The Atlantic Report on the World Today: Washington

on the World Today

DURING the 1960 presidential campaign the central theme of candidate Kennedy was to “get America moving again.”This handy phrase was used to include both the military machine and the economy, as well as the national sense of self-confidence. That America has improved its military posture, both by the Kennedy buildup and the disappearance of what turned out to be a nonexistent missile gap, is evident. That a sense of self-confidence has returned also is clear a combination of accomplishments in space and a feeling that the President is doing a full-time job. But of all the Kennedy campaign promises, the one on which he has fallen down hardest is the pledge to do something about the sluggish economy and its exasperating low rate of growth.

It is true that production, profits, and employment have reached all-time highs. But everybody knows that the upturn from the 1960 recession began shortly after Kennedy took office and not as a result of anything he did. The Administration did spur it mildly last summer and fall. But, in fact, the President took such a conservative economic tack that the upswing has been only moderate and less than his own advisers had predicted. Furthermore, it was just sufficient to rob him of the power to gain from a reluctant Congress other measures he sought which might spur the economy to greater heights.

Business and the President

To the liberals who supported him, the President turned out to be a prisoner of such conventional wisdoms as the balanced budget. In short, he talked like a liberal, but he acted like a conservative. He rejected the idea that a little inflation is good for a nation and made a fetish of his antiinflation policy, so that the attempt to raise steel prices in April hit him with the force of a lightning bolt. His reaction was predictable.

But if the steel masters were blind in their anticipation of what the President might do in the wake of their move, so was the President blind as to the effect of what he did on the business community as a whole. Some in the Capital feel that, basically, the trouble is a problem in communications. Certainly the President’s “S.O.B.” crack, once it was immortalized in the pages of the New York ‘Times, served as a catalyst to bring forth a wide reaction of business venom. The President’s cool attitude toward business audiences contrasted with his sense of warmth with labor audiences, too.

Kennedy is not, of course, an Andrew Jackson, a Woodrow Wilson, an F.D.R., trying to reshape in fundamental ways the nature of the American system. At most, he is trying to bring up to date reforms initiated by the New Deal, in order to meet changed conditions. But it takes the perspective of history, perhaps, to see this. And to a vast number of businessmen he is simply antibusiness — period. Being a Democratic President, he is guilty until he proves himself innocent, not the other way around.

The President’s initial reaction, aside from anger, to the attacks from business was a sort of “What do they want? Why don’t they sec what I’m trying to do for them?” At one press conference he listed the things he was trying to do for business, some of which, to his incredulity, business was resisting. Then, as the stock market tremors alarmed Washington, Kennedy was, ironically, driven to take a liberal step.

The President announced that he will propose for enactment by the next Congress an across-theboard tax cut for corporations and individuals, retroactive to January 1. In other words, Kennedy had finally come around to the thesis of the chairman of his Council of Economic Advisers, Walter Heller, that the tax structure is sucking too much money from the public, and thereby is putting a brake on the economy.

The Administration’s explanation of the stock market collapse was that investors had finally concluded Kennedy meant it when he said he would stop inflation; stock prices were far out of line, the ratio of prices to earnings was ridiculous, and a drop was therefore inevitable. But a big tax cut, one which will pump more money into the economic bloodstream, very probably will create a new upward price movement. It is argued that commodity prices should not rise because so much of the nation’s economic capacity is idle, that there is no chance of too much money chasing too few goods. There may be merit to this argument, but a lot of observers in the Capital think that the psychological pressures will all be for another inflationary spurt. And. in fact, it is not business that gets hurt by inflation so much as the little fellow, to whom the Democratic Party likes to pledge its fealty.

Just how much elfect on the nation’s economic growth rate will be produced either by measures to be passed this summer by Congress or by the tax cut next year is a matter of conjecture. The probability is that there will be an effect on the plus side, though whether it will cut into unemployment to any considerable degree is more debatable. And whether a higher growth rate can be achieved without further inflation is doubtful, at best.

The simple truth is that Americans, for all their research, really do not know very much about the working of their complex economy, and are still bound by many conventional ideas. And. indeed, in releasing the recent Republican congressional statement of principles for the 1962 election, the chairman. Representative Melvin Laird, had this to say:

“This affirmation of our faith in a free competitive economy is in sharp contrast to the spend-andspend, bigger-and-bigger government policies of the New Frontier. Those policies are putting into effect the philosophy expressed in The Affluent Society by the economic godfather of the New Frontier, John Kenneth Galbraith: “The Community is affluent in privately produced goods. It is poor in public services. The obvious solution is to tax the former to provide the latter.’ ”

The United States and the Common Market

The great unknown factor in the problem of spurring the rate of America’s economic growth is the European Common Market and the U.S. relationship to it. The most hopeful view is that the spur of increased competition will do for many an American business what no amount of verbal prodding, or even tax relief, will do force modernization of everything from plant and equipment to salesmanship. Perhaps in the course of the decade ahead this will turn out to be good; but for the short haul, there are likely to be some unpleasant bumps in some sectors of the economy.

In truth, the United States seems to have passed a point of no return without knowing it, the point at which the easy sell of post-war years came to an end. the point at which the lazy way out for the businessman no longer produced ever-mounting profits, the point at which the technological revolution had to be absorbed or the penalty was economic death. Both the debate of these past months, including the stock market gyrations, and the struggle to come to grips with the Common Market have had the beneficial result of forcing public as well as governmental attention on the problem of how to improve the economic system of the world’s major democratic nation.

