A Johnson Boom?
By NICHOLAS DAVENPORT
WHEN Wall Street re- opened after the Presi- dent's assassination there was a fantastic scramble for shares. The industrial index, which had fallen 21 points (nearly 3 per cent) on the black Friday, rebounded 32 points:--the biggest number of points ever gained in one day. There was much more to it than the technical adjustment of 'bear' cover- ing. There was undoubtedly a sense of relief among the big business people that the young liberal reformer who had been pressing de- segregation at home and foreign aid abroad so very hard had been removed from the political scene. They felt safer with a career politician from the South. Ever since he had interfered with the US Steel Company in 1962, forcing it to rescind its price increases, Kennedy had been regarded as anti-business. And the business world had begun to hate him as they had hated Roosevelt and Wilson. Hatred always seems to be near the surface in American politics. But Lyndon Johnson has no such anti-business taint. Indeed, he has often acted on behalf of the vested oil interests of Texas. If I am not mis- taken, there is going to be a lively Johnson boom on Wall Street.
Economically there is some justification for a stock market recovery and the irony of it is that without Kennedy it would have been impossible. He was the architect of the great business re- vival which by next month will have lasted three whole years. He had promised `to get the nation moving' when he took office and he had succeeded beyond everyone's expectations. Measuring from the beginning of 1961 industriaL production has been raised 22 per cent and company profits 40 per cent. Although unem- ployment remains at around 51 per cent, the numbers employed have increased by 2i million and the gross national product, with a rise of nearly $100,000 million, is approaching the stupendous annual level of $600,000 million or about $3,000 per head of the population. How farcical it was to describe Kennedy as anti- business! There was some fear late last year, when business was faltering, that the recovery was coming to a halt, but this year industrial production has been rising each month, the automobile industry has been booming (with over seven million cars produced), housing has picked up sharply—expenditure on housing has accounted for a third of the increase in the GNP—and business capital expenditures have recovered well from their decline in the first quarter of the year. The last item was un- doubtedly due to Kennedy's wisdom in liberal- ising the depreciation schedules.
The business magazine Fortune, which has been consistently bullish, predicts that the GNP will rise by about 5 per cent this year and that the momentum of the advance will not slow down until late in 1964. Kennedy was not so optimistic. He considered that without the tax cuts he proposed—$11,000 million over two years—the recovery would peter out. Certainly consumer spending has been rising slowly, ex- cept on services, and there has been little increase in retail sales since February. Mr. Walter Heller, the chairman of Kennedy's Council of Economic
Advisers, told the Senate Finance Committee recently that the tax cuts were necessary to strengthen the consumer markets and business investment. This, he said, would accelerate both production and incomes and so restore revenues in the Federal budget. But the conservatives in Congress remain sceptical. The budget has been in deficit for five out of the past six years and they are therefore pressing for the tax cuts to be tied to some restriction upon future Federal expenditures. They would, in fact, impose a limit on them as there is a limit imposed on the increase in the total Federal debt. The case for it was strongly argued in the October bulletin of the National City Bank of New York. Clearly, the tax Bill under Kennedy was not going to have an easy passage.
It was significant that in his first message before a joint session of Congress President Johnson declared that he would press on with the Kennedy measures, in particular the tax reduction Bill. If the business recovery is to hold, this Bill will have to pass without emasculation at the hands of the conservatives who are making a fetish, as usual, of a balanced budget. Fortunately the new President is much more likely to push the Bill through than his predecessor. He is an adroit 'fixer' and it is just possible that he will even get the Bill out of the Senate Finance Committee in time for its enactment before the end of the year. It may be that he will have to promise to go slow on the Civil Rights Bill, which is not yet out of the House Judiciary Committee. Or it may be that he will have to promise to accept more of the proposed cuts in foreign aid than the inter national-minded Kennedy would have tolerated. But if he deems it essential—with his eye on the presidential election next year—to get the tax Bill passed at an early date in the hope that it will tend to relieve the unemployment problem he will probably be prepared to compromise on other issues which he regards as less important Even so it is by no means certain that unem ployment will fall much below 5 per cent befor the presidential election takes place in view o the continual erosion of jobs through automation While I regard the accession of Lyndon Johnson to power as bullish for the American economy in general and for Wall Street in par ticular, I fear some of its consequences for the economies of Western Europe. Any further cutting of the foreign aid programme or of American expenditures on defence services abroad, will reduce the supply of dollars and have an adverse effect upon international liquid ity. There are signs of it already. Euro-dollars have been used extensively to finance business on the Continent and the drying-up of this source of finance will create trouble. Serious bankruptcies in Germany have already occurred Kennedy was fully aware of this threat to European liquidity and ready to take steps to offset it, but the new President will have his eyes more firmly fixed on his domestic scene The continued prosperity of the American economy will be his first concern. There is no doubt that American business under Kennedy had been caught between the fear of having no tax cut at all and the prospect of having to pay for it by a money squeeze to counter the loss of foreign confidence in the dollar. If President Johnson succeeds in resolving that conundrum, as seems likely, he will be rewarded with a Wall Street boom. f
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