Goals for Full Prosperity

...We have not developed and put to use a systematic and integrated portrayal of the capabilities and needs of our economy as a whole, and measured both ends and means in terms of this complete tableau...

...The President's Economic Reports, as required by the Employment Act of 1946, should state specific quantitative short- and long-range balanced goals for maximum production, employment and purchasing power, geared to consumption or use goals...

...They are also repressing production and employment, although the urgent need is for expansion...

...The deficiency in private consumption did not come about because consumers as a whole spent too little of their incomes and saved too much...

...Expanding production and consumption are prerequisites for optimum growth GOALS FOR FULL PROSPERITY By Leon H. Keyserling The initiation of a Senate investigation last week into the anomaly of several million unemployed in an otherwise thriving economy has drawn attention once again to the country's rate of economic growth...

...In the recent period, on the other hand, distortions have risen as a result of a lag of public and private consumption behind profits and investment in producer facilities under conditions of a rising price level...

...We have not set forth clearly and quantitatively, on both a short-range and a long-range basis, the three vital objectives of our economic life...

...To be sure, there is need for a discriminating monetary policy...

...These trends have had a most serious effect upon the second of the great purposes of our national economic life, namely, the servicing of our priority needs...

...It is equally essential that the Economic Reports define what portion of our growing total production and consumption at full resource use should be devoted to those programs which mean most to us as a nation...

...A deficit of $152 billion in total national production has meant, on the basis of the actual tax rates which have been in effect, a loss of about $25 to $30 billion in revenues to the Federal Government...

...It is particularly important that this identification of "needed levels of purchasing power" as well as of "needed levels of production and employment" be made in consultation with private economic leadership...

...These programs all need vast improvement, to help expand consumption sufficiently...

...It follows that, with optimum economic growth, the quite proper goal of balancing the Federal budget would be attainable...

...This has created huge deficits in business investments and profits, in private and public consumption, and in incomes and living standards...

...This, combined with much larger expansion of private housing investment, would expand residential construction for all income groups, remove most substandard housing by 1964, and enlarge housing investment and employment as a main substitute for technological displacement in other sectors...

...The new inflation" of 1955-1958 indicates a very high inverse correlation between the rate of economic growth, the level of unemployment, the condition of the Federal budget, the trends in public outlays and the process of inflation...

...It plays upon illegitimate fears instead of raising legitimate hopes...

...It fails to recognize that in our economic policies, just as in our international policies, we cannot have safety or stability by standing still...

...The projections assume some adjustments in tax rates to lighten the tax burden on low-income families and so expand consumption, and some closing of tax loopholes...

...This depends mainly upon a volume and distribution of effective purchasing power which brings private and public spending into line with an investment and consumption pattern consistent with the accomplishment of our goals...

...We are constantly attempting to make random and improvised adjustments to immediate situations...

...They have hurt the old people, because we have said that "we cannot afford" to provide them with enough Social Security...

...Above all, if we now become prey to the notion that "inflation is a greater danger to us than Khrushchev...

...This budget projection includes a very liberal allowance for the expansion of national security and international outlays which, contrasted with $48 billion originally proposed in the President's 1959 budget, would involve $53 billion in calendar 1960, and $59 billion in calendar 1964...

...Essentially the same thing happened in the period leading up to the Great Depression...

...They should rather be fitted into their proper place in a consistent Economic Report and budget which balance our total economic capabilities at full production and employment with a corresponding amount of private and public consumption or use, and with the servicing of our needs in the order of their importance...

...The per capita outlays for education would rise from $2.58 in fiscal 1960 to $26.18 in calendar 1964—more than ten-fold increase...

...The total Federal budget in calendar 1960 should be about $7.5 billion higher than the President's original budget for fiscal 1960, which itself is about $4 billion below the estimated actual budget for fiscal 1959...

...For the period 1958–64 as a whole, the difference in total national production, comparing high and low growth rates, would be almost $400 billion: the difference in opportunities for employment would be close to 16.4 million, and there would be about 11.4 million fewer people unemployed...

...Appropriate tax policies can be helpful toward this end...

...Except in wartime, I think that most of our economic difficulties and shortcomings have resulted largely because our thought and action have departed seriously from the basic economics outlined above...

...The same trends have worked against the maintenance and advancement of economic justice...

...The same strictures apply even more vigorously to monetary policy...

...It sets up economic Maginot Lines instead of developing new economic weapons...

...This illustrates that price-income relationships are more important than the absolute trends in prices...

...And these damaging effects of low economic growth have been compounded because the low economic growth has tended to spur a price inflation which has been entirely regressive in its impact...

...Keyserling has specialized during the past 25 years—as a public official, consultant and writer—on housing and employment problems...

...In real terms, our average annual growth rate during the period 1953–58 was only 1.3 per cent...

