U.S. Economic Policy: From Fdr To LBJ
Brand, H.
None of the basic issues in economic policy have been resolved in the years during which the Democrats have governed; wage and price norms, the distribution of the tax burden, the level and...
...To be sure, Heller here assumes away the wide area of manipulation to which consumer desires are subject, and which go far to vitiate the "test of the market...
...A different use of the "dividend" is, of course, not precluded but it hinges on greater awareness of the social meaning of fiscal policy on the part of the civil rights movement, labor, and left-wingers, and all those concerned with abolishing poverty...
...Nevertheless, adjust...
...The income tax, which could be an effective engine of redistribution, has to a large extent been subverted into a means of allocating social wealth for purposes of private investment...
...William Beveridge's injunction that full employment in a free society must be patterned in accordance with social priorities, that demand must as far as possible be socialized, has been turned into its opposite...
...the position of large social strata is threatened or deteriorates...
...Some observers, however, have predicted that economic planning will become a major means of coping with this problem and with that of technological change generally...
...Review of Data on Research and Development, National Science Foundation, No...
...it does mean that the latter's redistributive ef115 feet is limited, quite aside from the fact that social insurance taxation itself is regressive...
...cannot be separated from high levels of defense and space expenditures...
...Investment induced by consumer demand," said Secretary Dillon in defending the 1962 investment tax credit, "suggests primarily expansion using existing kinds of equipment and techniques, rather than more efficient and larger quantities of capital per worker and, therefore, greater productivity...
...Yet, the role of government in maintaining high levels of employment has virtually ceased to be questioned by those who otherwise would be in the best position to obstract it...
...It does not, however, predetermine developments...
...Congress, January 1964 Economic Report of The President, Hearings, Part I. 10...
...The possibility of incurring deficits must not obscure the hard fact that, in an economy dominated by private interests, revenues received exercise an imperative constraint upon the budget...
...has been the enormous growth of the government's role as investor and innovator...
...With rising productivity, volume would expand, while unit costs would decline...
...They have diminished the already eroded progressivity of income taxation, have spurred investment in industries that have high rates of labor displacement, and have, by stimulating private markets, intensified the imbalance between private consumption and public service...
...Survey of Current Business, op...
...This sum constituted 15% of industry's total spending on plant and equipment in that period.13 Again, it is hard to say how much investment defense expenditures have induced over the past few years, after the switch in the fifties to missile systems, and the adoption in the early sixties of multiple strategies...
...But let us take $1.75 as a minimum wage floor, yielding, as it does, an annual pretax income of about $3,500, just above the $3,100 officially designated as the "poverty level...
...the Atomic Energy Commission's plant, valued at $8.6 billion in 1964, while devoted almost entirely to the production of fissionable materials for weapons, has yielded a fund of experience to the plant's private operators, which has been obtained without risk and which has laid the foundation for a new industry...
...on the contrary, given the virtual absence of social controls other than profitability, it is a detriment to welfare and threatens to become more so as the evolution of technology accelerates...
...the 1964 income tax reduction, which must be regarded as part of the same concept of the role of taxation in the economy, did so from the demand side...
...Equity" is thus understood to be the perpetuation of the prevailing division of the national income between capital and labor...
...In 1947, according to Oscar Ornati, the proportion of people who lived below levels of minimum adequacy in 1947, by 1947 standards was 27...
...Ford was the first to grant $5 a day to his workers, but he was the last in his industry to recognize their union...
...Social Security Bulletin, July 1965, p. 14, and Report of the Subcommittee on Low-Income Families, p. 11...
...The book value of facilities built by industry to support directly or indirectly American war potential and comprising only those which, for tax purposes, were certified by the Treasury under certificates of necessity, between 1951 and 1959, amounted to a total of $39.5 billion...
...First, most of the rise in federal payments has occurred in the Social Security trust funds...
...only 7% of the gain in jobs was generated by growth in private demand...
...They do include a growing interpenetration of government and business which ensures the proper disposal of savings in forms that will not unduly disturb the continuity of vested interests...
...Unemployment remains high and human capabilities are misapplied despite unfilled social needs universally recognized as urgent...
...It may well be true that the magnitude of federal R & D—$14 billion in fiscal 1965, of which 95% went for defense and space purposes—stands in no relation to actual or potential "civilian" applications...
...We have permitted a trend toward a polarization of the population," Nathaniel Goldfinger of the AFL-CIO has said...
...All of these artificial stimuli have served to foster and, in many instances, to finance economic expansion...
...The role of the administrative budget has been deliberately curtailed, and its austerity stressed...
...3. "The rate of investment required to maintain full employment is not maintainable...
...Civil Service Commission, A Study of the Impact of Automation on Federal Employees, Subcommittee on Census and Government Statistics, August 1964, p. 17...
...4. "Two Years of Republican Tax Policy: An Economic Appraisal," National Tax Journal, Vol...
...as elsewhere, become largely government-induced and governmentsustained...
...Survey of Current Business, July 1963, p. 3 ff...
...The contradiction between growth and welfare manifests itself in many other ways: slums persist in the face of an office boom of heroic prportions, which makes older but still useful structures rapidly obsolete...
...the increases, which have usually been made in times of cyclical upswings, have been small, gradual, and on levels which remain pitifully low...
...But this is immaterial in the present context...
...Demand management occurs via direct subsidization of investment...
...A major government measure that cost $12 billion in terms of lost revenue channeled not a cent to those most in need of additional funds...
...The wage-price guideposts, when viewed in the context of economic policy as a whole, thus seem rather a hoax...
...These trends cannot but reassert themselves, considering that the industry's expenditures on plant and equipment have, partly under the spur of the tax advantages granted to it, risen by 66% since 1962, and now exceed $1 billion a year...
...better services, but no modification of the profit motive...
...But inseparable from (and probably indispensable to) this process is the role of the government in absorbing a substantial share of the excess savings yielded by an ever more productive economy...
