U. S. Economy on Trial

...to determine the points most likely to be struck by the next recession, and to explore the possibility of absorbing the shock at those points, preventing its harmful effect on the economic system...

...has reached a state of maturity and saturation of its material desires...

...If the rate of national income growth is appreciably below 4 per cent, the national pie will not increase rapidly enough to provide bigger slices for the steadily increasing number of aspirants...

...Governments' share, federal, state and local, in purchase of goods and services declined after the end of the Korean War but was rather high in 1954-58, averaging $75 billion a year, as compared with the average of $50 billion (at constant 1954 prices) in 1946-50...

...in production and consumption of electrical power...

...Keeping this in mind, let us examine the ranking of the United States among the nations of the world according to the rate of growth of industrial output...

...The amazing similarity of these three recessions indicates a great probability that the next recession may follow a similar pattern...

...In 1953-58, the economy had 11 quarters of growth out of 24, while 13 quarters were wasted through the recessions...

...Woytinsky has served with various Government agencies, several private research organizations and Johns Hopkins University...

...This contention, however, is not supported by facts...

...The GNP was lagging some $70 billion behind the hypothetical level on the eve of the recession at the beginning of 1959...

...But only history can pass judgment on this indictment of those who have been at the helm of the nation during the past six years...

...This line was set during the 1958 election campaign...

...Moreover, the contention that the rate of economic growth in a nation must diminish with its increasing prosperity has never been proved either theoretically or empirically...

...Direct losses in production caused by the 1949 recession were not very large but the cumulative effect on the GNP through the first quarter of 1953 approximated $130 billion...

...So it is impossible to gloss over these facts by contending that all countries but the United States were starting from almost nothing...

...level of industrial capacity...

...Complete success in this campaign would raise the average rate of our economic progress to 5 per cent or more, and a campaign that was only half successful would still bring the rate of growth up to more than 4 per cent...

...Plans to stop such recessions should be activated as soon as signs of downturn become discernible...

...Its total gain was 45.4 per cent—not a bad record...

...The nation must abandon the theory that anti-recession measures should be contemplated only after the situation has gotten out of hand—for example, after unemployment has reached five or six million, the industrial production index has dropped more than 12 per cent, the national income has declined 10 per cent, etc...

...The average annual rate of growth of the total GNP has been only 1.5 per cent in 1953-58, in contrast to 46 per cent in 1947-53...

...This gradual narrowing of the gap in productive capacities may be observed in almost all areas for which more or less reliable statistics are avail-able: in the output of coal, crude petroleum, iron ore, pig iron, and steel...

...If periodic recessions have been the cause of retardation, the means for economic acceleration should be sought in preventing recessions...

...The means are based on the idea of offsetting the contraction in private investments by expansion of public investments...

...The cumulative loss through the 12-year period is about $500 billion, at 1958 prices...

...But such an approach would have been pointless in the recessions of 1949, 1954 or 1958, in which the low point was reached and recovery was begun some 6-8 months after the downturn in business conditions...

...The most important objective of the policy of accelerating economic growth is therefore prevention of a new setback in two or three years...

...In 1955, U.S...

...Such a practically oriented survey should reveal where and when the economy went wrong, how solid were the theoretical and factual foundations of official decisions, and which measures could have brought better results and changed the course of events...

...The losses they have caused, in terms of a temporary GNP decline, from the pre-recession peak, have not been very great...

...All three postwar recessions have been of similar duration and severity...

...This is what has been going on in the United States: The Gross National Product (GNP)—that is, the total value of goods and services produced during a year— amounted to $441.7 billion in 1958, as compared with $408.7 billion (at 1958 prices) in 1953...

...The three postwar recessions have provided new facts which may prove of tremendous value for a reappraisal of our economic policy...

...A year ago the nation was experiencing a decline in employment and output Today that recession is fading into history, and this without gigantic, hastily improvised public works projects or untimely tax reductions...

...experts are roaming the world preaching the gospel of productivity, free competition and economic progress, the pace of U.S...

