The US economy -- alive and kicking
I am indebted to the Economist of London for a piece of comparative information which strikes me as particularly interesting. According to that excellent newsweekly the American automobile industry during the next four years will be spending on new equipment to produce smaller, more fuel-efficient automobiles more money than NASA spent to put a man on the moon.
Add that sales of these new cars are picking up to the point where all three of the American majors turned a profit during the last quarter.
Even if that profit showing was partly done by tricks of accounting it does seem that Detroit has turned the corner, cut its losses, cut out obsolete and inefficient plants, leaned itself down, and is now a modern, efficient, and competitive industry. Even Chrysler, the weakest when the change came, is showing a profit. It has been coming up faster than the other two -- although it also had farther to go to catch up.
The turnaround in Detroit was not done painlessly. When the old plants with obsolete equipment were closed many a redundant job went, too. Employment in the industry is down by 40 percent, from a top level of about a million to around 600,000 now.
But the change has been done out of private capital -- except for the government loan guaranty to Chrysler. Other than that, this was a case of an American industry renewing itself. It was slow in seeing the handwriting on the wall. Had it modernized itself in time it would have been able to become competitive gradually and with less pain. But, when faced with extinction, it could and did renew itself.
So, the American automobile industry is alive and kicking, and ready for better years ahead.
There have been other signs of vitality in the American economy, but perhaps even more important is the evidence of a slowing of inflation. Headlines talk about a recession, but here in New England we are going through something almost like a boom. Employment is high. Business is briks. Boston is overcoming its financial problem. The cutting down of property taxes which the voters mandated last year has not bankrupted the city, or the state. The politicians are looking to other sources for revenue, and giving up a little patronage. Both city and state governments are apparently getting less inefficient under the pressure.
A big change over all the United States is in the pattern of wage rises. Chrysler employees took a big cut in their expectations in order to keep the company going. They got profit sharing instead of wage rises indexed to inflation. If others followed suit, it would be a gain against inflation.
In Philadelphia the employees of the Bulletin decided that jobs for some, also at reduced expectations, was preferable to jobs for none. The Bulletin is to survive. In other words, the wage rise is being checked by economic facts. Labor is adjusting, not always willingly, of course. The air traffic controllers have had to learn the hard way that the Reagan administration is serious about holding the line against massive rises in wages and expectations.
In Washington the Star is gone and that is a great pity. But evening newspapers have a hard time these days competing with television for the audience, and for the advertising revenue. The wonder is that the Bulletin thinks it can hold enough customers and revenue to stay afloat. But of course there are casualties in an economy which is constantly adjusting to new technologies. The profits and jobs which were once provided by evening newspapers are now more than offset by television networks. Cable TV is thriving, making money, and providing new jobs.
Some politicians wishfully foresee failure for Reagan economics, and so do many economists. It is by no means a sure thing that the US is going to get on top of its recent economic woes. But if enough industries do modernize themselves as Detroit has done, and if enough plain people start thinking that the corner is turned and inflation finished -- well, expectations have a lot to do with results.
I would not want to try to prove that President Reagan has done all the right things. But I am not going to be surprised if the US economy turns out to be healthier three years from now that it is today.