The Atlantic Report on the World Today: Washington

PREMIER MALENKOV’S momentous speech to the Supreme Soviet is regarded as a blueprint of changing Russian policy. His reference to the hydrogen bomb tended to obscure the sweeping reversals of emphasis, particularly in domestic affairs. The speech showed a singular lack of obeisance to the departed Stalin. Instead the appeal was to the authority of Lenin.

What Malenkov seemed to say was that the Stalin policy of aggressive expansion would be replaced by concentration on internal strength. At the same time, the stress placed on agriculture and consumer goods was the most candid acknowledgment yet that all is not well in the Soviet economy. In so many words, Malenkov said that agricultural performance has not matched the great advances in Soviet basic industry.

While Stalin was alive he insisted on combining and enlarging the collectivized farms as the prelude to full-scale state farming. Pressure for collectivized agriculture was one of the causes of Tito’s break with Stalin. But such was Stalin’s grip that apparently no one in Russia dared argue.

Now Malenkov has said in effect that the Stalin policy was wrong; he admits that “things are bad” in the breeding of livestock and in the output of grain, vegetables, and a host of other farm products. Hence the unprecedented step has been taken of lowering taxes on collective farms as well as “considerably reducing the norms of obligatory deliveries from the private auxiliary farmsteads of collective farms.”

The weakness of agriculture has had its effect on consumer goods. For example, the Soviet Union produces approximately one pair of shoes a person a year (as compared with three pairs in the United States). It would be relatively easy to build more factories; but to produce more shoes more hides are needed — which means more livestock production. Malenkov acknowledged that in the Soviet Union there are pressing needs for new schools and hospitals. He also acknowledged that there is a preference for foreign-made goods because of the better finish.

While reasserting that all outstanding EastWest issues can be settled amicably in a program of peaceful coexistence, the speech was implacably anti-American: country by country it attempted to sow the seeds of discord in Europe. For example, while Europeans are worrying about the contradictory performance of the Eisenhower Administration on trade policy, Malenkov invited them to do business with the Soviet Union.

To Italy he held out the promise of help for industry and of improved living conditions for “the glorious Italian people.” He was assiduous in whetting French fears of German militarism, and he offered the hope of German unity if the Germans will remain aloof from any military alliance. The inference is that while Malenkov is attending to internal Soviet problems he expects the economies of Western Europe and the United States to stew in their own juice with a little stirring.

It would be a mistake to regard the acknowledgment of internal strains as evidence of over-all Russian weakness. To take just one index, the Soviet Union produces 40 million tons of steel a year as compared with 115 million tons in this country; but an estimated 75 per cent of Russian production goes into military goods as compared with a mere 10 per cent in the United States. There is no indication that the Soviet arms budget has been cut; in fact, it may actually have been increased. The figures on this are undisclosed. But in view of the estimates of the Soviet atomic stockpile, the Soviet experiments with thermonuclear reactions announced by our Atomic Energy Commission, and the authenticated reports of new jet bombers, Malenkov’s speech holds little comfort.

Conference’ on Korea

The Administration fears that the political conference on Korea will be turned into a free-forall on Far Eastern problems. That feeling was behind the frantic efforts of the State Department to exclude Russia and India from participation in the political conference. If the other participants are determined to talk about larger issues, however, there is not very much the United States can do to prevent it, because of a simple “et cetera” in tho armistice. The terms provide that the political conference shall consider “the peaceful settlement of the Korean question, etc.”

There is genuine worry about what Communist China intends to do. The threat remains of direct Chinese intervention in Indo-China, for example. In the numerous reports of shockin. brutalities inflicted by the Chinese on American prisoners of war, as well as the indications that some prisoners may have been withheld on trumpedup “criminal” charges, some observers see the hand of the Soviet Union. Here the thesis is that Russia, while publicly championing the admission of Communist China to the UN, privately is anxious to prevent any agreement between China and the United States. If that is true, nothing could be better calculated than mistreatment of prisoners to inflame American public opinion against any concessions to China.

The Administration contends that it brought about the armistice by deliberately creating an alternative less acceptable to the Communists. It places in this category the passage in the President’s State of the Union message freeing the Chinese Nationalists for forays against the mainland, as well as Secretary Dulles’s hints to Prime Minister Nehru that If the reopened truce talks did not succeed the United States was prepared to carry an offensive to China.

But there is no commitment by this country to renew the fighting if Rhee is not satisfied. Despite the apprehension in Western Europe, all the Administration actually has promised to do is to review its position if the political conference has not shown progress after ninety days.

Implicit in the whole approach to unification of Korea is unification on Dr. Rhee’s terms. This would in effect give Rhee the military victory that the UN command found too costly by force of arms. It is inconceivable that the Communists would agree out of hand to any such proposition. Yet the Administration, in various public statements, has virtually ruled out any concessions to the Communists by way of a larger settlement.

Is the money too hard?

Protests have been rolling into Washington thick and fast about the effects of the Administration’s “hard money” policy. Such authorities as Marriner S. Eccles and Senator Paul Douglas, both of whom were highly critical of monetary inflation in the Truman Administration, have lambasted President Eisenhower and Treasury Secretary Humphrey for going too far in the opposite direction. The fear is that higher interest rates and the general tightening of credit can turn a moderate deflation into a depression. Roth Douglas and Eccles criticize the Administration contention that inflation is still the main danger.

To this the Treasury’s debt management expert, Randolph Burgess, replies that in upping the interest rate on thirty-year bonds to 3¾ per cent the Treasury was only reflecting the actual condition of the market. There is great competition for money for a host of state public works as well as for private expansion — and when there is competition the price goes up.

