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to 1940, adjusted for comparability with current estimates. The population estimates represent the medium series of projections.
Under the present defense program, the armed forces during the next few years are projected to remain at the current level of 3.6 million which was reached in 1952. And it is assumed for the purposes of this study that unemployment, which during the past 2 years has been below the 2-million mark, could rise to as much as 21/2 million by 1955 without presenting a general unemployment problem. Such an unemployment figure in a considerably larger labor force would not depart so markedly from the Nation's legislated objective of "maximum employment” as to call for new counteracting public measures, although it is desirable, in the Council's judgment, to strive consistently to keep unemployment lower than this figure.
These two estimates, then-armed forces and unemployment-point to the need for about 62/2 million civilian jobs in 1955, contrasted with 61.0 million for 1952 as a whole. This contemplates a considerable increase in private nonagricultural employment, and a continuation through 1955 of the long-run decline in the number of persons engaged in farm work. A moderate further increase in government employment at the State and local level can be anticipated.
Table 11.--Labor force, employment, and unemployment
1 Projections by Council of Economic Advisers; total labor force based on projections in Current Population Reports, Series P-50, No. 42.
Percent based on unrounded figures for 1950-52.
Hours of work
The average number of hours worked each week is assumed to decline slightly in the private nonagricultural segment of the economy-from 39.7 in 1952 to an estimated 39.5 in 1955, reflecting chiefly increases in paid vacations and some further reductions in the amount of overtime. In manufacturing, it is assumed that the basic 40-hour week will be continued.
In agriculture, technological development should continue to make shorter hours possible, but a declining labor force will make for longer hours. On balance, it seems reasonable to assume that the farm workweek will show little if any change during the next 3 years. (See appendix table B-14.) Productivity
Productivity, in its generalized meaning, is the ratio of output to input. Here, as is the common practice, the term is restricted to the relationship beween total output and labor input, so that a rise in productivity is an increase in total output per man-hour. In these projections, productivity in the private nonagricultural sector of the economy is assumed to increase about 2.5 percent this year, and by slightly larger percentages in the next 2 years. This would involve increases which are a shade above the
average gains over the long-run past, in recognition of the extraordinary expansion and improvement of capital equipment throughout the postwar period, but which are still somewhat below the average productivity increase of the
last 5 years.
Total needed production
When, as shown in table 12, these estimated productivity increases are applied to the input of labor as previously projected for the private nonagricultural sector of the economy, there results an estimate of private nonagricultural production needed in 1955. And when this is added to an estimate of farm and government output, the result is this: A gross national product of about 375 to 380 billion dollars, calculated in 1952 prices, consistent with high-level production and employment in 1955. If the Nation should build up steadily to this 1955 level of output, it would mean increments of about 10 to 12 billion dollars annually.
Table 12.-Gross national product: 1952 and projections of needed levels, 1953–55
1 Projections by Council of Economic Advisers.
: Preliminary estimates for fourth quarter, 1952, indicate that gross national product has already reached an annual rate of about 353 billion dollars in average 1952 prices. If the projected growth were to be based on only the fourth quarter of 1952, the projected gross national product in 1953 would be somewhat higher than shown. It seems more appropriate, however, to base the projection on the full year 1952, in light of the fact that, as is emphasized in the text, the projection is a minimum objective, not a forecast.
NOTE.- Detail will not necessarily add to totals because of rounding.
It should be noted that, throughout the calculation, a rule of moderation has been followed. We have allowed for an increase of about a million above recent levels of unemployment, although it would be obviously desirable to hold unemployment to a much lower figure, and we should try to do so. And the annual productivity gain posited is more modest than some experts expect, and certainly more modest than that for which it might well be argued the Nation should strive. In short, the needed levels of employment and production pictured are by no means those of a drum-tight economy, and they probably would not provide as much additional production as would be needed if substantially greater national security efforts should become necessary. From the viewpoint of a full-employment policy, they constitute a minimum standard against which to measure our prospects for the next 3 years. Amplifying comment by Mr. Keyserling
The national objective set forth above for our productive growth between now and 1955 prompts me to make this amplifying comment, in view of my known commitment to the philosophy of an expanding economy. I have no reason to believe that my colleagues are not in general accord with the amplification that I now set forth, and I do not regard it as inconsistent with any portion of this Review. I set it forth singly because it is a little aside from the main stream of this Review, and yet germane enough to afford an opportunity in the context of this discussion at this time to respond to many of the questions presented to me over the years concerning my reiterated interest in the philosophy of an expanding economy. This amplification, which may be of interest, to some who read this Review, should not be interpreted to cast any doubt upon my complete agreement with the Review in its entirety, both as to analysis and conclusions.
From the time of the Korean outbreak, I have had several opportunities to emphasize that America's productive power and potential constitute the greatest nonsecret weapon of the free world. While I have favored the various control and restraint programs (both indirect and direct) designed to divide up what we have in accord with national priorities in time of danger, I have constantly pointed out that if there were excessive relative emphasis upon these methods, it could distract us from full attention to the build-up of our greatest nonsecret weapon. Further, I have felt that any such misplacement of emphasis would tend to increase friction among the functional sectors of our economy when unity is of the essence.