In all of this, the President has tried to strike a moderate pose in line with his general philosophy. It may turn out, however, that the very fierceness of the attacks upon him will be a turning point both in his own economic policy and in his relationship with the business community.

The right and the left

The politicians have been busy trying to find a pattern in the flood of primary votes the past few months. But they have not had much luck. The results, in general, have been a mixed bag which offered few clues to the general election in November. Yet they offered enough encouragement to both parties to provoke a hot and heavy campaign this fall.

The radical right, as anticipated, turned out to have more money and more noisemaking ability than votes. Still, it had more votes than moderates and liberals had hoped. In Texas. General Walker ran last in a six-man race for the Democratic gubernatorial nomination, but he still rolled up some 165,000 votes in the primary. In California, rightists opposing both former Vice President Nixon and GOP Senator Kuchel received hundreds of thousands of votes. But the anti-Nixon vote was considerably greater than the anti-Kuchcl vote; yet Rachel was an early target of the John Birchers and a protégé of their bête noire, Chief Justice Earl Warren.

There is a difference, of course, between the Birchers and conservatives. But in Texas, Republican Jack Cox is likely in November to rack up a big vote against Democratic moderate John Connally, who barely defeated a liberal in the primary runoff. Hence, the measure of moderate versus conservative remains to be taken in Texas, as well as in California.

One thing is evident, however, from the Republican primaries: good candidates have better chances in November. Take the ease of two gubernatorial races where Republicans by all accounts are likely to win this fall — Pennsylvania and Maryland. fn each state there is disenchantment with incumbent Democratic regimes. In Pennsylvania the GOP picked a modern, attractive candidate, incumbent Representative William W. Scranton; in Maryland, the GOP picked a former one-term, conservative, and ineffective congressman, Frank Small. The odds are perhaps even for Scranton, but heavily against Small, despite a destructive Democratic primary light and a weak governor, Millard Tawes, seeking re-election.

There are signs, too, of voter rebellion. It has shown up in a number of rejections of bond issues for various public works, including schools. It showed up in the Democratic primary in Illinois, where Lars Daly, the perennial candidate, who campaigns in an Uncle Sam suit, received an amazing quarter-million votes against attractive Representative Sidney Yates for senator. In a number of other cases, too, alsorans have received remarkably large votes.

In the South, the Democratic primaries in Alabama and Mississippi showed that race baiting still pays off. But in Georgia, the Supreme Court decision striking at rural-dominated state legislatures promises a political revolution; the question is how long it will be in coming. Other states, too, are being affected by the court ruling, probably the most important political event of 1962.

Competing with Khrushchev

A recent West German visitor to Washington explained the change in Soviet mood on Berlin, a change from insistence to one of “Let’s just: keep on talking,”by saying that the Soviets do not want to face the showdown they have said would come once they signed a peace treaty with their East German puppets. Washington officials think the reason runs deeper; they believe that Moscow is faced with a major crisis in the allocation of Communist resources.

Increased food prices in the Soviet Union certainly bespeak one facet of this crisis. Agriculture is not producing enough; it needs machinery and fertilizer; it needs investment capital to finance those necessities; the only way to get the money and to handle the food shortage as well is to raise prices. If a Western nation did the same thing, Moscow surely would cry that this was a capitalist method of soaking the poor for the benefit of the rich. But Khrushchev defends it as good Communist practice and calls for more sacrifices.

The crisis goes even deeper than agriculture. There are many claimants for Soviet foreign aid, both within and without the Communist bloc. There is need for more and more investment funds to continue the priority for heavy industry. But above all, costs of defense and space exploration are chewing up an enormous portion of the Soviet gross national product.

It is difficult to estimate, the experts say, just what the Soviets are spending on what the United States would call “peaceful exploration of space.” Probably, they say, it is the equivalent of about $2 billion a year. But the years in which space exploration, such as the first sputniks in orbit, had a free ride on the military now seem to be over. It takes huge new investments to go to the moon. And far beyond the moon lie Mars and Venus.

Khrushchev is caught in a dilemma: he cannot make his twentyyear economic plan succeed without some relief from these nonproductive expenditures for the military and for space; yet he cannot cut them except through some disarmament agreement with the West. But to get such an agreement, he must give up some of the secrecy he values so highly. Hence, he talks of cooperation in space and of disarmament, but he seems unwilling to go beyond the most minimal steps in space cooperation, and he will not allow even a minimal inspection in disarmament.

And on the American side, now that a sense of self-confidence lias been regained, the United States seems more inclined than ever to give Khrushchev all the peaceful competition he can take. The question is, how much can he take?

Mood of the Capital

A couple of years ago, when Sam Rayburn was still the Speaker of the House, a number of congressional wives tried to sell him on the idea of allowing members of Congress to take a normal summer vacation with their families. Rayburn said no; Congress should stick to its job until its business was clone. The new Speaker, John McCormack, was no more cooperative, nor was the Senate leadership.

This is a campaign year, yet the leaders talk of staying on until Labor Day or later. Meanwhile, rival candidates for congressional jobs are free to campaign back home, while congressmen up for re-election this year are limited to weekends.

The chairman of the Senate Finance Committee, Senator Byrd of Virginia, is out of sorts with key Kennedy programs and does not run for re-election this fall. As a result, his snail’s pace is creating a pressure which he hopes will result in killing a lot of legislation he dislikes, once congressional tempers rise enough. A sample of what temper can do was the row over cutting off all aid to Communist nations.

The President promised that in due course he would issue a priority list and let the other measures die. But, quite obviously, he would be foolish to do this before congressional tempers are close to the breaking point. It will be quite a trick to pick the right moment.