THE Shelbys are a typical American family of four. Despite all you hear about household disintegration, there still are descendants of ``Leave It To Beaver'' families loose in the land. Only both parents work now. The Shelbys (not their real name) have a mortgage almost one-third paid off. They are nearing the end of a car loan (and, they say, the car). Their other car is paid for. They've got some temporary MasterCard debt. College tuition bills will be starting in six years, an as-yet-unknown but sobering total. The Shelbys have also thoughtlessly rung up another nearly $10,000 in debt for nothing at all. Not for a remodeled kitchen. Not for a third car, or root canal work.
Well, maybe it's not exactly for nothing at all. They have borrowed the $10,000 over the past six years without really noticing - for taxes cut without reducing federal services. That's the effect of the $955 billion added to the national debt in fiscal years 1982-86, catapulting all of us from $1 trillion to $2 trillion in federal debt.
It's the Shelbys' daughter and son who are going to end up paying back much of the interest and some of the principal on that loan. They will have to pay back interest to foreign lenders. They will have to pay an even bigger price - selling off their ownership of the nation's businesses to foreign buyers. They and most Americans will also have to pay some other costs for this decade of living beyond the national income and borrowing from the rest of the world. They are going to discover that it was not the yuppy generation, but their parents who were the bigger Me Generation in terms of spending and nonsaving. This discovery will occur when they near retirement age. Then they will almost certainly find that, after paying a heavy tax for the social security benefits of their parents' generation, they will either receive lower social security benefits or become eligible at a considerably later age. Even now, all of us are reaping the results of lower investment than normal in more modern plants and equipment. That means less efficiency, lower productivity, less competitiveness - ultimately a lower standard of living until the slippage is corrected.
The national catch-up becomes increasingly costly and difficult as more factories and offices in more countries learn to become more efficient competitors. The United States recovery can, of course, be accomplished. A nation with America's educational, research, and entrepreneurial assets can make major comebacks when its citizens understand a problem and are determined to work on it. But it isn't just going to pop into place when the falling dollar hits bottom for this cycle. President Reagan and Congress need to agree on a genuine (and orderly) deficit-cutting program. It is not yet clear how well that will start, for even one year, as the two branches haggle over cutting the defense budget and raising federal fees or taxes.
Why, you may say at this point, are you telling me about businesses failing to invest enough in modernizing and falling productivity; then talking about the federal government's deficits? Aren't the two in different sectors?
Different sectors, yes. But connected to the same money tree. Just look at some statistics and analysis from Prof. Benjamin Friedman of the Harvard economics department, whose research supplied much of the basis for this column.
``Since 1981,'' Dr. Friedman says, ``the government's borrowing has absorbed nearly two-thirds of all the net saving done by American businesses and individuals. As a result, real interest rates [adjusted for inflation] have been at record levels on average throughout the decade,'' making it so expensive to borrow that investment for modernizing industry ``has averaged just 2.3 percent of US total income'' - less than in the 1950s, '60s, or '70s.
That's discouraging. But so is the obverse side of this 1980s equation. It was a golden time for Americans to save (at least for the bulk of Americans who were not hit by the effects of the deep recession at the start of the decade). Remember, real interest rates (rates minus inflation) were high - a big incentive to save. Remember, too, the tax cuts of 1981-82 that left more take-home pay. Remember, also, the added incentives of IRAs (individual retirement accounts) and 401K (office pension plans) shielded from taxes. Look at the skyrocketing stock market after 1983. Look also at an unusually attractive bond market as inflation and interest rates fell.
And yet, with all this stimulus to save and invest, the already low personal savings rate went nowhere, even went down.
Then the jiggery-pokery of the tax-reform act of 1986 made matters worse by ending the IRA incentive, limiting 401Ks, ending the investment tax credit, and pinching back depreciation benefits for new plant and equipment. It looked as if Washington refused to believe in investment despite the politicians' belated discovery of ``competitiveness.''.
Professor Friedman has done extensive research on the patterns of the principal sources of national debt. Boiling down his findings, one sees that all the major categories of nonfinancial borrowers except farmers increased their levels of indebtedness between 1980 and 1985. That includes households; businesses; and state, local, and federal governments. Historically these principal groups of borrowers have tended to compensate for one another's swings. If for example, governments borrowed more, households borrowed less, so the national totals remained fairly steady until the '80s.
The cumulative effect of having all sectors increase their borrowing simultaneously (except for a minor farm aberration) has left this period with the highest national debt ratio of the century except for the initial years of the Great Depression (1931-35). And the decline of the already low household savings rate has removed even that cushion against national indebtedness.
There are some obvious remedies, none politically easy. One is some form of national consumption tax. The lesson of the '80s appears to be that neither federal incentives nor market incentives are enough to break the American habit of living on credit and saving little in comparison to Europeans and Japanese. Perhaps a consumption tax would accomplish what the incentives did not.
But Friedman says one should not count on a rapid increase in private savings. The most mundane but logical approach, he believes, is methodically to tackle the federal deficit problem. And that probably means higher taxes. Otherwise the alternatives appear to be hidden taxes on Americans - either from inflation or declining real earnings or both. Earl W. Foell is editor in chief of The Christian Science Monitor.