Kennedy (75 page)

But the effort failed, and so did all the other complaints about such McNamara innovations as (1) five-year projections of cost effectiveness; (2) budgeting according to each major type of mission rather than each branch of the service; (3) the comparison of systems and support elements within each service to eliminate duplications; and (4) the use of computers and civilian intellectuals to analyze performance. More importantly, the Kennedy administration refused to commit itself to:

• Spending another several billion dollars on a nuclear-powered plane that, after fifteen years and one billion dollars, still couldn’t fly.

• Spending another $13-15 billion on the B-70 bomber, its name temporarily changed to the RS-70 in the hopeless attempt to find a mission for it that was feasible, necessary and, in JFK’s words, “worth the money we would have to put into it.”

• Spending another several billion dollars on a Skybolt air-to-ground missile that still combined all the disadvantages of the B-52 bomber that fired it (comparatively vulnerable on the ground and slow to reach targets) with all the disadvantages of the poorest missiles (comparatively less accuracy and destructive power).

• Spending another $11-12 billion on a battery of twenty-six Nike-Zeus antimissile missiles, at best protecting less than a third of our citizenry, and still unable to discriminate between an incoming missile and the flock of decoys that accompanied it. To be sure, said the President, the first nation to perfect a missile defense would have an immense psychological as well as military advantage. “But it will cost billions. There is no sense going ahead until that system is perfected.”

Moreover, these projected costs were only estimates. History showed that the final costs for acquiring advanced weapons systems in modern times have averaged three times the original estimates. John Kennedy did not believe that the economic health of either the country or any community had to depend on excessive or inefficient armaments. Money saved by McNamara’s ax was used to strengthen our sword and shield. Defense spending rose some eight billion dollars under Kennedy, constituting most of his Budget increase, but it was spent on more solid and dependable deterrents from which the above systems might otherwise have taken money.

McNamara and Kennedy also made certain that defense dollars were not spent on “gold-plating” needlessly fancy and expensive specifications,
²
on surplus installations, or on an overreliance on cost-plus-fixed-fee contracts and noncompetitive bidding. They formed a single Defense Intelligence Agency, which produced one confidential daily report instead of the previous eleven. They formed a single Defense Supply Agency, which tightened up procurement practices on everything from different belt buckles to missiles, noted that Army helicopters could use the one million too many small rockets in Air Force stockpiles (savings: $41 million), abolished eighty-one different Pentagon shipping forms for one standard bill of lading and avoided dozens of other duplications. They undertook an initial reorganization of the National Guard and Reserves, which had been wholly inadequate for modern emergencies but the pet project of most Congressmen and governors, and they shut down, sold or cut back nearly three hundred inefficient installations. “The defense establishment,” said Kennedy, “must be lean and fit.”

2. Kennedy’s second approach to the public’s fiscal education was to bridge the gap between myth and reality by placing the goals of the former in the perspective of the latter. Those who wanted balanced budgets were informed that all three Kennedy cash budgets would have been balanced
if
we had full employment, or if there were no arms race, or if repayable loans and long-term capital outlays (which private business budgets would treat differently) were not included in full. Those who talked of swollen Federal payrolls were informed that the ratio of Federal employees to every hundred Americans was declining, and that nearly three-fourths of all Federal civilian employment was in three agencies: Defense, Post Office and the Veterans Administration. Those who were concerned about the national debt were informed that that debt, as a
proportion
of our economic output, was being reduced to a postwar low.

The Federal debt and spending figures had to be
compared
, said the President. Even the average businessman and homeowner had gone proportionately more deeply into debt than the Federal Government, despite all the talk about running the government like a housewife’s or grocery store’s budget.

He particularly liked to compare the Federal Government’s record with that of state and local governments. Their payrolls, debts and civilian expenditures were climbing much higher and faster than their Federal counterparts. He was waiting for the day when an attack on his fiscal “irresponsibility” by Senator Harry Byrd would give him an opening to compare Virginia’s fiscal record under the Byrd machine with the Federal Government’s:

But his favorite comparison of all, not surprisingly, was with the fiscal record of his Republican predecessor. On occasion he would ask visitors: considering Truman’s expenditures in Korea and at the end of the Second World War, how do you think Eisenhower’s eight budgets compared with Truman’s eight budgets? No one ever came close to the correct answer: Eisenhower outspent Truman by $182 billion. “You could win a bet on that in any bar in the country,” the President told me when I first gave him the figure. He would also cite Eisenhower’s record of five deficits in eight years, including an all-time peacetime high of $12 billion, the $23 billion Eisenhower added to the national debt and the 200,000 civilian employees he added to the Federal payroll. All Presidents, Kennedy would then continue, outspend their predecessors in a growing, progressive nation. Eisenhower’s Budget Director had issued a study forecasting continued Budget increases regardless of the party in power. The Kennedy administration’s “domestic” increases, which were less than a quarter of his new expenditures, didn’t sound so outrageous when shown to be less than in the last three years of his predecessor.

However, despite criticisms from the left that he ought to be spending much more, the President recognized that comparatively few of the voters who were concerned about too much spending, and who read publications concerned about too much spending, would ever regard him as more thrifty than Eisenhower. He tried. He asked the Council of Economic Advisers and Budget Bureau to prepare detailed answers to inaccurate editorials on his fiscal policies in
Life
and the
Reader’s Digest
, calling one of Walter Heller’s assistants at home one Sunday afternoon to ask questions on each line in the latter’s suggested reply. He commented in a news conference on the failure of the press to assist his fiscal re-education program, with almost all newspapers persisting in repeating the same clichés about rising outlays, debt and payrolls, instead of the declining ratio of those figures to the national population and output. “One of the reasons we have such difficulty getting an acceptance of our expenditures and our tax policies,” he said, “is because people misread the statistics or are misled.”

