      |
|
|
 |
|
« Back to The New Illustrated Guide of the American Economy main page    Transcript for: The New Illustrated Guide of the American EconomyThink Tank Transcripts:American Economy ANNOUNCER: 'Think Tank' has been made possible by Amgen, arecipient of the Presidential National Medal of Technology. Amgen,bringing better, healthier lives to people worldwide throughbiotechnology. Additional funding is provided by the John M. Olin Foundation, theRandolph Foundation and the Lynde and Harry Bradley Foundation. MR. WATTENBERG: Hello, I'm Ben Wattenberg. The American economygenerates a lot of facts and a lot of figures. Often they're moreconfusing than illuminating, more biased than impartial. How is thenation's economy doing? Have middle-class incomes gone up or down?Are the rich getting richer and the poor getting poorer? Is thefederal government taking too much of your money? Can these questions be answered fairly and clearly? Joining us aretwo distinguished economists who specialize in fair and clearanswers: Herbert Stein, senior fellow at the American EnterpriseInstitute, and Murray Foss, a visiting scholar at the AmericanEnterprise Institute. We talk about their just published book, 'The New IllustratedGuide to the American Economy.' This week on 'Think Tank.' On this special edition of 'Think Tank,' our guests are: HerbertStein, who is a senior fellow at the American Enterprise Institute.He was the chairman of the President's Council of Economic Advisersand is the author of many books, including, 'On the Other Hand:Essays on Economics, Economists and Politics' and 'The FiscalRevolution in America. And Murray Foss, who is a visiting scholar atthe American Enterprise Institute. He served on the President'sCouncil of Economic Advisers as a senior staff economist, and haswritten many books on technical aspects of economics, including,'Changing Utilization of Fixed Capital.' For today's program, we are using selected graphs based on theirrecent book, 'The New Illustrated Guide to the American Economy.' Gentlemen, colleagues, Herb and Murray, tell me first, what wasthe purpose of this sort of book? MR. STEIN: Well, we observed that there is, as you say, an awfullot of discussion of the American economy, most of it, or a greatdeal of it, in complete ignorance of the facts. So we thought it wasdesirable to try to present some of the basic facts in anunderstandable, clear and, we hope, dramatic, colorful way to -- inthe hope that people would be able to discuss the economy and policymore intelligently. MR. WATTENBERG: And, Murray, this is spin-free, is that the idea? MR. FOSS: Oh, this is absolutely spin-free. We -- this is not apolicy-oriented book. This is a broad outline, a looking at the bigpicture of the American economy at a point of time and in theperspective of, say, what happened since the end of World War II andsometimes as far as back as 1929. MR. WATTENBERG: Okay. Let's go through some of the charts fairlyquickly to lay out the general case, and then we will return for somebrilliant, cosmic, philosophical notions. Okay, let's take a look at the first chart. This is consumptionexpenditures per person from 1950 to 1994. Herb Stein, what does thatmean? MR. STEIN: First, we should point out, these are -- this in realterms. That is, the effect of inflation has been taken out, and whatwe say is this enormous increase of -- that the per capitaconsumption expenditures are about 2 1/2 times as high as they wereonly 45 years ago. MR. WATTENBERG: Right. They went from $6,000 per person to about$14,000 per person. So generally, our economy since World War II hasbeen healthy? MR. STEIN: This is one sign of its health. That's what people getout of the economy. MR. WATTENBERG: Okay. Now, the next chart shows the growth rate ofthe American real gross national product, again per person from -- ona long, telescopic view, from 1869 on the left to 1994 on the right,divided into three periods. Murray, what is this telling us here? MR. FOSS: Well, this shows that we've had -- when you take verylong periods of time, that we have had growth over the entire period.The first period, 1869 to 1948, is that bar on the left. MR. WATTENBERG: 1.7 percent average annual growth. MR. STEIN: Right. MR. FOSS: Yes. Then the period from 1948 to 1973, we had a fasterthan average growth rate, at least compared to the historicalpicture. And from 1973 to 1994, there has been a slowdown in the rateof growth. That's not a decrease, that's just a slower rate ofincrease. MR. STEIN: I think you have to say that that middle period wasextraordinary. It followed a long Depression and a great war, and itstarts off then with us in -- with a lot of unutilized opportunitiesfor innovation, for technological progress, and with an enormousdemand for output. So that was a peculiar period. But that doesn'tmean that we should be entirely satisfied with what we've now got.We've got to see whether we -- MR. WATTENBERG: That 1.4 percent, I mean we can do probably betterthan