Here at home, the recent period of economic growth has been accompanied by periodic inflation. Such periods of inflation not only threaten the continuance of growth but also prevent the benefits of growth from being enjoyed equitably by all the people in all sectors of the economy. We can still observe, despite unparalleled prosperity, deprivation of one kind or another among American families to be counted in the millions. We may face in the future, particularly when defense spending can safely be reduced, more serious tests of our ability to avoid depression than those which have occurred since World War II. And as we continue to build safeguards against such a test, it would be imprudent to rely excessively upon the stabilizing factors already in being which have been set forth above. They are not of themselves sufficiently strong to check inflation when it threatens, or to safeguard us from depression and maintain continuous prosperity and growth.

While much has been accomplished, much remains to be done.

The basic legislation which calls for this Economic Report—the Employment Act of 1946-is the framework within which we should strive to develop the further improvement of our economic condition. In the remainder of this message, I shall endeavor to evaluate this framework and to set within it some of the problems we face and some of the promises that lie ahead if we meet these problems effectively.

Purpose and Performance Under the

Purpose of the Act

Employment Act

The Employment Act of 1946 is one of the most fundamental compacts in domestic affairs which the people through their Government have made during my tenure as President. It represents the refusal of Americans in all pursuits-in business, labor, agriculture, and Government—to accept recurrent depression as a way of life. It voices a profound conviction that all of us-working together-can maintain and enlarge prosperity, not only during or as an aftermath of war, but enduringly for all time.

The Act is more than an essay in wishful thinking. It represents the closely reasoned conclusion of economic minds, both scholarly and practical, that its objectives are obtainable by sensible private and public policies and can best be sought within the framework of our established political and economic institutions.

There were historical roots for this endeavor. The lessons of the past had been particularly compelling in the decade and a half which preceded 1946. These had been years of unprecedented contrast, so far as economic abundance was concerned. On the one hand, there was the stark tragedy of the early thirties, and then the seemingly boundless energies of the early forties. The period had been rich in careful social experimentation and legislative reform; the economic role and responsibilities of the Federal

Government had increased enormously. Many of the experiments had been temporary in character, to meet the emergencies of the depression or the extraordinary demands of war. But many of them were developed and improved to become permanent additions to our economic and social fabric.

Yet the Employment Act was not written in a spirit of conflict. It was not focused on the interests of any one group, whether powerful or downtrodden, but was addressed explicitly to the general welfare. And to an amazing degree, when one considers the thinking which it marked, it was noncontroversial. The subcommittees of the Senate and the House which skillfully ushered it into the legislative world worked to a large extent as bipartisan teams, and the final bill commanded overwhelming majorities of both parties in both houses of the Congress.

There are those who have suggested from time to time that, because the Act was relatively noncontroversial, it cannot have been very consequential. This is erroneous. Near unanimity, in this instance, was not a mark of the unimportant or the hackneyed; it was evidence that a legislative proposal of the greatest moment was extraordinarily well timed. It wrote into the codes of the Nation a great new area of agreement about the essential functions and responsibilities of the Federal Government almost as soon as that agreement existed.

It is likewise a mistake to underestimate the importance of the Employment Act, as some have done, because it did not set down a specific prescription of economic policies for solving future economic problems. The, decision of its framers in this respect was deliberate, and did not represent simply an inability to get agreement on more technical or specific provisions. Instead, the decision was that such basic legislation should not attempt to prejudge the exact character, causes, and remedies of all of the future's general economic problems, but rather to define the general spirit and provide the general method for meeting these problems as they arise. With these problems in view, the Act has three specific purposes.

First, it is the purpose of the Act to achieve, within the Congress and the Executive Branch, and also between private enterprise and all levels of government, better economic policy coordination. In the thirties, and again during World War II, the economic programs of the Government had become increasingly diverse and complex, and any realistic appraisal indicated that they would remain so. The special pressures which were brought to bear upon public economic policy-making had become more powerful, more numerous, and more confusing.

But this growth of complexity had not been matched, especially within the permanent institutions of the Government, by the development of adequate means for gauging whether our farm programs, developmental programs, international trade policies, tax policies, credit policies, business regulatory policies, industrial relations law, and the rest, were consistent with one another and fitted together into a sensible economic policy for the

over-all economy. In the thinking of Congressmen from particular sections and on particular committees, and of leading administrators with specialized responsibilities, the whole too often was lost in preoccupation with the

parts.

The governmental reforms in the Employment Act have sought to meet this problem by strengthening the President's facilities for economic policy coordination within the Executive Branch, by supplying the Congress with a similar facility, and by providing in the Economic Report a regular method for improved coordination between the two branches. Thus the Act meets the problem squarely within the framework of our constitutional system of separated powers. Instead of attempting to circumvent the system with a hybrid agency which would be clearly responsible neither to the Congress nor the President, it installs a mechanism intended to make the traditional system work better. And it provides also, by requiring consultation with business, farm, labor, consumer and other groups, for cooperation and coordination between private and public economic thought and action.

Second, it is the purpose of the Employment Act—the one most widely recognized at the time of its passage-to prevent depressions. As World War II drew to a close, recollections of the shocking costs of the great depression were much sharper than they are today after a dozen years of uninterrupted high prosperity.

