Business: Latest Voice of Doom

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When Europeans are not worrying about McCarthyism or the lack of culture in the U.S., they are worrying about an American depression. Ever since war's end, many European economists and politicos have clearly seen the catastrophe—just around the corner. The latest doomsayer: Colin Clark, Australia-born economist, Oxford teacher and author of The Conditions of Economic Progress and four other books. Clark as early as 1942 foresaw the great American postwar boom and also won applause for demolishing phony Soviet statistics of vast economic progress in the U.S.S.R.

In the Manchester Guardian Weekly last month, Clark, who will visit the U.S. this month, predicted a slump in 1954 that will carry the U.S. economy back to the level of the slight 1949 recession. Up to that point, some American economists and businessmen go along with him. But, added Clark, this time the U.S. economy will not snap out of it, as it did in 1949, but will go right on down. There will be no new stimulus to turn the economy back to expansion. Before year's end there may be 7,000,000 unemployed. The only ways to prevent it, according to Clark: a $20 billion tax reduction next July or more loans to foreign countries to finance more U.S. exports.

The reasoning behind Clark's prophecy is that inventories in the U.S. are too high, that business will cut down orders, and that this will start a chain of. cutbacks. Subsidiary causes: less defense spending and a drop in U.S. exports (whose importance to the U.S. is overestimated by Clark, as by most foreign economists).

As a parallel for his gloomy outlook, Clark goes back to 1929. The Great Depression, he writes, was caused by "trivialities." His "complete list" of the 1929 factors: 1) though construction and the production of durable goods were high, construction costs were rising; 2) inventories were high but not abnormal; 3) money was abundant, but there was a slight financial squeeze early in the year, plus a slight decline in Government spending. Substantially the same factors are at work now, says Clark. Ergo, the same consequences threaten.

At no point in his analysis of the 1929 crash does Clark mention the collapse of the huge, artificially bloated stock-market balloon nor the careful measures taken since then to prevent a repetition of this phony boom. Thus, his "complete list" of depression causes not only lacks the chief ones but is in error in the causes cited. For example, instead of being abundant, money in 1929 became so short that the call rate roseto 20%; Government spending, instead of declining, was actually up for the year. In any case, any rise or fall in Government spending would have been a trivial factor; the entire federal budget in 1929 was only $3,500,000,000, or 3% of the Gross National Product, compared to $72 billion, or 19% of G.N.P. now.