Some Problems Facing Carter(Andus)-I977: Economic Policy
Lekachman, Robert
We asked a number of experts to write briefly on some of the ntgjor social, economic, and political problems . facing the new Administration in Washington. Here are their answers. —Ens. By...
...By depressing contrast, 1976 unemployment averaged 7.8 percent, higher than in any year since the end of the 1930s, and Charles Schultze, the new chairman of the Council of Economic Advisers, predicted that it all went well the Carter program would by the end of 1979 push unemployment well below 6 percent, presumably to the same 5.5 to 5.9 percent range that sufficed to alarm the Kennedy economists into recommendations of stronger economic medicine...
...And the President himself seems occasionally willing to accept a substantially higher final total...
...The total—some $16 billion, mostly in tax changes--was substantially less than I percent of Gross National Product...
...Carter did so by appointing moderates to the Council of Economic Advisers, a prominent, though progressive, businessman as Treasury secretary, discarding his campaign endorsement of stand-by wage-price controls, and opting for a program of economic expansion sufficiently modest as to evoke from the Wall Street Journal the judgment that the stimulus was luckily too tiny a percentage of GNP to do much harm...
...In those innocent days, this was an unacceptable figure and the Administration aimed at a 4 percent "interim" unemployment target and an ultimate 3 percent figure, then accepted as the minimum frictional number...
...Unemployment in 1962, the year in which Kennedy first sought congressional action, averaged 5.6 percent...
...Still, in a conservative country it is best to be led by alert members of the dominant elite rather than by their dimmer brethren...
...On the face of it, however, Carter's economic targets are little different from those recorded in the last Economic Report of the Ford administration...
...Of course the impact of a vile winter may serve all parties as a dignified reason for amending the original Carter proposals...
...Which is to say that our planning will be at best supervised by alert businessmen of the Blumenthal-Rohatyn stripe, men and women (Juanita Kreps at least) who accurately identify planning as necessary reinforcement of existing arrangements...
...In fairness, the public works and public-service job programs will be much larger in 1978 than in 1977 and presumably will replace as stimuli the one-shot tax rebates...
...An unusually intelligent tycoon, Mr...
...The phenomenon, puzzling to economists, of stagfla116 tion has made the economic establishment extremely wary of reawakening inflationary expectations now that for the moment at least they appear to have simmered down...
...Schultze and his two fellow members are loosely labeled liberal...
...The temper of Congress may be a second hopeful portent...
...There is a more speculative reason for hope...
...According to Fortune, businessmen voted about 8 to I for Mr...
...It is equally possible to combine full employment and reasonably stable prices but only within the context of an effective incomes policy...
...Ford...
...Economic events and his own sharp intelligence pushed Kennedy into steadily more activist economic policies...
...Perhaps that is the major message of Jimmy Carter's narrow triumph over Gerald Ford...
...The disorder of the world economy, the continuing energy crisis, the simmering banking crisis (represented by $50 billion of dubious loans given by major American commercial banks to Less Developed Countries that don't have a prayer of repaying them unless this country, Western Europe, and Japan agree to stabilize, at generally higher levels, the prices of the raw materials that are their major sources of export earnings), and the depressing effects of these events upon corporate profit expectations and domestic growth rates—all these elements combine to compel any intelligent national Administration to increase its intervention into the economy...
...One of his allies in the cabinet is likely to be Labor Secretary Ray Marshall, whose research and actions have focused upon the training and employment of the young, black, Chicano, and female...
...It made political sense to restore the confidence of that community in every reasonable way...
...For democratic socialists, this prospect in itself deserves only the faintest of cheers...
...The second reason for Carter caution relates to recent experiences of persistent inflation even in the presence of unusually high unemployment...
...Alan Greenspan and his associates on the Ford CEA were conservatives...
...As Kenneth Galbraith has recently written, the sincerity of liberal attachment to full employment is measured by the individual liberal's attitude toward controls and inflation...
...Blumenthal is one of the few major businessmen to endorse the concept of national economic planning...
...Jimmy Carter ran on a notably vague program as a democratic moderate or mild conservative...
...By comparison to the Kennedy-Johnson 1964 tax cut or even the Ford administration's 1975 acceptance of congressional demands for antirecessionary action, the Carter program, as originally presented to Congress at the start of the new Administration, was disappointingly small...
...Moreover, the poorest 4 million Americans will receive no benefits from the rebates because, so the Treasury asserts, it is administratively too difficult to locate these losers...
...i suppose this early in a new Administration one should seek such rays of hope as can be identified...
...The 1964 stimulus was approximately double that figure...
...No need to search very hard for answers...
...It follows that a president and a Congress who reject both inflation and controls implicitly also surrender as a realistic objective any hope of full employment...
...q 117...
...By now it should be plain to all intelligent folk, with the notable exception of trained economists, that full employment without controls is possible but the penalty is inflation...
...Their success will excuse a second round of price increases, and so on...
...Without effective controls over prices in the concentrated sectors of the economy, a credible full-employment program on the part of any national Administration would certainly encourage the large corporations that dominate the economy to raise their prices well before consumer demand places the sort of pressure upon existing capacity that justifies such price increases...
...Like John Kennedy...
...One of them is the presence of W. Michael Blumenthal at the Treasury...
...National economic planning, not of course called by that name, is likely to come as an inevitable response to interlocked domestic and international economic dilemmas...
...Should it soon arrive, national economic planning will naturally represent the present constellation of interests...
...A relatively small proportion of the two-year program is devoted to direct job creation, whether by public works, public-service jobs, subventions to cities, or special youth programs...
...The most substantial component of the package is the tax rebates, labeled by Federal Reserve Chairman Arthur F. Burns as the least efficient way to stimulate the economy...
...There is something to be explained when the game plans of the two sets of experts bear so eerie a resemblance...
...The shape of the Carter proposals is as unsatisfactory as its size...
...One of them is evidently a new president's need to reassure a crucially important constituency generally hostile to him and his party...
...Congress has been disposed to enlarge the Carter program, in particularly its direct jobcreating elements...
...Of course, once the cost of living begins to leap higher month by month, unions will struggle for better contract terms...
...Kennedy-Johnson economists, moreover, started with a less unhealthy economy than did the Carter team...
...He sounds genuinely concerned about unemployment...
...Schultze's stated unemployment targets of course implicitly ratify this conclusion...
Vol. 24 • April 1977 • No. 2