...This was only about 40 per cent of the 3 per cent annual average achieved in the period 1920–1958—which is erroneously accepted as an optimum...

...From 1946-53 he served successively as vice-chairman and chairman of the President's Council of Economic Advisers, and is now a consulting economist and attorney...

...2. To apportion our total national production wisely, so that we do not get what we need least at the expense of what we need most...

...Similarly, prices and wages and profits, and in fact practically all policies in the private sector of the economy, are primarily significant in terms of their bearing upon income flow and distribution as these in turn affect the three great purposes of our national economic life...

...For, in its essence, the current obsession about inflation is a campaign against the positive things we need to do...

...It should also impose the tax burden equitably, which really means to improve the distribution of total private purchasing power...

...If we are threatened with excessive pressures upon even optimum use of our resources (that is, inflationary pressures jeopardizing the maintenance of optimum growth and economic justice), then taxation should be high enough to run a budgetary surplus...

...Monetary policy should be adjusted to the goals in the Economic Report...

...A leading New Deal-Fair Deal stalwart...

...It is vital to observe, also, that the distortions in that earlier period occurred because profits and investment rose too much in ratio to consumption at a stable price level (aside from falling farm prices...

...While it is often said that taxation may help to improve income distribution, it is really spending that puts income where it is needed: taxation is for other purposes...

...I think it is a more fundamental truth that, if we take care of tomorrow, today will take care of itself...

...Federal taxation represents an entirely different problem...

...The practice of administered price increases is essentially related to my thesis that the development of severe economic slack generates more price inflation than optimum economic conditions...

...This means making maximum use of our productive capabilities, including manpower and brains, technology and science, and natural resources...

...The conclusion, of course, is that the effort to combat inflation by opposing an optimum rate of economic growth and maximum utilization of plant and manpower is perverse and self-defeating...

...This, combined with expansion of private, state and local outlays, would bring adequate health services to almost all families...

...On the contrary, the $96 billion deficiency in private consumer spending during the period 1953–58 resulted from a deficiency of more than $130 billion in consumer income before taxes...

...Most of the serious price inflation we have experienced during the past 30 years has been due to the impact of transition from peace to war, wartime, and reconversion from war to peace...

...The size of these programs should not be determined by accident or by special-interest pressures...

...It says that we are weak instead of rallying our strength...

...This, combined with feasible expansion of state and local educational outlays, would practically remove the classroom shortage by 1964, raise teachers' pay to decent levels, and allow considerably for higher education, research and science...

...In this framework the Federal budget should be an instrument toward what a full economy can afford and needs by wav of public consumption or use, instead of being adjusted to what a repressed or stricken economy ''cannot afford...

...This experience simply does not justify the irrational scare campaigns which warn that, even in the absence of another war, we are threatened with a further depreciation in the value of the dollar comparable to that which has occurred since 1929 or since 1939...

...If we suffer from large unemployment of plant and manpower, then taxation should be at levels which result in a deficit...

...The whole history of economic progress has been founded upon the use of improved technology to increase production, and especially to increase production per capita...

...The broad definition of needed levels of private investment should be included in the maximum production goals under the Employment Act...

...I believe that the American economy can and should maintain reasonable price stability...

...THE THREE GREAT purposes of practically any economic system, including ours, at the midcentury are these: 1. To achieve steady and optimum economic growth in real terms...

...Optimum utilization of our growing resources would lift our total national production by about $83 billion above the 1958 level by 1960, and by about $194 billion by 1964...

...Consequently, our economic policies need to be as realistic and purposeful, though not as strenuous, as in wartime...

...In other words, it is tax policy, not spending policy, which should be used to deal with stabilization...

...we shall continue to lose more and more ground in the current world struggle...

...The final departure from basic economics is insufficient stress upon long-range programs...

...Rut I believe that the most useful treatment of this problem would be for the President's Economic Reports, in addition to setting maximum production, employment and purchasing power goals, also to include careful short- and long-range analyses of what kinds of income flow to the various segments of the economy would be conducive to meeting these goals, and what kinds of price-wage-profit policies would be consistent with this kind of income flow...

...The per capita outlays for housing would rise from $2.09 in fiscal 1960 to $11.52 in 1964—a more than five-fold increase...

...I am profoundly convinced that the main lesson of the new inflation is this: Just as excessive rate of economic growth and excessive pressure upon production resources generate inflation, so excessive economic slack and an excessive rate of unemployment, short of a well-established recession, produce inefficiencies and other factors which generate price inflation...

...They have borne down disproportionately upon all vulnerable groups: the unemployed, the farmer, the low-income family generally, the small businessman...

...Thus, the real purpose of Federal taxation, after the level of Federal spending is appropriately- determined, is to help achieve the desirable flow of income and purchasing power...

