The Politics of Economics
VTR Date: November 25, 1990
Guest: Passell, Peter
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THE OPEN MIND
Host: Richard D. Heffner
Guest: Peter Passell
Title: “The Politics of Economics”
I’m Richard Heffner, your host on THE OPEN MIND. And I must say that very few of my viewers seem simply to smile indulgently anymore when I admit that my eyes glaze over whenever economics is the issue at hand. Even I don’t just laugh at my own economic ignorance or naïveté any more…not, at least as I, like most everyone else, try all the harder now to make ends meet (and then some, if my life’s labors are to tide me over until it’s all over than leave something, too).
So that these days I have ever greater respect for those whose eyes don’t ever glaze over, for whom economics is so much more now than just “the dismal science”…particularly those who, like my guest today, Peter Passell of The New York Times, so insightfully report on and interpret the economic order in America.
Indeed, just a few moths ago, Mr. Passell began a piece entitled “Harder Times, Softer Politics” with a quite pointed question: “Running harder these days just to stay in place? Well, join the crowd”. He paraphrased a new statistical analysis of American living standards, going on to point out that most middle class American families have for the first time barely managed to stay ahead of inflation over the past two decades…and then, generally, he noted only by adding a second family breadwinner or by working much longer hours.
Well, my guest noted that America’s lagging incomes translate into lagging living standards…something historically truly un-American…but that now most of us are all too aware of, something basic to his articles’ key point: “What ought to puzzle everyone”, he wrote, “is why the problem of making ends meet is not a front-burner political issue”. And that’s what I want to ask him right now. Why isn’t it, Peter? How do you account for the fact that over the years we’ve managed to keep ahead and do a lot better, and now we’re not doing so, and yet it’s not a major, major political issue?
Passell: The leveling off and the downturn happened in the 80s and the 80s were the years of Ronald Reagan. And I think that we were in love…so in love with that man, collectively, as a society, though we didn’t want to think anything bad…badly of him…and I think one of the things we did was to ignore the fact that things were getting a little tougher for ordinary people, during those years. You know, it’s interesting. When “Daddy’s” President, you don’t want to think badly of Daddy. I really think that has a great deal to do with it. It’s striking, however, that the politics of hard times did begin to spill out. They spilled out into a kind of collective meanness. We, we…we don’t think poor people deserve anything anymore. Why? Because we’re not living as well ourselves. We’re not growing, we don’t feel as generous. It’s potholes, too. We don’t want to pay for government, either. Again, taxes have to go up. We don’t want to do it because we don’t have as much ourselves.
Heffner: The politics of meanness. I, I like that. What do you think the consequences of having embraced the politics of meanness will be?
Passell: Well, it’s a permanently shrunken public sector. And I have mixed feelings about that. On the one hand, I, like everybody else, I think government wastes a great deal of money, at very level. On the other hand, I think that we’ve…things have gotten out of hand. There are all sorts of problems that a rich society ought to be able to deal with, and we no longer can deal with them. Largely, I think, because the middle class has been squeezed.
Heffner: Well when you say problems that you believe a rich society ought to be able to deal with, do you consider that our resources are such that if we were to tax as Mr. Reagan would not, and as Mr. Bush was reluctant to, that we could have those resources to deal with those problems?
Passell: I do, and it…to some degree, you know, there’s a fallacy in believing that if there’s less for the public sector, there’s more for the rest of us. Take a problem like, like potholes. If you don‘t fix the potholes, you wear out your cars faster. If you wear out your cars faster, individuals have to fix their cars more. I mean there are lots of examples like that. I think in areas like crime…the failure to control our streets, which, to some degree is a money problem…the failure to control our streets is very expensive to individuals. Think of all the money you spent as an individual guarding yourself because the society won’t guard you. What we’ve done a great deal of is transfer a lot of public responsibilities to the private sector and the private sector can’t do it as efficiently or as effectively, so all sorts of people are spending money they wouldn’t have to spend.
Heffner: But Peter, that kind of economic insight obviously is not one that informs our politics. I have not heard anyone in a position in which he was running for…or she was running for office make that kind of point. How do you explain that?
Passell: Partially…partially we got tired of people telling us the answer was spending more money. You know, we got a great deal of that in the 60s and the 70s. And it didn’t seem to make a big difference. Partly, I think we got a lot of bloated, inefficient government out of it, and we also got something else. We got interest groups…we got interest group politics, sort of the notion of the interest groups divided up the pie…that it wasn’t for us, it was for these people who lobby Congress hardest. We…democracies aren’t very good at this, and I think basically politicians, particularly Liberal politicians, wore out their welcome, and now we’re all paying for it.
