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The Browning of America


By Kerry Konrad

JERRY BROWN will not be the next president. If his performance on ABC's Issues and Answers" Sunday, February 25, is any indication, he won't even be his party's candidate, should he be foolhardy enough to choose to run.

The reason is that Jerry has staked all on his new economics, and they won't play in Newark, Detroit or Chicago, even if they do in Laurel Canyon. A Democrat already in the White House preaching austerity is bad enough. "Austerity" is not a good rallying cry for the scattered liberal coalition that selects nominees. It is doubtful Carter, unpopular as he may be, will be unseated by a challenger with an even bleaker economic forecast and as stern a remedy in mind.

Nor is Brown's message original or clear enough to win new converts. His call for a balanced budget is an echo of the cry the Republicans have been raising in Congress for two or three years--ever since their party's man was mercifully eased from office and its unpleasant demands upon him for coherent thought. Brown's thinking, at least on "Issues and Answers," (which is not one of television journalism's more rigorous hotseats), is still muddled. The governor sounded like a freshman who discovered in the second semester of Ec 10 "what's wrong with the economy," eagerly explaining to his roommate "what we should do." That he is not alone in his lunacy in this day of laughable Laffer curves" and state calls for Constitutional amendments on national economic policy is the most that can be said in defense of the endlessly adaptable Californian.

Jerry had a line to deliver, which he did, in answer to each question posed him--the problem with America, he said, is that we are losing our "productive might" and the "technological advancement" which has characterized the economic growth of the past fifty years. Our inability to face this issue is reminiscent of the decline of other empires in history, he said. The solution is fiscal responsibility, which will induce investment and further technological progress. It will also make possible a continuation of social programs. The Governor revered the memory of Kennedy (John, that is) by stating his belief that an expanding pie has slices for all. Simple, conservative--and wrong, from several points of view.

Brown's main assumption is that a balanced budget will automatically raise investment. It's a fallacious premise. The underlying problems of the American economy, including inflation, have little to do with the spending habits of government. While there is certainly room for improvement in policy, particularly in the coordination of monetary and fiscal measures, there is little that any President can do to stem the rising costs of food and fuel, the sectors pushing up costs and creating permanent inflationary pressure. These commodities are in short supply, and a growing, developing world will demand more and more of them. Unless the price rises high enough to summon forth significant new sources of supply--which in the case of oil seems to be happening--or to decrease consumption--which, in the case of oil, is not--the price will not stabilize. Considering that motive power and petroleum itself are essential to the production of most goods, it is doubtful any single government outside the Persian Gulf has the capability to reverse the worldwide trend.

Deficit spending is believed to hinder investment directly in two ways--one, by creating through inflation an atmosphere of uncertainty and declining prospects that frightens business; and two, by "crowding out" private investors from capital markets with the volume of government bonds necessary to finance the national debt. Neither holds up.

Inflation is harmful in so far as it is uneven and unpredictable. To assert that major U.S. corporations have neither the knowledge to anticipate future cost increases, nor the ability to transfer that cost to the consumer in product prices, is to deny fundamental truths about multinational capitalism. The investment decision for these US-based firms, most of which continue to show record profits (out of which their investment is principally funded), is not so much a question of "if" but "where." Their tendency to choose foreign locations over domestic is the real problem with investment in America. Given the massive political uncertaincies inherent in many foreign nations, it is dubious that a few percentage points of doubt present in the U.S. are decisive. Far more important are the basic factor costs of labor, capital, materials, and land in real terms. U.S. deficit spending does not affect the wage of factory workers in Taiwan, or the proximity of ore in Southern Africa.

Nor is there any empirical or historical evidence proving the "crowding out" theory of Milton Friedman. In fact, the historical experience of pre-war Japan, where rapid growth was accompanied by far greater deficits for defense purposes, shows that sufficient capital, foreign or domestic, will be available where the opportunity is great. There are billions of oil dollars in European banks eagerly seeking investment opportunity, and with the declining value of the dollar, they can be invested nowhere more profitably than in the United States. As any real estate broker could tell you, to some extent they are. Nevertheless, the second greatest contributor to our balance-of-payments deficit, after oil, is short-term capital overflow. The problem, again, is not the generating of enough capital. It is keeping it here.

Brown is right on one count--technological progress, leading to increased productivity of labor, is the main source of growth in per capita income (as well as sectoral unemployment). But the only governmental remedy to America's declining rate of technological change would be to spend more, not less; to subsidize the turnover of older, less world-competitive industries that can still operate profitably in the protected domestic market, like steel, or to encourage research and innovation. NASA is a prime example of an effective technology-producing government agency that is highly susceptible to budget-slashing. Yet it is in such advanced technology as computers and electronics that our greatest comparative advantage lies.

Cutting back on government spending may not make economic sense for other reasons. It is highly possible that the principal effect of a balanced budget--a recession of aggregate demand--would serve only to decrease investment in the U.S., as recessions historically do, without lowering the world or domestic rate of inflation permanently or appreciably. Any decline in social services for education is also a decrease in investment in human capital. The further deterioration of the established cities of the northeast will bring economic costs in policing, replacing, or repairing them, to say nothing of the potential waste in people or physical plant. Cities are the focal points of economic development; they are efficient and necessary. Any balanced budget will hit them hardest. The mayors of American cities know this and oppose the notion.

That is why Brown's fiscal conservatism makes no political sense. Carter is under fire from the urban groups--labor, blacks, and old-fashioned liberals--within his party. Brown has no room to maneuver on Carter's right without becoming a Republican. His inaugural address as Governor, in which he joined some 20-odd state legislatures in calling for a constitutional amendment for a balanced budget, greatly displeased the leadership of the AFL-CIO. He hurried to mollify them, unsuccessfully, at their gathering in Miami. If Brown has visions of wooing the Jarvis vote, he should consider who is more likely to foot the bill for a Democratic primary campaign against an incumbent--Orange County or the United Auto Workers.

Carter is vulnerable from within and without, from left and right. These threats may tend to cancel each other, leaving him in sole possession of American politics' high ground--the middle of the road. In trying to wrest that position from him, Brown may try to talk out of both sides of his mouth to different groups, and attempt to sell this anti-Democratic package to the rank and file. How flimsy such a challenge would be is made obvious when the intimidating possibility of a Kennedy campaign is contemplated, likely only if no other suitably liberal candidate emerges.

California has not voted Democratic in a presidential election since LBJ, but it still weighs heavily in the nominating process. Despite Brown's gubernatorial popularity, one wonders who would carry its primary with Kennedy in the race--or if it would matter. Kennedy would wallop Brown and Carter so thoroughly from New Hampshire to Minnesota and all points in between, a thrashing which might actually convince liberals that their cause is not dead, that there still are more workers and do-gooders than bosses, and that it's not necessarily ignorant to still believe in John Maynard Keynes, social welfare, and the amazing survivability of American corporate profits. It might even convince the Republicans that an anachronism like Ronald Reagan can't win.

Wouldn't it be pretty to think so?

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