In the last message that Franklin D. Roosevelt wrote but did not deliver to the American people, he told Americans that, "We must move forward with firm and active faith." He realized that, thinking in terms either of the welfare of the people or in terms of political (i.e. public) responsibility, we must devise new programs to meet new times.
In reading the January, 1954, Economic Report of the President, let us set it in the context not of the contrast between what those responsible for it are now proposing and what the New Del or the Fair Deal stood for or fought for five years ago, 10 years ago or 15 years ago, but rather in the context of what we can do now, in fact what we must do to realize the possibilities America now has.
First, the Report finds that in the year 1954 a large depression is unlikely in the United States. I agree with that finding. But what philosophy issues from the Report on the basis of its finding that a serious decline in a 1954 is unlikely? The philosophy in the main is: since there is not going to be any serious economic depression in the US this year, the American Government really has no urgent and pressing need to apply more aggressive policies and programs now. We can wait and see whether the situation is going to get worse before it gets better.
But the basic responsibility facing the United States now does not hinge upon whether we are going to have a serious depression. Instead, it is whether we have enough intelligence and vigor with all of our resources to prevent the people who are being hurt now by an economic decline, even without a serious depression, from continuing to be hurt. It is no answer whatsoever to two or three million breadwinners and their families, to say, "Forget about it; because you're only a small number and not a large number." And there is the further point that it is wiser and easier to stop and reverse a little economic decline than a bigger one.
And it is no answer to the nearly 25 percent of American families who have incomes of less than $2,000 a year according to available measurement, or the nearly 60 percent with incomes of less than $4,000—which under current conditions is not an American standard of living in accord with what we can provide—it is no answer to say to them that their problems don't count because the country as a whole is prosperous.
It is no answer in view of the effect upon the whole free world of even a small economic downturn in this country. Such a downturn is always accompanied by decline in our imports. A drop in these purchases abroad deprives free nations of the dollars with which to buy goods they need from us. All of our purposes of freedom and progress and security in the free world are affected even by a small economic downturn in the United States, —
This, however, is only the negative side of it. Measured in terms of our potential in resources, our skill, our machinery, our manpower, our brain power and our capacity for growth, we have the possibilities within the next few years in the United States, barring a total war, to achieve what would have been believed absolutely fantastic just a few years ago.
Let us consider in more specific terms what we can achieve within the next few years easily within our strength; and then set against that let us consider the programs which are being proposed by the current Economic Report.
We have read about the General Motors Corporation getting ready to invest $1 to $2 billion in the improvement of facilities. Nobody could quarrel with that. It is good. But what this means very simply is that all over the US in many of our industries there is going forward a rate of technical change, a rate of increasing ability to produce for every man hour that is worked, perhaps at an even faster rate than that which during the years since 1946 has enabled us to build up our economy more than we have built it up at any peacetime years in the past. When one adds to that development the fact that our population is growing larger each year, and that there are or should be more people in the labor force each year, one gets a very simple equation which may be stated like this: people+tools=progress or depression. In other words, unless we have the brains to learn how to use the improved tools, plus the increased number of people able and willing to work, the alternative is that the tools won't be used and the people won't be used, and gradually if not quickly we will move much further downhill than moving up.
In fact, what has really happened in the United States in the last half year is that we have not brought the standard of living, the level of demand, the distribution of goods and services, up to the rate of our productive power. And we have not built into the structure of our economy in these last few months the programs, either private or public, which enable us to dispose of the goods that we have the capacity to produce.
THE FIRST evidence of that was in the farm area. Farmers in 1953 had an income considerably lower than in 1952. That had an effect upon them, and it also had an effect upon the automobile industry, upon the farm implement industry, and upon everyone from whom farmers buy. All this is sometimes attributed to the farm surpluses. But the farm problem in the United States in general is a problem of surpluses only in the old sense that any productive economy has "surpluses," and thus the beginning of depressions, when it does not bring up its standard of living so as to match production with the satisfaction of the needs of the people.
