Before the current recession began many economists were agreed that, although the science of economic forecasting was closer to meteorology than astronomy in precision, we knew in a rough way what to do to reverse the course of economic contraction once the contraction was identified. The middle-of-the-road economists probably concurred in the sequence of steps for dealing with a recession which Professor Arthur F. Burns, former chairman of the Council of Economic Advisers, outlined in a series of lectures delivered in the autumn of last year.¹ Appropriate policy should begin with an easing of credit. Here the central agency is the Federal Reserve Board. Most literate Americans can recite the litany of that agency’s powers to curtail reserve requirements, lower the interest rates the Federal Reserve banks charge for advances to commercial banks, and increase the supply of cash by judicious purchases of government securities from banks, life insurance companies, corporations, and pension and mutual funds. So much in the way of public education the recession must be credited with. One important uncertainty of monetary policy, however, is perhaps less widely appreciated. Because the Federal Reserve Board is an autonomous agency, the President has no direct, legal control over credit policy. In this recession, the President’s economic advisers have differed almost openly with the Federal Reserve Board about the timing and extent of monetary intervention. But legally, the inevitable last word in such disputes remains with the Federal Reserve Board.

In Dr. Burns’s anti-recession policy, tax reduction follows monetary easing. No doubt, part of the art of economic management here as elsewhere lies in waiting long enough for the economy to respond to the monetary policy. But when this response is inadequate or sluggish, tax reduction is appropriate. If the aim is to end the recession rather than to improve social conditions as liberals might wish, or reduce the degree of progression in the personal income tax, the heart’s desire of many conservatives, then policy-makers will endeavor to leave unchanged the existing income distribution. Much depends on prompt, firm action, because a tax cut granted late in a recession, when apprehension and uncertainty have produced caution, might increase saving more than it increased spending. Early in a recession, when few are out of work and profits in most lines are still high, tax reduction can probably increase spending sharply. Something, of course, depends upon how the reduction is granted. If spread over twelve months, the income gain for most taxpayers is trifling. If concentrated in one month, it would put sizable sums into many hands. Although the total change in spending might be the same, in the first instance items whose price tags are small—food, some articles of clothing, recreation—might enjoy the bulk of initial benefit, and in the second appliances and cars might find more customers with down-payments in hand.

But tax cuts may not do the job. The characteristic they share with easier credit policy is permissiveness. Both create the conditions out of which increased spending may flow, but neither guarantees the result. A third step does insure larger expenditure. The President can accelerate placement of government contracts, advance existing public construction schedules, and, where possible, shift outlays destined for the distant future to the near future and those designed for the near future to the present. The President possesses considerable power to juggle existing appropriations for purposes which have already won Congressional approval. When the President takes such action, he increases the flow of government expenditure without withdrawing additional funds from the economy, except in the happy event that recovery swells the incomes out of which tax receipts come. Such a policy neither expands the sphere of government activity nor incurs charges of waste. But there are limits to its effectiveness, partly because of the size of appropriations available for rescheduling, and partly because of the need for efficient, orderly progress on projects already begun. When these limits have been reached, Dr. Burns contemplates as a final step the initiation of new public works, financed out of budget deficits. If prudent forethought has accumulated plans for desirable improvements, the time which must elapse between a project’s contemplation and execution can be shortened, and the possibility that it will be a valuable addition to the community’s social assets can be increased.

Not all economists are agreed in considering this program the best possible sequence of policies. Credit policy need not cease when tax reductions begin. Necessarily, policies will overlap. In the well-publicized disagreement between the Senate’s Paul Douglas and Harvard’s J. K. Galbraith, the former advocated tax cuts first and the latter public works first. Yet, despite preferences of this kind, economists agree widely that these four kinds of action, in some combination, would produce recovery in an economy already sheltered, to some degree at least, by unemployment compensation, aid to farmers, and supplementary unemployment compensation arrangements. This convergence of opinion does not ignore the possibility that unwise anti-recession action today might store up inflationary troubles for tomorrow. Confidence in vigorous action stems from the belief that troubles are best handled singly. The inflationary repercussions of anti-recession policy, so much in the minds of the President and some of his advisers, can be dealt with as they appear.