that. MR. STEIN: We've got to see if we can. We don't know exactly whatmakes these things work, but we've got to try to make it better. MR.WATTENBERG: Now, the next chart deals with the American unemploymentrate. Murray, why don't you march us through that one? MR. FOSS: Since the end of World War II, we have had ninerecessions. Generally -- MR. WATTENBERG: Those are the little fluctuations we're seeing on-- MR. FOSS: Oh, the rises in the unemployment rate would signify arecession. And -- MR. WATTENBERG: But everything has been within that 5 and 10percent range. MR. FOSS: That is correct. The severest recession we had in thepost World War II period was the 1974 downturn and then the one wehad in 1982. But it's interesting that these rates of unemploymentare far lower than they were in the Great Depression, that we hadduring the '30s. MR. STEIN: I think -- MR. WATTENBERG: Go ahead, Herb. MR. STEIN: I think that it's important to remind people, as we'regetting a generation of people who have no memory of the Depressionand what it was like, and it's useful to look there and see that atone point we had an unemployment rate of 25 percent, so that thatfear of depression which has obsessed us for all the post -- much ofthe postwar period is important, but we have to recognize that it wasvery unusual. MR. WATTENBERG: Now, you were a young man during the GreatDepression? MR. STEIN: Pretty young, yes. MR. WATTENBERG: Pretty young. You were also a young man, or still-- an old child? MR. FOSS: I was young. MR. WATTENBERG: You were young. Do you both remember the GreatDepression, I mean, basically as adults already? MR. STEIN: Yes. Well, I was in college during the worst days ofthe Depression. And I remember -- I lived in an industrial city,Schenectady, New York -- there were just lots and lots of unemployedpeople. My father was unemployed a great deal of the time during theDepression. And here I was a young student. I never found a job towork at during the summer except for one day hauling sacks in agrocery store. That is, it was really tough. MR. WATTENBERG: What were you doing, Murray? MR. FOSS: Well, I was a kid. I was -- but I do remember -- Ireally do remember the suffering in that period. I remember winters,for example, when we had a big snowstorm, this was greeted with greatenthusiasm. Why? Because the young men, not me, but the young mencould get jobs shoveling snow for five dollars an hour, and this wasa great thing. MR. WATTENBERG: No, no, no. a day. MR. FOSS: I'm sorry, five dollars a day. Five dollars a day. MR. WATTENBERG: Right. MR. FOSS: And this was thought to be a terrific job because if youworked 10 hours or 12 hours, you'd make five or six bucks for thewhole day, and that was a lot of money. MR. WATTENBERG: Now, gentlemen, you have collective experience inthese economic vineyards, what did we figure out, over a hundredyears? MR. STEIN: It's over a hundred years. MR. WATTENBERG: Over a hundred years between the two of you. Andremembering that Great Depression, do you think we could havesomething like that again? MR. STEIN: I think it's extremely unlikely. Of course, we didn'thave anything like that before the Great Depression, either. That wasworse than ever before or since, and I think we have learned somethings. I think the economy is more internally stable and policy iswiser. And I think, unless we totally forget everything, totallyreject everything that we've learned, which is not impossible, Idon't think it will happen again. MR. WATTENBERG: Murray, you buy that? MR. FOSS: Well, I agree with that. You know, Franklin Rooseveltran in 1932 on a platform of a balanced budget. The Federal Reserveshrank the money supply, just the opposite of the policy they shouldhave followed. And there was just a lack of understanding on the partof politicians, bankers, economists. MR. WATTENBERG: Okay, I'm going to run out and call my broker andthen we'll -- now, the -- let's move on to the next chart, and herewe have something that there has been a lot of argument aboutrecently. This is the Bureau of Labor Statistics chart of realearnings in private industries. This is the chart that has been used-- I have seen it again and again, or I have seen it referred to asmaking the case that since 1973, middle-class people in America aredoing worse. This is basically the text of that. MR. STEIN: And Ithink there are several things wrong with that conclusion. As Murrayhas said, it leaves out a lot of the American working population. Butalso, it leaves out the fringe benefits. MR. WATTENBERG: Okay, that's -- MR. STEIN: It leaves out the health care, the retirement benefits,and so on, which are -- MR. WATTENBERG: All right, now, when we put that in -- let's putthat chart up. That's the next one. And that shows what it looks likewhen you put all of that in, the health care and the pension plans. MR. STEIN: Yeah. Yeah, and of course, that's becoming a more andmore important part of total compensation, and workers want that intheir compensation. And