Ben Wattenberg
http://www.jewishworldreview.com --
SPEAKING OF THE ANTI-TRADE RIOT
in Seattle, and as expected by those who knew him, economist Herbert Stein
keeps influencing us after passing away in September. Stein was a colleague
of mine at the American Enterprise Institute, and it was a privilege to know
him, learn from him and even occasionally disagree with him.
He was a former Chairman of the Council of Economic Advisers, and was one of
a kind: a wise economist who could write interestingly and gracefully, with
both humor and bite. He was a Republican, but during the 1980s he took the
supply-side theories of Reaganomics to the woodshed, often in the Wall
Street Journal, a supply-side haven. His work was based on sound economic
principles, and typically rooted in data, presented fairly, noting when the
data were weak, when there were legitimate differences of opinions, yet
prepared to unmask views that were based on hokum statistics.
In 1992, Stein and his AEI colleague and friend Murray Foss published "The
Illustrated Guide to the American Economy," a slender volume both elemental
and sophisticated, dedicated to relating what was known, and what was not,
about what was going on economically. The book was backed up by 135 colorful
charts, with lucid explanations and comments.
As it happened, it came out at a hothouse moment, when a brief and shallow
recession, which had lasted all of nine months in 1990-91, was hailed as an
economic maelstrom ("It's the economy, stupid"). Ross Perot was preaching
conspiracy. Pat Buchanan discovered that the unemployed didn't have jobs.
Supply-siders had their own cures for catastrophe. Although not prepared for
political purposes, the book was a tonic, designed to address "ignorance of
basic facts about the American economy or, what is worse, (those who) make
assumptions about it that are not so -- or at least are highly doubtful."
The Stein-Foss volume clearly acknowledged that economic growth since the
mid-1970s had slowed somewhat, but that it was still an awesome force. Had
American voters in 1992 seen the charts, perhaps the vote count might have
been different. Certainly, some of the television commercials by Perot and
Bill Clinton would have been giggle-bait.
Now, the third edition of "The Illustrated Guide to the American Economy"
has just been published (AEI Press, $39.95 cloth; $19.95 paper). The new
book is larger than its predecessor (175 charts), with additional research
material. Again, the tone is moderate and generally up-beat. Without
disclaiming it, neither Stein nor Foss was not (yet?) ready to sign on to
the optimism (realism?) of those who claim there is a "New Paradigm" driving
a "New Economy." Notwithstanding five years of vigorous growth, Steinfoss
steadfastly chose to show a long view of the American economy, highlighting
a 1973-1998 growth rate substantially lower than earlier in the 20th
century.
With such credibility established, and with yahoos of both the left and
right on the march in Seattle to roil the meeting of the World Trade
Organization, it is interesting to see where The Guide guides us regarding
trade.
In 1958 just 9 percent of American Gross Domestic Product was in foreign
trade and other international transactions (4.4 percent in import, 4.3
percent in exports). By 1998 the share of GDP had risen to 31 percent (17
percent imports, 14 percent exports).
Why did it happen? Steinfoss stress reductions in tariffs and reduced costs
of transportation and communication, as well as higher incomes in emerging
economies. Such trade allows countries "to concentrate on producing things
at which they were relatively efficient..." and that helps consumers on both
sides of the trade equation through better products at lower prices.
But what about the allegedly negative "balance of trade"? We import more
than we export, don't we? Doesn't matter, says Steinfoss. We're sending out
U.S. dollars for those imports, and those dollars can either be kept
overseas, in which case we've bought something for nothing, or invested back
in America in securities, real estate or businesses, which create jobs and
capital here. In fact, this foreign-owned "capital stock" in America has
climbed from 11 percent of all U.S. assets in 1987 to 22 percent in 1997.
(Meanwhile, assets owned by Americans abroad climbed, but not as sharply,
from 11 percent to 17 percent.)
Stein and Foss readily concede that some American businesses and American
employees are hurt from foreign trade competition, but also add deftly "just
as some businesses and workers have suffered as a result of increased
competition from other American businesses and workers." (The textile mills
of New England moved to the American South, and look what nasty Microsoft
allegedly did to its competitors.)
On balance? Says The Guide: "...there is no doubt that the increase in
foreign transactions has been a substantial net benefit to Americans." I am
most impressed by the words "no doubt," coming from a man who used such
language very rarely. Think about that, Seattle demonstrators!
I have no doubt about it either, and not just because I read it in The
Guide. Over the years I had the privilege of hearing it personally from Herb
Ben Wattenberg is a senior fellow at the American Enterprise Institute and is the moderator of PBS's "Think Tank." You may comment by clicking here.