It is a privilege to meet at the Harvard Business School with the Young Presidents Organization of the United States.
It seems to me that there is before the Congress today one fundamental issue which has more significance to growing businesses than any other: that of maintaining and expanding our business prosperity and preventing the disaster of a serious recession. Experience has shown that it is the new, independent and growing businesses which are hit first and hardest in a declining economy.
I do not think it is necessary with this group to go into detail concerning current economic indicators, and whether they portend a serious decline in the near future. I would like instead to discuss what Congress and the Federal Government should be doing in this area to prevent any serious set-back from occurring, whether that be termed a "rolling readjustment" or "orthodox recession." I realize that the President will set forth his program in his economic message next Thursday; but I would like to take this opportunity to outline my views as to what such an anti-recession program should entail.
The fundamental premise upon which such a program must be based, in my opinion, is that the foundation of the American economy is the American consumer. Too frequently this is overlooked by those preparing the programs aimed at maintaining prosperity and full employment. Neither a program of psychological confidence or tax assistance to investors will induce plant expansion on the part of those industries now cutting back for lack of customers. The recent decline in department store and other retail sales, which further cuts production in our basic industries, may be traced directly to the decline in national and personal income caused not by lower farm prices but the steady fall in manufacturing hours and employment since last July. During this same period of time, the rate of unemployment has risen at a higher rate than that which accompanied the economic decline of 1949; and lay-offs in a wide variety of manufacturing industries have been increasing, the labor force has been decreasing, and the hiring rate has dropped. In short, Congress must at this session consider the ways and means of increasing the employment, the income and the purchasing power of the consumer; and through such stimulation of purchasing power indirectly stimulating industrial investment and expansion.
I would like to mention briefly seven non-partisan legislative steps which should be included in any minimum anti-recession program:
1. First, we must counteract an economic decline with tax reductions. This is, of course, an easy and traditional method of keeping additional funds in the hands of consumers. But to be effective, it cannot be an across-the-board percentage reduction which benefits primarily those in the higher income brackets, nor can it be effected primarily in the fields of corporate taxation or dividends. Instead, (a) We should reduce the present level of excise taxes which are a direct tax upon, and therefore a discouragement to, consumption.
(b) We should raise the current dependency exemption from the present outmoded figure of $600 to a level possibly as high as $1,000, in order to increase the purchasing power available to the large family consumers who should be our best customers.
(c) We should raise the taxable income level beneath which no tax is required from the present $600 to a level possibly as high as $1500, in order to make certain that the benefits will accrue largely to those in the lower income group. For it is this latter group whose income is channeled primarily into the purchase of your products, rather than personal savings or investment.
(d) Of course, I need not add that it would be unthinkable to reverse this trend by imposing a manufacturers excise tax or sales tax, which would directly decrease purchasing power and discourage consumption.
2. Secondly, we must strengthen our unemployment compensation system. Our experience in 1949 indicated that this program was one of the bulwarks in maintaining national income at a time when employment was suffering a serious decline. But unless important improvements are made in the system, it will not prove adequate as a means of maintaining purchasing power should a full recession get underway.
(a) Coverage of workers for unemployment compensation benefits should be extended to those employed by smaller firms, the Federal Government, and others exempted under the present law.
(b) The Federal Law should be amended to provide minimum standards for the amount of benefits paid to unemployed workers, and the duration of the period for which such payments may be made. The wide variation in state plans today not only denies adequate protection to workers in many parts of the country, but also discriminates between employers with respect to their tax burden in support of the program.
(c) A Federal program of reinsurance should be established, whereby the unemployment funds presently accumulating in the general Treasury would be utilized in a national reinsurance fund to be drawn upon by those states whose reserves are dangerously depleted by a heavy run of unemployment. Even under the recent prosperity, many states, of which Rhode Island is the most notable example, find the solvency of their state unemployment compensation reserves threatened by years of chronic unemployment. There is pending before the Senate Finance Committee at the present time a bill passed by the House which I regard as a step in the opposite direction of this goal; for it provides only for loans, repayable under harsh conditions, rather than reinsurance; and it distributes the greater portion of these accumulated funds to all of the states regardless of need or the use to which such funds should be put.
(d) It has also been suggested that such Federal funds may be necessary to provide supplementary benefits to individuals whose unemployment is the result of mobilization readjustment, or the consequences of developments in technology or international trade.
3. Third, we must strengthen our social security program in order to provide more adequate purchasing power for those consumers who, being past the retirement age, draw neither wages, unemployment benefits nor other substantial sources of income.
(a) Social security coverage should be extended to an additional 10 million persons a year, including farm operators and workers, lawyers and other self-employed professional persons, additional public employees and domestic workers, fishermen, and others.
