Lessons for Golden Growth

A DECADE ago, the U.S. entered on the longest continuous noninflationary expansion in its history--more than four years of golden growth. It was a time when Henry Ford could pass off a sales dip with the quip: "Business is merely terrific instead of phenomenal." Today's businessmen, disillusioned by the current economy, have been looking longingly back at those good old days. How was that prosperity managed? Could the measures used in the early '60s have a salutary effect now?

Some of the problems facing the Democratic Administrations of Presidents Kennedy and Johnson from 1961 to 1965 were markedly different from those confronting President Nixon. Prices in those years were stable and there were no inflationary pressures to contend with. More significant, the economic distortions caused by a major war in Southeast Asia and by an expanding economy at home had not yet begun.

Even under such favorable circumstances the performance of the economy in the early 1960s was impressive. As it came out of a recession in 1961, the second in four years, the nation had a weak economic pulse. In the previous five years, real annual growth had averaged only 2.3%. Production was idling along at about 65% of capacity. Starting slowly, the economy picked up momentum; by 1965 the growth rate was 6.3%, and plants were humming at close to full capacity. Wages rose by about 3%, matching productivity. The toughest problem was unemployment. But even that figure was painstakingly forced down from 6.7% to an almost acceptable 4.5% in 1965. The most remarkable achievement was the besting JOHNSON WITH of inflation. Throughout most of the five-year period, wholesale prices remained virtually unchanged, and consumer price rises were held to about 1.2% a year.

In creating this painless expansion, Kennedy and Johnson pursued a policy of tax cuts and moderate deficit spending counterbalanced by Government actions to limit wages and prices. To spur laggard capital expenditures, the Government came through with a 7% investment credit for plant and equipment and increased depreciation allowances. New equipment and federal job training improved productivity, slashed costs and kept prices down. In 1964 taxes on individual income and corporate earnings were trimmed. The $14 billion that these tax cuts turned back to consumers and businessmen abruptly boosted the economy and added more than $30 billion to the gross national product. This in turn generated close to $10 billion in new tax money.

The Democrats also imposed wage-price guidelines of 3.2%, which were in the main observed. Because prices were stable, labor was less inclined to seek large settlements; freed of the threat of crippling wage demands, businessmen were more agreeable to moderating price increases.

Industry learned not to stray too far out of line after President Kennedy in 1962 forced Big Steel to roll back what he considered an exorbitant price boost. While not as dramatic, President Johnson's anti-inflation jawboning sessions often ended with glazed-eyed leaders of business and labor agreeing to hold the line.

Whether such techniques would be useful today is open to question. Much more certain is the fact that the Nixon Administration's stand-pat economic stance has not been

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