Forcing a Fourth Round

August 1, 1949

President Truman has now been persuaded that the only way to cure even a mild recession is to start still another orgy of government spending and monetary inflation. “The fact,” he declares, “that public expenditures of Federal, state, and local governments are running at a rate of close to $60,000,000,000 a year is itself an element of great stability in the present situation.” The fact is that these fantastic expenditures are precisely the greatest element of instability in the present domestic situation. When the Federal government has a balanced budget, its expenditures obviously create no new purchasing power of any kind. Before it spends $40,000,000,000 a year, it must first of all take this amount from the nation’s taxpayers. When politically favored groups have $20,000,000,000 more to spend, the taxpayers who earned it have $20,000,000,000 less.

Not only does huge government spending fail to stimulate real purchasing power and production: it destroys them. For the drastic taxes inevitably penalize precisely the productive elements in the nation. Such taxes not only destroy the incentive to produce and invest; they destroy even the ability to invest by seizing the very funds available for investment.

The government can, of course, as Mr. Truman suggests, deliberately resume deficit financing. This could create more monetary purchasing power, but only by printing more money. Debauching the currency is the oldest and most discredited trick in the world. And this is all there is to the much-touted “Keynesian revolution” when you take its sophisticated clothes off.

False remedies always divert attention from real remedies. The present is no exception. When business becomes stagnant, when unemployment sets in, it is usually because disequilibrium and distortions have developed within the cost-price structure. Some goods have been forced up to price levels where consumers will no longer buy them in the former volume. Production therefore declines: workers are laid off. These high price levels are commonly the result of high costs, the most important of which are wages. Excessive wage levels must force unemployment.

It is typical of Mr. Truman’s spend-and-spend program that he wants to pour government money into the industries and sections where unemployment exists without even stopping to inquire how that unemployment came about. Instead of asking, for example, whether new private housing is being priced out of a full-volume market because of excessive wages and unproductive labor in the building trades, Mr. Truman simply demands that the taxpayers be forced to subsidize these unprecedented wages through public-housing subsidies.

When excessive wage costs in other lines are forcing slowdowns in those lines, Mr. Truman’s solution is to force up their labor costs still further. He wants to increase minimum wages overnight by 87½ percent. As workers above the minimum will insist on the maintenance of existing differentials, this would force up wages all along the line. And, finally, he has forced the steel companies to go before a “fact-finding” board which if it follows the precedents of all his previous boards, will recommend still another boost in wages. And this will set a new national pattern for a fourth round.

Monetary inflation gets its vaunted “full employment” results only as long as it keeps selling prices soaring far enough ahead of wages to increase or retain profit incentives. Its essential trick is to increase monetary wages while decreasing real wages. If the Truman Administration now launches on another monetary inflation, but tries to offset the resulting price rises by still faster boosts in wages, there is no telling where the seesaw race will eventually carry us.

There was no real economic crisis in this country until Mr. Truman insisted on policies that would present us with one. The chief thing we have to fear is his “cure” itself.