if you look at that, you see in this chartthat although -- that wage -- or earnings, compensation has continuedto rise, although also at a much slower rate than in the periodbefore 1973. MR. FOSS: Yeah. I think the chart brings out very clearly that thesteepness of the line in the first part of the chart is much greaterthan it is in the second part of the chart. MR. WATTENBERG: And that would correlate with that chart we sawearlier showing that very rapid growth after World War II and aslower growth now. MR. FOSS: That reflects the slowdown in the growth ofproductivity. MR. WATTENBERG: But it's not a decline. It's a slowdown in therate of growth. MR. FOSS: Yeah. It's as though we were going 30 miles an hour andnow we're going 10 miles an hour, something like that. MR. WATTENBERG: Okay, now let's move on to the next chart and lookat a somewhat grimmer situation. This is the poverty rate by race.The top line is the black rate, the bottom line is the white rate,and the middle line is the total rate for the United States. Wouldsomebody care to describe what it shows? MR. STEIN: Yeah. Well, one thing you have to say is that this isan extremely important case of inability to measure precisely what itis you would like to measure. That is, there are so many differentpossible definitions of poverty, ranging -- which would range fromabout 8 percent of the population to 25 percent of the population. SoI don't think there's much point to saying just how many people arein poverty. But what you can say, and I think all these measures do show thesetwo things, first that the decline in poverty -- in the rate ofpoverty, which was very steep earlier in our history, has kind ofleveled out and the rate of poverty has been approximately stable for15 or 20 years. And the other point is that the poverty rate amongblacks is very much higher than the poverty rate among whites. It'sconsistently about twice as high. MR. WATTENBERG: How are black wages doing in comparison to whitewages? That's one of the charts. We don't have it up there, but Iknow it's in the book. MR. STEIN: Well, that is a very encouraging development. That is,the -- for blacks with similar education, that is, comparing blackswith 12 years of education with whites with 12 years of education,the gap has narrowed substantially in the postwar period. That is,they have become more equal at every level of education, so that thelag of black incomes behind white incomes has been substantiallyreduced. MR. WATTENBERG: All right, now we're going to takea look at oneother view of this poverty population which attempts to show why wehave had this situation of non-diminishing poverty in recent decades.Can you march us through that one, Herb? MR. STEIN: Yes. Well, the thing that stands out is that theproportion of the people in poverty who are in female-headed familieshas increased very greatly. That is, it used to be that about 25percent of all the people in poverty were in female-headed families.Now it's about 35. On the other hand, the proportion who are old hasfallen substantially. And the reason that the proportion who are in female-headedfamilies has increased so much is not because female-headed familiesare poorer than they used to be. They were always poorer than therest of the population, but there are just a lot more of themrelative to the total population. MR. WATTENBERG: So this is a social condition, female-headedness-- a lot of divorce, a lot of out-of-wedlock birth -- that is drivingan economic indicator. Is that basically what we're talking abouthere? MR. STEIN: That is correct, but we also see a social policy whichis driving that decline in the proportion of aged who are in poverty. MR. WATTENBERG: Right. I mean, we have really bought our way outof elderly poverty by raising Social Security -- I mean, in effect. MR. STEIN: Yeah. Well, you young people have bought us old peopleout. (Laughter.) MR. WATTENBERG: Well, you are a welcome, sir. No, I mean I thinkthat is the great example of social engineering that works. MR. STEIN: Yes. MR. WATTENBERG: And insofar as welfare has beenperhaps driving the other one, that is a great example of a socialpolicy that doesn't work. MR. STEIN: Yes, 'insofar as' -- that's a big debate. MR. WATTENBERG: Right. There was a famous Greek philosopher namedPericles Insofar-As. (Laughter.) No, the -- okay. Now, so now let's go on to one other debate, which is the argumentabout inequality. And the question has been raised, are the richgetting richer and the poor getting poorer? And this chart showswhat? MR. STEIN: Well, it shows a small decline in the proportion of theincome, of the national income, that is received by the people in thelowest 20 percent of the income distribution, and an increase in theproportion of the income that is received by the people who are inthe top 20 percent of the income distribution. Now, these changes, especially at the bottom, are very slight, butstill, they're a cause of concern and they need to be explained. MR. WATTENBERG: