Opportunity Challenge

This new management was best ex pressed in Eisenhower's choice of his Cab inet and sub-Cabinet. The majority of the men were called directly from business, in most cases big business. Businessmen realize this is as much a challenge as an opportunity. After 20 years of claiming they could do things better than the New Dealers, they now have the chance to put up or shut up. Fortunately, many of Eisenhower's appointees have had some past Government experience, and are approaching their problems not with preconceptions and radical solutions, but with a flexible, pragmatic attitude.

Their approach to the five most impor tant economic problems shapes up as follows : DEFENSE. The Government's plan to ex pand the economy enough to superimpose war production on top of normal civilian production was sound, but In the helter-skelter expansion, contracts often went to inefficient or high-cost producers. Defense Secretary Wilson plans to shake out costly, inefficient production; he also hopes to step up the supply of arms without stepping up arms-spending. With the help of Eisenhower's own knowledge of military ways, Wilson expects to trim the fat out of procurement.

There is no doubt that there is plenty of fat. For last year's $45 billion spent on arms, the U.S. got only 9,000 planes, and similarly low quantities of tanks, pieces of artillery, jeeps and trucks and an Army of 3,700,000. In World War II, for that sum, the U.S. got 38,000 planes, 10,000 tanks, 75,000 pieces of artillery, 540,000 trucks and jeeps etc. and supported an Army of ii million. Even considering higher prices and more complex equipment, the U.S. is still a shockingly long way from getting its money's worth now.

BUDGET & TAXES. Although Harry Truman predicted a bookkeeping deficit of $10 billion for fiscal 1953 (which began last July), the arms stretch-out has cut spending and thus reduced the estimated bookkeeping deficit to less than $8 billion and the cash deficit to about $4 billion.

One of Eisenhower's first goals will be to try to balance the budget by trimming spending. On the military side, barring a spread of the Korean war, the peak in military appropriations has already been reached though the rate of spending will continue to rise, since spending lags behind appropriations. Arms appropriations, up to $48 billion in the current fiscal year, are scheduled in the new Truman budget to drop to $41 billion in the next fiscal year. If & when he balances the budget, Eisenhower plans to cut taxes, though he may face a fight from those Congressmen who want to cut taxes immediately and balance later.

Even without any new tax cuts, Eisenhower will face a drop in tax revenues.

The excess-profits tax expires next June, and neither Democrats nor Republicans have shown any signs of continuing it. To make up the loss ($2.5 billion a year) in Government income, there may be a boost in the regular corporate tax. The 11% cut -in personal income taxes due next December will mean another loss ($2.9 billion a year) in revenue. In the tentative budget prepared by the Truman Administration for the next fiscal year, there is a forecast of a $6 billion bookkeeping deficit. Hence, Eisenhower will have to cut spending $8 billion, at least, and hold off the congressional tax cutters to meet his goal of a balanced budget. If he can roll up a surplus, then taxes will be cut to the extent of the surplus. He thinks it more important to keep up the buying power of the nation by tax reductions than to build up a surplus which could be used to reduce the national debt.

THE DEBT. The fast-growing U.S. economy makes the national debt less frightening than it once seemed. In 1932 the debt of $19 billion was about 30% of the gross national product of $58.3 billion. In 1945 the debt was 20% bigger than the gross national product. But in 1952 the debt was only about 75% of the gross national product. The great trouble was that the debt was so liquid, i.e., too much of it was in short-term notes that must be "rolled over" (refinanced) every 90 days or so. To put the financing of the debt on a sounder basis, incoming Secretary of the Treasury George Humphrey hopes to place a great deal of the debt on a long-term basis by offering a higher interest, perhaps 3% v. the current 2.5%. Thus the debt would be more firmly anchored to withstand economic ups & downs. While this would raise interest rates all around and increase the cost of handling the debt, it would also cut down on the easy money that has helped fuel inflation, and make it easier to control prices.

CONTROLS. To stop future inflationary rises, the new Administration plans to rely chiefly on indirect FRB fiscal controls, which strike at the monetary roots of inflation, rather than wage & price ceilings, which merely try to nip the flowers. Republicans in Congress also want to keep direct controls -- at least on some sort of stand-by basis. Eisenhower has a strong argument to persuade Congress to restore FRB's power to control installment buying, housing credit, etc. Since these curbs were removed in May, consumer credit has shot up $3 billion to $23 billion at year's end. Said FRB Chairman William McChesney Martin with understatement: This increase "cannot be viewed with equanimity."

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