New Experiment

To most Congressmen the pleasure of putting thumb to nose and waving all four fingers in the direction of Franklin Delano Roosevelt was last week a fully satisfying occupation (see p. 12). But to Congress' thoughtful fringe (New Deal and anti-New Deal) there was a far more interesting occupation, the same occupation as that of many a businessman, trying to answer a question:

After the defeat of the Spend-Lend Bill and other New Deal measures, what will be the state of business at convention time next year?

Either the U. S. cannot prosper with Government spending or it cannot prosper without Government spending, according to the contending factions. The new experiment of which Congress, not the New Deal, is the author, is to see whether the U. S. can get along on a lot less spending.

Anti-New Dealers predicted and hoped that with Roosevelt on the run, and Government spending on the way out, private capital would go back to work, would more than make up investment-wise for the $3,000,000,000-odd of new Government money which the New Deal has pumped into the U. S. economy each year. Their hopes were raised when smiling, soft-spoken Acting Secretary of the Treasury John Hanes announced last week that business was doing fine, ". . . We are on the eve of what may be a real forward movement."

New Dealers concentrated on gloomy calculations for the crucial second quarter of 1940. They figured on sharp cuts in spending: that WPA under new appropriations would be nearly $250,000,000 under April-June 1939, that PWA outlay, now around $150,000,000 a quarter, would sink to nothing by next spring. In the first half of 1939, although business in general was not booming, nonresidential construction hit a recovery high that exceeded even 1937. For this Government spending was responsible as the figures for contracts let show:

1937 1939 Private

construction $ 758,948,000 $ 450,178,000

Public

construction 790,522,000 1,335,993,000

Total $1,549,470,000 $1,786,171,000

Believing that Government spending (for new public works, railroad equipment and housing, etc.) is necessary to tide over steel and other durable goods industries the summer and autumn of 1940, New Dealers now count on sagging indices. They asked whether Congress could revive (noted Barren's Index on building stocks was down 7.66% from July 28) July's stockmarket boom.

Today Government spending exceeds Government revenues by about $1,000,000,000 a quarter. By next spring the Government's deficit spending will probably be down to $600,000,000 a quarter. New Dealers, certain of a slump, were last week in a mood to let events take their course in order to tell Congress afterwards "I told you so." If there is no slump-the shoe will be on the other foot. Rather than sit back and tell the country to watch Congress ruin it, New Dealers may yet decide to go their own way and claim credit for saving business from the fate to which they claim Congress has doomed it.

If they take this alternative, they can:

1) Call a special Recovery session to get new public works money. Main reason why many New Dealers favor this is that even die-hard Congressites, who gleefully tore to shreds the semantics of Spend-Lend, say they would have voted for straight public works which mean tangible favors to the folks back home.

2) Take advantage of a special session (possibly over Neutrality) to propose the none too likely alternative: cutting taxes.

3) Get busy finding work for RFC to do with $1,000,000,000 it is authorized to put out, but is still sitting on. (100-to-$140,000,000 of this already is earmarked for railroad equipment loans when and as the railroads get around to using it.)

But if the New Deal decides to stick to its own theories, instead of passively letting Congress conduct the next experiment, it must work fast. Construction takes many months to get going. Spending not authorized until early in 1940 might miss the Convention-Election boat.

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