How to Avoid Gerald Ford's Economic Nirvana
LEKACHMAN, ROBERT
ADVICE FOR LIBERALS How to Avoid Gerald Ford's Economic Nirvana BY ROBERT LEKACHMAN January's rain of paper from the White House?the President's messages on the State of the Union, the budget and...
...The so-called Phillips curve embodies an argument that as unemployment declines, new employes are less qualified, labor unions become more belligerent, work discipline slackens, and for these reasons, each unit of output costs more...
...In a response to the State of the Union message very nearly as stupefyingly dull as the exercise in tedium that occasioned it, Senator Edmund Muskie did display an inclination to do rather more about unemployment than the Republicans, but the bulk of his remarks seemed designed to prove that Democrats were every bit as fiscally responsible as their rivals...
...The budget also zaps the cities...
...However, such sums are much too small to revive an economy whose recovery is already faltering...
...Much the same strategy is applied to education and child nutrition...
...An October version extended the target period to 24 months but retained 3 per cent as an implicit definition of full employment...
...Once more, how can any Democrat expect to win with a program that reduces benefits to important clients of the party and offers no realistic hope of a full employment economy...
...What loyal American could be unwilling to make some personal sacrifices in hot pursuit of the glorious goal of fiscal responsibility...
...Under the circumstances, it is extremely disquieting that so many leading Democrats have implicitly accepted the Administration assumptions and analytical framework...
...Still pursuing the Nixon New American Revolution (does anyone remember what that was...
...Liberals should be boldly proposing $50 billion of new stimulus coupled with a credible incomes policy designed to keep powerful corporate beasts in check...
...Once more, recent history ought to suggest the plausibility of combining mandatory price controls over large corporations with voluntary wage guideposts...
...Ford has designed some tax advantages to encourage "small" investors (whose incomes are less than $40,000) to buy and hold on to common stocks...
...This is decidedly not the sort of rhetoric to promote genuine full employment legislation, large scale public employment, or renewed attention to public housing, mass transit and aid to the cities...
...No more than Gerry Ford did they want to throw money at problems...
...Now Humphrey is aiming at 4 per cent unemployment to be achieved in 36 months...
...The outcome is the more certain because the President proposes to eliminate present state and local matching fund requirements, an open invitation to the states to reduce their present inadequate commitment to antipoverty efforts...
...At 8 per cent unemployment, the Federal share is 23 per cent because of depression-induced outlays on food stamps, Medicaid, and unemployment insurance...
...The gap between present levels of GNP and GNP at a 5 per cent unemployment level is about $180 billion...
...it groups Medicaid and a host of other categorical grant schemes under a single block appropriation...
...This, observes Rogers Morton, the President's new political counselor, is the Administration's real job-creation plan...
...If Gerald Ford has his way, Federal outlays on everything except defense will shrink or grow much more slowly...
...In the current public mood, it is claimed, the only political coin that has actually appreciated is the promise of less—the new revolution of lowered expectations advertised by political comers like California's Jerry Brown, Massachusetts' Michael Dukakis, and New York's very own Hugh Carey...
...Indeed, proclaimed Muskie, the new Congressional budget procedure was a glorious monument to Democratic aspirations to tight budgets...
...The contribution of the elderly to a healthier economy would be a larger share of their Medicare expenses...
...It is of course merely a lucky accident that most of the money will be spent in Southern rim states vital to Republican electoral prospects...
...Only summer soldiers and sunshine patriots...
...The Democrats hesitate for two bad reasons...
...According to conventional wisdom, America has rebelled against big government, wearied of aiding the ungrateful poor at home and abroad, forgotten such faded aspirations as racial equality, and turned thoroughly mean...
...to $101.1 billion...
...To protect the actuarial integrity of the Social Security trust fund, another inspiring bicentennial goal, wage earners would pay higher Social Security taxes, but the affluent would continue to be spared any bite on the bulk of their income from dividends, interest and the portion of their salary exceeding $13,000...
...In early versions, the measure committed Congress to reducing unemployment to 3 per cent in 18 months...
...tax collections have dropped and social service burdens risen because of continuing recession...
...Nor, one would think, is this an effective political strategy...
...No Democrat is likely to win a tightwad competition with any Republican except Nelson Rockefeller...
...the\ will not only lose the White House for another four years, they will deserve to lose it...
...For one thing, the governors have had no choice...
...Should Congress ratify the design in New York and elsewhere, suburban-rural legislative coalitions would see to it that the big cities got a decreasing share of a diminishing social-service pie...
...What do Democratic politicians know that makes them so timid...
...In an atmosphere of price stability, there is reason to hope they would continue to settle on noninflationary terms...
...For another, the Federal government is in fact not getting bigger...
...He would eliminate such payments entirely...
...The President, inspired rather more by Herbert Hoover than Tom Paine, has steered a middle course between Ronald Reagan's return to Calvin Coolidge and Republican liberals' yearnings for the wild moderatism of Dwight Eisenhower...
...In recent years, unions have reacted to inflation, not caused it...
...Large corporations in autos, steel, aluminum and elsewhere have pushed their prices up even while the customers were fleeing...
...It is no accident that county officials have endorsed and urban mayors vehemently opposed this "reform...
...Moreover, it is certainly true that in the absence of mandatory price controls any fair approximation of full employment will encourage private price controllers to send up prices all the more rapidly and compel unions in self-defense to insist on catchup wage packages that give another fillip to inflation...
...The Republicans, aided by many mainstream economists, have persuaded sound men and women that there is an unavoidable trade-off between inflation and unemployment...
...Those already well endowed with the world's goods would fare even better...
...There are several reasons to be skeptical of this analysis of popular sentiment...