The events of the past 2/2 years have in the main strengthened my earlier views. The actual productive record of the economy, generating an expansion of civilian supplies along with the vast increase in defense output, has far exceeded estimates which were generally regarded as fanciful when first offered for discussion and appraisal in mid-1950. Yet the issue is still very much alive. There are some who would give consideration to the reduction of our primary defense efforts and our international commit
ments, not on a finding that lower targets seem consistent with our world safety (which would of course justify such action), but rather because they still grossly undervalue the productive power of the American economy. Any such undervaluation of our productive potential can lead—and in a few instances has led—to unwarranted fears about the availability of certain types of civilian supplies, thus creating some inflationary pressures based upon false expectancy, and creating some unnecessary dislocations. Today, with crying needs for our exportable products among millions of free people throughout the world whose very freedom is imperiled by want, with numerous families in the United States in need of a better standard of living and a vast majority of the people of the United States well able to benefit by a still higher standard of living, with the chances possibly 50–50 that the world situation may call for an intensification rather than a slackening of our international efforts, and with the Soviet Union and its satellites pursuing an increasingly relentless course, it would indeed be ironical if any substantial segment of our own people doubted whether we will be able fully to use our current productive capacity, instead of realizing that we have the brains immeasurably to increase our economic and political security in the most profound sense by drawing the weapon of our ever-increasing productive ability fully from its sheath.
I have believed since the Korean outbreak, and I now believe even more firmly, that nothing would contribute so much not only to our national security and progress, but also to the fullest generation of our moral and spiritual energies, as an intensified drive to make the whole Nation conscious of and uniformly engaged in the full utilization of this great nonsecret weapon. Despite generally "full employment," there is some underutilization of some parts of the labor force; some underutilization of some of our current productive resources in agriculture and even in industry; some underutilization of existing technology and retardment in the application of established science to the practical arts; and some underutilization of brains and good will. With an effort commensurate to our problems in a troubled world, it would seem that by 1955 we might lift our national output even above the target used for the purposes of this Review, without inflationary strain and without resort to the forced pressures and controls which would be imperative in a full war economy but which would be undesirable in a long middle course between war and peace.
It is manifestly not feasible for me to spell out in this brief amplifying comment the detailed means by which the Nation might move even more effectively than it has thus far along this already established course. I must be content here to clarify a permeating philosophy rather than cite a precise program. Nor do I intend to imply that those in charge of the mobilization program, as well as many leaders throughout the Nation, have not joined largely in this philosophy. Had they not, the marvelous accomplishments since mid-1950 would have been impossible. But their great
and effective labors have been made more difficult at times by some who desired to cut down our world security efforts on the ground that our economy could not produce enough to meet them without disaster, and who then in turn have desired to take it easier on the over-all production front on the ground that our world security efforts could safely be less than had originally been thought necessary. Such reasoning draws a vicious circle. Considerations of our domestic economic well-being must, of course, be meshed with considerations of world security. But stating this is the beginning of the problem, not its solution.
To avoid possible misunderstanding, it is not asserted that the 375–380 billion dollar target set forth in this Review is a “forecast” of what our actual output will be in 1955. If we were to have a serious recession or depression, the 1955 output may be far less. The figures are merely objectives—merely a quantification as to what we mean by maximum production looking forward to 1955. I readily admit that practical objectives must be kept within the range of the attainable, taking fully into account other national purposes, and also taking fully into account the current state of the economy from which we start. But the concept of maximum employment and production under the Employment Act would be impoverished if it hewed to the line of what is likely to happen without effort, or even what is attainable with slight effort. If the term "forecast" is used in this connection, the concept involves a forecast not of what we will automatically accomplish but rather of what we can do and ought to do. And what we ought to do, within the limits of what we can do, should be set within the context of the current world situation.
These views are not predicated upon a desire to foist more controls or "central planning" upon the economy. On the contrary, since the Korean outbreak, I have insisted constantly that the full release of our productive energies throughout the Nation-sparked as it only can be by vision and imagination is the true alternative to (1) the economic straitjacket which would result from trying to make inadequate production cover our full needs or (2) the equal danger which would result from failing to meet our full needs in terms of the world situation.
Nor am I unmindful of the sound requirement that maximum employment and production should not be defined at such high levels as to generate inflation. The subject of the causcs of inflation is too comprehensive for discussion in this amplifying note. Those who would oversimplify this matter should observe the price stability which has been maintained recently when unemployment has reached an all-time low point short of total war, and should observe also the inflationary spurts which have occurred in other recent periods when our resources were by no means being fully employed. I will not here discuss the momentous question of whether a slight increase in inflationary pressures would outweigh, under current world conditions, the gains to be derived from a much larger national product. Such analysis is unnecessary to my current purpose, because I