Liberalism in Crisis

TheCanadian Review of American Studies, Volume VIII, Number 2, Fall 1977 Liberalism in Crisis Walter W. Heller. The Economy: Old Myths and New Realities. New , York: Norton,1976.224pp. NeilW.Chamberlain. Remaking American Values: Challenge to a Business Socie~y. New York: Basic Books, 1977.193pp. Alvin Finkel Notso very long ago it was believed that the neoclassical synthesis of ; market principles with Keynesian fiscal and monetary thought had solved i thedilemmathat seemed to pull capitalist economies into periodic depressions during which men and machines sat idle. The moderate nature of theswings of the economic cycle after World War II were a welcome contrast totheinter-war experience which had produced successively: a post-war 1 depression until 1923, a previously unparalleled economic expansion from 1924 to 1929,and a decade of depression that only world-wide mobilization i forwarwas able to end. But the 1970's have jolted the theorists of a new crisis-free capitalism: mild inflation has not been alternated with mild ii' unemployment. Instead an ever-higher rate of unemployment has coexisted with immoderate inflation. The end of the neo-classical economic miracle ,,hasalsocreated many problems for liberal ideologues in the United States, anxious that the failure of government intervention to continue to smooth outthe economic cycle not lead to a reduction in such intervention and areturnto the ante-bell um status quo. WalterHeller, former chairman of the Council of Economic Advisors underPresidents Kennedy and Johnson, is a liberal economist who fears / t~ata set of conservative myths ·is producing a backlash against the "interventionist" or "'welfare" state that has emerged in post-war America. The Economy:Old Myths and New Realities, a collection of articles from 1973 to 1976for the Wall Street Journal and for Congressional committees, :ittempts to debunk the economic arguments that were used by the Nixon :mdFord administrations to cut public spending - and with it public services 230 - and to allow unemployment to reach the highest levels since the Great 1 Depression. In particular, Heller takes great pains to demonstrate that government spending is not the cause of inflation and that indeed the alleged prolifigacy of the American Congress is a well-orchestrated distortion: created by vested interests. 1 , Heller notes that from 1953 to 1973, contrary to public perceptions-of! an ever-growing federal spending, "the federal budget as a proportionof\ GNP held in the neighborhood of 20 per cent" (p. 158). Public debt dropped , dramatically between 1950 and 1976 (p. 158) and, though it rose slightlv. between 1974 and 1976, the_increase was entirely attri~utable to tax revenu;s I lost as a result of the recession and to pay-outs necessitated by the "cyclicalI ly-responsive outlays" such as unemployment insurance and food stamps 1 Furthermore, despite the cries of the conservatives, the United States r remains the country of the highest labor productivity and the country with i the lowest annual increase between 1970 and 1974 in unit labor costs. Concludes Heller: I One hesitates to fix the blame for the retrograde movement in the economic educatwn ; and knowledge of the American public. Much of it stems, as it has from time immemorial, from the self-serving efforts of particular groups to "sell" particular policies, pos1tioni. I preferences and prejudices. Note how many of these positions serve biases toward smaller· government, toward cutbacks in federal spending, toward tax reductions for businessand preferential tax treatment of capital investment, and toward restrictive fiscal and monetan policies. (pp.160-61) · I Heller is undoubtedly correct in his refutation of the business community';? convenient myths that workers' wages and outlandish state expenditures, have caused inflation and the resulting unemployment supposedly needed to dampen it. Workers do not have control over the job-creation market and the business argument ultimately is one of shifting blame from those who do have this control - the employers - to the victims of both inflation' and unemployment, i.e. the workers themselves. In any event, only a police state can restore the "free market" in labor and, as Heller notes, the: conservative economists, led by Milton Friedman, have become enamored l oflate with the military dictatorships of Latin America (pp. 59-65). I But Heller is historically inaccurate in...