Fat Years and Lean:
the American Economy Since Roosevelt.
288 pages. $22.50.
Polls show a majority of Americans believe the nation already is in recession. That makes it a particularly good time to read this book, as one of Bernard Nossiter's basic contentions is that the federal government has the means, if not always the vision or desire, to end economic downturns.
How? By spending money. That basic Keynesian notion -- increase government spending to stimulate the economy in lean times, cut back when the economy is humming -- took on some tarnish in the Reagan years. But Mr. Nossiter remains a steadfast advocate of a large government role in keeping America's factories active and Americans in jobs.
In this history of U.S. economics since the Depression, Mr. Nossiter focuses almost exclusively on the government's role in maintaining economic growth. Perhaps because of that focus, he sometimes overstates the case for the government's ability to fine-tune at will an increasingly complex and globally interdependent economy.
Mr. Nossiter begins this survey with President Herbert Hoover's reaction to the Depression, and finds some good things to say about the man who usually plays the heavy in the popular view of what went wrong in the 1930s. "In the depths of the Depression, Hoover left as a legacy some notable institutional innovations that the New Deal later embraced," Mr. Nossiter writes. But he adds: "If he anticipated some New Deal notions, he often lacked the will to act on his own ideas."
Obsessed with balancing the budget despite the economic downturn, welcoming trade restrictions passed by Congress, and failing to offset tighter monetary policy, Hoover had policies that made worse an already bad situation. Meanwhile, the man )) generally credited as the nation's great savior from the Depression, Franklin Delano Roosevelt, did little in his first term to break with Hoover's legacy. Mr. Nossiter says that even with Roosevelt's "belated conversion to the doctrine of aggregate demand, the New Deal failed to end the Great Depression." He breaks no new ground in noting that it took World War II to do that.
In a chapter devoted to the economic providence of large military outlays ("Keynes Armed"), Mr. Nossiter offers some interesting reasons why it has been the military -- rather than, say, education or mass transit -- that has been the main beneficiary of federal largess since World War II. "The central point is that civilian spending not only lacks support, it provokes strenuous opposition. . . . Moreover, Federal spending in most civilian sectors must compete with private concerns or at least threaten them with regulation."
Mr. Nossiter's overriding point is that the federal government, through increased outlays on guns or butter, has the wherewithal to create "aggregate demand," putting spending money in somebody's pocket. Only when faced with such increased demand will businesses expand productive capacity and employment.
But even now the economy stumbles despite massive budget deficits. And Mr. Nossiter gives too little weight to the debilitating impact of inflation, often tied to excessive government spending and an overly expansive monetary policy. He writes, "The less sophisticated insist that if a household must pay its debts or go bankrupt so must the government. But the government is not a household, it is sovereign and can print money. . . . Why then didn't the Reagan deficits bring about full employment? . . . The simple answer is that Reagan's deficits were too small, not too large."
Mr. Nossiter states his case clearly and offers logical support. But he limits the factors that private businesses weigh when deciding whether to invest in new plants and personnel. Discussing the "stagflation" of the early 1970s -- that deadly combination of high inflation and low growth -- Mr. Nossiter criticizes the back-and-forth government policies instituted to battle that economic fatigue. "Investment is likelier to increase steadily when government ensures demand, when high employment is the goal." But spending freely and printing money when inflation already is high will erode, not bolster, business confidence and will lead to higher interest rates. Why take the risks inherent in expanding productive capacity when money parked in Treasury bills can earn double-digit interest rates?
Mr. Nossiter at other points acknowledges the dangers of inflation. He says President Lyndon Johnson's "failure to attack the Vietnam inflation drove the economy to its lean years."
He does spend a good portion of the book nicely detailing what he sees as deliberate policy moves in the Reagan years to create an economy of slack, making workers frightened for their jobs and generally transferring benefits from the poor to the rich. He is surely on target when he decries government economic policy aimed at helping those already most able to help themselves.