Friday, May. 15, 1964

It's Just Wonderful That It's Not Too Good

Every week is full of good news about the U.S. economy, whether the news comes from cold statistics or from the seemingly inexhaustible interest of President Johnson in the affairs of business. The economy is doing so well, in fact, that the main concern of economists in and out of Washington is to prevent a steady and solid advance from turning into an overheated boom that could later cause trouble. To that end, the nation's economic planners last week sounded almost apologetic when they had to report good news, and relieved when they could point to signs that a real surge has not yet begun.

Backing & Filling. There was Treasury Secretary Douglas Dillon, for example, talking about the best news that the U.S. has had about its international payments in the past three years: a balance for the year's first quarter. How could Dillon play that down? Well, he managed deftly by describing the new payments figures as "alarmingly good." Talking before the Advertising Council, Federal Reserve Board Chairman William McChesney Martin Jr. seemed relieved to report that the demand for money had fallen below his expectations, largely because of high corporate profits and heavy cash flow. The result: the Federal Reserve's Open Market Committee decided that higher interest rates are not necessary now.

Throughout the U.S., economists who had predicted that February's $11.5 billion tax cut would touch off a strong wave of consumer spending were pleased to find that so far they have been wrong. Retail sales are rising nicely, but the consumer, whatever he has done with his tax savings, has shown no signs of going on the splurge expected of him. Perhaps partly for this reason, economists for the prestigious 100-man Business Council, which met in Hot Springs, Va., stuck steadfastly to their cautious prediction of a $620 billion gross national product for 1964--even though the Administration expects the G.N.P. to hit at least $623 billion and some private economists feel that it may go higher. Viewing all this backing and filling, Associate Dean Walter D. Fackler of the University of Chicago Business School saw some irony in the situation: "The optimists are pessimistic and the pessimists are optimistic."

Psychology & Downturn. The shrewd reluctance of the optimists to push the good news too hard--many of them feel that President Johnson does that all too well--is based on their experience of what a boom psychology can produce. When they feel a boom coming on, businessmen often tend to overestimate the market for their products, stockpile inventories in anticipation of inflation and expand their capacity more than they will eventually need--thus helping to bring on an economic downturn. Just in case anyone felt that that could not happen again, President Johnson said last week: "I wouldn't say for a moment that recessions are not possible." Warding one off as long as possible is the motive behind the sudden negativism of so many economists.

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