The Economic Issues

November 2, 1964

The economic issues are not the sole issues in this campaign, but they may in the long run prove far the most important.

Let us suppose that the polls are right and that the Johnson-Humphrey ticket is elected by a landslide. The result is sure to be interpreted as an endorsement of all the Johnson-Humphrey economic policies.

It will, of course, be considered an endorsement of the recent $11.5 billion tax cut. But more than that, it will be interpreted as endorsing the policy of huge cuts in taxes even when the country is already facing a huge deficit and has experienced chronic deficits in the past. For the present tax cut, in connection with the spending program, will mean our 29th deficit in 35 years.

Businessmen who endorse the tax cut are taking a superficial and shortsighted view. A tax cut is sound and desirable only when it still brings in enough revenue to meet expenditures. The present tax cut is deliberately inflationary. In the last half of this year the Federal government is pumping in $12 billion more cash payments to the public than it is taking out in taxes. Of course this can bring about a temporary prosperity and “increase of purchasing power”—at the cost of overstimulating the economy and letting loose more inflation.

Deficit-financing and other inflationary policies can temporarily increase employment as long as wage costs do not rise as fast as demand or commodity prices. But the recent automobile wage settlements, far exceeding even the Administration’s own wage “guideposts,” seem likely to set off another round of wage rises that in turn threaten a profit-squeeze and unemployment or a further dose of inflation to keep employment up.

The Administration has favored increased welfare spending in all directions—expanded social security with medicare, high farm supports, high foreign aid, and a “war on poverty” that in its first year will add still another $1 billion to the $45 billion already being spent annually by cities, states, and the Federal government on various welfare programs. All this is going to make it more and more difficult to bring the budget under control.

Obviously the whole program must tend to prolong the deficit in the balance of payments and the international pressure on the dollar. But the Administration has shown no interest in removing the causes of this, but only in suppressing symptoms by imposing an interest-equalization tax on foreign securities and otherwise moving toward exchange controls.

The danger toward which we are drifting, in fact, is that the policies being followed by the Administration will lead to a runaway inflationary boom, that the Administration will not dare to halt these policies, but in desperation will impose an ever-widening network of economic controls which will strangle healthy economic growth.

As against this outlook, Senator Goldwater has consistently expressed his adherence to a system of reduced expenditures, balanced budgets, and free enterprise.

HERBERT HOOVER

If any man was entitled to be called the greatest living American, it was Herbert Hoover. In Newsweek of Aug. 17, taking off from Eugene Lyons’s brilliant biography, I discussed the incredible smear campaign that made him the “author” of the great Depression. Because recent praise of him has come so largely from conservatives, it is instructive to recall the early judgment of an outstanding “liberal.” In 1919, in “The Economic Consequences of the Peace,” John Maynard Keynes wrote: “The ungrateful Governments of Europe owe much more to the statesmanship and insight of Mr. Hoover and his band of American workers than they have yet appreciated or will ever acknowledge. . . . This complex personality, with his habitual air of weary Titan . . . his eyes steadily fixed on the true and essential facts of the European situation, imported into the Councils of Paris, when he took part in them, precisely that atmosphere of reality, knowledge, magnanimity, and disinterestedness which, if they had been found in other quarters also, would have given us the Good Peace.”