Too Little of Everything

...In this comparison is yet another mark of the American economy's exceptional performance during a period of economic expansion when by past precedent some degree of wage and price inflation was to be anticipated...

...Then he focused upon the device of shared time, judged constitutional even by such veteran opponents of aid to parochial schools as Leo Pfeffer In the end the President may succeed in passing his program, but the amounts involved are relatively small, even by comparison with the unsuccessful Kennedy proposals...

...At a time when the national interest demands no tax cuts in the immediate future and much bolder programs of public spending, President Johnson has offered a little of everything-and, it must be feared, not enough of anything...

...If this combination of tax reduction and increased spending has its anticipated effect and investors and consumers spend according to expectation, then the economy in 1965 will grow as much as it did in 1964...

...Nevertheless, the Council admits the existence of specific groups in city and rural slums whose adjustment even to a buoyant labor market will be enormously facilitated by more generous financing of retraining, youth camps, neighborhood job corps, extended and liberalized unemployment compensation, area redevelopment, and aid to education focused upon the city schools which still spend only two-thirds of the amount per student spent in the affluent suburbs which surround them...

...For Negroes it was 8.5 per cent in the earlier year and 9.8 per cent in the later year...

...Industrial production rose 8 per cent and corporate profits after taxes continued to mount...

...There will also be an increase in Social Security benefits retroactive to January 1, 1965, and partially financed out of increases in payroll taxes which will not be imposed until January 1, 1966...

...Reflexive cries of horror at unbalanced budgets seemed to have diminished and it is even possible that a cautious President paid rather more lip-service to ancient shibboleths than he needed to when he held the administrative budget under $100 billion, pointed with pride to a projected reduction in the deficit, and applauded the declining share of Federal spending in GNP...

...In effect this is conceded in the Economic Report...

...It is a restrained comment on the prospect to say that neither Negroes nor teen-agers are likely to better their condition in 1965's labor market...

...Moreover, although balance of payments deficits continue, 1964's deficit was smaller than 1963's and the signs are encouraging that American exports are better than holding their own in competition with Common Market and Japanese firms...

...Inevitably this record is accepted by the Administration as the reward of good economic management and especially of astute fiscal policy...

...Appropriations for the poverty program will double...

...On this score, its largest concession is in this sentence: "The recent performance does not provide clear evidence that the long run trend of productivity growth has changed, but there is some evidence that it may have risen slightly in recent years...

...Consensus" enforces upon the President a policy which embarks far too few resources to produce the hoped-for effects...

...And it is surely no cause for regret that the programs slated to suffer reductions are defense, agriculture, and outlays for veterans' services...

...It forecloses the two major spending approaches...

...The $6 billion expansion of social programs is the largest peacetime year-to-year change in history...

...In 1964 the economy came close to the 5 per cent rate of growth which was one of the political cries of the 1960 campaign...

...Heller's vigorous advocacy of tax reduction was founded on his belief that the way to reduce unemployment rates, and equally the way to make job retraining and area redevelopment schemes successful, was to expand the total demand for goods and services to the point where employers could be persuaded to hire teen-agers, Negroes and Puerto Ricans even if they lacked some of the skills and education which employers preferred...

...On the spending side, the President's proposals are varied...

...Actually, as the Economic Report demonstrates, most of last year's labor contracts-the notable exceptions were in autos and construction--- corresponded fairly closely with the Administration's wage guidepost...

...That it promises to perform with $6 billion tasks that call for far larger outlays can only arouse apprehension about the effect of disappointed expectations...

...If Social Security benefits are not included in the current spending programs, then all the new programs amount to little more than one-half of one per cent of GNP...

...He started with a comforting analogy to Federal assistance to military impacted areas, and translated it into special assistance to school districts inhabited by large numbers of poor people...

...The strategy, in other words, has its limitations...

...In concept most of these programs are promising...

...Perhaps it is worth recalling that the unemployment rate for whites was 4.6 per cent in both 1950 and 1964...

...The second unfortunate heritage of the 1964 tax cut is a corollary of the first...

...Other indicators were equally favorable...

...Not only was the increment to Gross National Product (GNP) a substantial $38 billion, but it was an additional triumph that the Council of Economic Advisers came within $1 billion of predicting its $622 billion total in its January 1964 projection...

...Under both Walter Heller and Gardner Ackley the Council of Economic Advisers has strongly argued the aggregate demand side of the running argument among economists on the causes of persistent unemployment...

...The tax cut is history, but from it flow two unfortunate consequences...

...The Council does not concede that persistent unemployment is caused by automation...

...The President's handling of the education issue is in fact an excellent illustration of the relationship between consensus and the scale of public policy...

...Details of administration and allocation formulas will be especially critical in the education program, which endeavors to finesse the parochial school issue by the device of shared time...

...To complete the harvest of good things, wholesale prices remained stable and even the upward creep of consumer prices probably reflected an unmeasured increase in the quality of the goods and services produced...

...There will be funds for Appalachia, public health, antipollution, area redevelopment, job retraining, and an additional $1.2 billion for education...

...Scales of values have gone awry when tax cuts of this size are taken to be safe but increases in public spending of much more modest dimensions are viewed as large...

...January's employment will turn out very probably to have been borrowed from May's or June's employment...

