by Ted Sorensen
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.
Nevertheless the major efforts of Kennedy and Freeman to fit food production to consumption encountered immovable opposition. It came from the larger and more prosperous farmers, who enjoyed being subsidized to produce crops for storage. It came from Congressmen opposed to the kind of controls needed to make this chaos manageable (although we called it “supply management” instead of “controls”).
Nor could there be any reversal in the trek of former farm workers and youth to the cities searching for work. The President was disturbed by the estimate that only one out of every ten boys growing up on our farms would find a living in agriculture.
In their search for work in the city, farm youths were joined not only by older men replaced by machines but by other young people crowding the nation’s labor market. This was the President’s special concern. He warned that the crest of the postwar baby flood, which for nearly two decades had crowded our elementary and then our secondary schools, was about to engulf the labor force with 26 million new workers in the 1960’s, of whom nearly a third would not have finished high school. The youthful, the untrained and the unskilled, he said, were the largest factors in our high unemployment rates—rates which were dropping far too slowly even after the recession had ended. He urged the nation’s youth to stay in school, emphasizing the difficulties facing dropouts. He pressed for enactment of his education program, his vocational education bill, and a young people’s Job Corps to take boys off the streets for training. He explored the use of existing Selective Service procedures to identify young men needing vocational as well as physical help.
The labor movement, impatient with the progress of Kennedy’s proposals, called with increasing force for a thirty-five-hour week at the same wages a forty-hour week could command. But the President cited the adverse effects these increased costs would have on American business competing in world markets, and on his own efforts to prevent inflation from eating up their gains in purchasing power. He recognized that in time a shorter work week might be standard, but his goal was to create more jobs instead of dividing up the too few already available.
He emphasized in particular the training of unskilled workers and the retraining of skilled workers for the new skills which industrial change demanded. This concept could be found in a whole series of Kennedy programs: depressed areas, public welfare, vocational education, civil rights, trade expansion, youth employment, literacy training and the first full-scale Federal program of Manpower Development and Assistance. The related technique which could not be used as boldly as desired, however, was worker relocation. Kennedy, when campaigning in West Virginia, remarked to me in his car that the best thing for many of the men in those deserted mining towns would be to help get them out of there. But Congressmen willing to vote funds for the retraining of their constituents were not as willing to relocate them elsewhere, and most of the unemployed were equally reluctant to move.
In 1961 the Area Redevelopment Act sought to move industry and help into these hard-hit areas. In 1962, to supplement that Act, Kennedy obtained passage of the first Accelerated Public Works program since the days of the New Deal. In 1963, even before completing work on his bill to aid Appalachia—the mountainous belt of abandoned coal mines and poverty which stretched across the Middle Atlantic States—he developed with state and local officials a coordinated Federal effort.
In the fall of 1963, moved by a New York Times story on the desperate plight of families in eastern Kentucky, he directed a special Federal program for their relief, and planned to tour the area himself. That fall he also gave orders for the formulation of a new Federal antipoverty program. In a November strategy session on the 1964 campaign, he was warned by one election analyst that the balance of political power was held by affluent suburbanites who did not identify with antipoverty, minimum wage and depressed area programs. After I passed this caution on to Walter Heller, he asked the President whether work should continue on the antipoverty bill. The answer was in the affirmative, and the bill passed in 1964, thanks to the leadership of Kennedy’s successor.
But it is true that, even when Kennedy took over at the low point of the recession, there was little public interest in his attack on unemployment. “The 94 percent employed,” he remarked more matter-of-factly than bitterly, “couldn’t care less about the 6 percent unemployed.” And once the recession was over, Congress balked at some of the big planks in his economic platform, especially a permanent strengthening of unemployment insurance and Presidential stand-by authority to lower taxes and speed up public works in case of a recession. The legislators went along with his proposals to strengthen housing and small business credit, to broaden the depressed area program and to revamp public welfare. But in our affluent society, remarked the President, major expenditures and innovations were resisted “by people who like it the way it used to be. Change is always pleasant to some people and unpleasant to others.” His own philosophy had been summed up in his Inaugural: “If a free society cannot help the many who are poor, it cannot save the few who are rich.” He did not apply that philosophy only to foreign countries.
THE BALANCE OF PAYMENTS AND TRADE
The tools of deficit spending and easy credit were not so readily available to President Kennedy’s fight on unemployment for economic as well as political reasons. The main economic reason was a problem of concern to few, comprehended by even fewer, and practically ignored by the party platforms and the popular press: the balance of payments. Yet few subjects occupied more of Kennedy’s time in the White House or were the subject of more secret high-level meetings.
The problem, essentially, was a chronic and mounting deficit in our international accounts as a nation. More dollars went out of this country than came in. What Americans spent or invested in other countries—as importers, tourists, investors and soldiers—was far exceeding the amounts we received from our exports, from purchases made by foreigners in this country, from dividends on our overseas investments and other sources. As a result, for a period of ten years prior to Kennedy’s inauguration, the quantity of American dollars held by foreigners mounted steadily; but until 1958 our reserves of gold, into which foreigners were permitted to convert those dollars, remained stable. The deficits in our balance of payments were moderate in size and helped provide war-torn econom
ies suffering from a “dollar gap” with dollars for their own use.
But between 1957 and 1960 a combination of events raised this chronic problem to crisis proportions. In 1958-1959 the failure of high-priced American goods to penetrate increasingly competitive European markets sharply reduced our usual surplus of exports over imports, and it was this surplus which had helped offset our overseas military, foreign aid and other expenditures. Western Europe’s growing economy had become an attractive place for investment. More time and money were spent abroad by tourists, while relatively few visitors came here. Foreign governments also restricted the amount their citizens could invest in our enterprises, while short-term commercial credits inevitably grew with our export trade. As a result of all these factors, our balance of payments deficit, normally about a billion dollars a year, suddenly rose to nearly four billion; and those holding dollars abroad, now that they were no longer in short supply, decided to cash in some three billion dollars’ worth in those two years for American gold.
In 1960, although our export surplus improved, the other trends continued or worsened. Bonn and London raised their short-term interest rates, causing the transfer of foreign capital previously deposited in New York banks. European international bankers, concerned by charges that forthcoming Democratic deficits would cheapen if not endanger the dollar, decided not only to withdraw their American funds but heavily convert their dollars into gold. Aggravated by speculation on the London gold market and by unfavorable comparisons of our uncommitted gold reserves with foreign dollar holdings, gold left this country by amounts totaling almost two billion dollars in that year alone. Last-minute efforts by the outgoing administration failed to stem the tide, and there were widespread reports that America’s gold reserves would be insufficient to meet the demands of foreign dollar-holders unless the new President raised the price of gold and thus “devalued” the dollar.