Living Beyond Our Means

by PAUL G. HOFFMAN

THE American nation today has all the outward signs of unlimited prosperity. We have record production, full employment, rising prices, wide commercial and residential construction. But over this prosperous scene there hangs a heavy cloud: we are living beyond our means.

Since 1930 the Federal budget has been in balance just three years (the fiscal years 1947, 1948, and 1951). In the same period the national debt has climbed from $16 billion to $263 billion as of July, 1952. Most of this increase is a reflection of the great depression in the thirties and the global war that followed. We made a start at reducing the debt right after the war, but a year ago rearmament caught up with us and the budget is now deeply in the red.

The impact of this, so far as day-to-day living goes, has been felt by everyone in the form of unprecedented taxes and upward spiraling prices. Both have been discussed and lamented in every club and every kitchen. But a larger and more dangerous implication is not so easy to see and may be thrust on us directly only when it is too late. It is the hazard of an acute crisis, such as a full-scale war, calling for financing at a time when we are already caught in a creeping inflation and when present corporate and personal income taxes are distorting and undermining incentives. We would be starting a giant mobilization of unpredictable duration from a financial position as serious as that which existed in the middle of World War II. Coping with such a situation could destroy our economy as we know it.

What can we do about that prospect now? One theoretical solution is higher taxes. But corporate taxes are largely passed along in higher prices, like sales taxes, and they both deter expansion and encourage waste. Stiffer personal income taxes could be ruinous of the individual incentive upon which productivity ultimately depends; and even if taxes at present rates were not already putting the dynamism of our society in danger, it would be hard to find political sponsors for any further increases.

The problem, then, revolves around cutting Federal expenditures rather than increasing revenues.

Can it be done? If so, how? These are questions which call, first, for a re-examination of the nature of the Federal budget and, secondly, for a fresh approach to its content.

In the current fiscal year, for example, we have been told that $79 billion will be spent. Taking some latitude with details, we can conveniently divide that amount, and comparable totals for the three preceding fiscal years, into three broad categories as follows: —

Copyright 1952, by The Atlantic Monthly Company, Boston 16, Mass. All rights reserved.

FEDERAL BUDGET EXPENDITURES AND RECEIPTS

Billions of dollars

About the first of these categories, obviously little can be done. It is made up primarily of interest on the national debt, which is a contractual obligation; of Federal contributions to social security and other trust funds, which are both contractual and moral commitments; and veterans’ benefits, which the American people have long recognized as a meritorious and inescapable responsibility. Beyond resisting questionable expansions and appropriations in these areas — and there have been many such in the last twenty years — the most we can do is to administer them efficiently.

This leaves us only two places in which to examine the possibilities of cuts.

General Government Expenses

The cost of general government this fiscal year amounts to $7.7 billion, slightly less than 10 per cent of estimated total expenditures. This figure alone makes clear one fundamental fact that it has been easy to forget; the most rigorous and vigilant action in reducing the cost of normal peacetime government functions would be far too small to enable us to live within our means. In fact, if this $7.7 billion of general government costs were wiped out entirely, we would still have a deficit of over $2 billion.

This stark mathematical truth certainly does not mean that economies are not worth making in general government functions. But we ought to know why we make such economics and what to expect from them. Demonstrably, neither the purpose nor the effect can be to balance the budget. But by judicious economizing, we could get a more tightly and efficiently run government, eliminate unjustified subsidies and handouts to special groups, and crop the government down to a size and scope commensurate with necessary functions.

Before this can be done, we have to realize that under present budget procedures, principal attention is always focused on new functions, new services, new agencies. The result is that all the old operations and expenses largely escape sufficient re-examination. Each new budget thus has a high proportion of unnecessary holdovers in terms of employees and dollars that could either be merged with or replaced by the new items, or maybe even be abolished altogether. Perhaps because of overattention to the new features, both the Executive and the Congress are too casual about the old items, and have come to take them for granted as standard housekeeping costs that it would not be worth while to question.

