View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

(For release 7:30 p.m.,
Central Standard Time,
January 25, 1960)




Remarks of J. L. Robertson
Member of the Board of Governors
of the
Federal Reserve System
Before the Mid-Winter Conference
of the
Louisiana Bankers Association
Baton Rouge, Louisiana
January 25, 1960

Economic Growth - How Fast and Where To?
What has impressed me most during this visit to
Louisiana is the tremendous economic progress that has
been made here. We hear a great deal about growth these
days. Some economists tell us that we are lagging, that
we are not growing fast enough. I suspect that these
economists have not looked around your state. Indeed, I
sometimes wonder whether they ever look at anything but
numbers. They use numbers very adeptly, but they do not
always bother to ask what the numbers mean, what the real­
ity underlying them is. They remind me of the old colored
gentleman down in these parts who got into a traffic acci­
dent. When the judge found he could not read, he pointed
out that this was dangerous and directed that he learn to
read if he wanted to continue to drive. Some weeks later
a friend asked him how he was progressing. "Pretty good,"
he replied. "I got the figgers down right smart. Now when
I come to those signs I can tell 'how far1 and 'how fast',
but I cain't yet tell 'where to'."
So it is with our economic growth. We have a lot of
people telling us how far we ought to go, and how fast, but
few of them venture to tell us just where it is they want
us to go. (I mean "us" as a nation. Some of them are quite
clear as to where they want us at the Federal Reserve to go.)
There is no question that if we put our minds to it,
we could go - for a while, at least - as fast as the more
ambitious advocates of rapid growth contend. Whether we
could go as far as they think possible is not quite so cer­
tain. Just where we would be and how we would like it after
we got there is another question. We might react like the
old gentleman over in Texas who was asked by a stranger if
it was very far to East Weatherby. "Nope, tain't far at
all," the old man replied, "but after you get there, you'll
wish it was a durn sight farther."
Of coXirse, I am not suggesting that we can ever be
complacent. It is surely right always to be reconsidering
how our economic system works, how we should like it to
work, and how we might make it work better. In this spirit
of inquiry, we should wel/edifife> such studies as those now be­
ing completed by the Joint Ecohomic Committee of the Congress




- 2 -

on broad questions of employment, growth, and price sta­
bility.
Two general qualities of the papers so far produced
for the Joint Committee are especially welcome. The first
is the stress laid on the importance of wise decision-making
by private groups and individuals. It has always seemed to
me a mistake to imagine that government could do the whole
job of guiding an economy as diverse and dynamic and free
as ours. You cannot legislate common sense into people's
heads, and yet our economic performance depends upon its
being there. As the Irish delegate to the United Nations
remarked, "the most underdeveloped territory in the world
lies directly beneath men's hats."
The second welcome feature is that economists seem
now more widely agreed than they were a few years ago on
the proposition that inflation is a bad thing - inequitable,
wasteful, and unnecessary. I like to think that this view
is also gaining ground in wider spheres - that consumers
are fed up with inflation, and that political, labor, and
business leaders speak out more often against inflation
nowadays than they used to, even if their actions are not
always in harmony with their words.
Having expressed these generally hospitable thoughts
toward the study of economic growth, I must add that I see
dangers in the way the public discussion of growth has been
going lately. Too many people, including some reputable
economists, are playing a kind of numbers game. I cannot
believe that one can really know that a 3.5 per cent growth
rate will be too low for our economy and our particular
preferences, or that a 5.1 per cent rate will be too high.
The statistical measures of growth are themselves
fragile and ambiguous. Numbers have a simplicity that ap­
peals to headline-writers (and headline-seekers), but they
conceal essential qualitative features of our changing
economy. You could raise the statistical per capita growth
rate, you know, by shooting everyone dead on the day he re­
tired. But I would rather count increased longevity as an
element of growth than as a hindrance to it. Similarly,




