SUMMER NEBRASKAN
TUESDAY, AUGUST 10. 1971
Tho Sfafa of tho Economy (II)
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PAGE 4
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By Wallace C, Peterson
NU Professor of Economics
This article continues
discussion of two themes
developed in an analysis of the
American economy appearing
in rhe DtHy Nebwsiifi last
May, The themes were, first,
our immediate economic
situation, and, second, the
more fundamental economic
problems besetting this rich
and troubled society.
In the May article it was
pointed out that the
headline-catching problems of
inflation and unemployment
are like the tip of an iceberg,
being simply the most visible
part of, deeply-rooted
distortions in our economic
life. These distortions are the
root cause of the inability of
the world's most productive
economy to provide jobs,
income, and reasonable
affluence for 11 its citizens.
Our most immediate economic
task is to get full employment
without inflation, but a
workable solution to this
problem will continue to elude
us until we face these
fundenicnlal issues., essentially
these are the excessive
concentration of income and
wealth in the hands of a
relatively small segment of the
population; the distortions in
our domestic economic life
that have resulted from
diverting nearly 10 percent of
our output to military
purposes for more than two
decades; and, finally, our
willingness to confront
honestly and fearlessly the
challenge to a free society
posed by monopoly and the
excess concentration of
economic power in key sectors
of the economy.
The nature and
consequences for the economy
of an excessive concentration
in income and wealth was
analyzed last May. In this
article the distortions caused
by military ' spending and
monopolv power will be
scrutinized.,. First, though,
some comments on our current
situalion are in order.
The Economy in Mid-Summer
I ike soothsayers of old,
modem day forecasters pore
over quarterly gross national
product figures and other daia
not only to deiennine the
current state of health of the
economy, but to d iscover what
the immediate future portends.
Well, second quarter ((April
through June) statistics are
now in and whs" do they tell
us? Unfortunaicly, no clear
picture emerges as to where the
economy is really heading,
although the hesitant and
sluggish recovery that got
started in the first quarter
continues, even though it
hasn't much punch. From
April through June total
spending (gross natiou.il
product) increased by $11,7
billion at annual rates, a
figure about $10 billion less
than the first quarter gain.
When price increases are
discounted, the second quarter
gain translates into a ,?5
percent annual rate of increase
in actual output, a rate ot gain
that won't make any real dent
in unemployment. The latter
remains at the unacoeptahly
high level of about 6 percent of
the civilian labor force. I he
prognosis looks like more
rather than less unemployment
before the year ends, especially
as veterans enter the labor
force with winding down of
the Indochina war.
And what of lite inflation
battle? The first half of the
year saw consumer pikes
increase at an annual rate of 4
percent, down from the 4.
percent rale in the last six
months of 1170. In May and
June, though, prices rose at
annual rates of more than ft
percent, comparable to the
inflation pace set during ld1
and early H70. The prospects
for either outright price
stability or a further slowdown
in the intlalion rale are not
helped by the fact that tor the
fiscal year just ended (June ,t0,
I 7 M the Federal
government's deficit jumped to
$23.2 billion, the second
highest deficit since World War
II. Deficits of this magnitude
cany a built-in potential for
trouble on the price front,
especially for interest rates,
I he price outlook is further
complicated by the fact that
during t he first half of t his year
the money supply grew at an
annual rate of nioie than 10
percent, an event expected to
have an mtlalionary impact t
to months I torn now.
soon. As one economist
commented, "Fveryhody is
wailing for the consumer lu
spend the economy back into
high gear, but the consumer
appears to be waiting for the
economy to turn abound first,"
Finally there is the cautious
mood of the spending public.
Consumer outlays account for
approximately two-thirds of
total spending in the economy,
but the consumer spending
.prec which the Administration
counted on this spring to get
the economy moving at a more
rapid pace has not
materialized. Actually,
consumer saving out of
disposable income rose during
the second quarter to a rale of
8.4 percent, the highest in 20
years. This indicates caution.
Recent surveys of consumer
buying plans show that
consumers are not likely to
loosen their purse strings very
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Switches in Economic Policy
The last nix months also
witnessed significant policy
switches by the Nixon
Administration, l-aify in (he
year it appeau-d that the
Administration had decided
that pelting the unemployment
rate down was nioie important
than bringing inflation under
control. The reason for this
was that the l"b-70 economic
"game plan" failed to end
intlalion but created too much
unemployment. Thus, ihe
President's statement in
January that he is
"Keynesian"" plus his support
for deficit financing as a key
tool of economic management
was widely interpetcd to mean
that Ihe Administration was
taking a more activist stance
and would use direct measures
to stimulate Ihe economy.
But this was not to be. In
late June Mr. Nixon announced
that henceforth Secretary of
the Treasury John Connally
would be the chief economic
spokesman for the
Administration. Immediately
Connally announced thai there
would be no wage-price review
board; no wage-price control;
no tax cuts; and no increase in
government spending. At the
same time Paul McCracken,
chairman of the President's
Council of Economic Advisors,
admitted that the goals set by
the Administration last
January for growth, a
reduction in unemployment,
and a slowdown in the
inflation rate, were
unattainable. These
developments, couple J with
Secretary Connally's
extraordinary statement that
the target of a 4 percent
unemployment rate is "... a
myth . . . never achieved
except in wartime" backed
away from an activist stance.