Whether or not the Treasury went too far, there can be no question that a lot of its problems in refunding the long-term debt stemmed from the failure of the Truman Administration to make adjustments earlier. It is only natural that after twenty years of easy money and controlled interest rates the transition to a free market is causing some inconvenience. Yet a continuation of the old easy money policy would not be possible without continued inflation that would further erode the value of the dollar.

Actually the Administration, though conscious of “soft spots,” is still not worried about a recession. It is concerned over large inventories in a few fields. But retail sales, which are one index of public attitudes, have continued to rise. Some of the protests seem to derive merely from the fact that the increase in sales has been less rapid than heretofore.

Yet if Eccles and Douglas are right, the hard money policy carried to excess could have devastating effects. For a deflation, once firmly established, might bring psychological consequences not easily overcome.

Revising taxes

Meanwhile promises of tax reduction are haunting the White House. The extension of the excess profits tax, as well as the President’s pocket veto of the bill to relieve the movies of the Federal admissions tax, was predicated on the pledge of tax reform. In January the excess profits tax will end and a reduction in individual income taxes is scheduled. The Administration also has undertaken to submit proposals for modification in excise taxes.

But the only normal ground on which tax reductions can be justified is reduced expenditures, and here the prospect is dim. The Administration and Congress did cut some $4 billion from President Truman’s estimate of cash expenditures and $13 billion from the Truman request for new appropriations. The only item from which additional large-scale cuts could come, however, is defense.

On this the Administration is faced with a real dilemma. For the possibility of a Soviet hydrogen bomb has posed starkly the problem of air defense. A really meaningful air defense for the United States in the H-bomb age would cost many billions of dollars beyond the present budget.

At the same time, some of the existing excise taxes are recognized as grossly unfair. The movies constituted a special case, because the industry was looking to the tax reduction (which would not have been passed on to the general public) to bolster revenues against the competition that has closed many theaters. The President rejected the idea of tax reduction to succor a single industry.

But in addition to the 20 per cent tax on movie admissions, there are heavy excises on such indispensables as baby powder and women’s handbags. There are a 15 per cent tax on transportation tickets and a 15 and 25 per cent levy, respectively, on local and long-distance telephone service. The transportation and telephone taxes were imposed during World War II for the explicit purpose of discouraging use of crowded facilities — a purpose long since outdated.

One alternative to indiscriminate excise taxes is a general tax on manufactured goods exclusive of food. This would amount to a sort of national sales tax. But the National Association of Manufacturers has estimated that it would require a manufacturers’ tax of between 4¼ and 5 per cent to equal the revenue now derived from excises. In the present circumstances this probably is politically impossible.

Ruml’s tax plan

Thus there is great interest in Washington in Beardsley Ruml’s program for budgetary reform, which he says would make it possible to eliminate most excises without increasing other taxes. Ruml, former chairman of the board of Macy s and now a director of the Bulova Watch Company, contends that because of unrealistic budgeting the national tax requirements are overstated by $12 billion. By a sort of masochistic accounting, he says, we are now treating as expenses items which more properly should be regarded as investments and amortized over a period of years.

Ruml figures that greater efficiency and economy could reduce tax needs by $2 billion, and that another $2 billion could be realized by properly classifying capital items now included as expenses, such as rural electrification loans and stockpile purchases. He would set up self-financing authorities to handle atomic energy and some public works, and realize another $4 billion by amortizing their cost, as in private business, over the useful life of the facility. Finally, he holds that a consolidated Federal cash budget — that is, an accurate tally of what actually is paid out — would reduce apparent tax requirements by another $4 billion.

Students of Federal fiscal policy have long recommended a consolidated cash budget as a better measure of what the government actually spends. For example, excess social security receipts held in trust funds are now treated as expenses even though the money is not disbursed. The most vulnerable of Ruml’s propositions is that for self-financing authorities. A profligate Administration could hide a substantial disguised deficit in this category.

Ruml’s reputation for ingenuity as the innovator of the pay-as-you-go income tax system has countered any tendency to regard his new plan as a something-for-nothing scheme. But any revised fiscal approach must come before Congress for scrutiny. It is here that the puristic adherence to traditional ideas of what constitutes a balanced budget is the strictest. Hence, even if the Administration takes up part of the Ruml plan as a way out of its dilemma, it still will face the task of persuading the House Ways and Means Committee.

Mood of the Capital

Senator Taft’s death has forced the burden of more aggressive leadership on President Eisenhower. Although Senator Knowland exhibited considerable skill in shepherding the Congressional session to a close, he has still to be accorded the close relationship that grew up between Eisenhower and Taft. Nor does the new majority leader by any means enjoy the respect among his colleagues accorded to Taft. Where Taft could usually hold the conservative wing of the Republican Party in line, now the prestige of the President will be required.

Moreover, the Administration is never quite sure on what side of an issue Knowland will land — as evidenced by his contradictory position on Korea. Perhaps the most serious flaw is that the sober-minded Knowland, despite his relative youth (he is forty-five), has no visible sense of humor in situations in which humor can often provide the essential leavening.

Meanwhile the respite from legislative business has given President Eisenhower more time to concentrate on solidifying Administration policy. Actually, by the time the Congressional session ended, the President was talking and acting with a great deal more confidence, as if he were on top of his job.

Some of the anomalies remain, as in his emphasis on freer trade on the one hand and his appointment of rigid protectionists to the Tariff Commission on the other. But one associate, noting that Eisenhower is traditionally a slow starter, predicts that most of the hesitations of the first few months will be resolved by the end of the year.

It may safely be said in any case that Eisenhower enjoys more personal good will among both political parties in Congress than any other Chief Executive in many years. The Democrats in particular have been careful not to attack the President personally. When they have differed on policy, they have tried to make it appear as if Eisenhower were being victimized by reactionary members of his own party.