MARTIN FELDSTEIN in his introduction to The American Economy in Transition tells us that "many of the papers and comments in this volume point to the expanded role of government as a major reason, perhaps the major reason for the deterioration of our economic performance. The government's mismanagement of monetary and fiscal policies has contributed to the instability of aggregate output and to the rapid rise in inflation. Government regulations are a principal cause of lower productivity growth and of the decline in research and development. The growth of government income-transfer programs has exacerbated the instability of family life and perhaps the decline in the birthrate."
Yet this view of the American economy has little if any support in the good papers that are to follow in this book. Government has played its part in our economic decline, but to blame all of the problems on government is to be incorrect, as the latter chapters show, and to neglect the fact that government is merely a reflection of ourselves. In the words of Pogo, "We have met the enemy and he is us."
Benjamin M. Friedman (in the chapter "Postwar Changes in the American Financial Mmarkets") tells us, "Although the federal government's budget has rarely been in surplus, only during the years 1949, 1953 and 1975-76 did the impact of business recessions on tax revenues and transfer payments enlarge the deficit to such an extent that the government did not 'pay down' the public debt in relation to (temporarily shrunken) nonfinancial activity."
Robert J. Gordon (in "Postawar Macroeconomics: The Evolution of Evants and Ideas") points out that, "the growing size of government has been associated in recent years with many evils. Thus it is surprising that when federal spending on goods and serices is combined with that of state and local government, we find . . . that their share in GNP exhibited no increase at all between the 1957-67 decade and the most recent 1973-79 period."
Another economist, Richard A. Easterlin (in "American Population since 1974,") records that "since 1965 the rate of increase in life expectancy at age 65 has been unusually rapid for all sex-race groups." What happened right at about that time -- medicare for the aged.
"While some of the decline (in productivity) is attributed to sectoral shifts in employment -- the changing age-sex composition of the work force, changes in capital-labor ratios, increased regulation, changes in energy prices, and reduced R&D effect -- for the most part," writes Richard B. Freeman (in "The Evolution of the American Labor Market, 1948-80), "the retardation in growth is a story of change in the famous 'residual,' about which, by definition, we know little."
Alan S. Blinder (in "The Level and Disribution of Economic Well-Being") goes on to say, "these demographic shifts would have produced a substantial trend toward greater inequality had not other factors intervened. It will not be giving away the plot to suggest that government transfer programs played a major role in that intervention."
James R. Schlesinger (in "Whither American Industry?") adds that "in the long run, the business community will suffer more than most from weakened governmental authority . . . the business community appropriately should regard the government not as rival but as shield."
Even Milton Friedman is quoted as "cautioning against laying the blame for over-regulation on government. Most regulations reflect the wishes of individuals, businesses, or other groups trying to use government to pursue particular private ends . . . In the mid-1950s when foreign oil was cheap, the oil industry sought to block its importation. Then in the 1970s when it became expensive, our regulations actually subsidized its importation."
This book is a good review of American economic history since World War II. Given a sophisticated group of authors -- some liberal, some conservative, and some in the middle of the road -- the net effect is a rather balanced review of what happened. It is not obvious, however, exactly who would find the book interesting reading. It assumes too much knowledge to be easy reading for the layman. Experts will not find much new in areas where they are experts. Perhaps it would be of most interest to economists who are interested in reading about what is going on in areas other than their own.
Perhaps because it is a little more outside of the realm of normal economic interests, the chapter by Easterlin on demography is the most interesting. Something major happened to our health, but it is not clear what. In the first half of the post-World War II period, death rates declined very little. In the second half of the post World War II period death rates declined sharply. The unweighted sepcific death rate fell at .3 percent per year from 1954 to 1968 but at 2.1 percent per year or 7 times as fast from 1968 to 1977. Why?
While most of us would think of the new trend as a positive change for the better, the trend will create major economic problems in both public and private pension and health insurance plans. A 23 percent increase in life expectancy for those over the age of 65 every 10 years will bankrupt every pension plan if it continues. Even with current life expectancies there is going to be a major problem when the baby boom starts to retire in 2012. Since the elderly use more health care, health care expenditures will skyrocket. The obvious answer is going to require major social and economic changes.