The Atlantic Report on the World Today: Washington

on the World Today

THE chief economists in Washington are convinced that a subtle transformation in business thinking about the role of government — and government thinking about the role of business — has taken place in recent years. An increasing number of business executives approve of the expansionist fiscal and monetary policies that have helped assure a sound economic growth. And the President’s business instinct for economy and his dislike of unnecessary controls have been appreciated in the business community.

Johnson’s economic advisers, as well as a large number of business leaders, no longer see any conflict between those who favor a compensatory fiscal policy designed to stimulate maximum growth and those who oppose an expansion of bureaucracy and red tape. To push his economy drive and to encourage the cutting of red tape, the President has been considering the possibility of asking Secretary of Defense Robert S. McNamara to head a new type of Hoover Commission within the executive branch. The commission would make recommendations to the President on ways to modernize and streamline the government and also act as the President’s agent in putting the approved changes into effect.

The President will continue to support the type of expansionist fiscal policies that have been adopted by all the modern industrial nations. Economists in Washington, as well as the majority in private industry, are in agreement that the greatest advances in economic science have come in the aftermath of the major depressions of this century. After World War I, the world was plagued with the most widespread and devastating depressions and inflations of modern times. Governments fell, revolutions took place in many countries, and capitalism appeared to be doomed. Since the end of World War II, the industrial countries have experienced unparalleled growth and prosperity. While there still are many dangers, especially from the problems of the underdeveloped world and from unresolved international monetary difficulties, there has been no serious economic crisis in the Western world or in Japan since the Marshall Plan.

As a result of the new economic planning, both inflation and deflation of a persistent character have been avoided. The people of the industrial countries have come to expect economic expansion as part of their way of life. This year, the United States established a record of the longest unbroken economic advance in its history. The outlook for continued growth after forty-four months of a steady climb is good. Today the competitive system is stronger than ever, and its merits are widely recognized even by the European socialists.

The next tax cut

While it is too early to measure precisely the effect of the tax cut in promoting a stronger economy, the President’s advisers are convinced that it served its basic objective of expanding total demand without inflation. The objective in any economy is to make the maximum use of its facilities to meet the needs of the people without inflation. The tax cut was one device to promote overall demand and to encourage the full use of the nation’s plant and labor force. Although the tax cut was bitterly opposed in Congress, not many politicians are campaigning this fall on their record of opposition to it.

Investment and consumer expenditures have increased since the tax cut was put into effect, and savings have increased as well. In the first half of the year, consumer spending rose $14 billion, the largest advance ever recorded in six months. Net financial savings of individuals in the second quarter reached $7.7 billion, the highest quarterly total of the post-war period. Most important of all, the unemployment rate fell from 5.7 percent of the labor force in June, 1963, to 5.3 percent in June, 1964, to 4.9 percent in July and 5 percent in August.

As Business Week magazine has said, “the longest business upswing on record is changing economic ideas that have been held for more than 100 years. For the first time, a boom has been accompanied by price stability. At mid-1964, U.S. business finds itself in the midst of an upswing that’s changing everybody’s thoughts about what a free enterprise economy can do.” The magazine applauded the government for its “smoothly expansionary fiscal policies” and praised the Federal Reserve Board for “allowing the money supply to grow smoothly.”

Reduce government control

Contrary to what some of the more strident critics of government have said, there is a new desire in Washington to reduce rather than increase government’s role in the control or supervision of business decisions and activities. Fiscal and monetary planning are essential, the economists maintain. But red tape and controls of various sorts should be reduced to a minimum. President Johnson’s view, supported by the Council of Economic Advisers, is that government must help maintain a climate in which the demand for goods and services can be sustained with a minimum of unemployment.

If total spending by consumers, business, governments, and foreign purchasers is inadequate, unemployment and a faltering economy result. If total spending is too great, there is inflation. A balance needs to be maintained, and it is the function of the fiscal and monetary authorities to see that it is. It cannot be achieved by laissez-faire. The objective is not a federal deficit but the stimulation of public and private demand to assure full use of men and machines.

The modern era in American economic policy began with the Employment Act of 1946, which established the Council of Economic Advisers. Under both Republican and Democratic administrations it has demonstrated its great value. A few weeks ago, the President met with all of the past chairmen of the council. They expressed agreement on the fundamental principles of fiscal policy that have helped produce the new record of economic growth in America. Full employment, the economists contend, is the first answer to the problems of automation, juvenile delinquency, poverty, and even crime in the streets. They are convinced that with wise fiscal and monetary management the economy can reach new heights and that the hardest of these social problems will be susceptible to correction.

