Has Competition Impoverished America?: Review of “The End of Affluence” by Jeffrey Madrick

January 8th, 1996 at 12:00 am David Frum | No Comments |

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“There is no book so bad that some good could not be got out of it.” You’ll want to keep that charitable thought of the elder Pliny’s in mind as you skim through Jeffrey Madrick’s breezy account of America’s alleged economic decline, “The End of Affluence” (Random House, 223 pages, $22).

What’s wrong with this book? Mr. Madrick, a former economics reporter for NBC television, has succumbed to the occupational hazards of his old medium: a fascination with dramatic statistics, regardless of whether they mean anything, and an awe-inspiring lack of interest in ideas that conflict with his prejudices.

The American economy has not grown as rapidly in the two decades since 1973 as it did in the two decades before 1973. That much everybody knows. But Mr. Madrick stakes a bigger claim: that the American economy has grown more slowly since 1973 than it did in the previous hundred years. And this, he says, represents more than an economic problem: It is an imminent threat to American political culture. “Throughout our history we believed that we were a chosen people, a belief essentially sustained by our growing affluence. Now, we shall see who we are without it.”

That’s a pretty drastic conclusion. It’s even more drastic when you realize the flimsy basis on which it’s drawn. One of the many deceptively simple graphs that illustrate this book depicts a smooth flat line showing steady 3.4% average annual growth between 1870 and 1973. The line tumbles sharply downward thereafter. Alarming. But how does he know?

Until the 1930s, the federal government collected virtually none of the statistics that modern economists use. Projecting numbers like gross domestic product and per-capita income back into the past is a highly risky undertaking. Yes, the pre-1930 economy probably grew much faster than the economy does now. Much of that growth can be explained by the rapid rise in the U.S. population in the 19th and early 20th centuries. On the other hand, that swiftly growing economy regularly collapsed into slumps so harsh that they stagger the comprehension of modern Americans. Whatever the 1870s, ’80s and ’90s were, they were not a utopia of untroubled economic expansion.

Mr. Madrick must draw an oversimple picture of America’s economic past to prepare the way for his highly idiosyncratic analysis of America’s economic present. What he wants to believe is that the ultimate cause of America’s alleged decline is free trade and foreign competition. Until the 1970s, he claims, Americans enjoyed virtually exclusive access to the world’s largest free-trade area: the U.S. economy. To serve this vast continental economy, U.S. firms pioneered ultraefficient techniques of mass production.

But this monopolistic paradise has been lost. Foreigners have gained access to the huge U.S. domestic market. They have mimicked American mass-production techniques and eroded the supremacy of U.S. firms. Worse, American consumers have decided that Chevrolets and Wheaties and network TV entertainment are no longer good enough for them: They have begun demanding more specialized goods and services — goods and services not subject to economies of scale.

This specialized, internationalized economy cannot in Mr. Madrick’s view deliver rising standards of living. It is too competitive: “As rates of return are reduced, investment becomes riskier, and highly paid, permanent work forces are harder to sustain.”

What makes this strange argument stranger is Mr. Madrick’s refusal even to discuss a much simpler and more logical explanation for the post-1973 slowdown: the huge jump in the cost of government after 1965. The public sectors of all the major industrial economies have bloated since the early 1970s; at precisely the same time, all of them suffered dramatic dropoffs in growth. Might there be a connection here? Mr. Madrick spares just a few sneering sentences for this possibility: “The Republican Contract with America implicitly promised that if we relied less on government and reduced our taxes, our deficits would vanish and prosperity would return. . . . It is disheartening that after twenty years of slow growth Americans should accept such empty promises.” And that’s pretty much that.

Mr. Madrick argues instead that had economic growth continued at the torrid pace of the 1960s, the U.S. could now afford a much bigger welfare state. In much the same way an obese man might complain that if he hadn’t grown so fat he might have been able to take up exercise.

And yet, before putting “The End of Affluence” aside, remember Pliny. It is true that America has sacrificed much of its potential well-being because of the post-1973 slowdown. It is the one merit of this book that Mr. Madrick vividly reminds us how huge that loss has been. And he’s also probably correct that this forgone wealth lies behind many of the country’s social and political difficulties. Unfortunately, though, we’ll have to look elsewhere for a serious explanation of what went wrong.

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