Prosperity Without Welfare

...IT IS, TO BE SURE, unlikely that the present recession will be allowed to take on serious proportions (though after the cumulative forces of a downturn have reached too great a momentum, the power of government spending may well be inadequate to bring a quick reversal...

...There can be no quarrel with this rise in consumer debt—it is a means of achieving some of the benefits full employment yields to people...

...At the same time, the credit base has been deliberately narrowed, and this has given added control over the economy to the central bank...

...Defense outlays, now scheduled to rise more rapidly again, will prevent that...

...Such coordination has progressed measurably...

...For to be thus absorbed means a diminution of that portion of profits going to the unproductive recipients of dividends...

...Jobs in the latter increased by 11 per cent between 1929 and 1956...

...But even without much of a downturn, full employment in the U.S...

...November 1957 H. BRAND Poverty and Plenty The nation's press paid little or n s attention when the U.S...

...The full effect of this phenomenon was delayed into the mid-fifties...

...These policies are bound to undermine the substantial gains which a period of full employment brings to the people...

...Large-scale investments in underdeveloped countries could be such a factor, but the political conditions necessary for such investment scarcely exist...

...In contrast, however, seven million families, or 20% of the total, received incomes of less than $2,000...

...To be sure, unemployment is not likely to reach the magnitude of the thirties...

...Both reflect the expansion of the economy, not higher per-unit profits, and not so much higher per-employee incomes...

...Employment in government has risen 134 per cent since 1929, due mainly to the expanding defense establishment...

...This must be regarded in part a consequence of the preceding consumer demand boom...

...Census reported on the same day that the median farm income for 1956 was $2,371...

...In a sense, however, the Korean war hampered and postponed the large-scale post-World War II replacement and modernization of capital equipment, both inside and outside the U.S...

...This compares with about 9 per cent in 1929, the last year of a boom arising solely from autonomous forces in the economy...

...but in the absence of government support of major economic sectors, they cannot assert themselves...

...Thus, only greater intervention than ever by the government in the economy can assure a high level of investment and, hence, employment...

...While the evil of large-scale unemployment has been excised from the body of capitalist society, it is as if this same evil persisted in a different guise: It now takes the form of increasingly unproductive use of resources, both human and material...

...This is roughly the same advance recorded by employee compensation...

...THOUGH IT IS TRUE that the expansionary economic forces of the past 9 three years were not "war-induced" (at least not to the extent that one might say this of the earlier phases of the upswing), it is also true that government expenditures were probably the dynamic force underlying the latest boom...

...It will not recur...

...THIS RESISTANCE, however, cannot be successful unless it is somehow coordinated with the government's fiscal and monetary policies...

...Full employment has created too many vested non-labor interests, the government with all its multifarious agencies and hangerson is too deeply entrenched in economic life, and too much prestige is at stake internationally...

...Partly because of this, there have been great gains in productivity (output per man-hour), although, contrary to popular misconceptions, real wages have generally lagged behind these gains...

...and it is thereby squandering the skills and wealth which are, properly, a heritage of all mankind...

...Census Bureau recently released a statistical survey showing how wide is the gulf between the "haves" and the "havenots" in prosperous America...

...Now, this has resulted in a severe profit squeeze...

...The hypothetical or "median" family had an income of $4,783 during the year, an increase of 8% over 1955—but an increase that was all but wiped out by higher living costs...

...Another, perhaps more important one, has been increasing non-labor costs incident to doing business, costs associated with the, in large part, parasitical growth of the "services" discussed above...

...has proved to be quite compatible with an increasing gap between income strata, with bitter labor strife, and much deep insecurity...

...Thus the role of government in the American economy has not diminished in boom times, but has been further increased...

...It declined another 7 per cent in 1956 to a figure actually below that of the recession year 1949...

...But this means of solving the question of joblessness highlights the problem of what full employment means in the "welfare state": persistent and pervasive insecurity as budget funds are cut or shifted without regard to employment effects...

...It has been guided essentially by financial considerations, and its policies have strengthened purely financial interests...

