Tomorrow's economy
It might help counteract all the doom-saying and public confusion about the impact of the US government's new economic policies if the American people were aware of the deeper changes now taking place in society. Alexis de Tocqueville, perhaps the most perceptive of all 19th-century European travelers to the United States, noticed only too clearly the restlessness and distractibility of Americans that often keep them from identifying long-range matters of importance. Americans, he found, tend to "clutch everything but hold nothing fast, and so lose grip as they hurry after some new delight."
In a way, that situation seems to be occurring now. There is a compelling need for Americans to pause and look beyond the emotionalism and demagoguery of the moment from both sides of the political aisle and seek to identify those economic forces that are at work irrespective of President Reagan's policies and notwithstanding what Congress did or did not do in the way of specific legislation. Such an exercise invites risk, since what the future holds is always conjecture at best. Still, many experts believe enough is now known to strongly suggest that the United States in the early 1980s is moving through a significant economic transition.
The end result, they think, will be a stabler and more prosperous economy, subject to fewer of the sharp swings of boom, recession, and unemployment of recent years.
Here are just a few developments to consider: The US appears to be heading into a period of slower but more even growth. Inflation will continue but a lesser rate. Productivity could once again be on the rise, after a two year falloff. The increase in automation, icluding introduction of robots, is now intensifying in many industries, a process that could also somewhat improve productivity. Fewer young men and women will be entering the job market for the first time, meaning lower unemployment rates. With families having fewer children education funds can be shifted elsewhere in society. However, increasing rivalry between regions of the US suggests new and yet unknown political challenges. Now, to look at these issues in detail:
The reason for the slower growth, as economist Joseph Pechman of the Brookings Institution points out, is that with lessening but persistent inflation it will be almost impossible to let the US economy "rip" ahead at a fast clip. Moreover, there is a feeling among many economists that much of the high growth of the 1970s was an articial growth, with the government deliberately inflating the economy to hasten output and employment. The nation's monetary base in the 1970s, for example, increased at an annual average rate of 7.7 percent compared to 4.4 percent in the 1960s.
Slower growth should not preclude rising productivity. Looking at both labor and capital investment, productivity posted two consecutive quarters of increase this year, and will likely show a gain for 1981 as a whole. This trend may well continue into the decade. In part, rising productivity is expected to come from the very nature of the work force, with a large proportion of workers entering their most productive years. That, some economists believe, will mean a more experienced work force, with employers having to spend fewer resources on training programs and initiating output.
The decline in the price of electronics, along with more robots in the factories and more computerized information systems will also step up output per man hour. Moreover, modern management techniques are starting to spread through the economy. These practices improve work life and advance productivity and thus help meet overseas competition.
These changes suggest that, barring a major economic slump, there may not be the shapr hikes in unemployment that occurred with the entrance of the baby-boom generation into the labor market. The total employment force jumped by a 2.5 percent annual rate in the 1970s. But that should drop to about 1.3 percent annually in the 1980s, thus providing the possibility of lower unemployment.
The 1980s, however, will face new challenges of regional unemployment. Some US manufacturing industries, such as autos and steel, are declining in the face of foreign competition. In fact, high regional unemployment will likely to be one negative factor in rising regional competition in general. Significantly, by one account, the Sunday Houston papers are now selling as well in Michigan as the Sunday New York Times -- a sharp testament to the lure of the Sunbelt.
Even assuming that migration to the Sunbelt has slowed, or will slow, competition for resources will continue. Older, Northern, cities will be hard pressed. Some economists, like Felix Rohatyn, writing in a recent issue of the Economist, argue that US does not have an adequate policy for dealing with its aging cities. Mr. Rohatyn believes there is a need to develop a comprehensive policy for urban areas that balances fairness to regions and individuals with the need to create new wealth within society. Devising innovative ways to deal with the decline of America's older, mainly Northern, cities will likely be one of the problems of this decade.
Another challenge for political leaders in the 1980s is the fact that the baby-boom generation is now at the home-buying age. Yet, given soaring prices, home ownership is becoming increasingly difficult. Will society see the rise of distinct homeowner and renter classs? One mitigating demographic trend is the fact that the "dependency ratio" (the number of younger and older persons together that a family must provide for) is expected to decline. That will mean more discretionary income for families as well as a possible new source for savings.
What does all this, taken together, mean for Americans? Conditions may turn out quite differently than is now assumed by experts. The Reagan administration argues that its overall program will lead to a new industrial revival through renewed investment and the creative efforts of millions of individuals acting to further their own best interests. One hopes this proves to be the case, in contrast with the view of some administration critics, who believe an economic slowdown and social upheaval may be ahead. What does seem certain is that the mammoth "liberal state" (such as the Great Society) which seeks to stimulate economic growth through conscious fiscal and monetary policies has been slowed, if not curbed, for the moment.
Clearly, the US is now in a period of transition. To fight that transition, argues Leif Olsen, chairman of economic policy committee of Citibank, will only "intensify and prolong" any short-term hardships now stemming from those very changes. "Recognizing that change is underway" and welcoming it and hastening it, he says, will benefit Americans in the long haul. Such an attitude could help Americans adjust to changing circumstances as the US moves deeper into the decaded of the 1980s.
