Economist Forecasts Recession In U.S.

Press, Volume XCVIII, Issue 28938, 4 July 1959, Page 4

Economist Forecasts Recession In U.S.

(Specially written for N Z.P A by

FRANK OLIVER.

WASHINGTON, July 2. The American economy is very definitely on the rise, but the argument about it sounds like the Tower of Babel.

Republican circles in the capital and business and financial circles in New York take it at face value and are cock-a-hoop—Democratic politicians and economists here are not so sure and some conservative Republican banking circles in Washington express some worry about the economy and where it is going. Republican politicians here are. in the main, apt to look at these things from the political point of view. A continuation of the recession would have been bad in view of next year’* elections. The' upswing in the eConbmy is being figured as worth a great many votes the Republicans did not expect to get. Inflation is the other big issue for Republicans in 1960. The attempt is being made to draw a sharp line between Republican and Democratic theory and practice on the issue of inflation.

One publication reports that in an effort to secure a Republican successor President Eisenhower will go out into the cities to build up what is termed “the pocket book issue,” something expected to appeal to the working man and his wife as well as the business man. industrialist and banker. The President is also said to have plans to go on the air in fireside chats to bring home to all the ‘inflation issue. Started in 1939

The newsnaper “Business Week” says the inflation that started in 1939 has “damaged the retirement hopes of millions The holder of a 30.000 dollar insurance policy 20 years ago now is faced with the fact that it is worth only 24.000 dollars. These will be the arguments that Eisenhower and the G.O.P. will use as they try to bl.-ibe Democrats for ‘cheap’ money ”

No-one doubts the dollar is worth less now than it was 20 years agio, but the G.O.P. arguments seem to ignore the fad that during six years of Republican administration the price index has risen steadily and regularly, and trimmed something from the dollar it inherited in 1952. However. Republicans feel that in inflation they have a good election Issue, and argue that the Democrats have no issues, saying “There’s peace, even if it’s uneasy: times are good: business is reaching for new highs: jobs are becoming more ' plentiful; the number of unemployed is decreasing.” Republican publications have certainly been plugging the lift the economy has been getting. Industrial production is at 152 on the index of the Federal Reserve apd this is six points above the Ijfeak of 1956. A new upward surge in durabk goods accounted for a two points rise in the month of May. Personal income reached a new high rate in May, an annual rate of 376,000 million dollars. Increased Production

Factories are mines are now producing 20 per cent, more than

at the bottom of the recession, about a year ago. The use of steel has been going up. and sales of cars gain steadily. Customers are pictured as “raining money On retailers" and some Republican voices even talk of measures to “control the boom." People clearly believe they have again entered good times, for they ate using savings to make down payments on new houses and new cars and to buy real estate and stocks. But, it is revealed, new savings accounts are bringing in more than these vastly increased spendings are taking out of savings and loan associations. However, there are respected economists who take a considerably less rosy view of. things. A number of economists believe that fot healthy economy growth the economy needs to expand by 5t least 3.5 per cent, annually to iprovide for the rapidly-exparK-

ing population and to check inflation. Under the Truman Administration, the growth rate was in the neighbourhood ,of 5 per cent. Annual Average During the first five Eisenhower years, the annual average rate was only 1.3 per cent., and with the surging economy now the estimated 1959 growth will only raise this figure to 2.4 per cent. Mr Leon H. Keyserling, who was chairman of President Truman’s council of economic advisers, has recently been writing about the current upsurge. He says he has never argued that the Republic Administration’s policiea, such as refusal to intervene in the economy during the recent depression, would prevent the economy moving upward after an economic recession. His chief concern is that Administration policies have yielded over the years too many recessions, too many years of virtual stagnation, too few years of adequate performance and in cdhsequence a dangerously low rate of economic growth. Mr Keyserling argues that the average of 1.3 per cent, between 1953 and 1958 was only about a third of the 4.5 or 5 per cent, which was needed, in view of the new technology, to keep the country’s productive resources reasonably fully employed.

Loss of Production ‘‘ln consequence, during the period 1953-58 as a whole, we lost more than 50 million dollars worth of production and suffered about 10 million man-years of unnecessary unemployment,” he says. "We lost about 30-35 million dollars in Federal, State and local revenues at actual tax rates and found ourselves unable to afford the things we need most, ranging from national security to education. We demonstrated to the rest of the world that we were unwilling, though able, to prevent our leading totalitarian challenger from getting ahead of us in more and more things.” As far as that challenger is concerned, Republican views have changed over recent years, though the effect of the change is not yet visible in the economy. It was in the 1954 campaign that Adlai Stevenson said the American economy was shrinking while the Soviet economy was growing. Vice-President Nixon immediately accused him of spreading pro-Communist propaganda. But in 1958, the Vice-President, addressing a convention of publishers, urged Americans to ponder the sobering fact “that the Soviet economy is growing faster than ours.”

Mr Keyserling. who forecast the ‘ecent recession, forecasts more stagnation and another recession if tight money and budgetary policies are continued.