The Economy: Insights from the Outside

"There have been four U.S. recessions in less than 15 years: no other advanced country has had so many. Moreover, although they have generally been milder than prewar downturns they have by no means been insignificant: they have certainly been more serious than any experienced in Western Europe since the war." Thus, in the current issue of London's Westminster Bank Review, British Economist Christopher W. McMahon, 34, enters upon "a longish look backwards and forwards" at the U.S. economy—and his foreign view proves that in economics as in a fast-moving football game, things often look different to the spectators than to the players.

Economist McMahon, an Australian-born fellow of Oxford's Magdalen College, identifies three common and conflicting views of the U.S. economy:

1) The Panglossian* (or Eisenhower Republican) view, which holds that the economy is "wonderful, flexible, resilient, dynamic, self-operating and cornucopic";

2) The Puritan, which finds the economy of mass affluence "irredeemably unregenerate, lurching wastefully and precariously along, propped up only by armaments, tail-fins and payola";

3) The Perfectibilitarian (or Kennedy Democratic), which argues that the economy's ills "stem from bad policies of the last Administration and that now with new policies they will disappear."

Down with Durables. The Panglossians, says McMahon, can point out that three of the four U.S. recessions since World War II were due to special causes such as the post-Korean cuts in defense spending or the distorting effects of the 1959 steel strike. They can also boast that in boom and bust alike, personal spending on nondurable goods as well as local government expenditures have risen virtually continuously; yet "the U.S. has not suffered particularly severely from inflation." The Puritans, on the other hand, argue that U.S. consumer wants are sated and that the only hope of reviving demand "is through the advertising agencies—discovery of new gimmicks, creating new wants, fostering obsolescence, etc." (But some Puritans, McMahon adds wryly, "primly reject this lifeline, preferring, like Professor Galbraith, no growth at all to being dragged up by the hucksters.")

Disagreeing with both the Puritans and Panglossians, McMahon dubs himself a "Modified Perfectibilitarian" who believes that U.S. consumer wants are far from sated—but that U.S. industry and Government have not paid sufficient attention to the shift in buying patterns away from durable goods. In McMahon's view, most economists still attach undue importance to the role of durables in the U.S. economy; the U.S. auto industry, for example, employs only 2% of the labor force, and consumer durables now take only 13½¢ of each consumer dollar in the U.S.