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1983 AEI Economist 1 (1983)

handle is hein.amenin/aeieco1983 and id is 1 raw text is: the economist American Enterprise Institute for Public Policy Research January 1983 This issue of the AEI Economist contains two articles. The first, by Ambassador Arthur Burns, is abridged from a speech given in Bonn on December 9, 1982. It deals with a number of economic issues that have been the source of disagreement between the United States and our European allies-interest rates, intervention in exchange markets, economic relations with the Soviet bloc, defense burden sharing, and international trade. Although the speech was delivered to a German audi- ence and was intended to explain American attitudes on these questions, it serves as well to explain European concern to American readers. The second article, Productivity, Costs, and Prices: Outlook for 1983-1984, by John Kendrick (p. 6), reexamines an aspect of the economic future to which insufficient attention has been paid. How fast is pro- ducity (defined here as output per labor hour) likely to rise in the years ahead? If productivity rises rapidly, the possibility of output also rising rapidly while the inflation rate continues to decline will be much greater than if productivity rises slowly. Kendrick presents reasons for expecting a rapid rise of productivity, nota- bly the good performance of productivity during 1982 and longer-run trends in research and development, in tax policy, in government regulations, and in labor- management relations. Kendrick estimates that pro- ductivity could rise by 312 percent between the fourth quarter of1982 and the fourth quarter of1983, and that this would permit output during the same period to rise by 512 percent while the price level rose by only 3 percent. Herbert Stein The Economic Health of the Western Alliance Arthur F. Burns American Ambassador to the Federal Republic of Germany During the early decades of the postwar period, the fiscal and monetary policies of Western democracies were highly successful in maintaining reasonably full employment and in improving social conditions, These very successes tempted governments during the 1970s to respond to the never-ending public pressures for governmental benefits by risking large budget deficits and easy money in the hope of expanding social wel- fare programs still further as well as attending to new environmental concerns. But by attempting to extract more and more goods and services from our economies This speech was presented at a meeting of the Deutsche Atlantische Gesellschaft, Bonn, West Germany, December 9, 1982. without adding correspondingly to our willingness to work and save, we in the West inevitably released the destructive forces of inflation. Under these conditions, it should not be surprising that tensions over economic issues have at times seri- ously tested the harmony that has generally character- ized the political relations between the United States and its European Allies. When our individual econo- mies are booming, there is little pressure on govern- ments from their business or agricultural communities Productivity, Costs, and Prices: Outlook for 1983-1984 by John W. Kendrick Page 6 The AEI Economist I)

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