Election Outcome Supports Keynes, Harris Maintains

In the war years, New Dealism was forgotten; even Harry Hopkins, according to Sherwood, was sick of "those Goddamn New Dealers." In this period the economy needed no shot in the arm. But even in 1946-48, the demise of New Dealism seemed definitely to be on the way; and it was difficult for the objective observer to understand the unpopularity of a public policy which had done so much for the masses. As we look back now, it may well be that what was interpreted as a repudiation of New Deal or Keynesian economics, upon which it was largely built, was in fact merely a registering of wartime fatigue and annoyance with the party that had imposed innumerable petty restrictions in war.

It is now clear that the country wants a second New Deal, and that the 19th century brand of liberalism which supported favors for business from government but would not tolerate intervention on behalf of the workers or consumers waging an unequal fight against business is definitely on the toboggan.

What is the essence of New Dealism or Keynesianism? First, and foremost, it is the responsibility of government to guarantee a minimum of demand and a relatively stable demand; for these are the sine qua non for a prosperous economy. That does not mean a steady accumulation of public debt or continued inflation. It means, insofar as the broad objectives of public policy allow, minimum public expenditures and maximum taxes (and repayment of debt) in periods of exuberance (1946-48), and increased public expenditures and minimum taxes in periods of depression. It means lacing public activity with private. The way to deal with inflation is to reduce the amount of money at the disposal of, consumers, not to reduce tax rates as the Republicans did in the inflationary periods of the twenties and as the 80th Congress did in 1948; and the manner of the ballasting the economy in depression and deflation is not the Hoover policy of economy, but the Roosevelt policy of deficit financing.

Unfortunately, in Roosevelt's day the correct theory of fiscal policy had not quite jelled; and even Roosevelt could not overcome his nurtured fear of debt. The Democrats, therefore, did not, as they should have, introduce an adequate policy of tax reduction in the thirties. With the New Dealers back in the saddle, we may except in the immediate future minimum expenditures consistent with broad public objectives; and no tax reduction, and possibly an increase in tax rates. This is the time of pay off debt: this country should pay off $10 billion of debt in the next year.

Democrats Stick to principles

More tutored in modern theories (and notably by Harvard economists), the Democrats on the whole will adhere to modern principles; they long ago buried Gladstonian theories of public finance. But the Democrats would be foolish indeed if they were wedded to a single principle of public policy. Modern fiscal policy concentrates on the stability objective; but the Government must also be concerned with equity. Fiscal policy in a great inflation may well call for sales taxes and heavy income taxes on the masses. Indeed, the 1948 tax bill reflected incorrect fiscal policy because it involved reduced taxes; but it may well have mirrored correct fiscal policy in that it put an increased relative burden on the masses who account for the largest part of consumption.

If the bill to his extent could be justified as an anti-inflationary measure, it could roundly be criticized on grounds of equity. And the Republicans deserved censure for similar reasons for their failure to provide an adequate housing bill, subsidies for education and science, an extension of coverage and a rise of benefit rates for the social security program, adequate appropriations for conservation, etc., etc.

Obviously, the two criteria of stability