U.S. Economy Can Outgrow the Fear of a Stagnant Decade
Beyond short-term worries about the recession, there are fears for the decade. What will the 1990s be like is a question on the minds of business people, politicians and investors. “I’ve never seen such doubt and confusion,” says a major investment manager.
The fear is that the economy has a lingering illness, a life-threatening condition left over from the 1980s.
And there is finger-pointing. Cries of “the rich got richer and the poor poorer” mark the run up to next year’s presidential election, promising a politics of anger and revenge. Will the 1990s be like the 1930s, a time of recrimination and depression?
No, the better chance is that it will be a time of economic growth and rededication to the unity of American society, a decade of restructuring but also of renewal of purpose. Those are noble terms, but if we think through the problems of this recession, we’ll see that they translate into dollars and cents.
Optimism is not easy. It is born of crisis in the U.S. economy.
Economists say the United States is capable of sustaining little more than 2% growth a year. “There might a slightly faster pick up early next year,” says economist Allen Sinai of Boston Co., “but 2% to 2.5% is the most we are capable of, given the economy’s underlying weaknesses.”
Financial markets may welcome slow growth because it promises weak inflation and strong bond prices. But it will be a new and unpleasant experience for most Americans. Going all the way back to 1869, when the Census Bureau started keeping records, the U.S. economy has grown at more than 3% a year. It slowed to 1.5% a year only in the Depression 1930s.
Two percent growth today “is enough to maintain employment at present levels, but not enough to raise living standards,” says economist Alan Blinder of Princeton University. The potential growth rate of Japan’s economy is double that of the United States; even tired old Britain, at 2.8%, has greater potential.
On a per-person basis, slow growth means a 1% increase in living standards, explains economist Herbert Stein of the American Enterprise Institute. If you make $500 a week, before taxes, you could get a $5 raise, but probably won’t.
The forecast is not only for low-income people. The potential of the broad economy affects all income brackets, as the current recession is demonstrating, with $75,000-a-year vice presidents joining unemployment lines.
It’s an important lesson because much
has been made of growth in top-bracket incomes during the 1980s; “the rich got richer in a junk bond decade,” say the critics. The criticism is nonsense. The 1980s were influenced by much more powerful forces than junk bonds. It was the decade of the personal computer, of the power of the semiconductor chip, of advances in microsurgery and communications technology. The productivity gains engendered by those technologies benefitted the educated Americans capable of working with them, and the ranks of higher incomes grew.
But the lower brackets got left behind--incomes didn’t grow, the number of families in poverty grew. “I’ll bet if those income figures were broken down, you’d see a lot of inner-city people. That’s where intellectual and human capital has been neglected,” says Michael Tennenbaum, a Bear Stearns investment banker who works with inner-city youth programs.
An obvious point is that the economy is integral. If a significant number of workers can’t afford washer-dryers or take vacations, executives have trouble keeping their jobs.
A more important point is that neglect of intellectual and human capital can hold back a whole economy. Beyond even the government debt, the quality of its work force is the fundamental weakness in the U.S. economy today, say economists--who never fail to point out that Japan and Germany are renowned for training their workers.
The historic fact is that training has worked for the United States too, says scholar Robert Margo of Vanderbilt University. “The two times income disparities have narrowed appreciably have been during World War I and World War II, when we brought new people into the workplace and trained them,” says Margo.
The boom decades of the 1920s and 1950s followed those periods of training. The question is can we afford to train our work force in peacetime as we did in war? And the answer is that we can’t afford not to.
One truth about the 1990s is that with resources tight, demands for economic performance will be intense. Growth in the labor force will be comparatively low, so we will free up skilled individuals and technological resources by restructuring old jobs.
And restructuring will reach beyond the corporation--where defense firms are already changing--to politics and education, where the idea of term limits is gaining and public schools are on notice to improve. Colleges will be next to feel the heat because tuitions are rising at a time when university education is a necessity--a college graduate today can count on earning 73% more than a high school graduate by age 30.
Restructuring is not a new idea. Years ago, William C. Norris, the now retired founder of Control Data Corp., told the Colorado School of Mines that with computerized instruction he could teach a complete engineering course in three years--where most schools now take five. “They didn’t want any part of it,” said Norris. “Thought it threatened tenure and jobs.”
What will the ‘90s be like? It will be a time when few have tenure, but maybe all will have growth.
