THE 1957-1958 American recession, now almost a year old, has yet to run its course. But already it has provoked more hard thinking about the American economy than Washington has seen since pre-war years. And this thinking and analysis is taking place within the Administration as well as in Congress and among private groups in Washington and elsewhere in the nation.
The recession has split the Administration, though it takes some digging behind the surface solidarity exposed to the public to determine this. There is a group, led by Vice President Nixon and including Labor Secretary James Mitchell and Raymond J. Saulnier, the chairman of the President’s Council of Economic Advisers, whose thinking in economic terms is close to the liberal wing of the Democratic Party, just as the Administration’s conservative majority is close to the right wing of the Democrats, epitomized by Virginia’s Harry Byrd.
The tax-cut issue served to force position-taking among cabinet and subcabinet level Administration leaders. But the result of the discussions over taxes appears to go far beyond that issue alone. It goes, in fact, to the heart of the question: What is the role of government in the economy?
Two things served to force Washington into serious thinking about the economy. One was the continuing decline, with rising unemployment heading for the six million figure this summer when the out-of-school job hunters enter the labor market.
The other was the address by Allen Dulles, head of the Central Intelligence Agency, at the U.S. Chamber of Commerce’s annual meeting this spring in which he pointed out that (a) in the first quarter of 1958 Soviet industrial production was up 11 per cent over a year ago, whereas American production in the same quarter was down 11 per cent; (b) in the same quarter, for the first time in history the steel production of the Sino-Soviet bloc topped American production and Soviet output alone reached 75 per cent of the U.S. total; and (c) Soviet economic growth is at a rate roughly twice that of the American economy, and investment in further growth is taking something like halt the national output in Russia compared to less than one third in the United Slates. These figures constituted the first frank admission from the American government of part of what had been contained in the still secret Gaither Report.
The question of what is the role of government in the economy is world-wide. It agitates the leaders of the underdeveloped, newly independent nations such as India; it affects the relationships between the Kremlin and the satellites, especially Poland and Yugoslavia; it is involved in the struggles for European economic union against the cartel-minded business interests which so long have dominated Continental thinking.
What makes the economy tick?
As the American recession has gone on, and as such men as Nixon, Mitchell, and Saulnier have seen the fruitlessness of the confidence talk from the President and others, there has been an effort to find out what makes the economy tick. Scads of university professors have descended on Washington to give their views in Congress and in private. And in the various government departments chiefly concerned, especially Labor, Commerce, and the Council of Economic Advisers in the White House, economists have been trying to educate their bosses.
Saulnier is a professional, but Nixon, Mitchell, and their adherents are likely to concede that they know little about economics. Arthur Burns, the former head of the presidential Council, has great influence on these Administration liberals. Burns’s belief that a tax cut was essential played a major role in Nixon’s tax-cut suggestion, a suggestion which raised such a furor inside the Administration that both the White House and Treasury Secretary Robert Anderson in effect repudiated Nixon. Mitchell, too, has argued the Burns line at the cabinet table, and at times he has had Commerce Secretary Weeks’s support. But the President, while he has great admiration for Burns, has been listening more and more to Anderson on taxes and other aspects of the economy.
Mitchell’s Labor Department includes some of the brightest civil servants in the economic field. As far back as June, 1957, they were telling Mitchell that trouble was ahead; in July they were telling him that holdbacks on military spending were slowing down the economy; by September former Defense Secretary Wilson’s wholesale defense budget hacking had triggered a downturn, they were convinced.
The Administration’s hesitant response to the recession, coupled with the Democratic efforts to make political hay, has dominated the economic scene in Washington these past months. But the questions involved are more fundamental than whether this or that anti-recession bill, bearing a GOP or a Democratic political label, will or will not help. They probe the nature of the American economy itself and the government’s role in that economy.
The conservative viewpoint which has dominated the Administration and which predominates in the right wing of the Democratic Party, especially in the South, is that economic growth is more or less natural, given peace and population growth, and that it is up to private business to provide the needed new jobs. Under this thesis, government ‘s role is to help business by tax incentives, a lack of red tape, and so on, though some government restraints, such as unionism and labor laws, are accepted because they are modern political necessities.