The minds of most of us in 1946 were still deeply etched with the memory of the winter of 1932-33, when about 15 million American workers, or about 30 percent of the total civilian labor force, had no jobs; when industrial production was only half what it had been in 1929 and the total output of the economy only about two-thirds; when business was deep in the red; when farm prices and incomes had dropped out of sight; and when banks were collapsing by the hundreds. It has been calculated that the depression cost us some 600 billion dollars of output, measured in 1952 prices, or 31⁄2 times everything we produced in 1929.

The Employment Act stands as a pledge on the part of the people voiced through their laws that never again shall any such sacrifice be laid on the altar of "natural economic forces." In the bigger economy we now have, a disaster of anywhere near the same proportions could mean some 20 millions of our workers walking the streets.

Moreover, the cost of another serious depression would not stop at our own borders. What was becoming apparent in 1946 is now a reality: the strength and stability of the whole free world depend on the avoidance of economic collapse in this country.

Third, the Employment Act had still another clear purpose even more profound and challenging than those of improving economic policy coordination and preventing depressions. It is one which carries beyond the essentially negative and intermittent objective of counteracting slumps. It is the positive resolution of a great people, not simply to avoid pitfalls, but to maintain as a matter of continuing policy a full, bountiful, and growing

economy, for themselves, for their children, and as a standard and inspiration toward the freedom and welfare of all peoples-and to do this in full peace no less than in limited war.

This is a purpose of which we must never lose track. The Act is not meant simply for salvage operations; it does not set up a standby mechanism to be brought onto the scene only on those extreme occasions when the economy needs to be dredged out of a hole. It symbolizes the marshaling of the forces of private and public policy in support of a full and growing

economy.

In such an economy, performance is not measured in the dimension of employment alone; instead, a dynamic, growing productive potential enables us to provide a steady expansion of output as well as full employment.

In such an economy, expansion facilitates the spread of economic justice, and the quality of the expansion is measured in terms of justice as well as efficiency.

In such an economy, there is abundance and stability enough to permit an increasing devotion of energies to the higher values. More and more people, being able to take the needs of their stomachs for granted, can devote increasing attention to the needs of their minds and hearts.

Performance to date under the Act

Such are the purposes of the Employment Act. And after 7 years, it may be fairly said that we have made a start toward fulfilling these purposes. The job of course has not been finished. Indeed, since the purposes are perennially fresh, it will never be finished. But the start has been good.

The progress has been tangible in the matter of policy coordination. These last 7 years have been extraordinarily eventful ones in the realm of economic policy. We have negotiated a transition from major war to substantial peace with unprecedented economic success. We have experienced a relatively peaceful period of restocking and retooling in the civilian economy, while at the same time bringing the United States' economic role in international affairs into line with its newly expanded international responsibilities. And then, most recently, we have been executing the build-up of a preparedness defense mobilization of a character which has no forerunner in American history, and which has been managed in a fashion not to weaken the civilian economy but rather to strengthen it.

I submit that in no previous period have the economic programs of Government shown so high a degree of internal consistency, or so clear a relationship to the needs of the over-all economy. This achievement I credit in large measure to the existence of the Employment Act, to the facilities for policy coordination with which it provides the President, and to the greater concern for systematic and interrelated programming which the Act has inspired in most Executive Branch officials. And it has been accomplished in a Government conducting economic programs far more extensive and complex than ever before.

Correspondingly, there has been greater coherence and clearer attention to the needs of the total economy in the economic legislation of the Congress within the last few years. Outstanding in this respect has been the tax legislation since the Korean outbreak, which has evidenced an unprecedented sense of fiscal responsibility on the part of the Congress. And this was implemented by the alert and emphatic insistence of the Congressional Joint Economic Committee, immediately after the Korean outbreak, on the need for a pay-as-we-go anti-inflationary tax program.

Beside the improvements in policy coordination which the Employment Act has assisted in both the Legislative and Executive Branches, it has been useful in reinforcing the channels for communication between them. It would be foolish to deny that many difficulties in legislative-executive coordination have persisted. But these are a reflection of broad political problems in our governmental process; they are no indictment of the mechanism of the Employment Act itself. As the basic obstacles to legislative-executive policy-making are progressively overcome, that mechanism will prove increasingly useful.

More commonly overlooked but equally significant, the machinery under the Employment Act has helped to bring to private enterprise a better understanding of the problems of Government, to bring to Government a better understanding of the problems of private enterprise, and to help both to integrate their actions more effectively for the benefit of the whole economy. This is the most realistic way-the American way-to avoid excessive centralization of authority. The continuous consultation among the Council of Economic Advisers, other agencies concerned with economic affairs, and representatives of workers, farmers, businessmen, and consumers has brought improved results over the years and should be continued. It has helped greatly in the development of national economic policies and in the preparation of these Economic Reports.

The Employment Act's second great purpose, that of preventing depression, has been served well since 1946. The Nation has thus far traversed its first aftermath of a major war without a major depression. This record as a whole cannot be attributed to the Employment Act. But at the very least, the Act symbolizes the related operation of many public programs, the longer-viewed character of business, labor, and agricultural decisionmaking, and the better coordination of private and public policies, which have featured this period. And these things together have vastly assisted in the maintenance of high prosperity.

In 1947 and again in 1948, reporting under the Employment Act was an important device for calling the attention of the Congress and the Nation to the inflationary danger then in process. It was pointed out that excessively rising prices, if unchecked, would ultimately result in an economic downturn. Specific actions-both private and public-were suggested to meet this threat. Where these actions were taken, they proved valuable.