Recessions do not come unheralded. Close examination always reveals warning signs far in advance of their major impact. This is certainly true for the present recession. At least in the light of hindsight we can see the signs that should have put us on our guard back as far as two years ago.
For example, in the durable goods industries – those that are hardest hit by the current slump – retrenchment began in the last half of 1956. Plans for new investment were curtailed and orders began dropping off.
It is true, of course, that economics is far from an exact science. I am not suggesting that this recession could have been predicted with certainty. What I am suggesting is that the policies of the government failed to take into account those signs that were in evidence. In fact, in at least two crucial respects government policy directly contributed to inflationary tendencies.
First, in the summer of 1957, the Chairman of the Board of Governors of the Federal Reserve Board told a Senate Committee that "… the inflation spiral … seems to have begun about a year ago, in the summer of 1956." This statement was made in the face of quite clear evidence to the contrary. Disregarding this evidence, however, the Federal Reserve Board in August of 1957 raised interest rates for the second time within a year and a half. This had a disastrous effect on consumer credit, on business investment and the economy as a whole.
The second important government decision contributing to the recession involved the retrenchment in defense spending in the second half of 1957 – at precisely the time when the economic downswing was accelerating, the Administration decided to cut new defense contracts by one third.
Although these two decisions did not cause the recession, economists are agreed that they came at exactly the wrong time and contributed to the forces of the downturn.
We do not have to expect clairvoyance from our government officials. I think, however, that we can reasonably expect a closer attention to the economic facts of life.
I ask now that we face these facts as they are today. The first fact is that more than five million people are out of work. One out of every fourteen normally working Americans does not have a job. These are not statistics – these are people. These are men and women with families who are now forced to live on a small percentage of their usual income.
I don't think I have to tell you of the impact that unemployment has on individuals and on the whole society. The uncertainty, the loss of self-respect – these are at least as important as dollars and cents.
Hidden in the unemployment figures of today are even more distressing signs. For the first time in many years unemployment is now greater among men than among women. And the highest rate of joblessness is in the group of men between twenty and thirty-four years of age. These are men just starting to raise families. They are the ones least of all prepared to face long periods of time out of work.
A rather distressing side effect of the recession is that the number of marriages is down 14% under last year. And the explosion in the birth rate that occurred after the Second World War has also begun to slow down. It is not an overstatement to say that widespread unemployment effects the whole fabric of our society.
The people of Wilkes-Barre unfortunately have had long experience with large-scale unemployment. Wilkes-Barre was suffering a recession even in the midst of the greatest prosperity our nation has ever known. One out of every five workers in this city is now without a job. This is more than twice the national average. While the nationwide recession has intensified this city's problems, it is clear that these problems existed before the recession began, and unless something is done, they will continue to exist when prosperity returns to the rest of the nation.
The experience of the city of Wilkes-Barre and other Pennsylvania communities graphically demonstrates the kind of approach needed to meet modern economic problems. Joint action by the citizens of the local community, the state and the Federal government can provide the solution to economic difficulties.
In Wilkes-Barre, your industrial park and the three factories that operate there, is a tribute to the initiative of private citizens. There are, across this state, over 150 plants built with local contributions, now operating and providing jobs.
Your state administration has provided assistance in this program by helping to finance new developments. More than 30,000 new jobs have been developed by this kind of enlightened cooperation.
It is quite clear, though, that the economic crisis facing this city, the state of Pennsylvania and the nation, is beyond the power of any community or state to solve by itself. The resources of the Federal government must be brought to bear if we are to insure a strong and prosperous economy.
Of particular interest to the people of this area – and I might say to my own state, as well – is the Area Re-development Act, which I am happy to say, was passed by the Senate only this afternoon. The Area Re-development program is designed perfectly to complement just the kind of work Wilkes-Barre has been doing by itself. The Federal government will be able to make loans to communities that will enable them to develop new industries to take up slack left by the loss of old ones. It is one of those facts of economic life that the strong economy is the diversified economy. The areas of the country faring the best today are those built on a broad economic base. There is no reason why every part of our country should not share in the benefits of diversity.
What of the immediate problems though? What of the 5.2 million unemployed and the nation's productive capacity going unused? What can be done to meet these problems?
I would say that some things have already been done but that more remains to be done. The impact of the various public works programs already enacted or now under consideration will eventually be felt by the economy. It may be necessary, if conditions do not improve in the very near future, to consider a tax cut. At this moment, though, I would put the highest priority on yet another measure – a revision and modernization of our unemployment compensation system.
We cannot sidestep our immediate obligation to those who have been deprived of their income. There are now almost 2 million people out of work who were either not covered by unemployment insurance or have exhausted the benefits to which they are entitled. Those that are covered by the programs receive benefits that average less than ⅓ of their normal pay. Benefit periods are too short and coverage is not broad enough.
Our first order of business, then, is to get money into the hands of those who have none and at the same time to remove inequities in the law and provide meaningful standards across the whole country.
The unemployment compensation program was designed to stabilize the economy in periods just such as this. It cannot do that job unless it is brought into line with the realities of the modern world.
Our economy is essentially strong. It will not remain strong unless we act intelligently to keep it so. Well meant advice to consumers and pious declarations of faith will not do the job. We must have faith, to be sure, but it must be faith built on works.
Economics is said to be "the dismal science." This is only true if the facts that economists record are dismal. We know enough in 1958 to say with confidence that those facts need not be dismal. We have it within our power to make them otherwise.
Source: Papers of John F. Kennedy. Pre-Presidential Papers. Senate Files, Box 901, "Chamber of Commerce, Wilkes-Barre, Pennsylvania, 13 May 1958." John F. Kennedy Presidential Library.