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The Public Policy
Back When Democrats Knew Economics
Who warned that “increasing federal expenditures” would “demoralize both the government and our economy”?
Eleven months before he was assassinated as he rode with his wife in the back seat of an open convertible in a motorcade through downtown Dallas, President John F. Kennedy delivered a major address to the Economic Club of New York at the Waldorf-Astoria Hotel on December 14, 1962.
The unemployment rate that month was 5.5 percent. The annual inflation rate was 1.3 percent.
The sticker price on a new Chevy Impala convertible was $2,919. Gas was 31 cents a gallon. A morning coffee and newspaper was 15 cents — a dime for the coffee, a nickel for the paper. Cheeseburgers were 20 cents.
The minimum wage in 1962 was $1.15. For 50 weeks at 40 hours per week, that’s $2,300 a year — 79 percent of the price of a new Impala convertible.
The 1962 federal deficit $7.1 billion, more than double the $3.3 billion in federal red ink in 1961.
The $7.1 billion deficit was 1.3 percent of GDP. For 2012, the Office of Management and Budget projects that the federal deficit will hit 8.5 percent of GDP, over six times higher than in 1962, relative to the size of the economy.
President Kennedy began his address to the Economic Club of New York by stating that U.S. security is directly linked to the strength of the nation’s economy.
National security “will not be determined by military or diplomatic moves alone,” he stated. “It will be affected by the decisions of finance ministers as well as by the decisions of Secretaries of State and Secretaries of Defense, by the deployment of fiscal and monetary weapons as well as by military weapons, and, above all, by the strength of this nation’s economy as well as by the strength of our defenses.”
To strengthen the economy, Kennedy called tax cuts on business and all income groups, a less expansionary government, a simplified tax code that downsized loopholes and special privileges, and the removal of obstacles to private initiative.
The “most direct and significant kind of federal action aiding economic growth is to make possible an increase in private consumption and investment demand — to cut the fetters which hold back private spending,” he asserted.
In contrast, a course of “increasing federal expenditures more rapidly than necessary,” he warned, “would soon demoralize both the government and our economy.”
Kennedy called for “an across-the-board, top-to-bottom cut in personal and corporate income taxes” in order to reduce “the deterrents to private initiative which are imposed by our current tax system” — a federal tax system that “exerts too heavy a drag on growth,” “siphons out of the private economy too large a share of personal and business purchasing power,” and “reduces the financial incentive for personal effort, investment, and risk-taking.”
Kennedy’s bottom line? “In short,” he stated, “to increase demand and lift the economy, the federal government’s most useful role is not to rush into a program of excessive increases in public expenditures, but to expand the initiatives and opportunities for private expenditures.”
And the impact of tax cuts on deficits? “Our true choice is not between tax reduction, on the one hand, and the avoidance of large federal deficits on the other,” he declared. The”paradoxical truth” is that “tax rates are too high today and tax revenues are too low and the soundest way to raise revenues in the long run is to cut the rates now.”
Those were the good old days, a time when Democrats and liberals understood that it’s economic growth, not redistribution, that delivers overall increases in a nation’s standard of living, across all income groups.
About the Author
Ralph R. Reiland is the B. Kenneth Simon professor of free enterprise and an associate professor of economics at Robert Morris University in Pittsburgh.
Letter to the Editor View all comments (26) | Leave a comment
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Von Mises Jr| 10.25.12 @ 9:09AM
While raising taxes in 2013 will create a depression that is not the gist of the problem.
In 1962, the Federal Budget was $107B. If you assume 3% inflation, the nominal budget would double every 24 years (Rule of 72). So in fifty years, the Net Present Value of the 1962 Budget would be about $$430B.
The problem is that our current Federal Budget is $3.729 TRILLION in 2012. That means the budget has grown over eight-and-a-half times in real terms.
We cannot tax the rich, nor can we even grow our way out of the problem of having increased spending in real terms by 8.5 times in 50 years.
If we do not dramatically cut spending, we will have a collapse. If we raise taxes, we will most likely have a collapse in 2013.
