WILL 1949 BRING DEPRESSION?
Gitlow, A. L.
Will 1949 Bring Depression? By A. L. Gitlow ' Dr. A. L. Gitlow is a member ol the Economics Department at the New York University School of Commerce. Me upheld the negative in a debate on "A...
...Lower prices encourage, anrt make- possible, greater consumption...
...The estimated expenditures of close to $42 billion for the coming fiscal year are exceeded only by the astronomical totals of World War II and are 42 percent of the peak year of total war...
...1948 174.5 September...
...However, the initial Congressional discussions with regard to taxes do not seem to indicate any tendency to rush into law additional levies at least on income Instead, there is growing emphasis on great' r government efficiency in adniiiuslrHtion (the Hoover Reportj and in military expenditure...
...Further, a part of the slump, such as coal and petroleum, may be largely accounted for by such temporary factors as an unseasonably warm winter in the East a major consuming area...
...A restrained optimism is far healthier psychologically and materially for the future welfare of our country...
...On th" contrary, |-qu:d a-sc Is are unprecedented an I e,i...
...1,642 November, 1948 1,831 February...
...Yet, past depressions have been .characterized by a capital goods slump, and many feel that that is the critical area to watch...
...What is the outlook for consumer purchasing power, private investment, and government spending in the current year...
...1949 (est...
...In short, our economy was buoyed up by these expansive forces: (1 ) high consumer purvltusing poiver income tax reduction and the third round of wage increases wen1 factors here...
...1947 167.0 January, 1948 168.8 February, 1948 167.5 March, 1948 166.9 April...
...1948 170.5 June, 1948 171.7 July, 1948 173.7 August...
...3,000 * » * A STRIKING SIMILARITY between the beginning of 1948 and the start of the present year is evident in the above table...
...Of course, there are soft spots...
...AN ADDITIONAL few words may be said with regard to the current drop in the cost of living, This may prove a sourc of strength, lather than an evidence of weakness...
...Production in steel, automobiles...
...Tins shift is not, however, due to a hick of consume r purclue ing power...
...I. Coii.siiaii'1' Vnrelutsing I'oirer There is no money stringency among American r<>n .-.urn rs and busim linn...
...For one thing, food prices could drop a great deal and still be high relative to other pi ices in our economy...
...DESPITE THE DIP early in 1048, that year was by almost any measure the busiest in the country's peacetime history...
...PLAINLY...
...Check ing the facts wdl enable an independent judgment to be reached...
...There is no evidence here of a serious slump in the oiling...
...Therefore, price readjustments downward are the key to maintaining employment, and the latter is the sine qua non of prosperity...
...On the other hand there are few indications (hid the de-line is becoming progressively severe...
...AND 1949...
...I know that many individual consumers, oppressed by the high cost of living, will take issue with that statement...
...Most people lived well...
...Therefore, high economic activity may still be sustained at that time...
...Uciside I previo'i permits of liquidation and depression...
...2. Prit'fltp Investine.nt — A survey made by the- Department of Commerce and the SEC, which in the past has proved a reliable indicator, reports that...
...In my opinion, it is a healthy development...
...1948 2.193 May...
...utility and railway equipment, and most non-ferrous metals continues at record-breaking levels...
...will ap peer soon...
...arc in Hie form of cash, .• hoi t-tei ui government securities and redeemable savings bonds...
...Disposable income in November was equivalent to a seasonally adjusted annual Tate ol -SILKj billion a new high record...
...What will happen when government pi 11 linj...
...They read the reports which show a cost of living decline to 171.4 from the post-war peak of 174.5, and a rise in unemployment from last October's 1.642,000 to approximately 3,000,000...
...They are some $8 billion above the postwar low in fiscal 1948, and compare with a total expenditure of some $9 billion in 1939...
...1947 1,643 January, 1948 2.065 February...
...and all are being offered in reply...
...poli...
...Coupled with strong civilian spending power and business investment plans, it lends one to doubt seriously that u major depression could set in during 1949...
...v II ii ;< . ar,- |.,vvi r< el and an ' e|iiivalenl spending power returned In the people, they may then spend individual!', what the government was previously expending...
...For another, the government's farm policy will fight any development which seriously thieatens the agricultural industry...
...The people who fear depression base their opinion largely on recent trends in the cost of living index and unemployment...
...Is such a restrained optimism justified...
...Thus, we may conclude that the current developments in the cost of living and unemployment are not yet serious enough to justify panic...
...The development of areas of weakness, such as cotton goods, shoes, clothing, and services, is one of the reasons there is a current fear of depression...
...1948 174.5 October, 1948 173.6 November...
...It showed, moreover, that industry plans to spend in the years 1950-53 almost three times the 1949 amout, to a total of $41 billion for the groups covered in the survey...
...Enlarged consumption means greater general welfare and .sustained employment...
...and I billion in I lie In I I :c i ill 111 Se;r oral lac lor . have I \ pe-all v resulb c I in decline he'ween the foil) Ih and f'n I quarters . 11 r. ii-iiiii ant ttitil all bid one ol the major industries c-xpei led cither to maintain or surp.es the dollar volume of capital investment ol early HMD...
...People Iwiv lacco/s...
...1948 1.899 October...
...Such evidence reminds us that there was a rash of pessimistic predictions at that time also...
...The figure reflects the dominance of the "cold war" in our budget expenditures Further, President Truman offers no encouragement that the $42 billion expenditures projected for the fiscal yeai of 1950 will mark the top...