Milk is one good example. In 1952, we consumed in this country about 108 billion pounds of milk and milk products including milk, fluid milk, cream, ice cream, butter, etc. We produced about 115 billion pounds in 1952. In 1953, the government bought up 9.5 billion pounds at a cost of half a billion dollars, and there is much talk about the "surplus." But if we brought a decency standard of living to every deserving American family—a diet meeting adequate standards of nutrition—we would need within a few years, say by 1960, at least 150 billion pounds of milk and milk products.
If we learn in the United States even better how to use our full productive power to meet full human needs and desires, here's what we can do in the next few years, say by 1960. We can lift our total national output, which was at an annual rate of $375 billion a few months ago, to about $500 billion 1960 annual rate or by about 1/3, not through longer hours, not through the forced pressures of war or semi-war economy, not through controls, but just through releasing the tools and the technology and the manpower that we have so that they can work instead of lying idle. This is not taking into account what might be accomplished through atomic power or other extreme new scientific or technological developments.
With this growth, we could by 1960 bring every deserving family in the United States who has an income of less that $4,000 a year up to that level. And this would take only a small part of our increasing productive potential, so that we would have a preponderant amount left over, not through the process of government distribution, but through the workings of our economy, for added income all the way up and down the income structure according to talent and ability, invention and initiative and hard work and good luck.
We had an opportunity for about $60 billion worth of private business investment at an annual rate in the US last year before the decline started. By 1960, with our tools and our technology, we can bring that opportunity, plus a lifting of private consumer expenditures for a much higher standard of living from our annual rate of about $330 billion by 1960, there would still be room left over in a $500 billion economy to spend enough publicly for those things which the American people need and cannot otherwise provide. There would be enough to carry along national defense, the building of our resources, social security, housing, education and other programs, at a level consistent with what a great and free and growing people really needs; and, incidentally, to balance the budget at a 20 percent reduction in taxes because of the much bigger product.
But we need policies and programs to do this. Let us analyze some of the programs set forth in the Economic Report, measured against these needs and opportunities.
First of all, there is the field of housing. If we are going to use our tools and our technology and our resources, we are going to have to build an annual average of at least a million and a half to a million and three quarters houses between now and 1960, in order that housing may play its vital role in providing employment—not only employment in the construction of housing, but employment in the production of things that go into houses and all the things that owners or home renters buy. We also need this many houses because even now there is an enormous number of families living in substandard housing, and there is a great number of slums to be cleared in the rural and in urban areas. We do not yet have a truly American standard of housing. Yet the proposals which come forward i the Economic Report are generally thought to be geared to the objective of only about a million houses a year, which is what we built in 1925, 29 years ago, and 50 percent less than we built to restrain house production below the needs of the people because we were entering into a defense program.
I cite as only one measure of contrast between the freezing of objectives which is taking place as to what kind of programs we need, based upon the standards of the past, and what we really need if we are going to move ahead on a basis of economic stability and growth and social justice.
And this is not only what our economy can afford to do, but also what our economy needs to do if we're going to avoid a depression in the longer run. We cannot adopt the philosophy of let's have just a few less automobiles this year because we've been producing too many; a few less houses because we've worked down the overcrowding; a little less farm production because we've had surpluses; a little less foreign aid because we can't afford it. All those "a little less's," when added up, are the bricks for the building of a depression house.
SOCIAL SECURITY is another example. In the field of social security the liberal program for a long time has been to extend coverage and to make adjustments in benefits. It is gratifying to see this program now being endorsed by others who earlier had opposed it. But even this expanded program is now far out of line with the economic and human needs of the period between 1954 and 1960. If we are going to achieve 70 million jobs by 1960, we will have such an enormous productive potential that maintaining the vast number of people who will have reached the age of retirement at a $40 to $60 to $80 a month standard of retirement annuities on the average is not going to be consistent with our economic needs or our human responsibilities. It will not provide for that large part of the population who are retired the consumer purchasing power that we need to help keep our economy going at high speed. With our current and anticipated productive potential, the standard of living which the public recognizes as its obligation to those who have worked through their useful lives needs to be on the average about 2 1/2 times as high as it is now, so far as old-age insurance protection is concerned.
