First Foe: Inflation

"As 1959 opens, there is reason for confidence," said Dwight Eisenhower this week in his sixth annual Economic Report to the Congress. "The improvement in business activity which began in the second quarter of last year will be extended in the months ahead." Happily ticking off the indicators of a recession-recovered economy, he felt free to concentrate on the foe--inflation--which he has consistently named as the chief threat to long-term U.S. economic health.

Summarizing the vastly improved strength of the economy, the President said: "Factors that influence decisions on business capital outlays have become more favorable, and an upturn may already be under way. Residential construction outlays should contribute further to economic expansion. Combined outlays of federal, state and local government units will continue to rise.

"Under the impact of these developments, liquidation of inventories should soon end; indeed the gap between current sales and stepped-up production schedules may already have been closed.

The effect of these favorable factors on employment and income can be expected to enlarge markets for consumer goods and thereby reinforce the conditions making for overall economic expansion."

Persuasive Support. The report, drafted by the President's Council of Economic Advisers, gave persuasive support to Eisenhower's conviction that the U.S. will be prosperous enough next fiscal year to produce budget-balancing revenues. Said the President: "If Government spending is held within the limits set in the proposed budget, the growth of our economy will make it possible in the reasonably foreseeable future to provide a significant further step in tax reform and reduction."

Since last year's Economic Report was designed mainly to head off massive antirecession pump-priming by the Government, the President took gentle pleasure in a sort of I-told-you-so: "The events of the last 18 months show again the considerable capacity of our economy to resist contractive influences and to hold a downturn within fairly narrow limits."

But 1959 offered the President a chance to carry the crucial battle into enemy territory. Rather than merely defend against a spate of pump-priming schemes, he could attack the policies that pump inflation into the economy: "The chief way for Government to discharge its responsibility in helping to achieve economic growth with price stability is through the prudent conduct of its own financial affairs."

Close Reason. Eisenhower was by no means content to stop with a balanced budget. As the kickoff to a series of specific moves, he asked Congress to revise the Full Employment Act of 1946 so as to reduce pressures for inflationary measures. With that proposal, in perhaps the most closely reasoned of all his economic reports, the President of the U.S. set forth the standards for an era of prudent affluence: "To make reasonable price stability an explicit goal of federal economic policy, coordinate with the goals of maximum production, employment, and purchasing power."

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