Nobody is apt to look back on the 1970s as the good old days. The economy's most disruptive decade since the Great Depression has borne the stagflation contradiction of no growth amid rampaging inflation, the can't do trauma of receding productivity in the nation that was long the world's cornucopia, the reality of an energy shortage in the land of supposedly boundless resources, and the debauch of a dollar that once was "as good as gold."
Economists, proud and powerful in the 1960s, now look like Napoleon's generals decamping from Moscow. Their past prescriptions —tax tinkering and Government deficit spending to prop up demand, wage and price guidelines to hold down inflation—have been as helpful as snake oil. "Things just do not work now as they used to," says former Federal Reserve Chairman Arthur Burns, and who can contradict him? The U.S. economy, bloated and immobilized, has been turned topsy-turvy.
Yet a revisionist group of economists, eclectic and unorthodox, is on the rise, and they have provocative views about what has mucked up the economy and how to start fixing it. These academics, still in their 30s or early 40s, admit to many more questions than answers and are sometimes unfairly dismissed by their more traditionalist colleagues as "N.C.s" (Neanderthal Conservatives). Hardly Neanderthal, they are instead moderate, pragmatic economists of the late 1970s who are bringing fresh air, and fresh hope, to the dismal science. Says Rudolph Penner, head of tax-policy studies at the American Enterprise Institute: "The exciting ideas are now coming from the under-40 crowd, and they are saying that Government is not efficient."
That heresy shakes the almost reverential respect accorded by the profession to Britain's late John Maynard Keynes, the century's most influential economist. The belief of Keynes's disciples that governments often could manage economic affairs as efficiently and effectively as free markets themselves has been rejected by the accumulating research of the new economists.
Still undergraduates when Keynesianism was flourishing in the late 1950s and the 1960s, the new economists are now professors in their own right at universities around the country. Among them: Martin Feldstein, 39, of Harvard, who is the leading thinker in the group; Robert Lucas, 41, of the University of Chicago; Michael Boskin, 33, of Stanford; Rudiger Dornbusch, 37, and Stanley Fischer, 35, both of M.I.T.; as well as many, many others.
The new group represents what might be termed the rubber band school of economics—what the profession itself calls "elasticity." The sensible notion is that people respond to the specific incentives of price and supply and that, given the right incentives, the market itself is better equipped than the Government to bring about lower prices and more supplies of what people want and need.