Heffner: “Particularly Liberal politicians”…and what’s the…what will…what ill we pay for? How will we pay for, for that?
Passell: Well, we’re…
Heffner: More potholes, you’re saying.
Passell: …well, surely what we’re, we’re…see it all around us…we’re seeing it in the…and potholes are a minor example. They’re not so minor, I mean potholes matter in day to day life. We’re seeing it in the failure to save cities, to save cities we need education in cities…I’m kind of like a Liberal today, but I feel like a Liberal today. We need, we need to spend more on education because we’re getting lousy education. We need to once and for all tackle some big problems of poverty. We need to so some very nuts and bolts things that have to be in the public sector like mass transit. Otherwise what we’ll see is just a…is decline of productivity, and decline of quality of life.
Heffner: Yes, but you said yourself that those efforts in the 60s and 70s didn’t really pay off.
Passell: Well, you’re quite right, and I’m not guaranteeing they’d pay off now. But, on the other hand, this I will say: If we don’t do it, if we don’t…now that we’re hopefully wiser, if we’re not tougher, wiser about, about public spending and start doing it well, then we’re headed for serious decline. I think we’re in serious decline as a culture, as a society.
Heffner: Of course, you say “We’re tougher and wiser. We must be.” But you also a moment ago said “We’re meaner”.
Passell: We’re meaner. But wouldn’t it be…maybe we’re ready for some serious, for some serious experiments in seeing if spending money pays off again.
Heffner: Is there any indication that you see that that notion informs anyone in political life?
Passell: You know, not really. The one person is a politician whom I don’t particularly like myself, is, is Cuomo. Cuomo talks about the fact that we have…our public sector has been, has been deprived of fundamental resources. On the other hand, he’s a fine example of perhaps why we don’t want to spend the money. I mean, New York State doesn’t spend its money very well, as far as I know. You know, we…we really…we’re in a pickle, we’re in a public pickle. I think things were very serious and the Japanese spent a lot of money on education and a lot of money on social infrastructure. We do very little of that. The Europeans do it, too. We’re…we’re declining as an economy, and you can see in the productivity figures. I don’t…I think we’re living on, on the edge. I think that we’re, we’re headed for a slow decline.
Heffner: It’s interesting you say that because so many times scientists have been here, medical people, for instance, who say we are living, just as you say, our society is generally…we’re living in the past, we’re living on the fat of the land from the past and it can’t last very much longer. I’m astonished to find someone seated opposite here who is perhaps, almost as pessimistic as I am.
Heffner: You sound as though you are more so.
Passell: Maybe I am more so. Let me at least talk the other side a bit. You know, one thing happens…when…the economy, I think is in decline, and you…you can just read it off the numbers…
Heffner: What, what does that mean, Peter, that the economy is in decline? Because you make it sound permanently in decline.
Passell: Well, one of the great puzzles of economics is what generates productivity change…why is it…why is it that 30 years ago a worker produced one-third as much as he does today? I’m making those numbers up. Why is it that there are times of productivity…raised very rapidly for periods and then slows down, or stops growing at all? Why is it that this core of what makes us wealthy disappears? Like, like the gift of the pianist, or something? It’s a mystery, but I have my gut instincts about what drives it, and a lot of what drives it are investment in fundamentals, investment in education, investment in families, investment in making sure that there are no real losers in society. I think those are the things that ultimately drive productivity, drive the engine of prosperity. And I think we’re losing that.
Heffner: So you are beginning to talk like a Liberal.
Passell: You know I am beginning to talk like a Liberal. I wish…as soon as a Liberal…as soon as you start making some Liberal noises at me, I’ll change my mind here. But, well, I’m not…when I wrote, most people don’t think of my writing as Liberal. But I guess I don’t…I’ll settle for neo-liberal. Is that okay?
Heffner: Neo? Come on.
Heffner: Come on, you’re no neo, neo-anything. You’re, you’re, you’re much more analytic…
Passell: Why, thank you.
Heffner: …than, than that. But I, I couldn’t help when picking up the piece you wrote on the economic scene, it was September, 1990…this notion of “Harder Times, Softer Politics”, really grabbed me. The whole notion that we should be living in harder times, but our politics do not reflect that. At the very end you say, “Ironically, the hard pressed middle class may well be the biggest beneficiary from access to cheap, imported clothes, shoes, appliances and autos”, meaning we’re not doing very much by way of competition. Is that fair?
