Economic Report of the President 1962

1. Economic Report of the President1962

2. Authors • Walter W Heller • Advisor to President Kennedy • Promoted tax cuts • “War on Poverty” • Kermit Gordon • Budget director in Kennedy Administration • James Tobin • Advocated government intervention to stabilize the economy • “Tobin tax”-tax on foreign exchange transactions • Tobin’s Q

3. Chapter 1 of ERP 1962 • Part I: Objectives, Progress, and Prospects • The objective of maximum employment • Reasons why involuntary unemployment is a concern: • The human obligation to prevent and to relieve economic stress • The basic principle of a free economy that an individual should be able to choose freely how to use his time, whether to work for pay or not • The economic waste of leaving productive resources idle • Full employment as the objective of stabilization policy • Served by the stability of the general price level • Attempting zero unemployment would produce high inflation • Increase aggregate demand

4. Full employment and structural unemployment • Reduce frictional and structural unemployment by improving the mobility of labor • Displaced worker due to technological progress • Increased number of young people in the labor force • Full production • Production potential • Q1 of 1961-$50 billion gap between actual GNP and output obtainable at full employment • High output would come with lower unemployment

5. 1961 - $40 billion below potential • Potential for 1962 $580 billion • Unemployment target rate of 4%

6. Progress in 1961 • 1961 began far below full employment • Inventory investment declined • Unemployment at 6.8% in February • Automatic stabilizers contributed to stability in personal incomes through transfer payments • By the end of 1961 • Prices 7.5% higher • GNP increase of $41 billion • Personal income grew by $24 billion • Key element: increased spending at all levels of the government

7. Outlook for 1962 • Projected GNP at $570 billion • Due to high demand at the end of 1961, record levels expected in production, income, and employment • Higher consumption • More government purchase of goods and services • Increased inventories • Increased residential construction

8. Part II: Policies for Maximum Employment and Production • President’s recommendations: • Stand-by capital improvements authority • Stand-by tax reduction authority • Improvement in the unemployment compensation system • Budget policy • National Income Accounts Budget • Record and classification of the major flows of output and income for the entire economy; trust funds,

9. Full employment surplus

10. Federal Fiscal Activity in 1961-62 • Tax refunds expedited • Changes in transfer programs • Unemployment benefits extended • Grants to state and localities for urban renewal • Direct payments to farmers • Large increase in expenditures in areas of defense and space exploration (for reasons of national security, not economic stabilization)

11. Money and Credit Policies and Economic Stability • Federal reserve control of the total volume of bank reserves • Purchases of government securities • Provided banks reserves • Banks expanded their loans and investments • Federal credit programs to make credit readily available • Federal lending and Federal insurance guarantee of private lending; FHA, FNMA

12. Improving the Mobility of Resources • Labor market policies • Changes in technology alters demand for labor • Lack of knowledge of job openings • Employment exchange • Letting employers know of available workers • Telling workers of available jobs • Improving the US Employment Services • Training • On-the-job training • Public service employment and training • Educational opportunities through Youth Conservation Corps • Resource use in agriculture • Increased technology reduces demand for farmers