Moving away from New Deal means tax cuts & strong dollar
Kennedy came to the end of his speech with a mild swipe at the New Deal: "Some conversations we have heard in our country sound like old records, long playing, left over from the middle thirties. The debate of the thirties had a main significance and
produced great results, but it took place in a different world with different needs and different tasks. It is our responsibility today to live in our own world, and to identify the needs and discharge the tasks of the 1960s."
The political economy of the 1930s was unmistakable. There were large tax and spending increases and an epic devaluation of the dollar.
If it was time to move away from those things "left over from the middle thirties," the direction had to be in favor of the tax-cut-strong-dollar policy mix.
Father served as 1st Securities & Exchange Commission chair
John Kennedy arrived on Capitol Hill in January, 1947, the son of a rich man, a very rich man--a legendary figure in American finance: Joseph P. Kennedy, who had made millions in the stock market on its way up during the
Roaring 20s, and then selling short on the eve of the 1929 Crash, had made millions more on its way down; who had turned from amassing wealth to regulating it, as Franklin D. Roosevelt's dynamic chairman of the new Securities and Exchange Commission.
Everyone in Washington seemed to know that the ambassador had given Jack--along with each of his other 8 children--his own million-dollar trust fund, as everyone in Washington seemed to know that the ambassador had bought
Jack his seat in Congress with huge campaign expenditures. And for some years after Jack Kennedy's arrival on Capitol Hill, that was all he seemed to be: a rich man's son.
Concept of balanced budget is misleading mythology
President Kennedy, arguing that tax cuts would stimulate the economy and that the concept of a balanced budget was an outdated
and "misleading mythology," called, in one of his typically eloquent speeches, for "new words, new phrases" in economic theory.
Source: Passage of Power, by Robert Caro, p.469
, May 1, 2012
Heavy deficit spending to recover from 1961 recession
The need was to get money into the economy fast. Kennedy directed all Federal agencies to accelerate their procurement and construction. He released over a billion dollars in state highway aid funds ahead of schedule, raised farm price supports and
advanced their payment, speeded up the distribution of tax refunds and GI life insurance dividends. He created a "pilot" Food Stamp program for the needy and expanded US Employment Offices. Finally, he encouraged the Federal Reserve Board to help keep
long-term interest rates low through the purchase of long-term bonds.
While most of Kennedy's administrative moves added to the deficit--some by billions of dollars--none of them had to wait for legislation or appropriations. The money was paid out
when the economy needed it most. He made clear--and this may have had the most important effect of all--that he would not cut back Federal spending when the recession reduced Federal revenues, or permit a tightening of credit when recovery began.
[In his first State of the Union address, Kennedy stated], "The present state of our economy is disturbing. We take office in the wake of seven months of recession. Insured unemployment is at the highest peak in our history. In short, the American
economy is in trouble. The most resourceful industrialized country on earth ranks among the last in economic growth. I will propose within the next 14 days measures aimed at insuring a prompt recovery and paving the way for increased long-range growth."
Source: "Kennedy" by Ted Sorensen, p. 396
, Jan 1, 1965
Presided over strongest economic expansion in modern history
During the four years following John Kennedy's inauguration, the US experienced the longest and strongest economic expansion in this nation's modern history--GDP increased more in 4 years than it had in the previous 8. By 1964, a record $100 billion, 16%
growth in the nation's total output had provided more than 2.75 million more jobs and a record rise in labor income. The amount of idle manufacturing capacity had been reduced by half, and for the first time, the 70-million-job barrier had been shattered
Source: "Kennedy" by Ted Sorensen, p. 393
, Jan 1, 1965
All presidents outspend their predecessors
Kennedy's favorite comparison was with the fiscal record of his Republican predecessor. On occasion, he would ask: considering Truman's expenditures in Korea and at the end of the Second World War, how do you think Eisenhower's eight budgets compared wit
Truman's eight budgets? Eisenhower outspent Truman by $182 billion. "You could win a bet on that in any bar in the country," the President told me when I first gave him the figure. He would also cite
Eisenhower's record of five deficits in eight years, including a peacetime high of $12 billion, the $23 billion Eisenhower added to the national debt and the 200,000 civilian employees he added to the Federal payroll.
