Alfred L. Malabre, Jr.’s, new book, Beyond Our Means: How America’s Long Years of Debt, Deficits, and Reckless Borrowing Now Threaten to Overwhelm Us, is an example of the contemporary genre of gloom-and-doom predictions or speculations about the future. In his commentary in Newsweek magazine, environmental scientist S. Fred Singer wrote, “Old-time favorites like famine, war and pestilence now take a back seat to such man-made ecological disasters as nuclear winter and ozone depletion, with fresh catastrophes close behind.” In the economic arena, Malabre’s book must be reviewed, along with Geoffrey Abert’s After the Crash (1979), Ravi Batra’s The Great Depression of 1990 (1985), and Paul E. Erdman’s The Crash of ’79 (1976; updated in 1987 and renamed The Panic of ’89, since the “crash” did not come in 1979, though the author continues to predict it) as an analysis predicting economic collapse. Although part of this gloomily popular approach to economic predictions, of which readers must be skeptical, Beyond Our Means has much to commend it.
First, Malabre’s book is a rather good, nontechnical description of post-World War II economic history. Second, the book briefly describes the major postwar economic systems or theories—Keynesianism, industrial policy, monetarism, and supply-side theory—and demonstrates how none of these can provide a satisfactory explanation of or solution to modern economic problems. In fact, Malabre points out that economic theory neither comprehends nor can solve the contemporary predicament, a fact supported by Chemical Bank of New York’s firing of its staff of forty economists in August, 1985. Third, Malabre attempts to discern the nature of the problems confronting the American economy. Fourth, having rejected conventional economic theory to explain the economy, the author attempts to apply economic cycles to the economy and describes the nature of the business cycle and some of its manifestations—the Kondratieff Wave, the Jugler Cycle, and the Kuznets Cycle. Finally, Beyond Our Means discusses what is likely to happen to the American economy, what should be done to deal with contemporary economic problems, and what will be done to cope with those problems. Within a rather small compass, Beyond Our Means is a comprehensive, interesting, and important economic survey and analysis.
Beginning with a description of efforts to cope with the Great Depression of the 1930’s, Malabre attempts to document “the long, dismal record of our post-World War II extravagance.” Malabre holds that as Americans have “persistently, stubbornly lived far beyond our means . . . it is beyond our means to put things right readily” and that “our predicament” is such that “painful choices . . . now confront us.”
Malabre contends that the New Deal programs of President Franklin D. Roosevelt were appropriate at the time. The Federal Deposit Insurance Corporation (FDIC) and federal bank licensing, as examples, protected the banking public and restored faith in the nation’s banking system. While the FDIC “continues to be appropriate,” other New Deal-initiated problems have simply transferred tax-collected money to individuals on the basis on need.
Americans have come to believe that they are “entitled” to receive money from such programs, even though the entitlements are, in many cases, really not based on need. The food-stamp, Social Security, Medicare, Medicaid, school-lunch, public-housing, Supplemental Security Income, and Aid to Families with Dependent Children programs all support many people who are well off and receive but do not need the benefits. In spite of President Ronald Reagan’s expressions about reducing deficits, entitlement payments have continued to increase, and, since the 1960’s they have risen “from 24 percent of federal spending to 41 percent.” Federal support of benefit programs for corporations has also been very generous, as has federal support of military pensioners—“among the wealthiest 20 percent of all U.S. households.” In the past, the wealthy have been able to take advantage of low-interest student loans, often investing the money to receive high returns rather than using it for educational purposes. Farm-subsidy payments benefit far more wealthy than poor farmers, because the payments are based on production and thus mostly go to larger producers. In other words, transfer-payment or entitlement programs have grown enormously (from $1.5 billion in 1930 to nearly $500 billion in the 1980’s) and have often benefited prosperous rather than needy Americans.
A second problem that Malabre describes is the enormous growth of debt. The entitlement and transfer-payment programs have contributed to the growth of the federal debt. Federal programs to build bridges, roads, and public facilities are another source of debt, as is the costly military establishment. While the rate of increase in debt has accelerated in the 1970’s and 1980’s, productivity, which could help pay the debt, has declined along with per capita savings (which have been discouraged by a tax climate that has succeeded in stimulating spending). The effect of “the tendency to spend too much and save too little” has limited economic growth in these two decades.
The spectacular growth of the federal debt has had a counterpart in the significant rise of corporate and private debt. The result has been a substantial growth of borrowing and an increasingly problematic borrowing situation. Delinquencies in the repayment of debts have increased: “Consumers are assuming more and more...