...An annual 4-5 per cent rate of national income growth (at constant prices) would insure an annual 2.3-3.5 per cent rise in wage and salary rates, without any threat of inflation on this score...

...At this point, we may be confident that the GNP will show sizable gains in 1960, but either in 1961 or 1962 a new recession may break out...

...The country's technology is as far from the end of the road as it was a century ago, with only the difference that now we can see the road ahead much better than it could possibly be seen then...

...Through this period GNP lagged by 11 quarters behind what it would have been without the two recessions...

...If the prevalent U.S...

...all three have started in the same sector of economic activities, essentially as inventory adjustments...

...The actual GNP therefore lagged behind what it would have been if it had followed this hypothetical course...

...Without minimizing the progress of recovery, I believe it can be said that such statements do not present an accurate picture of the nation's economy...

...They wish PERCENTAGE GROWTH OF INDUSTRIAL PRODUCTION IN SELECTED COUNTRIES 1953-57 AND 1953-58 (1953=100) Country 1953-57 1953-58 Pakistan 92 110a West Berlin 85 94 Yugoslavia 70 88 USSR 55 70 Japan 67 69 Philippines 58 68b Greece 45 61 France 45 53 Algeria 31 53 West Germany 47 52 Austria 46 51c Czechoslovakia 59 50d Mexico 39 46 China (Taiwan) 42 44c Italy 38 41 India 30 35c Guatemala 28 34d Argentina 21 31c Egypt 29 ? Brazil 26 ? Finland 34 27 Luxembourg 29 27 Hungary 12 26 Netherlands 26 26 Israel 13 24b Norway 26 22 Denmark 20 20 Sweden 18 18 Canada 20 17 Belgium 23 15 United Kingdom 15 14 Ireland 2 4 United States 7 6 Chile 2 ? a. For 1958, avarage for the first six months...

...none has penetrated as deeply in the realm of individual consumption as in the 1930s...

...Three times its advance has been interrupted, only to be resumed later from a lower point The economy has been caught in a four-year cycle: two-and-a-half to three years of advance, then a setback and return to the pre-recession level...

...In the 12 years from 1947 through 1958, the economy grew during only seven years, spending the other five years in falling back and then regaining its pre-recession level...

...Economic policies which stimulate and unleash the creative energies of 175 million Americans are the policies which lead to the greatest progress for America...

...The same routine is established by custom for corporation officials...

...By that time, industrial output in the United Kingdom, West Germany, France and Sweden was about 40-50 per cent above the prewar level, and industrial output in Italy, the Netherlands, Norway and Austria was 50-70 per cent higher...

...The last recession was not an isolated accident that is fading into history...

...Likewise, certain procurement and construction orders of the Defense Department could be timed in such a way as to concentrate as many suitable orders as possible in periods when the volume of private investments is declining...

...Social security programs, the system of collective agreements with built-in escalator clauses, support of farm prices and similar measures are defenses against spreading recession...

...In the second quarter the GNP, in constant prices, reached a level 8 per cent above the average for 1958, and the per capita national product advanced about 6 per cent to a level 3.6 per cent higher than in 1953...

...The first step in developing an anti-recession policy therefore should be a study of the new pattern of recessions, a fact-finding study with a vigorous practical purpose: to find those features in the new economic recession whose approach can be promptly detected...

...economy expanded at a rate of 5.5 per cent, it would have taken 45 years to catch us...

...Starting from a point far below the level that had prevailed before the Revolution, the Communists have been able to restore the pre-revolutionary economy they destroyed and gradually to adopt the modem technology developed in more advanced countries—occasionally enriching it with new ideas...

...Since the institutional setting of our economy already comprises numerous measures which have proved effective in reducing the danger of a violent depression, the new anti-recession program must strengthen these measures as well as those designed to meet the lesser setbacks of the 1949, 1954 and 1958 variety...

...A healthy and vigorous recovery has been under way since last May...

...economy is actually that it has suffered three recessions in a period of 12 years, from 1947 through 1958...

...The main source of weakness in the U.S...

