The Kennedy Climate

The stock market last week took a look at the President-elect of the U.S. and decided that it was not dismayed by what it saw. Building on a strong tone the week before election, it bounded upward when Kennedy's election was assured. In heavy turnover, stocks broke through the 600 barrier on the Dow-Jones industrial average, ran up a 12.54 gain for the week (to 608.61) in one of the year's best rallies.

Part of the market's rise was due to the end of the pre-election uncertainty. There was also an expectation of more inflation during the Kennedy Administration. Most Wall Streeters preferred to hope that Kennedy would make some sharp antirecession moves and, by spurring defense spending, perhaps give business a push. The feeling was growing in the business community that Kennedy is more conservative than he sounded in his campaign.

Assistance Declined. To many businessmen, the biggest doubt about Kennedy's economic policies has been the liberal cast of his advisers, notably Harvard Professors John Kenneth (The Affluent Society) Galbraith and Arthur Schlesinger Jr. Yet Schlesinger did not surface as a member of the Kennedy brain trust. And Galbraith admits that he is no longer very influential with Jack Kennedy.

The man who is actually Kennedy's closest economic adviser--and stands a good chance of remaining so in Washington--is M.I.T. Professor Paul A. Samuelson, 45, who is considered by colleagues to be both sound and brilliant in his economic thinking. Samuelson has watched closely and written lucidly about the U.S. economy, considers himself "the last of the generalists." His widely used textbook, Economics, An Introductory Analysis, is the bestselling (1,000,000 copies) economic textbook of all time.

Samuelson describes himself as a member of the "neoclassical synthesis" school of economics--an amalgam of Keynesian insights and classical theories. He does not believe that the best government is the least government, but neither does he think that direct wage and price controls or government ownership is desirable. Because businessmen sometimes take a narrow and personal view of government policy, based on their own interests, e.g., tariffs, Samuelson says that "our thinking is somewhat at cross-purposes with business philosophy."

Father's Friend. Based on Kennedy's pronouncements, the sort of men he has so far gathered around him and his economic moves to date, what are some of the business changes--and bows to the status quo--that will take place under a Kennedy Administration?

One of the main items on Kennedy's agenda is a sweeping reform of the regulatory agencies, which he believes are inefficient and filled with second-rate people. Few businessmen dispute that view. Last week, in one of his first moves, Kennedy appointed James M. Landis to work up a report and make recommendations in a month on all the regulatory agencies. Landis, 61, is a former dean of Harvard Law School, served as a member of the Securities and Exchange Commission and the Federal Trade Commission and as chairman of the Civil Aeronautics Board. He is an old friend of the President-elect's father, Joseph P. Kennedy; he succeeded the elder Kennedy as chairman of the SEC in 1935, later worked for him as a special assistant and co-authored a book with him. Now a member of a New York law firm, he has several clients, e.g., the Skiatron pay-TV system, with cases pending before the regulatory agencies. He said he did not believe his interest in cases before Government agencies would affect his report. Last week Landis was in Miami at the annual convention of the Air Line Pilots Association as an active candidate for the association's presidency. No pilot, Landis is a candidate of rebel pilots, who stress his knowledge of the federal agencies that regulate air travel.

Help from Germany. In other areas of policy affecting business, one of Kennedy's chief arguments with the Administration has been with the Federal Reserve Board's tight-money policy, which he says has choked off economic growth while trying to stem inflation. Kennedy has singled out for attack the FRB's "bills only" policy, under which FRB usually buys and sells only bills (i.e., short-term obligations), to regulate the supply of credit and influence interest rates. Kennedy thinks FRB should also deal in bonds, contends that the "bills only" policy has dropped short-term interest rates far more rapidly than the rates on long-term obligations, thus has given little help to builders and others who depend on long-term loans. (The FRB has been easing money steadily, and last fortnight began for the first time in more than two years to deal in bonds as well as bills.) Kennedy has not gone all-out for "easy money." He has said: "We are also aware that sharp declines in the short-term rate can further aggravate the balance-of-payments problem."

On the balance-of-payments and gold-outflow problem, the U.S. last week got some help from abroad. Responding to heavy pressure from the Eisenhower Administration, West Germany lowered its discount rate from 5% to 4%, and its bank rates for loans from 6% to 5%, thus weakening a magnet that has been drawing gold from the U.S. Kennedy seems sure to insist strongly, as did Ike, that West Germany and other U.S. allies help more in defending the free world against Communism, thus relieving the U.S. of some of its heavy foreign spending.

Kennedy and the FRB have recently grown closer in their views about curbing gold speculation on foreign markets. To maintain the dollar's value, Kennedy has called for the "free sale" of U.S. gold on markets abroad to prevent speculation, a move that many foreign bankers believe would quickly end it. The Treasury, which previously opposed such free sale, three weeks ago informed the Bank of England that it had no objection to the bank's selling gold to keep the market orderly, and that the bank could replace such gold from U.S. stocks. Last week gold was selling on the London market for under $36.

What Is Essential. Kennedy can also be expected to fight any possible recession. To check unemployment, which in October jumped to 3,579,000, or 6.4% of the working force, he has placed near the top of his list an aid-to-depressed-areas bill. He has said he might cut taxes "for four or five months'' if a recession comes. To spur productivity and business expansion, he favors--with almost all businessmen--faster and more liberal depreciation allowances.

In the field of antitrust action, Kennedy has so far said nothing--but his policy in this field could hardly be tougher than the Eisenhower Administration's. In the labor area, Kennedy has promised to pass a minimum-wage bill raising hourly wages to at least $1.25. Most businessmen believe that Kennedy, while promising to be beholden to neither labor nor business, will not openly antagonize the business community, will prefer to win its cooperation rather than fight it. Kennedy realizes that the welfare of U.S. business, with its decision-making and spending powers, is essential to the health of the economy that he has promised to revitalize.

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