Economic mythology, Kennedy argued, was obstructing the nation’s progress. “The great enemy of truth is very often not the lie–deliberate, contrived and dishonest-but the myth-persistent, persuasive and unrealistic,” he said. Specifically, budget deficits were not automatically bad, and the danger of inflation was vastly overstated.
But what Kennedy denounced as “myths” were actually valuable traditions and taboos: things we practiced out of habit or avoided out of fear. We had a tradition of low inflation (in 1960, it was 1.4 percent). And there was a taboo against budget deficits. President Eisenhower had railed against them (he balanced his budgets three or four years out of eight-depending on how they’re measured–and deficits were relatively small). Once these constraints were swept away, we became prey to foolish policies.
Kennedy’s Yale speech was, in some ways, the original sin. It ditched the prevailing orthodoxies and left the country rudderless: committed to desirable goals without means to reach them. With hindsight, the sin is understandable. Kennedy had pledged to get the country moving and was also a creature of his time: a period of high optimism when people believed that technology and society’s best minds could guarantee social improvement. His economists were self-confident academics who thought the stodgy Eisenhower had depressed economic growth and raised unemployment. They knew they could do better.
When Kennedy arrived at Yale June 11, he was under siege. The stock market was in a tailspin. On May 28, it had dropped nearly 6 percent. In April, the president had fought the steel industry over price increases. The White House’s allegedly anti-business bias and high spending were being blamed for a loss of confidence. “If Kennedy had a heart attack,” NEWSWEEK quoted a bitter businessman as saying, “[stock] prices would jump 40 points.” (That’s equivalent to a 230-point rise on the Dow today.)
On June 7, Kennedy announced at a press conference that he would seek a new tax cut to stimulate the economy. He resolved to use the Yale speech as a way to convince opponents that more energetic policies were sensible and prudent. The speech, biographer Arthur M. Schlesinger Jr. has written, was an appeal to “reason” intended to broach a dialogue with business leaders.
What’s striking about the speech today is its calculated confusion. Everything is complex, Kennedy said. " What we need is not labels and cliches but more basic discussion of the sophisticated and technical questions . . . " Economic policies, he argued, involved “subtle challenges for which technical answers, not political answers, must be provided.” The whole idea was to replace tradition and taboo with trust in modern thinking and experts: that is, economists. (But the hold of the past was strong. Not until 1964, after Kennedy’s assassination, did Congress pass the tax cut.)
What we know now is that Kennedy’s exchange–technocrats for tradition–was doomed by two flaws. First, economists didn’t know enough to do what he expected. They couldn’t create permanent “full employment” (then defined as a 4 percent unemployment rate) without inflation. And second, politicians could now rationalize careless policies in the guise of enlightened economics. Deficits were OK, because they would increase economic growth and ultimately balance the budget. Faster growth made new spending programs affordable. Low interest rates were justified to increase growth.
More generally, Kennedy’s basic premise was wrong. True, things are complicated. But that does not obviate the need for core beliefs-intuitively understood by the public and workable in practice-to inform and constrain government policies. Kennedy’s shortcoming, shared to a greater or lesser extent by his successors, was an inability to find such principles and communicate them to the public.
No one has yet improved on Eisenhower’s principles, as Raymond J. Saulnier, one of his chief advisers, shows in a new book.* If people want a new government service, they have to pay for it through taxes. Government doesn’t create economic growth. People and businesses do (though government may temporarily influence growth). And containing inflation is essential for a healthy economy. Eisenhower was stubborn, but not rigid in adherence to his principles. He tolerated deficits in recessions, for example, but resisted tax cuts or spending increases that would create a long-term imbalance.
Without basic beliefs, we lack a framework to discipline government policies. The faith of Kennedy and his advisers in “reason” was, to some extent, unreasonable. We cannot always know in advance that things that are bad for us will actually be bad. A little inflation wasn’t so bad. But it led to more inflation, which led to more-and that was bad. When small, deficits seemed easily tolerable. We became accustomed to them, and that led slowly to the bigger deficits that are now paralyzing government. In 1959, interest payments were 6.3 percent of federal spending; by 1990, they were nearly 15 percent.
Bad ideas, once unleashed, linger in their consequences. We have now been practiced on by successive waves of economic sorcerers, each trying to retrieve the unrealistic promises of the 1960s. The overblown rhetoric of Republican supply-siders in the early 1980s strongly resembled that of the Kennedy-Johnson economists. We partially eradicated high inflation, but only by enduring the severe 1981-82 recession. And now we are toying with a dubious scheme to codify-through a constitutional amendment requiring a balanced budget-political norms that commanded widespread public respect in the 1950s. Such is history’s revenge.
*“Constructive Years, The U.S. Economy Under Eisenhower,” by Raymond J. Saulnier (University Press of America. Paper, $22.50).
