Social Priorities, Economic Policy, and the State
Keller, Eugene
TWENTY-FIVE YEARS AGO LORD BEVERmGE published his Full Employment in a Free Society, perhaps the most lucidly argued economic program of social democracy. In this work he assigned three...
...There can be no doubt, moreover, that these trends will persist and perhaps be reinforced, inasmuch as industries now locate predominantly in the suburban rings of central cities rather than inside them: more than three-fifths of industrial construction permits in the late sixties were issued outside cities...
...The unemployment rate for whites had risen to 5.5 percent from 3.2 percent 12 months earlier, and that for Negroes to 9.3 percent from 6.2 percent...
...First of all, the Nixon administration deliberately abstained from instituting compensating measures for the job losses incident upon defense cutbacks, and it did not take steps to assure jobs for discharged soldiers...
...See also "Special Defense Issues," in Setting National Priorities, the 1972 Budget, by Charles C. Schultze, et...
...And these have in fact supervened...
...Rosow speaks will tighten seems plainly indicated by some of the broad demographic and occupational trends that are likely to emerge in the seventies...
...and of trust funds, from which social insurance and medicare, as well as much of highway construction, are financed...
...Therefore, a much larger number of young workers will have a greater sense of their own potential, bringing higher aspirations to what will be largely constricting jobs...
...Government finance prevented the housing deficit from being worse than it actually was, but certainly did not eliminate it...
...3) continuation of present federal civilian programs plus adoption of proposed programs such as the family assistance plan, revenue sharing, etc...
...The number of civilian defense workers alone would amount to well over 700,000 people...
...The Federal Government's estimate of the cost of implementing the Kerner Commission's programmatic recommendations was at least $30 billion over and above what we are now spending...
...It is clearly a Federal function and has to be performed at that level...
...It is a careful calculation contained in a December 1968 report to the President, signed by the Secretaries of the Treasury, Defense, Commerce, and Labor, the Director of the Budget, and the Chairman of the Council of Economic Advisers.27 These "illustrative new programs or major expansions of existing Federal programs" called for $7 billion more for education, $3.8 billion for health, $9.5 billion for social security and income support alone...
...8.3 Health...
...cit., part 2, p. 298...
...That relationship was to be determined "not from the angle of public finance, but from the angle of public policy...
...In early 1970, Charles Schultze of the Brookings Institution projected a $13 billion fiscal dividend for 1975 (after deduction of a projected $10-billion budget surplus to help finance housing...
...These subsidies amounted to $5 billion in 1969, most of it going to the 400,000 or 16 percent of all farmers with $20,000 or more in annual income...
...government regulation...
...ties or earlier decades...
...its effects would of course have been just as reactionary...
...The priorities problem," Stein has written, "must be faced and ambitions adapted to the willingness of the people to support them...
...Stein for the return of functions to the states and localities is revenue sharing...
...IT IS HARD TO SEE how in the present political and institutional context the issue of planning—and it is an issue—can be resolved...
...in Philadelphia, the respective figures show a 10 percent gain versus a 4 percent loss...
...It does—first, because defense expenditures draw heavily on federal revenues, more so than is commonly recognized (and these revenues of course represent the major portion of the part of the social surplus that is subject to political control...
...depends on what it contributes to meeting them...
...The seventies are likely to witness a deepening conflict between state capitalist interests and human needs...
...On the contrary, peace will provide the Nation with welcome opportunities to channel into civilian use manpower and material resources now being devoted to war...
...Third, [functions] must be returned to the states and localities...
...In January 1971, the Treasury liberalized industry depreciation schedules, at a cost in tax revenue estimated at $2.6 billion merely in the first year during which the liberalization was to be in effect...
...This is not to say that these or other federal expenditures depend solely on general revenue for their funding, which can be supplemented by deficit borrowing...
...In 1960, Seymour Martin Lipset, speaking for many fellow liberals, proclaimed that ". . the fundamental problems of the industrial revolution have been solved: the workers have achieved industrial and political citizenship...
...That, however, is to a great extent precluded by the huge claims of defense expenditures upon the federal budget...
...Between fiscal 1960 and 1964, the budget for defense and space expenditures rose by nearly 25 percent, to $58 2 Charles J. Hitch, "Resource Limitations," in The Economics of the New Frontier, B. H. Wilkins and Charles B. Friday, eds...
...These expenditures represented 53 percent of total federal outlays...
...Preempting resources no less than defense expenditures, the tax cut of 1964 represented a reactionary use of Keynesian policies...
...failed to help the poor and nearpoor who make up most of those who have been displaced [by slum clearance...
...Funds for "human resources," on the other hand, summed up as follows (in billions) : Manpower and education...
...10, 111...
...The view represented by Cooper turned out to be badly flawed, partly because it failed to take into account the eventual impact upon the American economy of changes in the international situation, which the steep rises in defense and foreign aid outlays were bound to generate...
...That likelihood is foreshadowed by the debate over social priorities, whose limited, conservative terms and technical jargon should not obscure its bitter origins...
...and (4) an economic growth rate of 4 percent a year...
...How ii Report of The President, January 1969 (Washington: Government Printing Office), p. 187...
...The Defense Highway System is but one of a number of key government programs intensifying the evils once associated exclusively with the operation of the free market...
...Moreover, the designation "human resources" for such expenditures as social security, public assistance, or unemployment insurance is misleading, inasmuch as the term is generally used in reference to investmenttype outlays, such as education and training...
...In the absence of government action, they are bound to worsen...
...An equally critical failure of Stein's analysis is its inability to take into account the vast state-capitalist functions assumed by the government...
...Any major expansion of income maintenance must be uniform on a nationwide basis...
...In a lengthy paper on this question, professors George Hildebrand and Norman Breckner wrote in 1957 that there is "a persuasive argument for the contention that during 1939-57, security spending promoted a higher realized rate of growth than would otherwise have occurred"—as shown by the increasing injections of military demand beginning in 1940, which ended the depression, and as shown also by the mildness of postwar recessions when contrasted with the boom-and-bust cycles that were typical of the economy prior to 1940...
...and if so, whether generalized sharing will produce the proper distribution of funds...
...7 More starkly illustrative of the impact of government on the economy and society is the Defense Highway System, which has been of fundamental importance in the de e Building the American City: Report of the National Commission on Urban Problems to the Congress and to the President of the United States (Washington: Government Printing Office, 1968), p. 402...
...Yet, in 1970, the actual economic growth rate was less than zero...
...to the support of 11.5 million needy persons, many of whom had been the victims of the agricultural revolution spurred by farm sub sidies...
...it was not central to the New Economics...
...Bearing on the first point, Congress allocated funds needed for subsidized housing more than a year after they were originally requested, and then at reduced levels...
...WE CANNOT ANALYZE HERE the reasons for the magnitude of these proposed expenditures nor judge their adequacy...
...According to the 1970 Manpower Report of the President, "opposition to increasing maximum benefit amounts is often based on the alleged threat to work incen 13 The Conference Board Record, op...
...and partly because the possible results from intensified technological and social changes upon accelerated growth were not appreicated, let alone planned for...
...78.7 These funds made up 37 percent of total federal outlays...
...The Vietnam war and the urban rebellions, occurring simultaneously, gave rise to critical, inescapable questions...
...4 The income tax cut of 1964, primarily instituted to put private productive capacity to work (by raising consumer demand) ,s was a result of this "decision...
...The health budget that rose from $4 billion to over $16 billion in five years...
...scale of priorities in the next several years so as to meet the urgent social needs spelled out in official reports that since the midsixties have documented the critical problems of poverty, educational neglect, ill health, and social disorganization...
