A Mirror of Our Crisis

...The contraction in the trade surplus is by no means the only, or even the main reason for the deterioration in the balance of payments, but it has contributed to the loss of confidence in the dollar...

...It is not necessary here to examine the subtleties of this argument...

...but these have run much too high to be financed so painlessly...

...The end of fighting in Vietnam would, of course, spell a more or less gradual reduction in total defense spending, at least for a period...

...MUCH OF THE FEDERAL BUDGET presented to Congress last January is already outdated...

...Technological imperatives, however, are bound to keep military outlays at high levels, quite aside from the political and economic pressures working in that direction...

...These imperatives are exemplified by the conversion of Polaris submarines to the more powerful Poseidon system, by the construction of newdesign nuclear-powered ships and fast-deployment logistics ships, all of which adds $600 million in 1969 to the Navy's shipbuilding procurement authority alone...

...The evolving military technology of adversary nations to some extent compels an increasingly costly R & D effort here, and it is likely that the conflict between military and civilian claims on resources will persist H. BRAND ment has been reached, and the militaryindusrial complex is in decline...

...In view of the pressures on family income which these illustrative figures suggest, the widespread if mistaken resistance to costly programs of social reconstruction is understandable...

...The Administration has accordingly requested a tax boost estimated to yield $3 billion in the current fiscal year, and $13 billion in fiscal 1969—whose enactment, however, still remains in doubt at this writing, since Congress has conditioned it on sharp cutbacks in the budget...

...Adult Basic Education, also a federal program, reached 2 per cent of eligible beneficiaries in Detroit, 6 per cent in Newark, and 4 per cent in New Haven...

...and that the economic position of the poor and of low-income earners has deteriorated along with underfinanced public services...

...Total receipts would still fall an estimated $21 billion short of scheduled expenditures, unless taxes were raised...

...The federal income tax MIRROR OF OUR CRISIS until an international disarmament settle( including the surtax) on such an income would be $903, or $62 more than in 1963 —not $140 less as represented in the published table...

...The Administration has banked heavily on the "fiscal dividend"—the increment in federal revenue due to growth in the national product—in order to fund increases in the budget...

...A 1968 family income equivalent in purchasing power to $7,500 in 1963 thus amounts to $8,400...

...According to one example in the table, a family of four earning $7,500 a year and taking the standard deduction would pay $737 in 1968 (including the surtax), compared to $877 in 1963...

...It has become an accepted truism that international objectives conflict with domestic ones, and to trace inadequate provision for domestic programs to that conflict...

...Exports of goods and services still show a substantial surplus over imports, but that surplus is shrinking, and has become less of an offset against (dollar) outflows of private capital, government grants, and sharply rising dollar payments for U.S...

...The reasoning of Congressional conservatives in delaying the requested tax hike is simple: a huge deficit will not only be widely interpreted as profligacy on the part of an irresponsible Administration, it also exerts powerful financial pressures in the economy which are politically damaging, and therefore of themselves compel expenditure cuts...

...It seeks to finance the pursuit of international policies which, because of the growing military and technological prowess of adversaries, now exact (and will continue to exact long after the war in Vietnam has been settled) a large, possibly expanding share of national resources...

...It may safely be assumed that the Commission's findings for these three cities illustrate a general pattern of substantial discrepancies between available funds and actual needs as defined by the government's own tight standards...

...Moreover, the fiscal dividend is easily overestimated when economic growth slackens...

...Suffice it to note that wholesale and consumer prices have been rising sharply over the past three years...

...The Federal Budget has, in fact, risen at a lesser rate than the national product, particularly when the "special expenditures" for Vietnam and social security payments (which are self-financing) are excluded: in fiscal 1969, total outlays minus those two items will equal 18 per cent of GNP, compared to 19 per cent in the late fifties...

...Economists generally accept the thesis that when resources are fully employed— and that they are is evidenced by the low average unemployment rate for adult males, extraordinarily high female labor-force par ticipation, and growing absorption of manpower by the armed forces—government purchases not covered by tax revenue tend to raise the price level...

