How Auto Makers Can Encl the Recession
NATHAN, ROBERT R.
How Auto Makers Can End the Recession By Robert R. Nathan $200-300 factory price cuts, plus excise slash, would revive our hardest-hit industry Eight million autos were sold in 1955; 1958 sales...
...What more sound and essential investment could be made than public social investment...
...Should we settle for anything less than an adequate program of education, hospitalization, etc...
...In the same way, the country has a right to expect the steel industry to cut its prices, in an effort to lower the costs of steel-consuming industries, such as automobiles, and revive the demand both for steel and for products made of steel...
...But the whole job of recovery should not and cannot be left to the Government...
...Here Robert R. Nathan, consulting economist and national chairman of Americans for Democratic Action, offers a program for economic recovery—and growth...
...Can we afford such programs...
...Investments in social capital, social services and social subsidies will take intelligent and self-disciplined planning, and will cost money...
...The automobile manufacturers are among the foremost advocates of the enterprise system, but it is curious how, in their scheme of enterprise, they expect somebody else—the workers, the dealers, or the Government —to take the risks of venture...
...The manufacturer of clothing, when his current styles do not sell, does not expect his workers or his retail outlets or the Government to assume the total burden of moving his stocks into the market...
...Such programs would, of course, take a great deal of money...
...I do not mean cuts of $25 or $50 as a talking point...
...This industry has raised prices irresponsibly and ruthlessly in the past few years —far, far above the increases in their wage and other costs...
...thus, today there is far more serious distortion of capital in relation to consumption...
...Even now, at low levels of production, profits of the big steel companies are still surprisingly good, because of their monopolistic pricing policies...
...Private enterprise, which is the beneficiary of the booms, must share the risks and responsibilities of recovery...
...we do have social security and we do have public welfare (though the levels of benefits are woefully inadequate...
...The automobile industry cannot, in reason or justice, ask for a cut in excise taxes while the industry sits tight on its high prices...
...steel capacity is idle...
...From present indications, it will be fortunate if the automobile industry sells 4.5 million cars in 1958—and this kind of year in an industry capable of producing 8 million cars means a continuation of heavy unemployment and great suffering, not only among automobile workers but among businesses and workers in all industries supplying the automobile industry and marketing its products...
...But the automobile industry expects its workers to suffer unemployment...
...The lag in automobile sales appeared before the great increase in unemployment, and may very well have been caused in part by consumer resistance to the automobiles themselves, which, as one critic said, are inconveniently long, uncomfortably low, over-decorated, over-powered, and over-priced...
...Conspicuously lacking have been commitments to use Federal funds for ready-to-go public projects —notably school buildings—which could be quickly undertaken to meet urgent needs...
...and any year in which the economy declines by only 3 or 4 per cent represents a loss twice as great...
...One of the largest factors in the recession, of course, is the great decline in the sales of automobiles...
...The free-enterprise market, which works well for the rest of the country, just doesn't reach the slum-dwellers or the people stranded in depressed areas...
...but if the American economy is operating as it should, our annual production should increase at a rate of 3 1/2 to 4 per cent a year, which means that each year we will produce an additional $15 to $20 billion of goods and services...
...In the late '40s and early '50s the mushrooming sales of electronics and television and all the secondary electronics industries and services were a powerful stimulant...
...How do we reach this group...
...On the other hand, I think the industry would find the country and the Congress very receptive to a cut, or even a suspension, of the 10 per cent excise tax if the companies showed their good faith by sharply cutting their own prices as well, thereby lowering the cost to consumers in an effort to revive the demand that is waiting to be tapped...
...There is no more significant step that could be taken by private enterprise toward economic recovery than a gigantic clearance sale by the automobile industry, in the form of sizable, significant price cuts to reduce the inventories to manageable proportions...
...There is accumulating evidence that, while the drop in automobile sales is in part a result of the recession, it is also in part a cause...
...I am thinking specifically about automobiles and steel...
...The current recession had its origins in an investment boom which has now tapered off sharply, leaving us with greatly enlarged production facilities and a rapidly increasing level of productivity—but without a corresponding growth of consumption...
...These programs of social investment and social subsidy are not only an end toward which to work, but will also serve as the means for a stable, growing economy...
...This recession follows an investment boom, which was not true in 1949 nor 1954...
...But there are great gaps which must be filled, and the variety of programs demanded must be met collectively by all of us out of taxes...
...and there is no evidence that the pep-talk sales campaign of the industry is moving them...
...Surely we have arrived at the point in our history and in our civilization when we must supply better food, better housing, better medical care and better education for those passed over by the general prosperity, and give them an opportunity to break out of the vicious self-perpetuating cycle of poverty in which they are trapped...
...It makes no sense for the steel industry, operating at less than half of capacity, to hold to a price level calculated to make a profit at very low rates of operation, instead of cutting prices as a contribution to lower costs, lower prices and higher production and employment in the economy...
...Because, first of all, it is risky economics to base booms on a particular industry, and second, there already exist two huge untapped markets where the demands are not filled...
...It is estimated that half a million workers are unemployed as the direct result of the cutback in autos...
...Our production is now running at about $40 billion a year below high employment levels...
...We have made some strides along the road to this modest Utopia...
...One such market is the huge reservoir of public services, so greatly needed, so inadequately supplied...
...for all Americans throughout the country, most especially when this would be an important contribution to economic stability for decades to come...
...and it is perfectly willing for the Government to cut the excise taxes—in fact, anything but a cut in the manufacturers' prices...
...At last accounts there were more than 850,000 cars unsold in inventories...
...We cannot afford to do without them...
...The other huge untapped market of needs not filled is our low-income population, which comprises one-fifth or one-sixth of the country...
...I mean factory price cuts of $200 or $300, which, when combined with a cut in excise taxes, would really move cars...
...So are we today to look for, or develop, some new product or service on which a booming industry can be built to give the economy a shot in the arm for a decade or so...
...Both have ben trying to give the appearance of doing something about the recession while avoiding responsibility for it...
...it forces its dealers to shave their margins by $300 or $400 to the vanishing point...
...In the 1920s a postwar collapse was followed by a boom built largely on the then-new automobile industry...
...In other times and other recessions, the country was sometimes fortunate in having new, rising industries to create new demands and stimulate the economy to new heights...
...Most of the so-called anti-recession measures announced in Washington so far have been sparring moves in the political contest between the Administration and the Democratic Congressional leadership...
...If this were done, additional sales mould put employees back to work and would require purchases from suppliers of raw materials and parts —thereby giving a great boost to the economy generally...
...There are needs for trained personnel in education, health and other community services...
...1958 sales have been at an annual rate of 4 million...
...My answer is No...
...And the effects of our recession are being exported, in the form of lower imports and lower prices for raw materials, to the rest of the free world...
...By 1965, the gross national product should be over $600 billion a year...
...All over the United States there are needs for homes, schools, hospitals and mental hospitals...
...The recession involves terrible waste...
...One out of seven Detroit "workers is jobless...
...Any year in which the American economy equals only the production of the previous year represents a loss of $12 or $15 billion of expected and needed economic growth...
...In any normal competitive industry, an over-accumulation of inventory of major proportions is the signal for a clearance sale...
...Many economists—as well as Auto Workers chief Walter Reuther— feel that the auto industry produced this slump by overpricing...
...Senator Estes Kefuaver blames overpricing, too, for the fact that 60 per cent of U.S...
Vol. 41 • May 1958 • No. 19
