Inflation and Economic Growth
SCHNABEL, OSCAR
The U.S. Economy—II: INFLATION AND ECONOMIC GROWTH By Oscar Schnabel A decent regard for the nation's economic health requires a firm decision to stop inflation at all its sources. To achieve...
...For example, a mere one per cent reduction in the cost-of-living would be the economic equivalent of a $3-bil-lion increase in consumer spending and/or savings and of considerably more than a $500-million decrease in government spending...
...Needless to say, a cost-of-living increase of the same small percentage would have the opposite consequences...
...The reduction of unemployment would be considerable...
...This would result in both lower prices for farm products and large savings in the Federal budget...
...To achieve this aim, three basic changes in national economic policy are necessary: (1) planned flexibility in switching labor from undesirable to socially desirable production: (2) substitution of shorter work periods for productivity increases in many sectors of the economy...
...would miss its aim...
...The same cost-of-living cut would be tantamount to a wage rise of 10 cents an hour for all the members of the AFL-CIO and the Teamsters Union...
...emphasis on the production of socially desirable goods, reduction of working time, transfer of labor to neglected sectors of our national life, such as education, health, road-building, the creation of more leisure for the greater enjoyment of our vast cultural assets: All these point the way to a healthy economy and a healthy society...
...the bulk of the labor force, made up of the age groups between 20 and 64, is due to grow by only 7.8 per cent in the same period...
...Above all, even a cut as small as this could provide jobs for some 700.000 young people...
...At the same time, farm production could be reduced by curtailing price supports to the large farms...
...even if it resulted in only a one per cent cost-of-living increase...
...It is obvious, for example, that an increase in the production of tools for aid to underdeveloped countries will be more useful than the further growth of our advertising industry, which already represents 3.5 per cent of national consumption...
...It is obvious that output and labor costs per production-unit would remain unchanged if workers received the same pay for shorter working time and if the pay were geared to productivity rises...
...On the other hand...
...Now this may be technically more efficient...
...Thus, one of the socially most deplorable consequences of the traditional rounds of wage increases could be reduced, if not actually eliminated...
...His article, "Inflation and Foreign Aid" (February 9), discussed the interre-lati on between the domestic economy and U.S...
...It will be a genuinely valuable probe, however, if it considers where production should remain stable or even be reduced, and where it should be pushed ahead...
...many of them received payments running into the tens of thousands of dollars, and quite a few even higher...
...The Census Bureau estimates that the country's population will grow by 15 per cent Oscar Schnabel, a former Austrian diplomat and economist, has long studied world economic problems...
...are discriminated against, in favor of those who are protected by union contracts against the evil consequences of inflation and costof-living rises...
...foreign economic policy...
...If we could thus achieve a really efficient halt to further inflation, our economy would be additionally aided, in both its public and private sectors, by the resultant lower interest rates...
...and (3) establishment of a ceiling on individual farm subsidies...
...Of course, all these advantages would be enhanced considerably if business and labor could be induced to let the consumer participate in the results of productivity rises...
...The Government's recently-announced plan to undertake a close examination of the economy can be of immense importance, but not if it concentrates on how to stimulate an indiscriminate increase of the GNP...
...Thus, the $3-billion rise in government spending asked for by President Walter Reuther of the United Auto Workers, for the purpose of righting unem-ployment...
...This would not mean economic stagnation...
...but, in terms of larger social objectives, it would seem better to keep as many farmers as possible on their farms through liberal support...
...Increased production would have to meet the needs of the 1.75 per cent annual population growth...
...in the decade, 1956-65...
...And government savings effected thereby could be spent in useful job-producing projects or diverted into tax reductions, which would increase disposable consumer income...
...Such rates would reflect, not an easy-money policy, but the elimination of the fear of future inflation...
...The average benefits to these farms from government price supports amounted to only $109...
...In those sectors of the economy where steady growth is desirable, wage increases must, of course, be geared to productivity rises, and prices must be kept stable...
...The supply of additional labor for these sectors would have to be planned and, if necessary, subsidized by transferring to them superfluous labor from other sectors...
...According to the Rockefeller Report, 2.7 million farms, which constitute 56 per cent of all the farms in the country, produced only nine per cent of the total agricultural output...
...The Rockefeller Report suggests that surplus agricultural output be reduced by transferring small farmers to otber work...
...For it is only too obvious that the growing flight from the dollar and the inclusion of risk premiums in long-term credit rates are responsible for the lack of mortgage money and the rising cost of credit supply to government, business and home construction...
...Since, for the years ahead, the relative growth of the labor force will be smaller than that of the population as a whole, increased production will reduce existing unemployment and provide jobs for young people entering the labor force...
...For the fact is that workers without seniority, as well as those just reaching working age...
...An end to the inflationan spiral...
...Thus, national income would increase, and unemployment benefits and relief payments would decrease...
...1.3 million farms, each of which sold more than $5,000 worth of produce last year, received an average of $1,993 in price support...
...Another result would be the elimination from the Gross National Product of unnecessary surplus farm production...
Vol. 42 • March 1959 • No. 10