Another logical and profitable area in which to take a fresh look at general government expenses is that of outright subsidies and of programs containing large elements of subsidies. The larger items in these two categories are the merchant marine, aid to navigation, air transport, highway construction, agriculture, land and water resources, housing, and the post office deficit. The cost of these programs during the current fiscal year totals $5.5 billion, and this amount of course excludes hidden subsidies such as those involved in the Buy American law or the preferential tax provisions applicable to the shipping industry. Most of these programs get more money from C ongress than the President asks for.

They tend to be self-perpetuating and also contagious. What a special group has one year it expects to get the next year. And what one group gets, another group wants. At the very least this process has a devilalizing effect on our political life.

There are two effective ways of counteracting long and numerous government subsidies. One is to insist that they all be openly and clearly defined, so that everybody knows who is getting what and why he is getting it. The second is continunally to challenge every subsidy from the general taxpayer’s point of view. Those handouts that are necessary to the national welfare would, as a result, not only survive but have more general and informed public support. And those which were just, habits of past years could be weeded out.

Along with subsidies, the whole problem of governmental management with its attendant overhead needs unremitting scrutiny. Despite the fact that only 2½ per cent of the whole budget is involved here, it would save some money and pay much more in dividends of improved efficiency and limitations on government’s congenital tendency to expand.

We need new ground rules, chief among which is legislation enabling the President to veto individual items in appropriation bills, instead of getting the all-or-nothing alternatives that confront him now. In this way the financing of major and necessary programs would not be jeopardized by the inclusion of irrelevant or self-serving riders that get approval only because the President cannot strike them out without vetoing the whole bill.

Improvements in budgetary procedure should be accompanied by reforms in the personnel practices of the government. This is a human as well as a fiscal problem. Often it is almost impossible for conscientious agency heads to fire incompetents or to relocate misplaced personnel. Sometimes staffs under heavy pressure have to be enlarged with castoffs from other departments. Civil Service “status” and seniority or the statutory preference rights of veterans are unduly emphasized in many cases to the detriment of ability and industriousness. Created to put an end to the infamous spoils system of the last century, Civil Service today needs a good going-over to improve services and morale in the light of modern personnel techniques.

There has been much talk but little action in recent years regarding the duplication and overlapping of Federal agencies and departments. Confusion, conflicts, and waste continue despite demands for system, thrift, and efficiency. Decisions in the Executive branch are delayed or made tentative because so many agencies have to be consulted. These agencies then base their recommendations on different but not mutually exclusive considerations. One of the more familiar examples is the three-way split between departments on land and water management.

The Departments of Interior and Agriculture and the Corps of Engineers are constantly preoccupied with jurisdictional disputes and widely divergent viewpoints about the same project. Can any clear-cut decision, let alone prompt and economical action, emerge from such rivalries? There must be a better way of doing business than that.

Besides problems of organization, there are many political obstacles to such improvement. Special group appeals to Congressmen can stay the hand of the President and any reorganization planning, and appeals of this nature have more often succeeded than not. Before a President can establish order in his own house, he must have the support of a Congress willing to resist special pleading. Any effective reorganization will necessarily depend upon doing away with a good many ancient political easements and rights of way.

National Security Expenses

The overwhelming part of all our expenses goes towards the building of our own security and that of our friends in the free world. Currently some $57.7 billion is going for these purposes. Until this prodigious total can be reduced, we clearly are not going to be able to live within our means, no matter how avidly we may yearn to do so. It is misleading and even fallacious to assume that some magical cutoff point awaits us a couple of years hence.

The bald fact is that we are launched — and not at our volition — on the most gigantic arms race in history. Our military leaders have set certain minimum goals for 1955. But that does not mean that the race will necessarily be over by then. By 1955 there will be new goals, to be determined by what the Soviets do during the next three years. The very essence of any arms race is to outdo the opponent in acceleration.