So for my friends, I recommend that if Obama is re-elected, buy gold and silver coins, guns and bullets and food. Slime like Perp will be in for a big surprise and may be the thug at your door trying to steal your gold and food since his precious government will have shit the bed. Come to my neighborhood, and you may be government Swiss cheese.
canuckistani| 10.25.12 @ 9:10AM
Interesting historical perspective. But 50 years later, the lay of the land is far more complex. Offering Most Favored Trading status to China and ballooning the deficit under successive GOP regimes made it easy for the treasury to manipulate the dollar and sell bonds to our purported strategic and ideological enemies for decades. Our skewed picking of winners and losers from the farm bill to energy subsidies to lax carried interest rules easily trumps domestic "welfare queen" spending.
That Randian girltoy Greenspan once mused that the G was running so fast to net creditor status after Clinton that is would be an enormous threat if private business had to now compete against the G in a net surplus economy.
So which is it? The socialist bogeymen or the reckless GOP managers that Americans have voted for over and over again?
50 years ago, 68% of the economy was not consumer consumption. Supply-side was feasible - one time. Demand creation, even with its inflationary perils, must be the course in these times.
Seeing the divergent curves in income distribution starting with Reagan is the only cautionary inferrence we need.
Reiland chose to not show models with a decimated middle-class. I wonder why?
aquanomics| 10.25.12 @ 10:39AM
The answer is simple and obvious: it is both. It is G. A G that is was too big in the 1950s and yet continued to grow.
If we eliminated 90% of G and threw the bums out on to the street, in 6 months nobody would notice and we'd all be the better for it.
Butch| 10.25.12 @ 5:05PM
There are no "energy subsidies," except to Big Sun and Big Wind.
axbucxdu| 10.25.12 @ 11:05PM
Nearly a century of "demand creation" has led us here, to financial exhaustion. The producer threw in the towel long ago, and now even the consumer can't get up off the mat. Still the recommendation persists to geometrically expand "demand creation".
Arsonists like putting pennies in fuseholders too.
Al Adab| 10.25.12 @ 9:24AM
Nothing these days drives The Left crazy more than quoting JFK. Conservatives (a nascent movement at the time) opposed his tax cut proposal wanting congruent spending cuts as well. That does not detract from the view he expressed. In fact these days we realize that increasing spending drives the problem and that tax cuts produce an economic expansion. The once great Democrat party no longer recognizes this as fact.
The economic delusion, or is it just for political gain and power, which is today their Faith can be understood by reading Eric Hoffers The True Believer. Reality takes second place to Faith these days.
Von Mises Jr| 10.25.12 @ 9:47AM
JFK was an aberration in the Democrat Party.
Wilson was a fascist, FDR's central control statist reign resulted in a decade long depression, LBJ's "Great Society" has cost tens of trillions with no positive results and cascading debt, Clinton set up the Sub-prime crash and Obama is perhaps worse than them all.
In the early 1960's, we had been through WWII and facing the "Evil Empire." That was enough to scare one of their Presidents "Scared Straight." The rest have given us antebellum slavery, opposition to Civil Rights, and now full-blown fascism.
This is not our parents Democrat Party of JFK.
fmm| 10.25.12 @ 11:45AM
JFK was an aberration in economics only. He toed the line in his social misconduct, which leads to all other ills.
JmsA| 10.25.12 @ 5:17PM
Thank you, fmm. Someone needed to point that out.
Seek| 10.25.12 @ 6:12PM
Exactly how does having extramarital affairs lead to "all other ills," economic ones included? Some of the greatest and accomplished men throughout history have had mistresses. I don't condone the practice, but I find it ludicrous that one can so recklessly "link" it with social collapse.
JFK is in good company.
JmsA| 10.26.12 @ 3:17PM
It goes to the overall character and moral fiber of the man, or woman, and the ultimate effect such has on governance. He was a screw up in more one ways than one. 69%.
MikeC| 10.28.12 @ 1:08AM
By Executive Order, just like Obama, JFK gave us unions of governmental employees, the Public Employee Unions, that even Roosevelt advised against. Today the effect of that order is far more devastating to the US Economy than anything the rest of the Democrats have done. Now bankruptcy of towns, states, and America is possible caused by those who feed at the public trough.
JFK may have understood the short term, but then he did his thinking with the small head just like Clinton.
C. Vernon Crisler | 10.25.12 @ 1:38PM
FDR was an on-and-off fiscal conservative, meaning he was a part-time Progressive:
http://www.fdrlibrary.marist.e.....udget.html
IOW, he had no principles, just whatever it took to win.
