balancing the budget, cutting taxes and spending, tax relief for capital gains, pruning the thicket of business regulation - all these things are supposed to unleash a wave of prosperity driven by wealth creation, private investment and entrepreneurial initiative, a rising tide that will lift the grandest yacht and the humblest dinghy.

But the Republicans, in their calculations for a balanced budget by 2002, assume an average annual economic growth rate of only 2.3 percent in the period. Given present patterns of income distribution, in which an increasing share of income is being sucked up by the wealthy, this effectively means that real wages will remain stagnant, and the middle class can count on barely treading water for the foreseeable future.

Compare this outlook with, say, the 1960s, that dreadful decade when everything bad happened, the liberals ran wild, the hippies ran naked and even Richard Nixon declared himself a Keynesian. In the years 1960 through 1969, economic growth averaged 4.2 percent.

The 1990s may not be the 1960s, but a 2.3 percent projected growth rate hardly represents a return to the good old days for which the electorate is said to yearn and which it has been promised can be achieved by merely butchering the government. It doesn’t compare well with the 1950s, either. The question is, are these reduced expectations - which mean dashed hopes for a whole generation - necessary? Is it the best we can do? It is, sadly, if you buy into the theory that the inflationary forces of the 1970s and early 1980s are still lurking, waiting to savage the economy at the slightest signs that wages might be rising and jobs might be too plentiful.

This is a legitimate position, but mounting evidence to the contrary is beginning to make it far less tenable.

Alongside the lurking inflationary forces, the anti-inflationary forces are far more visible. They include healthy increases in U.S. productivity, increased international competition, plentiful oil supplies, technological progress and a decline in the strength of labor unions.

These forces were largely ignored when the Federal Reserve put the brakes on the economy in 1994 and 1995, leading to disturbing signs in the quarter just ended that the economy might be tipping into a recession, even as the signs of resurgent inflation so visible to Fed Chairman Alan Greenspan never appeared to the naked eye of most mortals. Last week, instead of saying, “Oops, we goofed,” the mandarins at the Federal Reserve said, “Rah, rah, we’ve beaten inflation, now we can cut rates.”

In a season when politicians are making promiscuous promises, the curious thing is that nobody is promising a decent economic growth rate, the one cure for the stagnant wage levels that are driving national discontent. Instead, voters are offered the snake oil of flag-burning amendments, prayer in the schools, an end to affirmative action, clear-cutting of the Western forests, tort reform, immigrant exclusion, term limits - anything to distract people from what really ails them.

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