ECONOMICS CAN NEW ‘NEW DEAL’ STOP U.S. SLUMP?

The Newsletter, vol. 2 no. 35, 11 January 1958 · scan page 4

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A crisis of unknown dimensions is now in prospect in the U.S.A. But how far can government spending and action on ‘New Deal’ and Keynesian lines prevent further economic decline and swing the economy back on an upward curve?

The immense increase in public spending since the thirties has been emphasized on all hands in the past decade or two. Its very size, and the proportion it bears to the National Income, is a testimony to the inability of even American capitalism to function through the market mechanism alone.

State spending has become indispensable, built. into the structure of present-day American capitalism. This in itself may set a bottom to any future depression: but there is no reason to suppose that it will prevent one.

Over the last few years the total of public expenditure has continued to increase. But it may not do so in 1958. An This is the second of two articles by Tom Kemp on the economic situation in the USA.

increase in unemployment will involve greater expenditures, but tax revenues will almost certainly shrink, setting up a demand for economies.

It cannot be assumed, either, that public expenditures naturally compensate for deficiencies in private outlays. Over recent years the two have moved upwards together. Why should they not move downward together?

Until the New Deal and Keynes, this is what normally happened. The public authorities behaved very much like business enterprises as far as the timing of their expenditures on capital account was concerned.

Now state and local governments spend about one-third of the total government expenditures in the USA and they may still tend to behave in a pre-Keynesian fashion, i.e., if tax receipts fall and business is gloomy they may go in for economy and postpone investment projects.

At the Federal level greater sophistication can be assumed; but here the political factor is important.

When Strachey wrote about democratic pressures on governtment economic policy there were quite a few things he missed out about the working of the two-party system.

Thus the Eisenhower administration faces a hostile, Democratic: Congress. The Democrats may be quite prepared to see a Republican slump—just enough of one, at any rate, to