Comment: Boom Box

This month, the economic boom enters its 107th month, making it the longest expansion in U.S. history. But there are now two small clouds on the economic horizon. With the economy having grown in the fourth quarter of 1999 not at the 3- or even 4-percent annual rate that most economists now consider sustainable, but at 5.8 percent, the Federal Reserve will try to temper the economy's growth. And just to give the Fed ammunition, the oil exporting countries have lately succeeded in restricting output and raising the price of crude oil, which filters through to the measured rate of inflation. Nothing scares central bankers like inflation, never mind whether it has any connection to domestic economic "overheating."



The growth rate has soared to levels not seen since the 1960s because the new economy really is new. Technology that took more than two decades to gestate is finally bearing fruit in higher productivity, in applications as diverse as retail sales, manufacturing, scientific breakthroughs, and data processing of banks and insurance companies. Higher productivity means the economy can sustain higher growth rates without inflation.



In addition, increased economic competition has damped down price pressures. In this economy, sellers have a much harder time making a price increase stick. With more outsourcing domestically and globally, wage and salary workers have trouble extracting raises, even raises justified by higher productivity. All of this allows higher growth rates and fuller employment without inflation. But it also widens inequality.



Historically, every other economic expansion ended when the Federal Reserve overreacted to some perceived threat of inflation, real or imagined. Alan Greenspan is different from other recent Fed chairmen because he seems willing to wait for actual signs of economic overheating before he slams on the brakes. The current inflationary signals are largely false; they are the result of purely sectoral rather than macroeconomic forces--OPEC temporarily getting its act together, health insurance costs rising with technological advances.



Deciding to let the economy realize its full growth potential seems a no-brainer. The harder question is how to reconcile the new economy with greater equality. In the past, a socially bearable distribution of income resulted from a stronger set of equalizing institutions: Government wage regulation and support of unionism increased labor's bargaining power. The economic regulation of key industries such as airlines, phone companies, and banks meant that companies did not need to increase profits by outsourcing work. And the relative isolation of the United States protected American workers from cheaper foreign competition. In this context, full employment could produce a more equal society as well as a richer one.



But in the 1990s, the ratio of family income of the top 5 percent of households to the bottom 20 percent has widened from 15-to-1 to 20-to-1. This widening of inequality during a boom is unprecedented. How to narrow the gap is a special challenge in this new era because many of the causes of wider inequality seem intrinsic to the new economy. Whether one believes in human capital remedies (more spending on education and training), subsidy remedies such as the Earned Income Tax Credit, or regulatory remedies (increased wage regulation and greater support for collective bargaining), it is hard to imagine progress toward greater equality without greater reliance on the public sector. Higher growth by itself is necessary but no longer sufficient to raise those at the bottom. Alan Greenspan and his colleagues should let the good times continue, and we should spread the benefits with increased social investment.







Contagion



The United States recently found itself isolated and embarrassed at the international talks on biosafety. The Cartagena Protocol, signed on January 29 in Montreal, allows countries to restrict imports of genetically modified products deemed harmful to the environment. It also requires labeling to identify which products are bioengineered.



Every other major nation has sought safeguards against genetically engineered foods. Europeans, in particular, are concerned that grains and soybeans that have been genetically altered might have harmful effects on nutrition, health, or the environment. The U.S. government and its agribusiness allies have ridiculed these concerns as either hysterical or a self-serving cover story intended to protect subsidized European agriculture. American multinationals, such as Monsanto, only fanned the flames when they introduced, then withdrew, seeds deliberately bioengineered to be sterile after the first generation. The idea was to force buyers to keep coming back to Monsanto to buy seeds. Not surprisingly, this spurred both humanitarian outrage and concerns that such seeds might contaminate other species.



These worries are not confined to a lunatic fringe. The rejoinder that we've enjoyed "hybrid" agricultural products for centuries misses the point. Genetically altered foods contain a new risk: A species that has been modified with foreign genes, making the crops resistant to herbicides or pests, might contaminate other species. We might end up with insectresistant weeds.



