ECOMONIC OUTLOOK: 1949
WOYTINSKY, W. S.
Economic Outlook: 1949 Part 1 By W. S. Woytinsky THE UNITED STATES is again a a victim of depression jitters. The air is full of rumors—forthcoming layoffs, tax increases, fantastic bills...
...But, because of the backlog demand and stored-up purchasing power, the labor force was to remain the great "bottleneck...
...production ot consumer goods was disorganized during the war by the priority awarded to munitions production...
...It is a matter of opinion whether it would have been better to repeal price controls in November, 1946, or June, 1947...
...The rise of prices could, of course, be checked by continuation of wartime controls, until production caught up with demand...
...In retrospect, it is clear that these trends of 1946-48 were predetermined by the mechanism of the war economy...
...an analysis of the forces which made a rise in prices, but not runaway inflation, inevitable...
...Labor in the United States...
...But, in retrospect, this policy appears sound...
...Thus, the question of the, economic future of the United States has far-reaching political implications...
...And they stressed, also the possibility that these phases might overlap...
...On the other hand, production was catching up slowly: there was a general shortage of labor...
...However,' the interdependence of developments in war and postwar economics was not grasped by many economists...
...not move their merchandise rapidly enough, prices are bound to go dovfnj until the profit margin is sufficiently narrowed to discourage surplus production...
...In other words, demobilization was to bring a drop in production and real national income, without mass unemployment...
...Hardly...
...or if producers do not meet a fall of prices by cutUng production or reducing costs, price, have just not dropped enough...
...This not-very-pleasant situation was characterized by shortages of consumer goods, deteriorating quality of...
...Three Aspects of Labor Dynamics...
...10,000.000 farmers living in dire need, the profits of Imperialists attaining unheard-of site...
...Probably many people in the Office of Price Administration ^either did hot understand or did not 'like what they were doing...
...A vigorous, prosperous United States spells recovery and reconstruction for Europe and economic progress for the backward nations of other continents...
...This, of course, is not the opinion o( the American press...
...that in the coming era the forces of expansion would prevail over the forces of contraction...
...THE ECONOMIC SYSTEM is usually an arena where opposing forces and divergent trends clash...
...The prophets of doom seem to be right this time...
...AFTER THE END OF THE WAR...
...Essentially, they thought in terms of a chain of economic developments analogous., to that following World , War I, but on another scale: with different timing, with a new combination of - the component elements, and with' out the tragic collapse that terminated the expansion of the 1920's...
...Such promises were sheer nonsense...
...There and then the public was taught to believe that each rise of prices is a national calamity, robbery, and runaway inflation...
...So loud and so persistent were the denunciations of inflation, so striking was the contrast between the continuing rise of prices and the promises that they would dive—if left alone— that the public began to believe our economy was caught in an inflationary spiral...
...If you call each rise of prices "inflation," you can say: an inflation was imminent...
...If consumers do not resent rising price, and do not resist them, prices have not risen enough...
...During the war...
...a seven-volume encyclopedia of -world statistics (in German...
...and "Earnings and Social Security in the United States" (Social Science Research Council...
...2. Unsatisfied demand...
...W. S. Woytinsky is visiting professor at Johns Hopkins University...
...Such was our model of postwar economy, and this forecast was vindicated'by subsequent events...
...This will be, however, a loose and misleading use of the term "inflation...
...AFTER THE BALLOTS WERE counted last November—and it became clear that there would be no change in the administration in Washington— newspapers announced the event under the headline, "The Greatest Upset in American History...
...the described process was launched in the United States under very unusual conditions...
...Second, it meant a wholesale destruction of produced goods—many billions of dollars worth of munitions, ships, airplanes, military installations were destroyed during the war, or junked after the end of hostilities...
...This statement sounds like a platitude but it has an important corollary: no forecasting is possible on the basis of short-run observations or daily newspaper headlines...
...falling prices discourage producers...
...SINCE THE WINTER 1946-47, the public forum has been dominated by the prophets of economic disaster...
...the Incentives could not have been provided without rising prices...
