ECONOMIC OUTLOOK: 1949
WOYTINSKY, W. S.
Economic Outlook: 1949 Part 2 By W. S. Woytinsky This it the lecond of three articlei by Dr. W. S. Woytiniky forecasting the economic outlook for lhe United States in the coming period. The...
...Of course, a decade of rising cost of living was bound to have a cumulative effect on consumers whose incomes did not keep pace with the growth of national income, and their complaints were not without foundation...
...The reason why this development does not appear in comparisons of "real wages" is obvious: statistical computations which use 1945 as the bench-mark are utterly misleading...
...They agreed that something should be done about the situation, but dis...
...many children were left without maternal care...
...50 percent but the index is false...
...Prices are high because of unreasonable demands of labor, said business...
...Indeed, the rise of prices in the last two years appears surprisingly slow when one thinks of the pressure of backlog demand, accumulated savings, the three rounds of wage raises, the Marshall Plan, and especially when one remembers that the rise of prices was a world-wide phenomenon...
...Surely, allowance should be made for the inaccuracy of the cost-of-living index under conditions of a war economy...
...Let us loolj, first of all, at what happened to our national income...
...and 14.1 percent in 1948...
...13.2 percent in 1941...
...In fact, it is questionable whether the economic situation in the United States and abroad would be better if our wage rates, prices and profits were, say, 20 or 25 percent lower than they are...
...His bestknown published works are: "The World in Figures," a seven-volume encyclopedia of world statistics (in German...
...During this period the shortage of •consumer goods was overcome, black markets disappeared (or nearly disappeared), tr*e quality of goods and services was widely improved...
...The consensus of opinion was, however, that it did not reflect properly the rise of prices...
...Professor Woytinsky worked on long-range estimates of the costs of social security for the Social Security Administration...
...The present article picks up at that point...
...THE CONSUMERS' PRICE INDEX of the Department of Labor (related to the average 1929-39—100) was 152.2 in November 1946...
...10.2 percent in 1945...
...11.4 percent in 1944...
...Whatever the price index used for deflating wages and incomes of 1945, these deflated items do not represent "real" incomes in the sense in which this term is applied to current earnings...
...The Three Sources of Unemployment" and "Social Consequences of Economic Depression" (International Labor Office, Geneva): "Labor in the United States...
...If the 1945 index number is raised 10 points to take care of such factors as black markets, deterioration of quality of goods and the like, it is found that the "real" national income in 1948 was equal to that in 1945 and "real" weekly earnings of factory workers in 1948 were roughly the same as in 1945...
...That is not the point, however, in an appraisal of economic trends and outlook...
...And there is this difference between the two cases: labor sinned by claiming more than its proper share of the pie, while the companies sinned by simply helping themselves...
...A larger purchasing power .of a dollar would not have given us additional production of goods and services, but would have increased the burden of private and public debts (in relation to current incomes), and bolstered the value of savings and financial reserves...
...Actually a tremendous success has been achieved since 1945...
...With allowance for these factors, prices paid by consumers at the end of 1948 were about 5 to 10 points higher than at the end of 1946...
...13.5 percent in 1947...
...This does not minimize the total rise of prices since the inauguration of the defense program, or since the outbreak of the war...
...Since then prices have declined...
...These problems cannot be solved by changes in wages, profits and prices but require constructive efforts in the direction of a better utilization of national resources, more efficient organization of enterprise, increased productivity of labor, and the like...
...If total national income were used in the same way in which consumers in low income brackets are using their earnings its purchasing power, in 1935-39 dollars, would have amounted to 142.4 billion's in 1945 and to 132.1 billions in 1948...
...I do not wish to defend all the profits of big corporations...
...IT AMOUNTED IN 1945 to $182,8 billion...
...You take for granted that the corpse had been there before it was stolen or walked away, and you proceed to shout at the top of your lungs: Here is the murderer...
...Three Aspects of Labor Dynamics" and "Earnings and Social Security in the United Stales" (Social Science Research Council...
...The total advance for the decade from 1938 to 1948 was considerable: around 70 per ' cent, but only a small fraction of this rise took place in the last two years...
...The point is whether there has been a period of inflation or not...
...W. S. Woytinsky is visiting professor at Johns Hopkins, University...
...But^ there is no evidence that, on the average, either wages or profits are now excessive or that their rise has endangered the economic equilibrium...
...The United States is one of the few countries which have preserved sound currency and compara...
...In 1945, consumers could not spend their money because there was no real equivalent to it in the flow of production of goods and services...
...In 1948 we did not spend more than $20 billion for defense...
...Now, we work 40 hours a week, enrollment in schools apd colleges is at an all-time peak, millions of women who worked in factories during the war are back in their homes...
...Prices are high because of scandalous profits, said labor...
...Thus, in spite of the repeated raises, real earnings of workers are now lower than in 1945...
...There can be no objection to the efforts of labor unions to raise real wages to the level of the standard budget of the Department of Labor, or higher...
...A runaway inflation has developed in France, Italy, Greece, Poland, Soviet Russia, China, Indo-China and Indonesia...
...This would probably have resulted in a slight decline in investments, a slower rate of increase in production and a small— hardly perceptible—decline in the demand for labor...
...mean only that the question of relationship between corporate profits, wagei and prices is not as simple as it is presented sometimes by well - intentioned columnists and cartoonists in the labor press...
...the actual rise was, much larger...
...The statement that profits have been excessive is based on single examples— some of them very impressive—and on the general observation that corporations have made more money in 1947-48 than at any other time in our history...