Heffner: Okay. Then you say, “But then irony is nothing new to the American political system which for better or worse has always been successful in fragmenting and defusing class interests”. Do you look at that as the problem?
Passell: That’s, that’s a very interesting way to put it. I…no I don’t look at it as the problem. If we don’t…if Americans begin to think in class terms, we’re really…we have a different kind of bitter politics. Everybody thinks the middle class in America, and that’s very useful in terms of fragmenting…of fragmenting the kinds of things that really put people at war with each other. On the other hand, this middle class doesn’t seem to understand its interests, does it? It’s an interesting paradox, isn’t it?
Heffner: Yes and no. I mean your…the whole piece here is about the negative aspects of a classless politics.
Passell: The growth is the…growth is the great lubricant. If the economy grows, and by the way, there’s never been a person in charge of the economy who let it grow. But if the economy, this disembodied thing, the economy, if it grows, if wages…not one year to two years, but over periods of five or ten years keep growing, if everybody feels a little better, if everybody feels that their kids will be a little better off, people become very generous.
Heffner: And didn’t we feel that way in times of inflation?
Passell: Well, you mean, didn’t we feel good in times of inflation?
Heffner: Yeah. I mean you talk about the, the feeling good in the Reagan years…
Heffner: …when the rates of inflation were fairly steady…
Passell: Very steady.
Heffner: …but the “feeling good” syndrome…I would have assumed that you would have identified that with a period when…yes, prices were rising and people were making noise about it, but there was more money in people’s pockets.
Passell: People are funny about inflation. They hate inflation. You know, economists…especially centrist economists, like me…love to give people lectures about how “listen, what counts is your real spending power…add up your money…you know, find out what you can buy, buy with it, and if you’re better off this year than last year, you’re better off…period…end of story”. People are funny about inflation, though. They don’t like it. Especially accelerating inflation…they can live with 5% indefinitely, but if it’s 5% this year and 10% next, they get…they feel bad, even if they personally have benefited. Now I think that that…our little bout of double-digit inflation in the late 70s was a period in which everybody got scared. And…
Heffner: Not hurt, but scared?
Passell: That’s right. Very few people were hurt by it, but a lot of people were frightened by it. And we all thought it was fabulous when, when Mr. Volker, when the head of the Federal Reserve put on the monetary brakes and said, “There shall be no more inflation”. And the consequence of that was a drastic, terrible recession, in which millions of people lost their jobs, in which the loss of output has been calculated world-wide at one trillion dollars.
Heffner: Peter, you said before that no one has been able to figure out, and it is a puzzle for economists, what makes for increases in productivity…
Passell: That’s right.
Heffner: …or decreased in productivity. But there must be some analyses that have been done of the highly productive times to see what the common denominators were.
Passell: Well, you know, it’s, it’s an interesting mystery. You would have thought it was obvious. You would have thought it was something about…of course it has something to do with investment…if you invest more, the machines get busier, you know, and you make more. You would have thought it has something to do with research. The more you do research, the more new inventions, more new products. You would have thought it had something to do with hard work, cultural attitudes toward hard work. Everybody’s tried to find the patterns…nobody has really succeeded. Isn’t that interesting?
Heffner: Well, let’s take those items.
Heffner: Let’s take the item of hard work, for instance.
Heffner: How do you see the position we’re in vis-à-vis this matter of hard work, today? How would you characterize Americans…differentiating now from a decade ago, two, three, four decades ago?
Passell: It’s my guess people don’t work as hard and don’t like to work. It’s my guess. And it’s…I’m a puritan, too, and it’s my guess in my gut that if people only buckled down, they’d produce more. I kind of…
Heffner: But you don’t know that as an economist.
Passell: As an economist I do not know that and frankly, if you actually go back and look at the numbers, you can’t find the evidence. It’s…I repeat myself too much…it’s a mystery.
Heffner: Maybe my eyes have got to start to glaze over again…and with the notion that it doesn’t make any difference.
Passell: Not…not for me, please.
Passell: Well, I think there are things you do out of prudence. You stop, you stop reading the papers, you worry a whole lot if “kids can’t read”, you worry a whole lot if they’re not disciplined…if they don’t show up Monday at work. You worry a whole lot if, if you…if the quality of education dramatically falls, if people stop investing. You know that can’t be good. What you don’t know though is whether that will quickly reverse trends. And the trends are all bad.
Heffner: You see no signs of progress on the horizon?
