Courage And Economics In Washington

...Tragically, little genuine hard thought is expended in official Washington these days on the particular steps necessary to deal with unemployment in the coal, textile, auto and steel industry, or how jobs might be provided for those especially prone to loss of work—the young, the old, the Negro...

...To blame a Democratically dominated Congress for the inability to advance a Manpower Act merely teaches us how to pass the buck...

...Yet the Samuelson glow has had difficulty getting through to Washingtonians...

...Ideas flowed in abundance...

...Caught between this Scylla and Charybdis, the Kennedyites evidently believe that a balanced budget and wage restraints will help them through the political narrows without much loss...

...Obviously, the economy itself has been altered: unemployment of the kind we are now experiencing is plainly structural...

...Berle's intellectual partner, Gardner Means, went to work with imagination and vigor at the National Resources Committee, a sort of precursor to the Council of Economic Advisers...

...Why this harsh reaction...

...Harris' heart has always been with the angels, that is, on the liberal or slightly left side...

...None lacks a ready justification for his retreat from "text-book idealism...

...Foremost was Rexford G. Tugwell, who liked to shock people with predictions that America would be remade in the image of the New Deal...

...On the other hand, a stumbling economy would hardly prove attractive to foreign investors, especially in the short run...

...Leon Keyserling, considered by some Washingtonians as the economists' version of the china-shop bull, took the Council right into the political arena where he fought vigorously for the policies espoused in his CEA reports...

...Heller has urged rather that private enterprise needs to be given a chance to demonstrate what it really can do—a chance that war, depression and a defense economy have denied it...

...A certain parallel to this experience occurred when John F. Kennedy brought his administration to Washington in January, 1961...

...The fact is that a ready willingness to compromise and back down permeates official Washington...

...But most important, it is to Dillon that Kennedy is apt to turn for guidance, rather than Heller or Goldberg or Harris...

...the reply is, "Give us some ideas...

...Next door to the CEA is the Bureau of the Budget, headed by David Bell, also from Cambridge...

...and the trade unions are so restive they must be placated with middle and high echelon conferences...

...They see the economy's upward movement spending itself...

...The model assumed—note bene!-4 per cent unemployment as a mark of full employ...

...And New Frontier these days is comprised of one part thought, two parts hope, three parts rhetoric and four parts political buck-passing...

...This estimate seems consistent with a capitaloutput ratio of 3:1, actual productivity gains of 2.5 to 3 per cent a year and an annual population growth of around 2 per cent...

...A fine thought when an economy has been operating at low levels with accumulated excess capacity, it is hardly serviceable when hard-core unemployment continues year after year despite a GNP of over $500 billion...

...And while economists outside the Administration are beginning to hesitate about continued expansion and growth, those in the CEA and elsewhere in government insist on telling us that the "slowdown is a reaction to the rapidity of the upturn from the previous recession's trough...

...Now WE ARE TOLD that the big problem is the balance of payments in international trade...

...Growthmanship, it is hoped, will solve all problems...

...Administration advocates point to the depressed areas bill, a new minimum wage, expanded social security, a new housing act, etc., etc...

...The thought seems to be that a conservative fiscal policy will allay the panic supposedly aroused by an unfavorable balance of payments...

...Dillon, for example, has supported lower interest rates and budget deficits, the accepted way of moderating a recession...

...They had not heard of the realities tough-minded politicians were wont to talk about, and they exhibited just enough brashness to make one think they might really succeed...

...Among economists especially, there was the feeling that the newer theorists, having refurbished the Keynesian apparatus, would demonstrate how to make an economy move, not at a languid pace but with buoyancy...

...Eisenhower's chairman, Arthur F. Burns and Raymond Saulnier, virtually turned the Council into the Washington branch of the National Bureau of Economic Research, that is, a purely statistical body which had nothing to say on economic policy...

...In the domestic field, proposal after proposal for stimulating economic growth is whittled down on grounds of political expediency...

...The Administration's treatment of this question reveals the lack of imagination which characterizes its entire economic program...

...In autos, for example, direct labor per car is between 16 and 18 per cent of unit cost, while material represents about half...

...He has continued to display his brilliance both at Cambridge and in Washington with self-consciously urbane lectures on a variety of economic problems delivered to such serious Congressional bodies as the Joint Economic Committee...

...Meanwhile, the Council of Economic Advisers continues to urge the use of general monetary and fiscal policy as the best way to deal with unemployment...

...These are specific ailments, requiring specific treatment, but the CEA prefers a generalized approach...

...Major interest centers, naturally enough, on the Council of Economic Advisers...

