NOTES ON THE U. S. POLITICAL Economy
Brand, H.
The 1960-61 recession has displayed two contradictory characteristics: it has been the mildest postwar recession when measured in terms of the cutbacks in output, capital investments and...
...However, the answer to the above question does not devolve upon the attitude of business alone...
...Eisenhower's former Budget Bureau...
...Defense expenditures are beyond doubt a major prop of American prosperity...
...But it hinges enpublic non-defense services, both do-tirely upon the unpredictable outcome mestic and foreign...
...They do not interfere with the kinds of investments made, the location of industry, or the pace of technological development and of the improvement in productivity...
...Nearly 6017, of Federal budget receipts (amounting to about $79 billion in the current fiscal year) are allocated to the military establishment...
...Average annual growth in the employment of non-agricultural establishments has slowed from 2.5% in the years 1948-53 to 0.5% in 1957-60...
...In the 1953-54 recession, reductions in defense outlays accounted for most of the decline in the Gross National Product (GNP...
...Inventories were reduced rapidly in 1957-58, but the new high they reached in the summer of 1960 was barely ahead of the old one hit in 1957...
...In 1960, credit was eased even before output and employment trends had begun to deteriorate...
...The paradox has its origin in the stabilization policies of the Federal Government...
...This caused widespread lay-offs...
...Overcapacity abounds in most United States industries...
...ness representatives have, in general, been chary about advocating larger defense expenditures...
...In 1960, a Presidential election year, countermeasures were initiated with alacrity even before some key business indicators had peaked out...
...In some states, especially Virginia, Texas, California, New York and Massachusetts, military payroll and procurement outlays provide a substantial portion of income.* While only 100 firms account for three-quarters of defense procurement, there are thousands of smaller contractors and subcontractors dependent upon defense business...
...the capital investment represented by military hard goods and construction equals over one-fifth of total public and private capital investment...
...It has become a political and economic power in its own right...
...The wave-like nature of the economic process of capitalism entails roughly similar amplitudes of the upward and downward curve of the cycle...
...Its historical evolution differs radically from that of its counterparts else...
...where: in Europe, business generally grew under the tutelage of a strong state, and was always confronted by radical opposition from below...
...See the writer's "Poverty in the U. S.," DISSENT, Autumn 1960, p. 346...
...Pay ments to the States from the Federal Highway Trust Fund for road construction were expedited...
...The long steel strike in the summer and fall of 1959 distorted the whole pattern of the recovery...
...In addition, the civilian labor force is growing at one and one-half times the rate which prevailed in the fifties...
...Yet such expan-of political struggles yet to be fought...
...National Planning Association, Washington, D.C., 1961...
...Targets for U. S. Economic Growth in the Early Sixties...
...THE QUESTION now is whether this complementariness of Government stabilization policies and business objectives will remain a stable fact of national life in the United States...
...Federal taxes amounted to around 3% of GNP in 1929...
...It is significant that projections of the Federal budget for 1965 and 1970, made just before the Eisenhower administration left office, foresaw only minor boosts in military outlays, but quite substantial rises for welfare services and other civilian purposes...
...Illustrating perhaps most strikingly the weakness in underlying demand is the fact that throughout the 1958-60 recovery, the backlog in new orders for manufacturers' durable equipment remained far below previous levels of the fifties...
...The inadequacy of that recovery in terms of absorbing unemployed workers has been amply publicized by the Kennedy administration...
...Easier credit has supplemented budgetary deficits...
...But it is probably safe to say that the great postwar boom has ended...
...Three-quarters of the Federal budget, then, pays for past or possible future wars...
...Once flourishing areas of the country are now subject to creeping stagnation...
...The military and civilian payroll of the Defense Department amounts to $11 billion annually...
...But there can be little doubt that technological changes together with their cumulative effects on the location of industries and consumption habits have left, and are leaving, many persons stranded...
...These policies have been concerned with the volume, but not the direction, of the flow of funds going to or emanating from the private sector of the economy...
...On the contrary, they tend to secure, or "underwrite," the framework within which the decisions affecting these matters are made...
...At the same time, capital investments and organizational innovations in the later fifties have been predominantly laborsaving (cost-cutting) rather than capacityexpanding...
...But the effects are on events, not institutions...
...It is statistically almost impossible to separate the cyclical from the so-called structural causes of unemployment...
