U.S. Economy-II How We Can Increase Our Rate of Growth
WOYTINSKY, W. S.
The U.S. Economy—II A government that recognizes its responsibility for insuring the continuous growth of the economy must first of all determine the best rate of growth. Several approaches to this...
...The yield of most taxes is sensitive to changes in business conditions and can be made even more sensitive by applying the withholding procedure to interest and dividend payments...
...This demands not only expansion of the Government's economic responsibilities but also greater emphasis on economic planning...
...Thus, when the Republicans came to office in 1953 they inherited a full-employment economy: The total civilian labor force stood at 63.8 million, with 62.2 million employed and 1.6 million unemployed...
...But for those who feel that the current growth rate is disappointingly low, the basic economic issue is to raise this rate to the normal 4.6 per cent level achieved in 1947-53, or even somewhat higher to make up for wasted time...
...Various measures have been suggested for this purpose...
...True, this problem does not exist for those who believe that the current 2.4 per cent annual rate of growth is about as high as it can be without a boom and runaway inflation...
...and concentration of public works and similar Federal and state projects, including some procurements and construction for the armed forces, in periods of contraction in the private investment sector...
...In 1947, when the total U.S...
...This recession has cost the nation some $30-$35 billion in direct production losses and an additional $15-$20 billion annually in the retardation of economic growth...
...For example, a country that begins a decade with a national product of $300 billion has the ability to increase it by 5 per cent annually when its economy is in good health, and growth at this rate through the whole decade will result in a national product of approximately 3490 billion...
...3. Support of the floor under low incomes through expansion and liberalization of minimum-wage legislation, and further development of the Social Security System (also desirable as a part of an anti-recession policy...
...This calls for a two-sided attack which would (a) try to eliminate periodic economic setbacks and (b) try to raise the speed of economic advance when the economy does not require specific anti-recession measures...
...Optimum Rate of Growth...
...others advocate a desirable rate, or meeting the urgent needs of the people, mainly in the public sector...
...2. Improvement of the physical and moral environment through development of necessary facilities in urban areas, improvement of housing conditions, modernization of the transportation system and establishment of sound labor-management relations...
...Since the line rises at an average rate of about 3 per cent a year, this is called the normal rate of economic growth in this country...
...This difference—or "deficit" as some economists call it—is bound to increase tremendously as time goes on...
...The practical question, of course, is how can U.S...
...By the end of 1959, the cumulative loss was $60-$75 billion...
...Among his major works are World Commerce and Government: Trends and Outlook (1955) and World Population and Production and Employment and Wages in the United States (1953...
...Desirable Rate of Growth...
...More drastic fiscal measures, such as a temporary reduction of tax rates, may be considered if other steps fail and recession spreads from activities related to investment to other economic sectors, eroding consumer purchasing power and expenditures...
...It must be called on to prepare periodic projections of the probable and desirable expansion of single industries within the framework of the anticipated growth of the whole economy...
...Under certain conditions, this postulate is correct: There is little danger of mass unemployment in an economy expanding, say, at an annual rate of 5 per cent...
...A shelf of important national, state and local projects must be established, with all the necessary technical specifications and an authorized plan of financing...
...Economic growth must have a purpose, not simply the piling up of bank accounts and the accumulation of gadgets forced into consumption by high-pressure salesmanship, but improvement of community life, development of culture and other accepted targets of national policy...
...It will disappear once workers cease to fear that they will be replaced by machines and find no other suitable jobs...
...In both cases the National Product in the United States, 1953-69 Figures in Billions of 1958 Dollars Year Actual 1953-59 and rising at the same average rate as in 1953-59 Hypothetical, rising 4.5 per cent annually Difference in given year 1953 409 409 — 1954 402 427 25 1955 435 446 11 1956 444 466 22 1957 452 487 35 1958 441 509 68 1959 461 532 71 1964 518 661 143 1969 583 825 242 annual rate of growth happens to be the same—2.9 per cent...
