A COCKEYED OPTIMIST’S SOBER WARNING

Samuelson is to economics what Ben J. Wattenberg is to the social sciences — a cockeyed optimist, ever inclined to explain why the “good news is the bad news is wrong.” Samuelson has never preferred German or Japanese industrial policies to the American Way, even when those other economics were riding high. He sees more promise than peril in the global economy, and views the recent increase in income inequality with less alarm than most economics reporters. But for Samuelson, an economy is a mirror of a culture, and there’s no way to take a rosy view of the lazy-mindedness and personal irresponsibility the entitlement culture has produced. The only way we can maintain anything like our historic economic performance, in his view, is for Americans to reassert their individualism and constrain their runaway entitlements. That, alas, is grounds for a bleak forecast — even bleaker, perhaps, than the one Samuelson arrives at.

First, the good news. While the U.S. economy has been growing at only 1 percent a year since 1973, it’s ticking up again, to about 1.5 percent as we pass mid-decade. Industrial and farm production has grown, even if employment in both sectors has fallen. And the waning relative importance of farming and manufacture (both unstable sectors of the economy) leaves us less subject to such shocks as the Great Depression. Our economy is 15-20 percent more efficient than Japan’s, if you go by worker productivity. As for income inequality, much of it is merely a reflection of family breakup, which not only produces lousier habits among workers but also doubles the number of households without doubling the number of incomes.

Why, then, does the economy, as Elvis Costello used to sing, “look like a lux ury and feel like a disease”? The story begins with the aberrant economic growt h of the immediate postwar years, which created the impression that perennial e conomic problems had been abolished and that affluence would continue indefinit ely. It was, says Samuelson, a “revolution in domestic psychology and politics. ” How this revolution was carried out is just as important as what happened und er its aegis. Corporatism was cruci al. World War II legitimized big government for the first time, and big business — in a compliant mood after being harried throughout the New Deal — was its proxy. The preponderant position of corporations allowed the U.S. to create a nearly comprehensive European-style welfare state by franchising it out through regulation, not legislation.

This regulatory regime has allowed us for decades to pretend our government is not socialist; even today it makes it impossible to say just how big our government is. The corporate system was also inefficient over the long term — profit margins fell from 16.9 percent on average in the 1950s to 8.7 percent in the 1980s — but those inefficiencies were masked by inflation and heavy borrowing.

Keynesian attempts to make the economy recession-proof led to inflation and rigid bureaucracy. The failure of Keynesianism was, Samuelson writes, the ” most fateful and damaging of the postwar economy.” And before that failure became clear, “we had reconstructed our politics on the false assumption of unbounded material prosperity.”

That is, the federal government had created the time bomb that is the public- sector welfare state. The popular liberal canard that specific programs for the needy make up a trivial part of the entitlement explosion, and that attempts to curtail them are just “bashing the poor,” is baloney: In 1994, means-tested programs cost $ 177 billion, or 13 percent of the budget. But the corollary assertion — that everyone, including the middle class, is implicated in the welfare state — is undeniable. “Payments to individuals” rose to 57 percent of the federal budget in 1995. Fifty-one percent of American families — including 30 percent of the most affluent fifth of Americans — receive at least one benefit. The government backs loans to half of all college students.

Most dangerously, the elderly now receive a third of federal outlays-40 percent if you take out money spent on debt service, close to half if you also take out military spending. Social Security, as currently administered, is not merely an entitlement — it is welfare. The contemporary recipient has paid enough into the system to support himself for the first few years of retirement; the rest is gravy, a handout as surely as any AFDC check. While welfare-state demagogues frighten voters with stories of the aged poor, Samuelson notes, “younger and poorer workers increasingly support (through payroll taxes) older and wealthjer retirees.” To finance baby boomers in even less grandeur when they retire, we would need either to increase taxes by 50 percent or to triple the deficit.

Samuelson’s linking of the “entitlement” a corporate employee receives by getting a generous pension and the “entitlement” of a welfare parasite would at first seem a trick to portray himself as a moderate, someone who cannot be accused of “bashing the poor.” But he is up to something far more subtle. Our ” reconstructed” politics are only partially about the economy, and the economic situation we find ourselves in cannot be understood without a look at the roles the government has arrogated to itself in other realms. Here is where Samuelson’s book comes together as a brilliant synthesis on the culture of entitlement.

“American government and politics seem almost suicidal,” Samuelson worries. ” They compulsively generate public distrust.” The business of apportioning fairness puts government in the permanent position of mediating between interest groups. It is this, Samuelson thinks — not Watergate, not Vietnam — that has caused widespread disillusionment with government. Equalizing opportunity, whether through affirmative action or welfare, imposes heavy and unfair costs on certain sectors of the population. So the government inevitably justifies its policies as moral imperatives — necessarily casting those who pay for the system as villains. The unattainability of such abstract goals as equality means that government is constantly overpromising, and the distinction between a promise that can’t possibly be kept and an outright lie isn’t much of a distinction. Government isn’t “worse” than it was 30 years ago. But without much exaggerating, one can say that it is a fraud. And if the government is a fraud, the economy is a con game.

What does this tell us about the national character that we tolerate, even encourage, such a regime? Samuelson puts a great deal of faith in American optimism, individualism, and love of freedom. But it is impossible to read his long bill of particulars against the entitlement sensibility without thinking he’s merely putting a brave face on a spiritual crisis. “America is defined by its distinctive bedrock beliefs,” Samuelson says, “which, if widely discredited, would shake society to its foundations.” That such a discrediting is well underway is in fact the conclusion to which his argument inexorably leads. It is a conclusion that he doesn’t dare speak.

The entrepreneurial spirit once carried with it the idea of social betterment and transformation, but it no longer does; Americans would trade the Internet for safe streets in a heartbeat. Canniness, or cunning, or whatever talent the entrepreneur uses to identify a new need (or vulnerability) may be admirable and necessary, but it is not optimism. Anti-government rhetoric may lower taxes temporarily, but if it does nothing to diminish existing government benefits, it is not individualism.

Samuelson professes to be sanguine about Americans’ prospects for avoiding the debacle that the entitlement sensibility may be leading to. He calls for balancing the budget and getting entitlements under control. That would be a start. But if he’s wrong, we will see either the tripled deficits or the 50 percent tax hikes he warns of early in the book. We will then likely find ourselves left with Samuelson’s bleaker scenario: in which “the inertia of our present situation is so powerful that it cannot be stopped short of some tidal- wave event.”

By Christopher Caldwell