[The following article appears in the 12 September 1994 edition of
_The_Washington_Post_, pages H1 and H15.]

                  WE'VE MET THE ECONOMIC ENEMY, AND HE
                                  IS US

    30 Years of Mismanagement and Betrayal in Washington Have Eroded
                          America's Global Edge
                                    
                             By Hobart Rowen
                     Special to The Washington Post

     Hobart Rowen is a columnist for The Washington Post. This
     article is adapted from his new book, "Self-inflicted
     Wounds--From LBJ's Guns and Butter to Reagan's Voodoo
     Economics, " which was published last month.
     
     When I began in journalism more than 50 years ago, the United
States was struggling to survive the hardships of the Great
Depression and soon would face the privations of World War II.
Ironically, both experiences would leave the nation more
prosperous than ever before. The United States emerged in the late
1940s with the most powerful economy in the world, and for several
decades it was able to maintain its unrivaled position.

     Today, the United States is the world's largest debtor
nation, and many critics insist that we have become a second-class
power. Our decline in self-esteem puzzles both our allies and
rivals. Many of us search for a scapegoat to blame for our
manifold ills. But the bitter truth is that we have no one to
blame for our condition but ourselves.

     For the wounds to our economic health and to our national
pride have been largely self-inflicted. Our recent economic
history is a story of blunder, mismanagement, stupidity and
irresponsibility by officials whose obligation to govern the
nation was betrayed by their embrace of policies misconceived and
ineptly applied.

     It is a story that begins during the mid-1960s, with
President Lyndon B. Johnson's inheritance of a level of
prosperity--with good jobs and without significant inflation--that
had never been achieved in the nation's history.

     But Johnson's embrace of a forlorn and unwinnable war in
Vietnam--and his insistence that the country could have, in the
phrase of the time, both "guns and butter"--put this country on a
course from which it has yet to recover. The buildup in Vietnam,
which occurred without regard to its cost, destroyed the delicate
social fabric that had been woven during the Eisenhower and
Kennedy years and by Johnson's own Great Society. Johnson faced
two unpalatable choices: Either to cut other government spending
to match the new costs of his escalating war, or to raise
additional taxes to pay for it.

     Unhappily, Johnson did neither. In his hubris, he thought he
could have it all, and so let the inflation genie out of the
bottle, touching off a devastating spiral that, ultimately, the
Federal Reserve Board was forced to battle by imposing higher
interest rates. Johnson's decision, indulged by a spineless
Congress, helped to generate a flight from the dollar. His gamble
was that an economy already overheated by a business boom could
somehow absorb the costs of an increasingly bloody war-and still
escape inflationary price increases.

     The United States was thereby set on a course that slowly
debilitated its fundamental economic health. Six presidents--two
Democrats and four Republicans--would fail, at critical times, to
make the right decisions that would have ensured the nation's
prosperity as it struggled to survive a period of extraordinary
technological change and fierce competition from allies formerly
prostrate but now straining and eager, quite literally, to give us
a run for our money.

     We have been the victims over the past 30 years of an almost
sublime mismanagement in Washington. We have stumbled through an
era of greed and malfeasance, from LBJ's failure to finance the
Vietnam War through the multiple failures of Reaganomics. In
between, we have suffered the duplicity of Richard Nixon, the
ineptitude of the well-meaning but bumbling Gerald Ford, the
notorious malaise of Jimmy Carter. And throughout, we have seen a
futile chase for dollar stability after the Bretton Woods system
collapsed in the 1970s and trade imbalances mounted. And at no
time was any American president willing or able to combat the
menace of the oil cartel, the swindlers on Wall Street or the
industrial assault on the environment.

     The self-inflicted wounds that are the most recent--and
therefore perhaps the most vivid--are those that resulted from
Ronald Reagan's counterrevolution.

     The sad legacy of the Reagan years was that they widened the
gap between the nation's rich and poor. Henry Reuss, a liberal
congressman from Wisconsin and one of the few to see Reaganism for
what it was, pointed out that the combination of huge tax cuts at
the top of the income scale, coupled with higher Social Security
taxes and reductions in social programs, would further skew income
distribution from the bottom 60 percent of taxpayers to the top 10
percent. In addition, the major increase in military budgets would
attract investment in the booming, capital-intensive arms
industries in the Sun Belt, while hard-hit blue-collar areas in
the Midwest likely would suffer further.

     Reaganomics put the New Deal and the Great Society in reverse
gear. With George Bush's help, it stayed that way for 12 years,
until Bill Clinton's budget and tax package forced a mild
redistribution, with higher taxes on upper-income families and a
larger "earned income credit" for wage earners under $27,000 a
year.

     Yet, on balance, the Clinton package was not, as Time
magazine argued, a total reversal of Reaganomics: Upperbracket
earners had enjoyed huge accumulations of wealth over the 12-year
reigns of Reagan and Bush. The Clinton budget of 1993, with a
modestly more progressive tax system, was only a small step in
redressing the balance. 