This policy reversal
probably stems from fear of
the effects of the budget
deficit for fiscal 71 plus
gloomy forecasts that the
deficit for the two year period
ending June 30, 1972 may
reach the staggering sum of
$45 billion, totals
unprecedented in peacetime. It
also represents a victory for the
economic ideas of Professor
Milton Friedman of the
University of Chicago, a strong
advocate of the view that the
money supply is the most
important single factor
influencing the economy.
Thus, rapid monetary growth
this spring will, according to
Friedman, bring a strong
upsurge in economic activity
later this year.
Military Spending and the
Economy
In most discussions of the
economy's inability to get full
employment without inflation,
the skeleton in the closet of
military spending is too often
neglected. This is not to
suggest that there is no
recognition of the close
correlation between military
spending in wartime and
inflation, for this is clearly not
so. During World War II, the
Korean war and Ihe Vietnam
war, prices rose more rapidly
than in comparable nonwar
years. What is involved is
something more subtle, more
difficult to measure, namely
Ihe cumulative effects upon
the economy of diverting
between 1 and 10 percent of
the nation's output to the war
industry for more than twenty
years.
What are some of 'these
effects? Kenneth Boulding, one
of America's most
distinguished social scientists,
suggests that in a qualitirr
sense the impact is far greater
than this "I lo 10 percent figure
indicates. The reason is that,
proportionally, there has been
a much greater "brain drain"
into Ihe military sector, a
development which has had
highly adverse effects upon
technological progress in
important parts of the civilian
economy, especially machine
tools, shipbuilding, sleel,
textiles, and much of light
manufacturing. Since the
I950's, for example, about
one-half of all expenditures for
research and devekipment have
been defense it space oriented.
The long starvation of the
civilian economy for research
resources, including the
services of talented scientists
and engineers, may help
explain why in the last four or
five years there has been a
decided slowdown in Ihe rate
at which output per man hour
has grown. For a nation which
ties its standard of living and
ability lo compete in world
markets to rapid technological
change, this development is
ominous. The deterioration in
our foreign trade balance stems
partly from the fact that
productivity gains in recent
years for the U.S. have lagged
behind those of Japan and
western European nations.
An equally significant long
term effect resulting from the
diversion of so much of our
output to non-productive
military purposes has been the
serious neglect of social
investment in. the domestic
economy. As is well known,
the post World War II era has
been one of rapid urbanization
and population movement,
changes which created an
enormous demand for social
investments in housing,
educational facilities,
transportation networks,
including urban mass transit,
and other basic facilities. In a
complex and highly urbanized
economy, it is probably that
the need for investment in
fundamental facilities-housing,
transport,
communications,
education -probably increases
at a faster pace than output
and population. Since 1947
$1 ,093.3 billion has been spent
for military purposes. It would
be a romantic untruth to
suggest that all of the output
represented by this,
expenditure could-or
should -have been used for
other purposes. Given the fact
that the world as - and
remains-unready to substitute
a system of law for naked force
in the relations between
nations, this was simply not
possible. But it is equally
Dr. Wallace C. Peterson
important nol lo blind
ourselves to the real costs in
the form of the neglect of
critical domestic needs
incurred by our arms
expenditure and our largely
self-imposed role of the world's
policeman.
Monopoly and the
Concentration of Economic
Power
The other hidden skeleton
in the closet of the American
economy is the distortions
wrought by the monopoly
effects which flow from Ihe
growing concentration of
economic power. Since the
l"30"s, foreign affairs and
fascination with an ever-rising
gross national product have
diverted public attention from
the growth of concentrated
economic power, even though
this tendency may be as
significant as any other in
accounting for our inability to
attain full employment
without inflation.
What is the actual state of
affairsin our supposedly highly
competitive economic systent?
Willard F. Mueller, former
chief economist of the Federal
Trade Commission, told the
Senate Subcommittee on
Antitrust and Monopoly in
l69 that the 200 largest
manufacturing corporations
control about Zji of all
manufacturing assets, a degree
of concentration that Mueller
did not expect to be attained
until 1975 at the earliest.
Other studies confirm that in
probably half of Ihe
manufacturing industries in the
nation, four firms or less
accounted for at least 50
percent of the industry's total
sales!
What is so bad about this?
In the view of economists
knowledgeable concerning Ihe
social and economic effects of
industrial concentration,
effective monopoly exists in an
industry when lour firms or
less control 50 percent or more
of the output of he industry.
This is a workable economic
definition of monopoly, not a
legalistic one. One of Ihe most
widely accepted propositions
in economics is that the
existence of monopoly in an
industry produces both higher
prices and less employment
and output, as well as less
innovation, reduced
technological progress, and
frequently excessive and cosily
advertising outlays. Economic
analysis supports the
deeply-rooted American
tradition thai monopoly power
is bad - bad for people, bad for
the economy, and bad for
socict y .
