The Economy: New & Exuberant

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The Administration has pumped money into the economy through the independent but willing Federal Reserve, and thus kept credit easy for the longest period since the Korean war. By putting through a 7% tax credit for investment in new machinery and by liberalizing tax write-offs for the depreciation of old machinery, it has given business an extra $1 billion a year for capital spending. At first, businessmen regarded these gestures as inadequate and unimportant, but their accountants soon got busy and showed them the savings they could make. "I think we've all been surprised at the amount of help it's given us." says Federated's Lazarus.

But John F. Kennedy's main contribution to business confidence has been his new attitude toward business. After his blunt attack on the steel industry last year, he has taken pains to avoid further offense, and pleased businessmen by his restraint in not interfering with the new price rise by steel in April. The businessman's new attitude toward the President is summed up by Monroe Jackson Rathbone. 63, a chemical engineer who followed his father into a job at Standard Oil (New Jersey) and rose to become president of the $10 billion-a-year company. "President Kennedy is not anti-business at all," says Rathbone. "He simply has made a few mistakes." The President's new attitude signaled to businessmen that he and his Administration have come to believe in one guiding but generally overlooked principle of the New Deal's favorite economist, John Maynard Keynes: "The engine which drives Enterprise is not Thrift but Profit."

Fiercer Competition. In search of profit, businessmen themselves have been inspired to boost their spending on plant and equipment, which has been one of the weakest parts of the economy in the last few years. This year capital spending will climb to a record $40 billion. The most prodigious spender of all. American Telephone & Telegraph, has increased its annual budget by $1 billion since 1959, this year will raise it to $3.1 billion —more than the gross national product of many nations. Joe Block's Inland Steel has increased its capital budgets from $42 million to $110 million.

In the new economy, most of industry's capital spending will not go for expansion, as it always has before, but for modernization to make industry more efficient and competitive. About 70% of the programmed spending will go for new or better equipment instead of bricks and mortar. In today's economy, modernization is more vital to industry than ever before, because competition is fiercer than ever both at home and abroad. Inland Steel's Block competes against U.S. Steel's Roger Blough, but both have to compete against Japanese and German steelmakers; all the free world's steelmakers, of course, compete against aluminum, concrete and other substitutes. Oil is competing against natural gas, plastics against glass, and the new aerospace giants, while trying to beat the Russians, not only have to wrestle with each other but also face such competitors as General Electric. General Motors and IBM. In 1950, Du-Pont had one competitor in polyethylene resins; today it has 16—which is one reason why its basic prices have melted 12% since 1954 and its profits will slip a bit this year even though sales will be up 5%.