...Such a study would cast light on whether it has been an accident that the postwar recessions have been comparatively brief and shallow, or whether their character has been determined by the institutions established by the New Deal, and how these institutions should be further changed to cure forthcoming recessions...

...Indeed, the United States is probably the only nation in the world which has made no gain in industrial output in this period, and this has affected the distribution of economic forces in the world...

...In the periods of hesitation caused by such dislocations, emergency measures should comprise encouragement of private initiative, temporary tax cuts when contraction of economic activities has affected the purchasing power of the people, and expansion of public investment, especially public works, in order to offset contraction of private investment...

...A setback that is limited in scope cannot last as long as a setback in the old fashioned "free" economy...

...The U.S...

...The proof of this is that the last six years have seen the greatest economic progress of any six-year period in our history...

...Under the first heading are such measures as strengthening employment security, extending minimum-wage legislation and developing social security in general To these defensive measures should be added emergency measures designed to offset the dislocations in the most vulnerable economic sectors...

...See table on page 16...

...Economic development was very slow all over the world in the 16th and 17th centuries, gained momentum in England and Western Europe in the 18th century, was accelerated in the 19th, especially in its second half, in both hemispheres, and has continued its crescendo since the turn of the century...

...This would make sense if we were anticipating economic dislocations like those of the 1930s...

...Considering the USSR's natural resources, the size and quality of its population and its heritage from old Russia, it was obvious that it could eventually reach the U.S...

...22-26...

...Our high level of prosperity may excite the envy of less developed countries and generate insistent demands for aid, but it cannot maintain the prestige the United States has gained by its dynamic spirit, which is now virtually non-existent Quite apart from the Communist challenge, continuous economic growth at an annual rate of at least 4-5 per cent is vital for the U.S...

...DAY IN AND DAY OUT, the public in the United Stats is being treated to cheerful news about the country's economic progress which goes something like this: Contrary to the gloomy predictions, the 1957-58 recession was brief and did not do much harm...

...Work in this direction is up to a Congressional committee...

...They have been able to accelerate capital formation by ruthless exploitation, sacrificing human needs to the demands of industrialization and military strength, and using their power to enforce iron discipline among the workers...

...But even with this improvement, the average per capita advance from 1953 to the second half of 1959 was .6 of 1 per cent Ironically, while U.S...

...The details of an anti-recession program—its timing, cost, relation to other governmental programs, its probable impact on the speed of economic progress, employment and prices, and the legislative and administrative actions required for its implementation—cannot be discussed here...

...In 1953, of course, other countries were at a much lower level than the U.S., and some of their subsequent advance must be attributed to recovery from war damages and postwar disorganization...

...The issue is not which society is more affluent but which system the people in underdeveloped areas will look to for the swift realization of their desire to improve their living standards...

...But each time, GNP growth has been arrested for more than a year...

...And the same method of analysis can be applied to the growth and decline in industrial output...

...An economic system which is not expanding cannot win in such a contest...

...This downturn would be characterized as a national disaster, were it not for the experiences of the 1930s and World War II, which revealed the nation's exceptional ability to respond to any challenge...

...Even a cursory analysis of the last recession reveals its great similarity to both proceding setbacks...

...In this event, serious results may threaten this country and the whole free world...

...THIS RETARDATION has also had an adverse effect on the position of the United States in the contest with the Soviet Union...

...Appropriations for them must be made in advance...

...True, the first half of 1959 has brought some improvement...

...On the per capita basis, the annual rate of growth or decline was +2.7 per cent in 1947-53, and —2 per cent in 1953-58...

...none was accompanied by a deflationary spiral...

...A comparison with its hypothetical level suggests that the cumulative loss of GNP from 1953 through the second quarter of 1957 may have been close to $200 billion...

...In a telegram sent two weeks before the election to all Republican House and Senate candidates, Vice President Richard M. Nixon admonished: "It is essential that we hammer on the idea that we are in a booming recovery, that this year—while not the best of the six years of the Eisenhower Administration—is better than any one of the 20 years of the New Deal and Fair Deal...

...There is nothing surprising in the fact that industrial production in the USSR is increasing at a high annual rate...