...yet, the steps then taken by the Federal Government and the monetary authorities aggravated them...
...These are bound, over the longer term at least, to affect the allocation of resources in the U. S., and thus modify the economic structure...
...Theoretically, new appropriations could be made available...
...Expenditures stepped up, say, in the first half of a fiscal year lessen the funds (or obligational authority) available in the second half...
...Prospects of useful jobs opening up at a similar rate are dim...
...It is the only means through severely the initiative the Kennedy ad-which job opportunities can be inministration can take in expanding creased rationally...
...The duration of cyclical expansions has become progressively shorter since 1948, owing to the growth of industrial capacity and the consequent contraction in demand backlogs...
...Foreign competition is sharpening in domestic and other world markets...
...it is more than twice that of the auto industry and 1 1h times that of the steel companies...
...It also seems unlikely that greater defense spending will become a major means of absorbing the unemployed...
...In times of recession, budget deficits have, in effect, swelled the cash holdings of businesses and households...
...They also have the great political advantage of offending no one: they do not compete with any private interests, and do not imperil *Background Material on Economic As pects of Military Procurement and SupBUT WILL IT, can it remain so...
...The business cycle being itself an "aggregate" of a vast series of events, the policies dealing with it, too, have been designed to have "aggregate" effects...
...For seven post-Civil War decades, American business was master in its own house, its social power unchallenged, its "ethos" popularly accepted and approved...
...On the other hand, a 100% increase in defense contract awards during the first half of 1958 provided the key to the subsequent recovery and expansion...
...States and localities, who carry the burden of maintaining the social overhead in the U. S., have barely raised their share of GNP over the last 30 years: it ran to 7.3 17, in 1929, and to 8.3% of a vastly larger pie in 1959...
...In the latter half of 1960, defense orders were stepped up rapidly...
...Changes in armaments technology have probably been at the root of the far-reaching structural dislocations which the economy has undergone since 1953...
...They have usually favored "economy" in Government spending, regardless of the latter's purpose...
...The 1960-61 recession has displayed two contradictory characteristics: it has been the mildest postwar recession when measured in terms of the cutbacks in output, capital investments and inventories, but the worst in terms of unemployment and business failures...
...The growth of Federal taxation is inseparable from the growth and permanence of the defense sector...
...Price rises—whose magnitude generally afford a good comparative measure of speculative demand pressures— amounted to 15% between 1955 and 1957 for producer durable equipment, but to only 2% between 1958 and 1960...
...But aside from the delay involved, it is simply impractical to subject major public spending programs to the Procrustes bed of countercyclical policies...
...and this pluralism is reflected in the fragmentation of those sectors where power resides—business, the military, the top layers of the executive branch of government—as well as among other influential but less powerful groups and strata...
...Another 10-11% goes for interest on the Federal debt, incurred mainly for World War lI financing...
...Busi-ply, February 16, 1960...
...No stabilization policy would be effective without the great taxing and spending powers of the Federal Government...
...Hence, European business has long been reconciled to the state's active role in the economy...
...It is not mere "ideology" which prompts such opposition...
...it insures the social status quo...
...The growth of the defense sector has not enhanced the social power of U. S. business, although, of course, the latter has profited nicely from that growth...
...From 1950 to 1959," states a report of the Joint Economic Committee of Congress, "while the Nation's volume of business expenditures expanded 76.5%, Department of Defense expenditures expanded 246.2...
...Defense absorbs 9-10% of the national product...
...In the 1960 expansion, it failed to recover the peak it had attained in 1957...
...In 1957, recessionary tendencies were clearly discernible in the summer...
...Structural unemployment is spreading...
...2. The "political" reasons for the relative moderateness of the current recession when measured in terms of production outweigh in significance the economic ones...
...At the same time, they have proved to be quite reconcilable with large-scale unemployment, the ruthless elimination of weaker firms, and the misdirection (from a social point of view) of human labor and natural resources...
...The basic institutions and structure of the capitalist economy are strengthened or, at least, protected by stabilization policies...
...Recently it has declined to 10-year lows...
...This pluralism (which is not necessarily tantamount to democracy) makes the American political system a relatively flexible one...
...The fiscal and monetary policies of the Government have thus far in the postwar period undoubtedly helped in dampening cyclical fluctuations...
...We must now modify this assertion...
...it is doubtful whether the output indexes would have been driven up as high as they were without the anticipatory and post-strike inventory movements occasioned by the strike...
