Kennedy: The Classic Biography (73 page)

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?

PERSISTING PROBLEMS

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.

John Kennedy’s wealth had never made him immune to the suffering of others, and poverty in the midst of plenty disturbed him. His experiences in New England and West Virginia had made him more attuned to specific solutions for specific problems—depressed areas, untrained workers, substandard wages. But he recognized that both the general economy and the specific problems had to be treated. “Large-scale unemployment during a recession is bad enough,” he told the Congress. “Large-scale unemployment during a period of prosperity would be intolerable.”

Long-range growth required long-range efforts—particularly the education of our youth, the conservation of our resources, the expansion of our science and health—and it was no coincidence that the Eighty-seventh and Eighty-eighth Congresses set unequaled marks in those same areas. In addition, as a spur to industrial modernization and expansion, the Kennedy administration proposed in 1961 the payment of a 7 percent tax credit for business investment in new machinery and equipment. Passed in 1962, it was accompanied by an administrative liberalization of the timetables and guidelines applied by Internal Revenue to the depreciation of machinery and equipment, speeding up by nearly a third the rate at which firms could write off those assets for tax purposes and purchase more productive replacements. This depreciation reform—long the No. 1 item on business’ list of requests, but abandoned by the previous administration as too difficult—provided, when combined with the investment tax credit, a 1962 reduction in business taxes of some $2.5 billion, an 11 percent tax cut for corporations.

Yet the tax credit bill was constantly in difficulty. Businessmen were suspicious of a Democratic administration doing them favors. Labor leaders had to be persuaded not to oppose it. Democrats complained that we were forcing, ironically over Republican opposition, American businessmen to accept a tax “handout” they didn’t want and wouldn’t use. Douglas Dillon told of explaining the bill’s merits at length to a businessman on a plane who then said, “Wonderful, wonderful. Now would you tell me again why I’m against it?” But finally the bill was passed, its tax credit was widely used, outlays for plant and equipment in 1963 crossed the $40 billion mark for the first time in history, and the administration’s two tax changes were estimated by an independent business survey to have been responsible for nearly half of this expansion.

The President recognized, however, that new equipment and machinery formed a threat as well as a promise: higher productivity was the promise; increasing automation was the threat.

There was nothing new about advancing technology costing jobs. But in the fifties and sixties there was something new in the economy not expanding rapidly enough to absorb the displaced workers. There was growing alarm about the pace at which the machines moved in, spreading from one branch of industry to another, from the farm to the factory, from the assembly line to the office, displacing workers at a rate of 35,000 jobs a week. When John Kennedy entered Congress, fewer than 15 percent of the locomotives on the railroads were electric diesel engines. During his government service the figure rose to 97 percent. In West Virginia he saw machines enabling forty-six men to dig as much coal as one hundred men dug when he first entered Congress, and he saw despair on the faces of miners who had been waiting several years for work. The Federal Government itself under his Presidency made more use than ever before of computers and automatic processors in place of office and clerical workers.

The steady prosperity of Western Europe, observed the President, offered proof that rapid automation need not cause heavy unemployment. He directed his economic advisers to keep him posted on the economic policies of European governments. “Automation,” he said at a news conference,

does not need to be, we hope, our enemy…. I think machines can make life easier for men, if men do not let the machines dominate them…. It can provide new jobs, but…it is going to take a good deal of wisdom by those of us in the government as well as labor and management.

Technological unemployment, which Kennedy understood, was a basic problem in our farm economy, which he never understood. New fertilizers, machinery, insecticides and research had made American agriculture one of the productive miracles of the world, a sharp contrast with Communism’s collective farms. But while farm output increased by nearly a third, the number of man-hours worked was cut in half, with a decline of three million workers. That is comparable, said the President with his flair for vivid illustrations, to seeing each year for the last fifteen years enough people thrown out of work to populate Akron, Ohio.

Kennedy and Secretary of Agriculture Orville Freeman, while keeping food prices relatively stable, took steps to raise net farm income per farm to a record high, a billion dollars a year over its level in 1960 (when he had largely unsuccessfully sought farm votes). They also took more steps than had ever previously been taken to reduce farm surpluses in storage, which during the previous administration had soared from $2.5 billion to $9 billion—by expanding welfare food distribution at home, increasing farm exports by 70 percent, and reducing wheat and feed grain acreage at a savings in storage costs of several hundred thousand dollars a day. A new Rural Areas Development program helped low-income farmers not only find new jobs and improve their homes but also turn surplus cropland into recreation areas for fun and profit.