...The analysis brought us to the rite of-prices in 1947-48, the period described by many economists as a "runaway inflation...
...Aside from this correction, consum' ers' prices continued to advance during the 21 months...
...8.6 percent in 1946...
...in 1948 to $227.3 billion (annual average based on the third quarter...
...12.2 percent in 1943...
...Since the share of labor in this aggregate did not change much in these three years, the advance in economic welfare of the working population was probably of the same order of magnitude...
...The truth is that the index shows a gain of 15 percent but the actual advance was much less...
...Deflated in the same way as weekly earnings of workers, national income in 1948 was 6 percent less than in 1945...
...This is exactly what happened in the controversy over the responsibility of big business and labor unions for our postwar inflation...
...THIS IS NOT ALL...
...It increased 22.5 percent, while the cost-of-living index advanced 34.1 percent—from 128.4 to 172.2 (1935-39 — 100...
...However, these repercussions of a cut in profits could have been offset by a reduction in taxes and other measures...
...The ratios"*in 1947 and 1948 were higher than in the preceding years, but not much higher than in 1940-43...
...agreed about what should be done...
...creased by approximately 17 percent...
...If we reject the wrong assumption that the rise of prices since autumn 1946 was excessive, these mutual accusations appear pointless...
...tively low prices without rationing and regimentation...
...With correction for shortage oMhe most popular commodities, deteriorated quality, black markets, poor service, and so forth, the price index would have been considerably higher, probably not less than 162.2...
...In this last period, prices were high in comparison with the prewar pattern but their advance was slow, less than one-half of one percent and probably not much more than one-fourth of one percent per month (if allowance is made for improved quality and eliminated shortages since November 1946...
...But it does not mean much in view of the fact that all the items in American economy — payrolls, earnings of farmers, consumption, production—are at record levels...
...IT IS DIFFICULT to hang a man for murder if the corpse of the victim is not found and there is no evidence that a murder was ever comrnitted...
...The answer was usually: The official index shows an advance of only...
...Peru, Chile and Bolivia, as well as in Spain, Austria, Belgium, Bulgaria, Finland, Hungary, Turkey, Iran, Iraq, Japan and Burma...
...The weekly wage of a factory worker averaged $44.39 in 1945 and $54 49 in November, 1948...
...More, over, they were far lower than before the depression.* If the ratios in 1947-48 had been kept at the same level as in 1940-43, it would have been possible to increase wages on the average by 0.7 - of one percent without changing prices...
...15.2 percent in 1940...
...onto cut prices by 0.5 of one percent without increasing wages...
...Since a straight "Yes" or "No" answer to this question would lead us into the realm of semantics, a conditional answer is preferable: If this was inflation it was announced like a lion but proved to be as tame as a baby lamb...
...But in political and economic discussions, if you desire to hang a man you do not waste your time searching for evidence of the crime...
...In 1945, goods and services worth $67.2 billion were diverted to war...
...But this goal implies a substantial increase of the amount of goods and services available for the working population—more houses, more choice food, better facilities for recreation, better education of children, more health protection, and so forth...
...If it can be proved that the successive rounds of wage increases have contributed to bringing our prices to the present level, they have served a worthy purpose...
...On the other hand, lower prices in the United States would have forced a depreciation of other currencies in relation to the dollar, which would have been harmful both for the United States and other countries...
...The respective figures for 1929 are • not strictly comparable with those shown above...
...Personal consumption expenditures totaled $121.7 billion in 1945 and $178.5 billion in 1948...
...12.3 percent in 1942...
...In August 1948 the index reached the peak — 174.5 — 22 points or 15 percent above the starting position in November 1946...
...With correction for changes in prices, the real purchasing power of the population has in...
...HOWEVER...
...In terms of overall output per man-hour, this country has made, since 1945, considerable progress...
...This is what made necessary price controls, rationing, heavy taxes and half-compulsory saving during the war...
...THIS STATEMENT will seem improbable to many readers of The New Leader...
...A milder inflation (with purchasing power of the currency unit falling to one-fourth or less of what it was before the war) is in progress in Mexico, Brazil...
...During the war...
...The preceding article covered the impact of the war on our economic system and the early phase of the postwar economy...
...It is true that some profits (especially before taxes) were exorbitant, as it is true that some claims of labor for wage raises were unreasonable...
...This is how wages and salaries, on the one hand, and corporate profits on the other, varied in the last ten years: Wagat and Corporal* Prodis SalariM Altar Tax** and (Privet*) Inventory Adju»lm*nt In Billions of Dollars 1939 37.5 4.3 1940 41.1 6.3 1941 51.S 6.8 1942 65.6 8.1 1943 78.7 9.6 1844 83.3 9.5 1945 82.1 8.4 1946 90.2 7.8 1947 109 14.8 1848 118.4 16.8 * * * CORPORATE PROFITS (after tax and inventory adjustment) amounted to 11.5 percent of wages and salaries earned in private industries in 1939...
...At that time, we worked 48 hours a week...
...At first sight this seems disappointing...
...This observation is.of course, true...
...But is it not true that real earnings of workers have been cut down sin«fc the end of the war...
...our schools were half-empty...
...Does it not prove that real wages declined while national income and production in this country were rising 4o all-time peaks...
...In discussing the state of economic affairs I have asked many people: Do "you think prices advanced more than 50 percent or less than 50 percent after the end of 1946...
Vol. 32 • April 1949 • No. 17
