Economic fashions may be nothing more than cosmetic changes
HERBERT STEIN has been around Washington and economics long enough to develop a healthy and amusing skepticism. ``Fashions in economic ideas come and go like fashions in women's clothes,'' writes the former chairman of the Council of Economic Advisers under President Nixon.
He explains why. ``Having a new idea is profitable: Its originators, the publicists who first exploit it, get advantages in fame, votes, or money.''
In an essay for the American Enterprise Institute, where he is now a senior fellow, Dr. Stein adds that many of the ``new'' economic ideas are actually rediscoveries of the theories of an earlier generation of economists. Today, however, they are often gussied up with some fancy, modern mathematics.
Stein's essay reviews some of the ``fashions'' of the past decade, usually offering sardonic but insightful comments. Here are just two of his comments on themes of 1977:
Fine-tuning fiscal policy. The goal was to stabilize the economy, that is, prevent recessions and too much boom, by lowering or raising federal taxes. But the idea of a countercyclical fiscal policy has been ``drowned out'' nowadays by the persistent huge budget deficit.
Incomes policy. This idea of some direct intervention in the process of determining prices and wages, including controls, had little success under either President Nixon or President Carter. The idea has gone into ``a deep sleep,'' says Stein, perhaps more because of boredom with it and the arrival of President Reagan than because of the ``dismal history'' of price controls.
Looking at economic fashions of 1987, Stein suggests these too ``will yield to the vicissitudes of history.''
Robotic budgeting. ``Some people have discovered that governments are not very good at governing - or at least that governments do not govern the way they would like. Therefore, they seek ways of getting the government out of governing.'' Stein, of course, refers to a constitutional amendment requiring that the budget be balanced and to the Gramm-Rudman-Hollings Act of 1985 with its procedure for automatic budget cuts if Congress does not do the job itself.
Competitiveness. People use this as a banner to justify a variety of measures for influencing the behavior of the economy - for example, more money for education or research, or the tailoring of tax policy to encourage investment. The constant resource to competitiveness ``is an outstanding example of the use of an appealing association to sell irrelevant policies, like the association of beer with good fellowship and sports cars with sexiness.''
International coordination of economic policy. Stein figures the popularity of this idea has increased as ``each country thought it would be assisted in achieving its goals if it could have the assistance of the policies of other countries. Thus, the United States would have a better chance of achieving its goals if it could employ German monetary policy in its services. Germany would have a better chance of achieving its goals if it could manage America's budget for Germany's purposes.''
Decline of the middle class. ``If the middle class is disappearing, who is buying the new houses, automobiles, restaurant meals, airline tickets, and all the other paraphernalia of middle-class life?'' Stein asks. ``Not just Bill Cosby and Ivan Boesky.''
Nevertheless, Stein concludes that ``definitions [of middle class] are so flexible, data so limited, the possibilities of statistical manipulation so great, and standards of scholarship so elastic that almost any argument in this field can be said to have empirical support and a PhD to certify it. So the idea of the declining middle class will probably persist, at least through the 1988 election.''
The decline and fall of America. Stein contends US budget deficits are the result of ``political priorities and decisions, not of economic necessities.'' He says the trade deficits and capital inflows were for many years prompted by the high confidence of foreign private investors in the US, and more recently, of the desire of other governments to prop up the dollar rather than expose their economies to competition from the US.
``Economics is the area of our greatest, not least, strength and the source from which decline, if it is coming, is least likely to come,'' he states.
``The possibility of an American decline may lie in political, cultural, or moral spheres.'' That, says Stein, deserves attention.