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Have the events of the last six or eight months—steadily deepening recession, low demand for steel and autos, rising unemployment, and the threat that the recession will prove cumulative rather than self-limiting—shattered the profession’s faith in the efficacy of its remedies? There is no real reason to suppose so, for only the most timid use of the remedies has been made. Credit relaxation has been almost the sum of the Eisenhower administration’s anti-recession policy. Many of the programs labeled anti-recession prove on examination rather routine measures, likely to increase public spending only in the relatively distant future. True, a very moderate amount of expenditure rescheduling has been undertaken. But the most powerful permissive weapon—tax cuts—and the most effective expenditure technique—new public works—have not been tried. Although history cannot be re-run to verify alternative hypotheses, the balance of probability supports the conclusion that large tax cuts early applied could by now at least have limited further contraction and conceivably promoted renewed expansion.

However, the fact that the administration has equivocated (as of the end of April) on these measures does point to a problem whose urgency many members of the economic profession seem optimistically to have underestimated. This problem concerns the extent to which there is general agreement on the nature of anti-recession policy. Economists have been very sanguine about the substantial consensus that is supposed to exist among politicians, economists, and even most businessmen on the propriety of using the weapons of budget deficit to combat recession. The reasonable economic statements of the Committee on Economic Development, a business group which has consistently kept abreast of economic opinion, seem to support this hopeful view, and a variety of arguments have been used to demonstrate the inevitability of vigorous government action in the political interests of the party in power. Although most economists might have identified a liberal preference for monetary measures, they did not doubt the willingness of conservatives to use both.

If recent events demonstrate anything, it is the inaccuracy of this opinion. Economists have not carried along with them all of the most alert members of the business community, let alone a majority of businessmen. Neither have they persuaded politicians in the bulk that fighting the recession is a matter of technique rather than of value judgment. It is this last point which I wish to examine in the remainder of this article, for I am persuaded that the hesitancies and inadequacies of recent policy are the direct result of conflicting political and social attitudes rather than of inferior techniques and insufficient knowledge.

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What is the conservative attitude, twenty-two years after Keynes? Month after month the First National City Bank Monthly Letter presents intelligently, temperately, and ingeniously a highly suspicious view of government activity, of the propriety of deficits, and of the merits of Keynesian economics. Although there is obvious danger in taking one periodical to represent an entire wing of opinion, no injustice is done when that periodical is the best of its kind.

How does the conservative regard recession and its control? First of all, recession is unavoidable. “Given the necessity of adjustment, the fact that the curtailment has proceeded rapidly may be favorable. At least some of the things that had to be done have been accomplished”—so it is stated in the April issue of the Monthly Letter. Few economists would disagree with the implication that the business cycle is a feature of industrial societies, but many would question the additional implication that its path and behavior had best be left alone. The conservative distrusts human motives. He believes durably in the sinfulness of man. Therefore he hesitates to aid the unemployed, for fear that a taste for unemployment would be the consequence. As the Letter puts it, “given the human proclivity for leisure, there is no easier way to make unemployment a permanent problem than extending and enlarging unemployment pay.” Here is an evidence of consistent difference between conservatives and liberals: the first fear malingering; the second more generously, and probably more accurately, emphasize the human damage which unemployment causes. The conservative stresses the long run rather than the short, for he believes that short-run troubles are inevitable. But more than that, he is convinced that endeavors to alleviate them fail in the present and damage the prospects for economic growth in the future. Here the conservative frequently demonstrates an awareness of institutional realities which his liberal antagonist occasionally fails to achieve. A good part of the case against public works is, of course, based on a value judgment that individuals, wherever possible, should make their own choices of goods and services. In contrast, liberals can sometimes be found supporting larger communal expenditure on housing, schools, hospitals, and other medical care; their confidence in the capacity of a free enterprise system to evoke satisfactory levels of expenditure on such activities is limited. But much of the conservative case against public works has little to do with the value judgment. Government employees who administer the projects acquire vested interests in them, conservatives believe; as the need for them diminishes, they invent new reasons to justify their continuance. Builders and manufacturers of building materials constitute powerful pressure groups in favor of continued activity. Thus the conservative view attacks what might be called the hydraulic fallacy: that it is as easy to turn government spending on and off as to twist a faucet.

Similar emphasis on the long run characterizes the conservative position on taxes. Most present tax-cut proposals concentrate on increasing consumer spending. The Letter, on the contrary, emphasizes the need to increase permanently the incentive for business investment. In the face of some evidence to the contrary, the Letter assumes that the present tax structure inhibits investment and favors safe rather than risky projects. Its proposals for tax reform, then, are permanent, not temporary. In essence, they come to a reduction in the corporate income tax rate, and a severe moderation of the present degree of progression in the personal income tax. All of which suggests that where the liberal stresses the equity of high progression, the conservative emphasizes its unfavorable impact upon the incentives to work and invest. It is consistent with his emphasis upon the long run, and his fear that the momentum of human institutions, combined with the weakness of human reason, make temporary arrangements permanent burdens upon the future, that the conservative should fear inflation much more than he dreads unemployment. Enough has been said to indicate that this evaluation is not simply hardhearted insensitivity to the sufferings of others. It is the clear result of belief in the inevitability of adversity joined to apprehension about the effects of government intervention to mitigate it.

