The Johnson Touch
LEKACHMAN, ROBERT
THE PRESIDENT'S APPROACH TO ECONOMICS The Johnson Touch By Robert Lekachman AT this writing, President Johnson's special message on measures to combat poverty is yet to come. But the new...
...Perhaps it is a straw in the wind that the housing message, already issued, projects exceedingly modest public housing goals and devotes much attention to loan guarantee techniques of assistance to suburban communities...
...Unemployment, if Administration expectations are fulfilled, will fall only to 5 per cent...
...It is an interesting statistical coincidence that the $11 billion of tax reduction is approximately the amount needed to raise all families below the poverty line (conservatively defined as $3,000 per year) above that figure...
...All the same, he was comparatively free to vary emphasis, detail, and, of course, rhetorical style...
...The housing program projects a derisory 35,000 units of public construction each year...
...He is seeking, with good prospect of success, an immediate drop in the withholding rate on personal income to 14 per cent on the bottom bracket...
...Of the $1 billion of new obligational authority, only $200 million appears likely to represent an actual increase in spending in the next 12 months on education, retraining, youth programs, health and welfare, and the new approaches to be revealed...
...General Motors, last year earned over $1.5 billion after taxes—something like 10 per cent return on its sales...
...The cautious progress of the Kennedy Administration toward general reeducation in modern economics has been checked if not reversed...
...The welfare state remains securely a middle-class proposition which does least for those who need aid most...
...Nevertheless, Johnson is saying very little to comfort unions in this year of rising profits and important contract negotiations...
...Aware of the charge finally that its rules will freeze income distribution, the Council quotes its 1962 Report to the effect that "The proportions in which labor and nonlabor income shares the product of industry have not been immutable throughout history...
...The 1963 total, $51.7 billion, is a tidy 10 per cent gain over 1962...
...Poverty is unlikely to flee in the face of an extra $200 million of expenditure...
...It is going to be hard not only for Walter Reuther but for labor leaders in other industries to accept such guidance at a time when corporate profits have just increased some 44 per cent in less than three years...
...Has the time come for the UAW to alter the shares in its industry...
...Under the circumstances of his accession to office, the President's range of choice was inevitably constricted, especially in an election year...
...So far as one can tell from the somewhat Delphic utterances of the Council, its members will accept either a wage increase no larger than that justified by national productivity improvements, accompanied by a price reduction in autos, or a larger wage increase accompanied by price stability...
...What it does not propose to countenance is a third, and most likely pattern: large wage gains followed by substantial price increases, succeeded by an inflationary emulation in other industries of both the wage and the price hikes...
...I think that we ought to help them spend it in 1964...
...It is not astonishing, therefore, that the tax bill retains its top legislative priority and will probably be enacted some weeks earlier under Johnson than it would have been under Kennedy...
...In short, the Johnson twist to the Kennedy program is essentially conservative...
...It is the glowing promise of an economic expansion facilitated by social harmony and tax reduction, and offering a share in the benefits of expanded Gross National Product to all the interests...
...The famous tax measure, which began as a combination of reform and reduction, is likely to end with reductions for the wrong people—slashed top rates, unclosed loopholes, and a whole set of new benefits to the unneedy written in...
...None of this appears to leave very much leeway for public spending on housing, welfare, education, health, and the new coordinated assault upon poverty...
...By all appearance, the new note in Johnson's economic performance is his call for a truce in the skirmishing among the economic interest groups...
...Its price guidepost "contemplates changes in specific prices—downward in industries with high rates of productivity gain, as well as upward in industries with lower-than-average productivity gains...
...In effect, the Council indicates that the UAW is entitled to seek wage increases which reflect "the annual increase in national trend output per man-hour...
...Still, any new President inevitably seeks politically and personally to establish his independent policies and identity...
...Its largest bargaining opponent...
...In various ways and places, the President has proclaimed the same message for economizers and spenders, fiscal conservatives and fiscal liberals, Keynesians and classicists, corporate executives and labor-union leaders, and slum dwellers and suburbanites...
...It is a pleasant conception, but if there is anything in the recent history of the auto industry which makes this outcome plausible it has surely escaped general attention...
...Nor is Johnson's anti-inflation policy new...
...The reduction in the national budget reverses an entirely desirable and necessary growth of public outlays in response to population expansion and communal need...
...In fact, what the President seeks is embarrassingly little in relation to urban needs...
...It is perfectly possible that the Johnson emphasis will carry him and the Democratic party safely through the November elections...
...Again, it was President Kennedy who felt compelled by legislative circumstance to declare a moratorium on new spending programs as another part of the necessary price to be paid for the eventual passage of tax reduction...
...The wage-price guide lines appear likely to hamper union action a good deal more than they restrain managerial price discretion...
...But the new budget, the economic report, the muted housing message, and the semi-authorized forecasts of the contents of the poverty program say a good deal about Johnson's approach to economic affairs...
...No Democratic administration can neglect the trade unions...
...Certainly the nation's first Texan President can ill afford to breach this political rule...
...For the worriers about government spending he has a real tranquillizer: a new budget whose $97.9 billion of contemplated expenditure is actually smaller than the last Kennedy budget...
...The President is offering his urban clients a diet richer in promises than in actual cash outlay...
...Even the poverty measures were in the works well before November 22, 1963...
...This is decidedly not the advice which the Council of Economic Advisers offers...
...The Council has retreated only minutely from its confidence in tax reduction as the sovereign cure-all of the age...
...What is the United Automobile Workers (UAW), for example, to infer from the wage guidelines...
...The Council has a remedy...
...As an earnest of the good things to come, the President has something to offer most of his client groups...
...What President Johnson has done is to convert this political necessity into a glowing affirmation of frugality in government...
...If the Johnson schedule is implemented, some $800 million of additional income will become available to consumers each month, in partial counteraction of the unexpected budget cuts...
...The wage-price guidelines, much emphasized by the President, appeared first in the Council of Economic Adviser's 1962 Report and were repeated in last year's document...
...Out of this will emerge, if all occurs as predicted, a budget deficit in the fiscal year ending June 30, 1965, of only $4.9 billion, slightly less than half of this year's $10 billion figure...
...Since productivity in automobiles has risen much more rapidly than the national average, simple-minded application of this rule will surely leave the companies in possession of exceedingly large profits...
...Hence if the UAW restrains itself to average gains, GM, Chrysler and Ford ought in return to reduce their prices...
...Better still, from a conservative standpoint, it reverses the steady upward creep of Federal expenditure under both the Eisenhower and the Kennedy Administrations...
...Nor is the temper of the unions likely to be improved by the Council's stubborn adherence to its position that automation is not a qualitatively new phenomenon, but simply a continuation of a familiar process of technological change...
...The price in postponed education and postponed action is high...
...Viewing General Motors' record, Walter Reuther has commented: "GM doesn't know what to do with its money...
...With his other hand, the President extended a blessing to the devotees of expansion by fiscal policy...
Vol. 47 • February 1964 • No. 4
