THE YEAR 1932 was a watershed in the history of the American economy. Franklin Delano Roosevelt was elected president of the United States in 1932, just five years after 1927. Since that time, 52 years ago, or 57 years ago, if you will, the economy has been quite active, cyclically speaking, and our country has seen its economic policies come and go, swirl and eddy, often guided by economists into enormous tangles of technical complexities. Before 1927, or 1932, the story was much the same.
In attempting to document the cyclical nature of economic cycles, I have become convinced that the average American citizen needs clarification, not more details. In his recent book, "The Economy -- Leave Me Alone," anthropologist Plaid Manley makes this very point. His book is to be highly recommended, for although flawed by a certain tendency toward being silly, many of his arguments are cogent, some are very cogent, and a few are very very cogent.
Manley speaks, for example, of the trend towards indexing, noting that it is merely an outgrowth of the powerful forces that were set in motion by the ruthless crushing of the Whiskey Rebellion, and arguing that only by confronting the historical and philosophical underpinnings of the trend, not by piling up mountains of data, can we hope to funnel the accumulated resentments, frustrations and, yes, hopes, of generations of Americans. Seen in this light, indexing later becomes a foregone conclusion. And what of fiscal policy versus monetary policy? The truth is that there is no real conflict here -- the issue is merely a red herring serving to confuse an already confused public. When calculated in real dollars, adjusted for inflation over the last 54 years, monetary policy and fiscal policy are exactly the same.
It is simply astonishing that no one has had the acuity and courage to state this crucial fact before. I realize that economists need to make a living, too, but at the cost of a callous, shameless evasion of the Truth?
Let me give a very simple example, using as a model the international currency markets. No such model can be complete, of course, without the Japanese. Although Japnese society was once agrarian, that aspect is now limited to farming, and the industrialization that was not even contemplated before Commodore Perry's historic visit in 1853 now is.
There follows directly the creation of the floating yen, preceded by the yen itself, and followed in turn by the Euroyen. As international trade, as a percentage of the aggregate GNP of the industrialized West, has risen, or fallen, there has been a concurrent, and predictable, fall in the range of variation of interest rates, or RVIR, of medium and long- term notes, with the U.S. dollar as a stabilizing factor, subject to periodic aggravation by the swing in balance of payments between the less-industrialized Eastern bloc, the Third World, the East and back to the West, and the subsequent climate for overseas investing, in both directions, has, despite buffering from a strong German mark, been impacted.
Japan is no exception to this, when, in fact, the exception proves the rule. As the RVIR has fallen, or risen, and deficits, here and abroad, have matched agricultural/industrial concentration and debt-to-GNP ratio step for step, the eventual outcome has become obvious: Monetary and fiscal forces, once set in motion, prove to have exactly the same effect. The nay-sayers and Pollyannas cry, "Float the dollar!" but the result is inevitable, and rest, as they say, is just mopping up.
Clarification, then, a clear and simple understanding of the economic process, remains the goal toward which we must unfailingly direct ourselves. With clarification comes understanding, and with understanding comes knowledge, and with knowledge comes the certainty of knowing what to do about the things we have, in all probability, to deal with.
None of our problems is insoluble, although some are, and nothing that is broken in today's economy is beyond the power of an enlightened, clarified public to fix. We must avoid confusing ourselves and go directly to the core of matters that have heretofore been beyond our comprehension. And perhaps one day in our lifetime we will see the creation of a new breed of people -- the clarified economist, of whom we will never be able to say, as Caesar said of Cassius, "He thinks too much. Such men are dangerous."