...Yet each postwar recession was successively more intense, each recovery less ebullient, each residue of unemployment larger and tougher to dispel...

...Consequently, the CEA's 1963 target would require an income flow to "capitalists" about 20 per cent greater than the $115 billion suggested above...

...At any rate, an investment level of this magnitude implies either a marked shift in income distribution in favor of the business community or greater participation by government...

...Current data suggest that the total of business net profit after taxes plus the salary, bonus and related take of upper income strata recipients is around $105 billion, and might reach $115 billion in 1963...

...The NRC was the only agency that provided a haven for economic planners and while an internal conflict between Frederic Delano, the President's uncle, and Charles Merriam, made it somewhat impotent, the very idea of central planning in the government was extraordinary...

...We have now a society in which the ostensible end of ideology is welcomed and in which serious political debate is frowned upon...

...It was thought that the Eisenhower ennui would be overcome by a vibrant new generation, just as the New Deal had displaced the confused placidity of the Hoover years...

...The Task Force papers, because they said so little that was really new, left one with a feeling of controlled skepticism...

...Protecting the dollar in international trade can conflict with policies for stimulating domestic growth...

...Such accommodation, we are repeatedly told, is what Washington needs these days...

...There were numerous others, all young and intellectually alive and all anxious to rebuild an America seared by depression...

...How else is one to run successfully and with courage for the history books...

...James Reston once expressed the town's reaction when he revealed that he had been quite bored by all the split infinitives in it...

...As the Economist remarked, the Administration's best weapon is speech-making...

...Established by the Employment Act of 1946, the Council has had a checkered career...

...The Task Force paper he wrote for Kennedy on economic policy could just as well have been prepared by a less sophisticated Keynesian...

...As compared to 1961, this would mean a 34 per cent jump in real private investment, while consumer expenditure would rise 14 per cent and government spending 12 per cent...

...This evidently takes off from Samuelson's observation that only the warm sun of a rising national income can melt the deep freeze of a depressed area...

...Moreover, internal inflation at the moment does not seem to be a pressing matter...

...A crescendo of criticism of the Kennedy economic program is now evident...

...While Heller has expressed his Midwestern distaste for the excesses of contemporary affluence, he does not, like Galbraith, believe that we have achieved the ultimate in production...

...Walter Lippmann calls it Eisenhower stuff thirty years younger...

...Some of the labor economists have been shouting, and rather loudly, but who listens...

...But it is unlikely that the "capitalists" would curtail their consumption by a third...

...That much of the conventional economic wisdom remains with him...

...It is conceivable that further domestic expansion would present its own cure, for prosperity might attract enough of a capital flow to the United States to help overcome the trade deficit...

...Haven't we heard this before in the last ten years...

...The latter, in itself, as Keyserling bitterly remarked, would be an education for lawmakers...

...He evidently has tried hard to impress his perhaps old-fashioned New Dealish views on government officials, but they keep coming out as pure New Frontier...

...But part of Kennedy's appeal to intellectuals, at least between the summer of 1960 and Inauguration Day, was his apparent sense of history...

...And unlike the days of the New Deal, it is believed that there are not too many repairs to make...

...Here the administration appears to be caught in a bind...

...It is at this point that former Kennedy supporters are starting to drift...

...Its first chairman, Edwin G. Nourse, who had come from the academically careful Brookings Institution, made it an agency for economic analysis only...

...There was a promise after the elections that vigorous action—a favorite Washington expression—would be taken...

...Of course, if the "capitalists" decided to save more, say 80 per cent, then their required income flow could be less and the gap would drop to a manageable $7 billion...

...Our merchandise balance, the excess of exports over imports, is more than satisfactory, but the over-all balance is awry because of capital outflow and foreign aid...

...Only the continued impulses stemming from a defense program kept us upright...

...Recently, the CEA asked industry, labor and university people for comments on a "full employment" model projected for 1963...

...The cocktail party circuit and car-pool riders began to talk about the Third Eisenhower Administration...

...Yet often it is difficult to distinguish conservatives from liberals in the Kennedy entourage...

...If we assume that about 70 per cent of this is saved (Keynes' average propensity), then at best $80.5 billion would be available for investment...

...Heading the parade was Paul A. Samuelson, perhaps the most brilliant contemporary virtuoso of mathematical economics...

...In his middle forties, Samuelson has been rocking his academic colleagues back on their heels with penetrating theoretical analyses ever since his student days under Alvin Hansen at Harvard...

...Rostow advises on foreign policy, while Harris acts as consultant to the Treasury and more recently has come forth as chief expositor of the political difficulties faced by the Kennedy economic program...