...We may assume that without the drag of recessions, the GNP would have advanced from this point at the same average speed...

...Other experts believe that the cause of the disturbing state of our economy is political and psychological: smugness, complacency and lethargy have spread from the high places and gradually contaminated the spirit of the nation...

...economy of these pages over the yean have undoubtedly noticed in recent weeks that an increasing number of outstanding economists have joined him in warning...

...But if the Soviet economy, expanded at an annual rate of 8 per cent while the U.S...

...Moreover, people in this country are not satisfied to have the same earnings throughout their life and no prospect of improvement for their children...

...More specifically, they are barriers that keep an economic contraction generated in the investment sector from contaminating the whole economic system...

...A lengthier exposition of his thesis here appears in a book written with his wife, E. S. Woytinsky, entitled Lessons of the Recessions, published in April by Public Affairs Press...

...But when the gain is prorated over 12 years, the annual average is only 3.2 per cent, or only an addition of 1.5 per cent on a per capita basis, which is, of course, unsatisfactory...

...erasing a part of our gains...

...economy is on the threshold of unprecedented breakthroughs in basic knowledge and practical application in agriculture, mining, metallurgy, chemistry, production of energy and transformation of materials, which can change the face of the earth...

...c. For 1958, average for the first 11 months...

...The alarming fact, however, is that if they advance at an 8 per cent rate while the United States makes no progress, they can reach their goal in 15 years —and they have already covered one-third of the distance they have to run...

...This is how the country has been freed from the threat of major depressions, though it remains exposed to minor but very costly setbacks...

...The law recognizes the right of civil servants and members of the armed forces to automatic in-grade promotion...

...It appears reasonable to assume that without the recession, the economy would have advanced through this period at the same pace as it did after the first quarter of 1950, following, with a lag of five quarters, a line parallel to that of the actual GNP...

...Source: United Nations, Monthly Bulletin of Statistics, April 1959...

...and USSR as 3 to 1. If that was correct, the ratio now must be about 2 to 1, and if recent trends in both countries are projected over the next six or seven years, it may be narrowed to 1.3 or 1.9 to 1 by 1965...

...The first (1949) postwar recession arrested economic growth for five quarters...

...A shelf of suitable projects must be ready in advance, and each project so developed that it could be launched on short notice, at the beginning of the recession...

...The scales are still heavily weighed in our favor where the standard of living is concerned, but the gap in overall economic capacities is diminishing...

...All three postwar recessions have been comparatively mild and brief...

...This we have—and this we must maintain," he continued, implying that the present trend in our economy is just what the nation needs...

...In the years of growth, the GNP advanced at an annual rate of about 4 per cent, but the progress of the economy over the whole period was disappointing because most of its time was spent in retreating or regaining lost ground...

...in output of cement, building bricks, commercial motor vehicles, machinery, etc...

...While it thus increased 8 per cent in five years, the population increased 9 per cent On a per capita basis, therefore, the GNP in 1958 was 1 per cent below the level it was at in 1953...

...Italics mine...

...There are still some dangers ahead, such as the budgetary deficit and creeping inflation, but the Government is standing firm against any development that might plunge the country into economic chaos...

...We are approaching the end of 1959 on a high level of prosperity in comparison with other countries, but on a low level in relation to our long-run trend of development and our world-wide commitments...

...This being the essential feature of our socio-economic system, it cannot operate smoothly unless the real national income grows continuously at a higher rate than the population...

...again two-and-a-half to three years of advance terminated by a recession, retreat and recovery, etc...

...This argument is not new...

...Most of their postwar reconstruction, however, was completed by 1953...

...A Congressional commission may serve as a link between the two aspects of the problem...

...d. For 1958, avorage for the first 10 months...

...The crucial question is whether this trend must continue or may be stopped and even reversed...

...all three have been limited to the same economic sectors, mainly producers' durable equipment and, as an aggravating factor, consumers' durable goods...

...In the second quarter of 1953, a new setback caused a drop in production of goods and services by $15 billion (on an annual basis), from the pre-recession peak to the trough in the second quarter of 1954, and a new retardation of economic progress by six quarters...