The end of the draft

The Democrats should not have been surprised when Senator Goldwater demanded an end of the military draft. Senator Gaylord Nelson of Wisconsin urged the Democratic Platform Committee to adopt a plank promising elimination of the draft by 1967. By that year, he estimated, the draft will be taking an average of ninety thousand men per year from a pool of more than twelve million. For some months, it has been obvious that the draft was an anachronism. President Kennedy attempted to remove some of the causes for complaint when he ordered the exemption of married men.

But that was only a beginning. With 42 percent of eligible draftees never being drafted, there is no such thing as universal military service. Recognizing the problem, President Johnson ordered a full review of military manpower problems looking toward the possible elimination of the draft in the next few years. The study is to be completed in 1965. The present law expires in 1967.

Senator Nelson has repeatedly told Congress that it should face up to the problem. Canada and Britain have eliminated the draft in favor of professional volunteer systems. France, which has had a universal military system since the time of Napoleon, this year decided to introduce a selective military service system. Like the United States, France cannot use all the young men available for training under a universal military system. A professional army without the draft would clearly be more expensive. To obtain a sufficient number of volunteers, Canada pays its inductees almost twice as much as the $78 a month the United States pays.

Building our fences

The next President may become the most traveled President in American history. President Eisenhower established a record for travel in his Administration. When President Kennedy took office, he thought that he would stay at home and let others speak for him abroad. But after only a few months he made his first trip to Europe. Three trips to Latin America followed, and in 1963 he returned to Europe. He was planning a Far Eastern tour at the time of his death.

During his second trip to Europe, President Kennedy made many new friends for the United States and presented a rational alternative to Gaullism. He revived the hope of America’s old friends that a new era of cooperation and trust was dawning and that it would be based on reason and understanding, on restraint in the use of power in the nuclear age. In Europe’s eyes, America showed restraint and the proper use of power in its handling of the Cuban missile crisis.

Kennedy’s advocacy of a nucleartest-ban treaty and his willingness to enter into selective negotiations with the Communist states meant to Europe that under the Kennedy leadership the United States was embarking on a more reasonable and realistic course.

Then came the tragedy in Dallas, the outbreaks of racial violence, the so-called white backlash, the rightwing capture of the Republican Party, and America’s prestige abroad was heavily damaged. President de Gaulle found new adherents even in Great Britain after Senator Goldwater was nominated. The Gaullists in Germany grew bolder in their attacks against Chancellor Erhard and Foreign Minister Schroeder, who base their policies on close ties to the United States and Britain.

The task of rebuilding America’s prestige will require the most intensive application. The White House will have to cope with the problems that are always near the point of explosion in Latin America and the Far East. Goodwill trips, however successful, are not alone the answer. The answer is to be found in sound policy. But it will be necessary for the new President to restate America’s position wherever possible in the most eloquent manner.

Secretary Rusk

For many years the Department of State was the most sharply criticized and the most controversial of the major federal departments. In this campaign, however, although foreign policy is a much debated issue, neither the Secretary of State nor the department has been a major source of controversy. Yet Secretary of State Dean Rusk has spoken his mind more freely in this campaign than any of his predecessors did in the campaigns of the last quarter century. While Rusk has avoided taking the initiative, he has responded frequently and directly when he thought that the record was misrepresented by the Republican challenger. And he has made a number of speeches throughout the country explaining Administration policy.

Under Robert S. McNamara, the Department of Defense has received higher marks for efficiency and organization than the State Department has under Rusk. Yet Rusk’s stature has increased in recent months to the point where many of those who once criticized him for lack of force now hope that he will be retained in office if President Johnson is re-elected. Instead of attracting commendation for efficiency and zeal as McNamara has, or for dominating and controlling policy as John Foster Dulles did, Rusk has won esteem for dependability. There may be no more important qualification for a Secretary of State at this time.

Rusk has lived through the crises of the last four years without panicking and without grasping for power. His record for good judgment and sound advice is beginning to be acknowledged by his earlier detractors. From the beginning it has been widely recognized that Rusk is a solid asset to the Administration on Capitol Hill. There his honesty, reasonableness, and thorough understanding of the issues earned him wide respect in both parties.

President Kennedy was in many ways his own Secretary of State. President Johnson has not been interested, as his predecessor was, in the finer points of debate within the department. Rather, he has wanted guidance about what should be done in any given circumstance. Rusk has faithfully reported to the President any reservations or disagreements in his department, and he has become the President’s principal adviser on foreign policy in fact as well as in name.