...The capital boom that has been experienced since 1966 attests to the success of the policy advocated by the CEA—to raise the rate of capital formation relative to GNP—and the measures taken in implementing it...
...Thus increases in public demand offset only a part of the lag in private demand...
...However, as part of its administrative rationalization, as well as of the defense-space effort, the government bought or leased nearly 2500 digital or analog computers in fiscal 1966, around 10% of the total then in operation, representing 2530% in value...
...However, this success capped rather than initiated a transformation in the political attitudes of business and in the conception it has had of its place in the American political economy...
...They have contributed to an enormous rise in profits and cash flow, acting as a virtual bribe to industry to keep prices stable...
...The tax credit and liberalized depreciation have indeed contributed to raising employment levels over the past 3-4 years, and to reducing unemployment...
...Hence, the CEA's ambivalence is understandable...
...The government's policies promoting economic growth are deliberately designed to strengthen conventional markets and market relations...
...However, the guidelines do provide implicitly for a redistribution of income among industries, in that highproductivity industries are expected to reduce their prices, presumably to the extent that their profit margins are in excess of "average" and invite aboveaverage wage demands...
...Lack of serious tax reform and the use of taxation in redirecting social wealth to private purposes have been matched by stringent budgetary policies...
...But it is now being carried out more successfully under the aegis of a close government-business partnership...
...26 The industries where low wages prevail and whose spokesmen have expressed the greatest resistance to higher minimum wage floors cannot usually dominate their markets...
...while industries like 122 apparel, retailing, and many services, all of which are rife with cut-throat competition, are in a position to raise prices and wages...
...The extent to which this has happened is difficult to quantify, but a few examples give an idea of the magnitudes involved...
...The "Great Society" has failed to frame the institutions necessary to reduce it...
...Although many of the elderly draw additional income from employment, savings, and homes they own, over two-fifths of the population 65 years old or more must subsist on incomes below the $2,500-a-year poverty line computed by the Social Security Administration...
...Yet, the proportion of people living in poverty in the early sixties as in the late forties was roughly the same...
...9. Joint Economic Committees U.S...
...Reputable economists who raise them may be reproached for viewing the problem in isolation, for failing to question why minimum wages can be "too high" when social productivity is so obviously inexhaustible.27 They may still be right...
...The combined effect of the new guidelines and the tax credit was "to increase the profitability of a typical investment in new equipment by over 25%—or equivalent to a reduction in the corporate profits tax from 52% to 38%," according to Secretary of the Treasury Dillon...
...The organization of labor was encouraged— "a good democratic antidote for the power of big business," said Roosevelt.' These and similar acts tended to shift economic power into the public arena, where it became accessible to democratic control...
...shipments of electronic computer systems alone have tripled in the last five years...
...Elinor Graham, "The Politics of Poverty," in Poverty as a Public Issue, Ben B. Seligman, editor, New York, 1965, p. 249...
...High job vacancy rates would still constitute an essential approach...
...Has large-scale unemployment not been banished...
...Bureau of the Budget, Washington, January 1965...
...they are in any case inexact, and automation is comparable in impact to previous technological change.22 The subject of productivity is difficult, esoteric, and ridden by disputes...
...A now famous computation by the Department of Labor in its Manpowe...
...These are financed not from general revenue but from employment taxes, which fall either on employees who foot half of the tax bill, or on consumers, to whom the employers' share is most likely shifted, and who generally belong to the same income brackets as the employees...
...But circumstances do not permit him, and he seems in any case not willing, to transcend given institutional limits...
...The Republicans, faced with the need to take up the slack left by lower military outlays at the end of the Korean War, adhered to the dogma that the private sector would gather sufficient momentum on its own to assure economic growth...
...But the use of the "dividend," in reducing taxes to begin with and, more recently, in financing the war in Vietnam, signifies that the political interests determining fiscal policy and the budget remain weighted overwhelmingly on the conservative side...
...This has surely improved the competitive position of American exports, although at high domestic social cost...
...17 Necessarily, the more capital-intensive the industry, the more it benefited (and will continue to benefit) from these measures...
...The book as a whole is a first-rate introduction to the range of political and economic issues involving poverty in America...
...they still largely determine the distribution of income and the allocation of resources...
...it is idle to speculate whether these are "necessary" to it or not, especially since they are made primarily in response to the international situation, which, to be sure, they also condition...
...John Kendrick, op...
...A] tax policy which seeks to promote full utilization of resources through higher profit margins and preferred treatment of investments in fixed assets, [by] and large . . . encourages resources to remain in their present uses...
...However, experience in nearly all advanced countries has shown that, no mattes how low unemployment is, a relatively large marginal sector persists...
...However, knowing the values involved would tell us little about what would happen if nondefense goods were substituted...
...While Federal subsidies fostered the concentration of capital in agriculture and thus contributed to raising agricultural productivity by 6% a year, they also helped make ever more farm workers "marginal": A million persons a year have left rural areas since 1950, and large numbers of them swelled the marginal proletariat of the cities...
...avoidance of priorities and privatization of demand are among the political conditions of the partnership...
...The Roosevelt Administration was unable to implement economic policy against businessmen...
...The investment tax credit of 7%, also instituted in 1962, reduced industry's tax liabilities by over $1 billion in 1962...
...in text, p. 71...
...The effect of Increased Productivity on the Labor Force and Its Deployment in the United States Cotton Textile Industry," Productivity Measurement Review, November 1964, p. 39 22...
...Meanwhile, cash flow —the sum of after-tax profits and depreciation allowances, and ". . the best single measure available today of the profitability of a firm or industry" 19—rose to nearly $2.1 billion in 1964, 10% or $155 million above the 1957 level...
...Falling capital-output ratios, denoting increases in the efficiency of capital, represent additional evidence of rapid, self-generating technological change— as well as an additional argument against government-sponsored investment incentives...
...But this has created a situation that is inherently unstable...
...Revenue Act of 1962, op...