...e The Report of the Commission quotes an expert in the field: "The old-fashioned motives of careful stewardship, conservation, and rational long-term management of investment are apparently subordinated in the tax shelter operation which often characterizes multiple-unit rental housing development, luxury or slum...
...14 The contradictions between the ideology guiding Stein and his associates on the one hand, the actualities on the other, dramatize the critical impasse in which American government finds itself...
...How its actual performance would be aligned with its potential, the Council did not say...
...Significantly, trust fund receipts have grown much faster than general revenue receipts: in 1969, they constituted about onefourth of total federal budget receipts, compared with one-fifth in 1961...
...these today are permitted only on a limited scale, and the state bails out the Penn Centrals and the Lockheeds...
...the support of vast research projects that result in costly but largely useless technology, often threatening to life itself...
...Richard Musgrave and A. Mitchell Polinsky, both experts in public finance, have written that if substantial new programs oriented toward disadvantaged groups are accepted as priorities, the case for revenue sharing...
...33 The link between military expenditures and economic growth is thus unlikely to be severed in the foreseeable future...
...It means also that the existing priorities in financing were not to be significantly disturbed...
...According to Charles Schultze, $17 billion could be added to the fiscal dividend in 1975 if, first, defense preparedness were reduced, in line with announced intentions, from capabilities of fighting "2 1/z wars"— one in Europe, one in Asia, and a "minor" one in the Western Hemisphere—to "1½ wars," and, second, strategic nuclear forces were limited to assuring the destruction of an enemy visiting nuclear attack upon the United States.84 But if the reduction in the number of wars planned for represents a change in strategic policies, it does not necessarily impinge upon armaments expenditures...
...In fiscal 1971, these expenditures were equivalent to about 80 percent of general revenue...
...This system, Daniel Patrick Moynihan has written, the twenty-first century will almost certainly judge to have had more influence on the shape and development of American cities, the distribution of populations within metropolitan areas and across the Nation as a whole, the location of industry, and various kinds of employment opportunities (and, through allthese, immense influence on race relations and the welfare of black Americans) than any initiative of the middle third of the twentieth century...
...This has probably been an important factor in keeping Negro unemployment at high levels...
...the subsidization and management of agriculture that displaces rural people...
...EUGENE KELLER such as these could not be evaded if full employment was to be attained and social evils were to be banished...
...cit., pp...
...but that the vise of which Mr...
...The simple dichotomy of a "planned" vs...
...But fiscal dividends have remained fiction, federal deficits reality...
...The new economics improved upon the concepts which rationalized the size of federal budget deficits needed to close the gap...
...mutual escalation of the arms race resulting, for example, from the Defense Department's 1969 request for $12 billion to improve the Poseidon missile, which no doubt compels the Soviet Union to step up its missile development and in turn requires further refinements on the American side...
...In contrast, expenditures for the security of the United States, as defined in the above table, have been financed of necessity out of general revenue...
...These workers are] not at the fringes of our economic system...
...Deficits, however, have highly regressive redistributional effects of their own since the interest payments on the swelling volume of public debt flow largely to the banks and rich individuals...
...The New Economics of the early sixties refined the techniques for estimating the gap between the economy's actual and potential performance, measured roughly in terms of the supply of idle labor and gains in productivity...
...Some] observers have reported a high correlation between frequent turnover and poor maintenance practices, especially for slum housing...
...Full employment and social priorities were inseparably linked in Beveridge's work...
...it has intervened to prevent the bankruptcy of major aircraft manufacturers by guaranteeing payment of huge, cost-inflated debts...
...We have argued that the state frequently acts as the partner or senior partner of powerful private interests, promoting hightechnology and other capital-intensive and military investments, about the human and social consequences of which it is as unconcerned as industrialists of an earlier era EUGENE KELLER were about the consequences of their decisions...
...It was worth $11.5 billion in federal revenues in 1965 alone, a sum that could have been expended to raise the incomes of a substantial segment of the poor (the tax cut benefited mostly families in higher income brackets...
...Strengthening the coordinating functions of government, as Moynihan has proposed, would result in improved management and thus reinforce existing tendencies in the activities of government...
...The new systems funded in the 1972 budget include the Underwater LongRange Missile System (ULMS...
...State capitalism preempts, possibly on an increasing scale, the resources needed for social reconstruction—the building of highways that strangle cities...
...it does not necessarily countervail private interests, but frequently adds its weight to theirs...
...Stein would ". . . summon up the real strength of the decentralized free exchange system to replace the evident evils and inadequacies of the present tangle of programs that have grown in response to modern needs...
...They express skepticism about the ability of government to solve the great social problems facing the United States and emphasize the need to rely more on, let us say, the organic processes of society— this is, after all, the meaning of Patrick Moynihan's phrase about "benign neglect...
...cit., p. 1^ 16 r{^;A , 1 s tives...
...This third rule Lord Beveridge did not regard as of prime importance, since either taxation or borrowing could be used to realize the first and second goals...
...it is no mere partner in the new industrial state, it is often the senior partner...
...The decline of central cities entailed a momentous change in the racial composition of their population: the number of whites residing in them fell 5 percent between 1960 and 1969, while that of blacks and other minorities rose by 32 percent...
...But neither will they be sufficient if defense spending is cut back, since this spells recession and a drop in federal revenue required for social investment...
...This statement is offered as evidence that "prosperity has not depended on the defense buildup and will not need high military spending in peacetime...
...For example, the proximate causes for the degradation of inner-city conditions would in the past have been sought in the way the free market works, but now they can no longer be dissociated from government policies...
...The dimensions of these effects are suggested by the program cost estimates referred to earlier...
...But so to view the problem oversimplifies it and implies that we are in essence dealing with the dichotomy of an "unplanned" versus a "planned" society...
...They have not been rehoused on urban renewal sites, nor has the total volume of public housing been adequate to meet the needs created by demolitions, deterioration, and population growth.° Considering also that the broader managerial policies of government have at times been deliberately designed to increase unemployment, or to finance defense expenditures by inflationary debt creation, it seems clear that government has become a social and economic force in its own right...
...The New Economics represented in large part a response to the challenges posed by Russia's growing military and technological strength (dramatized by the Sputnik in 1957), and by the European Common Market's vigorously expanding economies...
...It is likely that the need for the programs they were intended to finance will rapidly intensify...
...The historical causes of this aversion are related to the unique freedom from public constraints that characterized the expansion of American capitalism in the 19th and early 20th centuries...
...15 But again, the government programs to which Stein refers were mostly created to deal with the very problems first generated by the 'decentralized free exchange system...
...But aside from the question whether any attempt to reduce the reach of government in social and economic programs can be successful, there is the more important point that the very effort to do so would prove damaging...
...weapons systems approved by the Defense Department but for which most of the spending had not yet occurred (including the Minuteman III program, Poseidon missile conversion, the antiballistic and multiple nuclear warheads programs, a new strategic bomber, a new Navy fighter plane, etc...
...To deal with the first point: a table that appears on page 20 of the federal budget document for fiscal 1971, entitled "Changing Priorities," shows that the share of defense expenditures in total federal outlays was to decline to an estimated 37 percent in 1971, while that of funds for "human resources" was to rise to 41 percent...
...In other words, incipient federal budget surpluses would be used in part to cover perennial state and local deficits...
...Considering its eligibility provisions, which call for a test of ability and willingness to accept suitable employment, welfare recipients will be more, not less, entangled in the web of administering bureaucracies...
...It means, first of all, that while the need for a steady rise in housing units was clearly recognized, a firm commitment to realizing interim goals was lacking...
...19.4 Veterans' affairs...
...TWENTY-FIVE YEARS AGO LORD BEVERmGE published his Full Employment in a Free Society, perhaps the most lucidly argued economic program of social democracy...
