are blaming the military; others are blaming civilian advisors to past Presidents. Postmaster General Winton Blount blames the student dissenters. Nor should we expect those political leaders who were responsible for getting us into Vietnam to be punished. As poet William Ellery Channing observed long ago, “The wrongdoing of public men on a large scale has never drawn upon them that sincere, hearty abhorrence which visits private vice." The deaths of over 40,000 Americans will pass without indictment. But Senator Edward Kennedy's indiscretions at Chappaquiddick Pond-whatever they were-have already resulted in an indictment, a suspended sentence and widespread condemnation. Such is the nature of public opinion. When the war ends, America's flagging international prestige can be expected to increase noticeably, as did France's prestige following her withdrawal from Vietnam and Algeria. Civil liberties have suffered less in this war than in all wars of recent memory, although it is too soon to say whether or not another era of McCarthyism is already looming. It is also often said that war promotes crime, but there are no reliable crime indexes extending backward in time; so this is, and possibly always will be, a moot question. Educational training has been arrested for those drafted or forced by the draft to volunteer for the Armed Services; but the GI Bill will probably more than make up for this delay. Another positive legacy of Vietnam-perhaps the major one--may be a diminution in the power of anti-communism as a crusading ideal. The charge that this war was started by Communist aggression from the north has not been convincing. Perhaps we have cried wolf once too often. In any event, if Communist countries continue to go their own individual ways, and particularly if tension among the great Communist powers increases over the years, the raison d'être for our anti-Communist stance which was so justifiably prominent in the early years of the Cold War-will be considerably vitiated. Yet we should not expect a major shift in public ideology to occur in less than a decade, for basic assumptions of evil change slowly. It is widely assumed, especially among economists, that the generation that fights the war is the generation upon which the burden of the wars falls. For those who are killed and maimed, this is absolutely true. But, as we have seen, many burdens, such as veterans' pensions, last for several generations. These pensions irrevocably commit future funds that might have been used for other, more pressing purposes. Over several decades, these pensions, along with our war-generated graduated-income-tax system, also have tended somewhat to improve the social status of veterans. Partly because of a generous educational subsidy, veterans are better educated than nonveterans; their income is higher, their job security tighter and their rate of unemployment lower. The incidence of poverty among veterans, moreover, is less than half that of nonveterans . The burden of national debt, contrary to the views of some economists, may also have lasting influence. It can, for example, reduce the lifetime income of future generations if they decide, unlike this generation, to pay off the national war debt. In any event, we have been frustrated by the unwillingness of past generations to pay for their own wars, which has led to current inflation and the devaluation of the dollar. May not a future generation also be frustrated by our unwillingness to pay the full costs of the Vietnam war? Millions of people today are living on relatively fixed sources of income. As the cost of living continues to rise because of the war, not only do these individuals suffer decreased purchasing power but their children may fall to the next lower economic class unless the inflationary cycle is broken. The Vietnam war has unquestionably lowered the standard of living of this generation. It has also lessened our willingness and that of future generations to take enterprising risks, because taxes remain high. It has materially lessened the supply of natural resources available to our children and shifted even further the balance of military vs. civilian priorities—a shift that is now going into its second generation. Contrary to popular opinion, the Vietnam war will also probably decrease the G.N.P. in the long run. It is true that we have solved the problem of unemployment only in time of war, but this fact has misled many into believing that war means economic progress. Even with the enormous expenditures of the Cold War, our annual rate of increase in the G.N.P. has been less than three percent for the past generation. Historian John Nef, in his book War and Human Progress, looking back to the 15th Century, found that economic progress was faster in times of peace than in times of war and greater in countries less inclined than in those more inclined to war. John J. Clark, in his recent book The New Economics of National Defense, which focuses on the Cold War era, agrees with Nef. In the long run, decisions to continue the Cold War or to delay getting out of Vietnam, based on the alleged necessity of keeping people working and keeping the economy healthy, are at odds with historical experience. The main reason many people feel that a war economy enhances the G.N.P. rate of growth is an excessive belief in the problem-solving powers of technology and in the generative force of research. Syllogistically, their reasoning runs something like this: 1. Modern war requires enormous amounts of research. 