Status Quo Economy

...The Council of Economic Advisers, composed of three able, modern economists, can probably fairly be identified with this position...

...Nothing in the first years of the Kennedy Administration is more disappointing than its reversion to the orthodox finance of a previous era...

...The liabilities of business failures and the number of large business failures per week have both increased...

...Last January unemployment, seasonally adjusted, was 5.8 per cent...

...As the economy continues to drift along at inadequate levels of activity, this is an appropriate time to consider what has gone wrong with U.S...

...Whatever might have been the political elements in the decision, the President rejected, on desperately flimsy giounds, the Keynesian proposition that the immediate ailment of the economy is a deficiency in total monetary demand and that wellunderstood therapies are needed...

...And the President's polite, unemphasized bid for stand-by tax and public works authority was a nod in the Council's direction...

...Creeping socialism, as Walter Lippman noted, has not crept very far...

...Nor are the prospects for improvement bright...

...But to meet strictly contemporary unemployment the President has relied upon nothing more powerful than limited programs of retraining...

...Whether the tax cut or the expansion of public spending is the preferred technique, aggregate demand and total employment will respond to such stimuli...

...At this moment the outlook for full employment and rapid economic growth is exceedingly dismal...

...The Keynesian diagnosis is by now banal save among members of Congress...

...The National Bureau of Economic Research's leading indicators of business cycle turns have been reasonably reliable harbingers of economic change...

...More for the record than out of any expectation of Congressional action, the President also sought some authority to vary taxes and public works outlays as unemployment rose...

...It may be that public control of social and economic change is essential and new organs of national planning should be developed...

...The September edition of these measures provides little occasion for euphoria...

...But the effect should be temporary only, new business investment should have the effect of increasing the efficiency of American producers, and this increased efficiency should improve their prospects in international markets...

...And there is the less reason to do so because the discussion of economic statistics has become in recent months a substitute for economic action...

...No one disputes the usefulness of retraining as a part of an integrated attack upon unemployment...

...The grave possibility exists that even resolute use of compensatory finance might have been an inadequate answer to the major difficulties of the American economy...

...No doubt, such measures may adversely affect the balance of payments...

...Hence even the exceedingly modest employment targets set by the Council - an "unemployment rate of 5 per cent or somewhat lower at the end of 1962, but not as low as 4 per cent," and a rate of 4 per cent by the middle of 1963 -have receded out of reach...

...It is abundantly plain, however, that the Kennedy Administration has not applied to our economic difficulties even those Keynesian remedies which now may themselves be outpaced by social and economic change...

...Signs are not lacking that automatic control and computing devices in offices as well as factories are altering the structure of employment and the organization of industry and commerce in ways with which we have so far not learned to cope...

...On the other hand, increased public spending is likely to create socially more useful products and services...

...If the economy is indeed afflicted by these more fundamental ills, monetary and fiscal tinkering will be inadequate as responses...

...In fact, Administration propaganda in favor of retraining can cause only public confusion and the mistaken notion that employment problems are now well in hand...

...The remedies for inadequate total demand are to be found in a difficult but not unobtainable mixture of monetary and fiscal measures aimed at the expansion of some component of total demand-consumer expenditures, business investment, net exports, or government deficits...

...New orders for durable goods, contracts for construction, and new capital appropriations have all taken a turn for the worse between August and September...

...The Presidential influence and energy which might have been devoted to a fullscale attack upon unemployment were directed instead to a trade bill whose effects upon unemployment and economic expansion are long-run and conjectural, and an investment tax credit whose impact upon business plans is debatable even within the business community...

...But the answers fail of cogency...

...The complementary Keynesian fiscal policies, equally well-accepted today, include an appropriate mixture of tax cuts and public spending increases...

...In any case, gold drain is to be preferred to serious unemployment...

...In the United States, orthodox Keynesian doctrine ascribes the economic sluggishness of the last decade to inadequate total demand for goods and services...

...Actual GNP amounted to only $545.6 billion in the second quarter, a deficiency of $20-25 billion...

...While by no means all of them forecast another recession, far too many of the measures do so for comfort...

...We have no way of knowing how the economy might have responded to imaginative monetary and fiscal policies during the last two years...

...There is no need further to rehearse the dreary tale of a recovery that has signally failed to merge into even a moderate boom...

...The President used his Council's forecasts as an opportunity practically to ignore continuing unemployment and idle capacity...

...economic policy...

...The key economic measures of the session were the Trade Expansion Act and the tax measure...

...As far as monetary policy is concerned, generous additions to the supply of credit and reductions in interest rates are calculated to facilitate business borrowing, encourage home construction and increase consumer spending on durable items...

...They have the additional merit of increasing the freedom of consumer choice...

...Last January the Council of Economic Advisers predicted that Gross National product (GNP) would increase in the second quarter of the year to between $565570 billion...

...The average work week is dropping and temporary layoffs are rising...

...Recent studies by Robert Lampman and Gabriel Kolko tend to demonstrate that the shift toward greater equality of income distribution halted at least a decade ago-a date which, perhaps fortuitously, roughly corresponds to the beginning of our chronic deficiency in total demand...

...Last year's Area Development Act and this year's Manpower Training and Development Act are extremely modest attempts to transform the owners of unwanted skills into employable members of the labor force...

...The impact of these measures upon the economy will be measured by the excess of cash flows from the government to the private economy over similar flows from the private economy to the government...

...Tax cuts may be quicker in their impact...

...It is conceivable that the resulting social disruption demands a national response a good deal fresher than compensatory finance...

...No doubt the Administration in an election year will do its best to portray the tax and trade bills as the answers to economic stagnation...

...After several months in which the index of unemployment crept grudgingly downward but never below 5.3 per cent, we returned in August, the latest month for which data are available, to 5.8 per cent...

...What counted, however, was Kennedy's decision in August not to press for an immediate cut in personal income taxes...

...When the market for new skills is almost as weak as that for the old ones, then those who have received retraining will be cruelly disappointed...

...Our support of the welfare state on a national level amounts to about 7 per cent of the tax dollar, some $6.6 billion, considerably less than the cost of servicing the national debt...

...Unless some new impetus is applied to the economy, the prospect is that the United States will continue to drift along at unsatisfactory rates of employment and plant utilization, if indeed a new recession does not transform unemployment from an unpleasant to an unbearable problem...

...The repeated hostages that the President has ceded to the desirability of balanced administrative budgets, his failure persistently to expound counter-cyclical finance, and his neglect of the essential distinctions among national budget variants-all reinforce the judgment that in economic affairs Kennedy is only marginally discontented with the status quo...

...The trouble appears to begin this year with an erroneous forecast of the speed and extent of economic recovery...

...Equally significant is an increasingly unfavorable pattern of income distribution...

...Perhaps what is necessary is the massive redeployment of national resources which the Galbraith of The Affluent Society proposed...

...Although the causes of this phenomenon are not fully understood, we must be alert to the dangers of the creation of a new poverty in the midst of American affluence, and a new problem of deficient purchasing power...

...But retraining can be an effective remedy only if the total demand for commodities and labor is buoyant...

...It is not too much to say that his Administration has shown few signs of accepting either the Keynesian or a more fundamental diagnosis of the necessities of the American economy...

...Income differentials have been widening for some years...