...This interdependence (evidenced also in the 1970-71 recession) would seem to preclude significant reductions in defense spending, such as the 40 percent from 1969 levels recommended by Carl Kaysen...
...First, total public outlays must always be large enough to ensure full employment...
...At the start of the year [1970] we expected that the gap between the economy's actual and potential output would bring about conditions making for a slower price rise," McCracken stated at the Midyear ReEconomy: Hearings Before the Joint Economic Committee of Congress, part 3, July 1970, p. 385...
...26 The significance of the very concept of fiscal dividend might also be examined in light of estimates of the funds actually required to finance social priority programs...
...He financed the war through huge budget deficits, but these were limited by the golddollar crisis resulting in part from the loss of confidence they created abroad...
...As already noted, the Nixon administration did not compensate for the defense spending cutbacks it made over the 1969-71 fiscal years...
...But as of 1967 only about 460,000 additional units of public housing had been completed...
...and these preemptions would in time intensify problems of resource allocation and income distribution...
...Domesticity," remarks of Undersecretary of theTreasury Joseph W. Barr before the Town Hall of Los Angeles, California, June 25, 1968...
...Yet, the investment activities of this sector are more than twice as large as those of the federal government...
...These debts mortgage the public's savings largely through higher prices...
...A case in point is agricultural subsidies, which unquestionably have been a major means to providing capital to farmers, enabling many of them to install labor-displacing technologies...
...cost escalation...
...Department of Labor, January 26, 1971...
...SOCIAL PRIORITIES, ECONOMIC POLICY, AND STATE billion...
...This follows precisely from resistance to the extension of the powers of government which Beveridge thought necessary if jobs for all were to be provided, if poverty was to be eliminated, adequate housing built, and a network of social and medical services created...
...Beveridge left no doubt that his proposals would, if carried out, affect the distribution of political power: Full employment cannot be won and held without a great extension of the responsibilities and powers of the State, exercised through the organs of the central government [he wrote...
...This, to be sure, is not a true measure of their impact upon the economy, since changes in both the mix and the level of these expenditures have a high multiplier effect...
...We are talking about some 20 million families— about 80 million individuals in an income range that makes them ineligible for benefits from anti-poverty programs but does not provide enough money to maintain a moderate family budget...
...SOCIAL PRIORITIES, ECONOMIC POLICY, AND STATE conceded that there were not sufficient resources both to conduct a vast military effort and to promote social progress...
...This was true of an earlier phase of capitalist development—a phase that, in the United States, more or less ended during the thirties...
...This list does not exhaust the new military technologies currently being funded for research and development, as well as for production.36 In sum, claims of what goes under the name of national security shrink funds for social priorities to only a minor share of the general revenue, and much of this share finances government activities unrelated to social programs...
...But he favored taxation because, in keeping interest rates low, it would promote the "euthanasia of the rentier...
...but it seems to have been—and to be—regarded as a gauge of their political acceptability: a higher proportion may be viewed as tending to alter the balance of social forces in the United States...
...There has been much talk of "postindustrialism," but for large numbers of workers and their families, as well as for older men and women who do not work, the industrial revolution has not ended...
...A nationwide plan providing an income floor for all could equal the introduction of the eight-hour day in significance...
...But these and other possible criticisms are secondary to an examination of the sources of revenue from which the two kinds of federal outlays are financed, since it bears upon the constraints that limit genuine and lasting changes in national priorities...
...According to the Cabinet Coordinating Committee on Economic Planning for the End of Vietnam Hostilities, prior to the summer of 1965 (when the war was intensified), "the economy was remarkably well-balanced and was in the midst of its longest peacetime expansion in history...
...76.4 Space technology...
...Older persons are exposed to the disintegration of urban communities, and to rapid loss in the buying power of their retirement income...
...ex penditures were to be divided into a planned and an unplanned category, the former ineluding investment in physical equipment, the latter spending on goods and services for immediate consumption...
...28 True, the Nixon administration, recognizing the disastrous effects of the persistent slump in housing, stepped up federal mortgage lending and related financing activity so that in 1970 three-fifths of all home financing funds were directly or indirectly supplied by the government.24 In the absence of general credit controls, however, the government can engage in large-scale mortgage financing only at the cost of continued high interest rates...
...According to estimates by Walter Heller, the loss in potential output would amount to $40 billion in 1970, estimates with which the Council of Economic Advisers concurred...
...So was the latent conflict be 171bid., p. 14...
...Charles Schultze, for example, projected a "resumption" of economic growth following the 1970 recession at an annual rate of 4-4/2 percent...
...15 Stein's animus is by and large directed against those government operations which, however inadequately, are designed to aid and protect the vast number of disadvantaged persons—estimated to total at least 40 million— who have no access to the "exchange system" except as passive consumers and who are more likely to be damaged than benefited by it...
...former special aide to President Johnson, before the Joint Economic Committee in mid-1969: It is easy to point to the recent increases in Federal, State and local spending in these areas [i.e., housing, cities, antipoverty, and crime control] as evidence that many of our domestic commitments are being met...
...Economic Growth and World Leadership," Richard Cooper, a member of the Council of Economic Advisers in the early sixties, wrote that "Growth is the `great reconciler' among competing claims on output...
...Schultze's pessimism...
...10 Such conditions require more, not less action by government for their elimination...
...Both conservative and liberal economists—Arthur Burns and Kenneth Boulding among them—had long maintained or implied in their writings that the American economy could not indefinitely sustain this burden without endangering its very foundations—the freedom, however qualified, of its capital and labor markets...
...While personal income tax rates have on balance been reduced over the past decade, payroll tax rates, which burden smaller wage and salary earners and businessmen much more than bigger ones, have been raised time and again...
...EUGENE KELLER astonishingly small amount when one remembers the high hopes and projections that were linked with what appeared to be the successful demand management of the economy during the sixties...
...5 See "Measuring the Impact of the 1964 Tax Reduction," by Arthur Okun, in Perspectives on Economic Growth, op...
...The terms with which it dealt were strongly conservative...
...The Vietnam war, however, devoid of the ideological and moral significance of the struggle against fascism that had cemented the party three decades earlier, now broke it apart...
...In earlier days, private debt would have been wiped out through bankruptcies...
...In the fiscal years 1970-72, trust funds will have financed about 75 percent of all federal health and income maintenance outlays, roughly the same share as in 1961-63...
...8 While the population of the country's major metropolitan areas continued to rise during the sixties, that of its great cities dropped, in some instances spectaculary so...
...No power less than the State can ensure adequate total outlays at all times or can control in the general interest the location of industry and the use of land.' Many new issues would arise, among which perhaps the most difficult would be the transformation of the labor market from a buyer's to a seller's market...
...112.8 * Interest on the public debt, incurred mostly to finance past and present wars...
...2) a decline in spending on Vietnam to insignificant levels associated with termination of the war but offset by a rise in other military expenditures...
...These automatic increases—the `fiscal dividend'—from the Federal revenue system range from $11 billion to $14 billion under conditions of steady economic growth...
...1 Ibid., p. 390...
...but unless it meets minimal standards of decent living and is free of all eligibility restrictions, it will be nothing but a more efficient and perhaps more oppressive way of administering welfare payments...
...Senate, part 2, April, May, June, and August 1970, p. 419...
...Admittedly, the causal factors of change can not always be readily identified...
...It is therefore improbable that the issue of social priorities will be resolved within the terms set down here...
...It was due to the conscious and successful effort of government to provide a climate in which our free enterprise system could flourish— a conscious decision to place primary emphasis on stimulating the private sector of the economy, rather than on massive government actions...