...To foresee the course of economic events, one must weigh the conflicting symptoms, putting them in'proper relation to each other and appraising them against the historical background...
...Later, if production con* tinues...
...But they had a new story to tell: instead of predicting deflation and mass unemployment, they preached now approaching inflation and collapse...
...Now, when the alleged inflation is over and price deflation has . begun, it is opportune to look back and appraise how much of a price rise ' we actually had after the final repeal of price control...
...second, the widened margin of profit .. stimulates expansion of production and causes, in due.time, an incjeasa h supply...
...There was a tremendoui backlog demand for consumer goods— for between 10 and 12 million cars, as many dwelling units, complete equipment for 7 or 8 million new households, and so forth—and a huge demand for capital goods...
...and that several years afterward a minor setback would take place) hare proved to be correct...
...they reappeared on the seen* with their old, 'Widely-cracked crystal balls...
...Mass unemployment was again around the corner: business had priced itself out of the market...
...The question of whether it contains even a shadow of truth is of vital importance, not only for this country but for the whole world...
...industrial plants needed retooling and repairs...
...First, it was a grim challenge to the nation's economic ingenuity and stimulated a tremendous growth of production through full utilization of idle and hidden technical —Herblook, Washington post and human resources...
...The time required for each reaction depends on many factors, but the reactions, themselves, are perfectly sound...
...They had not changed a bit...
...Their advance causes a double reaction: first, since some con* sumers cannot or do not wish to pay the high price, the demand diminishes...
...Third, the wages and profits paid for production of war materials could not be fully converted into active purchasing power—a part of them remained frozen for the duration in the form of consumer savings and financial reserves of business corporations...
...as a rule, : it is better to have the correct policy <Wlled under B false theory than a correct theory which cannot be applied in practice because of the resistance of political forces...
...Approximately $60 billion worth of liquid savings was in the hands of consumers, and inexhaustible financial reserves were piled up by business concerns...
...Hence, the pattern of' the early phase of postwar economy: contraction of -national income and yet full employment...
...These denunciations found support in the silly commitments which had been made by some business spokesmen in the heat of the fight for repeal of price controls...
...SINCE OUR MEMORIES ARE short, it is worthwhile to remind the reader that during the twelve months preceding final repeal of price control —from October, 1945, to October, 1946 ,rrthe wholesale price index advanced from 106.8 to 139.7, and the index of 'farm prices from 205 to 263...
...to expand and producers can...
...Under these conditions, a rise ol prices was imminent...
...poses in the play of economic forceij rising prices discourage buyers...
...Many false and exaggerated statements were made during the fight on price control...
...It was the people who had formed a false Idea of the coming eyents who were completely upset...
...Thus the three premises of the postwar economy wre established: 1. Expanded production capacity...
...Thus, the advance of prices and their retreat serve definite pur...
...People were unanimous in desiring a change, but there was no unanimity about the best and shortest way back to peacetime normalcy...
...The day I wrote this article, a newspaper in Moscow cheered up its readers: "In the United Slates," it said, "production is falling, chaos increasing, the army of unemployed growing, inflation increasing, the purchasing power of workers declining, real wages falling, every seventh city dweller starving...
...A venture in forecasting is defensible only on the basis of long-run studies, as an attempt to interpret current economic history...
...foreign countries requested our aid, and this country, both for the sake of humanity and for its own sake, had to answer their appeal in a generous way...
...Yet, the failure of the Administration to explain the need for a price rise, and to assume responsibility for it, had unfortunate repercussions...
...They anticipated that,, in some respects, the lack of equilibrium in our economic system would be aggravated...
...Without such historical perspective, the mechanical enumeration of recent economic events is meaningless and misleading...
...3. Piled-up purchasing power...
...It is fairly clear now that this was the only possible pattern...
...its end will mean the beginning of a new era of invasions...
...autumn of 1946...
...When prices continued to rise, the commitments of over-zealous business spokesmen appeared in a bad light...
...Those who . anticipated a period of industrial expansion and prosperity, resulting from the war economy, proved to be right...
