The New Shape of Politics: Can the U.S. Reconvert to Peace?
Seligman, Ben B.
At a recent meeting of the DISSENT editorial board, we decided to print a section of articles, each of which would deal with new political and social problems— speculatively, tentatively,...
...But with general government costs, veterans' services, agriculture, commerce and welfare items about as high as they can possibly go in the present juncture of affairs, it is doubtful that they could absorb what is now spent for cold war purposes...
...For, the basic question, as always, revolves about our willingness to look ahead and to plan for the numerous delicate adjustments that would be required to keep the economy moving at high levels...
...A cuasoax EXAMINATION reveals that while GNP rose in the 11-year period by almost 89 per cent and business spending by 26 per cent, Federal expenditures jumped some 235 per cent...
...Of course, this has not always been the case...
...it means, if you will, a new political economy...
...Yet in virtually all the analyses I have examined little credit is given to the enormous expenditures by the Federal government on defense and other cold war needs...
...Both Seymour Harris and John Kenneth Galbraith have told us about the gaps in education, housing, flood control, highways, hospitals, medical services, social security, sanitation controls, urban and suburban transit, and recreation facilities—the list is indeed a long one...
...This was the picture as seen by most economists...
...But with each war, Washington's responsibility for an ever-increasing portion of the national product grew by leaps and bounds...
...Since full employment now requires a growth of about $15 billion in GNP (in con stant prices) the public projects necessary to replace military reductions would dwarf all imagination...
...WOULD IT BE POSSIBLE to replace military spending with other items...
...Is Congress, and the present administration, likely to accept such a program...
...After World War I there was a jump of 260 per cent...
...A successful disarmament program would be of great concern not only to those industries involved in research and development, electronics, aircraft and the like, but to all the peripheral industries which service them...
...It means, above all, a reorganization of the lines along which power is disposed...
...I doubt it...
...How many plans have been developed for reconverting factories now devoted to defense needs...
...the lag in housing approximates 750,000 units a year and our old folks are relegated to the heap of the socially useless with pittances of $70 a month...
...16...
...With the civilian economy growing at an annual rate of about 3 per cent per annum, an additional growth curve was added by government spending to meet the cold war needs...
...Not only would we have to make up the loss in GNP stemming from military cutbacks, but account would have to be taken of the $15 billion per annum increase in productivity...
...Perhaps the best way to demonstrate the impact of national defense on the economy would be to present the relevant statistical data for at least the years 1947 to 1958...
...Ever since Korea, so-called national defense expenditures have approximated 10 per cent of the gross national product (GNP) and today they stand virtually equal with business investment as a major factor in keeping the economy on a high level of affluence...
...During the 19th century and prior to World War I, Federal spending was a minuscule portion of total output...
...All this suggests to the new optimists that the affluent economy of the 1950s was totally different in quality from the economy of the 1930s and 1940s, and that the 1960s will continue the happy trends established after Korea...
...The backwash of a sharp and substantial reduction in the military sphere is more than apt to drown out the salutary impact of a new spending program...
...With Korea there came an upsurge in private spending, initiating a hectic but good-natured scramble for goods by both business and consumers...
...During the 19th century, Federal outlays increased from some $10 million per annum to about $400 million by 1900...
...Assuming that the civilian economy was already prosperous by 1930 standards (a $300 billion GNP and 60 million employed) military hardware added that much more gravy...
...That is to say, war is good...
...At a recent meeting of the DISSENT editorial board, we decided to print a section of articles, each of which would deal with new political and social problems— speculatively, tentatively, briefly...
...Bedazzled by the way in which the American economy successfully handled three post-war recessions, many observers have concluded that prosperity is now normal and routine, built-in to the system...
...With a correction for constant dollars, GNP increased 41 per cent, while Federal expenditures more than doubled, with the national defense portion jumping 166 per cent...
...But at no time prior to the present were military expenditures so significant a part of the total flow of goods and services...
...Not so much the size of the reduction but simply the fact that it took place at all was important...
...There is little doubt now that military spending has been extremely stimulating to the whole economic system...
...As Warburg said recently, how many corporate managers living off the fat of government contracts have given thought to what they might produce should peace really break out...
...To repeat, it is doubtful that non-military needs can absorb the full amount of expenditures saved through a disarmament program...
...Yet during this period business investments, no matter how computed, that is on a constant dollar or current dollar basis, did not rise markedly in a relative sense...
...Between the needs and the desire to meet them there yawns a chasm of political apathy, administrative stupidity, and business intransigence...
...That would more than double the level of economic assistance now being given to other nations...
...Nevertheless, the cutback in business expenditures of some $20 billion in 1958 did not appear to have appreciably affected the growth in GNP...
...However, investment by business continued unabated and with the government lending its support through the guarantee of mortgages, home buying rose swiftly...
...Five were proposed, four appear...
...What thought has been given to providing jobs to those now in the armed services when they will have been released...
...They point to the supposed fact that the downward cumulative force of a recession was halted time and again by a battery of built-in stabilizers which sustained demand in different parts of the economy...
...Simply enough, the reduction of some $12 billion in GNP (the multiplier effect) would be virtually instantaneous, while the initiation of projects and spending programs to replace military expenditures would require time before the effect of their take-off would be felt...
...Need it be added that these articles, like all the articles we print, represent the views of their authors and that other editors may disagree with them?—En...