All Presidents, he continued, outspend their predecessors in a growing, progressive nation. The Kennedy administration's "domestic" increases didn't sound so outrageous when shown to be less than in the last three years of his predecessor.
[By Nov. 1963] the policies of the Kennedy years had resulted in the longest American peacetime expansion of the economy in the century of recorded business cycle history. The average increase of the gross national product in real terms was
5.6% a year--measurably more than the 5% Kennedy had talked about in the 1960 campaign. Profits, wages and salaries were higher than ever before; yet costs and prices remained stable, and wage rates on the average rose no faster than productivity.
The sources of this triumph can be briefly enumerated. The steady rise in expenditures, averaging over $5 million a year, contributed basic economic stimulus.
The investment tax credit and the liberalized depreciation allowances encouraged investment.
Economic stimulus took us from recession to recovery
We began the year in the valley of recession--we completed it on the high road of recovery and growth. With the help of new congressionally approved or administratively increased stimulants to our economy, the number of major surplus labor areas has
declined from 101 to 60; nonagricultural employment has increased by more than a million jobs; and the average factory work-week has risen to well over 40 hours. At year's end the economy--which [Soviet Premier]
Khrushchev once called a "stumbling horse"--was racing to new records in consumer spending, labor income, and industrial production.
We are gratified--but we are not satisfied. Too many unemployed are still looking for the blessings of prosperity.
As those who leave our schools and farms demand new jobs, automation takes old jobs away.
Since 1958 recession, the American economy is in trouble
The present state of our economy is disturbing. We take office in the wake of 7 months of recession, 3 years of slack, 7 years of diminished economic growth, and 9 years of falling farm income.
Business bankruptcies have reached their highest level
since the Great Depression. Since 1951 farm income has been squeezed down by 25%. Save for a brief period in 1958, insured unemployment is at the highest peak in our history.
Our recovery from the 1958 recession, moreover, was anemic and incomplete.
Our Gross National Product never regained its full potential. Unemployment never returned to normal levels. Maximum use of our national industrial capacity was never restored.
In short, the American economy is in trouble. The most resourceful
industrialized country on earth ranks among the last in the rate of economic growth. Since last spring our economic growth rate has actually receded. Business investment is in a decline. Profits have fallen below predicted levels. Construction is off.
Q: In the past 3 years, there has been an exodus of more than $4 billion of gold from the US, apparently because exports have slumped, and because of increased American investments abroad. How would you go about stopping this departure of gold?
Well, the first thing we have to do is to continue to keep confidence abroad in the American dollar. That means that we must continue to have a balanced budget. Secondly, we have to increase our exports, as compared with our imports.
KENNEDY: The difficulty, of course, is that we do have heavy obligations abroad, that we therefore have to maintain not only a favorable balance of trade but also send a good deal of our dollars overseas to pay our troops, maintain our bases, and
sustain other economies. In other words, if we're going to continue to maintain our position, we have to maintain a sound monetary and fiscal policy. We have to have control over inflation, and we also have to have a favorable balance of trade.
More interested in federal programs than in cutting deficit
KENNEDY: I did not advocate reducing the federal debt because I don't believe that you're going to be able to reduce the federal debt very much in 1961, 1962, or 1963.
Q: You call for expanding some of the welfare programs for schools, for teacher salaries, medical care, and so forth; but you also call for reducing the federal debt. And I'm wondering how you would go about paying the bill for all this.
I think you have heavy obligations which affect our security, which we're going to have to meet.
NIXON: I think that it should be pointed out that of course it is not possible, particularly under the proposals that
Senator Kennedy has advocated, either to cut the national debt or to reduce taxes. As a matter of fact it will be necessary to raise taxes.