Our failure to effectively
stem the growth of
concentrated economic
power-including proliferation
of conglomerates"-stems
largely from the fact that
under the anti-trust laws we
have taken a legalistic rather
than a practical economic
approach to the issue of
monopoly. Until we recognize,
first, that the maximum
benefits from technology and
productive efficiency can be
obtained in most
manufacturing industries from
firms that produce no more
tban ten percent of the
industry's output, and, second,
that we must view
concentration and monopoly
in an economic rather than
legal sense, the prospects are
dim for restructuring the
economy so that a competitive
market system works for the
general welfare, rather than the
special interest of the
corporate giants which now
dominate key parts of
economy. The alternative is to
saddle the economy with
permanent price, wage and
other income controls, if we
ever hope lo get continued full
employment without inflation.
School Administrators Urged
To Develop rleoniiigful Curriculums
A former Nebraska educator
now a noted authority in the
field of school curriculum
urged a gathering of school
administrators to get into the
thick of the search for what is
meaningful and beneficial for
students of today.
Ur. Fred Wilhelms,
executive secretary of the
Association for Supervision
and Curriculum Development,
was speaking to an
Administrators National
Conference held July 26
through July 28 at the
University of Nebraska -
Lincoln.
"A helping curriculum is mv
dream," Dr. Wiiheims told a
group of more than 160 school
administrators from Nebraska
and several other states at Nil's
Schramm Hall during the
conference.
"A good curriculum should
be warm and encouraging like a
good teacher. It should help a
youngster develop his full
potential and learn his
self-id entity. think we are on
the edge of such a radical
program." he said.
Dr. Wilhelms noted that
Nebraska does not have Ihe
problem of the oppressive,
stilling schools that faces
many of the great metropolitan
areas. He indicated, however,
that the state has some
catching up io do in it$
attitude toward minority
Vomer Appointed To Serve
On State Dept. Committee
groups. Blacks, Mexican
Americans and Indians.
Using the example of an
English composition
curriculum. Dr. Wilhelms
proposed that the emphasis be
shifted from correctness of
form to true communication,
and personal development.
"We want to teach the child
to write in proper form but we
also must encourage him to
have something to say. We
need to consider with him
what he has said and lo
encourage him to be open and
honest. "If he feels he is
writing something meaningful
and important, he feels he is
truly showing himself and what
ne mints, and it we
acknowledge that what
thinks is important and
for the teacher to help him in
building values to live by."
Dr. Wilhelms was the furst
of three national leaders in
educational administration to
address the conference. Dr.
William Pharis, executive
secretary of the National
Association of Elementary
School Principals and Dr.
Forrest Conner, executive
secretary of the American
Association of School
Administrators, also spoke.
The three-day meeting was
sponsored by the departments
of elementary education, and
educational administration at
the University of
Nebraska-Lincoln; the National
Association of Elementary
he ' School Principals; the Nebraska
has Association oi tiementary
merit, this increases his self,
knowledge, raises his self
esteem and makes it possible
School Principals and Nebraska
Council of School
Administrators.
Phone
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Chancellor D.B. Varner of
the University of Nebraska has
accepted an appointment from
the VS. Department of State
to serve on the 12-fliember
Joint Committee on Japan-U.S.
Cultural Educational
Cooperation.
A major function of the
committee is to maintain
continuity in educational and
cultural activities between
biennial conferences. These
conferences have been held
since 1961 as the result of an
agreement reached by
rresident Kennedy and Japan's
Prime Minister Ikeda. The next
biennial conference will be
held in Washineton in 1972.
Chancellor Varner will serve
as a representative of the
artistic fields. Among others on
the committee are William
Cleveland, president of Esso
Standard Eastern, who
represents the field of business;
Edwin Retschauer of Harvard
University. Japanese studies;
and Professor Donald Shively
of Harvard, an expert on Asian
languages, representing
academic fields. The
committee members serve
without pay.
An objective of the biennial
conferences is to study
expanded cultural and
educational cooperation
between Japan and the United
States.
Student Scholarships Awarded
Seven University of
Nebraska students have been
named recipients of $1,000
Donald Walters Miller
Scholarships for the 1971-1972
academic year.
They are Terry D. Cisler of
Norfolk, Steven W. Erickson of
Holdrege, Terri Hietbrink of
Adams, Donald J. Hill of
Lincoln, Elaine K. Monnier of
York, Arnold W. Oltmans of
Beatrice, and John W.
Wagstaffe of Omaha. Named as
alternates were Gary L. Dolan
and Harlan Abrahams, both of
Lincoln.
The selections were
announced by Dr. E.E.
Lundak. director of
scholarships and financial aids
at the University of
Nebraska-Lincoln. The Millers
scholarships are awarded on
the basis of scholarship,
educational and professional
objectives and character.
They are made available
through the University of
Nebraska Foundation which
receives income from a trust
fund established by Mrs.
Catherine Cline Miller iri
memory of her husband
Donald Walter Miller, who died'
in an airplane accident in 1939.
At the time of his death, Miller
was president of the Miller &
Paine Department Store.