Rare is the economist these days who doesn't have an ax to grind, but Edward F. Denison - now a senior fellow at the Brookings Institution - is probably one of them. Denison fits the image of the detached, even remote, academic. He has spent much of his professional life poring over economic charts, trying to understand why some nations prosper more than others. Denison's research isn't cocktail conversation substantiated by a few selective statistics and anecdotes.
His latest study is no exception. It abounds with numbers and tables. An unkind reader might even call it deadly dull. But, beyond the heavy text, his subject is neither dull nor irrelevant: it's our standard of living.
In brief, Denison finds fresh evidence that we've entered a period of slower economic growth, making it increasingly difficult to achieve higher material living standards. What depresses growth prospects, according to his data, is the snowballing cost of government pollution and safety requirements.
The implications of this are enormous. His conclusion raises the possibility of heightened social and class tensions as groups struggle for a larger part of a more slowing growing pie. And, quite obviously, his report may also provide intellectual ammunition for the backlash against government regulation and environmentalism, making them the chief villains in the growth slowdown.
That Denison found such a growth penalty is not itself surprising. Most economists would have expected as much. After all, investments and operating expenses incurred to comply with pollution and safety regulations don't produce "output" in the conventional sense. They don't result in more Big Macs or skateboards or microwave ovens. Likewise, higher spending on security guards or surveillance devices to combat rising crime - another trend that Denison includes in his study - doesn't contribute to "output".
The surprise is the magnitude of the impact. According to Denison's calculations, published in the latest issue of the Commerce Department's Survey of Current Business, the combined impact of pollution and safety regulations plus crime spending has a dramatice effect on the economy's productivity, reducing potential gains by one-fourth to one-fifth.
Productivity, of course, is one of those ambiguous concepts that everyone favors but no one understands. In its simplest terms, it represent our ability to get more out of what we've got (land, machines and people); it means a worker can produce six widgets in an hour instead of five. Ultimately, rising productivity creates more goods for consumption or more time for leisure. Since World War II, for example, the average work week has declined about three hours. If we can't increase productivity, we either have to work longer and harder, or enjoy less - or, at any rate, spend less and consume less.
More disturbing, Denison's report comes against a backdrop of already declining productivity. Through most of the postwar period until the late 1960s, productivity was growing about 2.5 percent annually, but, in the past decade or so, it's been growing at about 2 percent or less.
Economists have been mystified by this shift. They have attributed it to a variety of causes: an end of rural-to-city migration, which meant the transfer of workers from relatively unproductive farm jobs to more productive factory jobs; a flood of younger, potentially less productive workers into the job market; and economic slow downs and recessions that have depressed new investment. Some of the loss may even reflect the effect that Denison attempts to measure, though he believes that impact assumes importance only in the mid-1970s.
Because economists can't figure out what's going on, it's hard to guess at the future growth in productivity. But a plausible - though pessimistic - outlook might put maximum growth in productivity at only 1.5 percent annually, whiich is less than two-thirds of the historic postwar rate.
Against that background, Denison's report may well be used to contend that higher living standards and greater environmental control - control over pollution, the work-place and (although he does not study it) product safety and reliability - are inevitably at odds. If so, it will be used wrongly.
The conflict exists, but it is hardly that simple. Three caveats are worth noting.
First, part of the conflict involves semantics and statistics: how we define "economic growth" and the distinction between it and our "standard of living." Government regulation may, in fact, produce tangible benefits that enhance living standards; less air and water pollution, longer life expectancy, better health and higher quality products. But these benefits are often slow in coming, their magnitude is difficult to value and, as a practical matter, they don't get counted as part of gross national product (GNP).
Second, slower productivity gains do not inevitably mean a correspondingly slower increase in material living standards. More than a few commentators already have speculated that many families may be compensating by working harder (two wage earners instead of one) or having fewer children. In effect, they have decided to keep more of less for themselves.
And, finally, whatever the economy's "potential" growth capacity - and Denison emphasizes that his findings are tentative - it's clear that we are having trouble reaching even that. Sustained slow growth would be a lot better than the stop-go of the last decade. One possible way to improve productivity is to increase investment, but today's uncertainties have not created much of an investment climate.
Everyone knows the old cliche: there is no such thing as a free lunch. The problem is deciding how much the meal costs, who pays for it, and whether it's worth the price. Denison's report simply poses the question anew: how much do we want to trade the intangible benefits of regulation for old-fashioned consumption and materialism?