...How is the strong consumer purchasing power noted to be reconciled with the existence of soft spots'' By recognizing that demand is less urgent ll is less urgent because people- have t i 11 ¦ ¦ I manv pressing needs since the end ol the war...
...We must remember also that panic is, in itself, dangerous, and can become a force working in the direction of depression...
...What are some of the more important economic currents at work in the Ameirean economy today...
...This was the basis for Professor Douglas V. Brown's rejection of the ten cents an hour increase requested by the Textile Wotk*3 Union from the Fall River and Ne# Bedford mills...
...2) tremendous private investment -running approximately 40 billion dollars at annual rates at the close of 10411, of which 19 billion dollars were spent by non-agricultural business for new plant and equipment...
...I can not escape- feeling that this specter colors their analysis...
...su> h as it,i...
...But the measure of economic welfare is the physical supply of goods produced and consumed, and by that test the nation never enjoyed so much...
...As a matter of fact, analysis reveals that the soft spots arc primarily in the consumers goods area...
...To demonstrate why I propose, first, to show briefly why the 1948 dip did not degenerate into a depression, and second, to indicate the present strength in our economy...
...Me upheld the negative in a debate on "A Fourth Round for Labor" in the January 29th issue of The Sew Lender...
...villi depend <>n govern >i- id i...
...1948 171.4 Unemployment Date (1,000's) -ttovemSilT, VW7 1,621 December...
...iimp...
...1948 2.440 April...
...This spending reflects the "cold war" to which we have committed ourselves...
...On the other hand, attempts to maintain prices at an artificially high level involve limiting consumption and output, which of course means serious unemployment...
...by W. S. Woytinsky...
...and thc-y c an now hold oil for lmver prices and better quality !n 'holt, we are witnessing a return In buyer.-,' market-;, seasonal fluctuation.-, and competitive conditions...
...1948 169.3 May...
...Of course, government tax plans could affect this judgim nt by curtailing private spending power and capital formation...
...Retail trade figures showed a striking recovery since Christ - mas...
...The survey showed that in HMO American industry plans to spend only about a percent less than during 10411...
...The markets become narrow because other people do not, and in most cases can not, receive equivalent increases in Income...
...1948 1.761 June...
...As arbitrator, Professor Brown felt that when markets will ne longer absorb their products, worker*' who seemingly gain through higher wage rates actually lose through unenv ployment...
...A series of three article* on the economic outlook for 184...
...1947 164.3 December...
...Business expenditures on new plant and equipment in the first quarter of 1940 will exceed the level in the same period of 1048 by about .ri petcor...
...The lone reduction among major industry goods . . . was in the transportation industry, excluding railroads" Additional evidence- of sustained business investment in capital wan provided by a McGraw Hill Publishing Co survey of business needs for new plant and equipment, and of planned expenditures for the- purpose...
...Yet they were not followed by depression...
...Finally, analysis of the drop in the cost of living reveals that it is due primarily to the drop in food prices...
...1948 2.639 March...
...Further, they stored up durable goods and vastly improved our productive lacihties...
...Our review of the 19411 experience serves to focus our attention on some critical barometers of economic activity...
...1948...
...Early in 1048, loo, there was a drop in the cost of living and a rise in unemployment...
...Their spirit is troubled and fears aroused...
...High prices were coupled with high incomes...
...1948 172.2 December...
...1948 2.184 July, 1948 2.227 August, 1948 1,941 September...
...and CD t'ttat government spending--with rearmament and Marshall Plan expenditures constituting a big portion...
...ti.d ic/ieii tlii-y can yet irluit llieg leant at stllisjtlftorg prices, tlivj) tire, liugnig...
...3. Government Spending-In 1949 the government will be pouring out more money...
...s«ilote a source ol st i engt h. The e a .si...
...I believe it is...
...I. . . . Anticipated outlays for new producers' capital aggregate 4.4 billion dollars in the fit .t quarter of 1949, compared with ~> billion in the fourth quarter of I'll...
...It would be bad only if it injured the farming group, and that is not likely...
...We must provide a perspective, or framework, for them The following table will help us achieve a broader view: Cost of Living Date (BLS index) November...
...This figure makes no allowance for the cost of assisting m the rearming of western Europe, now under discussion, for which lie intends to present supplementary requests...
...More people were employed, industry turned out a veritable flood of goods, and our farms produced record-breaking crops...
...Consequently, the general standard of living was higher than ever before...
...In addition, the rate of saving has risen...
...THE SIXTY-FOUR DOLLAR ques tion currently on everyone's lips is — will 1949 bring depression'' There are three possible answers: Yes, no, maybe...
...Underlying their interpretation is a mental uneasiness reflecting the tragic American experiences of the depression of the 193()'s...
...It means greater food consumption by the urban American population, and a higher diet level for our industrial workers, without priceboosting wage hikes...
...It would seem premature to claim the beginning of a depression when the production of such capital goods items is not substantially reduced...
...THEREFORE, we may expect government spending to con tinue as a major inflationary force in our economy...
...In general, therefore, I do not view the drop in the cost of living with special alarm...
...At first glance it certainly seems that their alarm is justified However, the statistics just cited are too narrow to serve as a proper basis for forecasting...
...This reflects the record crops in 1948...
Vol. 32 • March 1949 • No. 12