2. Research leads to new technological knowledge. 3. Technological knowledge leads to innovations and makes our economy run more efficiently. 4. Hence, war accelerates economic growth and brings prosperity. For many, this now seems self-evident truth. But, as economist Robert A. Solo has shown in the Harvard Business Review for November and December, 1962, rising expenditures on research and development may actually be reducing the rate of economic growth in the United States. There is a negative relationship, he shows, between Cold War research expenditures and output per man-hour, inventive activity and the rate of increase of the G.N.P. Nor is the spin-off from defense projects substantial. We must realize that money spent for war is largely lost to other purposes. War—including research for war-depletes society's ability to solve nonwar problems. One can either fight, which is essentially destructive, or one can build. At no time in the past has a nation been able to do both. When future historians mold the Vietnam war into its final image sometime toward the end of the 21st Century, perhaps they will more clearly perceive what beasts were loosed by that conflict. Today, the most we can do is try to understand what we have wrought. But that understanding should be limited to the moral enormity or the immediate results of our actions. It should include the firm realization that most of the major consequences of our decision to intervene in Vietnam will continue not for years but for centuries. As William Cowper, in one of his most perceptive moments, once said: War lays a burden on the recling state, And peace does nothing to relieve the weight. VIETNAM WAR IS CAUSE OF CURRENT U.S. INFLATION The CHAIRMAN. Another along this line is by Mr. Edwin Dale in The New York Times, who had this to say: Unless both economic theory and economic history are wrong, the explanation for the current inflation in the United States lies mainly in the actions of the government not of business or labor or any other private force. Would you agree with that? He goes on to say that the cause of inflation: *** it is almost universally agreed is the war in Vietnam, and the early decision of the government on financing it or not financing it. That would be consistent. Mr. LUNDBORG. I would have to agree with that. Other elements of the economy have taken advantage of or capitalized on it, but there is no question The CHAIRMAN. We had this argument just recently in considering the pay bill for the postal employees. Mr. LUNDBORG. Yes. The CHAIRMAN. One of the principal reasons for its coming at this time has been the inflation which has reduced the purchasing power of those relatively low salaries. Mr. LUNDBORG. That is right, yes. The CHAIRMAN. There is no doubt about that in your mind, is there! Mr. LUNDBORG. No, none at all really. The CHAIRMAN. I am sure the people in New York or elsewhere would not connect the strike of the postal employees with the war in Vietnam. As a matter of economics, it is directly related if we accept your basic thesis, which I do, that the major influence in the inflation is the war. Mr. LUNDBORG. Yes, completely, that is right. The CHAIRMAN. That is what Mr. Dale is saying. I think that is the thrust of it. I will put the entire article in, because it simply develops the points in a little different way than you did. Mr. LUNDBORG. Yes. (The article follows.) [From the New York Times, June 25, 1969] INFLATION AND VIETNAM MOST OBSERVERS BELIEVE U.S. POLICIES ON FINANCING CONFLICT CAUSED UPSURGE (By Edwin L. Dale Jr.) WASHINGTON, June 24.-Unless both economic theory and economic history are wrong, the explanation for the current inflation in the United States lies mainly in the actions of government, not of business or labor or any other private force. Only the Government can create money. Only the Government can run mammoth deficits in its budget. Too much of each since late 1965, shortly after the heavy involvement in Vietnam began, started the current inflationary trendthe fourth inflationary spurt in the United States in the post-World War II era. Though many citizens are apparently not aware of the fact, the nation can have, and has had, long stretches of relatively stable prices in the modern era, as in the period 1958-65, when consumer prices were rising on the average only 1.3 per cent a year. This contrasts with a sharp rise since 1965, soared to an annual rate of 7.2 per cent in the last three months. WHAT WENT WRONG? What went wrong? The answer, it is almost universally agreed, is the war in Vietnam and the early decisions of the Government on financing, or not financing, it. These decisions greatly affected the Government's fiscal policy (the budget; taxing and spending; the deficit or surplus) and indirectly affected its monetary policy (money and credit). These two