...as a proportion of budget outlays (again minus social insurance), such expenditures will have declined from 81 per cent to 77 per cent...

...The indicated trend in welfare-state outlays must be viewed against the social decay which these outlays are meant to counteract...

...Continued advances in military technology are bound to result from R & D programs, and hence in rising levels of expenditures for military hardware, new generations of weapons, and new weapons systems...

...THE TREND IN EXPENDITURES related to the international posture of the United States is more difficult to evaluate...

...In addition, the heavy financing needs of the federal government have contributed to raising interest rates to historic highs...

...It is a problem not, or not merely, of government policy, but one that raises basic issues of social power: were the public sector to draw on the private sector to the full extent of "needs"—needs as defined, say, by the Administration in regard to foreign affairs, and by the Kerner Commission or the Freedom Budget in regard to domestic matters—a very much higher level of taxation than prevails at present would be required, as well April 14, 1968 as controls on wages, prices, and investment...

...as indicated, it would cover but a portion of the expected deficit...

...Yet the fiscal system on which it draws has manifestly become too weak to sustain the financial demands made upon it...

...Expenditures for defense will considerably exceed the amount originally provided, while budgeted civilian outlays, as well as appropriation requests to support future expansion of civilian programs, will be cut back...

...Weakening confidence in the dollar has drained the gold stock, but it still represents one quarter of official gold holdings outside the Soviet bloc and China...

...Such measures could not be considered as dealing merely with a wartime emergency...

...Let us assume that the Consumer Price Index will move up as much this year as it did in 1967, or 2.8 per cent...

...It would go beyond the frame of this article to delve further into the problems of the dollar...

...The problem is not rooted, however, in the allocation of resources available to the government, but in the allocation of resources available in the economy as a whole...

...As regards housing, major federal programs have assisted in the building of "a maximum of 758 low-income housing units...

...since 1956" in Detroit, according to the Report, equivalent to 2 per cent of substandard units in that city...

...Payroll deductions have risen from $174 in 1963 to $343 in 1968 (on an annual basis) for those whose annual pay equals or exceeds the maximum wage base ($7,800 at present...

...The Administration has made much of the small impact the surtax would have on family income, and has claimed that the surtax would still leave federal tax payments of the average family below the levels that obtained prior to the 1964 tax cut...

...Defense research and development, together with atomic energy R & D, are due to increase by 8 per cent, to $10 billion in 1969...

...Given the relationship of political forces in the United States, it comes as no surprise that, on the revenue side, the budget reflects the caution of its formulators and preserves the status quo in the distribution of the tax burden, notwithstanding all talk about "austerity...

...financial establishment— conceptions hailing from the time of World War II and the first postwar decade when the dollar was the extension of the only strong and viable economy in the world, and when U.S...

...AS A RESULT of the inflationary tendencies engendered by the budget, international price differentials have tended to shift against the United States, spurring increases in imports...

...Such measures would hardly be acceptable to American society, any more than they were to other societies in analogous circumstances in the past 20-25 years: all eventually retrenched their foreign "commitments," since these had ceased to make political sense and since maintaining them would have spelled an economically ruinous enlargement of the power of the state...

...This example leaves out of account the effect of inflationary prices on family income as well as of higher social security levies...

...A much harsher choice would have to be made as to whether to stop dollar investments abroad (although these yield profit remittances) or restrict miliary expenditures, whose balance-of-payments effect last year amounted to $3 billion...

...These changes, however, do not affect the basic tendencies and dilemmas reflected in the budget...

...At the same time, the budget seeks to fund programs dealing with deepening crises at home...

...Similar gaps between funding and needs were found in education: under certain provisions of the Elementary and Secondary Education Act of 1965 in aid to disadvantaged children, only 31 per cent of eligible students were assisted in Detroit in the 196768 school year, 72 per cent in Newark, and 40 per cent of secondary-school students in New Haven...

...that while money wages have also increased, real wages have barely advanced at all since mid-1965, even while output per man-hour has improved...

...Let it simply be noted that America's power to impose international financial arrangements which permit, at the same time, large military expenditures and profitable business ventures, is waning...

