prosperity by reversing the maldistribution of incomes that had dominated the 1980s. Neither Congress nor the President nor the Federal Reserve, neither Republican nor Democrat, was inclined to embrace this remedy. The idea of progressive distribution of incomes was as passd in the “go-go eighties” as it had been in the “roaring twenties.” Old lessons, learned so painfully in past crises, were now forgotten. Paul Volcker towered above the pedestrian ranks of politicians and public servants. His stern brilliance intimidated them and his strong-willed expertise outflanked them. Like all mortals, Volcker was fallible but his errors were barely noticed. The Federal Reserve chairman, the men and women of his institution, had accomplished the great goal they had set for themselves in 1979. Indeed, they had achieved much more than most people, including themselves, had thought possible. In a relatively few years and despite an expansionary fiscal policy, the decision makers of the Federal Reserve had brought the rate of price inflation from 13 percent to the practical equivalent of zero. It was a great victory. The triumph was hollow, however, for the nation. Its moral promises to the victims were not kept. For the entire society, its predicted benefits were not realized. Paul Volcker and the central bank had taken the country and nations around the world through great suffering—the long contraction and its human tragedies, massive failures, dislocated lives, the pain of the continuing liquidation and the losses of deflation. The moral justification offered throughout was that the pain would be worth it. From bankrupt home builders to displaced factory workers, people were told that their sacrifices were necessary to the general good that would come from them. That conviction sustained Volcker and his colleagues as they had to make the nasty decisions and it reassured public opinion too. On the other side of the temporary suffering, the economy would emerge stronger and more stable, better prepared for a long-running prosperity in which all could share the benefits, if they were willing workers. This moral promise, in the end, could not be kept. The suffering and dislocation, for one thing, proved to be continuing, not temporary. Furthermore, the sacrifices did not lead to anything resembling what the victims had been told to expect. Once money was stabilized, the economy still faced the same underlying problems it had encountered in the era of inflation—only they were now more severe. By every meaningful indicator, America’s economic performance continued to decline in the decade of the 1980s, notwithstanding Reagan’s and Bush’s claims of grand prosperity. In truth, the 1980s fell far short of what the economy had accomplished in the inflationary 1970s, an era widely described as disappointing. Expansion of economic output in the eighties was roughly one-third less than real economic growth during the previous decade. Real disposable incomes grew more slowly and so did the creation of new jobs. Productivity gains, already weak and troubling in the seventies, were slightly worse in For most of its 200 years, America had successfully evaded the contradiction capitalism. The nation was able to honor both with healthy economic growth. the eighties. Unemployment was persistently higher than ever before. The proportion of citizens living in poverty increased accordingly. There was only one exception to this bleak picture: prices. Price inflation was gone. The claim that this change would unleash positive forces in economic performance was simply not confirmed by reality. Volcker continued to believe that, given time and the gradual eradication of the various weaknesses, stable money would deliver what he had promised. In the meantime, certain people would have to settle for less. It would be good for them. Disinterested observers could look at the facts and reach a gloomy conclusion: whatever was fundamentally wrong with the U.S. economy, it had not been fixed—not by Ronald Reagan’s supply-side economics and not by Paul Volcker’s “hard money.” In many ways, these policies had compounded the underlying ailments. The long-term trend line for the American economy was more ominous now than it had been in the 1970s. From the sixties onward, each succeeding decade produced slower growth, higher levels of permanent unemployment and declining real wages, less progress on capital formation and productivity. For many years, all these portentous developments had been blamed on inflation. Now that inflation was gone, it was obvious that something else was responsible, deeper problems in the aging economic structure that remained unattended. The public was told—and evidently believed—that Paul Volcker and the Federal Reserve had saved the American economy. (Volcker resigned as chairman of the Federal Reserve last year, saying he wished to return to his lucrative career on Wall Street. Reagan appointed Alan Greenspan to the post, who seems to generally uphold Volcker’s policies but with a bit less emphasis on curbing inflation.) In truth, the economy was led into greater weakness and graver peril. In fact, altogether, the government in Washington had done great damage to the citizens at large and to economic enterprise in general. Yet the government evaded the moral question that arose from its actions. If the economy was not healthier, if the supposed benefits of stable money had not been realized, then what would the government say to all those people who had been sacrificed? Money was a veil, just as economists said, but what it concealed was the deeper political conflict among classes of citizens. The money question was the political expression of a struggle over shares. When economic growth languished, when the economy persistently disappointed expectations, different groups and interests naturally fought over the dwindling returns, over who would hold onto their shares and who must accept less. In a practical sense, that was all tITat had happened in the 1980s—a political struggle over diminishing shares. And the creditors with accumulated wealth had won. Their capital was replenished and amply compensated for their earlier grievances against inflation. They held the high ground now and would not yield until forced to do so. For most of 200 years, America had successfully evaded the contradiction between democracy and capitalism. The nation was able to honor both, so long as it managed to maintain the constant of healthy economic growth. If the broad landscape of work and incomes was expanding generously, distributing new rewards broadly, questions of who owned wealth and other disparities seemed irrelevant to the general prosperity. Economic growth, as many politicians understood intuitively, was the safety valve that relieved the tension between wealth and wage earners, the inherent conflict in democratic capitalism. The American contradiction grew glaring, however, when the economy failed to grow robustly. Gradually, but inevitably, the disappointed expectations would feed the conflict between classes, as larger and larger groups of people were compelled to accept smaller shares of prosperity or were left out altogether. Many citizens of influence, led by the wealth holders, were quite content with an economy that grew but slowly. Their own lives went forward prosperously, oblivious to the social deterioration that was underway around them. In time, however, if stagnation persisted long enough, they too would find themselves engulfed by the consequences—bitter social divisions and a vengeful politics aimed at wealth itself. The unanswered question posed by the 1980s is whether the United States has already entered into such an era. William Greider is the author of The Education of David Stockman and Other Americans. He writes about politics for Rolling Stone and is a former assistant managing editor for national affairs at The Washington Post. Twin Cities artist Stuart Mead is a frequent contributor to the CSO. Connie Gilbert is a Twin Cities graphic designer and artist. From Secrets of the Temple by William Greider, © 1987 by William Greider. Reprinted by permission of Simon & Schuster. This January Touchstone will release a paperback edition of the book. Clinton St. Quarterly—Winter, 1988-89 15
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