Kennedy (71 page)

Harris, recalling that Keynes had called Roosevelt economically
“illiterate,” was no doubt biased, and the President thought Harris was hurting more than helping when, in reply to one of Kennedy’s liberal critics, he called the President a good Keynesian economist. But there was no doubt that John Kennedy, long after graduating from Harvard, had learned far more economics than most men in either public or academic life.

The task force report on the economy which Kennedy commissioned as President-elect in 1961, prepared by Paul Samuelson, bluntly used the term “recession,” which had been avoided throughout the campaign. Indeed, in every way it painted a dark picture of the economy. The recession, the report made clear, would not cure itself. “Not even the ostrich can avert the economic facts of life,” said Samuelson in the report. “He misreads the role of confidence in economic life who thinks that denying the obvious will cure the ailments of a modern economy.”

“That’s well put,” commented Kennedy to Samuelson as they reviewed the report in New York’s Hotel Carlyle two weeks before inauguration. He made no attempt in his first State of the Union address to deny the obvious:

“I painted the picture as I saw it,” said the President. “Anyone who makes the judgment that it was laid on thick for political reasons…is making a serious mistake.” Three days later, on February 2, 1961, he sent to the Congress the comprehensive Economic Message which had been in preparation for several weeks, proposing legislation (1) to add a temporary thirteen-week supplement to unemployment benefits; (2) to extend aid to the children of unemployed workers;
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(3) to redevelop distressed areas; (4) to increase Social Security payments and encourage earlier retirement; (5) to raise the minimum wage and broaden its coverage; (6) to provide emergency relief to feed grain farmers; and (7) to finance a comprehensive home-building and slum clearance program. The first of these seven measures became law the following month, and all seven had been signed by the end of June. It had been 161 days of action.

These seven measures were not, as some suggested, too little and too late, for recovery, while beginning early, was a long, slow process. Nearly $800 million in extended jobless benefits for nearly three million unemployed, over $200 million in additional welfare payments to 750,000 children and their parents, more than $400 million in aid to over 1,000 distressed counties, $175 million in higher wages for those below the new minimum, and an estimated 420,000 construction jobs under the new Housing Act could not be termed “too little.”

Nor did the President limit his moves to Congressional action or wait for it. The need was to get more money into the economy fast. On his own initiative, under existing authority, he directed all Federal agencies to accelerate their procurement and construction, particularly in labor surplus areas. He compressed a long-range program of post office construction into the first six months, released over a billion dollars in state highway aid funds ahead of schedule, raised farm price supports and advanced their payment, and speeded up the distribution of tax refunds and GI life insurance dividends. To expand credit and stimulate building, he ordered a reduction in the maximum permissible interest rate on FHA-insured loans, lowered the interest rate on Small Business Administration loans in distressed areas, expanded its available credit and liberalized lending by the Federal Home Loan Banks. To aid the unemployed, he broadened the distribution of surplus food, directed that preference be given distressed areas in defense contracts, created a “pilot” Food Stamp program for the needy and expanded the services of U.S. Employment Offices. Finally, he encouraged the Federal Reserve Board to help keep long-term interest rates low through the purchase of long-term government issues.

While most of these administrative moves of the first 161 days added to the deficit—some by tens of millions of dollars, some by billions—none of them had to wait for legislation or appropriations. The money, instead of being stretched out, was paid out when the economy needed it most. While passage of a public works acceleration bill, for example, would have helped even more, the President to the extent possible accelerated them on his own. At the same time he made clear—and this may have had the most important effect of all—that he would not cut back Federal spending when the recession reduced Federal revenues, or permit a tightening of credit when recovery began.

The combined impact of these legislative and administrative steps, which largely implemented the recommendations of the Samuelson task force, had an impressive effect. The natural strength of private spending may well have ended the recession sooner or later anyway, but prompt action provided not only an initial impetus for recovery but grounds for the basic consumer and business confidence needed to unloosen that spending.

The President, moreover, did not want a repeat of the anemic recovery staged by the economy after the 1958 recession. That time production, employment and plant use had never returned to their normal rates before another recession ensued. This time, he said in his February 2 message, he wanted “full recovery and sustained growth…. If these measures prove to be inadequate to the task, I shall submit further proposals to the Congress within the next seventy-five days.”

The seventy-five-day reference reflected pressure from within the administration, from liberal Congressmen and from organized labor, for two other measures: a massive public works program and a temporary tax cut. The President promised that he would review the situation with his advisers in the spring to ascertain whether either step would then be recommended. By late spring he was convinced that the recovery would continue without either, and that the Congress would pass neither.

Make-work public works, in his view, were not likely to create many full-time jobs until too late to fight the recession, and they would, with considerable waste, add to the published Budget deficit during the very spring and summer he was requesting more defense funds. That extra defense spending, he ruled, would have to serve as a substitute stimulant. Arthur Goldberg, convinced that the President should wage a fight for the bill in 1961 even if he lost, reminded him that Robert Frost had advised him to be “more Irish than Harvard.” But Kennedy only smiled. “As President,” he said, “I have to be both Harvard and Irish.” He promised Goldberg and organized labor that he would consider a more careful public works bill the following year.