...In fiscal 1969 the Administration anticipates federal receipts to rise to $12 billion, on the assumption of an increase in GNP of $60 billion...

...Analogously, there are domestic political limits on the extent to which the American government can finance its war-centered budget by deficits...

...That it is so largely reflects outdated con ceptions of American power and influence on the part of the U.S...

...Major federally assisted welfare programs reached 19 per cent of poor persons in Detroit in 1967, 54 per cent in Newark, and 40 per cent in New Haven...

...Thus, allowing for changes in purchasing power and social security levies, the family in the example cited paid $1,051 in total federal taxes in 1963, and will pay $1,246 in 1968, or $195 more...

...for less than 20 per cent in Newark...

...To support this claim, it has printed what must be regarded as a rather deceptive table of illustrative figures in the budget document, as well as in the Economic Report of the President...

...Were the dollargold link to be dissolved, and were the dollar to be defended like other monetary units simply through sales and purchases of foreign currency, as some experts have proposed, severe constraints on dollar outflows would be necessary...

...In New Haven, widely considered a model city, low-income housing replaced 14 per cent of substandard units, but 6,500 dwellings, mostly low-income, were demolished for urban renewal and highways...

...The income net of such taxes would now fall somewhat short of its 1963 equivalent in purchasing power...

...The proposed tax boost (or surtax) would not by any means remedy the weakness of the fiscal system...

...Although productivity abroad long ago caught up with productivity here, and the dollar has ceased to be the only "hard" currency, it nevertheless remains the key monetary unit in international transactions...

...military transactions abroad...

...and for less than one-third in New Haven...

...That "America can do both"—extend the welfare state and fulfill its "obligations" abroad, as President Johnson and George Meany assured each other in a recent conversation at the White House—is belied by the budget, even though the country's enormous capacity to produce lends credence to the statement...

...It would also worsen the economic condition of the average wage and salary earner...

...But some 8,000 low-income dwellings were demolished for urban renewal over the same period, indicating severe deterioration in the housing conditions of the poor...

...These cutbacks are the more difficult to make if only because they would erode the political support of the Administration...

...The candidacies of Robert Kennedy and Eugene McCarthy indicate, one hopes, that the interests of society will not be indefinitely sacrificed to the pursuit of fruitless foreign postures...

...Then its rise since 1963 will have amounted to 12 per cent...

...While the space program is scheduled to contract further, the Defense Department's own space research effort will continue to expand...

...Furthermore, between 1963 and 1968, social security tax rates and the maximum wage base to which these rates apply were raised considerably...

...But over the same period, expenditures for MIRROR OF OUR CRISIS defense, veterans' services and benefits, interest on the public debt, international affairs, and space exploration—all of which may be regarded as interlinked in the support of the world position of the United States—have increased from $74 billion in 1960 to an estimated $113 billion in the coming fiscal years...

...According to the Kerner Commission Report, manpower programs provided training opportunities for less than one-half of the unemployed in Detroit in 1967 (unemployment being measured on a conventional basis, that is, excluding the underemployed and those not looking for, although still able to, work...

...they would be of indefinite duration, just as the controls on outflows of dollars for direct investment abroad, meant at first to be "temporary," have proved to be permanent...

...It is true that federal spending for health, education, manpower programs, and public assistance has been rising strongly— from $5.2 billion in 1960, when it accounted for 6 per cent of the budget (minus social insurance) to a scheduled $16.8 billion in 1969, or nearly 12 per cent of the budget...

...these limits, too, have imposed a choice, and urgent programs of social welfare have been curtailed...

...As has been indicated, however, the scale of budgeted expenditures requires a much stronger fiscal system than the one available...

...It is not news that they fall short of requirements, but by how much is not so well known...

...But the choice has been made: the capital-richest country has decreed restraints on capital outflows to a capital-starved world, rather than pursue politics leading to reduction in military expenditures abroad...

...balance-of-payments deficits were hardly noticed and were amply covered by a large gold hoard...

...That era is gone, but the link of the dollar to gold, although attenuated, is still stubbornly maintained...