3. The third and final approach to obtaining a more sophisticated understanding of debt and budget problems was the most direct: to impress upon the public, without comparisons or contrivance, the necessity and desirability of not only the increases in his Budget but the
increases in the deficit. Each year his Economic Report grew a little bolder along these lines. In 1961 one had to look hard to find in his Message on Economic Recovery the conclusion that “deficits accompany—and indeed help overcome—low levels of economic activity.” But by 1963, dropping any pretense of offering a balanced Budget, he was more boldly pointing out—even in a speech to the nation’s editors, the watchdogs of our fiscal integrity—that “carefully screened and selected Federal expenditure programs can play a useful role, both singly and in combination; to cut $5-10 billion [from the Budget], unless the private economy is booming…would harm both the nation and the typical neighborhood in it.”

He reminded several audiences of Eisenhower’s experience in 1958—that trying to cut back expenditures to fit revenues meant contract cancellations, payment stretch-outs, grant-in-aid suspensions, employee layoffs, and thus less taxable income, more outlays for the jobless and still more Budget deficits. Over and over he stressed that point: it is unemployment and recession that cut revenues and produce deficits.

He tried to get people to think about what the Budget is, what their money goes for. “The Federal Government is the people…not a remote bureaucracy,” he said, “and the Budget is a reflection of their needs…. To take the expenditures required to meet these needs out of the Federal Budget will only cast them on state and local governments”—and they are doing worse fiscally.

In a chart session with Congressional Democrats in January, 1963, he showed that four-fifths of his Budget increases had gone for defense, space and the cost of past or future wars—that the Budget represented not a bureaucratic grab but loans to farmers and small businessmen, aid to education and conservation, urban renewal and area redevelopment. Using similar charts in a talk to the editors, he used an imaginary cross-section community, “Random Village,” to illustrate how all families are benefited by Federal programs. He spoke to bankers, students, labor groups, business groups, economists and others in his effort to put across the facts of economic life.

He also encouraged articles on the need for spending and encouraged his economic advisers, Treasury Secretary and Budget Director to talk plainly. Heller, by testifying in 1963 that popular opposition to tax cuts must be due partly to a “basic puritan ethic,” invited the delightful riposte by one Republican that he’d “rather be a Puritan than a Heller.” New Budget Director Gordon, in office only five weeks, testified that deep cutbacks in Federal spending would reduce prosperity, profits and employment but not the deficit, and Harry Byrd promptly called for his dismissal. “I must have set some kind of record,” Gordon wryly told the President, to have invited ouster demands so quickly. But even earlier the President’s
leading Republican adviser, Secretary Dillon, had, to the dismay of his former colleagues in the GOP and on Wall Street, stated the need for deficit financing to treat economic slack, a truth which even previous Democratic Secretaries of the Treasury had been consistently unwilling to acknowledge.

The economy, which had expanded vigorously in 1961, slowed its pace in mid-1962. The growth continued but the zip was gone, and some of the figures were disturbing. The rate of private inventory accumulation—which had been built up to an abnormally high level of seven billion dollars in the first quarter, partly because a steel strike was anticipated—fell off to one billion in the third quarter. Unemployment leveled off at an uncomfortable 5.5 percent. Consumers were saving more instead of spending. Business investment in new plant and equipment, for which the tax credit had not yet been enacted, was low.

The most dramatic cause for concern was a severe drop in the stock market. After reaching a peak on December 12, 1961, the average price of stocks bought and sold on the New York Stock Exchange declined by roughly one-quarter, and roughly one-quarter of this drop occurred on Monday, May 28. It was only the twenty-fourth largest proportionate drop in market history. But it was the sharpest one-day drop in the number of points on the Index since the crash of 1929, and immediately fears and rumors arose—and in some quarters were inspired—that it was 1929 all over again.
Time
magazine speculated on Kennedy becoming “the Democratic version of Herbert Hoover.” Wild stories spread that the decline was due to a business plot to hurt Kennedy, to a European withdrawal of funds or to Kennedy’s attack on Big Steel. Some said it was a once-in-a-generation break, others said that it was due to increased competition from Europe, others attributed it to excess capacity in our sluggish economy.

The simplest explanation to many businessmen was that Kennedy was against profits and free enterprise. His mail and press were filled with blame for “the Kennedy market.” “I received,” the President noted a year later when the market was setting record highs,

Harried stockbrokers who found their customers taking their money elsewhere were busy looking for a scapegoat. And, in what even the
financial community’s idol, William McChesney Martin, Jr., termed “childish behavior,” many brokers and businessmen placed sole blame upon the President.

They had few facts to support them. Those who blamed it on his steel price fight of early April neglected to mention that the decline had begun back in December, that the ratio of advances to declines had been adverse since the previous August and that stock values in many of the basic industries had been going down for several years. Those who blamed it on Kennedy’s policies neglected to mention that the decline had merely brought prices back to where they stood on the day of his election. Those who said it was a certain sign of recession neglected to mention that the thirteen such drops since the thirties had not even all preceded, much less produced, a recession and that, on the contrary, a sharper drop over a shorter period in May, 1946, had been followed by record-breaking prosperity. Those who compared it to 1929 neglected to mention the fact that the earlier crash had been twice as large and twice as fast in a much smaller economy, preceded by months of declining business and construction, and aggravated by uncontrolled speculation, questionable brokerage practices, a recession in Europe and a lack of Federal floors beneath the economy such as unemployment compensation and insured bank deposits.