Committee Of Correspondence

Is the Economy Great or Terrible, and Who Did It?

Herb Stein
5:27 p.m.  Friday  9/13/96 

       Our discussion has emphasized disagreement and uncertainty. But I think that there are some significant propositions on which there would be agreement. Since I have the last word and the panelists will not have an opportunity to refute me in this medium, I will venture to say what I think they are.
       1. This was never mentioned, but should have been: The American economy is great by comparison with almost all of history in almost all countries. What we have been concerned with in this discussion is evaluating the performance of the American economy in relation either to a limited period of history–especially the generation after World War II–or to some notions of what a better economy would be like derived from general economic analysis.
       2. Within this frame of reference, the performance of the American economy is neither great nor terrible. Most obviously, it is neither as great as the Clinton team maintains nor as terrible as the Dole team maintains.
       3. We have been having a good economic recovery, which began in 1992. What is especially gratifying about this recovery is that it brought us up to or near full employment without an acceleration of inflation. But this performance is not exceptional except by comparison with the period from about 1965 to 1985, when the economy became obsessed with the expectation of inflation. Probably the team of Reagan and Volcker deserve some credit for ending that obsession.
       4. Since 1973–and Niskanen would say since 1964–the rate of growth of total output, output per worker and real compensation per hour of work have been disappointingly slow. That is, they have been disappointing relative to out postwar expectations, although from the perspective of human history they have been pretty amazing. Whether this long-term trend has worsened in recent years is hard to tell because the figures for short periods are dominated by cyclical and irregular movements. But it is probably true that the underlying growth rate of output per hour has been a little less since 1990 than it was in the 17 years before 1990. By a little less I mean a rate of 1.0 percent a year in the more recent period compared with 1.3 percent a year.
       5. The average incomes of those people who in any case earn the lowest incomes, mainly the people with little skill or education, have been rising less than the average, and may have been falling–the uncertainty relating mainly to the measurement of prices–for about 20 years. Whether this development has worsened in recent years is unclear. Although both Niskanen and I have suggested that the most common picture of increasing inequality is exaggerated and one-sided, something has been going on that we deplore.
       6. The assignment of credit or blame for these developments to public policy, and especially to the policy of particular presidents is very difficult. Everyone agrees that a lot is going on other than the policy of the government. The timing of changes in the economy does not seem to be so closely connected with the changes of policy that we can confidently identify causes and effects. All of us have notions about the part that presidential policies have played in the performance of the economy, but these notions are mainly derived from prior expectations about how specific policies should affect the economy, not from observed measurable connections in the particular cases.
       The non-economists among our panelists express dismay over the ignorance of economists. Perhaps that is my fault. I have been described as the master of the “Don’t Know School of Economics.” Perhaps some other moderator would have given the impression that we know more. I would only insist that the exchange among the economists has given a more reliable picture of the state of affairs than one can get from any other source.
       I thank all the panelists for the care and candor with which they have expressed their views.
       Next week we will discuss Bosnia after the elections. The panelists will be:       

  • Madeleine K. Albright, U.S. Ambassador to the United Nations.
  • Misha Glenny, author of The Fall of Yugoslavia.
  • Richard Perle, former assistant secretary of defense for international security.
  • Warren Zimmerman, former ambassador to Yugoslavia.