D. Summary and Questions for Policy

In its trade with developing countries in the 1970s, the U.S. has become increasingly complementary and specialized. The overall composition of U.S. trade has moved increasingly toward export surpluses in capital goods, agricultural goods, and chemicals, with deficits in autos, consumer goods, and fuels. By 1980, the U.S. had surpluses on manufactured goods and agriculture of $30 billion.
In its trade with the developing countries, the U.S. is increasingly an exporter of capital goods and an importer of consumer goods, with a surplus on this exchange of about $9 billion in 1979. This fits well with basic notions of comparative advantage, and it re¬ flects an efficient reallocation of resources in the U.S.
This increase in structural interdependence with the developing countries fits into the picture of borrowing and growth in the de-
138
TABLE 12: IMPORTS OF CONSUMER GOODS(NQNFOOD, NON AUTOMOTIVE)
Critical Issues & Decisions
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Critical Issues & Decisions
veloping countries. As the industrializing developing countries bor¬ row internationally to finance growth, they buy capital goods from the U.S. In turn their manufactured consumer goods find a market in the U.S. The picture of interdependence through capital markets and through industrial structure is consistent and probably efficient in the long run.
The rapidity of change in the structure of trade, however, raises difficult problems of adjustment in the U.S. The reallocation of resources is efficient in the long run, but it imposes adjustment costs in the short run. If the long run efficiency gain is to be realized, some of it should be redistributed to the short run losers through an effective program of adjustment assistance. This would make the resulting interdependence socially efficient, as well as politically easier.
140
Critical issues & Decisions
IMPLICATIONS FOR THE FUTURE Commentary
The 1981 version of the seminar on "Critical Issues and Decisions for Government Executives" focused on four specific areas: the domestic economy, foreign policy, Constiutional government, and the role of the U.S. in the international economic situation of the future.
In seminar discussions, the lines between the subject areas were often crossed. Indeed, that is the first conclusion we reach: that these subjects are inextricably interrelated. The future is not really a separate topic, but a critical dimension of every issue examined in this seminar.
There was considerable discussion of whether it is worthwhile to attempt to think about the future, beyond the two- to three-year planning agenda of most elected and appointed federal officials. We reach the conclusion that it is essential to attempt to look further ahead than that.
Prediction of future events or trends is an inexact process, to say the least. But medium-term projection, periodically updated, pro¬ vides a helpful perspective in which two- to three-year policy, pro¬ gram, and budget planning can be better done. In addition, we be¬ lieve that identifying emerging issues of potentially national im¬ portance requires a disciplined effort to look from ten to twenty years ahead.
141
Critical Issues & Decisions
A most fundamental question facing all of us on concerns for foreign policy and defense is this: "Will we be alive in a United States that is essentially the same political and economic entity it is today?"
We believe that the military power and capability of the USSR has increased rapidly in relation to that of the U.S. Whether it now exceeds, or will soon exceed, that of the U.S. may not really be pertinent. If the Soviet leaders perceive a sufficient advantage, that may be enough to cause further, even more aggressive moves, in areas we consider vital to our security (e.g., the Middle East) or against the U.S. itself.
After some years of experience as federal government executives, we are well aware that simply appropriating more money for "de¬ fense" will not necessarily result in a leaner, tougher, more capable armed force. The U.S. cannot afford to go through another period in which we permit our military capabilities, relative to the USSR and its client states, to deteriorate significantly. Let us rather in¬ crease our defense capability, shore up our existing alliances, and make new alliances.
Since most economists appear unable to explain our present domestic economic situation, we seriously question the wisdom of attempting to "manage" various aspects of the economy when we really cannot account for what has happened under the "man¬ agement" of our economy today. Therefore, we believe that, in general, much less emphasis should be placed on fine-tuning the economy by the federal government.
We do not advocate the "growth at all costs" policy. Nevertheless, in our opinion, a policy of planning based on the expectation of growth in the economy is necessary. We recognize that growth rates will vary over a period of time and that in the future our maximum growth rates may not be as high as they have been in the past.
The recommendation of the Commission on "National Agenda for the 80's— that the federal government act to achieve greater price stability— is hard to oppose in principle. It is what the whole thing is about! But we think that the proper environment to achieve these ends calls for substantially less federal government action, not more. We also strongly endorse this panel's recommendation that "govern¬ ments at all levels should make greater efforts to improve their own productivity."
142
Critical Issues & Decisions
Dr. William H. Branson emphasized the macroeconomics of inter¬ dependence between the U.S. and the developing countries in the future, and he attempted to place in perspective the "bad" inter¬ national trade position of the U.S. today. His view is that the U.S. share of the market and our relative influence in world trade is only now returning to a more normal level. It is a mistake to expect continuation of the almost absolute dominance of the U.S. in the late 1940s and the 1950s, which was due to the destruction of much of the productive capacity of the industrialized nations. Therefore, we agree that it would be impossible for the U.S. to retain the level of dominance it once had and that our percent of the world market today may be close to that which we can normally expect.
Coincident with the slowdown in economic growth in the U.S., as Dr. Branson points out, is a worldwide slowdown in the growth of economies. He states that the rate of productivity in the world, generally, has fallen by one-half and nobody knows why. There are some statistical data that suggest this is the result of cyclical factors and that approximately every 50 years (again for reasons no one can determine) productivity rates decline generally.
