RUST TO RICHES: The Coming of the Second Industrial Revolution

An against-the-grain case for the proposition that the US economy and its manufacturing sector will prosper during the 1990's and beyond. Rutledge and Allen (chairman and president, respectively, of California's Claremont Economics Institute) accentuate the positive in their appraisal of things to come. They argue, for instance, that American business began rebuilding its industrial base during the 1980's, renouncing an unhealthy dependence on inflation hedges, tax shelters, and allied instances of ""false wealth."" In the meantime, the authors point out, aging baby-boomers have begun to save more money for offspring's tuition bills and their own retirement; among other outcomes, the switch from consumption to thrift promises to alleviate chronic trade deficits (e.g, by reducing demand for imports) and to provide more of the capital US industry requires for further renewal. Mindful that a precipitate drop in consumer spending could trigger a severe recession, Rutledge and Allen remain optimistic on several counts. For one thing, rapid growth in outlays for capital goods and exports should take up most of any resultant slack. For another, Japan Inc. has begun to lose its competitive edge in global markets, owing mainly to changes in demographic trends and government policy. Since 1985, moreover, American industry has outperformed all global rivals in terms of achieving productivity gains and lower labor costs, thanks in part to cash infusions from foreign investors. As the authors make clear, disinflation and tax reform have played vital roles in the economic recovery/expansion still under way. Financial deregulation has been almost equally important, they believe, because it has severed the link between interest rates and recessions, possibly (even probably) producing a permanent alteration in the business cycle. At a minimum, Rutledge and Allen contend, the textbook timetable, i.e., a slump every four years or so, no longer applies. The bottom line: an original, accessible, and credible analysis that concludes that America's cup is, if not running over, at least filling nicely.