Two economic statesmen chart paths to recovery
Henry H. Fowler, a former secretary of the Treasury, and Paul W. McCracken easily rank as senior statesmen in the economic area. Mr. Fowler, chairman of Goldman Sachs International Corporation, and Dr. McCracken, a professor of economics at the University of Michigan, are also cochairmen of a national nonpartisan commission that has as one of its goals the restoration of United States competitiveness, innovation, and productivity.Skip to next paragraph
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In an interview, the two explain the background of the current economic crisis and suggest routes for a return to a healthy economy.
Make sure there are adequate resources to deal with the problem of developing-country debts, and soon, they both urge. Mr. Fowler has a formula for reducing the US budget deficit. Dr. McCracken wants business activity in the industrial world ''moving upward a little more rapidly,'' but without boosting inflation.
Here's what they said:
What is the nature of today's present economic crisis?
McCracken: It is a compound of several things. The industrial nations of the world did allow public government claims on economic resources to rise far too rapidly, particularly in the decade of the '70s. You have countries like Sweden, for example, where government outlays relative to GNP (gross national product) are starting to crowd 70 percent and the ratio is still rising.
This, together with sudden shocks, such as the oil shock, even going back to the collapse of the Bretton Woods (monetary system), did weaken the checks to inflation. So we moved out of the 1970s and into the 1980s with a serious inflationary problem.
There was going to be no painless way of dealing with that problem. The kinds of moves toward restraints which were essential were bound to have as side effects an interlude of sluggish employment and business activity.
Compounded with that are some of the international financial problems. The challenge the industrial world faces is to try to find a narrow path here, getting business activity in the industrial world moving upward a little more rapidly without at the same time just starting us off on another trend toward inflation. I think that can be done.
Fowler: As I see it, it's a mix of two problems which are closely interrelated and, unhappily, are recurrent in the economy over the last decade. The industrialized democracies or developed countries lost the healthy mix of job-creating growth in a non-inflationary pattern without losing reasonable price stability. They lost that mix which roughly characterized the dynamic period of the '50s and the '60s . . . and which had its first manifestation in a serious outbreak of global inflation.
This was exacerbated by the oil crisis. In the wake of the oil crisis, expanding deficits in the balance of payments - particularly of the developing countries, but not confined to them - brought an increase in the reliance on the part of governments to handle their balance-of-payments difficulties by external borrowing, particularly in the nonregulated Eurocurrency and offshore capital markets.
And although there was a measure of recovery from the recession that followed the first outbreak . . . of double-digit inflation in 1973-74 - the recession of '75 was not too rugged and we recovered from it - we went back into another phase which eventuated in a second explosion of double-digit inflation. This naturally resulted in the imposition of monetary restraint and brought on the recession or the stagflation over the last 2, 21/2, years, at a time when developing countries in particular were still greatly expanding their reliance on the international private banking structure.
This eventuated last summer in a kind of a recognized crisis which is now well known. It has required the intervention of government, such as the United States and its principal allies - the IMF (International Monetary Fund) and central banks - to join hands . . . with the private international banking system in inaugurating a workout process which would, in connection with IMF loans, put in place long-overdue adjustment programs. Those adjustment programs are now in place in connection with IMF borrowings in countries such as Mexico, Brazil, and Argentina.