...Whatever the political practicalities, the tax cut was from a social standpoint an inferior substitute for an equivalent increase in public spending for social purposes...

...And what must be said of all the present proposals is akin to the judgment made last year on the Poverty Program: It is a handful of beginnings...

...The first would be to hold to the hard line against assistance to nonpublic schools and fight for a bill which provided general school aid for construction and salaries...

...Whoever has the rights of the controversy between the aggregate demand analysts and the automation exponents, the needs of the community are essentially those which John Kenneth Galbraith eloquently defined seven years ago in The Affluent Society: redirection of national emphasis from private production to the schools, social services, public amenities, clean air...

...Is this program adequate...

...Since the expectation is that increases in productive capacity will at least match the expansion of actual output, plants on the average will continue to operate at their current 88 per cent of capacity, some four percentage points below the generally preferred 92 per cent level of operation...

...The likelihood is, however, that the steel inventory buildup in anticipation of a long steel strike is the entirely accidental event which explains the improvement...

...His strategy was simple...

...One is a reduction of excise taxes by $1.75 billion, an amount which Congress is quite likely to enlarge...

...That it is a bigger handful than last year is a cause for mild gratification...

...What confuses the political issue above all is the very tax cut whose success has so delighted the Administration...

...Of course the behavior of employment was notoriously less reassuring, but even here the President could emphasize some visible improvement...

...It is probably not overly optimistic in stating that "after years of ideological controversy, we have grown used to the new relationships among government, households, business, labor, and agriculture...

...Although opposition to the textbook grants to private and parochial schools as well as to the supplementary education centers has begun to show itself, the President did remarkably well initially in winning the support of both the National Education Association and the Catholic hierarchy...

...They have been aided by the circumstance that European prices have moved upward more rapidly than American prices...

...Excise tax cuts this year, vague promises of further income tax cuts in subsequent years, all tend to reinforce the view that fiscal policy really means tax reduction, not public spending...

...The current economic expansion, now in its fifth year, is matched in length only by that unsatisfactory 1933-37 partial ascent from the Great Depression to which no comparisons are invited...

...Possibly on the sound political premise that only a fool quarrels with success, the President's new program continues the 1964 strategy...

...Since fiscal stimulus worked last year, why not this year...

...Should the President really succeed in his attempt to channel a larger percentage of agricultural aid to needy farmers and a smaller percentage to the large commercial farmers who now receive the bulk of the benefits, he will introduce a note of rationality in agricultural policy almost for the first time since 1933...

...A proportion of the Johnsonian rhetoric pays reverence to this conception of national necessity, but much too often other objectives muddy the waters...

...It is easy to see that it is not...

...While unemployment in 1963 averaged 5.7 per cent, the average in 1964 fell to 5.2 per cent and by year's end touched the 5.0 per cent mark, which up to that point represented the best recent performance of the economy...

...If the Council is correct in its analysis, then 1964's improvement in employment is a testimonial to the efficacy of the major fiscal event of the year, tax reduction...

...How adequate are the various programs in themselves...

...clean water, parks and playgrounds which governments produce...

...And of all of them the last is the most important, for it offers the best hope of breaking the hold that the culture of poverty has upon the young...

...Thus on the basis of its own analytical premises, the Council should have recommended substantially more fiscal stimulus than the President has proposed...

...The first is a skewing of fiscal policy away from public expenditure toward almost universally popular tax reduction...

...This boost to private incomes will begin in the middle of 1965 just when the economy may need a fillip...

...The other would be to accept the Walter Lippmann-Robert Hutchins judgment that the needs of our society are sufficiently overriding to grant something like equal assistance to parochial and other private schools...

...The elements of 1965's stimulus are several...

...At first glance January's unemployment rate of 4.8 per cent seems to continue the favorable trend...

...But the gravest defect of the President's program is one of direction...

...The tax cut at current levels of GNP is worth $14 billion, or over 2 per cent of GNP...

...Another increase of $38 billion is larger than the Canadian GNP, or, more than twice General Motors' annual sales...

...Indeed, the Economic Report does contain the muted echoes of an argument waged and lost within the Administration...

...THE JOHNSON BUDGET Too Little of Everything By Robert Lekachman In his Budget and Economic messages, that master of positive thinking, Lyndon Johnson, has made the best possible case for the success of Democratic economic management over the past four years...

...If the cities in which most Americans live are to be changed from traffic bottlenecks decorated by filth into centers of amenity, it will be government and not private business which must take the lead...

...Neither does the Council accept the related proposition that unemployment is the consequence of labor market structure-large unfilled demands by employers for workers with skills that do not match those of the unemployed...

...The gap between the full employment potential of the economy and its actual performance will not narrow...

...In 1964 the number of new jobs created exceeded the net number of entrants to the labor force...

...Slack demand for labor offers a poor promise of improvement...

...The Council predicts that GNP will rise to $655-665 billion and it selects the midpoint of the range as the single most likely figure...

...Because the labor force will expand more rapidly in 1965 than it did in 1964, a rise in GNP no more than equal to the 1964 improvement will not reduce unemployment at all...

...Presumably those who feared additional gold drains and possible inflationary "overheating" of the economy had their way...

...The Council may well be right in its judgment that modern fiscal policy is now widely accepted...