6. TROUBLES IN THE HEMISPHERE
Cuba was another unsolved problem. Fidel Castro did not cease to call for revolution in Latin America. “We do not deny the possibility of peaceful transition,” he said in January 1963, “but we are still awaiting the first case. . . . That is the duty of leaders and the revolutionary organizations: to make the masses march, to launch the masses into battle. That is what they did in Algeria. And that is what the patriots are doing in South Vietnam.” In July he added the hopeful thought that conditions for revolution in many Latin American countries were “incomparably better than those that prevailed in our country.”
But Fidel’s appeal to the hemisphere had steadily waned. His opposition to the Alliance for Progress had cast doubt on the selflessness of his interest in social betterment. Then the missile crisis displayed him as a rather impotent and ignominious Soviet tool, warned other Latin revolutionists that they could not count on Soviet support once the chips were down and demonstrated to non-communists the danger communist bridgeheads brought to all Latin America. At the same time, Washington pursued its measures of economic, diplomatic and military containment. Kennedy’s policy of isolating and ignoring Castro worked well. By 1963 he was hardly even a thorn in the flesh. Once his influence in Latin America was destroyed, the survival of a mendicant communist regime in the Caribbean was not important.
As for the future, Kennedy, as usual, refused doctrinaire conclusions in a world where history produced such astonishing and unforeseen reversals. “There are a good many things which have happened in the last three or four years,” he said at the end of 1962, “which could not have been predicted in ’57 or ’58. No one can predict what the exact course of events will be in Cuba, what movement will take place there.” He continued to keep the door open to those within the Castro regime itself who might want to return to the hemisphere. “We believe,” as Assistant Secretary Martin told a Senate committee in May 1963, “that it would be a serious mistake to give those in Cuba who are struggling against communism the idea that they are being disregarded and that they have no role to play in determining how Cuba will be governed.”
I have the impression that in the autumn of 1963 the President was reappraising the Castro problem. When Tito came to the White House in October, Kennedy remarked that he did not know what was going to happen, but, if Cuba rid herself of Soviet influence, perhaps we could deal with a domestic revolutionary regime; on the other hand, if Castro’s refusal to sign the test ban treaty meant that China was now playing a role in Cuba, that could hardly be considered a desirable development. Jean Daniel, who saw Kennedy a few days later, reported him as saying, “The continuation of the [economic] blockade depends on the continuation of subversive activities.” Daniel was on his way to Cuba to interview Castro, and Kennedy invited him to stop by on his return.
In the meantime, unofficial soundings encountered difficulties on the two points of submission to extra-continental influence and subversion directed at the rest of the hemisphere. On November 18 in a speech at Miami Kennedy sent a message across the water to Cuba. A band of conspirators, he said, had made Cuba the instrument of an effort dictated by external powers to subvert the other American republics. “This, and this alone, divides us. As long as this is true, nothing is possible. Without it everything is possible. Once this barrier is removed, we will be ready and anxious to work with the Cuban people in pursuit of those progressive goals which in a few short years stirred their hopes and the sympathy of. . . . the hemisphere.”
Two days later Jean Daniel saw Castro in Havana. The Cuban leader expressed feelings of “fraternity and profound, total gratitude” toward the Soviet Union; there was no give here. As for Cuban subversion, Castro predictably denied that it was the cause of revolution on the mainland. He denounced Washington and the CIA. Still, of Kennedy, Castro said he could “be an even greater President than Lincoln. I know, for example, that for Khrushchev Kennedy is a man you can talk with. I have gotten this impression from all my conversations with Khrushchev. . . . Personally, I consider him responsible for everything, but I will say this: he has come to understand many things over the past few months; and then too, in the last analysis, I’m convinced that anyone else would be worse.” He concluded: “As a man and as a statesman, it is my duty to indicate what the bases for understanding could be.” And so the matter rested, with lines of communication still open.
“Two dikes are needed to contain Soviet expansion,” Kennedy had told Daniel: “the blockade on the one hand, a tremendous effort toward progress on the other.” He followed the Alliance for Progress with ever watchful eye. The recommendation of the Inter-American Economic and Social Council in 1962 had led to a review of the Alliance by Lleras Camargo of Colombia and Kubitschek of Brazil. “Nothing that needs to be done in Latin America is easy,” Lleras said. Yet, while noting the disappointments of the Alliance, he wrote that it had made “an extraordinary impression upon the old, hardened crust of Latin American society. . . . Governments, which had been indifferent to the anxiety of the people, have shown as never before a zeal for economic development.” While the two Latin American leaders disagreed on certain issues, they united in recommending the establishment of an inter-American development committee to preside over the Alliance. When the IA-ECOSOC met in November 1963 at Sao Paulo in Brazil, it established the Inter-American Committee for the Alliance for Progress (CIAP). This body, on which Walt Rostow became the United States representative, marked the ‘Latinization’ of the Alliance and gave it new coherence and purpose.
