The Smell of a Recession
PROGRESSIVE "you shall know the truth and the truth shall make you free" PROGRESSIVE The Smell of a Recession Whatever the Nixon Administration pretends to the contrary, the American economy...
...As the inflation has continued and unemployment worsened, the need for structural programs to supplement general monetary and fiscal programs has become more obvious...
...Nixon is under increasing pressure, both from the outside and from within, to try to improve the trade-off between inflation and unemployment by adopting some sort of "incomes policy"—that is, wage-price restraints...
...economy will be even more shocking than President Johnson's blunder in going for a guns-and-butter economy, with no tax increase, in 1966...
...And the Vietnam war goes on, aggravating this inflation...
...Although this ABM area defense has been presented as an anti-Chinese system, its actual functions will probably be both less specific and more varied...
...Budget surpluses would help to provide desperately needed public savings for housing and other social programs...
...history, still higher...
...Leonard S. Silk (Mr...
...troops out of Vietnam will not be enough in the years immediately ahead...
...Nixon has made clear that he will press for his strategic defense systems now known as Safeguard (formerly Sentinel...
...Suddenly the specter of another 1929 became starkly real...
...However, if the widening of the war in Southeast Asia should result in nothing worse than a flat curve of defense spending from this year to next, that would mean increasing the budget deficit by at least $7 billion...
...However, if the gruesome twosome of unemployment and inflation continue much longer, there must soon be an end of Nixonian laissez-faire economics and the substitution of an affirmative program, whose principal ingredients, for the short run, would be curbs on prices, profits, and wages, and a public job program to cope with the mounting threat of unemployment...
...involvement in the Vietnam war...
...Nixon's top advisers deny that they pay any particular attention to the stock market...
...It is now near the $12 billion mark and many critics expect the cost figure to escalate further...
...He was formerly chairman of the editorial board of Business Week magazine...
...Despite the recent cuts in military spending, the new defense budget contains seeds for a rapid growth in military spending, although it is impossible at this point to put precise dollar figures on the likely cost of these weapons systems...
...in fact, he is planning to save about $7 billion on Vietnam next year, and to allocate $2 billion of those savings to other military programs...
...Despite this warning, Mr...
...Nixon still clearly hates the thought of having to drop his conservative plan for relying on general monetary policy to provide economic stability and growth...
...He also is starting to feel pressures to do something about relieving unemployment—for instance, by providing more public jobs now that jobs in the private sector are drying up...
...But all of these numbers assume no change in Mr...
...For one or two of them this may be so...
...Higher military spending would increase the deficit, billion for billion...
...and for the long haul, the reversal of our national priorities to finance not token but meaningful programs in the fields of housing, health, job training, recreation, and conservation—to be financed by steeply reduced expenditures for military hardware...
...Yet the spectacle of Mr...
...The risk of a huge budget deficit must be ended...
...It was the fear that Cambodia would completely wreck the budget and cause a massive increase in Government debt and borrowing that put Wall Street into such a fright during May...
...This would deepen the housing slump, inflict further damage on state and local governments, and depress the securities markets...
...Change generals...
...force levels to what experts call a one-and-a half war strategy (we presently have a two-and-a-half war strategy—that is, we are prepared to fight a war in Asia, a war in Europe, and half a war in Latin America or somewhere else...
...But it is most improbable that any of these scenarios would be cheerful from a progressive's standpoint...
...It is possible to write many scenarios based on the assumption that a financial panic and depression might be superimposed upon the Indochinese war, the upheaval on the campuses, the bitterness in the ghettos, and the revanchism in the South...
...But it will actually require much more than that...
...its own conservative ideology lured it into that trap...
...Nixon has turned a deaf ear to proposals that he ask Congress immediately to continue the remaining half of the surtax on personal and corporate incomes...
...But when the budget squeeze was on, the President found that he could get substantial budget cuts only out of the huge defense budget...
...in most cities, the unemployment rate among black youths is twenty-five per cent and higher—about what it was for the nation at the bottom of the Great Depression of 1933...
...Meanwhile, the inflation goes on, producing economic stress for a still wider group...
...Yet, given the hazards of the international situation and the continuing pressures on the domestic economy, the near panic of May could become a full scale panic before the United States is out of this war-born inflationary recession...
...The' rally in the stock market at the end of May and in the first days of June seemed to support the hopes of those members of the Nixon Administration who saw no need to change anything...
...Even getting all U.S...
...There is every reason to believe that if the stock market were to turn around again and crash, this would finally destroy the confidence not only of the President but of his chief aides that the existing policies are right...
...But Mr...
...The most outspoken came from Charles W. Steadman, chairman of the board of Steadman Security Corporation, who wrote the President, "If you are going to be a one-term President it will not be because of Cambodia, but rather by reason of the fact of your having miserable economic advice...
...Nixon's fiscal 1971 budget, which had a slender $1.3 billion surplus when he submitted it last January, already has slipped into deficit...
...He is still planning to spend $72 billion on defense in fiscal 1971, or only $5 billion less than in fiscal 1970...