...See, for example, M. Benowitz and R. E. Weintraub, "Employment Effects of a Local Minimum Wage," Industrial and Labor Relations Review, January 1964...
...Labor's economic policy has, at least since the thirties, rested on essentially underconsumptionist premises: Higher wages and benefits, together with broad social welfare programs, would augment purchasing power and the propensity to consume, and so create and sustain expanding markets and investment opportunities...
...Oscar Ornati, "Poverty in America," in Poverty in America, A Book of Readings, Ann Arbor, 1965, p. 33...
...The government may itself create new markets, which give rise to secondary investments, or it may prop conventional markets through "demand management...
...They fear inflation as much as their Republican predecessors, and more than full employment...
...cit., p. 376...
...At the same time, the very industries which have the highest rates of productivity advance and labor displacement have benefited most from investment subsidies and liberalized depreciation allowances...
...128 17...
...The solution of those who, following Keynes, believed that incomes from property should be reduced and eventually eliminated in the interest of greater equality of functional incomes, of less capital acaccumulation, and of higher levels of personal consumption relative to saving, has been rejected...
...To be sure, The Budget in Brief, Fiscal 196611 shows that expenditures for health, labor, welfare, education, and housing, and community development account for a rising share of federal payments to the public-15.2% in 1956, 23.4% in 1961, and 29.3% in the 1966 fiscal year (which began July 1, 1965) . This is progress, but it is highly qualified...
...8 The investment tax credit, together with liberalized depreciation allowances which accompanied it, entrenched the existing structure of production from the supply side...
...They will not absorb redundant manpower, except in marginal positions, and outside regular status...
...They can earn higher after-tax profits and special investment bounties without submitting to the possibly chilling effects of the market, which might well be necessary if the alternative route were taken of increasing consumer disposable income as a guide to allocation of producer goods...
...Yet, society must not suffer changes in structure, nor shifts in the acquisition and control of wealth, nor surrender of privilege...
...This acceptance is based on a political context that today is radically different from that of the New Deal...
...At the other end is a group of about 20% of the labor force, consisting of managerial, professional, and higher paid technical personnel—with rising employment opportunities, rapidly increasing incomes and capital gains, who are not faced with guide lines for their income improvements . . . This condition . . . is a potential threat to our society.2 It is a threat which has not been lessened by the success of the economic policies of the Kennedy-Johnson Administrations...
...The Democrats had a broader conception of the functions of fiscal policies, but operationally this conception did not extend beyond the social horizon of the Republicans...
...and, as Seymour Melman has shown, large portions of defense and space spending are simply wasteful, even in terms of the criteria of the supporters of current military policies...
...All-important to the success of the "new economics" in the U.S...
...23 In guessing at the reasons, Kendrick alludes to the then rapid spread of the "scientific management movement," the expansion of schools of business administration, the beginning of an organized industrial research and development effort, the swiftly rising levels of education, and such innovations as mass production techniques...
...VIII, No...
...He can deal with unemployment today so that it will not rise above 6% or 7% of the labor force, although some of the chief means of doing so — work-training camps and low-grade make-work jobs— simply disguise it...
...Official manpower, educational, and area development programs, as well as housing and urban renewal policies 125 are meant to bolster the market economy, and are keyed to its criteria of profitability...
...2. Arthur M. Ross, editor, Unemployment and the American Economy, 1964, p. 80...
...The ascendancy of business during the postwar period, the rise of a professional middle class, liberal in politics but conservative in social outlook, the quiescence of labor, the persistence of ethnic blocs, and the demise of agrarianism have of necessity been reflected in the attitudes of the leading men of the Democratic party...
...Present economic policies cannot cape with, and if anytring aggravate, these problems...
...190 million in 1963 (11%) ; and $142 million in 1962 (10%) . Similarly, the textile industry was the beneficiary of tax subsidies (liberalized guidelines plus the tax credit) totalling $58 million in 1962 alone, notwithstanding the fact that productivity gains had been particularly high in this industry, owing to rapid modernization and closing of obsolete mills...
...railroads, too, reported a more than proportionate share...
...That this type of choice is so often imposed shows how little the relationship of forces in American society has changed...
...A low-productivity sector thrives on a ready reserve of underemployed labor which is lacking in adequate education and in aspiration...
...15 These are industries with a record of rapid displacement of labor...
...higher floors would shift the entire wage structure in the industry upward...
...The market is, of course, indispensable to the distribution of goods and services, and to a minimum of restraint on freedom of choice...
...Whatever changes have occurred since World War II, they do not include a weakening in the social power of business, of its far-reaching control over the social surplus, or of the juridical system safeguarding property rights...
...there is ample evidence that upgrading of workers to better paying, more highly skilled jobs accelerates with dedining unemployment...
...But the tax policy of the KennedyJohnson Administrations stopped far short of following the advice implicit 114 in Heller's 1955 article...
...Government, Materials Prepared by the Joint Economic Committee, Washington, 1965, pp...
...The economic effect of large expenditures for defense goes far in preventing this from happening...
...It is a revealing comment on the Great Society that wealthy corporations and individuals are forgiven billions in taxes, much of which they invest to further enhance their gains—but minimum wages cannot be raised lest jobs disappear...
...According to Ida C. Merriam, writing in the Social Security Bulletin of October 1963, 10 if social security benefits were raised to merely 50% of retired workers' average pre-retirement earnings, and to 75% of those of retired couples, and eligibility were broadened to 90% from 70% at the time she wrote) of the population aged 65 or over, then the increase in benefits would come to $11.5 billion...
...The guideposts stipulate that the average level of money wages must not rise faster than the trend in national productivity...
...these increases are normally not sustainable even to maintain the expanded employment, to say nothing of sustaining expansion in employment itself...
...its technical terminology often disguises ignorance of underlying facts, fostered by lack of adequate industry 120 and establishment data, which the Bureau of the Census or the Bureau of Labor Statistics (BLS) are unable to secure...
...Illegitimacy rose dramatically, from 101 births per 100,000 unmarried women in the childbearing ages in 1945, to 225 in 1963...