Walter Heller and the tax cut advocates, on the other hand, were not only denied their request; they suddenly found themselves fighting to keep taxes from being
increased.

A Federal income tax increase at that stage, even though it took no more money out of the economy than new defense spending was putting in, might well have aborted the shaky recovery that was then under way. Establishing a precedent of new tax increases to pay for every increase in defense spending would have plagued Kennedy the rest of his term. Such a mistake in his first summer in the White House could have equaled for domestic affairs the foreign affairs fiasco at the Bay of Pigs in his first spring. Interestingly enough, the proposed tax increase originated not with his economic advisers but among his foreign affairs advisers, but it was tentatively approved by the President and came dangerously close to being announced.

The occasion was the Berlin crisis of 1961. Those advocating a declaration of national emergency and massive mobilization originally recommended both stand-by price and wage controls and a tax increase in order to offset panic buying, prevent inflation and cover the cost of the mobilization. Later, when the military plans were scaled down to a lower key, the idea of a “special Berlin surtax”—either increasing all tax rates by a flat 2 percentage points or everyone’s tax by a proportionate 7.5 percent—still had great appeal. Applying to both individuals and corporations, it was to be a one-year addition only.

The President liked it as a means of requiring all Americans to share the burden of the crisis as well as those called to active duty. The Attorney General liked it as an answer to those asking what they could do for their country. The foreign policy makers liked it as a clear demonstration of America’s determination. Secretary Dillon, though with some reluctance, at first liked it as a step toward the principle of balanced budgets. Senate Leader Mansfield liked it—both “sound policy and sound politics,” he told the President—and saw no reason to limit it to one year. Only the economic advisers were against it, arguing that taxes were already too high for solid growth. Inasmuch as they did not sit in on the Berlin crisis meetings, I undertook to represent their views.

Our first alternative was to argue that the threat of panic buying had been exaggerated—that there was ample slack in the economy and ample supplies of goods to absorb this small increase in spending—and that only discretionary authority to increase taxes, in case of an emergency, should be requested. That position was rejected as politically unfeasible.

The next tack was to point out that the proposed tax increase would not take effect until January 1, 1962—that well over half its revenues would be realized, not in fiscal 1962 when the new funds were being spent, but in fiscal 1963—and that the President should simply promise
that he would propose a tax boost the following January if, but only if, he was unable to present a balanced fiscal 1963 Budget. While this committed us to a restricted Budget effort the following year, that was far better than a tax increase in the midst of recovery, for we were determined to find fair means or foul of making that Budget look balanced and dropping all thought of new taxes. We also pointed out that there was plenty of unenacted sacrifice already pending in the Congress to which the President could point, including proposals to increase postal rates, close tax loopholes and withhold taxes on dividends. Secretary Dillon now endorsed this view, and the President, still sensitive to the charge that no concrete calls for sacrifice had followed his ringing Inaugural, reluctantly agreed.

Then the opposite faction produced a new scheme. As a means of sacrifice, why not drop from the domestic budget new expenditures equal to the new amounts required for defense? This, too, at first appealed to the President. But we argued, backed up this time by some “domestic” Cabinet officers, that such a move would indicate that the Republicans had been right all along in saying we couldn’t afford “both guns and butter”; it would confirm their suspicions that we didn’t need all the funds we requested; it would undermine our argument that strength in our economy and health and education was the backbone of our strength overseas; it would set a precedent which the opponents of these domestic programs could always find some emergency to invoke; and it would in effect give Khrushchev the ability to determine the size of our domestic budget and the strength of our economic recovery. Moreover, had not the President rejected the massive public works program partly on the grounds that this extra spending for defense would take its place?

In the end the President sided with us. He realized that he faced a deep-rooted sluggishness in the economy which posed a more serious and longer-range problem than mere recovery from recession. In a sense, his problem was the companion of Roosevelt’s a generation earlier. The thirties were confronted with an extraordinarily low supply of jobs for those looking for work. The sixties were confronted by an extraordinarily high number of potential workers far exceeding the supply of jobs. Unless the economy grew fast enough to create new jobs as rapidly as the manpower tide increased, there would be no end to recurring recessions, or even to high unemployment in the midst of prosperity. From 1947 to 1962 the civilian labor force grew by nearly twelve million men and women, but the number of jobs grew by only ten million. As a result, said the President, our loss of man-hours even in a year of prosperity,
as measured by those willing but unable to find full-time work, “was a staggering one billion workdays, equivalent to shutting down the entire country with no production, no services and no pay for over three weeks.”

As unemployment declined for skilled breadwinners who were white, it remained high for the unskilled, the Negro and the young. As jobs increased in new industries and service establishments, they decreased in old industries—coal, textiles, railroads and others. The economists called much of it “structural unemployment,” the pessimists said it was unavoidable, and after each recession it grew worse.