Stormy| 10.25.12 @ 10:30AM
"Those were the good old days, a time when Democrats and liberals understood that it's economic growth, not redistribution"
The Democrat party is no longer liberal. It is now a European Socialist Party. The Republican Party is close to what the Democrat party was under JFK.
Petronius| 10.25.12 @ 10:52AM
JFK truly believed in economic independence and real Freedom for Average Americans. He was the polar opposite of those despots who control not only the party central committees, but all institutions the public are subject to satisfying to get on in life. And THAT is the Real Reason THEY had Him assassinated!
JD| 10.25.12 @ 11:03AM
Do not claim that the Right believes in anything called "trickle-down." We don't. At least, nothing remotely like what the Left means when they say "trickle down."
The Left thinks of "trickle down" as "give some people money and other people will get money too." But that is what THEY do. It was THEY who passed a "stimulus", claiming that it was stimulus simply because giving money to some people (mostly public schoolteachers) would result in them spending at others' businesses. The trickle-down they describe is theirs and theirs alone.
We do not advocate any such idea, because we do not advocate giving anyone money. We advocate letting people earn and keep their own money. There is a huge difference - one that the Left pretends does not exist. Fighting their lie is very important, and claiming to support anything called "trickle-down" sabotages that fight.
The only thing that trickles under our ideals is opportunity. Capable people with opportunity create wealth, and their desire to employ that wealth results in opportunity for others to be employed.
gulfcoastcommentary | 10.25.12 @ 11:10AM
What a great article! Thanks so very much!
fmm| 10.25.12 @ 11:40AM
JFK could address the economic truth because he did not have the baggage the current POTUS and his supporters have. JFK was from a historically rich background and had no personal axe to grind. The current POTUS inaccurately claims to be from a background which is associated with supposed mistreatment and he does have an axe to grind. Therefore, he will play to his base which prevents him from addressing economic truth. Instead, he focuses on retribution, desiring to get all he can for himself and his supporters while punishing others for some imagined transgression. They will be able to insulate themselves for a time but the eventual result will put all of us in the same boat.
gene| 10.25.12 @ 12:18PM
I laugh or get frustrated when the MSM refer to Teddy as "carrying on the Kennedy Legacy".
If all three brothers were still alive, Jack and Bobby would have KICKED Teddy's SOCIALIST butt up and down every square inch of the Kennedy compound.
Robert| 10.25.12 @ 2:45PM
Does anyone not see that Romney's economic plan is an exact clone of the successful Kennedy plan of 50 years ago?
fmm| 10.25.12 @ 3:45PM
See Stormy above.
StanAmSpec| 10.25.12 @ 4:02PM
They're trying to do the same thing with private jets too!!
It's as if they target American industries. Why not a tax on cigars or something imported for once!
Anthony| 10.25.12 @ 4:18PM
It's amazing how truly delusional Democrats are. They build monuments in Washington to FDR, whose policies prolonged the Depression by 9 years, or until he finally goaded the Japanese to invade Pearl Harbor.
War at last!!! Millions of men to send overseas to cure 17% unemployment.
Then there's Kennedy eternal flame, yet the Ds get amnesia when these JFK speechs are played every once in a while.
To think, the party of Kennedy is the same as the party of Obozo. Fifty years of Marxism have finally paid off.
Seek| 10.25.12 @ 6:15PM
Actually, liberal anti-Communism was the essence of the Democratic Party foreign policy vision until the Seventies. Any competent historian knows this.
topcat52| 10.25.12 @ 4:32PM
What would you rather have - a flawed human being whose policies improved the country or a model citizen who led the country to ruin. Kennedy was a flawed human being back in a time when the "old boy network" would not allow certain behaviors to come to light. But he was arguably a very good President. Carter never did anything worse than "lust in his heart" but how did the country do? When Clinton behaved like JFK and worse, our see everything society was made aware but as President he had to be dragged kicking and screaming to Welfare Reform and set up the policies that destroyed the mortgage system. Obama is a great family man, but how about the state of the nation today? I'll take a flawed human being every time.
Intelligent Design| 10.27.12 @ 8:44PM
Kennedy would be a Republican today. He would not fit with the Demo-Socialists.