Carter's Economics as Usual
LEKACHMAN, ROBERT
FOUR MORE YEARS? Carter's Economics as Usual by ROBERT LEKACHMAN Late in 1962, President John F. Kennedy concluded that the American economy required further fiscal stimulation if he was to...
...Thus far the most serious criticism of the Carter economic package has come from the AFL-CIO...
...Accordingly, he recommended a $10 billion reduction in personal and corporate income taxes (eventually enacted by Congress in February 1964...
...But we can live with this guy...
...Fair enough...
...The Kennedy stimulus, by contrast, approximated 2 per cent...
...It may all go to show that the difference between an administration minimally to the Right of dead center and one minimally to the Left is—minimal...
...In 1976 unemployment averaged nearly 8 per cent, barely an improvement over 1975...
...In addition, he accepted the argument that businessmen were so worried about the possibility of controls, they were rushing to raise their prices before January 20— and promptly junked his advocacy of standby controls...
...Rapid economic growth allowed practically everybody to come away with something from the Great Society's bountiful table...
...It is simply in their interest to favor unemployment rates high enough to discourage absenteeism, improve productivity, permit selectivity in hiring, and impose restraint upon union wage demands...
...That hardly radical organization is urging upon Congress a $30-billion combination of direct Federal expenditure for public works, public job creation, youth programs, and assistance to communities ravaged by unemployment rates higher than the national average...
...There is, of course, a much more dependable means of encouraging investment and employment...
...The $12 billion-$16 billion first-year price tag differs little in size from Gerald Ford's departing suggestion of a $ 12.6-bil-lion tax reduction...
...At the least, however, he did offer a series of populist promises for jobs...
...Those who voted for him primarily in the belief that the economy would be run at higher than previous speeds have good reason to be dismayed...
...As far as one can tell, all of this sweet talk and reassuring action is based upon the premise that we need to increase the confidence of sensitive businessmen...
...In brief, we are experiencing a more sluggish recovery from a deeper recession than the 1960 episode, and without Federal intervention the picture is unlikely to brighten in the perceptible future...
...By 1980 the joke may also be on the President, for the ingratitude of businessmen is as notorious as that of princes...
...The Carter Administration's present acceptance of slow growth and high unemployment guarantees four more years of the same stagnation of social policy we endured under Nixon and Ford...
...Carter's response has been to put forth a package consisting of tax rebates worth between $7 billion$11 billion, an additional $4 billion in permanent tax cuts for individuals, $2 billion in tax relief for businessmen, and a final $2 billion for public works, public service jobs, and countercyclical revenue sharing —as well as to advise a second dose of spending and tax reduction in 1978, as needed...
...Apparently Carter cannot pursue this option because he has completely surrendered to the business community's opposition to any genuinely equitable incomes policy—voluntary guidelines with teeth, prenotifi-cation of important price increases, or the standby wage-price controls that he urged during the campaign but has dropped...
...So it goes...
...A $15 billion increase in the budget deficit in each of the next two years will do more harm than good, but $15 billion can do only so much harm in a $1.7 trillion [the projected gross national product for '77] economy...
...The Kennedy economists who invented productivity guidelines for wage and price increases recognized that inflation would sabotage government policies intended to promote full employment unless fiscal stimulation was supplemented by price and wage discipline...
...Carter's Economics as Usual by ROBERT LEKACHMAN Late in 1962, President John F. Kennedy concluded that the American economy required further fiscal stimulation if he was to redeem his campaign pledge to terminate Eisenhower stagnation and get the country moving again...
...Once factories begin to operate at full blast, our business leaders, whether or not they love the man in the White House, will think seriously about building new plants and about installing new machines...
...If there is no steady economic growth, then welfare reform, health protection, aid to the cities, renewed Federal housing activity, and more generous foreign aid— among other programs—are non-starters...
...he will remain in the position of having to choose between two unattractive combinations: low unemployment and un-acceptably high inflation, or high unemployment and acceptable rates of inflation...
...Testifying before the Senate Banking Committee, Charles L. Sohultze, late of the Brookings Institution, once Lyndon Johnson's budget director and now chairman of the Council of Economic Advisers, predicted that speedy Congressional enactment of the Carter plan would reduce unemployment to 7 per cent by the end of 1977, 6.5-6 per cent by Christmas 1978, and "well down below 6 per cent" by December 1979...
...Congressional endorsement of the Carter proposal would signify tacit acceptance of a whole decade of extraordinarily high joblessness, the worst record since the '30s...
...Unfortunately, the man from Georgia merely lamented the industry's action...
...Was it because of Gerald Ford's dangerous radicalism that business investment has lagged, or because of a shortage of customers...
...The decibel level of the screams from the business media would have been impressive, yet the message from Carter would have been plain: Exercise price restraint or my Administration will compel you to do so...
...Joseph Califano emphasizes better management of his new HEW fief rather than early national health insurance or welfare reform...
...A vague voluntary scheme now under consideration, first mentioned by Schultze during his January 16 Meet the Press appearance, is too weak to be meaningful...
...When they feel better they will invest more, employment will surge forward, and prosperity will be just around the corner...
...In the brief heyday of the Great Society, Lyndon Johnson was able to cut taxes and at the same time finance his agenda of anti-poverty measures, housing, medicare and medicaid, aid to education, and manpower training...
...But to these shocks beyond our control, the pricing policies of the major U.S...
...Moreover, the gap between black and white income that narrowed encouragingly during the '60s has again begun to widen...
...He even tepidly came out for the Humphrey-Hawkins Full Employment Bill...
...Precedent has shown that loyal U.S...
...Columnist Joseph Kraft has offered a judicious evaluation of the new Administration's logic...