Dr. Branson's conclusion that the U.S. economy in the futrue will be much more interdependent with the economies of the de¬ veloping countries seems reasonable and acceptable. He states that U.S. industry today is much more competitive in the world market than it was in 1971, but with a special difference. Market, and other forces, are pushing the U.S. more and more into product specializa¬ tion. He produced data to support his contention that the U.S. export of capital goods is growing faster than our Gross National Product. He also convincingly shows that much of this export of capital goods is going to developing countries from whom we import consumer goods and who borrow from OPEC countries to make up the deficit, if necessary.
As product specialization in the world market proceeds, the U.S. will inevitably become more vulnerable to the cutoff of trade from other nations from which we buy specialized products or raw materi¬ als. From a strictly economic point of view, we agree that it is ef¬ ficient for countries to specialize in what they produce best and to permit the market to freely determine that factor. However, for national defense reasons, we cannot permit particular industries
143
Critical Issues & Decisions
(e.g., the auto or ship building industries) to deteriorate completely or to the point where they could not supply minimum defense needs if the supply of such equipment is cut off from other sources.
The process of "specialization" in production and marketing is a natural and "efficient" response to free market operations. It is politically unfeasible to permit it to operate totally. This is true not only from a national defense view. Major social dislocations may occur as the result of industries, or major portions of them, dying. We do not believe that any significant changes can come about in the economy of the nation without social cost to some¬ body. How that cost and dislocation can be cushioned is a legitimate concern of the federal government, provided it is understood that it is not possible to protect every individual from the effects of such dislocations.
In the Federalist Papers , James Madison (writing as "Publius") explicitly stated that the Constitution was conceived as the basis for government by human beings— not angels. He and the other framers of the Constitution concerned themselves with structuring a government which would work in the presence of a great multi¬ plicity of interests, opinions and religious sects, in a way that would make it difficult for such groups to combine into an oppressive majority that could be sustained. The amendment process is one of the safeguards against major changes in our basic structure of govern¬ ment by "oppressive majorities," which hold together for a relatively short time.
Dr. Goldwin also makes a persuasive case that very few, if any, specific "rights" should be defined or guaranteed in writing in a Constitution, because every such explicit "right" requires the govern¬ ment to intrude into the private lives of citizens to assure it. He further concludes that "what really secures the rights of individuals is the denial of power to government." (The Constitution of the USSR is offered as an example of an extensive list of "parchment rights" which provides the government legal sanction to reach into "the totality of human activity" of its citizens.)
Probably in every decade of our nation's history, some set of circumstances has caused substantial pressure for changes in our Constitution out of frustration over the slowness with which our representative democracy works (which is one of the chief safeguards of individual liberty and rights) or because of some "clear and
144
Critical issues & Decisions
present danger." Time has, in most such instances, provided that the basic structure was sound for the long run.
We accept the view that the Constitution does not rely on virtue in public servants, or the general public, to work. Americans should continue to recognize and loathe immorality, wherever it appears. But this does not mean advocating the kind of moral extremism which would pronounce anathema upon every person or government that does not meet our collective standard of morality. We can eject from office, and otherwise punish, our own citizens for illegal or immoral acts; other nations present a different problem.
A a practical matter, we should neither ignore such conduct (which might prolong it) or take the extremist position and sever relations, cease economic or military aid, take sanctions, or, finally, go to war because of it. We should usually follow a middle course, sensitive to our long-term "vital interests," while working to ameli¬ orate the problem without taking extreme positions that in the long- run would endanger the liberty and human rights of Americans.
In conclusion, we face the future of the United States with con¬ siderable concern because of the magnitude, complexity, and stub¬ bornness of the domestic and international problems before us and their potential impact on us as government employees, and on our families. Yet we face that future with more optimism than in the recent past.
We cannot know whether the combination of actions and policies called "supply-side economics" will work effectively. We lack knowl¬ edge and facts to fully endorse the economic policy prescription offered. We feel the government should presently be considering "second-best" alternatives in case these economic policies fail to work.
We recognize that Administration spokespersons are unlikely to talk about alternatives, in case their solutions to our economic problems does not work adequately, at least not while they are try¬ ing to get it through the Congress. But we preseume that somebody in the Administration must prepare for contingency action if results fall far below expectations. That would not be disloyal; it would be judicious and responsible.
The nation is in an up-beat mood, which may well provide the unmeasurable, unaccountable something extra (of which economists seem so skeptical) that will return to us a sense of well-being and pride.
145
Critical Issues & Decisions
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Critical Issues & Decisions
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Critical Issues & Decisions
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Critical Issues & Decisions
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Podhoretz, Norman. The Present Danger. New York: Simon and Schuster, 1980.
Rogge, Benjamin A., Ed. The Wisdon of Adam Smith. Indianapolis: Liberty Press, 1976.
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Solzhenitsyn, Aleksandr. "Misconceptions About Russia Are A Threat to Ameri¬ ca," Foreigh Affairs (Spring, 1980).
Stannard, Harold. The Two Constitutions. Princeton, New Jersey: D. Van Nos¬ trand Company, Inc., 1949.
Steinfels, Peter. The Newconservatives: The Men Who Are Changing American Politics. New York: Simon and Schuster, 1979.
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1 , Washington, D.C.: Institute for Research on the Economies of Taxation, 1981.
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Valis, Wayne, Ed. The Future Under President Reagan. Westport, Connecticut: Arlington House, 1981.
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