PROSPERITY HINGED ON ESCALATION IN VIETNAM
{An unusually revealing article, illustrating how much the punning. of the capitalist economy in the United States now depends on war expenditures, appeared in the New York Times of September 24+ (international edition). The title itself speaks volumes: "vietnam | War Fuels U.S. Growth -- Escalation Provided Lift for Expansion as It Faltered," Because of its interest, we are reproducing the full text below.
[The author, M.J.Rossant, refers in passing to the forebodings of Federal Reserve Chairman Williams McChesney Martin, Jr., last spring. This authoritative spokesman of the American banks said that the economy was showing signs of heading toward a crash like that of 1929, which ushered in the worst depression in the country's history. | These forebodings were wrong, says Rossant, but so were the optimistic forecasts of the Johnson administration. It is now clear, according to Rossant, that the U.S. economy stood at the brink of a downturn -but not a 1929=type crash -- at the time Johnson ordered the escalation in Vietnam,
([Rossant's assertion that Johnson's decision to escalate "had nothing to do with the state of the economy and was completely unex~ pected by the President's economic advisers," may be taken with a considerable pinch of salt. The truth is,. in the light of the available evidence, that the decision to escalate had been taken at least a year before. Implementation was deferred until after the November 1964 election so that Johnson could campaign as the "peace" candidate against Goldwater. It may well be that the signs of sag in the Ameri~ can economy, which so alarmed Martin, were decisive in the timing of Johnson's order giving the green light for the long-prepared plunge into Vietnam,
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NEW YORK, Sept. 23 -- It was a close call. . Little by little, it has become clear that the longest peacetime expansion in the nation's history was in danger of giving out until the escalation of the war in Vietnam gave it a new lease on life.
The Johnson Administration is not admitting that the boom came within a breath or two of expiring. But it has let slip a revealing hint or two. The latest batch of economic statistics confirms that activity had slowed down and that a prolonged pause, if not a serious decline, was in the making before Vietnam changed the situation. -
The August figures, the latest available, show that after rising sharply in the first eight months of the year the Federal Reserve's index of industrial production leveled off. At the same time, housing starts and new orders of durable goods declined. Personal income rose, but the rate of increase was far below the heady pace recorded in the. :
spring.
Without the recent step-up in military spending, which also boosted business confidence, the slowdown in August would have been much more noticeable. It could have marked the beginning of the end of the expansion. Business spending, which is now climbing, could have slipped. And production might have fallen . further as consumers curbed their appetites, ~
Even with the stimulus of additional spending, business activity will be advancing at a slower rate than it did earlier. But the pause in August now appears to be a catching of breath before going on, more leisurely, to new heights.
The pause emphasizes, however, that the Johnson Administration's confident predictions and careful plans were in jeopardy. Then came the decision to escalate, which had nothing to do with the state of the economy and was completely unexpected by the President's economic advisers. It provided just enough lift to business -- and to investor confidence -= to keep the expansion going. ..
The Vietnam build-up also makes clear that both sides in the celebrated economic debate that unnerved Wall Street and enlivened newspapers last spring were in the wrong.
- Federal Reserve Chairman William Mc Chesney Martin, Jr., was off base in suggesting that the accelerating pace of the expansion was similar to the 1929 period and that an unsustainable boom might be followed by a bust. Clearly, the real peril was that the boom might simply fade away.
But the Johnson Administration was - just as much at fault for insisting that things were good and would get better.
The Vietnamese escalation was timed perfectly. It permitted the Administration to apply the necessary stimulation without confessing its fallibility. . It not only kept the economy from faltering, but salvaged the Johnson Administration's reputation.