(b) The benefit level must be increased, inasmuch as the present minimum of $25 a month is obviously inadequate to maintain a decent standard of living, even when supplemented by personal savings and other income. I have joined in recommending changes in the wage base and benefits bases, as well as an increase in the minimum.
(c) Protection should be extended to those forced to retire before age 65 by reason of a total or permanent disability. This is one of the glaring gaps in this country's social insurance protection today.
(d) Other improvements are required in our social security program, including the amount of permissible monthly earnings under the retirement test, and other eligibility requirements. Such changes must, of course, be financed on the present basis of a social insurance reserve adequate to meet the needs of the system.
4. Fourth, a more solid floor of purchasing power should be established through strengthening of our Fair Labor Standards Acts.
(a) A minimum wage of 75¢ an hour is obviously outdated and permits the exploitation of too many workers at submarginal levels. I have introduced legislation to raise this minimum to at least $1 an hour, thereby assuring workers of a more decent wage and enabling them to maintain a more decent living standard through increased consumption.
(b) The coverage of the Fair Labor Standards Act, like Social Security and Unemployment Compensation, must also be extended to many millions of workers now exempted from its protection.
(c) The Walsh-Healey Public Contracts Act, which prevents the tremendous spending power of the Federal Government from contributing to a lowering of these standards, is similarly in need of improvement. The Fulbright Amendment passed 2 years ago has made difficult the effective adoption of industry-wide minima, and should be clarified or repealed.
5. Fifth, and I turn now from direct income stimulants to the area of maintaining employment, we must make certain that a reservoir of necessary public works is available, and the funds therefore appropriated, such reservoir to be utilized before a recession is well underway. Public works are now recognized as a basic, although in my opinion limited, method of providing additional employment opportunities. Certainly it can hardly be denied that there remains a tremendous need in this country for additional housing, hospitals, schools, dams, highways and other projects, all of which could be integrated into a public works program far more effective than those hastily but belatedly begun 20 years ago. Such a program aids not only those employed upon such projects, but also the steel, lumber, machine tool, cement and other industries whose goods, services or equipment will be required.
6. Sixth, the Federal Government must adopt a more effective defense manpower policy to relieve spot unemployment in various areas of the country. The recent furor over President Eisenhower's support of the new Defense Manpower Policy No. 4, which is loosely intended to encourage the awarding of defense contracts to plants in areas of serious unemployment, has concealed the shortcomings of this policy. The new program represents a reduction in the efforts exercised under the previous policy, particularly in its elimination of bid-matching provisions, and needs considerable improvement if it is to be of any assistance to the textile centers of New England, the coal mining areas of the Appalachians and the other so-called distressed areas in all parts of the country.
7. Seventh, a program of industrial job retraining should be adopted in order to enlarge the job opportunities for workers laid off in declining industries. If the thousands of unemployed textile workers of Lawrence, Massachusetts, for example, could be trained to relieve the shortage of employment in the electronic or other more technical industries willing to expand in Lawrence or elsewhere, we would have struck at this problem of unemployment before its effects could multiply throughout other segments of the economy.
I sincerely believe that this briefly outlined program is one on which all men of goodwill can unite. Partly for that reason, I omitted discussion of other fundamental but more controversial problems affecting our economy. Certainly, for example, (a) we must have a program which maintains a prosperous agricultural economy.
(b) Our monetary and credit policies, although of less value in stimulating consumption, must certainly not be applied in the opposite direction.
(c) Tax and credit aids to investment and expansion, as previously mentioned, are of importance, but are of particular importance if they can result in the modernization of machinery which would bring lower prices and additional consumption.
(d) We learned in the 30's that collective bargaining by labor organizations was an instrument for general economic advance; and I believe that the Taft-Hartley Law must be amended to prevent undue restrictions on such collective bargaining.
(e) Properly expanded international trade;
(f) Protection against the economic consequences of ill health, and
(g) Loans to bring small businesses through tight spots, are among the other items which must of necessity be included in such a program. Of course, our present programs of
(h) Insuring mortgages and
(i) bank deposits, and
(j) curbing excessive or fraudulent speculation in securities, must be continued.
(k) In addition, Congress should reexamine and strengthen the Employment Act of 1946, in order to make it a true "full employment" act.
Consideration should be given to providing comprehensive powers to deal with such a situation on a stand-by basis, to be utilized when conditions warrant. I must confess my own disappointment in the lack of any new or magic formula with which to meet these problems; but I nevertheless believe that, with these weapons, we can meet the challenge of economic decline; and the growing businesses of which you are the chief executives will continue to grow.
Speech Images