May 22, 2011


Judith Stein, Pivotal Decade: How the United States Traded Factories for Finance in the Seventies (New Haven & London: Yale U. Press, 2011) ("Postwar U.S. liberalism, created by the New Deal, was rooted in the notion that high wages and regulated capital created and sustained U.S. prosperity. During the Age of Compression, 1947-73, income and wealth were mildly redistributed, even as economic growth soared. At the same time, the nation's leaders cemented Cold War alliances with foreign access to the U.S. market. In 1945, U.S. economic superiority was so vast that one-sided trade policies did not matter. Over time, they ultimately did. And when high oil prices and economic competition from Japan and Germany battered the economy in the 1970s, new policies--international and domestic--were needed. The fire bell in the night came in 1971 when the U.S. suffered its first trade deficit since 1893. The Age of Compression officially ended in 1973 when wages began to stagnate, largely because of a sharp drop in productivity. Restoring growth was a project on the left and right throughout the 1970s. No one imagined that the productivity decline would continue until 1995 and that wage growth would continue to fall short of the achievements of the postwar period. Few predicted that U.S. trade deficits would remain and grow, producing the global imbalances between consuming nations (United States) and producing nations (China) that are at the rot of the contemporary global economic crisis." "Yet telltale signs of this future were visible during the 1970s. . . ." Id. at xi. "This book explains how the Age of Compression became the Age of Inequality. Why did the nation replace the assumptions that capital and labor should prosper together with an ethic claiming that the promotion of capital will eventually benefit labor--trading factories for finance--a very different way of running a nation that produced very different results? The Age of Compression was a product of the Democratic Party, but a Republican Richard Nixon governed according to its ethics. The Age of Inequality was created by the GOP, but Democrat Bill Clinton lived by its rules. Party and ideology are close but do not always coincide. This, unlike other historians who draw a sharp line in 1980, my key period is 1976-80, when the Democrats controlled both house of Congress and the presidency. The challenges of the globalizing world were played out within the governing Democratic Party. When the Democrats failed to restore prosperity, the electorate voted for Republicans, who the claimed that their victory as a rejection of the ideas and practices of the Age of Compression. Simply saying it did not make it true. But with the power of his office, President Reagan did create a new national blueprint. The new principles took hold. And, in many ways, they are still with us." Id. at xii. "If the left wing solutions were powered by labor, the conservative ones reflected business, especially big business, which felt besieged. Between September 1974 and September 1975 top corporate executives . . . held eight three-day meetings to explore the current and future role of business in U.S. society. Most in this anxiety-ridden group believed that 'the have-nots are gaining steadily more political power to distribute the wealth downward. The masses have turned to a larger government.' Expansionary policies--tax cuts, budget deficits, cheap money, and the like--would inevitably produce inflation, which could be managed only by a system of wage and price controls, leading to more state control. The businessmen believed that the government, responding to the have-nots, controlled and allocated too much of the nation's wealth. They feared that the trend toward government financing, subsidy, and control wold end up socializing investment decisions. And, on the basis of the economic troubles of the utilities, airlines, and railroads, they concluded that government regulation always ignored the imperatives of capital accumulation. Many though that only a sharp recession would sober up their fellow citizens." "The corporate elite was mainly interested in tax and spending changes, but it embraced deregulation as well. The goal of deregulation was to remove the hand of government from the alleged efficiencies of the market. Reality was more complicated, which was why deregulation was a secondary or tertiary business goal. Every market has rules created by government. Deregulation simply created new rules that gave advantages to new companies in an industrial sector. Regulatory changes are neither conservative nor liberal and have been implemented by governments on the right and on the left. So the question became, could U.S. regulators meet the new economic and technological conditions? Conservatives said no, only markets can produce efficiency. Some on the left, like Ralph Nader, also said no, believing that the regulatory commissions were inevitably dominated by the industries they regulated. Senator Edward Kennedy agreed. Kennedy called 'the New Deal faith in the science of the regulatory art a delusion,' and said that agency independence 'as a practical matter has come to mean independence from the public interest.' Was this theory of industry capture valid? Advocates cited Nixon's appointment of airline executives to the Civil Aeronautics Board (CAB) as a reward for campaign contributions. But Ford appointed John Robson, an airline critic. Most historians conclude that the story of railroad regulation was the story of shippers', not railroad, control." "Whatever the theory, government could shape markets and technology but could not ignore them. . . . " Id. at 123-124. This is a very worthwhile read. Professor Stein has done an excellent job of underscoring the historical roots of our current economic mess and, perhaps, why we are not on the right track to correcting it. One question, regarding corporate management, concerns whether management should aim to maximize a firm's short-term value, or whether management should sacrifice short-term value in favor of a firm's long-term value. Which is not to say that maximizing a firm's value is, or should be, management's only aim. That said, sometimes it seems that, in American politics and American society broadly, the idea of thinking in terms of the long-term national welfare is always compromise (if not completely ignored) in favor of the short-term, short-sided, local--if not individual-welfare. Ronald Reagan did not ask whether voters thought the country was better off than it was four-years ago; he asked whether voters thought they (as individuals) were better off than they were four-years ago. To be fair, a democrat might have framed the query the same way had the shoe been on the other foot. The point is that Americans seem, at least to me, basically incapable of long-range thinking or planning on a national level, especially where this might require coordinated efforts. It is that fear that any sort of coordinated planning and thinking is the road to socialism and communism. Yet, any government worth the name must think long-term. Things do not just work out for the best on their own.).