Nixon's Old Economic Policy

...Thus a firm regularly buying $20 million of new equipment annually, which would receive a gift of $2 million from the Nixon proposal the first year and $1 million each year thereafter, would get nothing...

...He will pay more for Japanese radios, television sets, and cars both because of the ten per cent surcharge on imports and the like- ly depreciation of the dollar...

...Interest and dividend freezes will not get at these...

...President Nixon has made it perfect- ly clear that he was afraid that stand- ing pat economically would lead to po- litical disaster in 1972...

...While cynically seeking to attribute rising unemployment to re- ductions in military "employment" and in real military expenditures, the Ad- ministration unaccountably ignores the similar role of its newly proposed five billion dollar reductions in presumably non-defense expenditures and corre- sponding cuts in Federal employment...

...The proposed easing in individual in- come taxes by advancing the date of increased exemptions and deductions, amounting to perhaps a meager two billion dollars in extra after-tax income, will not come close to offering compen- sating stimulus...

...So free foreign mar- kets for the dollar would be a funda- mental change which makes good eco- nomic sense...

...His own wage and salary rates will be frozen while prices of imported goods and probably of eggs, fresh fruit, vegetables, and fish and other "raw agricultural products," which are exempt from the freeze, will rise...

...But this is a game that more than one nation can play, or try to play, and then nobody wins...

...Interest costs are in fact quite different to different borrowers...

...Perhaps the whole Nixon package has made clear what most should have known all along, that intervention by big Govern- ment is most solicitous of big business...

...President Nixon has abandoned the philosophy of econ- omist Milton Friedman, the great free market apostle and influential Admin- istration adviser, who charges ruefully that the controls ". . . will end as all previous attempts to freeze wages and prices have ended...

...Foreigners supply their currencies and demand dollars when they buy American goods and services or securities...

...The "New Economic Policy" has been hailed as a dramatic, 180-degree reversal of the drift to which the Ad- ministration had held previously...

...An excess profits tax might, but at some general cost...

...However limitless have seemed the President's powers in life- and-death issues of war and peace, they are not as great in domestic matters affecting people's money and income, especially taxes...

...A powerful coalition of Repub- licans and conservative Democrats may well form to outdistance even the Pres- ident on new "relief" for business...

...How much Nixon's political fortunes will be bolstered when the full dimen- sions of his help-the-rich-program be- come clear remains to be seen...

...Both are in the worst tradition of the * 'beggar-thy-neighbor" policies of the Great Depression and earlier, when na- tions attempted, usually unsuccessfully, to reduce their own unemployment by exporting it...

...Unfortunately the step forward in this direction is accompanied by two painful moves backward: the purpose- ful pressure on foreign governments to revalue their currencies upward so that we may again obtain a "favorable" bal- ance of trade, and the related ten per cent import surcharge...

...Americans supply dollars and demand foreign currencies when they spend or invest abroad or buy for- eign goods and services...

...But the auto- mobile industry is a strange place to start—and end—in reducing the huge burden of taxes on goods and services...

...Under fixed exchange rates one na- tion after another has been buffeted by shortages of convertible foreign cur- rencies, and most recently by surpluses of dollars...

...Trickle-down aid to the economy can be of some good, or at least better than nothing...

...Steel, and RCA, and fewer jobs for the producers of Volkswagens, Toyotas, and Sonys...

...Wicker asked whether a third, similarly revolutionary reversal may not be forthcoming on Vietnam...

...The Government's war has, of course, brought on the inflation, and its futile attempts to end the inflation without ending the war have given us the un- wanted novelty of mounting unemploy- ment at the same time...

...Nixon personally as well as most Republicans...

...Even wage and salary increases already agreed upon in labor contracts and Federal, state, and local legislation will be blocked for at least ninety days if they were not already in effect before the August 15 freeze...

...Nixon has placed on those in the lowest income brackets while putting a greater share of the load on those with the greatest ability to pay...

...The loud opposition of George Meany and most of organized labor to the wage freeze may be a bit startling to President Nixon in view of what was apparently growing pressure for price and wage controls from labor quarters and labor's political supporters...

...This would have some appeal on grounds of equity but ironically it may contribute to less ef- ficiency as firms find fewer incentives to seek out reductions in costs which increase profits but also increase taxes, and more incentives to look for tax concessions and loopholes...

...Both actions appeared to repudiate boldly long held and fiercely argued prejudices on the part of Mr...

...And the high "marginal" tax credit could be coupled with the warning that there would be no credit after one year, perhaps rather an extra tax...

...As domestic and foreign price levels, productivities, tastes, and government expenditures abroad (for aid, troops, and wars) change, so do the quantities of various currencies supplied and demanded...

...There can, of course, be an excess profits tax, which would hold down profits after taxes...

...The equipment tax credit has one small affirmative feature: a promised reduction from ten per cent to five per cent after one year...

...But there is also a golden opportunity for liberals and progressives to rally around a broad-based program animated by a more egalitarian spirit and a more ap- propriate sense of national priorities, a program that would lighten the burden Mr...

...We might, for example, offer a twenty per cent or forty per cent tax credit for any increases in the purchase of equipment in the next year over what was purchased in previous years...

...As astute and critical an observer as Tom Wicker of The New York Times likened the new economic program to the Pres- ident's forthcoming visit to China...

...Some liberal and labor criticism has stressed a perhaps out-of-focus com- plaint at the failure to include "interest, dividends, and profits" in the freeze...

...in utter failure and the emergence into the open of the suppressed inflation...

...Instead, Mr...

...Indeed, except for Sen- ator George McGovern, who promptly characterized the new Nixon economics as "economic madness," the initial op- position party reactions were hesitant and evasive...

