The Postponed Argument

...Many new programs are also needed, among them general aid to education and universal health assistance...

...In his year of office President Johnson has favored policies and programs which fall into both of these categories...

...Not even Lyndon Johnson can keep together Henry Ford and Walter Reuther, the Hearst newspapers and the New York Post, New York State Liberals and Texas Democrats, Harlem Negroes and New Jersey suburbanites, Hubert Humphrey and John Connally...

...Each of these alternatives can be described as a mixture of diagnosis, social preference, and policy ideas...

...The practical choice lies between two routes to economic expansion—the 20th-century liberal path and the 20th-century conservative path...

...The essential needs of the time are social services produced and provided by government...

...This is the consistently 19th-century liberal view of the appropriate roles of government and business which Senator Goldwater espoused during the campaign...

...At its extreme, the advocates of this position tend to perceive a transformation of production and employment akin to the English Industrial Revolution of the 18th century...

...Those who believe, as I do, that American problems require at the minimum the remedies which the liberal interventionist position prescribes are going to be fighting the battle under a severe handicap...

...Actually, a realistic economic debate never occurred during the campaign...

...The liberalization of depreciation guidelines early in the Kennedy Administration, the investment tax credit enacted by Congress in 1962, and the reduction of corporate income tax rates in 1964, all addressed themselves primarily to the stimulation of private investment, on the assumption that private investment was the key to more rapid growth...

...Many Americans now regard substantial tax reduction and token expenditure on social welfare as a combination which is as liberal as they care to see...

...The liberal diagnosis of the central economic problem emphasizes the changing shape of the labor market —the failure of manufacturing employment to grow even as manufacturing output continues to expand, the elimination of unskilled, semi-skilled and even some skilled jobs by computers and automatic control devices, and the resulting ever-higher educational requirements for steady employment...

...Members of this able and ingenious sect are sufficiently devoted to the overriding values of free economic markets as to believe either that the anti-trust laws should be draconically applied to business concentrations of power, or that the problems of monopoly and oligopoly have been much exaggerated by the critics of business...

...Deep depressions and wild booms are the consequence not of any inherent instabilities of the capitalist system but rather of the imprudent, destabilizing monetary and fiscal policies which liberal administrations invariably favor...

...The part to be played in this policy mixture by tax reduction would be small...

...Unemployment among young people is menacingly high and among the Negro young terrifying in its incidence...

...Does all of this suggest that the President has locked himself into a fiscal situation which prevents him from advocating really substantial outlays on old programs or the initial funds for new programs...

...In addition, the 1964 tax measure was justified explicitly by fiscal theory and value preference...

...Although he stopped short of embracing his adviser's preference for automatic, non-discretionary increases in the money supply by the Federal Reserve authorities, Goldwater's position, not surprisingly, generally resembled that of the group known by economists as the Chicago School...

...That the situation is no worse is in some measure the consequence of the stimulation of tax reduction...

...Whether or not the Senator understood the principles of his economic mentors, the Chicago view, a minority position among economists, evidently had still less attraction to the voters...

...An appropriate public program would multiply the funds now allocated to the Housing and Home Finance Agency, the Area Redevelopment Administration, the manpower retraining activities of the Department of Labor, and the assorted projects of the Poverty Program...

...In the course of his remarks, the Senator spoke up for reduced government spending, conceded the necessity of occasionally unbalanced budgets, proposed further substantial tax reductions, advocated free competition, opposed labor monopolies, and attacked the deliberate employment of fiscal policy as a tool for controlling inflation and recession...

...The fiscal theory in question was that of the tax drag...

...One thing is reasonably certain...

...A great deal of the KennedyJohnson economic program conformed to this analysis...

...In the cool aftermath of this nonconfrontation, genuine economic discussion necessarily will occur among the victorious Democrats, since there is scarcely an influential voice among the Republicans to be heard in the land...

...The opposing liberal expansionist position owes something to the Galbraith of The Affluent Society, something to the Harrington of The Other America, and something to the unemployment analyses of Professor Charles Killings worth...

...Indeed if the dreary election demonstrated any economic point, it was the utter refusal of the voters to surrender agricultural price supports, Social Security protection, the Tennessee Valley Authority, and any of the other "interferences" in free markets which the last three decades have produced...

...JOHNSON'S ECONOMIC PROGRAM The Postponed Argument By Robert Lekachman Now that we have all exhaled a sigh of relief, now that Senator Goldwater has been retired to well-merited private life, and now that the Republican party has been suitably punished for its selfindulgence in the politics of nostalgia, it is necessary to resume the hard work of rational political discourse...

...Thus Barry Goldwater may have done one last disservice to his country...

...the certainty is that unless the labor and liberal elements in the Johnson camp speak early and vigorously, the economic policies of the Administration will lean more and more heavily upon conservative stimuli to economic expansion...

