Hansen Emphasizes Importance of Social Security for Prosperous Post-War World

Postwar economic problems can be divided usefully into two categories: The immediate postwar problems of reconversion to a peacetime economy and the long-run problem of full employment. It is my view that effective government policy designed to cope vigorously with these problems would promote the workability and expansion of our system of private enterprise and ensure the continued development of our free political institutions.

The economy is, under the war program, undergoing a drastic distortion. It will be necessary to reconvert it back to normal civilian output. This task of reconversion back to normal should be undertaken as rapidly as possible.

In this reconversion period we shall be in great danger of experiencing a postwar inflation if we do not continue the wartime controls in this limited interval.

On the one side there will be a great accumulated demand for durable consumer's goods of all kinds. On the other side it will take some considerable time before industry is retooled and equipped to produce a large supply of civilian goods, in this interval, therefore, demand will greatly exceed supply and the wartime peace controls, including rationing, will almost certainly be necessary in order to prevent a chaotic inflationary development.

As soon as the gigantic reconversion process is over and industry is again equipped to satisfy in large volume the requirements of civilian demand, all these direct controls, including priorities, allocation, rationing and price control can and should be removed.

Bases for Prosperity

Taking a long-run view of the postwar period, it is probable that great technical developments will emerge from the war experience. Improved plant layouts, new and cheaper methods of production, the discovery and development of substitutes, new raw materials, new processes and new products will offer a great stimulus to the postwar economy. On the basis of this technological development plus the accumulated shortages in housing, accumulated deficiencies in the ordinary type of public works especially in urban communities, shortages in durable consumers' goods; and in plant and equipment for civilian industry, there is the basis for postwar prosperity. A balancing and stabilizing fiscal and monetary policy is necessary to forestall turbulent and speculative tendencies.

Sooner or later according to all past experiences this postwar period of prosperity will end in a depression unless we adopt a positive program to maintain full employment. This is the great new field of economic statesmanship. Our modern highly urbanized, highly industrialized sections can no longer stand the social strain and economic shock of great depressions.

The program to maintain full employment, and an ever advancing national income as productivity increases, requires a more positive role by government than we have had in the past. We have neglected the conservation and development of our material and human resources. By means of sound public investment projects we can raise the productivity of the country, increase the real income, and open up investment outlets for private enterprise.

These developmental projects include urban redevelopment; express highways through and around our metropolitan centers; reorganization and rebuilding of our terminal facilities; the development of our largely undeveloped river valleys, including hydroelectric power, reforestation, soil conservation, flood control, irrigation projects, sewage disposal projects, and cleaning up of polluted rivers.

Social Security

Several pertinent comments may, be made with respect to the Beveridge and the American social security programs.

Critics sometimes caricature the program of security "from the cradle to the grave" as a beautiful scheme of living in luxury without working. This it is not. An adequate system of social security would become completely unworkable spread unemployment will not endure, unless we could look forward to an expanding economy with high levels of income and employment.

No system of unemployment insurance, for example, can possibly stand up in the long run in a society where any large proportion of the working population is continuously unemployed.

It needs to be stressed, however, that a social security program does not make it more difficult to insure an expanding economy at high levels of income and employment. It is not true that social welfare expenditures constitute a drain on national income and tend to depress the economy.

Prevents Depression

Precisely the opposite is the effect. An adequate program of social security tends to put a floor under depression by helping to maintain the total flow of national income. The benefit payments made help to sustain the volume of mass consumption expenditures.

Moreover, the feeling of security will induce workers still employed to spend more of their current income. Thus the total flow of national income is increased, not merely by the benefit payments themselves, but indirectly through the induced larger consumption expenditures of employed workers.

In addition, it should be noted that an adequate social security program, financed in part through the budget by progressive income taxation, is a means of securing a wider distribution of income and with it a larger mass consumption of goods. Thus, effective demand is strengthened through an adequate program of social security.

There are those who say that the costs will be unbearable. These critics overlook the fact that the benefit payments and to the flow of national income. These critics consider the outlays made as though they were deductions from the national income and therefore only a burden on the economy.

In the years following the war, public policy must first and foremost be directed to ways and means of maintaining high levels of income. If this is done, we shall be able to raise the funds from a full employment income required to finance an adequate social security program.

An adequate social security program is only one element in the large federal budget, which we must have in order to make wise and full use of our productive resources. Wise and full use of our productive resources requires not only that we have efficient, adequate, private plants to produce goods, but also that we make adequate investment in our "human assets."

This letter invoices public expenditures on public health, on nutritional programs, on adequate housing for low income groups, and adequate social security. Wise and full use of our productive resources, moreover, requires that we shall make adequate public investment in our public material resources involving conservation and development as outlined above.

Modern fiscal policy stresses the role of a federal budget as a means to maintain effective demand and full employment. But the budget must be controlled so as to prevent both inflation and deflation. We must nor permit the budget to grow so large that demand outruns supply.

On the other side, there is danger that the budget may be cut so low that we shall be left with inadequate effective demand, idle resources, and loss of national income.

This concept introduces a wholly new notion of what true governmental economy means. True economy in government expenditures means the elimination of waste and inefficiency. It does not mean the reduction of expenditures to the lowest possible level--a policy which would result in wholly inadequate social services of all kinds.

Like a Miser

The picture of the miser who thinks he is achieving genuine wealth by curtailing consumption until he starves, simultaneously adding to his pile of gold, is far from a grotesque illustration of some of our policies in the past.

True economy means wise use of resources. A sound and rational fiscal policy means the adjustment of expenditures and taxes so as to maintain high employment with national income rising as rapidly as improved techniques make possible.

An adequate social security program is a part of this larger picture of an expanding full employment society. It cannot be underlined too much that those who look at costs and taxation exclusively are likely to support restrictionist and contractionist programs.

This policy might make the irreducible minimum of costs and taxation unbearable, owing to the low level of income thereby induced. On the contrary, an expansionist program, through the resulting increase in productivity and full employment income, makes the problem of costs and taxation a thoroughly manageable one.

An expanding economy with high levels of income and employment can remain a free society. A society that falls to conquer service depression and widespread employment will not endure.

The Author

Alvin Harvey Hansen, Lucius N. Littauer Professor of Political Economy, has been noted for outstanding research and writings in many economic fields since receiving his A.B. from Yankton (S.D.) College in 1910.

Recently active in Washington, he serves as Economic Adviser to the National Resources Planning Board and as special economic adviser to the Board of Governors of the Federal Reserve System.