The conservative group, formerly led by Humphrey, now less firmly led by Anderson, worried more about further inflation if taxes were cut than about the possible worsening of the recession. Anderson was convinced that an upturn was ahead in the third quarter of this year. Nixon, Mitchell, and Saulnier conceded it might be, but they argued that it was too big a risk to take either economically or politically.
The government’s role
As these men have pondered the economy and what makes it tick, they have discovered in many cases that there is a school of economics which believes that the government must play a major role. Some of those within the Administration have been emboldened to say just that, in fact, because of the recession’s effects and the openmindedness it has produced in some quarters.
The argument here is that America is entering a new era in which the long unsatisfied demands have at last been satisfied, in which the price function must operate more fully and more powerfully, and in which the government must move heavily into such projects as highways, schools, other municipal facilities, and all other public services needed to support the goods sold by private industry. An extension of this view is that taken by the northern and Western Democrats who follow the Keynes-Keyserling school of economics.
In this year’s context, much of the Washington argument has perforce run into the public debt ceiling, something that is more of a psychological than a practical barrier to this Administration. But only those in the liberal Left of the Administration even discuss removal of the ceiling, and none appears prepared to urge it openly.
Russia’s economic growth
Officials in Washington say that the cabinet talk on the recession has been almost wholly in domestic terms. Yet there also is an awareness of the international aspects, as indicated by the Allen Dulles speech, by John Foster Dulles’ statements, and by the President’s press conference comments. There is, however, too often a reluctance to believe that the Soviet system can work, simply because it is the Russian type and not our type of system.
Gabriel Hauge, the President’s White House economic adviser, pointed out earlier this year that Soviet plans sound better than what is known of the facts. There is underemployment in Russia, he pointed out; there is grossly inefficient agriculture; there is a growth record in the Soviet economy quite similar to our own (the United States in the 1880-1920 period grew as rapidly as has Russia these past forty years, he said); and in the 1920-1952 period Canada had a growth the size of the Soviets’ and better balance between farm arid factory to boot. The point is not that these facts are untrue, for they are statistically correct, but that the political inferences to be drawn from them can be highly dangerous.
When Dean Acheson, in his recent book, prophesied that Administration officials were likely to be unpleasantly surprised by the future rate of Soviet economic growth, the response was twofold: in Washington there were mutterings about Acheson’s overestimating the Russians, while Moscow was saying that he was underestimating Soviet growth. The point is that when American steel plants are operating at only 40 or 50 per cent of their capacity, this country and the free world are losing both in terms of the things they need, such as steel, and in propaganda terms. But there is not likely to be any real change until the Eisenhower Administration, and specifically Eisenhower himself, begins to listen more to those on the inside who have broadened their view of the economy and of the role which the government should assume.
Mood of the Capital
The dragging economy has had a somber effect in Washington this spring and summer. In addition, the dramatic events of the Nixon tour in Latin America, of the FrancoAlgerian crisis, and of the struggles inside Lebanon have created an air of world crisis not seen since late 1956, when Hungary was aflame and the British, French, and Israelis were attacking Egypt.
These events at home and abroad have tended to obscure the school integration problem. Little Rock will again be in the news in September, unless Governor Faubus is defeated in the primary. And across the Potomac from Washington lies Arlington County, Virginia, where the white majority seems prepared to admit a handful of Negroes to its public schools in preference to shutting down those schools, as Virginia’s “massive resistance” laws decree. Legal cases elsewhere in Virginia are also likely to be in the news when schools reopen.
Yet the Administration is doing little or nothing to prepare for these days. Inside the Administration certain officials would like to see some advance work, either by the Justice Department or the Civil Rights Commission, in an effort to head off trouble. Nothing is in sight, however.
This laissez-faire attitude in economics, in civil rights, often in foreign policy, seemed to work well in the first Eisenhower Administration when luck was with the President. But his second Administration has been characterized by conflict at home and abroad. And in Washington’s unhappy view there are still further troubles ahead in both of these fields.