But the road to democracy remained hard. On September 25, 1963, the Dominican military overthrew Juan Bosch in the Dominican Republic. A week later another military coup overthrew the regime of Ramón Villeda Morales in Honduras. Kennedy promptly recalled our ambassadors and economic and military aid chiefs from Santo Domingo and Tegucigalpa. “We are opposed to coups,” he said, “because we think they are defeating, self-defeating and defeating for the hemisphere . . . not only because we are all committed under the Alliance for Progress to democratic government and progress but also because of course dictatorships are the seedbeds from which communism ultimately springs up.”*
Still, despite political setbacks, the Alliance for Progress continued to gain. In 1963 eight countries attained increases in per capita income of nearly 5 per cent—almost twice the target of Punta del Este. In 1964 Latin America as a whole fulfilled the Punta del Este goal. And the rise of new leaders like Eduardo Frei Montalva in Chile and Belaunde in Peru expressed the vitality of the democratic revolution.
The President was more troubled than ever by the organization of Latin American affairs within our own government. Late in October he discussed with Richard Goodwin and me the old problem which Berle had raised in 1961 of an Under Secretaryship of State for Inter-American Affairs, embracing both the Alliance and the political responsibilities of the Assistant Secretary. Kennedy, remarking sharply that he could not get anyone on the seventh floor of the State Department to pay sustained attention to Latin America, dictated a plain-spoken memorandum to Rusk saying that he wanted to create the new Under Secretaryship. “I am familiar,” he said, “with the argument that, if we do this for Latin America, other geographical areas must receive equal treatment. But I have come increasingly to feel that this argument, however plausible in the abstract, overlooks the practicalities of the situation.” Historically Latin America was an area of primary and distinctive United States interest; currently it was the area of greatest danger to us; and operationally it simply was not receiving the day-to-day, high level attention which our national interest demanded. “Since I am familiar with the arguments against the establishment of this Under Secretaryship,” his memorandum to the Secretary concluded somewhat wearily, “I would like this time to have a positive exploration of its possibilities.”
He had in mind for the job Sargent Shriver or perhaps Averell Harriman, whom he had just designated to lead the United States delegation to the Sâo Paulo me
eting. We later learned that Rusk sent the presidential memorandum to the Assistant Secretary for Administration, who passed it along to some subordinate, and it took Ralph Dungan’s intervention to convince the Secretary that this was a serious matter requiring senior attention. Receiving no response, the President after a fortnight renewed the request.
7. REVOLUTION IN FISCAL POLICY
The year 1963 was one of initiatives not only in the pursuit of peace and in the struggle for equal rights but in national economic policy.
In the autumn of 1963 the administration had quietly committed itself to a radical principle: the deliberate creation of budgetary deficits at a time when there was no economic emergency—when, indeed, the budget was already in deficit and the economy was actually moving upward. This idea was the wildest heresy to those like George Humphrey who used to predict a depression to curl a man’s hair if the government did not balance its books. It would have seemed extreme to the contracyclical spenders of the New Deal, who were prepared for deficits in depression in order to offset declines but supposed that the proper policy in prosperity was to keep taxes up and retire the national debt. Kennedy was even moving beyond his own theory in 1961 of a budget balanced “over the years of the economic cycle” when he adopted the theory of deficits at the peak of the cycle so long as unemployment remained high.
Because the principle was so revolutionary, it exacted a price, or rather a series of prices. The first had been the decision to create the deficit through tax reduction rather than through social spending. Kennedy, in spite of his sympathy with the Galbraithian concern for the public sector, simply considered the expenditures route politically impossible and accepted Walter Heller’s argument that the increased revenues produced by the tax route would eventually increase public benefits. The second price, not so serious, was the decision to stretch out the projected cut of about $10 billion over three years. The Treasury favored this, the Council of Economic Advisers opposed it, and the President went along with the Treasury, partly because he did not want to jeopardize the tax bill by requesting a rise in the debt limit and partly because he wanted to keep his own deficit under Eisenhower’s record peacetime deficit of 1959. The third price was more serious: an assurance to Wilbur Mills that tax reduction would be accompanied by an “ever-tighter rein on Federal expenditures.” The President’s assumption here, I think, was that, once he had completed the diversification of national defense required by the strategy of flexible response, military spending would level off, and, as the budget grew in pace with growth in population and output, more money would be available for civil purposes.
A fourth price was the gradual erosion in Congress of most of the tax reforms to which Dillon and Mills had devoted so much attention in the years preceding. The tax reform program, in essence, was an effort to close loopholes in the tax laws in exchange for a reduction in the surtax rates. Galbraith once complained to Kennedy that it was “a commendable program to get greater equity among the rich, but it affects only a small fraction of the population—a comparative handful of affluent Republicans. This reform is not an exercise with any meaning whatever to the people at large.” (He added—this was at the end of 1962—that in any case tax reform would not get anywhere: “Depletion allowances, preferential treatment of capital gains, tax exempt securities will all be preserved. . . . Anyone who disagrees with this prediction can reasonably be requested to put it in writing.”)
