Thursday, Nov. 29, 1962 University Daily Kansai
Page 3
Economy Needs Deficit Spending
In any academic field there is a huge gap between what the layman thinks and what the specialist thinks. In most cases this is unfortunate and that is all. But the lack of public knowledge about the U.S. economy is having an increasingly harmful effect.
The nation's economy isn't expanding rapidly enough, and a great number of economists are in fairly general agreement about what should be done: The government should spend more money.
THE PROBLEM is simple. Private sources are not investing enough in the economy to insure an adequate growth rate. The economy must therefore be bolstered by public investment, and during a period of sluggish growth the government should put more money into the economy than it takes out; i.e., it should operate on a deficit.
President Kennedy understands all this, and he has even had the nerve to state it publicly. But he has been reluctant to use governmental tools to stimulate the economy, the apparent reason being that he is painfully aware that the public and conservative Congressmen (those who invariably make the most noise) are at least a couple of decades behind him and his economic advisers.
The divergence began about 1936, when John Maynard Keynes published, "The General Theory of Employment, Interest and Money," a book so complex that only an economist could make much sense of it. But every economist has read it. To many of them, and particularly to those to whom Kennedy is listening, the book has become a sort of Bible. The stature of Keynes shows no sign of diminishing; significantly, The New Republic's latest issue, in which 20 economists discuss various aspects of the U.S. economy, is titled, "Time For a Keynes."
PARAPHRASING KEYNES IS a formidable, if not impossible, task. To simplify (perhaps grossly), he demonstrated that two basic and chronic economic problems — low production and high unemployment — could be cured by increased investment. This investment could come from public or private sources; but if private investment were insufficient — as it would be during a depression or an extended downturn — he advocated government spending as a key method for providing the necessary stimulation to the economy.
Public spending, though important, was only one of the Keynesian remedies for economic stagnation. Above all he wanted investment, and he recognized that this could result from a tax reduction, for example, because it would leave individuals more money to spend. Other governmental measures to stimulate private investment or to discourage saving would have a similar effect.
But the intricacies of the system are not as important here as the principle. Keynes started a revolution in economics because he showed that a country need no longer remain at the mercy of mysterious and uncontrollable forces that cause economic stagnation or disaster. Investment is the answer,he said,and implicit in this solution is the frequent need for a high rate of public investment.
SINCE THE New Deal, the U.S. has not had an administration liberal enough to put the theory to a sustained test. But in the last decade virtually all the nations of Western Europe have traveled far enough along the Keynesian road to national prosperity to find that it is by no means a dead end. Yet the U.S. lags behind, our annual growth rate in the last six years standing at a miserable $2^{1/2}$ per cent. The London Economist recently found the situation suitable for the following satiric reflections:
"By all the truths Americans have lived by, the continental Europeans must be in for dire trouble. Their economic sins are almost unspeakable. First, and by all odds foremost, their governments never balance their budgets—at least as Americans understand the term. More awful still, they do their best to avoid surpluses in these budgets. All of them have some nationalized industries...
"It is clearly an unjust world that permits such economic simmers to go on getting richer and richer. . . The continental Europeans, in fact, are doing in economics what any sensible man knows is impossible; they are spending themselves rich. . . Europe is now in its fourth consecutive year without the shadow of a recession and looks like it is repealing the business cycle altogether. What moral does this hold for America?"
PRESIDENT KENNEDY is apparently getting the point, for in a speech at Yale in June he attacked several widely held ideas that crippled our economic progress. He cited the myth that "government is big and bad—and steadily getting bigger and worse"; the myth that "all our national soundness or unsoundness" can be measured by reference to the government's annual administrative budget; and the myth that the public debt "is growing at a dangerously rapid rate," when in fact "both the debt per person and the debt as a proportion of our gross national product have declined sharply since the end of the Second World War."
In essence, the President was pleading eloquently that the American public forget the taboos generally attached to deficit spending and give him the mandate to bolster our lagging economy by transforming Keynesian theory into practice.
Shortly thereafter, getting bolder, the President announced that he will propose a tax cut in January for the obvious purpose of increasing private investment. Sen. Harry F. Byrd, discussing Kennedy's decision last week, declared that a tax cut without an accompanying reduction in government spending would be "unmitigated fiscal irresponsibility." In short, it is fine to increase private investment so long as public investment is decreased, a decidedly non-Keynesian conclusion.
SEN. BYRD frets greatly — as does a majority of the American public — about the size of the national debt; yet sophisticated economists are arguing that the government is too reluctant to incur deficits when a lagging economy calls for a high rate of public investment. Ask one of these economists about the national debt and he will answer roughly as follows:
The overwhelming part of the debt now being carried by the government was incurred in financing World Wars I and II and the Korean War. It is not a grave quantitative problem simply because it is internal. Nearly all of the debt is made up of what the government owes American individuals and institutions who hold government bonds.
And since the debt is internal, interest payments stay within the country, constituting no direct loss of disposable income. For this reason, the after-dinner speaker who ends his attack on the national debt by asking the audience, "Could you run your family budget that way?" is making a false analogy. When Mr. and Mrs. Smith spend a dollar it's gone as far as they are concerned. But when the government spends a dollar in this country an American makes a dollar. There can be problems connected with a national debt, but they are not the problems that have been created by congressional reactionaries.
THE NATIONAL DEBT is comparable to the "bonded indebtedness" that shows up on the balance sheet of any profitable corporation. As Emile Benoit of the Graduate School of Business at Columbia University recently wrote:
"Corporations have been increasing their debts by $16.6 billion a year since 1953 — an amount sufficient to finance half of new investment in plant and equipment. Modern businesses do not have emotional attitudes of fear or shame in thus utilizing debt. Debt is viewed not emotionally as an evil, but rationally as a convenience...
"But while corporate debt financing is generally received as normal and entirely acceptable, federal debt financing has been interpreted . . . as dangerous, improper and almost immoral..."
ALTHOUGH PUBLIC officials like Byrd are not helping matters by their constant genuflection before the "balanced budget," the main reason Americans seem frightened of deficit financing is probably that the President has been unwilling to educate them. Most of them would be highly apologetic, no doubt, if they knew they were slowing things down so much. It's just that they've never heard of Keynesian economics, and they're never discussed the nato work with an economist.
All they know is that they sure couldn't run their family budget that way.
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tional debt with an economist.
Fred Zimmerman
A spokesman for the Bell Laboratory said company scientists are now concentrating efforts on plans for a second satellite, Telstar II, with hopes it can be launched in the spring.
Bell May Launch Telstar II In Spring
The original Telstar, launched four months ago, will no longer transmit on command from earth signals.
MURRAY HILL, N.J. - (UPI) - Bell Telephone scientists were working today on a successor to Telstar, the world's first trans-Atlantic television satellite.
Patronize Your Kansan Advertisers
IBM Exec. Is New Assist. Sec. of Army
Schaub resigned yesterday effective Dec. 1, for "personal considerations" after 28 years of government service. He became assistant Army secretary March 2, 1961.
WASHINGTON —(UPI)— President Kennedy has accepted "with deep regret" the resignation of William F. Schaub as assistant secretary of the Army for financial management. Kennedy named Edmund T. Pratt Jr. of New York, an International Business Machines executive, to succeed Schaub.
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