...It is this that sounds the death knell of every boom...
...It has become normal practice for several thousand firms representing every segment of industry to be involved in the R D associated with a single major space project...
...in 1960, the proportion of people who lived below levels of minimum adequacy by 1960 standards was 26...
...The growth rate of "potential GNP," the rate necessary to keep unemployment at a constant 4% of the civilian labor force, has risen steadily, according to calculations of the CEA, from 3.5% annually in 1955-62 to 3.75% in more recent years...
...Over the past decade, population has increased by 18%, but the number of those most dependent upon public services—youth and children (under 18) and persons over 65—have climbed by 30...
...Still, one wonders how much has changed during the postwar period in terms of the institutional web that determines the fate of individuals...
...Prices are to remain stable...
...This interpenetration has positive aspects, but only because of the failure or weakness of democratic forces: if the choice be between urban renewal for the rich or no urban renewal, it is preferable to have urban renewal for the rich...
...68-69...
...All these measures have accelerated in recent years...
...94-97...
...The conception which underlies the guideposts is similar to that on which the antitrust laws are based: In an economy dominated by powerful oligopolies, the market fails in distributing income to the "factors" of produc - tion on principles of equity...
...Early in 1964, Walter Heller indicated that problems of poverty had to yield precedence to stepping up expansion...
...Yet, some of these (retailing, tourist services, hospitals) are among the fastest growing industries in the U.S...
...The obvious immediate reason is the success of fiscal policy...
...Inequality is embedded in the social and economic processes of capitalist society...
...However, the guideposts are but a pretense for an incomes policy, for they cannot be considered separate from other recent economic policies, of which the investment tax credit, liberalized depreciation, and largescale reduction of corporate income taxes have been major facets...
...In some instances, there is a broadening of the police powers of the federal government (as in the area of civil rights) and a modest degree of innovation in the forms of public action (as under the antipoverty program) . But Johnson skirts contests of power where institutions are involved...
...For their less "productive" services, they maintain a low-wage sector of their own: New York City's subprofessional hospital employees, for example, currently receive an average annual wage of $4,200.25 Incomes Policy: Perpetuating Inequity The subsidizing of industry places the wage-price guideposts of the Democratic Administrations in a new light...
...Distasteful as such arguments are, they cannot be dismissed lightly...
...International crises are likely to polarize rather than unify public opinion in America...
...Investment Subsidies: Boon to Business—Bane to Labor The tax bounties and the guidelines liberalizing depreciation allowed to industry by the Kennedy and Johnson Administrations are prime examples of the way the political process disposes of the social surplus...
...and that, in conjunction with the budget, taxes remain the principal means of allocating resources to where they are needed most...
...A boom level of investment, maintained for several years, causes the stock of capital to increase so rapidly that further investment eventually becomes unprofitable...
...Harlem and Chicago's South Side have grown but they have not changed...
...Government as Capitalist: Underpinings of "Keynesianism" Keynesian theorems have articulated the economic policy of the KennedyJohnson Administration, but it would not be possible to explain the prosperity and relatively low unemployment that have prevailed since 1941 in the U.S...
...in the social ladder...
...The political circumstances in which they would be substantially less significant and in which nondefense outlays would "replace" them cannot realistically be envisioned at present...
...This essay is the best political analysis of the motivations and purposes of the War on Poverty the writer has come across...
...The extent to which procurement for defense has given rise to orders for durables not classified as defense goods might be calculated by means of inputoutput analysis...
...28 The aged are no longer exposed to destitution in the same degree as formerly, but social security payments remain niggardly at around $100 a month per retired worker, and perhaps $160 per aged couple...
...A boom level of investment...
...while lowproductivity industries would be permitted to raise prices, and the wages they pay could rise relatively faster than wages paid by high-productivity industries...
...In the early postwar and Korean War period, every 1% gain in manufacturing employment yielded a 2.5% gain in output...
...14 Government-financed R Sc D has unquestionably accelerated the transformation of technologies—in instrumentation electronics, control systems, power sources, and types of fabrication...
...And that is as much a precondition for planning in terms of human needs as the political struggle for it...
...And who in responsible position today would deny that the evolution of technology imperils jobs, regions, communities—problems for which the automatism of the market provides at best only partial solutions...
...According to Solomon Barkin, 21 the average annual increase in the industry's productivity was 5.4% between 1949 and 1957, well in excess of the norm for manufacturing as a whole...
...rushes headlong into excessive capital accumulation...
...at least as much will be saved annually in future years...
...The experience gained from such work has usually been in the technologically most advanced areas...
...Combined with the rationalization of white-collar work, the change in the technology of whitecollar work is effecting a kind of quantum jump in white-collar productivity...
...Yet, low wages remain a major cause of poverty...
...Tax Policies: The Neglect Of Social Needs The tax policies of the KennedyJohnson Administrations have converted American business to Keynesianism...
...Budgeted expenditures for the categories listed above have indeed risen from 3% of federal payments in 1956 to 9% in fiscal 1966 (the proportion has declined again as defense spending has resumed its upward trend) . But this rise must also be viewed in light of the partial shift in public assistance and educational expenditures from the states and localities to the federal government, and in proportion to the urgency of the needs to which it has been a response...
...A considerably slower rate of increase in white-collar employment in recent years would seem to support this finding...
...Naturally, their policies must, and do, suit both partners...
...R & D activities in the aircraft and missile industry, according to the National Science Foundation, "have permeated the entire industrial spectrum from spacecraft, missiles, and electronics, to fuels, plastics, textiles, and cryogenics...
...It is a situation which induces a dog-eat-dog psychology, and employer-employee relationships can be particularly exploitative...
...ment more intensively in tasks of social reconstruction is to broaden the arena of contention—make the budget bigger, prevent its size from being predetermined by tax rates that are too low...