...Woytinsky was one of the chief architects of the Social Security system, director of the Twentieth Century Fund and professor of economics at Johns Hopkins University...
...Anti-recession Policy...
...In such a situation, a temporary rise in unemployment may be the price the nation would have to pay for accelerated economic growth that would promise better paid jobs to all in the future...
...This policy has often been identified with John Maynard Keynes, although he hardly would have supported it under present conditions in the United States...
...The necessary measures include an improved early warning system to signal an approaching slump in the inventory building and investment sector...
...For example, a country may maintain a high level of employment, practically full employment, if its national product keeps pace with the population growth while production per worker (or per capita of population) remains constant...
...still others favor establishing a normal rate empirically, on the basis of the statistical record...
...economic growth be accelerated...
...And the present state of economic affairs suggests that we may again have to pay a stiff price for not having an anti-recession policy ready...
...It would be able to respond to any challenge—to the ruthless competition of "coexistence" as well as to the grimmer challenge that may come in the future...
...Starting from such rough estimates, one may assume that if the desirable rate of growth can be reached and maintained, the additional gain would be divided 50-50, or even 60-40, between the private and public sectors...
...The Council of Economic Advisers, which has almost disappeared from the political scene in recent years, must be resurrected to help carry out the new economic policy...
...If the Republicans are in office and the 1953-59 pattern is repeated—which is likely because the Republicans are proud of their economic record—3.2 million will join the ranks of the unemployed...
...These records are incontestable and are open to everyone, but there are several ways of reading them...
...4. Elimination of practices limiting production, e.g., monopolistic pricing, tight money, featherbedding...
...Closer analysis reveals two errors in this reasoning...
...if it creates a new demand for labor, there is no evidence that the new openings will be in the industries or areas most in need of them...
...Several approaches to this problem have been offered: Some economists urge what they call an optimum rate of growth, which they equate with full employment...
...Accelerating Growth in a Healthy Economy...
...Indeed, new purchasing power may be partly absorbed by increased profits and rising prices, partly squandered on luxuries, partly diverted to hoarding...
...Workers stretch out jobs because they fear technological unemployment, which is the result of inadequate production growth...
...If we fail to prepare our defenses immediately, it will be impossible to head off another serious loss...
...The preliminary question of long-range economic policy, therefore, is whether the current economic rhythm of four-year cycles—each including 2.5-3 per cent years of growth and 1-1.5 per cent years of setback—can be changed...
...Its effect on production is unpredictable...
...All three groups usually measure economic progress in terms of the annual rate of growth of the gross national product (GNP) at constant prices...
...These figures, of course, are only illustrative...
...The setback started in the third quarter of 1957...
...If economic growth cannot be accelerated either by handouts to private enterprises (including tax incentives and generous subsides to the monopolies) or by pumping purchasing power into circulation, what must a government do to restore the normal rate of economic growth...
...Secondly, it is meaningless to talk of an average rate for 1909-59 or 1929-59 because the periods covered are too long and are marked by conflicting and erratic trends...
...Two-Sided Attack...
...However, the discussions of necessary legislative and administrative measures first began in the second quarter of 1958, after the upturn in business conditions, and was cheerfully ended because of the good news...
...In the next six years, as the civilian labor force increased by 5.6 million, employment advanced by 3.4 million and unemployment rose by 2.2 million...
...The task is to isolate and offset such setbacks further...
...The weakness of free public spending is that when additional purchasing power is pumped into circulation it does not necessarily generate additional production and provide new jobs...
...Nevertheless, full employment provides a useful yardstick for appraising the achievements of a definite economic policy and for comparing different periods in the economic development of a nation...
...Allowance must be made for probable changes in our fiscal system and in the attitudes of the people, but essentially we can accept people as they are, with their propensity to spend money on unessential gadgets rather than on improving their environment...
