The Economy: New Frontier's New Frugality

The strength required by the U.S. in its contest with international Communism depends heavily on the continued vigor of the nation's economy. Last week, in preparing the national budget—one of the biggest single factors in shaping the economy—President Kennedy made it clear that the Administration is concerned about the state of the economy and the heavy load it must bear to keep the U.S. in fighting trim. For the New Frontier, Kennedy decreed a new fiscal policy: frugality.

After raising the price tag twice, the Administration finally concluded that the budget deficit for fiscal 1962 will be about $6.9 billion, less than the peacetime record of $12.4 billion in 1959, but far from the hopes Kennedy held before Soviet threats forced the U.S. into an accelerated arms buildup. Kennedy still promised a balanced budget for 1963 "barring extraordinary and unforeseen defense requirements"—and he clearly felt that now is the time to begin working toward it. "Appropriations," he told the heads of federal agencies, "are only a ceiling, not a mandate to spend . . . The current outlook re-emphasizes the necessity to conduct the necessary work of the Government at the lowest possible costs, to eliminate or defer low-priority activities and to limit the number of Government employees to the absolute minimum."

Cutting Fat. Kennedy became worried about cutting some of the budget fat after Congress adjourned and he saw clearly that the new defense budget, an increase in the farm program, and added social legislation would mean a big deficit—and a big political issue in the 1962 elections. In his order last week, Kennedy ruled that any acceleration of spending instituted for the Administration's antirecession measures—criticized by many as having been unnecessary in the first place —be "phased out," and that new or expanded programs "be undertaken with caution and deliberation." As a starter, the Administration announced that it will not use $780 million in extra money voted by Congress for bombers and other defense projects; the current buildup, it feels, already gives the U.S. "a nuclear capability several times that of the Soviet Union."

When Brother Ted Kennedy, who has ideas about running for U.S. Senator next year, called from Boston to ask how he could explain to postal workers the President's veto of their pay raise, Kennedy offered no solace and said that he also intended to cut back installations in the area. Said the President: "Look them in the eye and tell them if we don't get the revenue we can't provide the raise."

Kennedy's best hope for reaching a balanced budget next year is that the U.S. economy will prosper sufficiently to bring in the big load of extra tax money he needs. That hope is not as great as it was only a few months ago. Last month top industry economists told Kennedy's Council of Economic Advisers that they expect a slower upswing in the economy than formerly. The economists now look for the national output of goods and services to reach $560 billion in 1962, a good gain over 1961 but lower than the $575 billion recently predicted by Commerce Secretary Luther Hodges.