That bottom chart, the bottom line showing thebottom fifth of the income distribution has gone down from 6.4percent of total income down to 5.5 percent. MR. STEIN: Right. MR. WATTENBERG: So it's only a percentage point, but it's on abase of six. It's meaningful. MR. STEIN: Yes, and of course the whole thing is very low. That isanother thing you have to say about it. But you have to understandseveral things about this, such calculations. They refer to theincome earned in a particular year, and people's incomes fluctuatefrom year to year and over their lifetime. What we would like to knowis what incomes people receive over their lifetime, and we know thatthat is much less unevenly distributed than the incomes that arereceived in a year. MR. WATTENBERG: In other words, that bottom line might wellinclude an intern in a hospital, who is not making a lot of moneynow, just room and board and a few bucks, but we know in 10 years, heis going to be your gall bladder specialist and he's going to bemaking a lot. MR. STEIN: That's right. It includes him if he's the head of ahousehold. And one thing that has happened is that we have morehouseholds headed by young people than used to be the case becausepeople are moving out and setting up for themselves rather thanliving with their parents. That is one thing that's happening. Of course, the incidence, the increased frequency of female-headedfamilies which we noticed earlier also affects these numbers. Butsomething else is going on. MR. WATTENBERG: Yeah, let's see the next chart, which is the samechart, but based on household expenditures rather than on income. Andyou might explain that distinction. MR. STEIN: Well, we look at expenditures as possibly a bettermeasure of people's income over a longer time than their actualreported income for a particular year, because if a person's incomeis fluctuating from year to year, he isn't going to cut hisexpenditures very much when his income falls if he expects it torise. So this is probably a better measure of the long-term status ofpeople. MR. WATTENBERG: And this one shows for the bottom fifth a lesserdiminution. The whole argument about the rich getting richer and thepoor getting poorer seems to be within relatively small ranges. MR. STEIN: I think that's right. Of course, the differences arestill big, but of course, people do differ greatly in variousqualities. MR. WATTENBERG: Right, right. No, the absolute differences arehuge, but they have not changed much, but they have changed some. Imean, that's sort of what -- MR. STEIN: Right, yes. MR. WATTENBERG: All right, now, one other great argument that'sgoing on, which I know you are both very interested in, is this. Howmuch of our money is the government taking? And let's put that chart,and perhaps you could -- Herb, Murray -- just sort of march usthrough that one, if you would. MR. FOSS: Well, that shows the distribution of federalexpenditures as a percentage of the GDP. MR. STEIN: Federal revenues. MR. FOSS: Excuse me, federal revenues. MR. WATTENBERG: And that has remained -- if you look at the topline, that has remained fluctuating, but at about the same rate. MR. FOSS: At the top of that yellow band there, that representsthe grand total. MR. WATTENBERG: Right, but the big increase has been not in theincome tax, which is the bottom line, but in the payroll tax. MR. FOSS: Payroll tax. That's the yellow area there. MR. STEIN:Yeah, the total has fluctuated within a range of between 18 and 20percent of national income. It only got up to the 20 percent duringthe Vietnam war, when we had a surcharge, and in the late 1970s, wheninflation was driving the taxes up. But by and large, except for thepayroll taxes, which finance Social Security and Medicare, the taxburden has been declining. MR. WATTENBERG: Well, that is a case I have heard you make, but ifwe look at the next chart, where we talk not about federal revenues,but about federal expenditures, that has been going up. And thedifference between the revenues and the expenditures, the top twolines, is what we call the deficit. You said the other day, I heardyou, that you recently have had an epiphany about the deficit.Perhaps you can explain. MR. STEIN: Well, should I explain what epiphany is? MR. WATTENBERG: Well, you could explain. We have a very high-IQaudience here, but -- MR. STEIN: Anyway, I had a change of view about the deficit,because I was rather complacent about it even though it increasedsubstantially during the years of our friend Ronald Reagan.Nevertheless, I thought that was a -- we were running the kinds ofdeficits that we could live with forever, and we -- and that remainstrue. What disturbs me now, what makes me a hawk about deficits, isthe prospect that if we don't do something, those deficits which wesee on the chart at around 2 percent or 3 percent of the GNP aregoing to go up to 15 or 20 percent, and that will then -- that willreally be calamity. MR. WATTENBERG: That the deficit would be 15 or 20 percent? MR. STEIN: Absolutely. MR. WATTENBERG: Because of the cost of interest? MR. STEIN: Because of the cost of Social Security payments andMedicare payments, which are rising very rapidly. I might point outfor people who can't see that chart very clearly -- MR. WATTENBERG: So you want to cut your own Social Security check? MR. STEIN: Oh, absolutely. And my Medicare more than that. Butyou'll see that the deficit line really fluctuates around zero untilabout 1974 or 1975, which is when Murray and I left the government.