...These policies are bound to have serious regressive effects on income distribution...

...but the rise in employment in them has been altogether out of proportion to that in the goods-producing industries...

...Defense itself has eaten up every year since 1952 a sum whose staggering dimensions exceed by over 3 times the outside capital needed by all the underdeveloped countries of the world in order to raise their national income by 2 per cent annually...

...9 Time magazine said: "The U.S...

...Of these nearly 3,000,000 families reported incomes under $1,000...

...Headway in the atomic industries is proving impossible without substantial government investments...

...Nonetheless, labor costs (which are a function of productivity and money wages) have increased considerably since 1948...

...The ratio of public to private construction, for example, which was 26 per cent in 1929 (at a time when private building had already slid down from its cyclical peak), was close to 40 per cent in the boom years of 1955 and 1956...

...Because of sharply declining levels of business spending on new equipment, the trend toward automation, which through its labor-saving effects has a momentum of its own during times of full employment, must also wait on the multiplier effects of government spending...

...Thus far this policy has secured a stable basis for full employment, but now there begin to appear signs of increasing difficulty in absorbing new additions to the labor force...

...The mere maintenance of investment at a steady rate is insufficient to keep the economy growing and employment full...

...farmer is a rich man...

...Deflationary policies have been masked behind allegedly antiinflationary measures, whose effect on prices, however, has nowhere been in evidence...

...But Time must have had in mind the operators of great factory-farm establishments, for the U.S...

...The ratio of profits to sales in 1955 was 7 per cent below that in 1948...

...The massive role of government— and it should be understood that the extent of this role is enhanced by, but is not merely the result of, defense outlays—is indispensable for keeping the rate of new investment at a growing pace, so that the economy will not contract...

...There is, for example, the great proliferation of such "services" as financial and real estate agen * Sources on this and other points made in this article are omitted for reasons of space...

...A major gain of full employment is some degree of job and income security...

...In any case, raising prices has become ever more difficult as the boom matured and excess capacity became the rule in nearly all industries...

...The ratio of government spending on goods and services to total national product has been close to 20 per cent since 1953...

...And dividends as a percentage of total profits have been, on balance, rising from about 36 per cent in 1948 to 56 per cent in 1956, while retained 11 profits (which are reinvested) have correspondingly fallen...

...The Federal Reserve has been permitted to become a major force in making economic policy...

...THE OPPOSITION of business spokesmen to more government spending, and the "economy measures" attempted by the Eisenhower Administration, have deflationary (employment reducing) aims...

...Why...

...They also make for a shaky employment situation...

...And this will be the more so, the more economic power comes to be concentrated in the state's hands, and the more business and the state tend to identify with one another...

...2) The consumer goods boom was followed by an extraordinary increase in business spending for plant and equipment...

...The mass of profits has increased around 80 per cent since 1947...

...A measure of the extent to which people rely on the permanence of these gains is the threefold increase in consumer indebtedness since 1949 (disposable income has risen in this period by only 60 per cent...

...There being a limit to the market, as well as to the extent to which growing labor and other costs can be offset by gains in productivity, profit margins can now be preserved and enlarged only by establishing a more "flexible" wage structure...

...This is not to imply that individual businesses have any choice about their profit rates...

...Restrictive monetary policies have redistributed funds to big business, damaging and often destroying smaller businesses...

...But this cannot be done in conditions of full employment...

...Such forces still exist, of course...

...To be sure, advancing labor costs have been but one element inducing price rises...

...The Progressive, November, 1957 13...

...On Sept...

...Their spokesmen's proclaimed concern with tax savings implies a preference for shifting, rather than a reduction of, the tax burden...

...We are not saying that services are unessential or that no rise in "service" employment relative to goods-producing should take place...

...But it also aggravates their insecurity when deflationary policies combine with a downturn to imperil the only source of their livelihood—their jobs...

...This advance in labor costs could to a large extent have been absorbed by business through a reduction of profits...

