The economic upswing of the past ten to twelve years has come to an end. Full employment, prevalent for most of this period, is now in jeopardy. Though enjoined by law to maintain full employment, the government has deliberately abetted deflationary policies, despite many indications of a serious downturn. It has been guided essentially by financial considerations, and its policies have strengthened purely financial interests. These policies are bound to undermine the substantial gains which a period of full employment brings to the people.
To be sure, unemployment is not likely to reach the magnitude of the thirties. Defense outlays, now scheduled to rise more rapidly again, will prevent that. But this means of solving the question of joblessness highlights the problem of what full employment means in the “welfare state”: persistent and pervasive insecurity as budget funds are cut or shifted without regard to employment effects; and an increasingly irrational and wasteful allocation of the fruits of productivity.
The first phase of the worldwide economing upswing of the past decade came from the reconstruction and pent-up consumer needs arising from World War II. The second phase, though beginning in early 1950, was associated with the Korean war. In a sense, however, the Korean war hampered and postponed the large-scale post-World War II replacement and modernization of capital equipment, both inside and outside the U.S. The third phase, the “boom,” began late in 1954. It was composed of two major elements:
1)There was a remarkable spurt in consumer demand for cars, housing and the durable consumer goods related to it. This boom was largely due to a population phenomenon: couples married after World War II had children at the same time as older couples who had married before or during the war, but had postponed parenthood for obvious reasons. The full effect of this phenomenon was delayed into the mid-fifties. It will not recur.
2) The consumer goods boom was followed by an extraordinary increase in business spending for plant and equipment. This must be regarded in part a consequence of the preceding consumer demand boom. At the end of 1956, however, there was already a gap of 6 per cent between the average preferred and the actual operating rate of manufacturing firms, a gap which has since probably widened to about 12 per cent.