     At the end of his two terms, Reagan left a weakened United
States to George Bush, who, choosing to ignore a deteriorating
economy at home, had to pass the tin cup to the nation's allies to
support the war in the Persian Gulf in 1991 against Saddam
Hussein.

     His own presidency having done little to resolve the nation's
multiple economic problems, Bush bequeathed to Clinton the complex
assignment of restoring some sense of fiscal balance by reducing
the federal budget deficit. This required Clinton to opt for
substantial increases in taxes across the board while attempting
to reform the health insurance system. 

     Our international economic policy has been wounded, too.
During the late 1980s, Bush administration officials James Baker
and Richard Darman had carefully crafted a system of international
cooperation, but it fell on hard times. Europe and the United
States indulged their special interests by allowing a trade war
over agricultural products to delay creation of broader new rules
and coverage under the General Agreement on Tariffs and Trade. The
United States and Japan continued to scrap over trade imbalances
that persisted despite a series of agreements aimed at managing
currency fluctuations; and Third World nations continued to
stagger under the burden of their international debt until the
deflation during the Bush regime forced interest rates sharply
lower.

     In "the good old days," the Federal Reserve Board could turn
on the low-interest-rate switch and jump-start the economy again.
Now, it's not so simple. Not only are consumers and business
people not anxious to take on new debt, they are worried by the
country's and their own long-term future. Thus from June 1989
through October 1993, the Federal Reserve Board took 24 easing
steps that helped corporations and individuals reduce the interest
rate burden. But in terms of stimulating the economy, the old
magic seemed to have lost some of its potency.

     As 1994 got underway, a modest business recovery was taking
place, sufficient to trigger a reversal of the Fed's easy-money
policy. Clearly, the economy was creating more jobs--notably in
the services sector--more quickly than the most optimistic Clinton
aides had hoped, with a minimum impact on consumer price
inflation. Responding to a higher yen that raised Japanese car
prices--and to the improved quality of American cars--American
buyers turned increasingly to Detroit's offerings. Thus, for at
least a short horizon, the American economy under Bill Clinton was
enjoying a comfort level that politicians in Europe and Japan
could only envy.

     Yet, the harsh reality--and no one knows it better than
Clinton--is that the United States faces severe, longer-term
problems. The president and Congress, even through committed to a
steady reduction of the fiscal deficit, must improve the skills of
the labor force. That will require greater expenditures by
business as well as government. 

     Will the economy, despite improvement in 1994, be able to
generate the kind of high-quality jobs needed in the new
technological age? That remains an unanswered question. 

     A notable phenomenon of the late 1980s and early 1990s was
the "downsizing" of the large corporation. Day by day, in
monotonous and ominous echoes, companies such as International
Business Machines Corp., General Motors Corp., Sears, Roebuck and
Co. and others announced they would close plants, eliminate
thousands of jobs-and more or less carry on production at the same
pace.

     From the business standpoint, it made sense; from the worker
standpoint, it represented a sea change from the good old days,
when even a high school graduate could expect employment of
sufficient duration to help him or her fulfill the American dream
of raising a family, owning a car, and, over the years of a
long-term mortgage, owning a home.

     Restoration of such an American dream is extremely unlikely
in the short run, and perhaps impossible for many years to come.
The deficit remains a constant. Of all the self-inflicted wounds
of the past three decades, none has been more harmful than the
public debt saddled on the American people by the eight years of
Reaganomics, accompanied by an actual decline in real wages.

     There had been an actual decline in real weekly U.S. earnings
from $315 in 1972 (in 1992 dollars) to a mere $255 in October
1992--a drop of almost 20 percent. As a result, many American
families had to turn to more than one breadwinner. Yet, as
Clinton's Council of Economic Advisers Chairman Laura D'Andrea
Tyson pointed out, from 1978 through 1991 real median family
income showed no change, despite the increase in hours worked. 

     The right policy prescription is to focus on investment--not
just on controlling the federal budget deficit, as important as
that may be. We need a fiscal thrust--the expenditure of more
money in the public sector. That would include rehabilitation of
the urban educational system, and a revision of teachers' pay
commensurate with the responsibilities they have; revival of
revenue sharing to take some of the burdens off state and local
governments; and the transfer of large amounts of budget money now
committed to defense programs to civilian programs, notably for
"infrastructure"--roads, bridges, highways and the like.

     For the next decade or two, the American people will be
forced to live through a regimen of constrained national budgets.
But the next decade or two is not forever. The United States
remains the strongest economic power, but is more dependent on
global well-being than it ever was before. This country cannot
operate, as Reagan in his first term supposed it could, with
"benign neglect" of the impact of U.S. policies on the prosperity
of other nations. Our goal should be to share global power with a
stronger Japan and Germany, instead of concluding that we must
collide.