...We stated earlier that stabilization policy does not in principle interfere with the conduct of business...
...In 1957, the Federal Reserve Board stubbornly pursued its tight-money policies into the late fall, long after signs of the recession then taking place had multipled...
...it limits sity...
...The volume of manufacturing output in the U. S. has expanded around 53% in the past 13 years, while the number of manhours required to produce it has remained virtually unchanged...
...and some 6% are spent for veterans' benefits...
...This then tends to have a dampening effect on the economy...
...American society is pluralistic, true...
...THE DEMAND for economy in defense spending arises from the same antagonism to a greater role for the Government in the economy as does the resistance to bigger non-defense programs...
...That is one lesson of the 1960-61 slump...
...It would probably require ever increasing increments of such spending to yield a given number of jobs...
...In the earlier period, the budgetary policies of George Humphrey, then Secretary of the Treasury, resulted in cancellations of defense contracts or "stretchouts" in their terms of delivery...
...This implies a degree of irrationality and, more important, a tax load and an extent of government control which would seem unacceptable to business as a class...
...This consensus in-has also become an economic neceshibits the system's flexibility...
...The more important economic aspect of defense expenditures is their effect upon the structural stability of the American economy...
...We cannot speculate here as to the location of the present recession in the most recent "long wave" (if such indeed there be) of capitalist development...
...They seem socially neutral, but they are complementary with the objectives of business as a class...
...The defense sector thus has become the major single outlet for "savings" in the U. S. In this sense, it has become a key, perhaps the key stabilizing force in the economy...
...But it might well be acceptable to trade unions, which have a large stake in the defense industries, but which have, with few exceptions, been unable to come forward with creative alternatives...
...It is undeniable that serious efforts were made under President Eisenhower's "business" administration to keep defense spending in bounds...
...One should not underestimate the ability of this system (taken in its widest sense) to adjust to new situations and meet new challenges...
...and, although business as a class may be the principal beneficiary of stabilization policies, the latter cannot but impose limits upon its freedom...
...Private business investment in plant and machinery sank below its 1954 recession level in 1958...
...Two major reasons—one economic, the other political—have accounted for the relative moderateness of the decline in output and capital investments characterizing the present recession: 1. The recovery from the 1957-58 recession (which was the most severe of the postwar period) was relatively free from the kind of speculative excesses that had previously marked the capital investment boom and inventory accumulation of the mid fifties, and had aggravated the 1957-58 downturn...
...However, increases in defense spending or contracts must draw on funds already appropriated...
...The increased total of unemployment compensation and social security payouts (related to earlier-than-intended retirements) has helped maintain aggregate consumer purchasing power...
...Less well known is the fact that the trend in both the number of unemployed as well as in the ratio of unemployment to the civilian labor force has been gradually rising throughout the postwar period...
...For the reasons just detailed, increases in defense spending (or contracting) have the inestimable advantage of acting quickly in well-established areas of the economy in times of recession...
...In addition, there have been rapid advances in productivity...
...These problems cannot be solved by reliance on stabilization policies...
...Budget projections made by the National Planning Association, an organization composed of liberal business, trade union and farmer representatives, include a forecast for a nearly 50% increase (to around $68 billion) in defense spending by 1965.• Such an increase would, if it materialized, bring the U. S. considerably closer to becoming a garrison state than the one contemplated by the conservative Republicans of Mr...
...However, there exists beyond question a conservative consensus which is in great measure assured by the businessdominated press and air waves, and the immense financial power of sion is not only socially desirable, it the corporations...
...On the other hand, a growing public non-defense sector would present a serious further challenge to the social power of business, circumscribed as that power already is by the rise of the military...
...Non-food wholesale prices rose 7% in the former period, but less than 2% in the latter...
...But they have "stabilizing" as well as "destabilizing" effects...
...Acceleration of Government contract awards has also acted as a brake on over-all recessionary trends, and has in large part been responsible for eventual upturns...
...The latter safeguard and promote the private conduct of economic affairs, including the most crucial element of such conduct, namely, the making of investment decisions...
...The military is no longer a mere junior partner in the councils of business...
...It would seem improbable that unemployment will be permitted to continue to grow and to become chronic, if for no other reason than that the international position in which the U. S. finds itself does not allow it...
...In 1959, they came to 20...
...national unity...
Vol. 8 • April 1961 • No. 2
