Commitment for Expansion

The Johnson Administration, steadily increasing its influence on U.S. business, again made clear last week that it intends to use all the tools at its command to keep the economy high and rising. One clue came in a rather academic statement made by Chief Presidential Economist Gardner Ackley to a U.S.-Japanese trade group: "I can assure you that we have the means and, I believe, the will to adjust either or both sides of the budget, if that should be necessary, in a way which will contribute to the steady and adequate expansion of private purchasing power." In plainer language, this means that the Administration will give the consumer more money to spend by increasing Government outlays and, very likely, by further tax cuts as well.

Sharp Increases. President Johnson reiterated the point by telling 75 Government officials that recently enacted programs of the Great Society will bring "sharp increases in spending." And largely because the Government intends to have up to 200,000 U.S. troops in Viet Nam by the end of 1965, the U.S. will not be able to cut defense spending, as it has for the past two years, but will be compelled to increase it.

In all, federal spending in fiscal 1967 will rise by some $6 billion. That would shatter once and for all the $100 billion ceiling that conservatives consider sacrosanct and raise the Government's spending (including social security payments) to a total greater than the outlays of the 145 largest U.S. corporations. But in the more-for-less economy that the Administration has helped to fashion, the deficit may well shrink. Reason: tax cuts, which have amounted to $19 billion in the past 19 months, will so greatly stimulate the economy that tax revenues are expected to rise by some $7 billion--that is, $1 billion more than the increase in spending.

The economy certainly looked stimulated last week. Ackley announced that the gross national product in the second quarter hit an annual rate of $658 billion--up $9.2 billion, or 50% more than his own economists had anticipated. The industrial production index in June jumped 8% above the year-ago level, to 141.9% of the 1957-59 average. Continuing the rise in the first ten days of July, the auto industry increased sales by 11% over the same period last year.

Rising Profits. Corporate profits in many cases were rising even faster than sales. Companies from American Can to Xerox reported that second-quarter earnings ran much higher than in the same quarter last year. Celanese Corp.'s profits were up 21%, Gillette's 22%, Caterpillar Tractor's 31 % , and Westinghouse Electric's 57%--to record peaks. Such profits indicate that corporations will be paying more taxes to the Government, giving Washington's policymakers the wherewithal to increase their spending. The corporations will also be able to increase their dividends, raise wages, and step up capital spending--all of which is bound to enhance the economy.

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