- 3 -

there seem to me to be some civilizing gains associated
with increased leisure, although that also reduces statis­
tical growth rates. Again, a more rapid build-up of sur­
plus agricultural stocks appears statistically as growth,
whereas an improvement in the quality of our school teachers
does not. More generally, a shift of production away from
goods towards services slows down the growth rate, but in
fact more services may be exactly what the community wants.
So much for the pitfalls in the numbers game of
growth! Why cannot we regard it simply as a harmless pas­
time for the specialists engaged in it? The trouble is that
the game has unwholesome effects on the participants, and
may end up by involving all the spectators in a traumatic
experience. The first object of the game is to persuade
Americans that they are on the losing side. Magic numbers
are adduced to show that we are falling disastrously behind
the Russians, and behind our own growth potential. We are
losing, on some calculations, by a score of 3 per cent a
year against 7 or 8 per cent for Russia. This is said to
be a great defeat, calling for heroic remedies, for drastic
action, for junking old policies and starting fresh.
Now I submit that our economy is not really suffer­
ing from any such massive failure. I do not think the facts
show us to be failing nearly so badly as much of the popu­
lar discussion would imply. I do not think we really want
to follow in Russia's footsteps. No doubt some changes
could improve the performance of our economic system, and
if so, they should be adopted, but the idea that a drastic
overhaul of the whole economy is essential simply does not
fit the facts. In particular, those critics who say that
the only proper role of monetary and fiscal policy is to
make money and credit cheaper and more abundant are mis­
judging the problem, and misjudging also, I think, the grow­
ing public disillusionment with inflationary medicine.
What are the margins by which our economy is fail­
ing to do its best, and how can they be reduced? Critics
of recent monetary and fiscal policies point to the fact
that more than 5 per cent of the labor force is still tinemployed, despite the strong uptrend in production since




- 4 -

the spring of 1958. They say this percentage is too high.
I agree; it is. We ought to be able to do better. But
even the most ardent growth enthusiasts do not expect our
economy to work smoothly with no unemployment at all, since
people must sometimes be changing jobs. Three per cent un­
employment is their generally accepted goal. And most of
the difference between that and the present 5 per cent
level represents pockets of unemployment in particular in­
dustries and localities - in coal-mining and railroad com­
munities in Pennsylvania, in textile towns in New England
(despite the current boom in textiles), and in some dur­
able goods areas. There may be much we can and should do
to help these people learn new skills and find new jobs.
But they will hot be helped for long by a general spending
splurge; they and others would be hurt when such a splurge
produced an unsustainable burst of activity and inflation,
followed by painful readjustments as illusory expectations
proved unfounded.
A second criticism of our economic performance is
that we are not producing enough of the right kinds of
products. In particular, it is said that we are not de­
voting enough resources to education, to defense, and to
other public services. That may be true, and if the com­
munity so decides, it can remedy the situation through our
democratic political processes. In New York State, for ex­
ample, it was decided last year that public services should
not be cut back, and ought to be expanded in some directions;
so the legislature voted new taxes to pay for them. Other
communities can do the same. We can have whatever public
services we are willing to pay for. But this has nothing
to do with monetary policy or with the sound fiscal goal
of budget surpluses in times of prosperity. What we will
not pay for, monetary and fiscal policy cannot give us.
A third criticism of our economic performance is
that business cycle fluctuations have been too large, so
that resources run to waste during recessions. Again, I
agree. But it is precisely by reducing these fluctuations
that flexible monetary and fiscal policies make a major con­
tribution to sustainable growth and employment.




