Inflation and Statism

March 2, 1964

From time to time I have contended in this column that there is no need for a Council of Economic Advisers, and no excuse for an annual Economic Report. I wrote on Jan. 28, 1952, for instance, that the report “consists mainly of giving ‘scientific’ and ‘economic’ reasons for what the President has done or wants to do for political reasons. . . . [It] is Administration propaganda paid for by the taxpayers.”

This year’s Economic Report is just one more example. It is an out-and out campaign document. We learn from it that the Eisenhower Administration just couldn’t do anything right. For instance: “Federal outlays leveled off early in 1957 and then declined, just at a time when expansionary policy was needed to avoid a downturn.” Then, again, between 1958 and 1960: “Federal policy was restrictive and wholly inappropriate to a period of insufficient demand.” And so on.

CAMPAIGN DOCUMENT

All the comparisons in President Johnson’s own eighteen-page economic report (summarizing the council’s 283-page report) boast of the progress since “early 1961”—i.e., since the Kennedy-Johnson Administration came in. “Our record $100 billion expansion since early 1961 has carried us past important milestones in the march toward a better life. . . . In the nearly three years of unbroken expansion since early 1961: GNP is up 16 percent, measured in constant dollars,” etc. And remember: “An expansion as long, strong, and free of excesses as the one we are now experiencing does not ‘just happen’. . . . Government has steadily pursued fiscal and monetary policies designed to promote recovery, accelerate expansion, and encourage business and consumer confidence: in 1961, when the Administration’s quick anti-recession program got recovery off to a flying start,” etc.

I shall not here attempt to check back on the validity of the comparisons that the Economic Report makes with conditions in the Eisenhower Administration. I shall merely mention one comparison that it does not cite: in the eight Eisenhower years, unemployment averaged 4.9 percent; in the three Kennedy-Johnson years, it has been 6.0 percent.

Yet the new Economic Report concedes that, “by all odds, the country’s No. 1 economic problem is persistent unemployment.” How does the Administration propose to solve this? It proposes to solve it by the method that has persistently failed in the past—more monetary inflation.

TAX CUT AS PANACEA

Its great reliance is on the $11 billion tax cut. “Speedy passage of the tax cut . . . will provide a net fiscal stimulus, taking both expenditures and tax cut into account, that will be three times as great in 1964 as in any of the years 1961, 1962, and 1963—will, in fact, provide a greater net stimulus to the economy in 1964—to jobs, production, income, and profits—than in any other peacetime year in history. . . . The tax cut will give a sustained lift, year-in and year-out, to the American economy. When fully effective in 1965, it will send well over $11 billion annually coursing through the arteries of the private economy.”

It is clear that this $11 billion is to consist entirely of deficit spending—that it is to be created by issuing $11 billion of new money and credit. To make this quite plain, Mr. Johnson says: “It would be self-defeating to cancel the stimulus of tax reduction by tightening money.”

Not once does the report suggest that any part of our unemployment may be caused by wage rates or labor costs already above marginal productivity levels, or that any adjustment may be needed. Instead it proposes remedies—e.g., “higher overtime penalty [wage] rates”—calculated to make the unemployment worse.

The remedies that the Economic Report prescribes for all our economic ills, in brief, are more deficits, more inflation, more controls, more statism. Not once does it dawn on the authors of the report that the government has caused our chronic unemployment, caused the balance-of-payments deficit, and caused our slow rate of economic growth, by precisely the nostrums it is advocating as a sure cure for these maladies.