Masonry Magazine September 1971 Page. 15
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THE ECONOMY IS HEADED FOR DEFINITE GAINS of considerable proportions as a result of the new policies the President put into effect during August. Now that some dust has settled, forecasters in government and industry can make more precise projections of the gains that lie ahead for prices, wages, unemployment, family income, corporate profits, and various interest rates. The picture they see is far more encouraging than that of a few months ago.
It's clear now that the President's program has achieved its initial objectives on all fronts. Labor's cooperation assures an effective wage-price control mechanism after the freeze ends on November 12. Currencies are being revalued favorably to this country. Business is being stimulated. Phase II is about to begin and bring additional advances for business.
PRACTICALLY ALL PRICE RISES HAVE BEEN HALTED dead in their tracks. To be sure, they have not turned down. But, for the moment, the steady erosion of the dollar's value has been stopped. Wages are not zooming. It seems clear that the pattern of annual increases of 8% to 10% is broken. The apparatus that follows the end of the freeze will, of course, let prices and wages start rising again. But the rate of climb will be a lot slower. The rate of inflation will fall from the present 4% to 5%, to 22% next year.
Real income for the average family is bound to gain. Based upon the tax proposals sent to the Congress, real family income will rise by at least 5% in 1972-and maybe even more.
STRONG AUTO SALES WILL GIVE THE ECONOMY A BIG PUSH. The boost from repeal of the auto excise and the price freeze will spill over to other lines. And the investment credit will add to this thrust. Output measured in dollars will increase more slowly in the months ahead. But in physical terms-the terms that really count -the gains will be bigger. The 4% real growth of the second quarter will grow to 6% or 7% or even more next year.
Some 500,000 new jobs will be added to payrolls fairly soon, as a result of the new program. Economists are guessing that the unemployment rate might drop to 5% by the end of the year.
THE ECONOMISTS THINK BUSINESS PROFITS WILL LOOK HEALTHY again in '72. Despite organized labor's complaint that the freeze is inequitable without controls on profits, the fact is that corporate profits have been very weak. Reinstatement of the investment tax credit will help lift profits-perhaps by 10% to 12% as business finds about $3 billion sliced from its tax bill.
Government figures show that corporate profits, as a percent of GNP, are smaller now than in any year since 1938. Those companies without foreign subsidiaries have fared the worst.
THE NEW PROGRAM HAS A POTENTIAL FOR SOLID DECLINES in interest rates. A markedly lesser degree of inflation would let yields drop substantially. Investors won't need to receive a rate premium to protect against inflation. The Federal Reserve now won't have to tighten further to fight the spiral. Excess demand, and a need to tighten credit again, is still a long way off. If any thing, the "Fed" will lean to the easy side in months ahead. Officials would like to help the President stimulate the badly lagging business upturn.
ADMINISTRATION OFFICIALS ARE ALREADY WORKING on the inflation curbs that must come into force after the 90-day freeze runs out on November 12. Extension of the freeze is highly unlikely. If it were to last much beyond the 90 days, it would invite widespread evasion by companies and unions. Politically, it would damage Nixon. The public would withdraw its support.
OFFICIALS WON'T RULE OUT MANDATORY CONTROLS as a major possibility. Curbs could be necessary to protect the progress achieved under the freeze. Certainly, selective restraints on major industries are a real possibility. They wouldn't require the establishment of a big enforcement bureaucracy. A permanent wage-price review board, with labor support, is highly likely. Organized labor has indicated a readiness to participate in such a board.
Officials are looking closely at the success in the building field, which has price-wage boards. They are also studying the possibility of establishing new wage-price guidelines.
CONGRESS MAY WELL BEEF UP THE TAX CUTS REQUESTED by President Nixon. House Ways and Means Chairman Mills favors greater relief for individuals. Specifically, he would make the increase in the minimum standard deduction now set to go to 15% or $2,000 in early 1973-retroactive to last January 1. (The President has recommended advancing the date to only January of 1972.) Mills would lift personal exemptions to $750, also retroactive to January 1. Finally, he'd raise the low income allowance to boost spending by the poor.
The Administration is not likely to oppose the efforts to broaden Nixon's proposals. Postponement of scheduled social security tax increases will also receive committee scrutiny.
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