- 5 -

Most observers now agree that both the 1955-57 in­
flation and the subsequent recession had their roots in an
unsustainable burst of housing construction and auto pro­
duction in 1954-55, followed by overoptimistic plant and
equipment outlays in 1956. In that apparently rosy period,
inflationary long-term wage agreements were negotiated in
major industries, and the creeping-inflation psychology
became popular.
We have spent three years, and one recession, trying
to work our way out of that unstable situation, and we are
not out of the woods yet. Surely the trouble with mone­
tary and fiscal policy during the last business cycle was
not that it stepped too hard on the brakes in 1956-57, but
rather that it did not step on them hard enough and soon
enough in 1954-55.
I hope we will do better this time, and so far I
think we have. But much will depend on the good sense of
private groups and individuals. I do not know what the
ultimate effects of the recent steel wage settlement will
be, but experience indicates that when the fruits of rising
productivity in the most rapidly advancing industries are
distributed exclusively to the participants in those in­
dustries, the outcome tends to be inflationary or harmful
to employment. I hope to see the day when a portion of the
gains in productivity flows to consumers in the form of
lower prices. However, it is not merely businesses and
labor unions on whom we must rely for good sense. The con­
sumer, too, will intensify the ups and downs of the busi­
ness cycle if he persists in flashing his new credit cards
without discretion in times of prosperity, only to lay them
aside entirely when even a moderate recession sets in.
I have dealt with three major criticisms related to
our growth rate - that unemployment is too high, that pub­
lic service outlays are too small, and that business fluc­
tuations are too large. All of these criticisms have some
validity, and may require special remedial actions. But
none of them points towards wholesale revision of the mone­
tary and fiscal policies we have been following. Quite the




- 6 -

opposite! Anti-inflationary monetary and fiscal policies
are essential at this expansive stage of the business
cycle, when the economy is growing very rapidly indeed,
if we are to avoid those unsustainable bursts of activity
that are accompanied by inflation and are always followed
by painful readjustments.
I trust that what I have said with respect to per­
centage rates of growth has not given you the impression
that I am opposed to the use of numbers - of statistics.
As you know from the statistical reports we request of you,
the Federal Reserve has a great liking for statistics. We
manufacture a lot of them ourselves, and I think that we
make good use of them. We have recently installed an awe­
inspiring electronic computer to help us make even more and
better use of such data. But there is still a place for
human judgment.
There was an old preacher once who told some boys of
the Bible lesson he was going to read the next morning. The
boys finding the place, glued together the connecting pages.
Next morning he read on the bottom of one page: "When Noah
was one hundred and twenty years old he took unto himself
a wife, who was" - then turning the page - "one hundred and
forty cubits long, forty cubits wide, built of gopher-wood,
and covered with pitch inside and out." He was naturally
puzzled at this. He read it again, verified it, and then
said, "My friends, this is the first time I ever met this
in the Bible, but I accept it as an evidence of the asser­
tion that we are fearfully and wonderfully made!" Blind
faith in numbers can sometimes lead us astray.
I was struck recently with a statement made by the
great orator, Edward Everett Hale, nearly eighty years ago
"The wealth of the country," he said, "is increasing with
such strides that no statistics announce it. As we never
know the rapid drift of the raft or ice-floe on which we
go and come, we are not ourselves aware, at the moment, of
our gains." It is hard for us today to imagine not having
statistics to "announce" where we are and how fast we are
going. But if we did not have them - if we did not know,
for example, that gross national product in 1959 was $479




- 7 -

billion and that this was 8 per cent above 1958 - I would
still find it hard to be a pessimist and take a gloomy
view of things.
Hale was impressed by the fact that the simple in­
vention of the friction match had saved for this nation
more than twice the amount of labor that went into the
building of the Great Pyramids of Egypt. What then would
we have to say for this age, the past decade, which has
seen such labor-saving technological advances that we can
hardly believe them even when we view them with our own
eyes? I refer, of course, to such things as the automa­
tion revolution, but I might note on the side that the in­
vention of the coffee-break alone has saved Americans more
labor than the friction match, which so impressed Hale.
Our problem, it seems to me, is not so much how can
we add to our material wealth, but how are we going to use
the great wealth that we already have? The question is not
how fast and how far, but where to? What are we going to
do with our tremendous economic potential?
Interestingly enough, this is precisely the ques­
tion that Edward Everett Hale posed as the significant
question confronting this country back in 1881. To Hale,
and no doubt others of his time, it appeared that America
had already become the affluent society. It may be hard for
us to believe that anyone could really consider as affluent
the society Hale was speaking about, which was still pretty
well typified by my home town, Broken Bow, Nebraska, dur­
ing my very early years, where the average working day ex­
ceeded ten hours and there were no automobiles or electric
lights, to say nothing of electric can openers. But who
would be so bold as to say that our grandchildren will not
some day regard our descriptions of the affluence of our
society in 1960 with amusement? I, for one, fully expect
it. In the next decade alone, gross national product is
likely to jump from $479 billion to around $750 billion.
The area in which progress is much more doubtful is
in the improvement of our ability to make the best use of
our material bounty. Much of the clamor about growth really




