Kennedian Economics

February 20, 1961

Mr. Kennedy’s economic program raises so many questions simultaneously that it seems best to discuss some of them in a series of brief notes.

Campaign Document: The President’s economic message of Feb. 2 is a partisan document. It professes to be dealing with a crisis brought on by the apathy of his predecessor. “In the past seven [i.e., Eisenhower] years, our rate of growth has slowed down disturbingly.” Slowed down from what? In the eight Eisenhower years our gross national product grew, in real terms, by 23.7 percent, or about 3 percent a year. Over the preceding eight Truman years it grew 8.1 percent, or 1 percent a year.

The Growth Game: The fact that the American economy reached the highest production on record in 1960, at $503 billion, is treated not as an achievement but as a disgrace. This was nothing compared with what it ought to have done: “It was capable of producing at least $535 billion.” If it had done what it ought, then “$20 billion more personal income could have been earned. . . . Corporate profits could have been $5 billion higher” and everyone could have had a job. The growth slogans may be economic hocus-pocus, but they are a wonderful political device. No matter what the economy has done, it can always be argued that it ought to have done better, and that your own remedies would have done it.

Spending Cure-All: Mr. Kennedy’s own chief remedy is spending, spending in every direction, more and faster spending on agriculture, on housing, on highways, on “urban renewal,” on unemployment compensation, on depressed areas, on distribution of “surplus” food, on school lunches, on veterans, on defense contracts, on education, on flood control, on irrigation, on forests, on “long-range energy resource development,” and on a beefed-up and expanded social-security program.

No Budget at All: How much would all this increased spending come to? Mr. Kennedy does not say. His message not only fails to give any total, but even the cost of the chief individual items. He is content to say that “the programs I am now proposing will not by themselves unbalance the budget which was earlier submitted”—apparently for the reason that he expects a deficit anyway, so what difference can a few more billion make? We are to operate, apparently, with no budget at all.

To be sure: “This Administration is pledged to a Federal revenue system that balances the budget over the years of the economic cycle—yielding surpluses for debt retirement in times of high employment that more than offset the deficits which accompany—and indeed help overcome—low levels of economic activity in poor years.” The political advantage of this system is that no one can ever hold you to account, because no one knows when an “economic cycle” has begun or ended, or just where we are in it, or when employment is ever high enough to take the terrible risk of balancing or overbalancing the budget. We have already had 24 budget deficits in the last 30 years. The record will become even worse if we adopt the indeterminate “cyclical-balance” theory as official doctrine.

Social Security: The most reckless spending proposal of all is that increasing social-security commitments in all directions. The OASDI program has long cried for expert reappraisal and study. Its “unfunded liabilities” have been estimated by actuaries as already from $350 billion to $650 billion. The month-long strikes, riots and violence in Belgium, when the government proposed very moderate reductions in the social-security benefits which some groups had got used to, were an ominous warning to other nations of the political as well as economic dangers of overcommitment. Social-security benefits are easy to raise, enormously difficult to reduce.

Inflation: In brief, the Kennedy economic program accepts lock, stock, and barrel the Keynesian economic philosophy, which never sees the cure for unemployment in any adjustment of wages, prices, or costs, but only in more and more spending and inflation.