The Economy: Problems of Success

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The U.S. economy, which started its missile-like ascent in February 1961, still has plenty of go. In a report to the Treasury last week, members of a 25-man advisory panel of private economists, led by the University of California's Seymour Harris, predicted unanimously that the expansion would continue through 1966, though in all likelihood at a slightly slower pace than this year's. The panel foresees a further $40 billion rise in the G.N.P. to at least $710 billion by the end of next year.

According to the consistently accurate Michigan Economic Forecast, un employment will dip from the current 4.3% to below 4% — the level that the President's Council of Economic Advisers regards as full employment. The high-living U.S. consumer shows no sign of ending his five-year shopping spree, is currently spending 950 out of every $1 he earns. So durable is the boom, said the London Economist, that "analysts and businessmen may even stop counting the months."

To keep the economy from spinning out of control, the Johnson Administration has been applying the "new economics," a kind of Keynesianism-plus that relies on Government intervention to sustain steady, noninflationary growth. As Treasury Secretary Henry Fowler put it in a speech to the Executives' Club of Chicago: "Your Govern- ment stands ready to blow the whistle impartially on labor and on business."

Thus Lyndon Johnson has used the powers at his command to hold down wage increases in steel and among federal employees, to discourage U.S. in- vestments abroad, and to roll back threatened price hikes in aluminum and copper. Last week he said he would dip into Government stockpiles of wheat to keep bread prices from rising.

Though many businessmen instinctively squirm at such attempts to control the marketplace, the most serious im pending threat to the economy does not come from any widespread lack of confidence in the Administration but rather from success itself. There is little slack in the U.S. economy — and an anticipated boost of anywhere from $5 billion to $10 billion in defense spending for Viet Nam next year may well expand it to the limit. Shortages of skilled la bor are showing up in the construction, aviation and shipbuilding industries. As a result, draft boards throughout the country have been ordered to defer specialized defense workers.

Next year's budget, says the White House, will hit a record $105 billion to $107 billion, may be as much as $8 billion in the red. Yet few economists fear that the U.S. will suffer the kind of inflationary surge that accompanied the Korean War. In the early 1950s, defense spending doubled and then tripled, straining to the limit an economy whose G.N.P. was half what it is today. As a White House economist said last week: "It's a different ball game."