(Laughter.) MR. WATTENBERG: Okay. A hundred years of collective experience. Wehave gone through the past and the present. What happened? Where arewe? What happens next? A little cosmic big think. MR. STEIN: I think what stands out is that this is a very strongeconomy. It's very productive. It gives us a higher standard ofliving, as far as we can measure these things, than anywhere else inthe world. But it's also an economy that has some problems, whichwe've pointed to, problems that productivity is not rising, outputper capita is not rising as fast as it used to or as fast as we thinkit might be made to rise. And I would say particularly that there is a sector of thepopulation that is not sharing in the general wealth, the growth ofwelfare, that is being left behind. And I think that's a real problemfor us, and ties in, as you suggested at one point, with many socialproblems. And we -- so that we have to look at those things afresh,but by -- and have to look at them within the context of a verysuccessful economic system. MR. WATTENBERG: The -- in the old days, the truly old days,economists were also philosophers. I mean, Adam Smith was not just aneconomist. He was a philosopher. Murray, would you like to saysomething philosophical as a long view? Or Herb? MR. FOSS: Well, I'm not sure I can say anything philosophical. ButI am impressed by the lack of knowledge of a lot of basic facts aboutthe economy. And I'm not talking about common sense. I think there'sa lot of good sense out there on the part of the people, but I dothink there is a serious lack of just basic facts. MR. STEIN: The discussion of economics is highly politicized. The-- almost all the economists that you ever hear about are aligned;they're Democrats or Republicans, they're liberal or they'reconservatives. And they tell a story using these figures. And ofcourse, another thing is that the media generally is interested inthe news, which is what happened last month or last week, where --and that is not the way to look at the American economy. You have tolook at the American economy over a longer period in order to haveany reasonable judgments about it. MR. WATTENBERG: Okay. Thank you, Herbert Stein and Murray Foss.And thank you. Please send your comments and questions to: New RiverMedia, 1150 17th Street, NW, Washington, DC 20036. We can be reachedvia E-mail at thinktv@aol.com or on the World Wide Web atwww.thinktank.com. For 'Think Tank,' I'm Ben Wattenberg. ANNOUNCER: This has been a production of BJW, Incorporated, inassociation with New River Media, which are solely responsible forits content. 'Think Tank' has been made possible by Amgen, arecipient of the presidential National Medal of Technology. Amgen,unlocking the secrets of life through cellular and molecular biology.Additional funding is provided by the John M. Olin Foundation, theRandolph Foundation, and the Lynde and Harry Bradley Foundation. And thank you. Please send your questions and comments to: NewRiver Media, 1150 17th Street, NW, Suite 1050, Washington, DC, 20036.We can be reached via E-mail at thinktv@aol.com. And do check out ournew home page on the World Wide Web at www.thinktank.com. For 'Think Tank,' I'm Ben Wattenberg. ANNOUNCER: Due to our special August programming, 'Think Tank'will move to Sunday at 6:30 a.m., beginning August 6th. 'Think Tank'will return to Saturday evenings at 6:30 on August 26th. And thank you. We enjoy hearing from our audience very much.Please send your comments toNew River Media, 1150 17th Street, NW,Washington, DC, 20036. Or we can be reached via E-mail atthinktv@aol.com. ANNOUNCER This has been a production of BJW, Incorporated, in associationwith New River Media, which are solely responsible for itscontent. 'Think Tank' has been made possible by Amgen, bringing better,healthier lives to people worldwide through biotechnology. Additional funding is provided by the John M. Olin Foundation, theRandolph Foundation, and the Lynde and Harry Bradley Foundation. BEN WATTENBERG Return toThinkTank Online Home Page Think Tank ® is a Registered Trademark of BJW, Inc. All Content © Copyright 1995 New River Media, Inc. Back to top  Think Tank is made possible by generous support from the Smith Richardson Foundation, the Bernard and Irene Schwartz Foundation, the Lynde and Harry Bradley Foundation, the John M. Olin Foundation, the Donner Canadian Foundation, the Dodge Jones Foundation, and Pfizer, Inc. ©Copyright Think Tank. All rights reserved. 
  Web development by Bean Creative. |