...This method was used by the well-known report of the Rockefeller Brothers Foundation, which recommended 4-4.5 per cent as the desirable rate of economic growth...
...5. Substantial acceleration of economic growth...
...It should be stressed that the new type of recession is too brief to permit delaying consideration of what can be done about it until unemployment has reached a critical point or the national product has declined, say, 5 or 10 per cent...
...For example, we can assess the cost of each group of needs for the next 5, 10 or 25 vears, and estimate how large the U.S...
...Responsibility for launching the appropriate projects as soon as activities in the private sector begin to lag should be given to a special agency...
...Consequently, it is more meaningful to examine the records of the six-year periods 1947-53 and 1953-59...
...and Latin America's Economy," in 1958...
...Their purpose is to show how determining the desirable rate of economic growth dovetails with estimating what a government would be able to do toward satisfying the nation's needs...
...It may total about $1.8 trillion by the end of decade 1960-69 if the economic system continues to increase at the 1953-59 average...
...Proper timing of public works would offset the contraction, pour additional purchasing power into circulation, provide jobs for laid-off workers, and supply orders to industries usually working on investment programs of private business...
...First, the average rate for the last 12 years is not characteristic of the current trend in our economy because it covers two periods in which our economic policy has been dominated by opposing philosophies...
...In turn, the stretchout becomes an important factor in retarding technical and economic progress...
...To be effective, anti-recession machinery had to go into operation before the end of that year...
...It therefore appears preferable to estimate the desirable rate of economic growth by examining the urgent needs of the people which cannot be met at the present level of national income...
...a liberal credit and money policy at the first sign of an approaching downturn...
...It will lag by $70 billion in the last year of the decade, and its cumulative loss over the 10 years may reach $200 billion...
...Deficit Spending...
...Let us therefore turn from the realm of the desirable to that of experience, namely the historical records...
...His other New Leader articles have included "India: Awakening Giant," published in 1956, and "The U.S...
...During the following six years, the labor force increased by 3.6 million and employment went up by 4.2 million...
...Such a counter-recession measure would maintain the whole economy on an even keel...
...Normal Rate of Growth...
...This strangles small and medium-sized business by raising interest rates and limiting sources of credit, leaving the market uncontested to Big Business, which can finance itself without bank loans...
...This is clear from our experiences in 1957-58...
...Theoretically, however, full employment is conceivable in a stagnating economy at any stage of development...
...civilian labor force was 60.2 million, 58.1 million were employed and 2.1 million were out of jobs...
...The national product increased from 232.3 billion 1954 dollars in 1947 to 369 billion such dollars in 1953 and to 427 billion in the six subsequent years...
...Moreover, deficit spending has been practiced on a very large scale in scores of countries around the world and nowhere has it brought sustained rapid economic growth...
...At least five steps can be taken to accelerate and maintain economic growth when the nation is not suffering from a recession: 1. Direct stimulation of growth of the productive forces through improvement of the health and educational level of the people, vocational training of workers and conservation and development of natural resources...
...economy has been practically insulated against depressions of the 1930 type, but it remains defenseless against comparatively minor setbacks which are usually limited to the sphere of inventory building, private investment and related industries...
...national product must be to satisfy these needs without excessively burdening taxpayers...
...The conclusion is that our economy has been expanding in recent years more rapidly than the normal long-run rate...
...The problem must be solved within the framework of our socio-economic system, by checking the factors crippling economic growth and fostering those favorable to economic expansion...
...force as well as workers displaced by technological advances, labor-saving devices and automation...
...Such planning would not preclude expansion of the private sector, but it would emphasize more rapid growth of the public sector...
...Next, it is pointed out that the country has done better than this in the past dozen years: Its GNP amounted to 427 billion 1954 dollars in 1959 as compared to 282 billion such dollars in 1947, which suggests an average annual growth rate of 3.5 per cent...
