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The Economy: Advice from Activists

5 minute read
TIME

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.”

Regional Redevelopment. Illinois Senator Paul Douglas, another professional economist, unfurled a new plan drawn up by his Kennedy-appointed task force for aid to depressed areas. Douglas figures that the Government has the responsibility not simply to give stop-gap aid, but to permanently revitalize the nation’s 20-odd major depressed areas and dozens of smaller ones, peopled by some 15 million Americans, by attracting new industry and changing the historic economic bases of the areas. Besides proposing a $389.5 million depressed-areas bill and a plan for doubling the amount of surplus food distributed to depressed areas, Douglas saw a longer-range program of federal grants to unemployed workers, broad regional redevelopment programs, and substantial local public-works projects that might even include creation of a Youth Conservation Corps. Cheek by jowl with Douglas in Palm Beach, Kennedy told the press that aid to depressed areas should be assigned “the most important domestic priority.”

Loans & Grants. Back in the cold, realistic climate of Washington, Kennedy’s aides made clear that he is willing —and able — to go only a small way toward Douglas’ goals. Kennedy will probably double the surplus-food distribution by executive order (to about $18 worth per month for a needy family of four). But he is wary of direct federal grants to aid the unemployed, and he has little taste now for Douglas’ public-works ideas. As for area redevelopment, Kennedy would push the bills hoppered last week in the House and Senate; each provides $300 million in loan funds and $89.5 million in grants to help attract industry.

Twice Ike had vetoed virtually the same measure, contending that it gave too little planning responsibility to local citizens, and that it committed the Government to lend about $2 for every $1 put up by local and private groups. (The Republicans had wanted to reverse those proportions to $1 to $2, limit the funding to something between $50 million and $180 million.) Under Kennedy, the Democratic bill is bound to breeze through. But to head off conservative howls, many a Kennedy man last week talked of limiting spending during the first year to $150 million—much closer to what Ike wanted than what Douglas wants.

Two more presidential task forces reported to Kennedy last week:

¶HOUSING: A group headed by Joseph P. McMurray, former New York State housing commissioner recommended a program including $500 million a year for college housing loans, $650 million a year for urban renewal, big subsidies for low-income housing, a step-up in Federal Housing Administration authorizations and liberalized terms, a new Cabinet-level Department of Housing and Urban Development, a loan fund for suburban planning, aid for mass transit, etc. Cost of the package: not disclosed.

¶ EDUCATION : Purdue University’s President Frederick Hovde offered a report urging the new Administration to make loans and grants totaling $9.2 billion over the next four years—some $2.3 billion a year—to build schools, boost teachers’ salaries, and generally improve the level of education in public schools and public and private colleges. “Anything less,” remarked Dr. Hovde, “would not be significant.” Said Kennedy dryly: “I don’t know whether we have the resources immediately to take up the whole program.”

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