...More energy is spent by Kennedy's economists rationalizing each compromise than in explaining the urgencies of the case...

...One might well ask whether gangrene can be halted with fresh air...

...The only ideas that have come up in recent months are the not-so-original "export-more" campaign and a rather wistful plea to our Allies not to run away from the dollar...

...The art of the politically possible has been carried to wondrous extremes...

...It could be that other considerations, such as the international trade policies of some European nations (West Germany, perhaps), have contributed more to our balance of trade headaches than internal economics...

...Hence the Administration's recent cautionary word to industry and the unions...

...But somehow assessments of situations as preludes to judgments got in the way—so much so that even Samuelson had to admit that the adventures in New Frontier economics constituted a "placebo program for recovery...

...Many were fresh from Columbia University, and quite unlike the Harvard—MIT contingent that now graces the Capital landscape, they were naive enough to believe that America's ills could be solved forever by intelligent planning and good will...

...Of course, a 17 per cent rise each year in domestic investment is not inconceivable, particularly when we recall the 28 per cent increase in 1954-55, but that was by all accounts an extraordinary year...

...Yet one can detect in his most recent popular writings a tone of resignation to the harsh requirements of Washington realpolitik...

...In economic policy, for example, virtually everyone recognized that the country had been fumbling under Ike...

...Whenever a high Administration functionary is asked, "When will something be done...

...The conservative solution, which is well received in some Washington quarters, is to place a damper on wage hikes, since this is presumably what causes inflation...

...Although not now an official member of Kennedy's corps of economists, he has great influence...

...Yet each was diluted in the face of Congressional opposition: it was more important to get any law on the books...

...In this situation, an inflation can be really ugly, for increased domestic prices would depress sales of goods to other nations...

...II All of the Presidential economic advisers appear to be of one cut—sophisticated, non-utopian, even bland, and very quick to learn the ways of practical politics...

...The rather weak Wage-Hour revision was an almost classic manisfestation of the habit...

...The strength of the Budget Bureau comes not only from its statutory right to trim Departmental pocketbooks, but from the fact that it can and does see that Presidential orders are carried out...

...Other well known Cambridge economists among the Kennedy advisors include Walt Rostow and Seymour Harris...

...Only a few observers noticed that rhetoric is a poor substitute for genuine proposals...

...Yet at least 80 per cent of the manufactured goods exported by us comes from industries in which prices are administered rather than market-determined, in which automation and advanced technology have reduced the proportion of labor in total unit cost...

...As Jacob Cohen remarked in his dissection of the mind of Arthur Schlesinger, a key Kennedy adviser (DISSENT, Autumn, 1961), movements become merely lobbies on the Hill and the imperatives of history are transmuted into the art of the poltically possible...

...Leon Keyserling says more kindly that it falls short of even modest goals...

...Dillon acquired his conservative label not only because he served Eisenhower and successfully talked Kennedy out of tax cuts during the last recession, but also because he can be found generally on the opposite side from the Cabinet's liberal wing headed by Labor Secretary Arthur Goldberg...

...Existence under Kennedy is unchanged: it is what it was under Eisenhower, homogenized and apathetic...

...It's a complicated business...

...The present chairman of the Council is Walter W. Heller, a youngish scholar whose forte is tax policy...

...Nor is he willing to admit that there is a serious gap in public services, as Galbraith has done...

...Industries are shrinking, the labor force is being reshuffled, the economic mix has changed...

...never mind a decent one...

...What the CEA hasn't made clear is that growth depends not only on investment, but involves as well income distribution, propensities to consume and save and capital-output ratios...

...Washington was a lively place to be...

...BEFORE GETTING DOWN TO ISSUES, as Washington jargon puts it, let us complete the roster...

...Now, who elected whom...

...Moving along Pennsylvania Avenue, from the liberals through the moderate Bell, we come to the Administration conservatives at the Treasury, where Douglas Dillon rules...

...On the basis of these and other premises which need not trouble us at the moment, the CEA suggested the possibility of a $600 billion GNP (in constant dollars), of which investment represented $97.5 billion, consumption $382.5 billion and government outlays $120 billion...

...He seemed able to trace the roots of our difficulties and called for fresh ways of dealing with them...

...Quite plainly, the Kennedy Administration has been unable to break the bonds of its milieu...

...Another assumption was a rate of growth in GNP of 3.5 per cent a year...

...The rest is overhead and profit...

...Accompanying him was Adolph Berle, assuring everyone he knew more about high finance than the bankers...

...Thus, in 1960, a merchandise gain of $3.8 billion was wiped out by $3.5 billion in capital exports and $2.7 billion in overseas grants...