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There are times when the Government has to "do something" about the economy. There may even be times, as in 1933, when it is probably better to take slipshod or ill-considered economic action than to do nothing at all. But the do-something approach to economic policy shows some of the same defects as the do-something approach to parenthood: fussy economic policymakers, like fussy parents, can smother freedom with well-intentioned directives and solicitous hoverings. Children and economies, if let alone, may get into more mischief than their overmanaged counterparts. But they are likely to be healthier too.
Too Strong. The defects of the New Frontier's activist economics showed up in the Administration's grotesque efforts to deal with two of the U.S.'s most pervasive economic problems—the monopolistic powers of Big Labor and the messiness of the federal income tax structure.
Fortified by Government-granted privileges, notably exemption from antitrust laws, U.S. labor unions, once too weak, have become too strong—strong enough to demand and get wage increases that are not economically justified. Big Labor can now insist on periodic wage increases regardless of whether prices and profits are rising or falling. One result is that the benefits of increasing productivity (output per man-hour) tend to get gobbled up by wage increases rather than being distributed among higher profit margins, increased investment and lower prices, as well as higher wages.
During the 1950s, wage increases persistently outran productivity increases, and the result was price upcreep that dulled the capacity of the U.S. to compete in world trade, and thereby helped bring on the balance-of-payments problem of recent years. Price upcreep has halted for the time being, but the power of labor unions still impedes solutions to the big economic challenges that confront the Kennedy Administration: speeding up economic growth (which requires expanded investment) and increasing U.S. exports (which requires competitive pricing).
Kennedy Administration economic thinkers are aware that the power of Big Labor is a drag on the economy and an obstacle to achievement of New Frontier economic goals. One imaginable remedy would be to trim that power a bit, then step aside and let the free market operate, with wage settlements determined by collective bargaining within the framework of current market conditions. Otherwise, the only course left, short of direct meddling in wage negotiations, is the Eisenhower approach of frequent homilies on the need for "restraint."
The Kennedy Administration took the activist approach of informal wage fixing. First, Heller's Council of Economic Advisers laid down a rule that wage increases should be guided by expected gains in productivity. One trouble with this formulation is that while productivity is a clear enough concept (TIME, April 27), it turns muddy when applied to particular wage settlements; productivity is hard to measure with precision, and it varies from one year to another and from one industry to another.