The larger issue here, of course, is sovereignty. The U.S. government has been calling for nations to subordinate their sovereignty to a new globalism. But what goes around, comes around. True globalism would mean that the United States sometimes gets outvoted, even that American multinationals are occasionally fettered as well as liberated. The view of the American government and its corporate allies is not, invariably, the scientifically sound view. And many questions are inherently political, not technical.



Lately, the drug industry has upped the pressure on the U.S. Customs Service to block American consumers from purchasing mail-order prescription drugs from countries where drugs are cheaper to consumers as a matter of public policy, such as Mexico, Thailand, and China. The drug companies claim violations of intellectual property.



Globalism, it turns out, does not mean self-executing laissez-faire, but a far more complex and contentious search for common rules in the absence of a global sovereign. After a time, the world's citizens may well decide that we want to reserve large areas of public policy for national sovereignty, where issues are at least subject to direct democratic deliberation.






Crime Busters



Crime rates are sharply down in New York City, which adopted a policy of getting tough with "quality of life" offenses. The middle class feels freer to take the subways and enjoy the parks. This bodes well for Mayor Rudy Giuliani.



However, crime rates are also down in Boston, where liberal mayors Ray Flynn and Tom Menino have lately been in charge. Boston has had no comparable shift in policing strategy. For that matter, crime rates have plummeted in Philadelphia and Chicago, both governed by centrist Democrats, and in Los Angeles (conservative Republican), Detroit and Seattle (liberal Democrat), and Burlington, Vermont (socialist).



Clearly, something other than get-tough mayors is at work here (though mayors of all stripes happily take the credit).What really explains the decline?



David Anderson, a veteran writer on criminal justice and contributor to the Prospect, observes, "While defeat is an orphan, success has a thousand mothers." Obviously, if crime is dropping nearly everywhere and local policing policies vary widely, Giuliani did not produce New York's declining crime rate.



Here are several other candidates: Many observers consider the burning out of the crack epidemic to be a leading factor. Like everything else in America, drug use has fads and goes in cycles. After several years, it became clear even to fairly desperate people on the street that crack was truly bad stuff.



Another fascinating hypothesis is that the violent crime rate declined about a generation after Roe v. Wade because a lot of unwanted children were never born. Fewer 18- to 24-year-olds, other things being equal, mean fewer violent criminals, since these are the prime years for commission of violent crimes. Birth rates declined in the 1970s and 1980s for other reasons, leaving relatively fewer young adult males in the 1990s.



Yet another suspect is the improving economy. With unemployment dropping throughout the 1990s, most dramatically in inner cities, it would be surprising if urban crime rates did not decline.



Of course, get-tough laws may also have had an effect. The period of declining crime rates corresponds to a period of three-strikes laws and other strict sentencing guidelines, a widely touted war on drugs, a trebling of the federal prison population, and get-tough-with-immigrants measures as well as a mild tightening of gun control restrictions. However, most of the increased prison population is made up of low-level drug offenders. And judging by the street price of hard drugs and their easy availability, neither the lock-'em-up policies nor the drug interdiction measures have had much effect on, say, heroin use.



Most likely, all of the above share the credit for less crime. But it is hard to sort out which policies have had how much impact. Broad economic and demographic trends rather far removed from policing may well have had more of an effect than criminal justice policies.



Even policy wonks should admit that policy can only do so much. Conservatives used to excoriate liberals for the sin of "social engineering." Now it is conservatives who are the social engineers. They just envision a different, more coercive, set of policies.



Maybe we need a public-policy counterpart to the Alcoholics Anonymous prayer, itself a variation on a favorite saying of the great liberal theologian Reinhold Niebuhr: Grant me the serenity to accept realities I cannot change, the courage to change policies I can, and the wisdom to know the difference. ยค

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