...Each year between now and 1981 the defense budget would grow plumper until it hits $142.8 billion...
...In concert with an additional cut in personal income taxes, these devices should definitely encourage prosperous Americans...
...States would be free to allocate health, education and child assistance funds in any fashion thev choose...
...With good luck, crumbs from the banquet tables of the rich may be distributed among the poor...
...They have hesitated to advocate genuine movement to full employment because the spectre of revived double-digit inflation alarms them...
...There has been a price inflation...
...For the unemployed the Republicans have a tentative promise: By 1980 unemployment may actually drop to 5 per cent, close to the new official definition of full employment...
...Fortunately for the country, the Democrats are likely to ignore some of these bounties to the unneedy, refuse to gut social programs, and appropriate another $10-20 billion...
...Until liberal Democrats confront the controls issue, they are unlikely, out of inflationary fears, to support full employment...
...In order to alleviate the grief of heirs, the Administration wants to lighten inheritance taxes on family farms and small businesses, some of them valued at several hundreds of thousands of dollars...
...If the Democrats accept this political diagnosis...
...In the current Presidential sweepstakes, Fred Harris, the only candidate who has even approximated such an approach, has been stigmatized by that venerable pundit James Reston as "radical" and "extreme...
...Those who have little would get less...
...He is not unwilling to stretch out a helping hand to deserving Americans...
...Similarly, even though unemployment is expected to average 7.7 per cent in 1976, Ford wants to cut spending on food stamps and public job programs...
...American unions, almost as concerned about inflation as the Republicans, have been remarkably restrained in their contract demands...
...All the same, the statistical record flatly contradicts Phillips...
...In Greenspan's prose, "because this recovery started from very low levels of resource utilization, unemployment will almost surely remain distressingly high this year even though large gains in employment are expected during 1976...
...Within three years, proclaim his economists, the United States will enter the Nirvana of a truly balanced Federal financing...
...Secondly, Liberals seem to believe wage-price controls are inseparable and unions will adamantly oppose both on the ground that, as in the Nixon era, wage restraints will be more rigidly enforced than price limitations...
...At $394.2 billion, the budget redeems Ford's much advertised promise to stay below $395 billion...
...ADVICE FOR LIBERALS How to Avoid Gerald Ford's Economic Nirvana BY ROBERT LEKACHMAN January's rain of paper from the White House?the President's messages on the State of the Union, the budget and the economy—contained nothing astonishing, aside from the conscription of that improbable Republican Tom Paine as an Administration supporter...
...At full employment the Federal share of the Gross National Product (GNP) would approximate 20 per cent, a shade under 1970's 20.5 per cent...
...There are gainers as well as losers in the game plan, the biggest of them in the Pentagon where the spirit of recently deposed James Schlesinger survives in the body of Secretary of Defense Donald Rumsfeld...
...As a consequence, the real incomes of blue- and white-collar workers have actually steadily declined...
...Thus, just as the lingering combination of inflation and unemployment, stagflation, is inexplicable in Phillips terms, it is perfectly comprehensible once free-market assumptions are surrendered and the realities of concentrated economic power are recognized...
...Alan Greenspan—the Ayn Rand disciple who serves as chairman of the President's Council of Economic Advisers?explains" the desirability of keeping unemployment above 7 per cent during the next two or three years by declaring that times have been so bad, they will just have to continue bad for a while...
...That the Phillips theory accords poorly with recent American experience and misrepresents the relative institutional power of large corporations and unions, does not prevent politicians and economists from clinging to it...
...The urban poor in particular would lose services and pay more in additional Social Security deductions than they gain out of slashes in personal income taxes...
...The Republican prospectus offers quite a few citizens their chance to shiver in Valley Forge...
...And that is only the beginning of the good news for the generals and admirals...
...Last month he told a television interviewer that he was again revising the frequently amended Humphrey-Hawkins Equal Opportunity and Full Employment bill...
...Bit by bit the Senator is edging toward the Administration's 5 per cent target in four or five years...
...In fact, World War II and Korean War price and wage restraints were remarkably effective...
...Sellers naturally pass on these larger costs to the customers...
...The defense budget would rise from its present meager $92.8 billion (where did the peace dividend go...
...This cantious nod in the direction of a Negative Income Tax is too much for the Chief Executive...
...Nevertheless, even that veteran believer in concerned government and 1976 noncandidate, Hubert Humphrey, has suffered an attack of caution about the capacity of the Federal government to restore full employment in short order...
...Ford's preference for a painfully slow recovery must be read as utter unwillingness to check the inflationary price-setting power of large corporations and the coalition of hospitals, physicians and health insurers that has ballooned medical costs...
...If you are a politician, you make what political capital you can out of frugality and preach the new gospel of small is beautiful...
...One is the myth that controls don't work...
...Like Merrill Lynch, the Republicans are bullish about America, too...
...Under current arrangements, poorly paid fully employed men and women are eligible for a modest cash payment from the Treasury...
...Higher prices are the occasion for new wage demands, justifying a second round of price hikes, and so on in the familiar wage-price spiral...
...there has been no wage inflation...
...In the great GOP tradition, Ford's economic proposals are a winner's document...
...But the Democrats are not fools...
...Even the Phase 2 Nixon controls, half-heartedly administered by unbelievers, were reasonably successful between November 1971 and January 1973...
...Unless liberals in and out of Congress assimilate the fact that inflation and unemployment are the products of political choices made at least as much in the private as in the public sector, though, they probably will not advocate that indispensable component of a full employment program consistent with stable prices: a firm and permanent income policy...
...Under the first rubric 27 specific programs, and under the second 15 programs would vanish as separate entities...
...For several years prices have been rising faster than wages...
...But the President is no grouch...
Vol. 59 • March 1976 • No. 5
