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COVER REVIEW

Just How Sick Is Our Economy?

THE BOOM AND THE BUBBLE: The U.S. in the World Economy, By Robert Brenner, Verso: 294 pp. $23

June 23, 2002|JAMES FLANIGAN | James Flanigan is The Times business columnist.

Ever since the dot-com bubble burst in a cascade of bankruptcies in 2001, there has been a running debate over the "new economy." Was all the talk about information technology transforming industry and society real, or was it hype? Are we living through an economic revolution or simply another cycle on the old boom-bust roller coaster?

"The Boom and the Bubble" says the boom was more than hype but less than a lasting turn in the economy. In that respect, Robert Brenner offers a more scholarly analysis of the recent decade than most commentators who tend to overpraise or dismiss recent technological innovations. The merits of this latest ride notwithstanding, he concludes with the gloomy speculation that the United States is headed into another phase of the long economic downturn that he argues has held the world's capitalist economies in its grip since 1973, and that "a U.S. recession will set off an international recession." It is an unsettling prediction that may be premature.

If Brenner is right and the world is headed for serious recession, adequate returns on retirement savings may not be possible. That would mean living standards would not rise and aging Americans would have to postpone retirement. It would mean that poor countries would be stunted in development, and that the disorder of such developing regions as the Middle East would be exacerbated, not alleviated.

Yet Brenner, who completed his book before Sept. 11, was not able to factor into his analysis greater military spending by the United States, the recent shift to deficit spending, the re-entry of Russia to full participation in the global economy and other changes. It is nonetheless a prediction that demands our attention.

Brenner believes that the rising rate of productivity in the 1990s, which was at the center of the boom, was genuine, but no greater than the economy's performance in a similar period of the great upturn, 1948 to 1973. (Productivity is the achievement of more output from the same or less investment of labor or capital.) The post-World War II era, he writes, saw a historic advance in productivity in the U.S. economy. However, that period was followed by a long downturn--from 1973 to roughly the mid-1990s--in profit and productivity in the United States and other capitalist economies.

Brenner writes that the long downturn era to which the United States is returning may be the permanent state of the world's capitalist economies, saddled as they are with overcapacity to produce goods and lack of ability to produce profit and fresh funds for investment by the makers of those goods. He questions whether the vitality of the mid- to late-1990s--when profit and growth of real wages did better than they had done in the previous 20 years--"can be maintained over the medium to long term."

It's a good, if commonplace, question that has been asked before--during the great post-World War II upturn, during the downturn of 1958 and during the turbulent 1960s--and it runs against the predictions of those, including Federal Reserve Chairman Alan Greenspan, who have said repeatedly that, because of new technologies, industries are capable of increasing productivity more than they could historically.

But we won't know who is right for some time, Greenspan with his optimism about technology or Brenner with his skepticism. Productivity figures may have risen in the first quarter of 2002 but the numbers are something of an illusion, attributed to employers reducing their work forces, lowering investment and wringing more output from those fewer workers. It is a scenario that fits nicely into Brenner's thesis.

However, Brenner keeps a narrow focus on economic data, and "The Boom and the Bubble" seldom mentions issues of the changing world in the last 60 years that offer different and pertinent perspectives. In that way, the book shares the weaknesses of other economic analyses that have seen the world through a narrow prism. The 1990s produced hymns to progress, such as "The Long Boom" and "Dow 36,000," as well as prophesies of doom, such as "The Crash of the Millennium." The world is more complex than such books make it out to be, and so is the immense U.S. economy.

First, the great upturn starting in 1948 followed more than a decade of Depression and half a decade of world war. Investment in military technology during that war and in the military-industrial complex during the Cold War changed the world and the position of the United States.

Brenner almost never refers to military spending as the foundation for the U.S. economy, but surely it has been one. To take one example, defense research spending led in 1958 to the development of the integrated circuit, the more capable transistor that is at the heart of every machine used today. Such circuitry made possible smarter machines in factories, not only in the United States but around the world.

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