New Dimensions of Political Economy
Walter Heller’s years in Washington as the chairman of the Council of Economic Advisers proved to be enormously successful. He was raised from a figure of academic respectability to one of the three or four best-known economists in the nation. He presided over a period of almost unbroken economic expansion—an expansion, moreover, which had the grace to continue for two years after his departure from the Council. He is associated with—and in this volume of Godkin Lectures explicitly claims much credit for—the adoption of the “new economics” as the new orthodoxy of public policy in America.
Nor may even an economist so critical of Heller’s works as I am wish to begrudge him praise. He recruited a staff of outstanding economists, and if with time the glamor of the Council has inevitably diminished, the Council continues to attract very able professional workers. Heller himself worked with a wholly unrealistic intensity and deserved two salaries even without a premium for overtime. His dedication to the “new economics” was matched by the skill and tenacity with which he advanced its cause. His conduct in political office greatly pleased his (overwhelmingly Democratic) professional brethren.
Heller and his fellow new economists believe that they know how to keep a nation fully employed and progressive, and that the fulfillment of this goal is the number one priority of the economist. Not only because the output of the economy has unlimited private and public uses but also because high prosperity contributes generously to the amelioration of other social and economic problems—poverty, deficient medical care, and poor schooling, for example—the goal of full employment justifies (these are my words, and the Council’s actions) almost any risk in other areas. The panoply of ugly and inefficient measures to conserve our gold supply, and the creeping advance into direct price controls by means of guidelines, are unpleasant but bargain prices to pay for 2 per cent less unemployment or $40 billion more of GNP. And look at the record!
HELLER’S CONFIDENCE in the omnipotence of fiscal policy—given a little more education of President and Congress so that directions of policy may be reversed quickly—is complete: He does not even consider the possibility that this position needs scientific defense. Let the level of public expenditures be governed by social needs; then simply reduce taxes if the economy is not at its maximum level, and increase taxes if the economy becomes “over-heated.” It is almost as simple as that. Perhaps he is right, although this gives enormous emphasis to the last five years and one-and-a-half episodes of tax change. But quite possibly he is wrong, and the splendid economic expansion of the early 1960s was due to a monetary policy which had the effect of steadily increasing the supply of money until in the past eighteen months the policy became irresponsibly volatile. So, for example, Milton Friedman argues, and with a wealth of historical evidence which has no counterpart in …
Stretching Things January 26, 1967