The Midyear Economic Report

August 4, 1947

The President’s 82-page Midyear Economic Report, though it contains much instructive material, is clearly intended on the whole as an apologia for the Administration’s policies. The “Foreword and Summary” is purely political. The report refers frequently to our “free” economy; yet it tacitly assumes that the government must control everything in this economy and must constantly tell prices and wages what to do. That the government should simply assure an open competitive field, and then let price and wage relationships adjust themselves in a free market, is an idea that never seems to occur to the authors of the report.

There is a great deal of boasting in the report about our “$225,000,000,000 economy.” But there is no reference to the fact that the purchasing power of the dollar in which this “gross national product” is measured is only 55 cents as compared with the dollar of 1935–39. If the gross national product were stated in terms of the prewar price level, it would seem considerably less impressive. The report does not point to the huge increase in money and credit that has been the real cause of the rise in prices. It treats the rise in prices, in fact, as if it were mainly the result of arbitrary decisions by greedy businessmen.

Throughout the report there is an attempt to minimize the rise in wages at the same time that a great deal of alarm is expressed about the past or possible rise in prices. The ordinary reader would hardly suspect from the tone of all this comment (and he is certainly not told) that while compared with the prewar period 1935–39 wholesale prices have increased 83 percent, weekly manufacturing wages have increased on the average 112 percent. Nor would the ordinary reader suspect, from the studious efforts to minimize the rise in weekly soft-coal wages, that they have gone up twice as much as other industrial wages, and are more than 200 percent above the prewar figure.

While further price rises are deplored throughout the report, we are told that “in some cases wage increases are still needed.” The President recommends an increase of “at least” 62½ percent in the present legal minimum-wage level. He does not say what the effect of this might be in causing unemployment among the very people it is intended to benefit, or in forcing up wages above the minimum to maintain existing differentials. He also wants wages increased that have risen “substantially less than the increase in the cost of living.” But he fails to draw the simple corollary that, unless wages which have increased more than the cost of living are correspondingly reduced, this will simply increase the cost of living still further.

The President’s report opposes “tax reduction now” on the ground that it “would add to inflationary pressures and would also prevent debt reduction.” But it says not a word about accomplishing this by cutting the government’s unparalleled peacetime expenditures. On the contrary, it proposes increased social-security benefit payments, housing subsidies, and government aid to Europe. Whatever the merits of these measures, they must add to inflationary expenditures.

In recent years it has become fashionable to believe that it is the government’s function to “stabilize” the economy and to “compensate” for the mistakes of private business. This belief rests on the assumption, not merely that government officials will always know better than businessmen what to do, but that they will put aside all political considerations and do it.

The President’s report illustrates what happens in real life. A dangerous inflationary boom is being treated as if it were a solid prosperity. Measures like increased social-security payments, housing subsidies, and foreign loans that stimulate exports, which under the “compensated economy” theory would be adopted only in depression, are advocated in a period of unprecedented employment and soaring prices. Further wage advances are encouraged. The net effect of government economic intervention is to push an inflationary boom still farther; for there is always an election ahead, and you must be at the peak of the boom when you get there.