major weapons, fiscal policy and monetary policy, have a powerful influence on total spending, or demand, in the economy. When the Government allows spending to grow too rapidly through overexpansionary fiscal and monetary policy, prices start rising-whether in the United States or in Brazil. Some prices rise more than others, but the averages go up. When there is plenty of spending money around, sellers find it easier to raise prices. When jobs are plentiful, thanks to heavy spending and robust production, labor finds it easier to push up wages. The process started in the winter of 1965-66 with the decisions being made in Washington. In the budget he submitted to Congress in January, 1966, former President Johnson estimated the cost of the war at $10-billion for fiscal year 1967. On that basis, he recommended no tax increase because the general growth of revenues would nearly cover the cost. The $10-billion figure had been worked out by former Defense Secretary Robert S. McNamara on the assumption that the war would end by mid-1967. COMPLICATING MONETARY POLICY By the spring of 1966, Mr. McNamara had changed his assumptions and informed the President that the war would cost between $5-billion and $10-billion more than estimated. Yet the President still declined to ask for a tax increase, though his Council of Economic Advisers recommended it. The President concluded that Congress would not support such a request. But in testing Congressional sentiment, it has since become known, he failed to point out that the war was costing much more than estimated, with the result of throwing the budget into a deficit. As it turned out, the war in that fiscal year cost $20-billion, instead of the estimated $10-billion, and the budget for the fiscal year wound up in a deficit of $9billion. Then, when a tax increase was finally requested in August, 1967, Congress delayed it for nearly a year and the deficit in the fiscal year was $25-billion. A big budget deficit means the Government is pumping more spending power into the economy than it is taking out. But equally important, the deficit greatly complicates matters for monetary policy. When here is a big budget deficit, the Treasury must borrow to make up the difference between receipts and expenditures. It floats loans from time to time. When it does so, the Federal Reserve, the nation's central bank, generally tries to "stabilize" the money markets by buying Government securities creating bank reserves in larger quantities than it would ordinarily consider wise, partly to enable the banks to buy up a portion of the treasury security issue. This process of Federal Reserve purchases of Government securities, through a complex chain of events, adds to the amount and credit available in the economy. Total borrowing and spending increase. That is how an inflationary fiscal policy contributes to an inflationary monetary policy. $12-BILLION A QUARTER There is a widespread belief that in the period since late 1965, monetary policy most of the time has been too expansionary-permitting a too rapid increase in money and credit, and hence spending-partly because of the problem created by the budget deficit and partly because of some bad judgment by the Federal Reserve itself, which has since been admitted. Total spending in the American economy was growing by about $12-billion a quarter in the period before Vietnam. By the first half of 1968, it was growing by more than $20-billion a quarter. That is why there is inflation. The rise in prices began to be noticeable at the consumer level toward the end of 1965. It got worse through 1966, slowed in the first half of 1967 and accelerated again in late 1967, through 1968 and early 1969. Once the inflation "broke out," private forces came into play, in the process known as the "wage-price spiral." Unions demanded and won larger wage increases, partly on the basis of the need to cover rising prices; business costs of all kinds began to rise. These private cost forces will continue to operate now that Government fiscal and monetary policy are both pulling together in the direction of restraint. So no one expects the rate of inflation to slow rapidly-even though total demand is now again under control. 5 1969 1958 Net weekly spendable earnings of production worker with 3 dependents 6 Labor costs spiraled | Consumer prices rose | Earnings leveled off < 1958 4 Labor cost per unit of output All items Source: Dept. of Commerce and Dept. of Labor The New York Times 1969-First quarter figures June 25, 1969 INFLATION FACTORS: The economy enjoyed growth with relatively low inflation until 1965. Vietnam war costs then began to push up demand, leading to a sharp rise in output of goods and services (1) and helping to increase the percentage of the labor force employed (2). Wages rose (3) as labor supply tightened, and the labor cost required to make each unit of goods soared (4). Businessmen, lured by strong sales and rising labor costs, raised prices and helped to produce a rapid climb in consumer price levels (5). The average production worker made no gain in "real" spendable earnings (6) because rising prices and higher taxes have slightly outpaced rising wages. |