...Such analyses reflect the aversion of America's old-line ruling strata to the centralized power of the state...
...In these struggles, freedom from poverty and insecurity is at stake...
...Yet McCracken's words go beyond the intent of easing the tax load of the rich...
...IV M M ORE REFLECTIVE REPRESENTATIVES Of the Nixon administration—such men as Herbert Stein, a member of the Council of Economic Advisers—have attempted to formulate an intellectual basis for minimizing federal activism...
...And insofar as the broader conceptual framework of the national income and product accounts were introduced, it was done to suggest the near futility of any attempt to change actual priorities, except marginally...
...Increases in defense and space expenditures were important elements in the economic expansion of the early and mid-sixties, but they did not at any time exceed roughly one-tenth of the national product, not even during the height of the Vietnam war...
...They remain highly vulnerable to the disruptions it continues to generate...
...New York City and State will have little relief from welfare spending under the Administration's plan," stated New York City's director of the bud get before the Joint Economic Committee of Congress...
...With jobs harder to find, labor would find it more difficult to make the kind of wage bargains it had during periods of low unemployment...
...Ida C. Merriam, in the Social Security Bulletin of October 1963, wrote that if social security benefits were raised to only 50 percent of average preretirement earnings of retired workers, and to 75 percent of those of retired couples, and if eligibility were broadened to 90 percent of the population aged 65 and over (from 70 percent at the time she wrote), the increase in aggregate benefits would come to $11.5 billion...
...30 These projections were based on the potential of the economy...
...79 percent will have a high school or some college education by 1975 compared with 69 percent in 1965...
...He conceded that digging holes and filling them up again creates jobs, but the very relation between taxation and expenditure that he outlined would go far to ensure that full employment would serve the realization of social priorities—the conquest of "the giant evils of Want, Disease, Squalor, and Ignorance...
...restraints on prices and wages...
...12 The plan will, in fact, neither abolish poverty nor the welfare system...
...It seems unlikely, however, that government in America will substantially revise its 10 Ibid., pp...
...Unemployment, poverty, lack of job security—all used to be simply related to the way capitalist enterprise operated...
...Recession ensues when the market no longer absorbs overpriced assets, and debts begin to be called...
...The incurrence of debt in 196569 capitalized on expectations of rapidly rising tax revenues or earnings, neither of which materialized...
...suffice it to say that his proposals Iargely entail such voluntary actions by industry as are rarely undertaken except under pressure of events or legislative compulsion...
...Although their greater size is not necessarily indicative of greater importance in shaping the basic tendencies of the economy, it is nevertheless probable that they preempt resources needed for social priorities no less than do military outlays, and that they continue to function in ways that intensify social problems—although they cannot be sharply separated from the infrastructures which the state provides and which to a large extent ensure their profitability...
...and government funds —whether as subsidies, trust funds, or tax aids--exert leverage in varying degree on the direction of private investment, the location of industry, employment opportunities, and the value of social capital...
...Hence, revenue sharing—which involves sharing with the states and localities a certain percentage of annual federal tax revenues, e.g., 5 percent under the Heller plan, and 0.33 percent under President Nixon's initial proposal— would reduce the funds available to the federal government for more urgent tasks, such as an adequate income maintenance program, which by nature must be national in scope...
...the imposition of additional taxes to reduce the need to expand the public debt and control consumer spending...
...Walter Heller as much as predicted that the arena of future social conflict would be confined to struggles over who gets what share of this dividend...
...Such planning is probably necessary if full employment is to be maintained, since otherwise inflation results, as in fact it did...
...in Cleveland a 7 percent rise and a 15 percent drop...
...If, as seems reasonable, we assume a multiplier of 2.5, then even a $10 billion cut in security spending would imply a decline of $25 billion in gross national product, barring offsetting increases in private, investment, consumption, or other components of Government demand...
...The slow and ambivalent deescalation of the Vietnam war by President Nixon and the cutbacks in defense outlays over the 1969-71 fiscal years must be regarded as basically conservative measures, designed (even though failing) to restore fiscal balance and thus curb the state's infringements on the economy...
...Thus understood, social priorities can be realized only if they become part of the very structure of the social division of labor, if they become inseparable from an undeviating policy of full employment, and if they are uncompromisingly pursued "to conquer the giant evils of Want, Disease, Squalor, and Ignorance...
...The problem was to find a balance between the free-market economy— the indispensable source of social power of the American business community—and the civilian and military government bureaucracies whose growth ineluctably accompanied America's assumption of world leadership after World War II, and whose claims on the national product necessarily also increased...
...or to put it more clearly, much of investment activity turns speculative...
...Its protagonists confined it to the terms of the federal budget, made assumptions about economic growth and, by extension, the maintenance of high employment which turned out to be fragile, and ignored the state's role in generating the very problems the social programs they advocated were designed to solve...
...Rosow proposes to ease the conditions of these workers cannot concern us here...
...The result has been huge deficits or losses in potential earnings, now being partly made up by increased prices...
...Essentially, the debate on social priorities was premised upon the prevailing system of priorities, whose workings it did not fundamentally question...
...they represent ways to offset some of the social consequences of private market decisions and government programs supporting private or autonomous state capital interests...
...cit., pp...
...Yet, these conditions by no means permit the indefinite extension of the status quo...
...The actual percent shares will be somewhat dif 33 In Agenda for The Nation, Kermit Gordon, ed...
...recession, however, if deep enough, aborts it...
...These challenges would have to be met by policies promoting rapid economic growth in the United States...
...The Nixon administration is unprepared to deal with this phenomenon...
...28 It is certain that the social service needs of these workers and their families and of older people will expand...
...Illustrative of this rivalry was the resistance by business to industrial conversion from peacetime to war production in the early forties...
...The power of the executive branch, whose enlargement was once eagerly sought by liberals as a means to give leadership to social advancement, now began to be viewed as a threat embodied by an evil bureaucracy of militarists and technocrats...
...Here is a striking illustration of the rechanneling of funds into federal finance or private investments where returns were quicker and higher than in housing: while the Department of Housing and Urban Development had projected a 1969 cash inflow of $23 billion into deposit institutions (such as savings banks which are the primary underwriters of home financing), an actual outflow of $4 billion occurred.22 One consequence of the resultant shortage of mortgage funds was a sharp drop in new housing starts in 1969, estimated at about 30 percent below the levels required to attain the ten-year goal of 26 million units set by the 1968 Housing Act...
...Douglas Dillon, then secretary of the treasury, stated that the change in the business outlook between 1960 and 1964...
...much like the neo-Keynesian policies of the early sixties— which were designed to manage the economy without interfering with any of its component institutions—this debate, too, ab stained from relating social goals to economic growth...
...But just as the high economic growth rates recorded in the early and middle sixties were linked to rapid expansion in defense and capital outlays, so the 1970 recession must be understood in the context of military spending cutbacks, even if these were not its only causes...
...EUGENE KELLER planned" society cannot be applied in this situation, since it refers historically to conditions where government was generally weak in relation to private enterprise...
...a range of credible, usable, military power designed to enable us to deal with challenges all the way across the spectrum of conflict, from guerrilla warfare to thermonuclear war" had been provided...
...These limits in fact tended to contract, and in 1970 an assistant secretary of labor could address a warning to American industry concerning 36 Ibid., p. 282...
...In an interview with U.S...
...EUGENE KELLER millions of full-time workers [who] find themselves in an almost intolerable threeway bind: the basic needs of their families have grown beyond the capacity of their take-home pay...
...Washington: The Brookings Institution, 1968), p. 582...
...To attribute the continuation of these tendencies to "inflationary" wage demands is at best to take effect for cause...
