The seven deadly economic sins
John Locke once observed that ''Hell is truth seen too late.'' I believe the truth ''seen too late'' in the United States today is that we are committing seven deadly economic sins and that we will give up our edge in international competition as part of our penance. Here's why:
Federal deficits constitute our most immediate and serious financial sin. Nobody seriously believes that the US economy can sustain the long-term mismatch between federal revenues and expenditures. The cumulative federal deficit of $1. 3 trillion over the next six years reflects an annual federal deficit growing from 2 percent of GNP to over 6 percent. Deficits of this magnitude will leave real interest rates stranded at their current historic highs and make private reinvestment in America's future too expensive. Neither will scarce consumer credit lead to an expansion of spending that will entice new production out of the economy. Towering US interest rates will also bolster the dollar in the international market making our exports expensive and less competitive.
Trade deficits cannot continue at current levels. We have to sell as well as buy abroad. Export earnings must come much closer to paying our import bills. Otherwise, we'll continue to export dollars and to suffer a deterioration of our balance of payments position. In the fourth quarter of last year our export volume fell by 13.6 percent while imports fell half that amount. Our merchandise trade deficit last year was a record $42.7 billion; that gap will probably widen in 1983. Our trade deficit translates into exporting dollars equivalent to an Empire State Building every day of the year. A world economy of American buyers and Japanese sellers is a prescription for poverty.
Unemployment/immigration. Unem-ployment is idle labor capacity that must be put to productive use; it is also a social millstone which costs billions in unemployment insurance and welfare benefits. Ten percent unemployment is a human tragedy of staggering proportions.
In this context it is folly to import more labor. We are the only country in the world that imports a generation of poor people every year. The average American will earn less in real terms this year than a decade ago. Yet, we accept twice as many immigrants as the rest of the world combined. There are 6 to 10 million illegal aliens in the US; every year another one-half million arrive together with three-fourths of a million lawful immigrants. With 11 million citizens unemployed, this is demographic and economic insanity.
Meager productivity gains are inconsistent with long-term non-inflationary economic growth. Wage increases without matching increases in productivity evaporate because they are inflationary. Currently, our ability to distribute wealth exceeds our ability to create it. There is some hope that a sustained recovery from recession will increase productivity as unemployment restrains wage demands and as ouput expands. But record unemployment is a ghastly price to pay for productivity gains.
US productivity grew by 3.1 percent between 1948 and 1967. It dropped to 2.3 percent between 1967 and 1973 and floundered to 0.8 percent for the rest of the 1970s. In Japan 84 labor hours are needed to build a car; in the US it takes 145 hours. Management and labor must come together to find more efficient work methods, to reinvest in modern plant and capital, and to work cooperatively to raise productivity. And all of us must realize that creating new wealth will take imagination, perseverance, and hard work.
Mediocre schools will not prepare us to compete in the high-technology, post-industrial world. The National Commission on Excellence in Education tells us that we are committing ''an act of unilateral economic disarmament'' by allowing our educational system to deteriorate. The national debate on education must be redirected from the bogus political issues of school prayer, creationism , and tax credits for private tuition. Instead, we must focus on the real issues of teaching all of our children to read, write, and to become mathematically and scientifically competent. If we fail in this endeavor, we will certainly falter economically in a world that belongs to the skilled and the educated.
Bad loans to poor countries, like bad pennies, come back to haunt us. US banks have loaned over $130 billion to less developed countries (LDCs) and most of these loans are now in arrears. Incredibly, loans by the 10 largest US banks to Brazil, Mexico, and Venezuela alone exceed the total equity of all 10 banks combined. Citicorp and Chase Manhattan's loans to these three nations exceed 180 percent of each bank's equity! Bank loans to LDCs have been described as ''an orgy of credit.'' While investors at home were paying usurious rates for venture capital, US banks were competing to export credit to risky third-world customers who cannot repay. One cause contributing to high domestic interest rates is the need to subsidize bad loans with the income from good loans.
New ground rules for international banking need to be formulated to protect us from a worldwide collapse and to assure that LDCs are eventually able to repay their debts. The International Monetary Fund and the World Bank should play leading roles in arranging repayment plans as well as commonly accepted guidelines for future loans.
Defense spending must be controlled. If not, the goal of reducing federal deficits will elude us and too much of our national wealth will be diverted from the task of economic rearmament. Too much of our capital and too many scientists and engineers are siphoned from the national pool and dedicated to the largest arms buildup in our history. We devote 6.7 percent of our GNP to defense; Japan spends only 1 percent and is free to focus on how to undercut the US market.
Nations committed to massive military expenditures will fall further and further behind in the fast-moving economic future. We need to reexamine our portfolio of international commitments and to decide whether or not we are overextended. We need to pursue arms limitations discussions with the Soviet Union with determination. Success at the negotiating table will help us militarily and economically.
History is not very forgiving, and economic sins are among the most swiftly punished. America is committing more than its share of venial economic sins. Unless they are corrected soon, we shall have no chance for absolution and forgiveness. History seldom gives a nation a second chance.
