Toward the Fuller Life

The President buttressed his economic report with a massive and impressive array of facts and figures.

During the past year, he reported, the U.S. gross national product rose $38 billion to a record $622 billion--a growth rate of 6 1/2% . Industrial production climbed 8%, while 1,500,000 new jobs were created and unemployment dropped from a 1963 average 5.7% to 5% at the end of 1964. In December, factory workers earned an average of $106.55 per week, or $3.89 more than the previous December. His figures indicated that average personal income gained nearly 6% , and corporate profits soared by more than 18%.

Johnson based his forecast for a 1965 G.N.P. of about $660 billion on the prospect that business investment in plants and equipment will grow "nearly as much" in 1965 as it did in 1964 (about 14%); that "current rapid gains in sales, and slim stocks in 1964, should produce a higher rate of production for inventory"; that residential construction "will remain high"; that state and local governments "will continue to enlarge their buying." Most important, he said, consumer confidence is now, and will remain, strong.

"Vital Margin." For such progress, the President credited the basic virtues of the free-enterprise system. "No planned economy," he said, "can have the flexibility and adaptability that flow from the voluntary response of workers, consumers and managements to the shifting financial incentives provided by free markets." He rejected the "idea that economic stimulation can come only from a rapid expansion of federal spending."

And yet, declared Johnson, "since 1960 a new factor has emerged to invigorate private efforts. The vital margin of difference has come from Government policies which have sustained a steady, but noninflationary, growth of markets . . . The balance between budget expenditures and taxes has been boldly adjusted to the needs of economic growth. We have recognized as self-defeating the effort to balance our budget too quickly in an economy operating well below its potential."

In this view, Johnson reflected the thinking of the new chairman of his Council of Economic Advisers, Gardner Ackley, whose report to the President was the basis for last week's message. Said Ackley of this bit of Keynesian economic philosophy: "If Keynesian philosophy means taxes and expenditures must be adjusted to the demands of the overall economy, yes, we have accepted the Keynesian philosophy."

"Rapid Action." Prompt and vigorous Government action, Johnson said, can prevent recessions. "I do not believe recessions are inevitable. Up to now, every past expansion has ended in recession or depression--usually within three years from its start. But the vulnerability of an expansion cannot be determined by the calendar. Imbalance--not old age--is the threat to sustained advance."

To prevent imbalances in the economy, Johnson again urged Congress to set up procedures that "will permit rapid action on temporary income tax cuts if recession threatens." He cited other measures that he expects to help keep the economy buoyant through 1965: an excise tax cut that would, if approved by Congress, amount to $700 million this year, $1.75 billion when fully implemented; a 7% boost in social security cash benefits, amounting to $1.25 billion a year; an increase of $3.5 billion in federal spending; income tax cuts, completing the two-stage provisions of last year's legislation, amounting to $1 billion for corporations, $3 billion for individuals.

There were, of course, some specks on the economic scene. Johnson and his economic advisers are particularly concerned about how to absorb some 500,000 more teen-agers into the work force this year. Says the council report: "The great increase in the number of young, inexperienced workers constitutes the most important change in the labor force during this decade." They are also worried about the possibility of a prolonged steel strike, the continuing drain on U.S. gold, and "disturbing" pressures toward inflation. Johnson pledged that "the full resources of this nation" will be used to keep the gold value of the dollar at $35 an ounce, and requested elimination of the statutory requirement that the U.S. maintain a gold reserve equal to 25% of the deposits in its Federal Reserve Banks.

"A Close Watch." As for inflation, Johnson issued pointed warnings to both labor and management. "I count on the sense of public responsibility of our labor leaders and our industrial leaders to do their full part to protect and extend our price stability. I intend to maintain a close watch on wage and price developments and to draw public attention to those private actions which threaten the public interest."

Johnson naturally tied his plans for the nation's economy to his goals for the Great Society. Said he: "Economic policy can more than ever become the servant of our quest to make American society not only prosperous but progressive, not only affluent but humane, offering not only higher incomes but wider opportunities, its people enjoying not only full employment but fuller lives."

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