ECONOMIC ALARMS IN AMERICA
By NICHOLAS DAYENPORT Is America talking itself into a slump? Almost anything can happen in that extraordinary country and it would be very serious for us if the deflationists gained the upper hand. But I am fairly confident that the economic advisers of the President have seen the dangers of the present confusion and will persuade Mr. Eisenhower, father-mother idol of his country, to talk the people into boom again. It is really surprising that the alarmists made such an impact upon public opinion. The name of ex-President Hoover no doubt stands for depression and the warning which came from his mouth may have sent a shiver down the spines of those who suffered under him in the Thirties. But it is strange that the quip from the Secretary of the Treasury —that unless Government spending was curbed there would be `a depression that would curl your hair'—should have been taken seriously. Mr. Humphrey is a 'big business' man with a natural bias against Government spending and, although Secretary of the Treasury, is not responsible for the framing of the Budget. Like most Ministers he loves criticising his colleagues and like everyone else he is angry because there is no prospect of any reduction in taxation. In fact, the excise and corporation taxes which were due to go down in April will have to be renewed. For the fiscal year 1958 (which begins on July 1) total Government expenditures will rise to $71,800 million—$2,900 million more than in the previous year and $5,300 million more than in 1956. Most of the rise is due to defence and atomic energy, though I should add that dear money is costing the Government $600 million more in interest as compared with 1956. Welfare is taking no more than is justified by the increase in population. Receipts are also rising and for the third year running there is an estimated surplus of around $1,700 million for 1958. There is nothing inflationary about that. The per- centage of the total national resources taken by the Federal Government has risen from 18.6 to 19.1. There is nothing alarming about that. (With local government expenditures the percentage is 30.) Mr. Humphrey, I am glad to see, has now repented of his petulant gibe and has admitted that there is no serious immediate danger from Government spending.
For a more sober analysis of the inflationary prospect we have only to turn to the President's economic report to Congress. When production, sales and employment are high, he said, wage and price increases in important industries `create upward pressures on costs and prices generally.' There was, in fact, an increase of nearly 3 per cent. in the cost of American living last year. But the President (meaning his economic ad- visers) realised that monetary and fiscal restraints would not cure the trouble. Taxes are already too high for safety and money might have to be made so dear that it would hurt the innocent (small business, housing, hospitals, schools, etc.) and 'court the risk of being excessively restrictive for the economy generally.' What the President im- plied was that he would sooner rely on manage- ments and labour being sensible—increasing production but not advancing wages ahead of productivity—than on dearer money and tighter credit to cure the inflationary stresses, At the moment the American economy is probably entering a shallow recession. Industrial production in January was slightly down—the index being 146 against 147 in December—and the steel mills are operating at 964 per cent. of capacity. Housing starts have declined further to a rate of 1 million units a year against 1.3 million in 1955. (Private housing starts in January were at the lowest monthly level since 1952.) But it is by no means certain that capital investment will be lower this year than last. In only two of , the last ten years was there any decrease in capital investment—in 1949 and 1954: The average increase over the ten years has been about 11 per cent. With the current high rate of obsolescence, with a technical industrial revolution in full swing, I would be surprised to see any decrease in indbstrial investment this year. As a result of the huge rise in productivity in the last few years the United States should be able to 'produce' herself out of the present inflationary strains.
Wall Street fell sharply on the first pessimistic talk of Mr. Hoover and Mr. Humphrey and the index of industrial shares, by breaking through the low point of 1956 (462), convinced the chartists that a bear market had arrived. But after touching 455 it has recovered to 467. This is about 10 per cent. below its 1956 high. In the two previous recessions the industrial share index declined about 15 per cent. and 12 per cent. respectively. The market today has probably not much further to fall to discount the likely re- cession in store for 1957-58. But if Mr. Eisen- hower's economists lose their battle against the Federal Reserve bankers, if a stable dollar wins priority over full employment, this forecast will be hopelessly wrong.
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