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Imitation Behind the Curtain. While the U.S. has been accepting the idea of more and more Government intervention within the bounds of private enterprise, many other nations are drifting away from strong central controls over their economies and opting for the freer American system. Britain's ruling Labor Party has become practically bourgeois, and this year scrapped almost all notions of nationalizing industry; West Germany's Socialists have long since done the same in an effort—so far unsuccessful—to wrest power from the free-enterprising Christian Democrats; and traditionally Socialist Norway in 1965 voted a conservative government into power for the first time in 30 years.
Piqued by the ideas popularized by Soviet Economist Evsei Liberman, the command economies of Communist Europe are openly and eagerly adopting such capitalist tenets as cost accounting and the profit motive. East Germany, Czechoslovakia and other formerly Stalinist satrapies are cautiously granting more powers to local managers to. boost or slash production, prices, investments and labor forces. State enterprises in Poland, Hungary and Rumania this year closed deals to start joint companies in partnership with capitalist Western firms.
Near the Goal. The U.S. right now is closer to Keynes's cherished goal of full employment of its resources than it has ever been in peacetime. Unemployment melted during 1965 from 4.8% to an eight-year low of 4.2%. Labor shortages, particularly among skilled workers, are beginning to pinch such industries as aerospace, construction and shipbuilding. Manufacturers are operating at a ten-year high of 91% of capacity, and autos, aluminum and some other basic industries are scraping up against 100%. Contrary to popular belief, industrialists do not like to run so high because it forces them to start up some of their older and less efficient machines, as many companies lately have been obliged to do.
The economy is beginning to show the strain of this rapid expansion. For the first time in five years, labor costs rose faster than productivity in 1965: 4.2% v. 2.5%. Consumer prices last year jumped 1.8% , and wholesale prices rose 1.3%, the first rise of any kind since 1959. This is already threatening the nation's remarkable record of price stability. The economy cannot continue its present growth rate at today's productivity level without serious upward pressure on prices.
Growth v. Stability. The economic policies of 1966 will be determined most of all by one factor: the war in Viet Nam. Barring an unexpected truce, defense spending will soar so high —by at least an additional $7 billion—that it will impose a severe demand upon the nation's productive capacity and give body to the specter of inflation. Keynes feared inflation, and warned that "there is no subtler, no surer means of overturning the existing basis of a society than to debauch the currency." Once chided for undertipping a bootblack in Algiers, he replied: "I will not be party to debasing the currency."
The immediate problem that Viet Nam and the threat of inflation pose to Washington's economic planners is whether they should aim for more growth or more stability. Labor Secretary Willard Wirtz