...The "savings" once expected to be realized from "deescalating" or ending the Vietnam war tend to be absorbed by newly developing generations of weapons, involving steeply rising costs...
...It was wiped out by the recession that began late in 1969...
...It was limited to the allocational potential of the federal budget...
...This is an 231bid., p. 3. 24 The Wall Street Journal, January 6, 1971...
...But it was not concerned with resource allocation or income distribution, confining itself to the management of aggregate demand along a projected path of gradually accelerating growth...
...In New York State, welfare allowances for such a family amounted to over $3,600 in early 1970, a sum representing little more than half the cost of a "low" budget for a family of this size, as calculated by the Bureau of Labor Statistics...
...Considering, finally, the rapid growth during the late sixties in the number of younger workers, who are more concerned with immediate cash income than benefits tending to postpone it, one could hardly expect that fear of unemployment, potent as it is, would significantly weaken the will—or reduce the necessity—to defend living standards...
...EUGENE KELLER the exchange system...
...As of January 1971, fiscal year 1971 federal outlays directly or indirectly related to the security (which includes more than defense) of the United States tallied as follows (in billions) : National security...
...the increasing preemption of resources by private or public investment, compelled by rapidly changing civilian and military technologies...
...in this kind of vise...
...The virtually unilateral initiative of the executive branch in conducting and expanding the war ran afoul of fiscal limitations, imposed by larger political forces...
...The notion of social priorities suggests that actual priorities— mainly those determined by government— have damaging effects upon many people, similar to those formerly linked by socialists and other proponents of planning in regard to the workings of the market...
...20 Release of the Bureau of Labor Statistics, U.S...
...The meaning of these changes cannot be explored here...
...14.9 Income maintenance...
...Second, [functions] must be returned to the people wherever possible...
...Moreover, the list did not include outlays for a comprehensive income maintenance program (whose cost, as indicated, would come to about $10 billion a year were it adequately 2T The Military Budget and National Economic Priorities, Hearings before the Subcommittee on Economy in Government of the Joint Economic Committee, part 1, June 1969, p. 269 ff...
...The revenue equivalent of security expenditures thus seem to indicate roughly the constraint within which the redistributive function of the federal budget operates, and the extent to which these expenditures preempt federal funds for domestic civilian purposes—not all of which of course are linked to social-policy objectives...
...Significantly, none of those who participated in the debate over social priorities advocated the creation of instruments of national planning to overcome the antithesis of "diplomacy vs...
...Unquestionably it will, yet this particular cause cannot be isolated from others having similar effects...
...the effects of the economic policies pursued in recent years...
...In an essay entitled "U.S...
...Lyndon Johnson launched fateful actions unilaterally, although he vainly sought to rally the old New Deal coalition of liberals and trade unions through a program of social legislation and full employment...
...How such organization will crystallize cannot be forecast...
...Now let us reflect on what the deviation of actuality from projection means in terms of social priorities (of which housing is at present perhaps the most urgent one, bearing as it does on the gamut of problems of urban decay, racial integration, employment in suburban areas, and living standards...
...26 Report of the National Advisory Commission on Civil Disorders [Kerner Report] (Washington: Government Printing Office, March 1, 1968), p. 229-230...
...They justify a reactionary kind of "liberalism" that seeks to minimize the intervention of the state in the interests of the poor and deprived...
...82 Yet to maintain full or high employment with a growing labor force, large defense cuts would "require extensive Government actions to support aggregate demand...
...Furthermore, the table in the budget document included veterans' benefits as part of the computation of funds for "human re 627 EUGENE KELLER sources," but it is specious to imply that these benefits (or increases in them) are evidence of "changing priorities," since in fact they result from failure to have done so...
...In sum, to represent shifts (minor in any case) in the composition of federal outlays as changes in priorities benefiting low-income people and the poor is not valid unless these shifts are financed from general revenue and thus stem from a genuine redistribution of the fruits of labor...
...Also pressing on family budgets was the fact that, as money wages rose, there was a faster increase of withheld income taxes...
...The Republican administration would, as we shall see, "reorder" priorities by reducing the role of government and enhancing that of the private sector...
...ss "The Battle for Resources—Diplomacy vs...
...We cannot afford to be diverted from that task," stated Paul McCracken, the chairman of the Council of Economic Advisers in the 1970 midyear review of the economy...
...The civil rights struggles and urban rebellions that occurred but a few years later revealed the hollowness of his words no less than the limits of the welfare state...
...Yet, the availability of ample resources was more a political than an economic datum, depending largely on the power to allocate rather than the ability to generate...
...In the fiscal year 1970, average benefits of retired workers were about 35 percent of their preretirement income, and a large proportion of recipients received less...
...a In Perspectives on Economic Growth, Walter W. Heller, ed...
...new weapons systems advocated by the Joint Chiefs of Staff but not yet approved...
...Here it is well to quote some eloquent statements from the testimony of Joseph Califano, 25 "Report to the President from the Cabinet Co ordinating Committee on Economic Planning for the End of Vietnam Hostilities," in Economic Report of the President, January 1969, p. 187...
...SOCIAL PRIORITIES, ECONOMIC POLICY, AND STATE financed), nor a guaranted employment opportunities program, which would also require up to $10 billion a year...
...In some places, there is a steady increase in substandard housing," heavily concentrated in poverty areas...
...They do not by any means exhaust its role in setting the priorities of resource allocation...
...As of early 1971, neither reduced demand nor increased unemployment had seriously retarded inflationary tendencies...
...Workers can hardly be expected not to resist deterioration in purchasing power of their income...
...These priorities are powerfully affected by the government's entrenchment in specific sectors of the economy where a symbiotic relation with private interests has developed...
...Yet Stein's programmatic statements cannot be dismissed as simply meaningless, for they rationalize a social Darwinism destructive to the values of equality and democracy...
...Workers are displaced from high-technology agriculture, mechanized factories, jobs handling automated materials, and left stranded by changed modes of transport...
...This is true for government expenditures in general...
...the very terms of the discourse on social priorities...
...But Johnson's efforts to conduct the war were, finally, thwarted by his inability to get taxes raised sufficiently...
...But this is an unwar ranted assumption and contemptuous of the needs of the poor, if one considers that the plan as originally submitted to Congress called for $1,600 annually for a family of four...
...533, 538...
...Thus, planning may avert inflation...
...The Nixon administration was of course committed to avoid any expansion in the power of the Executive such as planning implies...
...funds for socially vital sectors such as housing therefore remained scarce, and periodically nearly unavailable...
...they signify a hope that fiscal balance will hold the power of the state at bay...
...29 Changing National Priorities, Hearings before the Subcommittee on Economy in Government of the Joint Economic Committee, part 1, June 1970, p. 4. 8O Changing National Priorities, op...
...And in 1963 Roswell Gilpatrick, a deputy secretary of defense, stated that...
...Vill D D OES THIS MEAN that, given the present policy, resources for social priorities must remain inadequate...
...borne Warning and Control System to detect low-flying attack planes and to control tactical warplanes in battle zones...
...The political and ideological bases for such planning, weak and incipient to begin with, had disintegrated...
...Now it might be argued that the preemptive use of resources for purposes foreign to social needs inheres in an economy oriented to profit maximization...
...Yet, according to the National Commission on Urban Problems, there are about 4 million substandard and overcrowded units in metropolitan areas...
...But even here the protagonists of the debate ignored or skirted fundamental questions, such as the impacts of taxation or of subsidies on social conditions which the redirection of federal expenditures was supposed to alleviate...
...A case in point is the unemployment insurance program which, while assuring workers of minimal income for a limited time when they become unemployed— and note that only about half of all workers jobless at any one time may be eligible for benefits—provides in most states for less than half of the average weekly wage lost...