...If there were a system of cash insurance benefits for all workers in private industry, it would, at stipulated levels of adequacy, require outlays of $2.2 billion a year, and if workmen's compensation and unemployment insurance were brought to comparable levels of adequacy, $2 billion would be added to the total of current expenditures for these purposes...
...These savings are to a great extent applied to nonproductive end uses...
...It requires ever larger increases in output in the capital-intensive industries to expand employment...
...Wasteful" disposal of the social sur126 plus is but one example of the contradiction between economic growth and social welfare...
...The Democrats, in line with Walter Heller's criticism of the 1954 measure,5 attempted to "balance" the investment incentives they granted by raising disposable incomes via personal income tax cuts...
...The rapid growth in population, the poverty of large segments of humanity, the ramifications of technology, the loss of nature—all these threaten the social fabric, require more forethought, more coherent policies, widely disseminated knowledge...
...Economic Report of the President, 1964, pp...
...See Michael Harrington in his Introduction to Poverty in America, by L. A. Ferman, et...
...8. Revenue Act of 1962, Hearings Before the Committee on Finance, U.S...
...the loci of social power are not shifted by the accretion of marginal sectors, particularly as it occurs under the aegis of established interests...
...The average hourly wage in manufacturing was $2.62 in 1965) . In 1965 there were an estimated 7.4 million persons, or roughly 10% of all the employed, who earned $1.75 or less (half of them earned $1.40 or less) . True, many of the people with such small earnings were part-time workers and lived in families with other breadwinners...
...Given the political context of the sixties, these Administrations have eschewed any "Deals"— Square, New, or Fair—which would imply a reshuffling of the cards in favor of the disadvantaged...
...al., Ann Arbor, 1965, p. XI...
...1. Richard Hofstadter, The American Political Tradition, New York, 1948, p. 334...
...ment policies largely subserve existing market relations...
...Its social effects were entirely conservative...
...Between 1956 and 1963, the number of persons receiving public assistance rose 30% (to 7.5 million) , but while assistance to the aged declined somewhat, reflecting broadened eligibility for Social Security payments, that to families with dependent children soared 76% (to nearly four million) . Generally speaking, dependency has been growing much more rapidly than population, and hence compels—as a matter of social necessity and not patronizing "compassion" — relatively large increases in per-capita outlays for the required support...
...Social struggles, given the country's traditions and the flexibility of its political setup, cannot easily be repressed...
...The 1954 tax reduction and reform act was no less motivated by the desire to stimulate investment and long-term growth (thus to yield more jobs) than the successor acts of 1962 and 1964...
...But this its organic function remains all the more subordinate to its political function as an instrument of economic power, as the "forces" of the market become more concentrated and less "blind...
...According to the Report, 119 employment in steel dropped by 95,000 or 13% between 1957 and 1964, while output per man-hour (productivity) rose 16...
...Social Welfare Opportunities and Necessities Attendant on Disarmament...
...and the position of labor was, in effect, weakened further by the relative cheapening of the price of capital via government subsidies...
...Council of Economic Advisers, Report to the President on Steel Prices, April 1965, p. 55...
...the problem for those who struggle to involve the federal govern...
...Have Social Security and unemployment insurance, inadequate though they may be, not become firmly established principles of income maintenance...
...Instead, "demand management" as Oscar Gass has dubbed Democratic economic policy, 12 has been adopted, but far from "managers" conducting it in the interest of consumers, the "managers" eschew egalitarian objectives and reinforce the distinctly capitalist framework of the economy by emphasizing the strategic role of private investment and the conventional incentive of profitmaking...
...But such types of planning take place within, and are designed to underpin, institutions whose entire mode of existence is linked to the accumulation of capital —institutions rooted in surviving ideologies of social Darwinism that sanction the competitive appropriation of wealth...
...Even the success, 116 such as it was, of countercyclical measures can be attributed only in small part to Keynesianism...
...wage and price norms, the distribution of the tax burden, the level and direction of public expenditures, all remain controversial...
...Rather, they seek to link up with it and to use it to implement their policies...
...Of the 15 million children who live in poor households, six million live in families where there is a worker who has a full-time job the year round...
...Yet, although prices do not reflect true social costs, the appearance of price stability is used to argue wage restraint...
...cit., , p. 19...
...perhaps as much as half of the labor force, essentially production and maintenance-type workers, who are subject to frequent unemployment and part-time work, who have suffered severe income losses, and who are generally subject to very slow improvements in real income, and who are simultaneously lectured about wage restraints, costs, prices, and the balance-of-payments problem...
...Johnson does not, and probably will not, face this particular dilemma...
...Are things not being done...
...This] growth . . . has been in an environment characterized by war, threats of war, emergency defense programs, and inflation...
...In modern industrial societies such transformations have invariably given rise to new investments...
...In commenting upon the 1954 act, Dan T. Smith, an outstanding tax expert and adviser to the Republicans, wrote early in 1955: "The question is sometimes asked as to why any relief of this sort is needed when the economic system has grown as spectacularly as it has over the last 15 years...
...TVA was one of seven autonomous regional development bodies projected...
...Walter Heller, in the article referred to above, complained that the "allocative effects" of the 1954 tax revisions were such as to...
...In sum, the guideposts intend that prices and wages converge towards an "average" level, their premise being that industries such as steel, autos, chemicals (and, more recently, textiles) will voluntarily surrender pricing and costing practices which are the essence of their economic power...
...revision of the tax structure in the direction of equity...
...However, these uses require largescale public and private investments...
...Manufacturing and mining, which account for half of all corporate depreciation, took 70% of the added deductions under the new guidelines...
...Of the increased revenue, labor would receive its conventional share...
...to them, "high" taxes represented an "obstacle" on the path to growth as it did to the Democrats...
...But the basic labor-displacing effects of capital investment in the industry are clearly in evidence from the long-term trends noted...
...in 1960, the proportion was 40% 29 While the modern welfare state has prevented immiserization, it has not been able, because it has not been designed to abolish or even narrow the gap between low incomes and standard family budgets...
