The Happy Tune

Whenever I feel afraid

I hold my head erect

And whistle a happy tune,

So no one will suspect I'm afraid.

The New Frontier last week sounded like something from The King and I. Although the stock market's industrial average had plunged by more than 100 points since December and caused visible consternation among investors and businessmen, everyone in the Administration, from President Kennedy on down, seemed to be whistling a happy tune.

"Every indication that we have," said Kennedy at his news conference, "indicates that this is going to be a record year in profits, wages, productivity. So we believe that the United States economy should have confidence." Said Commerce Secretary Luther Hodges at a Washington convention of the National Association of Home Builders: "Business generally is good and should improve well into 1963." Said Dr. Walter Heller, chairman of the President's Council of Economic Advisers: The stock market slump "is not a reflection of current disappointments and downward revision in the near-term economic outlook."

Blue-Sky Rumors. The New Frontiersmen had plenty of indicators for their optimism. In April, industrial production climbed a point to another record. The work week rose six minutes, to push the number of hours worked to the highest

April total since 1953. Personal income hit a record annual rate of $438.7 billion.

Nonfarm employment rose sharply by 675,000 to an April record of 54.7 million.

Detroit sold 621,136 cars, raising the potential annual rate to 7,200,000--which is getting close to 1955's fabulous year.

Beyond such statistical reports, all sorts of blue-sky rumors about future tax cuts were coming out of Washington. The Kiplinger Washington Letter said that the slashes would amount to a 25% across-the-board decrease on individual income taxes, plus a reduction in corporation taxes from 52% to 45%. U.S. News & World Report had it a little differently.

Corporate rates will go down to only 49%.

And individual income tax rates, instead of the present range from 20% to 91%, may come down to an 18%-65% range.

In the face of such figures and futures, why is there so much obvious uneasiness in the business community? Holding Off. The reasons are plentiful.

For one thing, there is the lingering uncertainty caused by President Kennedy's treatment of the steel industry, coupled with apprehension that his views of business and businessmen are not of the highest. This has caused businesses to consider whether the Administration would take further steps to interfere with wage-price negotiations and thereby affect corporate profits--which have declined from 9.2% of the national income in 1947 to 5.4% last year.

Many businessmen consider the Administration's plan to collect taxes on profits earned overseas a severe blow to U.S. business abroad (see BUSINESS). Others are holding off business decisions until the future of trade regulations is clear, or until they see the fate of the Administration's depreciation allowance bill. Moreover, there is a suspicion that the Administration tends to penalize bigness. Said Albert L. Nickerson, chairman of Socony Mobil Oil Co., Inc. "It seems to me illogical to 'think big' in terms of such activities as economic competition from Russia, space exploration and the conquest of poverty and disease, and then on the other hand to 'think small' in terms of the business organizations that are the keystone of our economy."

Without strong business confidence, the U.S. cannot realistically look for an economic boom. Yet it is on the expectation of a boom that Kennedy has based his forecasts for a balanced budget next year. As it happens, the fiscal 1962 budget deficit is expected to hit at least $7 billion. And estimates of the deficit for the next fiscal year run all the way from nothing (Kennedy's, with several ifs) to $10 billion. Said Virginia's Senator Harry Byrd, chairman of the Senate Finance Committee: "We are told that the fiscal situation will be all right if we balance the federal budget over a cycle of years, and that this will be taken care of automatically if the Federal Government will only spend enough to raise the gross national product high enough to produce the necessary revenue.

"This is evil fiction. It never has worked. It is not working now, and I can prove it. A prudent government would balance its budget by stopping nonessential expenditures. This is not being done.

The hard fact is that continuing deficits ultimately end in bankruptcy." Although Byrd is considered old shoe by the New Frontier, he has for almost 30 years kept a discerning eye on the Government's fiscal policies--and knows a bit about such matters. His remarks reflect a general edginess about the Administration's fiscal policies. H. Ladd Plumley, new president of the U.S. Chamber of Commerce, last week expressed the feeling that the Kennedy Administration was really trying to get along with business.

But, he said, "I probably should add that I think much remains to be done." President Kennedy and his lieutenants are well aware of that feeling. But it may take more than happy whistling for them to turn the tide in that vague but vital field known as "business confidence."

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