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Combined with these conclusions is a view of recent economic history. The conservative is disposed to believe that market adjustments can produce speedy recovery in the absence of massive government intervention. “The real solution to unemployment lies in the encouragement—not in the displacement—of private enterprise.” More than that, the conservative views the Great Depression as a demonstration of the inadequacy of fiscal remedies. Where the liberal view might claim that Roosevelt’s policies came too late, after four years of Hoover, and amounted to too little because of Roosevelt’s own lack of consistent theory, the conservative draws a quite different moral from the same set of historical events: “This is a lesson we ought to take to heart out of the Great Depression. Billions upon billions spent by the Federal Government to make jobs still left 10,000,000 on the unemployment rolls” (the April Letter).

How far can these views be attributed to the administration? An administration is many people. Within it a Secretary of the Treasury may not necessarily agree with the Council of Economic Advisers, and George Humphrey, without title, may exercise more influence on economic policy than the combined titles of the administration. But this much is fair: the President’s statements have demonstrated a consistent concern with long-run inflation and a persistent tendency to deprecate the importance of current unemployment. He refuses “to be panicked by alarmists into activities that could actually make the hardships of unemployment not temporary but chronic.” He has emphasized his willingness to contemplate “tax reduction” if it will “assist healthy economic recovery.” Obviously, the operative word is “healthy,” and Mr. Eisenhower, in line with conservative opinion, is concerned more with the structure of the economy, in particular the relations between government and business, than he is with the immediate troubles of the people in that economy. Those ignorant of economics frequently seek refuge in the moral verities. Mr. Eisenhower is no exception. His tendency is to think of the recession as a problem of confidence and of confidence as a moral virtue. Parenthetically, it is worth noting how much nonsense is written and spoken about confidence. It is quite true that investment plans which risk funds on projects whose results may not be apparent for years to come reflect the optimism of the businessmen who make the plans. It is equally true that lack of orders, not lack of confidence, explains the plight of steel and autos. The manufacturers of the latter displayed enormous, though misplaced, confidence in their new models. Confidence flags when economic activity slows, and, although gloom may hasten contraction, it seldom if ever causes it.

What does all of this amount to? Although intelligent conservatives talk in the language that Lord Keynes made popular and, if pressed hard enough, may come to employ some of his remedies, their own preferences are for economic policies which antedate the Keynesian revolution in economic thought. This preference expresses itself in an extreme reluctance to cut taxes and increase public works expenditures. Joseph Alsop summarized the economic policy of this administration as one that hoped for the best without preparing for the worst. A fairer statement of the conservative position might be: intelligent abstention from hasty government action will prevent the worst.

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Such, in summary, is conservative opinion. It mixes ideology with economic techniques. But so also does the liberal position—even though I find it the more appealing. The liberal politician and the liberal economist set different values on the danger of inflation and unemployment, and no reconciliation between them is likely. This is almost a re-enactment of the ancient divergence between emphasis on human rights and emphasis on property rights. The liberal, frequently underestimating the human costs of inflation, tends to center his attention and sympathy on the victims of unemployment. Obviously, the conservative would not avoid any inflation at the cost of any amount of unemployment, and the liberal would not suffer any degree of inflation to prevent the slightest amount of unemployment; but for the sweet sake of price stability the conservative will endure considerable unemployment, and for the sake of full employment the liberal will bear substantial inflation. Moreover, the liberal is inclined to see a recession as a problem in equity and an opportunity for social improvement. The ethical sensitivities of the liberal are much more likely to be affronted by extreme differences in income than are those of the conservative who may consider them the unequal rewards of unequal talents. When it comes to tax reduction, this value judgment leads the liberal to make the rate structure still more progressive on the ground that justice is best served by diminishing the degree of inequality which remains in the income distribution. As for the conservative, so for the liberal, tax policy affords an opportunity to promote a social objective which he values in all economic climates.

