When they mention economics, both of this year’s candidates have concentrated, predictably, on prosperity: How successful has the Reagan administration been in creating jobs, boosting incomes, and containing inflation since the current business expansion began at the end of 1982? What can be done about those Americans who remain poor? Is a recession imminent? What is the risk of higher inflation?
These questions are important, but they miss the point. By fixing our attention on the details of today’s economy, we are allowing Vice-President Bush and Governor Dukakis to avoid addressing the difficult choices that the next president will have to make.
Those choices will be difficult because the prosperity about which the candidates are debating is a false prosperity, built on borrowing from the future. When President Reagan took office our federal debt (not counting what various government agencies owe each other) was $738 billion, or twenty-six cents for every dollar that the country produced and earned. The United States was also the world’s leading creditor nation, with the power and influence that so privileged a position has historically carried with it. But seven years of a radical new fiscal policy—all years of peacetime—have nearly tripled federal indebtedness, while the national income increased by only half. When either Mr. Bush or Mr. Dukakis takes office, therefore, the net federal debt will be approximately $2.1 trillion, or forty-three cents for every dollar of our income.
Worse yet, after seven years of reckless borrowing the United States is now the world’s largest debtor nation, dependent on the good will of the countries that lend the money to keep the party going. The nation is surrendering the ownership of its productive assets, not in exchange for assets it will own abroad, or to build new plants and other facilities at home, but merely to finance higher and higher personal consumption. Having stunted its investment at home and dissipated its assets abroad, the nation now faces difficult choices because, unless it acts quickly to reverse these forces, today’s voters and their children will pay the consequences in the form of a diminished standard of living and a far different role for America in world affairs.
In the meanwhile, jobs are plentiful and profits are high because Americans are spending amply. But more than ever before, they are spending both their own money and what they can borrow not to make the productive investments the economy needs—renovated equipment in basic industries like steel, expanded capacity for producing semiconductors and other high-tech devices, airports and ocean ports and highways that are not in disrepair—but merely to consume more. Prices have remained stable in part because business was depressed at the beginning of the decade, and also because, until recently, consumers could use overpriced dollars to buy foreign-made cars and clothes and computers at prices cheaper than what it cost to produce the same goods in America. After-tax incomes are rising because Americans are continuing to …