...This indicates that the argument that wage changes necessitated price increases has no general, overall merit...

...First and foremost, we still need national goals to guide our efforts...

...A careful examination of this administered price inflation also lends much support to my basic thesis that administered prices and profits and investment have tended to get out of line with private and public consumption...

...Aside from such periods, the American economy has been prone to exhibit an almost amazing degree of price stability over the three decades as a whole...

...I do not believe it is now desirable to invoice direct governmental controls of prices or wages...

...This would close the vast deficiencies in these services: It would, for example, just about double the miserably low old-age assistance benefits per recipient...

...But the blunderbuss methods of the Federal Reserve System are again aggravating the distortions in the credit and investment and income structure which are even more serious than the absolute levels...

...Taxation, unlike public spending for needed purposes, has little or no positive value per se...

...On this basis, an optimum rate of economic growth would very substantially reduce the Federal budget's proportionate role in total national production, and would reduce even more the proportionate role of the national debt in total national production...

...3. To combine economic progress and efficient use of resources with economic justice, as the American people understand economic justice...

...In fiscal policy, our thought and action are among the most serious departures from basic economics as I have defined it...

...Foreign economic assistance needs immense expansion...

...The per capita outlays for public health would rise from $3.66 in fiscal 1960 to $14.14 in calendar 1964— a nearly four-fold increase...

...A calendar 1964 budget of more than $96.5 billion is indicated...

...This projection takes account of the needs of the economy as a whole, based upon examination of a wide range of detailed studies...

...While we are not at war, we are most certainly in the space age, and so also are the Russians...

...The tax program should be so devised as to help keep private purchasing power in line with the amount of production available for private consumption...

...Essential Federal legislative programs include the farm program, basic resource development, social security, housing and protective legislation dealing with such matters as minimum wages, education and health...

...The towering central purpose of Federal spending is to allocate a sufficient proportion of what our total national output would be, under conditions of maximum employment and production and optimum economic growth, to the great priorities of our national security and domestic public needs...

...These may be less detailed as to components than in wartime, because the pressures on our resources are less, and more can be left to private adjustments...

...The real purpose of Federal spending is not primarily to stimulate or repress the economy, or to achieve a budget balance...

...The only reason that we have been in less trouble more recently is that various improvements in the private and public sectors have prevented the distortions from becoming nearly so great as they were in that earlier period...

...The per capita outlays for labor, manpower and other welfare services, and for public assistance, would rise from $14.56 in fiscal 1960 to $20.94 in calendar 1964...

...This would bring basic resource development more nearly into line with economic growth and population shifts...

...Of this, more than $30 billion was deficiency in net farm operators' income, and more than $100 billion was a deficiency in the consumer income before taxes of other groups, made up practically entirely of a deficiency in wages...

...With these additional revenues, obviously, we could have applied much more to our public needs, even without unbalanced budgets...

...This flow and distribution of purchasing power is affected by all basic national economic policies, including public spending and taxation, monetary policy and various other programs...

...The per capita outlays for natural resource development would rise from $9.23 in fiscal 1960 to $12.57 in calendar 1964...

...The idea seems to be that, if we take care of today, tomorrow will take care of itself...

...Our troubles have resulted basically because private consumption and public programs combined have not kept up with the actual expansion of our productive plant and facilities, and much less with optimally balanced economic development...

...Consequently, we have had no effective way of attuning means initially to the attainment of these objectives, nor of readjusting these means pragmatically and quickly when circumstances require re-evaluating the relative priorities of the objectives themselves...

...This means that the level of Federal spending should be determined by estimating first the total potential output of our economy under optimum conditions, and then deciding as a matter of national policy what part of this output we want to allocate through Federal spending to various national priority purposes...

...If sufficient attention were directed toward wage-price-profit relationships, and if business were not fearful of alternative periods of boom and bust—that is, if the Government were to carry out its share in the purposes of the Employment Act—private investment would be likely to be regularized at desirable rates of growth...

...These can be served only by Federal spending, or served better by Federal spending than by some other way...

...But there would still be room for the expansion of Federal outlays for all domestic programs...

...The tight money policy should be abandoned, because it prevents adequate economic growth, contributes to inflation and redistributes income unjustly...

...The central economic condition for the accomplishment of these three great purposes, by no means yet achieved, is that there be a balanced development of (a) investment in the means of expanding production, and (b) private and public consumption—meaning public demand for goods and services—at rates which insure maximum use of total resources and optimum economic growth...

...Among the most prominent advocates of an accelerated rate of growth has been Leon H. Keyserling, one of the country's distinguished economists...

...Thus, for example, the Social Security system and wage-and-hour legislation significantly affect the private flow of purchasing power...

...It was only in the neighborhood of a quarter of what the new technology permits, and what current world conditions require...