American living standards and world influence will decline unless the next president sets ambitious national goals to boost savings and investment, a group of leading economists said Thursday.
The seven economists, led by Nobel Prize winner Robert Solow, called for a new "investment economics" to replace the supply-side economics of the Reagan years."Such an economics would, for the first time, see America set the great national goal of matching our competitors' savings and investments rates by the year 2000," the economists said in a "White Paper on America's Future."
"If current trends continue into the 1990s, America could at best face a Great Britain-like scenario of generations of gradual decline in relative living standards and national influence," the economists wrote. "At worst, our present path could provoke a financial crisis and dramatic reduction in domestic and global well-being."
The economists said the mountain of debt the country has run up in the 1980s, both as a result of the federal budget deficits and the huge trade deficits, threatens America's future standard of living.
"We are unaware of any historical precedent that has seen a nation indefinitely borrow and consume its way to prosperity. And we note that the world today is filled with the descendants of once-great powers that tried this path and failed," the economists said.
They said their proposal should be seen as an alternative to supply-side economics, which attempted to boost investment indirectly by cutting marginal tax rates, or older economic theories that tried to boost investment indirectly through boosting demand.
The national agenda the economists recommended would set a goal by the year 2000 of matching the 11 percent national savings rate of the United States' biggest economic competitor, Japan. In 1986, net savings in the United States hit a low in the post-World War II period of 1.7 percent, one-tenth of the Japanese rate. It edged up only slightly to 2 percent of total economic output last year.
The economists said it was critical to boost total savings to provide the capital American businesses need to invest in new plant and equipment and boost U.S. productivity.
One primary way to boost savings is to reduce the federal budget deficit because the deficit represents a large drain on financial markets, the economists said.
They said the budget deficit, which totaled an estimated $150 billion in the fiscal year that ended Sept. 30, should be reduced by $40 billion in the current fiscal year with similar reductions in following years.