...Housing—and its allied durable goods —cannot thrive without active government underwriting or purchasing of mortgages, or both...

...At the end of 1956, however, there was already a gap of 6 per cent between the average preferred and the actual operating rate of manufacturing firms, a gap which has since probably widened to about 12 per cent...

...The ratio of income generated in these "services" to total national income has not materially increased since either 1929 or 1948...

...Inasmuch as not merely the amount but also the rate of investment must continue to expand if joblessness is to be avoided, government spending must not be abated and must actually be continually raised...

...THE FIRST PHASE of the worldwide economing upswing of the past decade came from the reconstruction and pent-up consumer needs arising from World War II...

...Altogether 42.7% of the nation's families had incomes, before taxes, of less than $4,000 a year—a pretty sorry statistic for the richest nation on earth...

...they will be furnished by the writer upon request...

...Public debt financing policies—to which an economy where government spending plays the central role is especially sensitive —have consistently strengthened financial interests...

...jobs in the former by 74 per cent...

...Higher wages and benefits to labor set a doubly salutary welfare pattern when they are won at the expense of profits, rather than passed on through higher prices...

...Business, however, has resisted any inroads into profits...

...it has instead raised prices in a successful effort to hold on to its share of the national product...

...No combination of factors is now in sight which would sustain the upswing of the past decade...

...The "welfare state" has lifted the capitalist economy to unprecedented levels of prosperity, but it has done this on a strictly national basis, and at the expense of a truly international economy...

...By providing a ready and insatiable market 'for, say, construction and defense materials, or for agricultural commodities, the state indirectly creates vast investment opportunities...

...It is first of all evident in the emergence of financial interests and authorities as quasi-official arbiters of economic wellbeing...

...The third phase, the "boom," began late in 1954...

...What is important is how the fruits of the great productivity of the goods-producing industries are to be used...

...Their denunciation of the growing economic weight of government is ideologically motivated...

...Farmers, incidentally, have been the hardest hit in the nation's economy...

...The growing disproportion in employment between the two sectors occurs in the face of obvious and unsatisfied needs for goods, as well as serious deficiencies in employment in such genuinely productive services as education, medicine and the arts...

...Hence the growing resistance of business to increases in government spending through which full employment is maintained...

...Interest rates have been allowed to rise to unconscionable levels in the capital-richest country on earth...

...but it is worth noting that as soon as cuts in government spending start hurting, "principle" quickly gives way to "realism...

...It was composed of two major elements: 1) There was a remarkable spurt in consumer demand for cars, housing and the durable consumer goods related to it...

...and an increasingly irrational and wasteful allocation of the fruits of productivity...

...Full employment has put a virtual floor under all wages...

...it is arrogating to itself the power of determining the proper pace and direction of expansion of the economy...

...10 cies, advertising and other "communications," sales organizations and law factories...

...WE MUST BRIEFLY CONSIDER in terms of resource allocation certain consequences of this outpouring of public funds into private hands which use them solely according to criteria of profit, and not by standards of what is socially desirable...

...This deterioration of profit margins below even previous recession years cannot simply be balanced by greater sales volume, since the market is not broad enough and does not grow fast enough...

...Nonetheless, there is ample evidence that Big Business favors mildly deflationary policies...

...Moreover, the economy is already so closely geared to defense, that any increase in defense outlays will act as a powerful multiplier...

...The 'forces of free enterprise no longer operate, or can be allowed to operate, automatically...

...The labor force has been perennially tight, in addition to being organized by strong unions which set the pattern for wages and benefits...

...Though enjoined by law to maintain full employment, the government has deliberately abetted deflationary policies, despite many indications of a serious downturn...

...The second phase, though beginning in early 1950, was associated with the Korean war...

...This boom was largely due to a population phenomenon: couples married after World War II had children at the same time as older couples who had married before or during the war, but had postponed parenthood for obvious reasons...

...The Census figures show, for example, that 900,000 families, 2% of the nation, had incomes of $15,000 or more while another 6% had incomes between $10,000 and $15,000...