For years now, even conservatives have accepted the idea that it doesn't make sense in the American economy to have only a 75-cent or a 65-cent minimum wage for people working within our plentiful economy. We've learned that it isn't good for the industries which pay so low a wage; and it certainly isn't healthy competition with those enterprises which have already achieved and are trying to maintain a higher standard of living. Today, with our productive power greater than ever before, and with our need of building up consumption very urgent as the defense program is moved downward, we for the first time find an Economics Report throwing the weight of its influence against any increase in the minimum wage for American families now on the ground that it might cause unemployment. This involves the Economic Report in a curious contradiction. It is glowing in its statement of how prosperous we now are and will remain; but it is dismal as to what we can afford to do to expand the buying power essential for economic stability and growth. It is tremendously important that we apply a critical and careful eye to these programs which have such an enormous effect on our future, and that we ask ourselves not the question of whether they comply with what we were striving for five or 10 or 15 years ago, but whether they qualify as dynamic, vital growth programs for the years ahead.
In the area of national defense, I believe that we are taking a risk in so drastically reducing our outlays. But if we are really able to sustain national security and reduce by about $4 billion our outlays for defense, then I say that at least a part of that saving should go for the purpose of avoiding an even greater percentage reduction in our economic aid to certain needy parts of the free world—if we believe that economic progress i the long run may be as important as military machines in avoiding a third world war.
If we can afford, in terms of national security, to reduce our defense outlays by $4 billion a year, some small part of this saving should also go into improved services for education, for health and for resource development, which are now at too low a level relative to the size and needs of the whole economy. It is impossible to project over the next few years a sound and vital and growing economy if we do not have the kind of education, the kind of health services, the kind of resource development, which will provide a solid foundation upon which our private enterprise can grow and prosper. But the Economic Report does not project these principles and programs of growth and change which must keep up with our advancing potentials.
There are some merits in the financial program presented in the Economic Report, but not enough. What is happening is this: First of all, there is $1 billion increase proposed in the tax on payrolls. About half of that is a tax on workers, and is a regressive tax. This tax may be necessary to maintain the soundness of the social security system. In that event, since the economy has begun to turn downward basically because we do not have enough consumer buying power throughout the economy to support our productive capacity, the increasing payroll taxes should be counter-balanced more heavily than is proposed by tax changes applying to low-income families either through the raising of the personal income-tax exemptions or otherwise. In view of the need to expand mass purchasing power and yet to raise enough in tax revenues, I do not think it wise on balance to set in motion at this juncture a plan to give progressively more favorable tax treatment to dividend recipients—which may cost as much as $1 billion in tax revenues. Maybe we should do something in this direction to stimulate a business investment, but this is too much. I think that selective tax concessions or incentives to active business, for example some types of tax amortization, can provide far more stimuli at far less cost. I am afraid that our tax structure is threatened with a general change away from the direction which has made for a stronger and healthier economy for all groups—the wealthy and well-to-do as well as the middle-income groups and the depressed. Experience does not justify the idea of watering the top of the tree and trusting that enough will trickle down to the bottom.
Within this decade, by 1960, we can practically obliterate wide-spread poverty from the face of the United States. We can create a real opportunity for an American standard of living for all. We can improve the average standard of living by about 40 percent between now and 1960. We can bring all those below a decent American standard of living up to that level. We can afford and need to by 1960 a $25 billion addition to the annual opportunity for sound private business investment. We can balance the Federal Budget in the only way that a sound and progressive democratic country has ever been able to balance the Budget without neglecting human needs—by economic growth, and by realizing that the budget of the average American family and the budget and needs of the whole national economy are most important. In other words, the Budget of the federal government is really a part of the whole economy in action and a means to promote full employment and full production. If we do all of this, we can have sound fiscal policies, a balanced Federal Budget over the years, and a 20-percent tax reduction by 1960.
Insofar as we work out and apply a program on this basis, which is a vital and as realistic and as dramatic and as sound and as adjusted to today and tomorrow as the programs of 1933 and 1935 were to the problems of the New Deal—and even better adjusted because we have learned a lot—only then will we indeed by acting in the spirit of Franklin Roosevelt when he said: "Let us move forward with strong and active faith."
Roswell L. Gilpatric, a member of the New York law firm of Cravath, SivSne and Moore, is the former Under- 'Secretary of the Air Force.