U.S. UNEMPLOYMENT MR CONNALLY ABANDONS A 4 PER CENT “MYTH”

Press, Volume CXI, Issue 32665, 22 July 1971, Page 14

U.S. UNEMPLOYMENT MR CONNALLY ABANDONS A 4 PER CENT “MYTH”

(By

JOHN GRAHAM,

tZ.S. editor of the "Financial Times" London)

(Reprinted from the "Financial Times" by arrangement)

Barely minutes after President Nixon :had promoted him to be the Administration’s “Chief Economic Spokesman,” Mr John Connally, last week laid himself open to one of the classic attacks on the capitalist system with a candour that shocked. Abandoning the 4 per cent unemployment norm as a “myth,” he elaborated by saying that unemployment had never been brought down to that mark in the United States except in wartime.

Seldom has anyone so exalted been quite as blunt, but so far no-one has really moved to counter-attack. It is unlikely that Mr Connally would be much embarrassed

if someone did. In any case he was incorrect, since the United States did have an unemployment rate of 3.S per cent in 1948, and there was no war that year unless the Berlin airlift counted. The main point stands, however, as the graph shows: only at times during the Korean and Vietnam wars has -nplo*

—.— . unemployment fallen below 4 per cent; the rest of the time it has been above, and often well above.

it is well above now, and will remain so for at least another year. If this were a worry only to professional economists it would merit little attention. But these

days there is probably no more sensitive statistic for politicians than the monthly employment figures, and an important exercise in political economy is in progress in Washington, stimulated by a statistical freak of the highest order.

Illusive figures

The freak leapt out of the computers on to an unsuspecting public on Friday, when the Department of Labour announced that the unemployment rate fell in June from 6.2 per cent to 5.6 per cent. Since this was quite unexpected, since it was "good news” (of which America is rather short right now), and since it was an easily digestible fact, it hit the headlines. Administration officials lost no time in parading it as proof of the success of their economic policies. Everyone took off for the July 4 holiday in a more cheerful mood, supposedly. Alas, the figure was a delusion and the truth was not in it. The department’s bureaucrats admitted that the seasonal adjustment was made quickly because the Survey was taken in the week June 6 to 12, the earliest possible date. This meant that many young people who would have swelled the unemployment rolls were still at school. They added that as far as they could tell total employment fell by half a million people and the number of people out of work actually rose by the astonishing figure of I.lm. In May there were 4.4 m people unemployed; in June 5.5 m, the largest number since February, 1961. Bureaucrats are not too concerned with the demands of political economy, and the Department of Labour’s statisticians were willing to explain to anyone who asked why the June statistics were unreliable. The White House, however, is concerned, and earlier in his administration President Nixon had stopped the department from giving its regular monthly press conferences to interpret the raw figures. The Democrats, naturally, have attacked what they consider an attempt to mislead the public.

Varying estimates Whatever the rights and wrongs of this bickering, there is no escaping the 5.5 m people out of work. The Council of Economic Advisers in its report for this year set as a goal a “4.5 per cent range” by June, 1972, which would be just under 4m people, but Mr Connally last week more or less killed this as a likely event, though he retained it as a goal. (Noone has to teach him anything about politics.) Most independent economists think that unemployment might be down to 5.0-5.5 per cent by next summer, but higher estimates are easily found. There is a widespread feeling that a 6 per cent rate will be with us for the rest of this year. The Nixon Administration has made up its mind to live with this, though more than I.lm people have now been out of work for over 15 weeks, and 560,000 people for more than half a year. These figures are twice what they were a year ago. The mean duration of unemployment has gone up to 10 weeks.

What is Worse, the sort of people out of work is quite different from previous recessions. Of course blacks, teenagers and blue-collar men are out of work in large numbers. But there are now 1.5 m white-collar men looking for jobs. Blacks and blue-collars have tended to vote Democratic in the past; whitecollars Republican. The political economy is clearly affected.

Ironically, on the very day that the Government sprung its statistical freak, Friday, five of America’s unemployed had their-day in court before a Congressional committee. There was a highly-trained worker from the aerospace

industry, talking about the "vicious competition” among the mathematical Ph.D.s and so on, who move from one defence factory to the next They call themselves “defence bums,” and their savings are constantly being eroded by the need to move, from Boeing to Lockheed, from Lockheed to McDonnell Douglas, from the S.S.T. to the space programme, and so on endlessly. To keep your job, he said, you have to walk a narrow line and never offend the management. There was a 53-year-old plumber from Washington, who had had to leave the city l

looking for work for the first time since the great depression. There was a middleaged black woman, who ironed clothes in a dry cleaning business, who may have to take work in “domestic service,” which is a sorry decline in this egalitarian society. There was a 28-year-old black man who used to work in a General Motors’ factory near Baltimore. He was laid off without severance pay and ineligible for much unemployment benefits since he had worked less than a year. He drives a taxi part-time, as do all his friends. There are a great many taxis in Baltimore apparently. But most revealing was the case of the college graduate and his wife. He had been a lieutenant in the United States Navy, working in communications in Vietnam. His wife was "a computer linguist,” with two years experience in a private company. He had six years service in the Navy, and she had a postgraduate degree. He qualified for the ninth grade in the civil service when he was demobbed, a fairly high grade, but he cannot get work in any Government department and is prepared to demote himself to the seventh grade. The only job his wife can get is as a secretary.

He could go back to university and take another degree, since his service entitles him to retraining, which the Government would pay for, but he says: “I’m not sure what value another degree would be.” He represents, unhappily for him, two classes of unemployables: the men who come back from Vietnam and the over-quali-fied. There are nearly 500,000 ex-servicemen out of work today, most of them back from Vietnam one way or another. I met last week a man with a Ph.D. in advanced physics who conceals the fact from prospective employers because he is afraid he will price himself out of what is already a pretty bad market. For many such people, it will now be a matter of sitting it out. Mr Connally’s remarks indicate that the Administration plans no specific moves to reduce unemployment, partly in the belief

that such moves might be inflationary and partly in the belief that the mixture of fiscal and monetary stimulus in the economy is just right to ensure a steady recovery leading to "a very good year in 1972.” Indeed, Mr Connally and Mr Nixon have ruled out most forms of fiscal stimulation that had come to be expected later this year. They are not going to alter course.

They are going to help those people who will be working though. There will be no wage and price control, the recent steel talks in the White House notwithstanding, which will enable part of the work force to catch up with inflation. There is also a powerful effort going on to give some relief to one of the country’s worst disaster areas, the aerospace industry, through the loan guarantees for Lockheed; and the White House is maintaining pressure on the Federal Reserve to push out the money, so that credit becomes easier and less expensive. At least some people will be getting the breaks later in the year. Next year’s story Next year is a different story. Mr Connally’s promotion is one in the eye for Dr McCracken of the Council of Economic Advisers, since he has specifically been saying that the rate of expansion is not enough to reduce unemployment significantly. He is an academic, cautious by nature and aware of thp hazards of economic forecasting; he was much more in evidence in 1969 and 1970 when the Administration was following its “gradualist” approach to the economy, and it has been suggested that his manner may have suggested an Administration unsure of its policies. Mr Connally's manner suggests anything but that. He is about as indecisive as the Duke of Wellington, and if he says it’s gonna be a great year next year, that’s the way it’s gonna be. If it isn’t, of course, his boss may get firsthand experience of the unemployment rolls, but that is another story, too.