...The cost of Vietnam and of this new arms race would preempt all or most of the increment in federal revenues from stepped-up economic growth, which the New Economics had projected as becoming available—for whatever purposes Congress would choose, be they social programs, tax cuts, or public debt retirement...
...cit., part 1, p. 7. SOCIAL PRIORITIES, ECONOMIC POLICY, AND STATE seems to mean—that the technological content of military capabilities (particularly those of the Navy and Air Force) is intensified while conventional forces, involving massed manpower, are held down...
...It has...
...ferent when final figures become available for the fiscal year, but this will not affect the importance of the table...
...Manpower in the 1970's—Opportunity and Challenge, U.S...
...While the market has not been subordinated to the joint control of government and industry to the extent asserted by Galbraith, linkages between the two do dominate the economy...
...The "leading" example 11 The Conference Board Record, August 1970, p. 15...
...29 The Council of Economic Advisers assumed the rate to be 4.3 percent a year between 1969 and 1975, allowing for annual increases in output per man-hour of 3 percent, rapid increases in the labor force, and unemployment of 3.8 percent...
...SOCIAL PRIORITIES, ECONOMIC POLICY, AND STATE extensive these actions would have to be is implied by the multiplier mentioned by professors Hildebrand and Breckner...
...The scale of its activities, furthermore, is likely to encounter budgetary limits, and it is of some significance that the number of housing units built in 1970 remained at least one-fourth below earlier housing-goal projections (an estimated 1.4 million constructed, as compared with 2 million originally projected...
...Since then a new industrial state has presumably evolved...
...152, 153, 167...
...The claim on resources of activities such as these has been but marginally challenged...
...Under the Housing Act of 1949, there were 810,000 public housing units to be built by 1955...
...It also provides greater incentive to efficiency and innovation because it makes a finer gradation of rewards to performance than is typically found in government operations...
...The premises of the New Economics, with tax policy its center piece, made the elimination of poverty at best a secondary concern...
...According to the Department of Labor, the number of workers in the most active age brackets— the years 25-34 when family size increases most rapidly and expectations of wage increases are most urgent—will rise four times faster during the seventies than it did in the sixties (49 percent vs...
...Agricultural subsidies, by taking land out of production and by partially or indirectly underwriting farm mechanization which in turn displaces labor, probably accelerated the exodus from rural areas to a catastrophic degree...
...an Air 83 The Military Budget and National Economic Priorities, op...
...they are inadequate, tangled, and bureaucratic largely because of the pressures and antagonisms of the beneficiaries of that system...
...The linkage between economic growth in the United States and defense spending would seem hard to deny...
...His assumption was that there would be (1) no change in present tax rates...
...For the Nixon administration, no less than for its predecessor, planning—had it been forced to adopt it— could not have been separated from the context of war and rising defense expenditures...
...e.g., while earnings of a year-round, fulltime factory worker increased 16 percent between 1965 and 1969 (to $6,500), the federal income tax he paid rose by 36 percent, not including either the surtax imposed in 1968 or nonfederal taxes...
...Beveridge's prescriptions were of course tied in part to the problems of obsolescence and deterioration of physical plant stemming from the lack of adequate new investment during the depression and war years...
...Fiscal and monetary policies are of course geared to the state of demand...
...EUGENE KELLER view hearings...
...Second, and "subject to this overriding categorical imperative," outlays should be directed within a well-defined framework of social priorities...
...In this work he assigned three basic functions to public finance...
...Trust funds draw upon earmarked payroll taxes (or, in the case of the Highway Trust Fund, on special excise taxes) and cannot be diverted to purposes other than those for which they have been designated...
...Let us cite another example...
...This leverage sets—or keeps—in motion the social and economic forces whose cumulative effects determine the priorities that actually prevail...
...The proportion the tax took of his gross income rose from 6.9 percent to 8.1 percent.21 Thus, in an inflationary context, the progressivity of the income tax becomes a depressant of real wages...
...47, 50 ff...
...How under these circumstances social priorities will be realized depends on the outcome of future political struggles...
...EUGENE KELLER was preoccupied with the viability of the economic system through innovating new forms of demand management, and it chose not to relate the evils besetting American society to the system or the privileges it secured...
...And it would make the sacrifices proposed by Hitch unnecessary, since required tax revenues would increase with growth, obviating higher tax rates that might reduce incentives to work and invest...
...They are at the center, with family income of between $5,000 and $10,000...
...35 Certainly, the 1972 budget tends to bear out Mr...
...but it would contribute little to the broadened social vision he expects...
...Like its predecessor, the Nixon administration has fought stubbornly for funds to finance such projects as the supersonic transport plane...
...SOCIAL PRIORITIES, ECONOMIC POLICY, AND STATE them talk of reordering priorities remains empty, unless it refers to the priorities of the financial establishment...
...Nor did this debate touch upon the private sector...
...its predilections thus converge with those of many on the New Left who oppose government bureaucracy in the name of "participatory democracy...
...10.0 Total...
...But these large rises are insufficient to meet the urgent national priorities at home...
...an "un 9 Building the American City, op...
...11 Before attempting a political interpretation of these statements, let us see how such formulations of the "priorities problem" work out in practice...
...39 This formulation represented more than a recognition of political polarization—it was an admission that defense was placing a more and more intolerable burden upon the American economy and society...
...Hence, defense and space expenditures have been (and can be) used as stimulative measures only within limits...
...The loss in tax revenues, however, is unlikely to account for the total social cost of this measure...
...Inflationary pressures, moreover, have threatened normal standards of living, leisure, and the division of labor in households: in 1965-70, the participation rate in the labor force of married women with children three to five years old rose twice as fast as between 1960 and 1965 (from 29 percent to 37 percent in the later period, and from 25 percent to 29 percent in the earlier one).20 This fact cannot be separated from—although admittedly it cannot be shown to be wholly caused by— the decline in real spendable earnings of the average worker since 1965...
...The assumption that, given appropriate policies, there was plenty to go round, was after all the basis for the coalition of forces that had held the party together since the late thirties...
...questions of social priorities fell outside its frame of reference...
...and their total life patterns are less than satisfactory...
...He was hopeful that a reduction in defense costs would now be possible, but in fact the buildup of conventional warfare capabilities that could deal with "wars of liberation" was unquestionably a factor, probably a major factor, intensifying the Vietnam war...
...This is to say, it depends on whether responsibility for these programs can be centered at the state-local level...
...It is a cause as well as a con sequence of inflation that economic decisionmaking power has in part shifted to monopolists and speculators...
...domesticity...
...As regards the second point, the Annual Report on National Housing Goals blames "inflation" for drawing investments away from traditional types of mortgages, "with their fixed, long-term rate 22 Second Annual Report on National Housing Goals, April 2, 1970, p. 77 of return, into more attractive alternatives— equities and business loans demanded by firms that have little concern about their cost of borrowing...
...But their basic objective was to destroy "Want, Disease, Squalor and Ignorance," and like much else that Beveridge had to say, they have lost little of their relevance...
...At the least, substantially increased income taxation was required, as a near equivalent to consumergoods rationing...
...suffice it to note that suburban sprawl and industrial dispersion have rendered mass transit systems uneconomical, thus precluding low-cost travel to places of work in the rings by inner-city residents...
...Had planning been instituted under the changed political conditions of the middle and late sixties, it would have entrenched a warfare-welfare apparatus that would have facilitated the conduct of the war and other similar "counterinsurgency" actions as well...
...One way to deal with this problem is to deny that it exists...
...In his 1969 testimony, Mr...
...News & World Report (August 3, 1970), Deputy Secretary of Defense David Packard stated that during the fiscal year 1971 at least 1.3 million persons employed by the Defense Department, by prime contractors, and in the Armed Forces, would be put "on the job market...
