Is the Nation Growing Fast Enough?

U. S. EXPANSION

BETWEEN now and 1970, predicted Nikita Khrushchev recently, the Soviet Union will catch and then pass the U.S. as the world's foremost economic power. Russian output will race ahead, he said, at the rate of 8.6% annually; the U.S. is poking along at less than 2%. Khrushchev's brassy boast is open to doubt: the U.S. puts out accurate figures, but no one can vouch for the Russian "percentages." The real question is whether the U.S. is growing fast enough, not just to stay ahead of Russia, but for its own economic wellbeing.

Judged by unemployment alone, the U.S. is not. Industrial production is back almost to peak levels, and yet industry still has 20% unused capacity, along with 4,108,000 unemployed (6.1% of the labor force). There are other doubts about economic growth. After half a century of expansion at an average 3% annually, the real U.S. gross national product (excluding price boosts) has gained only an average 1.3% annually over the last five years.

Administration economists profess not to be worried. The real, noninflated gain in G.N.P. for 1953 was 4.4%. that for 1955 a fat 8%. What knocked the average off was a minus 1.9% in the 1954 recession and a minus 3.2% last year. Says one top-level Washington economist: "The boys who average these things out catch us at the low end of the cycle. If you judged 1959 and 1960 in overall terms, we would have nothing to worry about."

To judge the constantly changing, increasingly complex U.S. economy solely by G.N.P. is also a risky business. Much of the slowdown in the rate of gain between 1952 and 1958 can be attributed to slowing in industrial production of hard goods. But consumers bought so many other things that the volume of consumer buying kept growing an average 3.5% annually, well above the 3% "norm." The continuing consumer demand means that production--and thus G.N.P.--must take another jump.

Nevertheless, almost every economist from New Dealing Leon Keyserling to the Rockefeller Brothers Fund experts and Harvard's Sumner Slichter would like to see the U.S. grow faster. They agree that the old 3% target is outdated, and that the goal should be 5% a year from now on.

The argument is chiefly over how to achieve the 5%: by massive Government help or the resources of private industry? A.F.L.-C.I.O. Economist Stanley Ruttenberg would like the Government to do much more of the job. He wants a loosening of credit, a big (and probably unbalanced) budget, with huge federal school, housing and other programs to make full employment. What about inflation? No problem, say the spenders. But what may be a problem is borrowing funds to finance the spending (see State of Business).

Others, including Harvard's Slichter, White House Economic Adviser Raymond Saulnier, and the Federal Reserve's William McChesney Martin have different ideas on growth. They argue that force-feeding offers no assurance of healthy growth, and point to the fact that all the spending and big deficits of the 1930s did not lick the Depression. On the contrary, the U.S. had its two most prosperous years --1956 and 1957--when the budget ran a surplus.

From such facts Martin and other experts argue that the best way to expand is to improve the economic climate, so that businessmen will have the incentive to accomplish greater growth themselves. They want to work toward a balanced budget, not merely for the symmetrical sake of balance itself, but in order to cut taxes as an encouragement to both business and consumers. Even the A.F.L.-C.I.O.'s Ruttenberg admits that tax cuts "worked" when the Administration chopped taxes $7.5 billion in 1954: the next year's growth was 8%. How to cut taxes and still maintain vitally important defense programs? Economist Slichter thinks it is just a matter of "common sense," starting with the $5.3 billion farm subsidy. Says Slichter: "The farm subsidies are just plain corruption."

Businessmen would also like to see a more realistic depreciation policy. U.S. Steel estimates that between 1940 and 1956 the difference between depreciation allowances and the actual replacement cost of equipment was $904 million.

The most convincing argument against government intervention is the industrial lessons of the last few years. Booms in hifi, boating, photography, travel, frozen and gourmet foods, all come from relatively new things that tempted consumers to part with their cash. This is the real road to growth, the innovation of exciting and useful new products and industries that Government alone cannot start. It can only provide the incentive for business to improve itself. As Harvard's Slichter says: "You can't expand without demand for the product. We need less sales talk, less hot air and better quality and more originality."

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