...However, this says nothing about the possible leverage that militaryspace work, relatively small though it be, exerts upon total company operations...
...Banking was subjected to stringent rules...
...and absorb proportionately more labor than technologically more advanced ones...
...Senate, April 2, 1962, Part I, p. 84...
...They were accompanied by a steady decline in the industry's labor force, output of textiles remaining unchanged between 1948 and 1963...
...Disposable income has risen at twice the rate of population increase...
...Figuratively, for every $1,631 increase in cash flow over the period, one worker was displaced...
...7. National Tax Journal, op cit., p. 22...
...This makes low minimum wage floors and inadequate coverage especially disturbing...
...The ideological foci of America's urban underclasses remain too blurred to lend force to the advocates of priority planning...
...The usual argument against minimum wage coverage or a higher minimum floor used by representatives of such industries is that jobs would be lost, either because business would have to close or because they would have to discharge less productive employees...
...Mere acquiescence by business, earlier in the postwar period, in the changes wrought by the New Deal and in the role of government in stabilizing the economy has gradually changed into acceptance...
...31 But the economic policies of the Democrats have in tendency been anti-planning...
...The Keynesian assumption, reflected in the economic doctrine of the American labor movement that the propensity to consume must be raised to keep the economy going, has lost force: High rates of investment can be maintained, and the price of capital need not be low (and it has not been) without deliberately raising the consump• tion of households...
...Given these stringent conditions, economic growth suggests itself as the only major means of expanding society, making possible, as Elinor Graham has put it in reference to the war on poverty, the addition of "new roles . . . to the job structure," and the creation of "new status rungs...
...Tre Democrats, as well as the Republicans under Eisenhower, have solved the savings-investment equation, at minimal risk of institutional change, in part by accelerating technological transformation, and in part by strengthening the sources of conventional demand—those sources, that is, whose strengthening does not involve the raising of the consumption function...
...full or nearfull employment has been attained but is not likely to be maintained.3 However, they have entrenched the conventional structure of private demand, where advances in productivity are so rapid that only very large and unsustainable gains in output can raise employment levels...
...Federal Tax Policy for Economic Growth and Stability, Papers Submitted by Panelists Appearing Before the Subcommitte on Tax Policy, Joint Economic Committee, November 9, 1955, p. 14...
...we cannot repeat them here...
...15 The process of capital accumulation has, in the U.S...
...The Republicans cut taxes on consumer incomes relatively little...
...This has been the preference of enlightened business leaders since the beginning of the century, only that they did not at first 112 conceive of government providing more than a favorable legal and regulatory environment for effecting their objectives...
...And it has lately become fashionable among some economists to argue that the employment of inexperienced and unskilled labor is prevented by exorbitantly high wage 123 levels...
...If its elimination is to serve human ends— those of the worker and those of the user of his product—large-scale social services must be created, or existing ones extended and deepened, not only in order to intensify the demand for labor, but also that the jobs which become available may dignify those who hold them...
...the Federal Reserve was centralized...
...Instead, they have adopted policies promoting economic growth, i.e., enlarging the national income without changing its relative distribution...
...His legislative achievements generally continue established patterns...
...less public poverty, but a reduced taxation...
...as part of this specious argument, minimum wages are kept below poverty levels...
...The New York Times, December 4, 1965, p. 17...
...It even had to be slowed down when that level was reached because pressure on prices would swiftly translate into reduced profit margins and thus threaten to abort growth altogether...
...Such a conjuncture of institutional patterns and international events does not permit much optimism...
...Moreover, public enterprise and Administration operate according to canons of efficiency and economy more and more like those of private corporations...
...Such planning would entail: basic change in the allocation of resources...
...However, recent computations by the BLS reveal a decided steepening in the rate of productivity gain in manufacturing, from an annual average of 2.4% in the 1947-59 period to 3.2% in 1959-64...
...However, looking at trends in output in the intervening years, we note that since 195759, output has risen 34%, while the number of employees in the industry has dropped 3...
...As of summer 1965, there were still some 2.1 million men and women working in nonfarm industries, earning $1.25 an hour or less...
...businesses in these industries are often localized...
...Commentary, October 1965, p. 32...
...1, March 1954, P. 7. 5. "Appraisal of the Administration Tax Policy," National Tax Journal, op...
...The Democrats officially abjured any belief in "neostagnationism" 6 but acted as if they had few doubts about what would happen in the absence of strong fiscal policies...
...Such measures, contribute to intensifying the duality in the economy between high-productivity and low-productivity sectors...
...In this respect, the Council of Economic Advisers' Report to the President on Steel Prices (April, 1965) is revealing...
...History reveals . . . that the boom level of investment is considerably in excess of the maintainable rate...
...Report of the President of March 1964 showed that of the 4.3 million new nonfarm jobs that opened up between 1957 and 1963, 93% were due to increases in public demand (including government procurement from private firms...
...as consequences of Keynesian prescriptions...
...they bear the stamp of alliance...
...113 It is interesting to note the extent to which the tax policies of the Kennedy and Johnson Administrations have reinforced those of Eisenhower's...
...risks, incurred from the rapidity of shifts in living habits, transportation technology and locational patterns, tend to keep capital investments relatively low and fragmented among small owners...
...In Productivity Trends in the United States (Princeton, 1961), John W. Kendrick states that "total factor productivity reveals a distinctly higher trend since World War II than that which prevailed in the three prior decades," and that ". . . there was a remarkable acceleration in manufacturing productivity in the 1920's...
...Market forces are no longer relied on entirely to perform functions of adjustment to the business cycle and technological change...
...Tax and expenditure policies are responses to social needs, but the form and scope of the response is shaped not so much by objective evaluation as by political contention...
...for 1965-70 it is es121 timated at around 4...
...63-19, May 1963, p. 3. 15...
...Murray Weidenbaum has calculated that defense-space orders represent but a small share of the total sales of such companies as General Electric, Westinghouse, International Business Machines, Radio Corporation of America, etc...