...The dominant persistent budgetary problem of our time will be to hold expenditures in line with what the people are willing to pay for...
...Department of Labor, Washington...
...Economy," in Hearings before the Committee on Foreign Relations, U.S...
...V L L ET US NOW BRIEFLY EXAMINE some of the key economic policies the Nixon administration has pursued, for these policies, in raising unemployment, sustaining huge losses in output, and failing to slow inflation, have tended to shift the focus of social priorities...
...31 What the Committee meant by "well-balanced" or "peacetime" in 1965 is hard to know, considering that the unemployment rate in the first half of 1965 was nearly 5 percent, and that defense and space expenditures had been rising throughout the early sixties...
...a nation that attempted to change the course of history abroad stood helpless before the bitter fruits of its own history...
...3.6 Interest...
...3.4 International...
...That freedom is gone...
...Although the eventual shape of that order is scarcely predictable, it most likely will not resemble the status quo President Nixon's Council of Economic Advisers has targeted for the years ahead...
...Continually advancing technology and the risk aversion of military planners . . . combine to produce ever more complex and expensive weapons systems and ever more contingencies to guard against," Schultze said...
...Democratic party spokesmen rarely if ever 38 U.S...
...Urban renewal, although originally intended "to facilitate the provision of decent low-income housing . . ." is instead "too often looked upon as a federally financed gimmick to provide relatively cheap land for a miscellany of profitable and prestigious enterprises," according to the National Commission on Urban Problems...
...Taxation was to be viewed as a means of freeing resources for public purposes...
...In 1968, the Cabinet Committee on Economic Planning for the End of Vietnam Hostilities projected a fiscal dividend for fiscal 1972 of $22 billion...
...37 How Mr...
...SOCIAL PRIORITIES, ECONOMIC POLICY, AND STATE tween business and its congressional allies on the one hand, and John F. Kennedy and his managerial pretensions on the other...
...Federal budget receipts essentially consist of general revenue, including proceeds from personal and corporate income taxes...
...contains inequality of command over the use of resources, because it allocates such command more or less in proportion to the ownership of resources, [Stein declares that the system] permits more flexible and precise adaptation of the pattern of production to the different desires of different individuals than could be provided by...
...Here arises a critical question for those who have viewed social priorities in terms of a "trade off" between military and civilian expenditures: if economic growth requires large-scale defense spending, the resources needed for new social investment will not be sufficient...
...The answer is no on both counts...
...and the metamorphosis in nuclear delivery vehicles —from bombers to missiles in underground silos or on submarines, together with military research expenditures of $7-8 billion annually—could not but stimulate Russia's defense effort and thus engender a new strategic arms race...
...14 Financing State and Local Governments: Proceedings of the Monetary Conference, June 1970 (Boston: The Federal Reserve Bank of Boston), p. 23...
...The National Advisory Commission on Civil Disorders wrote that its proposals for training, employment, education, housing, and welfare, costed at $30 billion, could without difficulty be financed from the "truly astounding automatic increases in Federal budget receipts" generated by a federal revenue system that was highly responsive to growth—"provided only that the national economy is kept functioning at capacity so that actual national income expands in line with potential...
...a new missilefiring submarine (still in the design stage) ; the B 1 advanced bomber...
...it may merely mean—and actually 34 Changing National Priorities, op...
...There was a significant increase of expenditures on technologically advanced military hardware in the 1972 budget, perpetuating the structural interdependence between the economy and its defense industry components...
...I have often used as examples of Federal increases: The education budget that grew from $4 billion to over $13 billion in five years...
...III T T AX AND EXPENDITURE POLICIES—i.e., those measures which in addition to monetary policy are commonly associated with Keynesianism—represent but the broader managerial functions the government has come to assume over the economy...
...New York: Random House, 1963), p. 191...
...did not just happen...
...rather, it serves as a point of departure for a different analysis of the impact of defense expenditures upon the federal budget...
...55.5 Total...
...Most of these (60 percent) will open up in clerical, sales, semiskilled blue-collar and service occupations...
...Although it must have been fully aware of the extent of unemployment that would result from lower defense expenditures, the Nixon administration formulated a "game plan" designed to slow inflation deliberately and almost entirely at the expense of working people...
...Other programs might also be mentioned...
...The National Commission of Urban problems writes that Important tax advantages can in most instances be obtained by sale [of a building] after a rather brief interval of holding— commonly 10 years or less—because the tax-saving depreciation allowances are highest in the first few years...
...At the same time, the resistance of conservative political forces prevents restructuring of the tax system, except in the direction of easing its exaction of income and wealth...
...VI T T HERE IS A MORE FUNDAMENTAL PROBLEM in the lack of a reasonable relation between projections of the "fiscal dividend" and the probabilities...
...Nevertheless, it must be recognized that social priorities are first and foremost a problem of government...
...and it has eased credit conditions temporarily in order to prevent the liquidity crisis threatened by the bankruptcy of the country's biggest railroad company...
...Their effect on the economy is little understood, and the debate on social priorities has ignored all but their military aspect...
...it would have exacerbated the dangers to American democracy, which the unilateral exercise of the war-making power by the Executive had already heightened...
...SOCIAL PRIORITIES, ECONOMIC POLICY, AND STATE cline of American cities...
...The debate over "social priorities," hitherto conducted by a handful of senators and economists in the conventional terms of resource allocation, has yet to develop a concern with the nature of the state whose immense taxing and spending power sustains rather than controls a hightechnology capitalism, giving rise to the social conditions that require large-scale alleviation, while simultaneously preempting the necessary resources for it by accelerating shifts in profitability of investments that make great masses of social capital obsolescent...
...In 1960, Charles J. Hitch, a Rand Corporation economist and subsequently an assistant secretary of defense, wrote that "we must avoid identifying GNP or even expected growth in GNP with economic strength for the cold war," and called for sacrifices to make the required resources available.2 But others closer to the formulation of economic policy did not accept this point of view...
...Such a program implemented at an adequate scale will cost at least $10-15 billion...
...19 By the end of 1970, the number of unemployed persons had nearly doubled over the year, to 4.6 million...
...This antithesis also informed the debate over national priorities— it foreshadowed, as a representative of the Johnson administration put it, a struggle between "diplomacy and domesticity...
...The attainment of social goals was postulated as an incidental benefit...
...Planning would have involved, at the least, the rationing of capital by means of credit controls...
...Schultze noted as factors making for increases in the non-Vietnam part of the military budget: • prospective raises in civilian and military pay...
...In no year of the past decade was this equivalent lower than 79 percent...
...cit., p. 28...
...And these figures did not include the number of workers indirectly dependent on defense outlays and adversely affected by cutbacks...
...It 'From an address given before the National Industrial Conference Board, September 17, 1964...
...Thus there are tax features, instituted mostly in the fifties, that tend to encourage quick turnover of apartment house properties, resulting in disrepair and deterioration...
...It is clear that the actual relation between security and "human resources" expenditures is less favorable than was claimed in the federal budget for 1971...
...the resistance by employer groups and the states (which administer the program) to extending coverage to such groups as farm and domestic workers serves the same end...
...New York: Random House, Vintage Books, 1968), p. 118...
...This is most evident in the deterioration of housing for the poor...
...Health and income maintenance have been largely financed from trust funds...
...One example: financing the enormous federal deficits of the late sixties (and early seventies) raised interest rates to very high levels...
...The cities budget that grew from $900 million in the late fifties to a level of $5 billion last year...
...Third, "subject both to the first and second rule," taxation rather than borrowing should, if possible, be used to finance outlays...
