The Problems We Face

December 14, 1959

All of us must constantly act on some assumptions regarding the future. But if we are wise enough to recognize that we are merely guessing, we will always be ready to revise our assumptions. Economic forecasting can never be a science. Every forecast depends upon a thousand ifs. The Secretary of Labor, for example, ought to be in a specially favored position to guess how much unemployment there is going to be six months ahead; but because he was too cocksure in April he found himself eating his hat (or a specially baked simulacrum thereof) on the steps of the Labor Department, in November.

Today we make a fetish of “economic growth.” We have already had all sorts of predictions concerning our economic growth in the next ten years. Such predictions can obviously be no better than the assumptions on which they rest. If we project the average percentage “rate of growth” over the Fifties into the Sixties, or if we extrapolate the growth curve, we will get one result. (Or several. One trouble is that our pundits cannot even agree concerning the growth rate of the past—partly because of disputes concerning statistical reliability or method, partly because of disputes concerning what year to start from as a base for calculation.)

GROWTH NOT AUTOMATIC

If we are optimistic we will project a much higher growth rate for the Sixties than in the Fifties. If we are “research foundations” we will point out, with an air of discovery, that an annual growth rate of 4 percent leads to a higher national income at the end of ten years than one of only 3 percent, and one of 5 percent to even more than one of 4 percent. And if we are politicians, we will demand a higher “growth rate”—5 percent, 6 percent, or even more.

But one thing is clear. No rate of growth will take place in the Sixties automatically, regardless of what anyone does. Our economic growth (or shrinkage) will depend on the policies we follow. And the policies best calculated to increase production and living standards are those that encourage the greatest saving and investment, the maximum capital accumulation, the largest addition to and improvement of the tools and equipment that bring the highest increase in the productivity of labor. These are not, unfortunately, the policies favored by those who harp most on “rates of economic growth.” What they propose, rather, are increased government spending, continued deficits, continued inflation, and still more government “planning” and controls.

TO HALT INFLATION

We should look forward to the Sixties, then, not as an era of automatic growth, but as a challenge, as a set of problems to be solved. And the chief domestic problem we have to solve is how to halt the inflation we have experienced over the last 26 years.

The measures necessary to halt that inflation would also solve other major problems. We would have to balance the budget—by reducing both expenditures and burdensome taxes, but reducing expenditures more. We would have to stop subsidizing unsalable farm surpluses at home and socialism abroad. We would have to stop government cheap-money policies, and the continuous expansion of our money supply, and return to the full gold standard. This would also solve the problem of our “deficit in balance of payments.”

Not least important, we would have to solve the problem created by the present power of labor unions to shut down whole industries and force money-wage increases that in turn bring political pressure for more inflation. In solving this labor problem, we may have to make a candid reappraisal of the assumptions on which our labor policy has rested for a quarter century.

Finally, we will solve neither our domestic nor our foreign economic problems unless, against floods of socialist and Communist propaganda, we refuse to lose sight of the incomparable superiority of capitalism—of our system of free markets and private enterprise—as a stimulus to maximum production and as a safeguard of personal liberty.