- 8 -

boils down to dissatisfaction about the way in which we are
using the wealth we already have. Many of those who say
that we need to expand our economy much faster turn out to
be people who do not really want more "finny" automobiles
and solid gold putters. They want more to be spent on de­
fense, or on education, or on foreign aid or a dozen other
things. They are often shocked by the way in which we use
the wealth we already have - and who is not, at times? but they assume that the best way to get it used more in­
telligently is to get more of it. This has led to the sug­
gestion that we be more aggressive in trying to increase our
material wealth at a faster rate, and that we - and here I
mean specifically we in the Federal Reserve System - refrain
from taking any action that might tend to moderate the speed
of the forward motion of this great economy under any con­
ditions.
But is this really the way to obtain a better utili­
zation of our wealth? There is no logical reason to assume
that any increase in our incomes in the years immediately
ahead will automatically be used in a very different way
than our present incomes are being used. The trend might
be in the direction of even greater expenditures on osten­
tatious luxury. Increased income is not the best known cure
for profligacy. I fear that those who expect to see what
they regard as national profligacy remedied by a more rapid
rate of economic growth would be doomed to disappointment
in the end.
"Perhaps so," they may reply, "but why not try?"
There is, of course, no harm in trying if the methods used
to stimulate growth are potentially effective and do not have
undesirable side-effects. A number of proposals have been
made that deserve consideration; for example, those that
would tend to increase saving and investment. Where we are
likely to get into trouble is if we try to force saving and
investment in order to stimulate faster growth, rather than
relying on measures that will get people to want to save and
invest more.
There are some who would like to see us try to force
growth through what they call "easy money" policies, notwith­
standing the probable consequent inflation. This is neither




- 9 -

an effective nor a desirable way of attempting to get
faster growth. It would certainly not produce a more
desirable spending pattern - more spending on what the
critics regard as the worthwhile things of life, more on
education, for example, than on tobacco and alcohol - and
its arbitrary effects on the distribution of income and
purchasing power are by themselves enough to rule it out
of consideration by men who respect justice and equity.
I hope that I have not given you the impression
that I think all our economic problems can be solved by
monetary policy. Far from it I Monetary policy is a pow­
erful influence. But obviously it cannot control such
potent factors as public psychology, spending habits, sav­
ings habits, public debt and budget, or the pressures from
labor, agriculture, and industry groups that result in wage
increases and government guarantees or subsidies of one
sort or another. The most the Federal Reserve System can
do is to promote money and credit conditions that are con­
ducive to economic stability. It can only bring its in­
fluence to bear on the economic situation as that situation
is created by the actions of businesses, labor, agriculture,
consumers and governments.
The task of steering this great economy of ours in
some ways resembles the job of the pilot on a Mississippi
River boat. Speed is one factor, but the pilot who put
speed above safety would be doing his passengers a dis­
service. The pilot must above all remember that not every
passenger in the boat has the same interests, the same de­
sires, the same destination. The destination for one will
be Baton Rouge; for another, New Orleans. Some may be im­
patient to reach a particular destination; others may have
no interest in the trip other than the voyage, which they
would like to be smooth and leisurely. For the river boat
itself, every "destination11 is merely a point passed on a
ceaseless journey. Its goal is not to attain some final
mooring and rest ever after in peace and contentment. Nor
is it to be ever dashing for the finish line in an imaginary
race that has no ending. Its function, like the function
of our economic system, is to serve the diverse wishes of
the people who are aboard, compromising the desires of those




- 10 -

who want speed and excitement with those who want serenity
and safety. The piloting of our economic river boat is a
complex job. There may be occasions that call for an ex­
tra burst of steam, but the pilot must be concerned pri­
marily with maintaining efficient and safe performance over
a very long haul. He must realize that "where to" is per­
haps even more important than "how fast" .