...One wonders why the Administration that dicl the only sensible thing Under the given circumstances did not try, also, to, explain to the public the purpose and meaning of its policy of Secontrol...
...From this point of view, let us look back on the recent economic trends...
...products, and development of black markets...
...But they were confident...
...this increase would not have come without large investments...
...Nobody was fully satisfied with the Administration's price policy...
...investments would.not have been ventured v without strong incentives...
...The Three Sources ot Unem«ployment" and "Social Consequences of Economic Depression" (International Labor .Office...
...Woytinsky now prophesies a long period of economic expansion...
...Our domestic policy...
...Return to normalcy was bound to be accompanied by withdrawal of emergency workers from the labor force, reduction of hours of work, and a shift of employment from high^wage munitions factories to less remunerative peacetime occupations...
...The war had a triple impact on our economy...
...and the attempts of the government to decontrol the wartime economy...
...But what was upset...
...Weseldom ihave both si sensible policy and a explanation for l)t...
...DURING THE WAR many economists tried to visualize the forthcoming trends in our economy...
...workers had been robbed of all the gains they had made during the war...
...Professor W. S. Woytinsky, which will attempt to forecast the economic outlook for the United States in the coming period./ The' first of these deals with the current "depression Jitters" which prevail in this country...
...The current supply of consumer goods was further* curtailed by the international situation...
...consumers had exhausted their savings, cashed their bonds and still were unable to buy a decent steak dinner...
...1 They did not forecast a golden age of perpetual, balanced prosperity...
...Business asked for the abolition of price control in order to take full advantage of a sellers' market, and had no intention to establish a voluntary price control...
...a given level of prices, the demand is larger than the supply of goods, prices tend to rise...
...These were our old friends—the same ones who predicted ten—or \yas it fifteen—million unemployed after the end of the war...
...They visualized the postwar era as a succession of characteristic phases— demobilization, reconversion, primary 1 postwar boom, period of readjustment (primary postwar depression), expansion...
...Our foreign policy...
...They had promised, indeed, to take care of prices and prevent their rise...
...The Office of Price Administration worked day and night "decontrolling" one line of production after another, and letting the respective prices inch up, postponing at the same time the decontrol of other prices...
...Scarcity of consumer goods could not have been overcome without a substantial increase in production...
...In recent years two other striking unsets were recorded —the first in 1046 when, instead of the predicted unemployment, prosperity developed in this country...
...Its objective was a gradual shift from controlled to free prices, with a minimum of inconvenience to producers and a minimum of hardships to" consumers...
...But many people would concede that the picture given by the Moscow newspaper is not simply an expression of its wishful thinking, but contains some grains of truth...
...The advance of prices cob...
...They realized that the war would leave intact those forces which were responsible for cyclical ups and downs in economic activities...
...His best-known published works are: "The World in Figures...
...There was, however, a danger that in the straitjacket ot wartime controls the civilian economy would not expand rapidly enough to end the situation which existed in the -talburt, n.y...
...hut sooner or later the war economy had to end...
...Geneva...
...Hence, likewise, the secondary features characteristic of this pattern: a sellers' market, jobs going begging, prices and wages on the upswing...
...WE VISUALIZED THE SHIFT from a wartime to a peacetime economy as a process of contraction of economic , activities cushioned.by expanded productive capacity, backlog demand, and piled-up purchasing power...
...The air is full of rumors—forthcoming layoffs, tax increases, fantastic bills designed to ruin the national economy...
...I leave to historians to decide whether this was the greatest upset in the history of this nation...
...Professor Woytinsky worked on long-range estimates of the costs of social security for the Social Security Administration...
...Many of the predictions he made in 1942-43 (for example, that there would be no runaway inflation immediately following the war...
...the second quite recently, when the longadvertised inflation stopped before any special measures could be taken to stop it: An old economic law says: when, at...
...world-telegram The New Leader begins, in this issue, a series of three articles by the distinguished' economist...
...tinues until an equilibrium between -declining demand and growing supply is reached...
...Prosperity in the United States means peace in the world...
Vol. 32 • April 1949 • No. 16
