The Economy: Advice from Activists

• Share

President Eisenhower has steadfastly preferred to call the current economic situation a "readjustment," but John Kennedy has already declared it to be a "recession." If recession it is, Kennedy will suffer from no lack of advice on how to cure it, for he is surrounding himself with a luminous little galaxy of economists from the "activist" school that believes in blunt talk, Government-inspired growth rates, and far-out federal measures to prime the pump. Last week the advice was raining down to the steady beat of one theme: more Government spending, conspicuously including deficit spending.

National Warning. At Kennedy's request, a task force of economists headed by M.I.T. Professor Paul Samuelson, one of Kennedy's most trusted counselors, delivered a thick report which warned that 1) the slump is bad, and 2) it could very easily grow worse, with unemployment topping the post-World War II peak of 7½% Among other things, it urged fat federal unemployment subsidies to guarantee every jobless worker at least 50% of his wages for 39 weeks; big Government spending programs for health, welfare, urban renewal, school buildings and teachers' salaries; more construction of highways, post offices, military bases, etc. Cost: "$3 billion to $5 billion."

Yet on top of this cake was some frosting that would appeal to many a businessman. Samuelson recommended that if business worsens and it becomes necessary to open a "second line of defense," Congress should rev up consumer spending by cutting personal income tax rates by three or four percentage points for one and all through the end of 1961, and by giving power to the President to extend the reduction through the end of 1962. Bucking the liberals' demands for easier money, Samuelson held firm against broadly lower interest rates (but urged a 4½% maximum on mortgages to stimulate housing), lest even more gold flow out to countries where rates are attractively high. With that said, he did a reverse on Eisenhower Administration monetary policy, which is disciplined by the realities of the gold drain and competitive world trade: "It is unthinkable that a responsible Administration can give up its militant efforts toward domestic recovery because of the limitations imposed on it by the inter national situation."

Kennedy was deeply impressed by the report, viewed it as a fundamental document on broad economic policy for the early stages of his Administration. One line in particular caught his eye: "He misreads the role of confidence in economic life who thinks that denying the obvious will cure the ailments of a modern economy." Kennedy studied it, looked up from the report and told Samuelson,

"That's well put."