...The one possible escape is the result of Secretary McNamara's brilliant success in actually reducing the level of military expenditures...

...His votes against renewal of the Reciprocal Trade Agreements Act and the more recent Trade Expansion Act strongly imply an attachment to high tariffs which conflicts sharply with the free trade preferences of the Chicago School...

...With the help of a little bookkeeping legerdemain, the President redeemed his promise and reduced the budget for the fiscal year 1965 well below $100 billion, some $2-3 billion under the likely totals of the Kennedy Administration...

...Take the modern conservative position first...

...Moreover, much as big government and big trade unions have disturbed Goldwater over the years, he has never recognized the existence of parallel problems of scale in manufacturing and finance...

...For his part, Professor Friedman is convinced that when markets are free business cycle fluctuations occur within narrow, tolerable limits...

...The strange coalition now behind the President will dissolve...

...That is to say there are still something like four million individuals unemployed, possibly another three million who have accepted part-time jobs for want of better or left the labor market completely, and still an additional million or two underemployed on farms...

...Walter Heller, Chairman of the Council of Economic Advisers and a tax expert of standing, has long held that in the later stages of economic expansion the budget surpluses generated by rising incomes act as a restraint against further upward movement—well short of full employment...

...The notion circulating in Administration circles that a portion of future increases in Federal tax collections should be refunded to the states also implies a limitation on Federal programs...

...The much-heralded Poverty Program required initial outlays of something under a half billion dollars...

...By contrast the tax reduction is worth at present levels of GNP something like $14 billion each year...

...As for the value preference, it is for private investment, private allocation of resources, and private production over the possible public alternatives...

...The best full dress presentation of these opinions appeared in Goldwater's answers (presumably written by Professor Milton Friedman) to a series of questions addressed to him by Business Week...

...Seeing the problem in this way, the conservative expansionist is prone to pin his hopes upon a refashioning of the Federal tax system...

...Inevitably the liberal expansionist—like the conservative proponent of tax reduction—thinks in terms of billions, not millions, of dollars...

...Some portion of his breathtaking appeal to rich and poor, Negro and white, Wasp and "ethnic," urbanité and suburbanite, was the consequence of his astuteness in offering something at least to Americans of all degree—benefits to the rich, a Poverty Program for the poor, and tax reduction for everyone...

...The danger is that President Johnson agrees with them...

...Never compelled to describe his program (if indeed it exists) for the Great Society, the President remained unchallenged master of the realm of generous platitude...

...To start with, economic policy for the next four or eight years must address itself to essentially the same situation as before the campaign began...

...Even at best such financing is unlikely to compare in scale with the multi-billion tax remissions of 1964...

...One indication is inescapably financial...

...By his very existence Barry Goldwater has shifted the argument toward the Right...

...One might begin by examining the economic issues which confront the architects of the Great Society...

...The genuine issue about which intelligent Americans can argue centers upon the appropriate governmental response to these unacceptable levels of unemployment and income—not upon the obsolete question whether government should or should not tamper with the private economy...

...One attitude toward these issues is now seen to be obsolete...

...If the uncertainties of Russian politics make possible in the next years continuing savings on the military program, President Johnson may just be able to accomplish the neat trick of further reducing taxes, controlling public outlays, and simultaneously finding the funds to finance social programs on a more generous scale...

...An important instance of this preference was the Kennedy Administration's insistence upon private control of the communications satellite program...

...What is the outlook...

...Demand is deficient in this view partly because investment has not risen rapidly enough and partly because the highly progressive (pre-1964) shape of the Federal tax structure had the effect of withdrawing too quickly and too substantially the fruits of economic expansion from the hands of consumers and businessmen...

...Its adherents analyze America's central economic problems as a deficiency of aggregate demand...

...Nearly, but not quite...

...Even a stronger and more rational Republican opponent would have had his troubles in countering so professional a performance...

...Moreover, in the negotiations with Congress which preceded passage of the tax measure the President committed himself to a frugal budget...

...Liberal expansionists often complement their analysis with an identification of a whole series of needs which only intelligent government action can satisfy, among them urban redevelopment, mass transportation, recreation, low-cost housing, vocational education, area redevelopment, and job retraining...

...Tax reduction will do little to assist the unemployed young, the technologically displaced mature worker, the miserably housed slum dweller, or, indeed, whole sections of the country where these problems are especially numerous...

...It is as true in November as in July that about one-fifth of all families scrape along somehow below a conservative definition of the poverty line—$3,000 a year...

...Where does the President's own preference lie...

...That it is no better can only be deeply disquieting late in one of the longest economic expansions of 20th-century American experience...

...The accompanying reduction of personal income tax rates in the 1964 law was an attempt to stimulate individual consumption as well...

...It will probably remain uncertain how much of this analysis Senator Goldwater understood or accepted...

...Against Goldwater, Johnson had no contest...