Kennedy's Blueprint for Prosperity

...Of the $2 billion which the President could then release, as much as $750 million might represent simply an acceleration of direct Federal expenditures which Congress had previously authorized...

...Let us consider each of the Kennedy recommendations in turn, starting with the simplest: Extension of unemployment benefit periods from the current maximum of 26 weeks to a new maximum of 39 weeks...

...Authority to reduce taxes promptly during recessions...

...A reduction of five percentage points in the rates applicable to personal income—the maximum sought by the Chief Executive—will diminish tax collections by $5 billion within six months...

...This much at least: It takes a generation to persuade intelligent businessmen and a literate President that intellectual coins which are shiny from use among economists can safely be recommended to the nation...

...Richard Armour...

...Similarly, if a man who loses his job can collect 35 per cent of his normal paycheck in the shape of unemployment compensation, his personal income drops 65 per cent instead of 100 per cent, and in all probability personal spending contracts by a still smaller percentage...

...But I think the happy belief that even politicians comprehend the desirability of running surpluses when the economy booms and inviting deficits when economic activity is slack is based largely on a coincidence between legislation Congress has passed for assorted reasons and the policy objectives economists have come to approve...

...The modest amounts suggested and the concentration upon existing programs go far to meet these objections...

...More substantial public investment programs will be required to fill the gap between the level of employment the private economy is capable of achieving and the full level of employment which is desired...

...Moreover, it is reasonably certain that early anti-recession action would have produced deficits smaller than the $12 billion recorded during the last Eisenhower recession and the $7 billion reached during the first Kennedy recession...

...Not, indeed, immediately, but after a certain interval...

...This would not only mitigate the human hardship of unemployment and business failure, but the growth rate is likely to be higher during gentler cycles than during the wider swings of business history...

...I may err next on the side of pessimism, but it also appears that another decade or two will be needed to induce Congress to reach equally sensible conclusions...

...for in the field of economic and political philosophy there are not many who are influenced by new theories after they are twenty-five or thirty years of age, so that the ideas which civil servants and politicians and even agitators apply to current events are not likely to be the newest...

...The safeguards are evident in the language of the Kennedy message: The President could initiate this program "within two months after the seasonally adjusted unemployment rate (a) had risen in at least three out of four months (or in four out of six months) and (b) had risen to a level at least one percentage point higher than its level four months (or six months) earlier...

...A small tax reduction early in a recession may have a larger impact than a more substantial reduction made after the economy is in a severe slump...

...The moral is pointed up by the circumstance that only a week or so ago Walter Lippmann considered it worth noting that a President had at last said the national budget was an instrument of economic policy, not a test of moral character...

...The remaining $250 million dollars would be distributed among these three categories according to the judgment of the President...

...Other equally wholesome byproducts may be anticipated, too...

...The urge to reduce hours of work further than technical progress or national need justifies would also abate...

...And then, while he waits for the siren and whistle That warn to beware of the onrushing missile, Comes not the expected, awaited aggressor, But he, still more fatal, the County Assessor, And though there's no fallout, he draws his last breath, Not bombed, the poor fellow, but taxed to death...

...If, as many economists believed in the 1930s and a few hardy souls still believe in the '60s, the economy is always on the verge of stagnation, these smoothing, cushioning and averaging devices will be insufficient...

...And the same obtains in the case of the farmer and agricultural subsidies...

...Unfortunately, the pundits grant the tax and public works portions of the President's program little chance of passage in this Congress...

...The corollary is a smaller total deficit when action is prompt and moderate than when it is delayed and massive...

...I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas...

...Moreover, if we keep our categories straight, we can see that tax reduction is essentially a conservative anti-recession measure which expands the sphere of private choice...

...Robert Lekachman, Associate Professor of Economics at Barnard College, writes regularly in these pages...

...Nevertheless, the President stands on firm ground when he declares that "the above criteria would have permitted Presidential authority to be invoked in each of the four postwar recessions—within four months after the decline had begun...

...The justification for this step is extremely obvious...

...In anticipation of screams from Congress (Barry Goldwater has already termed the scheme unconstitutional, and others can be expected to see it as an infringement on their domain), the President's proposal gives Congress 30 days in which to reject a six-month Executive reduction...

...Forecasts are risky and revisions of the past are futile...

...The very cautious wording of this proposal is an effort to head off some of the usual criticisms of public works as anti-recession measures: it takes too long to get them started...

...In any event, authority to begin new projects would expire at the end of a year...

...If times are more dependably good, both union and trade association pressure for high tariffs is likely to abate...

...Recently, economists have seemed to assume in absent-minded fashion that these principles have found their way into the hearts of our political masters...

...Although there is no question that these three stabilizers have had a valuable dampening impact upon the swings of the business cycle, it is equally plain that Congress did not adopt any of them out of a comprehension, much less reverence, of the verities of Keynesian economics...