...The present 10 per cent figure, however, promises to become the normal level...
...It has not occurred to the experts that with other objectives and other values, the civilian economy might have digested the added GNP without any cramped feelings...
...True, in World War I, spending for guns and military manpower was 16 per cent of national output, but it quickly dropped back to less than 1 per cent...
...Moreover, they say, the shift from low value sectors, such as farming, to high value products such as electronics and space photography, helps increase the GNP...
...The question reduces itself then, not to whether it can be done, whether a high speed economy is possible, but rather to whether it will be done, whether we have the foresight and wisdom to construct a social and political technique for a quick reversal of economic gears...
...It is clear that a decrease in military spending in the kind of economy we now have would depress the level of GNP and, in human terms, create no little amount of unemployment...
...If the economy functions with a multiplier of three, as seems likely, that is, if one dollar of investment leads ultimately to $3 of GNP, then a 50 per cent cut in military spending (or about $22 billion) would imply a fall in GNP of $66 billion...
...A ten per cent reduction in military spending, or roughly about $4 billion a year, would require replacements considerably larger than that sum...
...Now, add to that the need to absorb the additional goods that can be produced by virtue of greater productivity and the enormity of the job becomes clearly evident...
...A large part of military outlays are direct: pay for soldiers and the Pentagon bureaucracy provides a flow of immediate purchasing power, whereas outlays for bridges, roads, and housing require time in order to exert their beneficial glow upon the economy...
...By 1951, despite the war mobilization, prices leveled off, due perhaps as much to full consumer cupboards as to overstocking in inventories...
...The suspicion grows that business investment may have been displaced by government spending, especially for war purposes, as the prime mover in the American economy...
...Basically this is a matter of politics, not economics...
...Such a reduction would be catastrophic...
...When in 1953 the economy began to sag just a bit, it was thought that house building and consumer durables would collapse entirely...
...Productive capacity, the ability of the economy to maintain a flow of goods and services, is now almost double the 1929 level and the government presumably is better aware of the need to step in whenever economic events threaten to take a turn for the worse...
...Frankly, where else could we spend $40 billion a year but in the military establishment...
...Even a vast foreign aid effort, such as suggested by Warburg, could take not more than $5 to $10 billion a year...
...It means a new vision of society, one willing to undertake measures that will unstintingly provide people with the public services they have so long done without...
...Perhaps the Pharaohs of ancient Egypt were not so crazy when they built pyramids, nor John Maynard Keynes so mad when he suggested that pound notes be buried in bottles to be dug out by the unemployed...
...I submit that public non-war spending would have to be considerably larger than the military cutbacks themselves merely to overcome the gaps and time lags that would inevitably arise...
...Steep progressive income taxes, unemployment insurance, high level capital expenditures and national pattern wage bargaining have all seemingly contrived to keep things going at a bubbling pace...
...Military responsibility for its portion of Gross National Product is now ten times what it was in the 1930s and more than 20 times what it was in the 19th century...
...It may be said that the 1958 terminal date is unwarranted for, taking 1957 as the terminal year, constant dollar business investment showed a rise of 25 per cent within a decade...
...The increase in national defense costs went up even more, reaching a level of 290 per cent as compared with 1947...
...But there is a reasonable doubt that the transition really can be made successfully...
...but even if we deflate them for constant dollars (to 1954) to eliminate the impact of price rises, the increases are still stupendous...
...When the fighting stopped in Korea and military spending was reduced by some $10 billion in 1953-54 there was a sharp accompanying decline in economic activity...
...These figures are on a current dollar basis...
...Even in constant dollars, there was a decline in 1958 of 4.5 per cent over 1947...
...What, in short, has been done to create quickly the markets necessary to replace $40 billion of defense spending...
...SOME ECONOMISTS HAVE ARGUED that so vast a program is really no drain on our total resources, since some of the materials and manpower utilized by the military might have remained unemployed anyway...
...The War of 1812 and the Civil War pushed Federal spending up not merely for the duration of the conflict, but permanently, by 150 per cent and 230 per cent respectively...
...The ratio of business investment to GNP, in fact, has dropped during the eleven-year period...
...Not only has the economy become less susceptible, they say, to the kind of cataclysmic collapse experienced in the 1930s, but it may well be that the business cycle itself has at long last been done away with, at least in our own generation...
...It implies a radically new way of accomplishing tasks and a major realignment of political thinking...
...True, there is a vast reservoir of social needs that we ought to fill...
...Thus, our economy, they say, can only be prosperous when we prepare to blow it all to kingdom come...
...Added to this was an unprecedented expansion in capital investment by business, again stimulated by Washington's tax privilege program, which provided for rapid depreciation and encouraged businessmen to spend as much as they could...
...The fifth, on "The Terms of Coexistence," fell victim to human frailty, though it is likely to remain a subject for future comment...
...This, of course, always depends on the domestic political climate...
...There was also a gradual and steady spending program for war needs which threatened to set off another inflationary push...
...What would happen if military expenditures were curtailed...
...Schools are over-crowded and colleges do not know from where the funds for the next decade's operations will come...
...There are some, like Seymour Harris and James Warburg, who feel certain that the economy can adjust to peacetime operations, given certain political conditions...
Vol. 7 • January 1960 • No. 1