Morality is not all on one side. Some liberals have sounded in recent months as though they considered the recession a judgment on the bad taste of automobile manufacturers and the designers of other meretricious items. They turn with relief to a redirection of spending. The recession is a chance to promote a whole array of more desirable outlets for the resources of the nation: schools, hospitals, river development, aid to underdeveloped lands, scientific research. The catalogue is long and familiar. While the conservative suspects the usefulness of governmental activity, the liberal judges much private spending as wasteful, if not harmful. The liberal faces with equanimity the prospect of some government redirection of total spending.

Liberals and conservatives have in one way or another accused each other of lack of confidence in the American economy. The charges contain misstatements. Both have confidence: it is over the locus of the confidence that they differ. The conservative locates his in the resilience of an uncontrolled economy, the liberal in the belief that the government has the knowledge, the power, and the obligation to fight recession and advance social welfare. Seen in these terms, the political outlook for controlling recession is by no means as good as the state of economic knowledge might suggest. In what has gone before, we have identified a still influential group which does not accept the view of recession as a deficiency of spending and hence will not embrace the simple remedies which increase spending. In this group are to be found not only the President and the powerful Mr. Humphrey, but conceivably Secretary Anderson as well. The latter’s favorable remarks about increased saving suggest not alone a distant economic perspective, but also a typically conservative emphasis upon thrift as a moral virtue. We must expect this group to resist fiscal measures, accept them only under severe pressure, and limit their scope as much as possible.

Liberal attitudes also hamper prompt anti-recession action. The very openness of liberal confidence in anti-recession policy as a specific against not only recession but also a variety of social ills, tends to harden conservative resistance and to confirm conservatives in the opinion that fiscal policy is a thinly disguised mode of expanding the power of the state over the economic life of the community. Liberals who fight hard against recession and for social reform may keep the first and fail to secure the second. An obvious parallel suggests itself in the fate of the various school building bills which linked anti-segregation provisions to Federal aid. Segregation continues and Federal aid has been delayed. Some liberals, myself among them, would rather see no Federal aid if that aid supported continued segregation. But how many liberals are so attached to income redistribution as to pursue it—knowingly—at the cost of rapid action to limit recession?

This suggests that liberals ought to learn the hard lesson that effective anti-recession policy must be anti-recession policy pur sang. Only in this way can conservative fears be allayed and speedy action assured. The great danger alike for liberal influence and the general understanding of economics is this: the political warfare between liberals who combine economic and social objectives and conservatives who want little action, may delay fiscal action so long that when it comes it will be either inadequate or inordinately massive. Either result could scarcely fail to damage faith in our capacity to control economic fluctuations. Tax policy will be discredited, if a belated tax cut fails to stimulate spending because unemployment and apprehension have risen too high. Conservatives will triumph again in the end if the situation is restored by the sole means of a massive program of public works, for they will then be able to point to the huge expense and the enormous bureaucracy required to administer the program. Liberals cannot afford to forget one general rule: the earlier the intervention the greater the effect, and the longer the delay the more powerful must be the eventual intervention.

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Concretely, what are the political implications of this diagnosis? They are self-restraint and self-limitation. Despite his ethical preferences, the sensible liberal, economist or politician, will favor a tax cut which as far as possible benefits equally all income groups and all interest groups. Ideally, every group’s position in relation to other groups should be left unchanged. The liberal must put up with the inequities of our current tax system and wait to remedy them. He must grit his teeth at the sight of Texas millionaires rich on oil depletion allowances.

When it comes to public works, the liberal should not allow his eagerness for public improvement to lead him to advocate public works prematurely. Nor should his social preferences dictate the composition of these public works when they do become necessary. This is hard doctrine. For it implies that in choosing between a highway program and a school aid program, the liberal might be led in the interests of speedy action to favor the former. This is a direct corollary of the point made in the preceding paragraph. Quick tax reduction depends upon the maintenance of relative positions. Speedy agreement on public works implies building those projects which create no disagreement because they threaten the interests of no group. If in the end these narrow down to roads and post offices, then the liberal had better put aside his preferences and, with a sigh, accept a low common denominator, out of fear that he get neither roads nor schools.

What this recession has served to demonstrate is how strong old attitudes are, how superficial agreement on economic policy has been, and how prone all parties are to mix their social preferences with their economic policies. Only the imprudent venture a prediction in the pages of a monthly magazine. Therefore, I say no more than this: whatever additional economic policies will be employed in the near future, however deep the recession becomes, our economic policy to the end of April has demonstrated, not the inadequacy of economic techniques, but the unwisdom of mixing social and economic objectives in anti-recession policy.

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¹ Published under the title Prosperity Without Inflation, Fordham University Press, 88 pp., $2.00.