The Irresponsibles

August 22, 1960

In the present session of Congress, deliberately planned by the Democratic leaders as a campaign forum, President Eisenhower had a unique opportunity to call upon the members of both parties to rise to the responsibilities that the critical state of affairs abroad and at home lays upon them. The actual message he sent fell short of this, in both its omissions and its recommendations.

The most serious domestic issue today is the preservation of the integrity of the dollar. This requires an end to reckless Federal spending. It requires the tapering off or termination of some of our major spending programs. It requires not merely the passive consent of Congress to monetary discipline on the part of the Federal Reserve authorities, but positive Congressional insistence on such discipline. It requires removal of the interest-rate limitation on long-term Treasury bonds.

Yet the President’s message gave only a single perfunctory sentence to this last need, and nobody seriously expects the present electioneering session to pay the slightest attention to it. On the very day that the President was promising to “resist inflationary pressures by whatever means are available to me,” the Federal Reserve Board announced a reduction of member-bank reserve requirements to provide a potential expansion of lending power of some $3.6 billion. This action to increase the money supply was directly inflationary.

MONEY NOT ‘TIGHT’

The only criticism the Democrats make of the Federal Reserve is that it has been “strangling” the economy with a “tight-money” policy. Yet as the First National City Bank of New York pointed out in its August letter, in an illuminating table covering 60 countries, the current rate for prime commercial loans in this country is among the lowest in the world.

Though the President spoke against “reckless spending schemes,” he came out, on every specific issue, on the side of more spending. This applied to foreign aid, “food for the hungry,” medical aid for the aged, and assistance to depressed areas.

Suppose we test one or two of these programs by the principles of fiscal responsibility or free enterprise. The long-run effect of the ever-expanding program for foreign economic aid must be to slow up national and world economic growth, not to accelerate it. An “underdeveloped” country grows more soundly and rapidly when it seeks to attract foreign and domestic private capital by assuring protection of person and property, permitting withdrawal of earnings at all times, and giving assurances against vexatious restrictions or harassment, burdensome or uncertain taxation, expropriation, and making or keeping its currency inconvertible.

SUBSIDIZED SOCIALISM

But when a foreign country can get loans or gifts from our government without giving such assurances, it will not bother to give them. It will launch instead upon grandiose socialistic projects more calculated to sound good in speeches or to appeal to national vanity than to repay costs. Our “economic” foreign-aid program subsidizes and expands world socialism, and tends to deflect capital from constructive to wasteful use.

In special cases, when hunger follows some calamity outside the control of the country affected, aid from outside is more than justified. But as a regular established giveaway program it is shortsighted. It becomes an excuse to make uneconomic crop surpluses permanent. A country like the United States, which raises only an eighth of the world’s food supply, cannot hope to feed the world. When we dump food on another nation at less than world prices we merely discourage growers in that nation, or in still other nations, from raising the food they are physically and economically capable of raising. Such a program will not in the long run encourage either self-help or a net increase in the world’s food supply.

Apart from a strong military posture, the most important contribution the United States can make to the world’s economic strength and stability is to maintain confidence in the dollar. Yet, broadly speaking, the Republicans are giving only perfunctory attention to that goal, while the Democrats are ignoring it altogether.