...But interest rates generally are likely to come down be- cause of a return flow of dollars from abroad, expectations of a slowing in- flation, and a probable deal by Mr...

...If freely floating exchange rates are the ultimate outcome of President Nixon's unilateral break with gold and previously fixed foreign values of the dollar, his Administration may yet be recognized as having made a major con- tribution to economic efficiency...

...The proposal to repeal the seven per cent excise tax on automobiles is good insofar as it increases real purchasing power by lowering prices...

...Freezing of dividends would be an idle gesture since they do not normally change rapidly and what was not paid out would mere- ly constitute added retained earnings and consequent (relatively untaxed) capital gains...

...Meanwhile, in the name of "economy," the Administration delays or abandons welfare reform and direct efforts to aid our cities, help the poor, and provide jobs for the unemployed...

...What it did in the main was to return, with a vengeance, to the protectionist, help-the-economy-by-help- ing-the-rich policies for which Repub- licans have generally been distinguished...

...But even if we agreed on a pol- icy to encourage business spending for equipment rather than investment by the entire society in research and de- velopment, education, housing, and public health, we could find much bet- ter methods, offering more incentive and less windfall...

...The intended result would be more jobs in General Motors, U.S...

...And in effect it offers a large subsidy to an industry that many feel has yet to pay the costs of pollution of air and space which it inflicts upon society...

...Buoyed perhaps by the labor protests, along with the generally growing confusion as to just how the sweeping proclamations would be im- plemented, the Democratic National Committee belatedly joined the attack...

...Econom- ic prediction is difficult enough in it- self...

...Business would then have a major inducement to order and produce new equipment now (despite idle capacity), without enjoy- ing a perpetual dole for expenditures it would have made anyway...

...The freezing of wages and prices on domestic markets will generally deprive the average worker of gains from in- creased productivity and will lower his real standard of living...

...Unless those enriched by the "Nixon rally" in the (quite un- frozen) stock market go on a spending spree, there is little, however, to bring about the speedy increase in produc- tion necessary to reduce unemployment...

...All of this might be extended, in the form of an outright general equipment subsidy, regardless of tax status, to states and municipalities and non-profit in- stitutions such as universities, colleges, schools, and hospitals, as well as new and struggling small businesses which may have less to gain from a tax-offset...

...But if Nixon's economics signifies essentially not laissez- faire liberalism but protection of his own political constituency—most im- portantly big business and the rich— the new economic policy is basically consistent with the old...

...And the momentary euphoria in the vision of an end to inflation is likely to dissipate quickly in the face of widen- ing cracks in price ceilings, in the nine- ty-day period and thereafter, and grow- ing irritation with the products of a new bureaucratic economy...

...Nixon's proposed equip- ment tax credit, added to the four bil- lion dollars per year and more in tax savings for all capital expenditures al- ready offered in his new tax deprecia- tion system, runs total tax concessions to essentially large, capital-intensive business to seven or eight billion dollars over the next year and billions more in the future...

...The real rub in the program is that, with wages pret- ty effectively held down, normally in- creasing productivity and output, plus new tax benefits and protection from foreign competition, will tend to raise the dollar value of large American busi- nesses and create major capital gains for stockholders...

...Such policies would make our cur- rency and goods cheaper to foreigners, and foreign currencies and goods more expensive to us, magnifying the effect by protective tariffs, so that we may produce more for foreigners and buy less from them...

...Restricting excise tax reduction to auto- mobiles offers most help to the relative- ly well-to-do who buy most new cars...

...The equipment tax credit, the repeal of the automobile ex- cise tax, and the advancing of the date for the increased income tax exemption, in particular, will require Congressional action...

...But if this firm were to raise its equipment purchases from $20 mil- lion to $25 million, it would be given one or two million dollars (at twenty per cent or forty per cent) for the increase in purchases, which is presum- ably the Administration's objective...

...ROBERT EISNER is professor of eco- nomics at Northwestern University and research associate of the National Bu- reau of Economic Research...

...As a shift from the free market pol- icies to which the Nixon Administra- tion and some of its major advisers were presumably committed, the New Eco- nomic Policy—entailing controls on vir- tually all wages, rents, services, and the prices of most goods in the economy— is a startling and sweeping change...

...Nixon's old friend Arthur Burns, the shrewd chairman of the Federal Re- serve Board, to keep the money supply ample in return for the wage and price controls he was seeking...

...NIXON'S OLD ECONOMIC POLICY by ROBERT EISNER After maintaining a do-nothing, "prosperity-is-just-around-the-cor- ner" policy as long as it politically dared, the Nixon Administration finally did something...

...For with national currencies, as with any- thing else which can be bought and sold, a fixed price, no matter how cor- rect at any one time, gets out of line as underlying demand and supply con- ditions change...

...The surcharge itself amounts to a depreciation of the dollar, making foreign goods up to ten per cent more expensive to Americans...

...The first quickie public opinion polls and editorial com- ments following the freeze made his "bold" New Economic Policy seem a political coup...

...Instead, all of us are injured, paying more for foreign goods, or worse yet, paying more for inefficiently produced domestic goods relieved of effective for- eign competition...

...Freezing" of profits is pretty much an arithmetic impossibility if prices and wages are fixed because profits, a residual between sales and costs, will have to rise if productivity and output are to rise...

...Much of the future remains up to Congress...

...The Administration talks of cutting Federal employment and foreign aid, but does not mention the major dollar outflow and drain of our resources— the billions still spent for troops and bases in Southeast Asia, Korea, Europe, and elsewhere...

...This will offer busi- ness some incentive to spend now, when the economy needs stimulus, without offering a maximum permanent give- away...

...Domestic policies for full em- ployment have repeatedly been shackled by real or imagined needs to redress these imbalances...