All Wrong but Brookings

How big will the postwar income of the U.S. be? All goals for full postwar employment are mainly based on the accuracy of the answer to this question. Some of the estimates so far:

Vice President Henry Wallace: $170 billion.

Businessman-Planner Beardsley Ruml: $140 billion.

The Federal Reserve Board: $142 billion.

C.I.O.'s United Auto Workers: $200 billion.

This week, the Brookings Institution, famed for its economic studies, put out its own carefully considered estimate of postwar U.S. income, in an attempt to clear up the confusion. Net result was to add to the confusion, by stirring up a first-class row among economists. For one thing, the Brookings estimate was $123 billion, substantially lower than the most popular $140 billion boxcar figure which businessmen roll off their tongues. But the Brookings Institution then went on, in a brochure titled Postwar National Income, to whack all other postwar estimators as, in effect, so many dizzards, noodles, lackwits and dunderheads. The distinguished list of numbskulls obviously included the Committee for Economic Development, the Department of Commerce, and Planner Ruml, as economists who either: 1) could not count straight, or 2) who had added & subtracted the wrong things.

And finally, the rampaging Institution trampled all over the popular belief of most U.S. citizens that the roaring economy, by giving the U.S. both guns and butter, has led the nation to a new high plateau of prosperity.

Said the report gloomily: "The war cannot be regarded as a force which will have raised the level of real income. In the absence of the war, we might have had a greater advance in productivity. . .,. The widespread erroneous impression that the war has placed the American people upon a new plateau of national income is due to a failure to take account of the abnormal" current increases in wages, prices and employment."

Paper Profits. Brookings' 34-page report was prepared by Joseph Mayer, 57, a slender eyebrow-mustached economist-author (Bigger Men in Bigger Jobs, The Regulation of Commercialized Vice). As vith all Brookings reports, it was carefully scanned by bald, pudgy Harold G. Moulton, Institution president, and given a preface by way of approval.

Messrs. Moulton and Mayer alleged that the differences in the estimates arose because estimators have confused two different methods of computing national income, and then further garbled their figures by using "unjustifiable methods."

For years economists talked mainly in terms of the net national income (total of all income of individuals and corporations). But in 1942 the Department of Commerce ran a parallel new figure showing the "gross national product." This was naturally far higher; it included not only the national income but the "unjustified figures," such as depreciation reserves. In fact, it measures the value of U.S. production instead of only payments made to produce it. Said Brookings: "A distorted picture of national expansion has been built up in the minds of the public. One not infrequently reads that the national income has increased from a prewar level of $70 billion (which is a net figure) to a current level of nearly $200 billion (which is gross)."

Built on Sand. Furthermore Messrs. Moulton and Mayer held that the Department of Commerce used a faulty method to reach its estimate of $140 billion in national income for the first "normal" postwar year. (Most economists figure on the end of both wars in 1945, the first normal year in 1947.) The Department has "too readily assumed" that the prewar increase in output per man (2 1/2 to 3% a year) has continued during the war. Thus by 1947, according to the Department, the U.S. will have boosted productivity some 20%, and national income accordingly. The Department figures were "taken over bodily by the C.E.D. in its plans for postwar employment and production." In effect, said Brookings, it is on this shaky basis that the C.E.D. has based its plans for jobs after the war, and its revolutionary new tax plan (TIME, Sept. 11). It is these same figures that Planner Ruml used when he predicted that "the American postwar standard of living can be 50% higher than anything the U.S. has ever known" (TIME, June 12).

But the report contends that production tricks learned in war work cannot be readily applied to peacetime jobs; i.e., learning how to make cannons faster and better does not help make autos faster and better.

Having thus tried to demolish the chief bases of most estimates, Economist Mayer then makes his own estimate. He assumes that there will be no sharp postwar boom or precipitous collapse, that agricultural prices may decline, hourly wages and salaries and corporate profits will remain about the same, that there will be an increase in the number of employed over 1940, but that the income of wage & salary workers will be drastically cut because of the elimination of overtime, the shift to lower-paying jobs, etc. Likewise, the small businessmen and professional men will see their income drop about 20%. Totting up, Mayer then sets the postwar national income at $123 billion. Furthermore the "percentage increase in 1947 over 1940 in real per capita income would be between 6% and 11% . . . a far cry from the 50% assumed by Ruml."

Who's Confused? Almost simultaneously came the counterattack. Wayne Chatfield Taylor, sleepy-looking but shrewd Under Secretary of Commerce, stated that the Department's figures were carefully defined and "reasonably clear and simple." In effect, said Taylor, no one was confusing the figures but the Brookings Institution. Planner Ruml merely looked over his tortoise-shell spectacles, disdainfully, said he "saw no reason" to change his estimates.

But many a businessman, painfully planning for the postwar, hotly pointed out that no intelligent or trusted planners used the "ridiculous" methods of estimating which Mayer decried. And in answer to the thesis that production tricks learned during war could not be used in peace, economists gave merely a few examples: would U.S. farmers forget the new stunts which had enabled them to raise the greatest U.S. crops in history? Would such basic industries as steel and copper junk their new skills?

Apostle of Defeat. Over & above the squabble over figures, one fact stood out: there is a widening split between the conservative thinking of Dr. Moulton's Institution and the optimistic approach to the postwar problems of business of such groups as C.E.D. As one bigwig summed up: "Brookings Institution appears to be becoming the modern apostle of defeatism. Its position implies that the ingenuity and initiative of American businessmen and workers, so completely demonstrated during the war, will disappear with the peace. This suggests the defeatism of believers in the mature economy theory."

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