Economy's Problems Have Long Gestation
Dec. 02, 1991
NEW YORK (AP) _ The economic debate has become red hot emotionally, highly politicized and deeply confusing, and with an election year coming up it is likely to intensify on all these fronts.
In such a situation the incumbent president becomes the lightning rod for emotions, and whatever financial and economic problems exist are likely to be attributed to him, as if they suddenly developed on his four-year watch.
Lost in debate is the dimension of time. Problems that took years to develop, such as budget deficits, wage stagnation and low savings, are expected to be resolved quickly, even in one-tenth the time of their gestation.
The growth rate of America's gross national product, or total production of goods and services, has slipped decade by decade since the 1940s, when the real annual growth rate was 4.5 percent, based on average compound annual rates.
''Real'' is a term used to make time comparisons valid by eliminating the effect of inflation. It is generally done by measuring different periods with the same or constant dollars, rather than ''current'' or changing dollars.
Using the 1982 dollar, that 4.5 percent annual rate of GNP gain in the 1941-1950 period was followed by 3.3 percent in the 1951-1960 decade and 2.8 percent in the period 1971 to 1980. From 1981 to 1990 the gain was only 2.7 percent.
In short: While there have been some very good times as well as poor times over the past half-century, some economists may argue that there has been a slow deterioration in the economy's ability to sustain growth.
You will find many explanations. Many analyses concentrate on inflation, deficits, interest rates, competition, poor management, poor education, misuse of capital - all of which contribute to lowered productivity gains.
Whatever the reasons or combination of reasons, similar trends are apparent in various areas of the economy, as revealed by the data base of Wright Investors' Service, an economic research and portfolio management firm.
Industrial production gains, for example, soared in the 1940s because of World War II, settled back sharply in the 1950s, rose again in the 1960s, but then plunged in the 1970s and 1980s.
The rate at which the economy utilized manufacturing capacity fell to 79.7 percent in the 1980s, the lowest since World War II. The 7.1 percent average level of unemployment in the 1980s was the worst since the unlamented 1930s.
As most people suspect, budget deficits grew as the war ended. As a percentage of gross national product, the 1950s average annual deficit was 0.3 percent, followed by 0.8 percent in the '60s. The 1970s average was 2.3 percent; the 1980s, 4.2 percent.
Interest rates rose during the period, sometimes slowly but often explosively, especially in the 1970s and 1980s.
Many people are astonished to find the prime lending rate, said to be the lowest bank rate to top corporate customers, was a mere 2 percent in 1949. Now, after five cuts in a year, it is 7.5 percent, less than half the 1981 annual average of 18.8 percent but between three and four times the level of 1949.
Budget deficits? Nothing new. We haven't had a surplus since 1969. Matters worsened drastically in 1983, when the deficit reached 6.1 percent of GNP. It improved to just 2.9 percent in 1989, but now it is soaring again.
End Adv PMs Monday, Dec. 2