...Merely to provide for the full development of existing programs and a few modest new programs, the cost in fiscal 1972 would be an additional $37.7 billion...
...While admitting that 13 Walter W. Heller, New Dimensions of Political Economy (Cambridge, Mass.: Harvard UniversityPress, 1967), p. 140...
...With the onset of the recession, furthermore, losses in weekly work hours contributed to the squeeze on earnings...
...To what extent will it spur technological change and worker displacement...
...Here are some of the chief reasons why such a revision appears to be unlikely: • the attitudes of the leading men of the Nixon administration...
...in Detroit, an 11 percent increase as against an 11 percent loss...
...VII THE VIRTUALLY UNQUESTIONEDA ASSUMPTIONS of economic policy since World War II has been the need to ensure economic growth—an assumption that also underlies the many discussions of social EUGENE KELLER priorities...
...25 This, however, was largely absorbed by the 1969 tax cut, by the continued expenditures for the Vietnam war, and by the expansion of existing civilian programs...
...But it went further, it fought inflation by fostering unemployment and idling of productive capacity...
...They do not encumber those decisions or interests...
...Social changes of such vast and ominous propor 8 In The Public Interest, Summer 1970, p. 94 Lions do surely not result from one single factor, but the highway program powerfully reinforced the pace of technological change in transportation by creating a vast infrastructure which in turn generated a momentum of its own in transforming locational patterns of industry and population...
...The rise of the United States to world leadership inevitably imparted immense power to the state which thus became a rival to finance and industry, even as it sustained their social and economic positions...
...Sometimes this decline is contrasted with the gain (of 10 percent) in private-sector output per manhour in 1965-69, but much of that gain is spurious, since it must largely be attributed to expanded defense production, where productivity improvements mean little in terms of broad economic benefits...
...Will it result in a greater number of factories being built away from central cities, and hasten the obsolescence of plants still located there...
...Fourth [functions] must be retained in or returned to the market...
...Given our premise that concern with poverty should receive top priority, these programs should outrank revenue sharing...
...Washington: The Brookings Institution, 1971), p. 71...
...Great expectations had been pinned on the growth of the fiscal dividend...
...lx T T HE TERMS in which social priorities have been discussed fixate the political and economic conditions of the early seventies...
...second, because of powerful resistance to expansion of the tax base on the part of conservatives (they believe it would impinge on the liberties of the private sector) as well as of liberals (they fear it would facilitate higher defense spending...
...The federal programs designed to resolve these social and economic problems deal with the effects rather than the causes of social disruption and economic change...
...given] current conditions, many are permanently trapped...
...18 That fed 18 The 1970 Midyear Review of the State of the eral expenditures should be adapted to willingness rather than ability to pay represents a novel principle of fiscal equity: few taxpayers are "willing" to pay, and the richer they are the more they are unwilling...
...The alternative to responsibility for such programs would not be something more democratic or humane but an accelerated pace of neglect...
...38 The restlessness and frustrations, and, more important, the evolving consciousness and struggle of these workers will have a powerful impact upon the order of social priorities...
...17 Stringent eligibility and disqualification provisions are additional ways of keeping down the cost of insurance premiums (paid by employers...
...By comparison, public assistance payments by the federal government totaled $4.3 billion in 1969, contributing 28 "The retirement income problem has become a retirement income crisis," according to a report of the Senate Special Committee on Aging, quoted in the New York Times, January 18, 1971, p. 11...
...But with the exception of the New Deal, no period in American history revealed so dramatically as the years of the Vietnam war the resistance of business, exercised through its allies in Congress, to accretions in the power of government...
...11 T T HE BEVERIDGE REPORT CONTINUES to be relevant because unemployment, underemployment, and poverty continue to be deep-seated problems in the United States, and because official policies for "high" levels of employment, far from being linked with programs incorporating social priorities, have been conceived in deliberate isolation from such programs...
...It is also indicated by the pattern of economic policy under which inflation is fought by causing workers to lose their jobs, even while costly and unproductive state investment activities and a destructive and futile military effort, themselves causes of inflation, are sustained...
...7 1bid., p. 403...
...Revenue sharing was first proposed by Walter Heller in the mid-sixties, on the assumption of an "everfirmer commitment of the Federal government to maintain a high-employment, highgrowth economy" generating federal tax revenue at an accelerating rate which would 12 In The 1970 Economic Report of The President: Hearings Before the Joint Economic Committee of Congress, part 2, February 1970, p. 355...
...Certainly, the debate over social priorities did not begin to broach it...
...While these workers are not representative of all American workers, many of whom live quite well] they represent 40 percent of the American workforce...
...32 "Impacts of National Security Expenditures upon the Stability and Growth of the American Economy," by George H. Hildebrand and Norman V. Breckner, in Federal Expenditure Policy for Economic Growth and Stability, Joint Economic Committee of Congress, November 5, 1957, pp...
...Recent inflation has been fueled by the enormous increase in public and private indebtedness...
...The President's Rural Poverty Commission said it would cost $40 billion more than we are now spending to wipe out rural poverty...
...THESE CLAIMS CAN BE substantially reduced only if the federal government stops investing in the advancement of armaments technology, and adopts a policy of "enough is enough...
...The example given by Mr...
...The Chicago area population, for example, increased by 11 percent between 1960 and 1970, while that of Chicago itself declined by 6 percent...
...This is implicit in all projections of both the national product and the federal budget on which estimates of the availability of funds for carrying out social programs have been based...
...16 percent) . These men and women, moreover, will be better educated than their counterparts in the six 37 "The Blue-Collar Blues (Economic and Social Challenge of the 1970's)," address by Assistant Secretary of Labor Jerome M. Rosow before the fall 1970 meeting of the American Compensation Association, Denver, October 29, 1970...
...Rather, it is bound to involve a wider arena of social and political contest, which will not limit itself to the fiscal dividend or other such elusive "economic-growth shares" but must in time raise the question of distributive justice...
...In the absence of idle industrial capacity and with disappearing skilled labor reserves after the Vietnam escalation in mid-1965, large-scale military intervention abroad could not be sustained without rationing of manpower and resources, which was unobtainable...
...In sum, given the present relationship of forces in the United States, both planning and nonplanning imperil civilized values--the one would largely subserve military purposes, the other generates and intensifies social cleavages and depresses social conditions...
...they are unhappy with their jobs but see no way of breaking out...
...provide the "fiscal dividend" to finance, inter alia, revenue sharing...
...Growth would ease the task of supplying resources for defense and foreign aid...
...Both depend upon political organization...
...This is not the projection of dreamers...
...And that should define our tasks in this decade...
...How to meet these costs is bound to be a key political question in the seventies, but deeper, more disquieting questions must also arise concerning why they are not being met...
...But issues 'William H. Beveridge, Full Employment in a Free Society (New York: W. W. Norton & Co., 1945), p. 36...
...imposition of stringent administrative credit controls would be required to deal with it effectively (and they were in fact authorized by Congress in late 1969) . Such controls have been anathema to an administration devoted to the "autonomy" of the free market, yet without 21 Statement by Leonard Woodcock, President of the United Auto Workers, in "Impact of the War in Southeast Asia on the U.S...
...The claim made explicit by the table that "priorities" have been changing under the benign aegis of the Nixon administration is not of interest here...
...SOCIAL PRIORITIES, ECONOMIC POLICY, AND STATE Stein cites in order to show how functions are returned "to the people" is the Nixon administration's proposed family assistance plan, "which would liberate welfare reci pients from the social workers," i.e., the welfare bureaucracy...
...General revenues, however, can be and to some extent are used as a vehicle of redistributing income (although tax aids go far to vitiate the redistributional effect...
Vol. 18 • December 1971 • No. 6
