Lauding & Lamenting

THE ECONOMY

Particularly in an election year, any politically alert Administration is certain to laud its own accomplishments and, in hope that voters will find them irresistible, lament all the things that remain undone. In this sense, the Johnson Administration is certainly politically alert--as evidenced by its Economic Report sent to Congress this week.

In that report the President looked back in perspective, taking the start of the Kennedy Administration as his base point. During that period, he said, the gross national product rose from about $500 billion early in 1961 and passed the $600 billion mark, for the first time, at the end of 1963.

The report, supplemented by a detailed analysis from the President's Council of Economic Advisers, noted other historic firsts recorded in those three years: average earnings in manufacturing topped $100 a week; after-tax income of individuals exceeded $400 billion in 1963; corporate profits before taxes passed $50 billion last year. CEA Chairman Walter Heller's analysis claimed that by spring this advance will be "the second-longest peacetime expansion of this century--exceeded only by the prolonged climb out of the depths of the Great Depression." This "remarkable performance," he said, "clearly shows the vitality of the private economy in an environment of progressive federal policy."

"Reassured & Resurgent." Government action did not, of course, do it all alone, and the President paid passing tribute to business, which "held prices in check, kept inventories on an even keel, and avoided excesses in capital financing," and to labor, which "has been constructive in its collective bargaining and in its contributions to rising productivity." Then he cited three Government actions: "In 1961 the Administration's quick antirecession program got recovery off to a flying start; in 1962, in sharp contrast to 1960 and 1957, rising federal purchases, new tax incentives to investment, and continued credit ease lent a steadying hand to an economy whose advance was faltering; in 1963, prospects of a tax cut buoyed a reassured and resurgent economy."

Analyzing the three-year expansion, the report found that two major factors were increases in Government spending and a rise in residential construction. Federal purchases rose 16%, accounted for 11% of the $100 billion increase in G.N.P. State and local purchases rose 13% to add 8% to G.N.P. Most of the rest of the advance came from sustained consumer demand; individuals continued to spend about 94% of their income--including a dollar record for cars. All this, said the report, was "accompanied by a record of price stability unsurpassed in any expansionary period since World War II."

Toward Full Potential. Looking ahead, the report predicted for 1964 "a significant acceleration in the growth of output" and a G.N.P. that could go as high as $628 billion. But it warned that its forecast was based on quick congressional passage of the Administration's $11 billion income tax cut. Even a month's delay could reduce the G.N.P. gain by $2 billion.

But lest voters become complacent, Johnson lamented the fact that the U.S. economic advance "has not gone far enough and fast enough." He noted that unemployment is running at 51%, factories are operating at only 87% of capacity, idle men and machines represent a G.N.P. loss of some $30 billion a year, and the U.S. balance-of-payments deficit "is still with us."

Disquieting Omens. The report also fretted about future wage-price stability, found that "some recent omens are disquieting." It noted that "a widely scattered minority" of big firms are "testing the market's readiness to accept price increases" and that "many workers are restive." In a faint echo of Kennedy's clash with Big Steel, Johnson warned: "I shall not hesitate to draw public attention to major actions by either business or labor that flout the public interest in noninflationary price and wage standards."

Johnson indicated that he intended to follow Heller's theories that "business fluctuations have no fixed rhythms, recessions are not in any scientific sense inevitable," and that tax policy and the budget are tools to be used to influence the economy as well as finance the Government. "The budget," said Heller, "must counterbalance private demand."

Prepared in laborious consultation with Budget Director Kermit Gordon, Johnson's fiscal 1965 budget was also to go to Congress this week. The President had already taken the edge off his budget message by announcing that he would seek authority to spend $97.9 billion, a reduction of $500 million from 1964 expenditures. This would lead to a deficit of about $5 billion in 1965--roughly half of the expected 1964 deficit.

An Unrecognized World. Johnson's greatest lament, however, was the continued existence of poverty in the U.S., and he made its elimination one of his top-priority domestic tasks. Said the CEA: "The poor inhabit a world scarcely recognizable, and rarely recognized, by the majority of their fellow Americans. It is a world where a minor illness is a major tragedy, where pride and privacy must be sacrificed to get help, where honesty can become a luxury and ambition a myth. Worst of all, the poverty of the fathers is visited upon the children."

Using any family income under $3,000 as a standard of poverty, the report contended that one-fifth of the nation's citizens live in poverty, and that the poor include nearly half of all nonwhites, more than 40% of all farm families, half of all families headed by a woman,' half of all families headed by a person over 65. The top fifth of U.S. families get 42% of all personal income; the lowest fifth get 5%.

"We must open our eyes and minds to the poverty in our midst," declared the Administration's report. "The condition can be eradicated; and if it can be, it must be." Precisely how, Johnson said, he would reveal in a separate message to the Congress.

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