...A program for preventing and eliminating recessions also must include plans for maintaining the flow of incomes in the middle- and low-income brackets: strengthened unemployment insurance and other forms of Social Security, expanded and liberalized minimum-wage legislation, anti-cyclical money and credit policies, and, in extreme cases, similarly adjustable taxes...
...As we have seen, the full-employment approach can be used to evaluate an economic policy, but it fails to answer the question, what is a desirable rate of economic growth...
...Strengthened in this way, our economy would regain a sound growth rate of 5 per cent a year, or more...
...The difference between GNP growth at an annual rate of 4.5 per cent and the actual trend in 1953-59 projected to 1969 is shown in the table in the next column...
...The full-employment approach rests on the postulate that the economy must expand rapidly enough to absorb the growing labor How We Can Increase Our Rate of Growth By W. S. Woytinsky This is the second in a series of four articles on the United States economy by W. S. Woytinsky, the distinguished author and economist, who wrote these pieces shortly before his death this June...
...Many people doubt whether a desirable rate of growth can be worked out and then be attained within the framework of our economic system...
...In the period 1953-59, the cumulative lag of the national product from what it would have been if it had risen 4.5 per cent annually was more than $230 billion...
...The same method may be used in a modified form...
...Proponents of this policy are right, however, in their criticism of cutting public spending to a minimum by retirement of the Government from responsibilities for the nation's welfare and exclusive reliance on private initiative...
...the recovery has lost its 1959 momentum and is headed for a downturn...
...According to a recent estimate by the Bureau of Labor Statistics, the total civilian labor force will increase by 8 million between 1959 and 1967...
...The expanding economy not only absorbed the entire population increase but recruited those who were unemployed at the beginning of the period...
...In the period 1953-59, therefore, the economy failed to absorb 40 per cent of the increase in the labor force...
...The New Deal's success proved that our society is able to change the pattern of the business cycle and prevent major depressions...
...Added to the 3.8 million unemployed in 1959, this will bring total unemployment in the nation to 7 million...
...This means that by 1964 public receipts would be $70-80 billion above what they would be at the 1953-59 growth rate...
...This rate is accepted as representing the average rate of growth in the observation period and is labelled as the normal speed of economic progress in the United States...
...The cumulative effect of this lag may be considerable...
...But public works of this type cannot be improvised on short notice...
...Such projections, prepared in cooperation with management and labor, would serve as guidelines for the respective economic sectors and would be implemented by periodic economic conferences of representatives of the Government, industry, labor and consumers, supported by technical and economic experts...
...A new recession is approaching...
...At the same time, it would meet the urgent needs of the nation, especially in the field of development of its productive forces...
...Thus the normal annual rate of growth was 4.6 per cent in the first period and it dropped to 2.4 per cent in the second...
...The contrast between the periods 1947-53 and 1953-59 is characteristic...
...Labor cannot be expected to give active support to technological progress in industry, especially to automation, unless it trusts government and management and feels itself an active partner in the economy...
...But if its economy expands at the sound rate of 5 per cent annually for seven years and spends three years in setbacks and subsequent recovery, its national product will be closer to $420 billion at the end of the decade...
...the private sector would get some 15 per cent more than it would receive under the 1953-59 rate, assuming the present system of taxation and the present scope of Government responsibilities...
...Government statisticians read the statistics of the national product, at constant prices, as follows: They represent variations of the national product from 1909 to 1929 to recent years on a ratio scale and draw a straight trend-line running from one end of the curve to the other end, just as a straight line may be drawn across the peaks of the Himalayas...
...One may take the ratio of our national product in 1959 to the national product in 1909 or 1929, at constant prices, and compute (with the aid of logarithmic tables) the annual rate of growth which would have produced these ratios in 50 or 30 years, respectively...
...If a nation's economy advances for seven years and then wastes three years, the average rate of its economic growth throughout the decade will be 30 per cent lower than it is during the actual growing period...
Vol. 43 • August 1960 • No. 31