...It may appear that largescale labor redundancy will not be permitted in modern society...
...Economic growth in America takes the specific form of rapid accumulation of capital, with the government as a major innovator and provider or guarantor of investment capital...
...The federal budget is a major focus of political contention...
...Planning boards were set up...
...Thus economic growth is not welfare-oriented...
...On the contrary, while the statistics of income and housing show no deteriora tion in the material standards of the poor, social conditions have worsened...
...They grant large subsidies to business but attach no such strings as levels of employment, quality of training, and location of new plants...
...The tax cut, in addition to intensifying inequalities in income, resulted in a relative reduction of the means potentially available for the elimination of poverty and deprivation...
...As one looks forward to normal growth, the importance of restoring normal incentives and removing punitive tax provisions becomes clear...
...Their "Great Society" envisions integration without equality...
...Subsidization of private investment can only strengthen these tendencies...
...Markets would likely be glutted, prices would fall, investment would be reduced, unemployment would rise...
...the Democrats merely left the latter's privileged status untouched...
...Barkin details the technological changes which underlay these gains...
...Some will argue that it is rhetoric to contrast the record of economic growth to that of inequality and persistent deprivation...
...channeling of human effort, through appropriate incentives, into socially desirable vocations and endeavors...
...It gave priority to investment incentives on grounds opposite to Heller's...
...The value of defense procurement in the 1964 fiscal year was $26.2 billion...
...He does not intend to reform economic institutions...
...Nowhere are the fallacious assumptions of current income policy exposed more poignantly than in the obstacles raised to higher wage floors...
...Nor does this crude yardstick convey the increasing dependency of some larger population groups...
...Subsidy and Subsidy-Effect Programs of the U.S...
...This acceleration in the required rate of growth of GNP is more likely due to faster pro...
...16 The Treasury has estimated that, under certain assumptions, the tax credit will entail a revenue loss of around $20 billion in the 1962-72 decade, i.e., a gain of the same magnitude to those eligible for it...
...The price of this conversion has been the regressive character of those policies, whatever their merits in prolonging the upward phase of the business cycle...
...Nevertheless, his proconsumer bias is morally refreshing...
...Hunger prevails in much of the world, despite intensified investment in agriculture, with crops either partially warehoused or held down by acreage restrictions...
...This institutional system, archaic in many respects and barely able to cope with mounting internal pressures, is also being tested by ceaseless international crises...
...However, wages have not similarly benefited and they are restrained by the insecurity that rapid, tax-subsidized technological change breeds...
...cit., p. 4. 19...
...The result was inability to cope with large-scale unemployment...
...If, as Daniel Bell has written, productivity is not allocated in a meaningful way, it is nevertheless allocated by the political process...
...it has not succeeded in reducing unemployment much below the level of 4...
...Planning along lines of social priorities, which takes in account the international effects of domestic measures, might indeed begin to resolve these problems...
...There are a number of ways of doing this, in addition to creating more jobs than there are jobseekers—stipends for students, family allowances which permit women to stay with their children, adequate oldage pensions...
...ductivity gains than to a more rapid increase in the labor force, although the CEA has not taken a position in this respect...
...protection of the losers remains minimal and is adopted only under intense political pressures...
...Business has evidently settled for a political solution of the savings-investment problem, but one that is consumption-oriented, not consumer-oriented...
...This "policy" failed when the depression revealed the inability of business to ensure sustained growth as a basis of mitigating class and group conflict...
...The market and the price system continue to stamp the relations among social classes...
...The CEA, of course, has been aware of these problems, but it has advocated that it should minimize the likelihood, even while admitting the possibility, that the rate of technological advance will continue to accelerate, that rates of gain in productivity will remain "healthy, but not unprecedentedly large...
...For the contrast implies that "nothing has changed," an implication hard to accept, especially by those who identify the progress in technology of man's mastery over nature with that of society...
...Fair Labor Standards Amendments of 1965, Committee on Education and Labor Report, August 1965...
...With industry's capital costs being partially subsidized, profits rise even while prices remain stable, or nearly so...
...Leading sectors of American business have also traditionally favored high wage levels, but business has offered stiff resistance when its economic power was at stake...
...In 1947, 39% of all persons lived below standards of minimum comfort...
...One of the basic principles of President Johnson's conceptions is the need of society to expand in order to resorb the apparently growing number of groups and persons who are excluded from the normal processes of production or rejected by corporate bureaucracies and their welfare schemes...
...underemphasize consumer markets...
...that of orders for major equipment alone was $16.7 billion, or 7-8% of total new 117 orders in the durable goods industries...
...24 One may argue that the instability arising from the operation of the "private" sector can be offset, when need be, by heavier government expenditures...
...but labor redundancy does prevail in the great urban centers and, although obscurely, in rural areas too...
...These men no longer seek to countervail the power of business...
...Be that as it may, an incomes policy of sorts is perhaps necessary, in a political economy in which socialist alternatives are not visible...
...An unprecedented, large-scale investigation of corporate concentration was launched...
...A comparison of Johnson's with Franklin D. Roosevelt's objectives and achievements shows the extent to which the relationship of forces has changed since New Deal days...
...However, if wages of such labor ran merely midway between the legal minimum and the manufacturing average, they could not even be called "living wages," a level for which the trade unions fought for decades, but which large strata of workers have not yet attained...
...Higher minimum wages can make the price of such labor less cheap, but the problem is to tighten the labor market so that minimum wages, for want of takers, cease to be an issue at all...
...The success of the economic policy initiated by Walter Heller has, to be sure, enlarged the "fiscal dividend"— the increase in tax revenue due to economic growth...
...Yet, the basic problems of unemployment remained: In 1963 the male unemployment rate averaged 5.7%, compared to 4.3% in 1957, even while labor force participation of men had fallen to 78.8% of the male working-age population from 82.7% in 1957...
...The Kennedy-Johnson tax policies have indeed succeeded in initiating a great investment boom, which by its very nature cannot last...
