Memo To: The New Republic editors
From: Jude Wanniski
Re: Gregg Easterbrook's Optimism
Congratulations on your marvelous cover story of January 4 & 11, "America the O.K.." by Gregg Easterbrook. We are so conditioned to thinking about the public policy problems that confront us that it takes someone like Easterbrook — one of the very best journalists in the nation — to take stock of where we are as the last year of the century opens. As it happens, there have been such small, steady gains to our national economy in the last 20 years that good times have snuck up on us to a remarkable degree, and Easterbrook has compiled an impressive catalog of them. We've seen them all in snippets here and there, in the back pages of the newspapers where good news tends to be hidden, but it is awesome to see them assembled in one lengthy essay. From living standards to lower deaths from accidents of all kinds to cleaner air and water — and lower crime rates, drug use, divorce rates, abortions, and all sorts of social pathologies — America is at a point of development that seemed out of the question, unimaginable only a generation ago. Just a few thoughts:
Because TNR has been so hostile to supply-side economics since we began its revival in the mid-1970s at The Wall Street Journal editorial page, it is understandable that you could not really permit Easterbrook to give credit where credit is due. It was demand-side Keynesian fiscal policy and Monetarist monetary policy that undermined the economy in the late 1960s and led to the welfare state and its attendant social pathologies of the 1970s. If our Federal Reserve were still committed to adjusting the money supply according to monetarist formulae — and if we still had a top income tax rate of 70% and a capital-gains tax of 35% — America would not be O.K. There would be no prospect of solving our national health and pension problems, as there is now as we contemplate multi-trillion budget surpluses. The reason there is such misery in the rest of the world is that the International Monetary Fund and World Bank remain bastions of demand-side economics, and they spread their poisonous advice in every corner of the world.
Oddly enough, Easterbrook cites two remaining economic problems that are not problems at all in the supply-side universe. He says we are still burdened with large trade deficits and a low savings rate. Both of these are relevant only in a demand-side world. The trade deficit now these are relevant only in a demand-side world. The trade deficit now reflects the flow of capital into the United States from the rest of the world, where supply-side opportunities are not as great as they are here. The savings rate is low here because the government statisticians do not include the dramatic rise in the value of past savings encompassed by financial assets. In other words, if we wished a dramatic decline in our trade deficit and a dramatic rise in our savings rate, the quickest way to achieve both would be a return of Keynesian tax rates and Monetarist monetary policies. Capital would flow out of the country and the value of stocks and bonds would decline, forcing households to save a larger part of a smaller economy.
The only other quibble with Easterbrook's piece is his dutiful bow to the "problem" of global warming, which he debunked in the earlier part of his career as a science writer at Newsweek and in his great book, A Moment on the Earth. Because TNR is eager to see Vice President Al Gore elected President in 2000, and because Gore is manic on global warming, it is understandable that your editors would require Easterbrook to take global warming more seriously now than he has in the past. Otherwise, my congratulations again on the best piece, thus far, of 1999, published a little early.
* * * * *