Sometimes you see a scientist or a medical doctor testify in a courtroom in favor of one thing or another but you know deep down they do not believe a word of what they are saying. Most of the time they would be testifying for the defense who pay them to come and say things that run contrary to what they were taught and what they have been practicing until now.
If scientists and medical doctors can do it so can the economists who write pieces for a publication or go in front of the television camera to say things you know are contrary to their ideological beliefs. But they write what they write and say what they say because this is the stand that matches the one taken by the party to which they belong at this time.
Well, this is the case now with Marty Feldstein who is not just a Reagan economist but the one most responsible for founding that school of economics. When you read Feldstein and listen to him these days, you wonder if he really believes that what he preaches is Conservative Reaganite Economics or it is a page out of Soviet Economics, the very thing that Ronald Reagan fought against tooth and nail.
Much of the world, including America, find themselves in the midst of an economic slump these days and Feldstein is advocating not a Reagan style approach to solving America’s problems but a plan for a Soviet style stagnation instead of one for economic growth. Feldstein is wrong this time, and my hope is that he will soon start to advocate a plan that is more consistent with the capitalist system to which he adheres.
So how is growth realized in a market economy? Well, let us begin with the goal of economic growth. The goal is to achieve a standard of living that is higher than the standard we enjoy at the present time. What this means in practice is that as a society we need to do two things: We need to produce more goods and services and we need to consume more of them in the future than we do now.
This says there are two equally important parts to the standard of living, the production part and the consumption part. Under the current definition of what constitutes a high standard of living, it does not matter who or what is responsible for the production, and who or what is responsible for the consumption. Instinctively, however, the capitalist system never bought this definition while the Soviet system did, and this may have been the reason why that system crumbled. And yet, this is the performance that Marty Feldstein wants America to duplicate.
What the Soviet system never understood was the intimate relationship that exists between production and consumption in a healthy economy. It is possible, for example, in a small jurisdiction like Dubai to have a large number of guest workers extracting a natural resource from the ground to qualify the nation as a high production jurisdiction. And it is possible in a small jurisdiction like Singapore to repackage and sell a high volume of goods abroad to qualify it as a high consumption one. But neither of these jurisdictions can enjoy a quality of life that approaches Sweden, for example, where there is a rough balance between what is produced in the country and what is consumed within its borders.
In fact, it would be difficult for a country with a population that is larger than say, 20 million people to go on for a long time being only a high producer of goods and services, or being only a high consumer of such things. To be truly a developed nation you must be both a producer and a consumer at the same time. And this is becoming evident to the Chinese who are beginning to look to their internal market as opposed to relying on export in order to maintain the growth that they have been enjoying for some time now.
Thus, to maintain a high standard of living in a large country that is developed or to achieve a high standard in a country that is developing you must in the end break away from your dependence on the rest of the world and depend instead on the local population to sustain the growth in the goods and services you produce, and the growth in the consumption of what you produce.
America and most of the big Western nations have followed that model and have done well over the decades, even the centuries. By contrast, the Soviet system in Russia and the satellite nations followed a model where consumption was discouraged by the fact that very little consumer goods or services were allowed to be produced in the command economies to which they adhered. In the end, psychology and economics combined with outside forces to participate in the defeat of that system.
While discouraging the production of goods and services for the consumer, those regimes directed their resources toward the production of massive civilian projects, some of which were useful and some were not. The regimes also diverted much of their resources towards the production of military equipment in order to respond to a challenge that was thrown at them by Ronald Reagan of America.
What the leaders of those economies did not realize was that such equipment is better produced by a large industrial base like the one that existed in America more so than it did in their command economies. And this happened because America adhered to a system that catered to the needs of the consumers which caused the country to develop a culture of expansion and one of abundance. By contrast, the Soviet regime developed a culture of retrenchment at home so as to deploy all the available resources against the Western challenge. What resulted, however, was that the Soviets were caught so unprepared, they could not mobilize fast enough to respond to the Reagan challenge when he started his military build up. And those regimes fell one after the other like domino chips.
This triumph belonged to the same America that won the wars in the Pacific and in Europe in the middle of the Twentieth Century precisely because she had a civilian industrial base that was quickly adapted to produce the weapons needed by her military and by her allies, including the Soviet Union. And the American civilian industrial base was there because the consumers were there, and they were none other than the workers themselves who were paid well enough to buy the goods and the services they produced. Thus, you had the production side of the economy and the consumption side of the nation rolled into one, and they formed the American public.
That economy is still there in America today but it is getting shakier by the day. At the pinnacle of it there exists the auto industry and the workers who make up a good part of the consumer base. But what Marty Feldstein is calling for is a quadruple whammy to be delivered to that set-up. In response to the stand taken by the bosses of his Party who for a mysterious reason are dead set against the auto industry, he is advocating the following: (1) kill America’s industrial base, (2) throw the workers out, (3) cut off benefit to the retirees that worked a lifetime to earn them (4) start producing weapons in an industrial base that will increasingly shrink to look like the Soviet industrial base of the cold war.
I doubt that Marty Feldstein believes this is conservative economics. While he may point to the fact that a military build up was started during the Reagan era, he knows that the build up in itself was not good economics but that it was made possible by the fact that America stood on a sound industrial base. And this was the case because America had experienced a peace time expansion following the Second World War, an expansion to which the Soviets did not participate because they went for military expansion absent a civilian industrial base that was strong enough to feed the military.
More and more, it looks like America is becoming the losing Soviet Union of yesterday while China is becoming the triumphant America of yesterday. Neither Marty Feldstein nor the Conservatives of America will forgive themselves when they reach the point of no return. They can still turn around now but they have very little time left to do so.