Passell: Let me amplify the puzzle. Has there been anything more dramatic or spectacular in our lives than the computer revolution? I mean I can’t think of anything, and I mostly happens in offices. Or at least we think it happens in offices. You know, white collar productivity has not risen at all. All t hose millions of PCs sitting on people’s desks, all those phones with all those buttons that get you…do anything…that make toast for you…you know, in the morning…it hasn’t changed labor productivity in offices at all. Beats me.
Heffner: Yeah, but I’m, I’m surprised to hear you say that. I guess I have not read that, I have not heard that, and I know when I carry around my portable telephone, I get so much work…more work done. But what does it mean? That I don’t do work at the times that I would be sitting in the office making those calls?
Passell: Let me offer you two, two hypotheses.
Passell: Some people say it’s a mistake that we just don’t know how to measure office productivity. We count it…other people count it…it gets counted as the productivity on the assembly line floor, even though it’s more efficient, it’s the white collar people who are working more efficiently. So it might be a mistake. The other thing it might be…the Xerox phenomenon. Do you remember when we didn’t have copy machines, or at least copy machines were expensive and you didn’t make a lot of copies? I remember it, certainly. Now we make ten times, a hundred times, a thousand times as many copies. Do you think we get as much per copy as we used to?
Heffner: No, I understand that.
Passell: Maybe we…maybe work expands to meet the capacity of the gadgets to do it. How many of those calls are necessary?
Heffner: Every one of them, Peter…
Heffner: …every one of them.
Heffner: No, but seriously you, you, you would hypothesize that…that what we’re doing with the modern technology is spinning our wheels. Not doing things that…frequently not doing things that are necessary.
Passell: It’s a puzzle. I don’t know…I don’t want to say “therefore, let’s go back to pencils and pens”, but I must say that economics teaches people humility about the really important issues like productivity change. I would still go ahead, doing the things that in my guts I think are right. I would still make it as easy as possible to defuse technology, to invent new technology. I’d still make sure that nobody got out of sixth grade who didn’t know how to read. I’d do those things, but I’d have a little humility about how much it would affect the real, real output.
Heffner: What do you think would affect…I know I’m asking the same question in another guise. Is there any pet notion that you have as to how we might get out…willingly…out of the decline that you see? What we could do?
Heffner: I know besides being willing to bolster the infrastructure, increase the viability of our educational structure, etc.
Passell: You know, I would do the opposite of what people’s general inclination is, which is to back away from the world economy. I think most people want to kind of build a barrier…their inclination is, if things are getting tough, let’s look to ourselves. I think I’d go…I tried to accelerate ahead into a global economy, making us…eliminate trade barriers, accept some losses of businesses that are protected. That, by the way, is an area…if you…we know certain things. For example, clothing production…we know how much money we lose because we don’t let the Koreans make our clothes for us. We know for sure that the people who are displaced for the clothing industry would get, rather quickly get, other jobs in which they would be more productive. We know that. So trade is an area where we could get a short trade productivity hit very easily. A positive hit, by opening trade barriers.
Heffner: But there are an awful lot of people who don’t agree with that point of view.
Passell: Very few economists.
Heffner: Very few economists…disagree.
Passell: Very few economists. Look, the people who don’t agree are the people whose oxen will be gored. If you run a clothing factory someplace, it’s not good for you. And if you work in the clothing factory, for the first few months after you lose your job, it’s not good for you, either. And maybe it’s never good for you. It’s just good for the economy. It’s good for the people who shop in K-Mart.
Heffner: But that’s, that’s quite a concession. That maybe it’s never good for you, and after all, we’re talking about a lot of “You’s”, “I’s” “We’s”
Passell: Oh, I wouldn’t say any of this if I weren’t confident that the beneficiaries, the benefits exceeded the costs. But, if you can’t have economic change, in which anyone’s hurt, you can’t have economic change. It’s very hard to sort of imagine any kind of grand policy design in which there are no losers.
Heffner: Do you foresee a time, in the near future, when we will activate such a grand design, as you suggest?
Passell: You know, we’re teetering. It’s interesting. The politics of trade, in particular…of trade…we’re really teetering. There’s, there’s enormous inclination to close down, to stop this…to stop what’s happened…this globalization of the economy. But at the same time there are no…there are a lot of forces, interest groups that want it to continue. I don’t know which we’re going to do. I think it’s an…entirely an accident that the Republicans have been President and Republicans have been…have sided with open trade all these years. Just an interest group accident. If Democrats had been in charge for the last 12, 15 years, we would have closed down.
