Wrong Aims and Means

March 9, 1959

The recent agitation for a high “rate of economic growth” tends to divert attention from the real menace that confronts us. That menace is the immediate striking power of the Soviet Union. While public attention is focused on the danger of intercontinental ballistic missiles, some Navy specialists think that a much more immediate danger is Russia’s 450-odd submarines. Rear Adm. John S. Thach, on Feb. 17, estimated that if the Russians had submarines firing effective ballistic missiles, as they have contended, and if as many as a dozen could get through our defenses undetected, they could wipe out 70 percent of the nation’s industry in one surprise blow.

Now such a menace cannot be countered by producing more automobiles and stereophonic sets, or by competing with Russia for a mere overall rate of economic growth. In the type of war most probable tomorrow, or even today, general economic potential is unfortunately likely to count for little compared with immediate 24-hour striking power or retaliatory power.

PRODUCTION VS. RATES

This of course is not the only way in which the rate-of-growth fetishists misconceive our real goals. They are victims of an elementary statistical fallacy. This fallacy, as I pointed out here last week, is dramatically illustrated by output of television sets since 1946. Though rate of growth has dropped below zero, absolute growth has been enormous. Between 1946 and 1947, output of television sets increased by an absolute amount of 193,000. This was at a rate of 2,757 percent. Between 1949 and 1950, output increased by an absolute amount of 4,435,000 sets. But this was at a rate of only 146 percent. Since 1950 there has been no net increase in the rate of television output, but a decrease. Yet present output is about 5 million sets a year, compared with 7,000 in 1946. And the total number of television sets in use is greater than ever.

The same pattern of growth (though, of course, at different rates and over different periods) can be traced for housing, railroads, automobiles, airplanes, radio or hi-fi sets, or any product whatever. The pattern can be found even in the growth rate of human beings. From the day of birth a boy grows in weight an average of 195 percent in his first year—a record which he never even approaches thereafter.

The trick is to start from a small enough base. Insofar as even a provisional credence can be given to Soviet statistics, this is the chief explanation of Russia’s higher rate of industrial growth compared with our own.

WRONG POLICIES

Economically, for special products, in sum, the rate or curve of growth is steepest at the beginning and then tends to level out. This falling rate of growth is both inevitable and sane. When practically every family has an automobile, a refrigerator, or a television set, there is no reason for further production except for replacement. And this eventually tends to become true even of total levels of consumer goods output and consumption. As even Barbara Ward admits: “If a family has an income of $20,000 a year it should in all sanity be content with a smaller increase than a family with only $2,000.” Unfortunately, her subsequent discussion forgets this momentary flash of insight.

Finally, practically all the rate-of-growth agitators propose exactly wrong means to achieve their declared aims. Most of them want to do it by mere inflation—i.e., by deficit spending and money printing so that the same physical product is priced higher every year in terms of rotting dollars. Barbara Ward wants an “increase in government activity”—i.e. more deficit spending and more hampering interventions which can only reduce production and divert it products that consumers desire less. Walter Reuther has the worst suggestions still-more punitive taxation and a still further increase in automobile wage-rates which would further discourage both production and employment.

None of the growth raters mention the one thing that would do most to increase real wages and national productivity—policies to encourage more saving and capital investment.