...Thus, even mild social palliatives are not forthcoming or, at best, are yielded up stingily...
...in the early sixties, the ratio had risen to 4...
...Moreover, "supply management," ignored by Gass, is safely left in the hands of corporate giants...
...an Explanatory Note on the Council's 1965 Annual Report," April 2, 1965...
...Although labor-displacing technological advances have been intensifying in steel, and are likely to accelerate in future years, promising "to bring substantial cost savings . . ."2° and although steel's relative decline in the input or user industry has lowered and will likely continue to lower its economic weight, the government granted the industry an effective tax bounty of $250 million in 1964 alone, 12% of industry's cash flow...
...Ibid., p. 50...
...The 124 economic base of the cities has been decaying rapidly, as central city-suburban income differentials have widened, and as a growing proportion of industries has located away from them...
...and the history of labor and other democratic movements over the last 100 to 150 years can be read as a history of resistance to that tendency...
...But the very success makes future problems of manpower displacement and employment more, not less, worrisome...
...In the July 1965 Social Security Bulletin, Molly Oshansky could write that .. well over a fifth, and perhaps as many as a third, of our children (are) growing up in dire poverty or haunted by its specter"—mirroring a statement that had appeared 15 years earlier in the Report of the Subcommittee on Low Income Families of the Joint Economic Committee, which said: "We have found that approximately onefifth of the Nation's children are in farm and nonfarm families receiving $2,000 or less in annual income...
...The autonomy of corporate business and the private market remains unimpaired, even though the Democratic Administration acts at times as the senior partner...
...But neither was it willing, until the late thirties, to pay the price for their collaboration—halting further reforms...
...In more recent years, employment has edged up somewhat in response to strong recovery in production...
...Highly integrated firms, who are strategically located at the frontiers of technology where intracompany transfer of knowledge is no problem, are likely to derive benefits from militaryspace work which is proportionately much greater than is suggested by the "small" share it represents of their total sales...
...The kind of economic growth, which fiscal and monetary policies combined with the government's innovative and regulatory role have promoted, cannot but speed up the rate of labor displacement...
...Higher minimum wages generally have not caused serious disemployment...
...But if these factors caused the curve of productivity gain to slope upward after 1919, the technological and organizational innovations that occurred after World War II can scarcely be denied an analogous role in causing a further steepening in that curve...
...Proposed and enacted in the name of economic growth, it did nothing for social growth...
...control over the location of industry...
...6. See the article by Arthur F. Burns in the Morgan Guaranty Survey, May 1961, and the reply of the Council of Economic Advisers in the August 1961 issue...
...The added gain in the latter period was attributable mainly to white-collar employees, whose productivity advanced by 2.5% a year, which is not surprising: According to census data, the value of factory shipments of, computing and accounting equipment nearly doubled between 1959 and 1964, compared to a much slower rise over the 1953-59 span...
...As a politician, Johnson is no less 111 skillful than Roosevelt, nor is his policy more conservative...
...At today's level of industrial technology and corporate practice, such subsidization tends to speed up the rate of obsolescence of equipment and plant and thus helps to create ever new outlets for capital accumulation...
...0 Such an order of procedure ignored the relationship that exists potentially between raising low incomes and promoting economic growth...
...In computer technology, the government has played a role only in the initial stages of development...
...if anything, it stunted it...
...4 It is true that vital differences have existed in overall fiscal policies between the Republican and Democratic Administrations...
...Under Roosevelt, new regulatory institutions were created—the Securities and Exchange Commission, the National Labor Relations Board...
...It is hard to accept also by those who have witnessed, or taken part in, the advance in political power of workers and farmers, and the growing influence of the universities...
...Thus, the government has become the single most important market for computers—which are at 118 the very core of technological transformation— and the rapidity with which the American computer industry has been expanding domestically and abroad would be unthinkable without the virtually guaranteed outlets in government agencies...
...30 Yet, while thus new "constituences" may arise, theorems of pluralism hardly apply to the process...
...Economic growth in the U.S...
...Project planning," corporate plan127 ning, more precise formulas relating revenue costs to social benefits—all have long become acceptable as part of the functions of growing public and private bureaucracies...
...Gains from evolving technology and productivity are appropriated by strategically located private groups and corporations...
...It tends to worsen...
...the raising of real income through expanded public services...
...hence government must act as its proxy in fulfilling this function...
...11...
...Technological advance and economic growth are not tantamount to social progress, and in a class society they tend to obstruct it...
...This is, of course, not an argument against the social security system...
...Under this partnership, which has matured over the past few years, economic policy operates, quite in the Keynesian sense, to regulate the volume of investment and effective demand— but not their direction...
...there is also reluctance on the part of economists to raise issues of distribution as between "capital" and "labor...
...Federal funds expended for research and development (R & D) are also likely to have induced a broad range and substantial amount of investment...
...Council of Economic Advisors, "The Growth of Potential GNP...
...However, he or his successor will be confronted with problems of deepening social inequality of which racial conflict is but one expression and work camps a troubling manifestation...
...and the dominance of corporate interests is too secure to make it a serious political option at present...
...In atomic energy, a vast area of capital-intensive investment has opened up, destined to transform electric generating technology...
...The Republicans in their tax policies dearly favored the well-to-do...
...Unemployment rates among Negroes in 1965 were 40% higher than they had been in 1948— both years of strong cyclical expansion...
...but this is an unlikely prospect for this country...
...This is true, but it begs the question which is a political one...
...Growth and Poverty: The Persistence of Market Forces Over the postwar period, gross national product has grown at an average annual rate of more than 4%, in constant dollars, as has the Federal Reserve's index of industrial production...
...Thus, there remains, and will remain, room for growth of social intelligence...
...The new guidelines resulted in effective tax savings estimated by the Department of Commerce at $1.2 billion in 1962, when they were first applied...
...Trese crises lay claim to the "fiscal dividend" some liberal economists had hoped and still hope to apply to social investments...
Vol. 14 • January 1967 • No. 1
