Boom Without Bust?

Depression memories die hard, and no matter how strong the U.S. economy may seem, there are always those who warn that "we are merely postponing a cyclical downturn." Or "we'll level off in the second half." Or simply: "What goes up must come down."

Yet the economy is now entering its fifth consecutive year of spectacular advance. Last week, for the first time in history, the Dow-Jones industrial average of 30 leading stocks on the New York Stock Exchange went over 900. The mark, which is an arbitrary index that has been in use for nearly 70 years, came less than a year after the average topped 800 for the first time, and represented a fantastic climb of 365 points in the past 2 1/2 years.

Billions in Profits. Such gains are for the most part solidly grounded on the steady rise in the earning power of big corporations. Pre-tax corporate profits are now running some $13 billion a year above the level of 1961, when the business upturn began--a gain of nearly 30%. A few weeks ago, American Telephone & Telegraph Co. reported profits for 1964 of $1,700,967,000--an alltime record for U.S. corporations. But last week General Motors, despite a six-week strike last year, surpassed that with its report of a $1,735,000,000 profit, an increase of 9% over 1963.

At the same time, U.S. Steel reported a 16% gain in profits (to $236 million), Bethlehem a startling 44% rise (to $148 million). Even the nation's hard-pressed railroads had their best year in a decade with industry-wide profits of $725 million, an increase of 11% over 1963.

Must a downturn necessarily follow? Many economists are beginning to believe not--and President Johnson, for one, agrees with them. In his economic report to the Congress (see following story), the President last week wrote: "Economic policy has begun to liberate itself from the preconceptions of an earlier day and from the bitterness of class or partisan division that becloud rational discussion and hamper rational action." He not only proclaimed that the state of the economy is "excellent," but also predicted a "rising tide of prosperity" that will continue not only through the rest of this year but into the foreseeable future.

Stimulate, Not Stifle. To Johnson, the nation's economic growth was a triumph of the free enterprise system. But much of the rising confidence in the ability of the U.S. to break "cyclical patterns and maintain its prosperity rests on Johnson's own demonstrated talent for creating the conditions under which the free enterprise system can function most efficiently. He appreciates the vital distinction between Government action which stimulates the economy and that which stifles it. In meshing the disparate parts of the highly complex system, he would rather coax than coerce. Johnson has earned the trust of both busi ness and labor. He may overestimate the seriousness of unemployment; it now totals about 3,670,000--5% of the labor force. But out of that total, only some 435,000 have been out of work for more than 26 weeks. Still, Johnson attacks the nation's persistent pockets of poverty as though they were his own personal enemies. And he fights the inadequacies in education and health care with practical measures that are aimed at limited targets, rather than at the creation of an all-encompassing welfare state.

Johnson's education program, for example, is no cradle-to-college guarantee of educational excellence for everyone. It would mainly aid those impoverished youngsters who, without help, would get little or no schooling. If this falls short of what some educators would prefer, it is still eminently sound economics at a time when the job market increasingly demands at least a basic education. Similarly, Johnson's anti-poverty program is never going to eradicate all poverty and guarantee every American a livelihood. But it will retrain thousands of the technologically displaced, and this, too, should help prevent the private economy from bogging down.

The Old War Babies. The economy's health is also nourished by the fact that the economic effects of World War II's high birth rate are being fully felt. Onetime war babies are now grown, marrying, having children of their own. In their need for housing, furniture, appliances and other basics of the good life, these families stimulate a high level of consumer demand. Thus, just at a time when technology affords higher levels of productive capacity, the consumer market is more than keeping pace.

The old "trickle-down" theory, under which prosperity was supposed to flow from the affluence of a relatively few, was never a very realistic proposition. And it is the hallmark of the U.S.'s present prosperity that the nation's wealth has been distributed more evenly than ever before. Johnson has made it clear that he will use tax policies and the leverage of the federal budget to head off any recession that might threaten. He will use presidential pleas--but not force--to fight inflationary wage and price hikes. This is a proper, limited role of Government, and Lyndon Johnson's appreciation of it may yet enable the amazing U.S. economy to defy even the law of physics: what goes up need not necessarily come down.

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