Heffner: And what do you think the consequences would have been?
Passell: More decline. Slightly, slightly more rapid decline…yes.
Heffner: You’re sort of shrugging and saying “the only way out is to open ourselves to competition at every level”.
Passell: I think it’s…it won’t necessarily win us what we want, but it’s the only way to start to get out. And by the way, you know, the thing about decline is that not everybody declines in decline. I mean, do…if you…do you think, do you think Danish people and Swedish people are somehow worse off than we are because they’re not world powers? Because they don’t live in a country that can flex its, its, its arms?
Heffner: Yeah, but now, Peter, you’re bringing in another point which you haven’t mentioned before. You’re talking about power, you’re talking about position, you’re talking about our relative potency…
Heffner: …in the world, and if we lie back and say, “look, we’ll do what we can do best, and let the economic chips fall where they may” and we have declined or will decline much more rapidly in terms of world power. Correct?
Passell: I don’t know that’s the case any more.
Heffner: What do you bet?
Passell: No, I don’t think that we’re…for example, I think these days that military power is declining in importance relative to economic power. So that, that, I’m pretty sure that if we took a hundred billion dollars out of our defense budget and don’t ask me which hundred billion, because I’m not an expert on the subject, but I’m pretty sure if we took a hundred billion out of our defense budget, and invested it in things that I…that we’ve been talking about here, that we’d be a little better off, as a world power. Not merely as a…as individuals living in America.
Heffner: Peter, if you took all the restraints off…how would we surface…I don’t mean in what way we would surface…but what would we be doing in a world dominated by…really dominated by free trade? Who would we be?
Passell: Well, we’d be less American than we used to be. And that doesn’t bother me so much.
Heffner: Okay. But who would we be, we “less” Americans?
Passell: Well, you know…
Heffner: Not shopkeepers.
Passell: Oh, gee…what do we do well? We do services extremely well. And that’s nothing wrong with that. We would make things. We, you know, industrial output…for all these quote years of decline, industrial output hasn’t fallen, it just hasn’t grown very much. We still make an enormous amount of “stuff”, and it…a lot of it’s very good. So, I wouldn’t want to predict where we’d end up. I suspect current trends in certain areas would accelerate and we would end up producing a lot more services than we do.
Heffner: Certainly there are a lot of people who watch, over the past few years, the purchases being made of American industries, and you and I were talking about that before, feel that we are being gobbled up, if we haven’t been gobbled up already. No?
Passell: Well, gee, you know, the foreign investment thing’s interesting. Part of what’s happened is that we’ve spent so much more abroad than foreigners have spent here, but they’ve accumulated all those dollars, and they’re buying things with the dollars. And, frankly, would you rather…would your rather sacrifice…would your rather sacrifice some of your consumption this year and not have another American company purchased? I don’t much care. I mean I, frankly, I think it’s a benevolent force. I like the fact that foreigners are buying American businesses because I like the notion of internationalizing business, so that businesses interests are not protectionist, for example. Companies that are owned by Japanese are not going to be in favor of, are not going to be in favor of trade barriers. It’s okay by me.
Heffner: You’re a down the line free trader, aren’t you?
Passell: You know, that’s the one issue where I’m …I really feel strongly and I’m and I’m absolutely unreconstructed. Absolutely.
Heffner: How so? We have a minute left.
Passell: Okay. I don’t…I’m so unreconstructed that while I’d like them to open their…open trade with American corporations, I don’t feel obliged to let them do that, to insist that they do that. If they really want to sell us the stuff cheap, and refuse to buy our stuff, so be it. In the end we get their cheap stuff. It’s great.
Heffner: This is unilateral dismemberment?
Passell: That’s right, and listen, it would be better if we could somehow bluff their way into opening their…it’s good for the world if they open their barriers. But if we can’t open them up, we should still remain open.
Heffner: Peter Passell, despite the fact of my eyes do glaze, you’ve really got to come back because we’re touching on things now that I know an awful lot of people are interested in.
Heffner: Promise me that you will.
Passell: I certainly will. Thank you.
Heffner: Thank you for joining me today. And thanks, too, to you in the audience. I hope you’ll join us again next time. And if you care to share your thoughts about today’s program, today’s guest, today’s incredible theme, please write to THE OPEN MIND, P.O. Box 7977, FDR Station, New York, NY 10150. For transcripts send $2.00 in check or money order. Meanwhile, as another old friend used to say, “Good night and good luck”.
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