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.