...The target is acceleration of economic progress by preventing recessions...

...Satisfaction or unrest in a society depend largely on the speed of its economic progress...

...Without them, it probably would have reached the level of $454 billion in the third quarter of 1954, advancing at an average annual rate of 5.2 per cent...

...to have both security and opportunity, though putting varying emphasis on these objectives...

...Labor unions are trying to extend this general rule to wage and salary earners through collective bargaining...

...In the 1870s, experts debated a proposal to abolish the Patent Office on the ground that technology had reached its peak and there remained nothing to discover or invent In the 1930s and 1940s, the theory of maturity was advanced by some economists of the Keynesian school...

...Then came the third recession, resulting again in a retardation by seven quarters...

...Through this 12-year period, the annual rate of GNP growth in periods when national economy was in good health averaged 5.2 per cent...

...b. For 1958, avaraga for the first nine months...

...The total loss through retardation was close to $170 billion...

...Even excluding the possibility of a military showdown in the near future, the divergent economic trends in the two countries may deeply affect the distribution of political forces in the world, especially the alignment of the uncommitted and neutral nations...

...against the stagnation threatening this country's position as a major world power...

...But the problem has two aspects—outlining the target and programming the means...

...Subsequent economic development proved the fallacy of that idea...

...Moreover, there was no slowing down in economic progress in this country after it emerged from the Great Depression...

...GNP growth was resumed in the fourth quarter of 1954 and lasted two-and-a-half years, when the third postwar recession began...

...would now be as vulnerable to severe depressions as it was in those years when layoffs in certain industries, threat of layoffs in others, and the rising tide of unemployment could launch a wave of cuts in wages and set in motion a deflationary spiral...

...it was a manifestation of a fundamental and highly disturbing situation...

...This era of the "greatest economic progress in our history" has differed strikingly from the preceding six-year period when the real GNP increased by a total of 30.7 per cent, or by 18 per cent on the per capita basis...

...Some experts explain retardation of growth by contraction of government spending...

...The national economy has been recovering rapidly and reaching new record peaks...

...The argument failed to turn the political tide, but the Administration has stuck to it "The material foundation of our national safety is a strong and expanding economy," the President declared in his Message on the State of the Union...

...experts estimated the ratio between the economic strength of U.S...

...Our population is increasing at an annual rate of 1.7-1.8 per cent If the national income fails to increase at the same or somewhat higher rate, per capita income is bound to decline...

...progress in recent years has been slow—close to absolute stagnation, particularly in comparison with that of other nations...

...Of the 34 nations for which more or less comparable data has been published by the United Nations, this country ranks 32nd in the percentage growth of industrial output from 1953 to 1957, and 33rd or 34th for the years from 1953 to 1958...

...Preliminary research suggests that without these New Deal reforms, the U.S...

...Some experts believe that retardation of economic progress is a natural phase of economic growth, a definite phase of historical evolution, and that the U.S...

...The answer depends on the appraisal of the nature and causes of the present development...

...The contest between the East and West is essentially a contest between two economic systems...

...A businessman expects to see his business grow in line with the growth of national economy...

...The projects must be selected from approval plans for building highways, schools, hospitals, housing, etc...

...It is unlikely, then, that maturity has appeared suddenly and has stopped progress after the economy had been expanding at full speed in 1947-53...

...The United States is richer in experience as it enters a new period of economic expansion...

...The GNP dropped from the peak in the fourth quarter of 1948 by some $12 billion (at 1958 prices) and returned to the pre-recession level in the first quarter of 1950...

...His books include: India: Awakening Giant (originally published as a NEW LEADER series in 1956), Labor in the United Stales, Three Aspects of Labor Dynamics, Earnings and Social Security in the United States, and Employment and Wages in the United States...

...WE CAN NOW ESTIMATE what the three recessions have cost the economy in losses in production and in retardation of growth...

...economic trends continue, internal strains and the psychology of class struggle may replace the spirit of national unity which was the soul of the New Deal...