Business In I960: Tough Prosperity

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investment—in both better machinery and better education for people—thus creating "a deepening of capital" that would produce more rapid economic growth, Kennedy's team wants to lower long-term interest rates, and thus encourage business spending. Also in the Kennedy future—though still in the tentative stage —is a plan for tax reform, which would broaden the tax base by closing loopholes and tightening up some tax advantages (e.g., depletion allowances, capital gains, expense accounts), perhaps use the increased intake to lower personal income tax rates, spur consumer spending.

Automation v. Jobs. Almost everyone in the new Administration agrees with businessmen that more rapid depreciation allowances are needed to spur modernization and quicken growth (the average age of U.S. plant and equipment has increased from 8½ years in 1950 to more than nine years today). But they are also aware that automation has trimmed the number of jobs in many industries. The steel industry, which has spent nearly $7 billion in the past five years to replace men with more efficient plant and machines, can now operate at full capacity with 13,000 fewer production workers. To help solve this dilemma. Heller wants to give liberalized depreciation allowances only to selected industries that the Government feels need encouragement.

An even more important road to growth is to create a better atmosphere for new industries. Kennedy wants to help small business with liberalized depreciations, but small business would still be saddled with an immense disadvantage: on profits of more than $25,000 it has to pay the same taxes—52%—as such huge corporations as General Motors and General Electric. A tax break would not only give small business a boost but would be a doubly effective growth spur. Unlike larger companies, a small business usually reflects growth in new jobs, must become sizable before it benefits from automation.

How Much Inflation? Behind all the plans and efforts to make the nation grow faster lurks an important question that could affect their success: Can the U.S. have economic stabilization and strong growth too? In 1960 the answer was not encouraging. The U.S. paid for stabilization with a kind of economic stall.

Many economists feel that a little inflation is inevitable in an economy with a rising standard of living. Government policies, says Kennedy Economic Adviser Heller, "should take greater risks of inflation than of unemployment." For a time, in 1955, the cost of living actually dropped, but since then it has continued to inch up, even in time of recession. In 1960 it rose 1.5% during the year to new records. And, according to Commissioner of the Bureau of Labor Statistics Ewan Clague, another climb of 1% or 2% can be expected in 1961.

Too Little Gold. Even if fear of inflation does not inhibit plans for growth, those plans will nonetheless be limited to some extent by the demands of another major problem: the balance-of-payments deficit, which stood at $3.2 billion in 1960. Unlike similar problems in other countries, the U.S. trouble did not spring from its balance of trade—which has a favorable surplus of more than $4 billion —but from spending more than this on military aid and economic assistance around the world.

The problem was dramatized by a sudden increase in the outflow