...PROGRESSIVE "you shall know the truth and the truth shall make you free" PROGRESSIVE The Smell of a Recession Whatever the Nixon Administration pretends to the contrary, the American economy is in something that feels and smells just like a recession...
...It was the huge give-up of taxes resulting from the wiping out of the ten per cent surtax and from the tax-cutting "Tax Reform Act of 1969" that has forced extreme budgetary stringency upon the Nixon Administration...
...A worsening of the Federal deficit would aggravate the already severe strains on capital markets and would push interest rates, still close to their highest levels in U.S...
...But Mr...
...Nixon's projected level Burck in Chicago Sun-Times Bitter Rice of defense expenditures for fiscal 1971...
...The rate for youths under twenty years of age was more than fourteen per cent...
...It will also require deep cuts in nuclear weapon programs...
...Nixon is apparently determined to let this tax cut take place on June 30, despite inflation, budget deficits, and the need to provide a better balance between fiscal and monetary policy...
...Obviously, it was Lyndon B. Johnson's escalation in Vietnam—and his unwillingness to go to Congress for the taxes to pay for the war—that kicked off the inflation in the first place...
...Unemployment, which was 3.2 per cent of the labor force when Richard M. Nixon became President, was up to five per cent in May—one out of twenty in the nation's work force is now jobless...
...But as Richard Nixon's plunge into Cambodia converts the Vietnam war into an Indochinese war, there is no doubt that the consequences for the U.S...
...But one would have to be crazy as well as cruel to hope for a panic as the catharsis that might rescue the nation from the Government's misguided economic, military, and social policies...
...There were deep divisions within the Nixon Administration about what to do—and whether to change the fundamental "game plan" for keeping the money supply growing at an annual rate of four to five per cent, letting the budget slide into deficit without asking for a tax increase, and praying that inflation would gradually moderate and unemployment not increase too much...
...And if you happened to be young and black and looking for work, you found yourself not in a recession, but in a selective depression of your own...
...In addition, the Pentagon has plans for the deployment of MIRVed Minuteman and Poseidon missiles, as well as for new underwater missile systems and a new manned bomber, the B-l...
...the staff of the Congressional Joint Economic Committee suggests that the true figure is more likely to be an $8 billion to $10 billion deficit...
...The Administration asserts that the deficit is still a slight one—$1.3 billion...
...Such withdrawals—given the Administration's commitment to massive military spending, Vietnam war or no Vietnam war—will do nothing more than keep defense spending at about the $70 to $75 billion level...
...It grows increasingly urgent that the fundamental elements of Nixon Administration policies be changed if the nation is to avoid a long-drawn-out spell of continuing inflationary pressures, rising unemployment, and neglect of critical social problems...
...The estimated cost of the ABM alone has risen $1.6 billion in less than a year...
...Indeed, any effort to explain the emergence of "middle America" as a political force must include a look at the effect inflation has had1 on the real income of factory workers, white-collar workers, small businessmen, pensioners, and others of moderate means...
...At last count, the consumer price index was climbing at an annual rate of 6.2 per cent—the fastest rate of inflation since the outbreak of the Korean war...
...troops back from Cambodia and continue to withdraw from Vietnam—all this was eloquent evidence of what it takes to worry the Nixon Administration about the goodness of its economic policies...
...At minimum, this will certainly require that the Administration stick to announced plans of pulling 150,000 U.S...
...During the past year he has been a Senior Fellow of the Brookings Institution in Washington...
...Most of Mr...
...Silk is a member of the editorial board of The New York Times...
...Even if defense spending can be reined back, this will take time, and it now appears more likely that taxes will have to be raised when the November election is out of the way...
...Nixon trying desperately to rally the market, declaring that he would be buying stocks himself if he had any money, meeting with stock brokers and bankers in sessions that reminded one of Herbert Hoover's behavior circa 1929 and 1930, as well as his urgently repeated assurances directed more to the business community than to the campuses that he meant to pull U.S...
...troops out of Vietnam next year...
...the five per cent surtax would yield more than $6 billion...
...To cut an extra $15 billion out of the defense budget there will have to be reductions in U.S...
...The pressure for an "incomes policy" was dramatized in recent weeks by statements from leaders of the business community who once shared the President's view that such a course was dangerous heresy...
...easier money and lower interest rates would serve the same objectives...
...His $5 billion defense cut depends wholly on his ability to scale down U.S...
...Even on the announced timetable of troop withdrawals, a big deficit is looming for fiscal 1971 and for fiscal 1972 as well...
...Secretary of the Treasury David M. Kennedy has warned that the Administration might be compelled to come in for higher taxes next January...
...Fall back and regroup...
...Robert Mayo, who was Budget Director when he sought to warn of worse deficits ahead, has now been silenced by removal from his post...
...The unemployment rate for blacks and other minority groups was more than eight per cent...
...Nixon's reassurances that he meant to continue to Vietnamize the war appear to have been the chief factor in bracing investor confidence...
...To avoid worse deficits, the Administration is going to have to make deeper cuts in defense expenditures or raise taxes—or both...
Vol. 34 • July 1970 • No. 7
