Vietnam And The U.S. Economy

Press, Volume CVIII, Issue 31655, 16 April 1968, Page 14

Vietnam And The U.S. Economy

What will be the effect on the United States economy of the end of the Vietnam war, now costing about $30,000 million a year? Presidential candidates and taxpayers in the United States have their own views on what the effect ought to be; but the end of spending on such a scale has implications much wider than political opportunities or tax rates within the United States. This spending cannot be stopped overnight, however swiftly the proposed peace talks lead to an armistice and a peace settlement. United States spending on the Vietnam war in the 1968-69 fiscal year will again be some 829,000 million. The most optimistic assumption, at this stage, would be a phased American withdrawal starting next year and the cessation of military expenditure in Vietnam several years later. Even spread over several years, this “ phasing-out ” will have significant effects on the United States economy, though these should not be exaggerated: the Vietnam budget represents no more than 3 per cent of the gross national product. The net effect of the war expenditure on the United States balance of payments has been estimated at $5OOO million a year. Short-term interest rates have climbed steadily, as have inflationary pressures on prices. The mounting cost of the struggle has made deep inroads into President Johnson’s “Great Society” programme and drained off money needed for slum clearance in the cities. In January, the Administration calculated that 14 cents in every dollar of its spending during the next fiscal year would be on Vietnam, and only 11 cents on “ education and other major social programmes ”. As Vietnam expenditure is reduced, welfare expenditure will be increased, and plans for this diversion have already been made. The problems of internal adjustment, according to Mr Johnson’s economic advisers, should not be too severe provided they are tackled in an orderly way. The main conclusion reached by the American affairs editor of the “ Financial Times ” is that while relief to an economy currently under enormous strain would be welcome, the end of the war would not necessarily lead to a sudden change in America’s social future—or even in the attitude of a conservative Congress to foreign aid. In the editor’s view, the best to be hoped for would be a steady return to lower interest rates, reduced inflation and balance-of-payments deficits, and “ the general help of a wealthy economy that is "not running too fast”.