Kennedy's prescription for economic recovery
Eleven months before he was assassinated as he rode with his wife in the back seat of a 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 Dec. 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 were 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 was $7.1 billion, more than double the $3.3 billion in federal red ink in 1961.
And the $7.1 billion deficit was 1.3 percent of gross domestic product. 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.
Kennedy began his address to the Economic Club 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 for tax cuts on businesses and all income groups, a less-expansionary government, a simplified tax code that downsized loopholes and special privileges and 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.”
Ralph R. Reiland is an associate professor of economics at Robert Morris University and a local restaurateur. His email: firstname.lastname@example.org