Premature Gloom, Busy Bio and Milken

Article excerpt

For largely inexplicable reasons, the U.S. economy has been mired in a slow-growth pattern over the past two decades that is the slowest on record since 1870, excepting the years that included the Great Depression. To most people, such statistics don't mean much. But according to Jeffrey Madrick in The End of Affluence (Random House, $22, 223 pages), this period of slow growth is what accounts for a declining public confidence.

"Numbers like these change history," Mr. Madrick writes. If the economy continues to perform at the same rate as it has since 1973, he says, it would be the same as if everyone in American were to stop working for two to three years. Mr. Madrick estimates that if the slow growth continues - as most economists are predicting - the typical family in 2013 could be earning one-third of what it earns annually today.

Most economists predict that economic growth will continue at about a 2.5 percent rate in the foreseeable future, which is slightly greater than the 2.3 percent average annual gain from 1973-1993. This means that our slower economic growth may not be simply an unusual blip on the radar screen but something more permanent.

"We are not prepared for this," Mr. Madrick writes, adding that "Americans are probably the only people in the world who take fast growth for granted as a natural consequence of their country's uniquely prosperous history."

Mr. Madrick, a graduate of Harvard Business School and an economic reporter for NBC from 1985 to 1993, provides some interesting historical background to support his case that slow growth is likely to stay.

For one thing, the United States in its infancy had the benefits of a vast marketplace and cheap natural resources, coupled with the continuous ability to expand territorially. But such good fortune could not continue forever.

The frontier is developed, and other countries are now able to mass produce goods to sell in the United States - in some cases more cheaply than U.S. manufacturers are able to do.

Mr. Madrick is not optimistic that anything can break the slow-growth pattern. The ultimate message of this book seems to be: Be honest about the future - it's dismal and irreversible.

"Few Americans, I think, have come to terms with the possibility that our prospects may have changed permanently," Mr. Madrick says.

But some of Mr. Madrick's pronouncements may be a bit premature, given that certain economic data trends have changed since the book was written. Growth this year has increased at a much faster rate than economists expected, and productivity also has done a surprising turnaround.

Mr. Madrick also asserts that the bottom 10th of U.S. workers earn about half the salary of their European counterparts, neglecting to point out that Europeans pay a much higher proportion of their income to taxes than Americans - in France, nearly 50 percent of a wage earner's paycheck goes to taxes compared with 33.4 percent in the United States.

The book suffers in its final chapters from a lack of willingness to consider that there might be any solutions to the slow-growth dilemma. Mr. Madrick dismisses as "nonsense" the goal of the Republican "Contract With America" of reducing taxes and the size of government. …