Galbraith was right in the short term, and Kennedy was prepared to pay this price for the tax cut. But the President reserved the problem in his own mind for treatment in the longer run. He was outraged to discover that an oil man reputed to be among the richest living Americans had in certain years paid income taxes of less than $1000; that, of the nineteen Americans with incomes of more than $5 million a year, more than 25 per cent had paid no income tax at all in 1959 and that of the rest not one had paid in the 80 to 85 per cent bracket to which their income nominally consigned them; that in a recent year one American received an income of nearly $20 million and paid no taxes at all.* The President and the Attorney General, brooding over these figures, decided to make a major issue of the tax-avoidance spectaculars after the 1964 election.
Even with all these concessions, the principle of the planned deficit remained too startling for easy acceptance. Mythology died hard. In May 1963 President Eisenhower in an agitated magazine article expressed his “amazement” about this “vast, reckless” plan for “a deliberate plunge into a massive deficit.” “What can those people in Washington be thinking about? Why would they deliberately do this to our country? I ask myself.” The deficit road, the former President grimly warned, “through history has lured nations to financial misery and economic disaster.” And in the business community, a number of leaders, while applauding the idea of tax reduction, especially for higher brackets and for corporations, insisted that it be accompanied by a parallel reduction in government expenditures. It required patient explanation before they began to understand that this approach, by taking out of the spending stream with one hand what was being put in by the other, would nullify the stimulative value of the cut.
The bill made slow progress through Congress. Public reaction at first was muted. Kennedy used to inquire of the professors of the Council what had happened to the several million college students who had presumably been taught the new economics. He wrote Seymour Harris, “As a teacher you must be discouraged that none of the obvious lessons of the last thirty years have been learned by those who have the most at stake in a growing prosperous America.” The President watched with envy as the British government called for a tax reduction of comparable size in April, then added a large increase in expenditures and had the program in effect by summer. Still, when the House of Representatives passed the tax bill by 271 to 155 on September 25, 1963, the worst was over. Though Senator Byrd showed every intention of dragging out the hearings before the Senate Finance Committee, enactment sometime in early 1964 was reasonably assured. The Yale speech had not been in vain; and the American government, a generation after General Theory, had accepted the Keynesian revolution.
But a problem remained. The steady increase in national output since the bottom of the 1960–61 recession had not been accompanied by any equivalent lessening of unemployment. The decline in joblessness from 6.7 per cent of the labor force in 1961 to 5.6 per cent in 1962 left the level far above the 4 per cent economists were willing to tolerate; and the re-employment rate was slower than in any comparable post-recession period since the Second World War. Would the tax cut do any better in cutting into chronic unemployment?
This question had worried Kennedy ever since the primaries in the spring of 1960 had carried him into the blasted valleys of West Virginia. In the campaign he derided Nixon’s view that conditions in the United States could not be better:
Let them tell that to the 4 million people who are out of work, to the 3 million Americans who must work part time. Let them tell that to those who farm our farms, in our depressed areas, in our deserted textile and coal towns. Let them try to tell it to the 5 million men and women in the richest country on earth who live on a surplus food diet of $20 a month.
“The war against poverty and degradation is not yet over,” he said, “. . . As long as there are 15 million American homes in the United States substandard, as long as there are 5 million American homes in the cities of the United States which lack plumbing of any kind, as long as 17 million Americans live on inadequate assistance when they get older, then I think we have unfinished business in this country.” Repeatedly through the campaign he called for “an economic drive on poverty.”
Now as President he confronted an economic system which seemed to be able to do everything but give all its people jobs and decent lives. Population growth compounded the challenge: according to the Bureau of Labor Statistics in 1962, 2.5 million new young workers would begin their careers each year in the sixties. The progress of automation further complicated the problem
by bringing the period nearer when technology would begin to destroy more jobs than it created. How could an increasingly computerized economy, using fewer people to produce more goods, provide useful employment to those displaced by technological change, to those traditionally discriminated against in the labor market and to those entering that market for the first time? This question did not worry him politically, because he was sure the unemployed would never turn to the Republicans to create jobs for them. But it worried him socially. Unemployment was especially acute among Negroes, already so alienated from American society, and among young people, and it thereby placed a growing strain on the social fabric.
The President had always regarded as artificial the debate about the character of American unemployment: whether it was primarily the result of economic slowdown and thus to be cured by aggregate fiscal and monetary stimulus, or whether it was primarily structural and thus to be cured by institutional remedies. “Our feeling,” as he said in the spring of 1963, “is that the economy, if sufficiently stimulated . . . could reduce unemployment to the figure of about 4 per cent. There will be some hard-core structural unemployment in Eastern Kentucky and West Virginia, particularly the coal and steel centers, which will not be substantially aided by the tax bill or even by the general rise in the economy. I do think, however, that if we could reduce unemployment to four per cent, then those programs which are specifically directed toward these centers of chronic unemployment . . . may be able to make a further dent.”
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