...The timidity of the Carter expansion program translates into apprehension that a really effective set of Federal stimuli, such as that envisioned by the AFL-CIO's $30 billion or even the $24 billion somewhat startlingly proposed by Paul McCracken, Nixon's first Council of Economic Advisers chairman, would be taken as an excuse by large corporations to raise their prices immediately, evoke from unions demands for compensatory or possibly anticipatory wage adjustments, and set in motion the familiar wage-price spiral—with each alteration of one variable justifying movement of the other...
...Instead, the new President is busy rewarding the business executives who, according to Fortune, voted 8-1 for Gerald Ford, and punishing the blacks and unionists whose support put him in the White House...
...And as long as Carter grants business opinion a veto over his fiscal policy, the economy will continue to generate too few jobs...
...No word on that legislation has since been heard from the Carter camp...
...The joke seems to be on the blacks and others who took Carter's commitment to high employment seriously...
...His testimony last summer against Humphrey-Hawkins as an "inflationary menace" is generally credited, if that is the right word, with blocking House passage of the measure...
...That is not to say that businessmen are more evil than the rest of us...
...Unless President Carter changes his mind a second time (cannot a person be thrice-born...
...consumers spend in short order well over 90 cents of each extra dollar they acquire...
...In the name of confidence they have settled for low growth and relatively high unemployment during the coming year," he observed, and if business investment actually does dramatically expand, "the Carter restraint will have paid off...
...Layoffs have turned affirmative action programs on behalf of women, blacks and other minorities into bad jokes...
...No doubt by coincidence, $30 billion would hype the economy just about as vigorously as John Kennedy's $10 billion did during the Camelot era...
...That is to place enough extra income in the hands of employed and unemployed Americans to make the cash registers ring merrily all over the nation...
...The President-elect's best reply would have been a warning that he planned to seek authority not only to control key prices but to roll them back, and to require refunds whenever increases were shown to have resulted from the exercise of monopoly power rather than altered market conditions...
...For the moment, as we have noted, he has opted for the second alternative to the applause of bankers, industrialists and mainstream economists...
...More recently, steel and aluminum producers have hiked prices in the face of weak demand for their products...
...As for the critics of such decisions, the Washington Port's David Broder recently reminded them that Carter never ran as the liberal candidate for the Democratic nomination...
...Compare the situation greeting President Jimmy Carter and how he proposes to deal with it...
...What was true then is equally true now...
...Griffin Bell is no crusading trust-buster, nor is he likely as Attorney General to harass multinational corporations that find it convenient to quietly comply with the Arab boycott...
...Unemployment averaged 5-6 per cent, substantially lower than 1961's 7.2 per cent...
...Sohultze, Carter's top economic adviser, is as moderate as an allegedly liberal economist can get...
...General Motors and its chums raised prices an average $1,000 per chariot in two of the worst auto sales years in a generation...
...Otherwise, he went on, "it will have to be said that millions of people were denied jobs and services because yet another Administration confused economic policy with the outworn platitudes of the business creed...
...If anything the figure should be still larger, for the economy is in considerably worse shape today than it was a decade and a half ago...
...But the pace of expansion displeased an activist Chief Executive whose economists defined a jobless rate of even 4 per cent as an "interim" target en route to still lower numbers...
...No wonder that a Midwest businessman anonymously quoted by the New York Times could comfortably remark, "We thought we were in for another FDR blitz, a fast cure...
...Indeed, at most Carter's program will add up to less than 1 per cent of the GNP, and at worst to two-thirds of 1 per cent...
...I suppose it is to the credit of the Carter appointees that they have sedulously refrained from overselling their nostrums...
...Carter's approach would require these groups, and other traditional American losers, to continue bearing the costs of running the U.S...
...Of the Carter design the Wall Street Journal, which wishes the Federal government would go away, made this sour estimate: "Economically the package could be worse...
...You may recall that 1962 was not a really bad year...
...Although the December 1976 unemployment figure declined to 7.9 percent, the small drop was accompanied by an ominous increase in the number of men and women out of work for longer than six months...
...Admittedly, this decade's persistent inflation has in significant measure been the consequence of external events—opec manipulation, frost in Brazil, civil war in Angola, currency devaluations...
...Carter promises to balance the budget by the end of his initial term and Bert Lance, his budget director, worries publicly about the size of the Federal deficit...
...The irony of the situation is that throughout the interminable Presidential campaign Jimmy Carter emphasized the priority of generating jobs...
...A challenge was issued to Carter soon after his election, when the steel industry marked up the price of the flat rolled steel used in autos and major household appliances...
...economy at three-quarters speed...
...Kraft concluded with appropriate skepticism of Carter's echoes of Hoover and Ford ideology...
...In other words, the new Administration hopes to attain nearly three years from now an unemployment rate that, in 1962, was high enough to alarm Kennedy's advisers into urging much stronger medicine for the economy...
...corporations, the regulated industries and the health sector have contributed an additional inflationary infusion...
...True, Ford favored cutting spending by a matching amount, as usual, but it was clear that tax decreases would come first and slashes in Federal programs later, if at all...
...In 1974 and 1975, the giant auto corporations treated the country to a demonstration of how a concentrated industry responds to declining demand for its products...
...And charges for hospital and other health services have soared at twice the general pace of inflation, in bad years as well as good ones...
...It should be noted in this regard that his Cabinet is a safe one, too...
...I have focused on jobs because something like full employment is the prerequisite for any other positive achievements Carter might have in mind...
...Woo the business community as he may, the majority of its members will vote, as usual, for the Republican candidate...
Vol. 60 • January 1977 • No. 3