...It is best not to contemplate the grave probability that these majestic lags between professional and political opinion may lead to the adoption of policies which are many years out of date and many leagues behind the best thought of experts...

...In the light of all this, what shall we conclude about the merits of Keynes' insistence that ideas always eventually win the day...

...The 50-odd introductory texts in economics which jostle for the privilege and the profit of instructing collegiate youth usually emphasize a set of institutional arrangements, generically labeled automatic stabilizers, which set off the bad old days of Hoover from the bright new times of Roosevelt, Truman, Eisenhower and Kennedy...

...CONTROLLING RECESSIONS THROUGH FLEXIBLE TAXES Kennedy's Blueprint for Prosperity By Robert Lekachman Few things that Lord Keynes wrote have been more quoted than the ringing affirmation of the intellectual's faith which is the very last paragraph of his most influential book, The General Theory of Employment Interest and Money...

...The President proposes to finance the program by extending present payroll taxes on the first $3,000 of wage income to $4,800...

...He pays in installments, as well as he can, With interest also — the lay-away plan...

...Indeed the world is ruled by little else...

...Up to $250 million would be available as loans to states and localities to enable them to pay their share of project costs...

...The plaints of the farmers won them the manna of parity payments, a tribute partly to political reality and partly to the rural myths which persist in urban America...

...Conceivably it is recognition of this truth which has induced the intelligently conservative like the New York Herald Tribune and the Committee for Economic Development to embrace the notion...

...The salesman whose commissions shrink from $15,000 to $10,000 suffers a true income loss that is smaller than $5,000 by the amount which would have been paid in tax if his income had remained at $15,000...

...they represent wasted resources...

...Another $750 million would be transmitted to the states as grants in aid...

...The most important of the stabilizers are personal income taxes, unemployment compensation and agricultural subsidies...

...second, the number of individuals who exhaust their benefits over a three-month period must reach 1 per cent of covered employment...

...The point is currently relevant because it helps to explain the coolness which has greeted the President's common-sense reinforcements of these automatic stabilizers...

...The extension is to occur only after two conditions are fulfilled: First, insured unemployment must reach 5 per cent...

...Milder recessions are likely to enjoy the partnership of sounder recoveries and narrower fluctuations in employment, income and production...

...And before the President can so much as extend the reduction to a second six-month period, he must make a new formal proposal which Congress is again free to veto within 30 days...

...The passage inevitably springs to mind because the President's Economic Message has just unveiled a three-part program addressed to the mitigation of recession and the encouragement of rapid recovery...

...The attitude is comprehensible even if it is not entirely laudable...

...He goes into debt for the shelter well girded To which, come The Day, he and his will be herded...

...Authority, under carefully delimited conditions, to accelerate Federal spending on capital improvements by as much as $2 billion...

...THE SHELTERED LIFE According to a County Assessor in Nevada, fallout shelters which increase the value of real property are taxable.—News item Consider the citizen, bent on survival, Who, fearing the day of the H-bomb's arrival, Digs deep in his yard, and digs deep in his pocket, One eye ever upward, alert for a rocket...

...No doubt part of the explanation is no more than the natural reluctance of any legislature to surrender power to any executive...

...These $5 billion will be extra income to the recipients of the windfall and the greater part will be spent, with stimulating effects on the economy, on merchandise and services...

...These stabilizers, symmetrical as well as automatic, check income contractions during recessions and retard inflationary income expansions during booms...

...All three measures are logical applications of the notions Keynes and his American disciples discussed during the 1930s under the heading of compensatory finance...

...Of course, the adequacy of the Kennedy proposals depends upon a basically cheerful conception of the prospects of the American economy...

...Our still inadequate system of unemployment compensation was primarily a response to obvious social need...

...The only serious objection to this fiscally prudent improvement is likely to come from the jealous guardians of Congressional power who prefer the drama of ad hoc extension during each recession, and from those chronic pessimists about human behavior who suspect most of their fellowcitizens of laziness...

...The passage can bear still another citation: " the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood...

...We failed to achieve a really progressive personal income tax structure until the exigencies of armament expenditure during World War II and the Korean conflict compelled us to raise large tax revenues...

...This does not exhaust the merits of the proposals...

...it is fed now by actual or potential unemployment...

...But even beyond this fact of political life lies one of those simple truths which economists frequently have difficulty in grasping: the primitive belief of many Congressmen that a balanced budget is invariably a good thing, and an unbalanced budget is just as invariably a bad thing...

...they frequently achieve their maximum impact upon the economy after the recession has ended and a different economic policy is appropriate...

...Rationally, it would be entirely desirable to grant the President parallel authority to raise tax rates during inflations, but this the President evidently considered too much for Congress to swallow...