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II. Technical Requirements

Published online by Cambridge University Press:  02 September 2013

Gerhard Colm
Gerhard Colm
Affiliation:
Fiscal Division, Bureau of the Budget
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Extract

Maintaining high-level production and employment is widely recognized today as a desirable objective of government policy. Those who oppose the government's accepting express responsibility for the achievement of this objective insist that government in a free-enterprise economy is not equipped to live up to such a responsibility. Criticism comes from two sides. Protagonists of a laissez-faire economy fear that a government pledged to assure full employment will be driven into more and more planning and regimentation. Protagonists of a planned economy, on the other hand, insist that any attempt to solve the problem of full employment within the framework of free enterprise will be futile. They fear that such an effort will only delay the transition to a planned economy, which they believe is the only final solution of our economic and social problems. Both kinds of critics maintain that the technical requirements of a policy designed to maintain full employment are incompatible with a free-enterprise economy.

What, then, are the technical requirements of a policy of full employment? Is the government equipped, or can it be equipped, to do the job without paying the price of adopting a regimented economy? Perhaps those who speak of full employment in a free-enterprise economy are driven into the same dilemma in which the oldster found himself when telling his grandchild about the alligator chasing the frog. The frog jumped from the log into the river, swam through the river, hopped on land—the alligator coming closer and closer. When the alligator finally cornered the frog under a tree and opened his mouth to swallow him, things were getting desperate for both frog and story-teller. The old man knew only one solution: “The frog looked up and Baw the tree and just as the ‘gator's jaws were closing down, the frog flew up into the tree.” “But Grandpa,” said the little boy, “frogs can't fly.” “‘Deed they cain't, Son, ‘deed they cain't,” was the answer, “but this frog flew … he had to.”

Type
Maintaining High-Level Production and Employment: A Symposium
Information
American Political Science Review , Volume 39 , Issue 6 , December 1945 , pp. 1126 - 1137
Copyright
Copyright © American Political Science Association 1945

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References

1 See Colm, Gerhard and Lehmann, Fritz, “Public Spending and Recovery in the United States,” Social Research, Vol. 3 (1936), pp. 129 ff.Google Scholar

2 For a survey of the “tool chest” of government activities, see the exhibit submitted by Budget Director Harold D. Smith with his testimony on the Full Employment Bill before the Subcommittee of the Senate Committee on Banking and Currency, Hearings, 79th Cong., 1st Sess. (Aug. 30, 1945).

3 Budget Director Harold D. Smith, in his testimony, ibid.

4 See Patton, James G., “The Federal Government's Rôle in the Postwar Economy,” in this Review, Vol. 38 (1944), pp. 1127 ff.Google Scholar

5 It is not intended to review here all statistical requirements of the bill in detail. The discussion is limited to the essentials.

6 The often-mentioned inaccuracy of the forecasts of federal expenditures in the official budgets can largely be explained by the fact that these estimates usually did not take account of legislation subsequently adopted by Congress. Critics overlook the fact that they were hypothetical projections rather than predictions.

7 In a British white paper on Analysis of the Sources of War Finance and Estimates of the National Income and Expenditure in the Years 1938 to 1944 (Cmd. 6623, London, 1945), it is said: “… the problem of maintaining employment is very largely the problem of maintaining total expenditure, public and private, and in an economy where this is accepted as one of the prime aims of government policy it becomes peculiarly important to have not only statistics adequate to measure that expenditure, but a method of bringing them together and classifying them which makes possible the necessary comparisons with the immediate past and with the present position in other countries” (p. 2). See also Colm, Gerhard, “From Estimates of National Income to Projections of the Nation's Budget,” Social Research, Vol. 12 (1945), pp. 350 ff.Google Scholar

8 It is quite significant that the President's budget for the fiscal year 1946, submitted to Congress early in January, 1945, included estimates of the nation's budget for the calendar year 1944, and that the 1946 budget review, issued by the budget director August 2, 1945, presented the nation's budget for the fiscal year ending June 30, 1945. The last quarter in each of these estimates has, of course, more the character of a forecast than of an estimate based on actual statistics. In the past, estimates of national income were available only several years after the end of the period.

9 In the literature, the primary changes are often called “autonomous” changes. They are “autonomous” only with respect to the time period in which they occur; they are often determined by economic conditions of the past.

10 Relationships obtained from past experience are not used mechanically. It is probable, for instance, that consumers may react differently to a reduction in income when they have considerable wartime savings than when they have fewer savings as a reserve to draw upon. For a realistic appraisal of this fact, more knowledge of the distribution of wartime savings is needed than we now have.

11 The secondary changes include the impact of increased or decreased primary changes on consumption—the so-called “multiplier” effect; the impact of changes in markets on business investments—the so-called “leverage” effect; and other “induced” transactions such as changes in inventories in response to changes in business conditions.

12 For an example of model construction, see National Planning Association, National Budgets for Full Employment (Washington, 1945).Google Scholar