Understanding American Economic Decline.

• Author: Rowen, Hobart

America, it is said, has been in an economic decline for perhaps two decades. Japan, and to some extent Germany, have emerged as a major competitor, catching up with America in productivity and living standards. At the end of World War II, Japan's gross domestic product was only one-eleventh the size of America's. But it now appears that some time after the beginning of the new century, Japan's GDP will be two-thirds the size of ours.

The debate on how this came to pass has been explored in countless books and articles. I have argued in the pages of The Washington Post, and in my book Self-Inflicted Wounds--From LBJ's Guns & Butter to Reagan's Voodoo Economics, that American mistakes at the highest levels of government, corporate, and labor power are responsible for this unhappy result.

Yet, I don't believe the situation is hopeless, as do the authors of a new work, Understanding American Economic Decline, co-edited by Michael A. Bernstein, an historian-economist from the University of California at San Diego, and David Adler, a television programming manager. Bernstein sets the tone of the book at the start: "Today, many [economic experts] fear that the American economy is weak and failing, destined to be a second-echelon participant in a new 21st century world economic order."

With an approach they identify as "largely outside the focus of mainstream economic theory," the authors raise questions that are timely as a backdrop to the current debate over President Clinton's economic policy.

The correctives suggested in this book are difficult to nail down. For example, Jane Knodell calls for "the creation of alternative financial institutions to provide long-term development finance, reform of the Federal Reserve, and/or bank regulatory reform." That sounds great, but Knodell doesn't tell us how to do it.

Among the most innovative essays in the book--and one that departs a bit from the overall defeatist thesis--is by James K. Galbraith and Paulo Du Pin Calmon on "Industry, Trade, and Wages." Galbraith, a former Congressional aide now at the University of Texas, and Calmon, a teacher at the University of Brasilia, say that "we remain agnostic on whether the American economy overall is or is not 'in decline.' Rather, we see weak sectors getting weaker, strong sectors getting stronger...