There is, moreover, a special factor in the current arms race. We are living through two major technological revolutions in warfare: the use of atomic energy and the development of guided missiles. A high rate of obsolescence is characteristic of any technological revolution. Within five years’ time the air force we are building at such tremendous cost in 1952 may well be obsolete. As the tactical use of atomic weapons becomes more general, much of our present armaments will become obsolete. Consequently, for years after the present build-up is completed, enormous revenues might well be absorbed in a major re-equipment program. Yet we cannot remain unarmed until the technological revolution is completed. Nor can we cease aiding our allies, who are of course confronted with precisely the same problems and with the same probability of great re-equipment expenses.

In the face of these staggering armament facts, can we hope to survive without becoming a garrison state? There simply is no final answer. But there are fundamental conclusions at which we can arrive and which bear directly on our financial outlook.

So long as the armament race continues, a major hope of really living within our means, even with present high taxes, lies in getting more defense per dollar spent. This was important three years ago when we hoped to stabilize military expenses at $12 billion a year. It is imperative when we find ourselves spending nearly $60 billion.

Determining the maximum military strength that can be bought with the defense dollar is a difficult and intricate task for a skilled professional. But even the layman can be concerned with some compelling aspects of this problem. One of these is tlie exceptionally low ratio of men in combat to the total number of uniformed men used to support them — a lower ratio than in any other great army of modern times. Are we, with all our pride in the productivity of our labor in industry and agriculture, to admit a lower output per man-hour than the Soviets in the vitally important business of defense? Not only do we, with our far smaller population than the Soviet Union’s, appear to make less economical use of our military manpower, but our cost per man in the defense establishment is far above that of any other in the world. If we are to survive the cold war, we must achieve the same superior efficiency in defense that our productive labor force, more abundant capital equipment, and greater technical skill have achieved in our normal economy.

One direction in which to start is to review more carefully our personnel and materiel requirements and to institute economy-minded procurement.

Fundamental to any betterment at all is economizing on manpower behind the lines. It is not presumptuous to suggest that we ought to be able to get supply, engineering, and communication functions carried out with less manpower than other nations devote to similar tasks. Many if not most of these are, after all, functions that have fairly exact parallels in American industry, which yields to no nation in its output per man. Even at the front line, present organization may not be the optimum. Our infantry battalion has many more in headquarters and service functions than has a Soviet or British formation. A nation short on manpower but long on brains has to rely on skill in organization to overcome the shortage.

The same sort of talent needs to be applied to the problem of equipment. Indiscriminate saving on military supplies is clearly foolhardy. At the same time, the practice of designing equipment to be “the best” with no regard to cost is a great practice of luxury. The quality of a military product, once minimum requirements are met, is related to whether further perfection is worth the additional cost. An automobile company bringing out a new car specifies to its engineers minimum size and performance requirements without sacrifice of fundamental quality; but it also gives them a cost ceiling. Without the latter discipline, engineers told to design the best car possible to meet the specifications would come up with something 50 per cent or even 100 per cent more costly. And it would take them much longer, too, because they would naturally want to take advantage of every technological innovation that might be lurking around the corner.

On the other hand, the necessity to weigh the value of every improvement against the cost has resulted in better cars more cheaply produced. What it boils down to, in terms of defense equipment, is the need for appraising weapons so that possible improvements are considered, not against a yardstick of perfection, but according to whether the improvements represent a better use of the money involved than spending the same amount for some other purpose.

Related to this is a more satisfactory adjustment of the pace at which the old is thrown out as the new is adopted. The cavalry and coast artillery lived on in national budgets well after their usefulness had ended, a not unusual example of overlooked obsolescence. We cannot afford to spend the vast sums needed to develop and adopt new equipment and at the same time cling nostalgically to the outdated and superfluous. Economizing on a national scale requires hard choices, The military cannot insist on having things both ways without wasting both manpower and money.

Finally, there is the old difficulty of defining the strategic tasks of the three services. The supposedly unified military establishment still has two navies, two armies, and three air forces. There is increasing rivalry over the development and control of guided missiles. The Air Force is charged with being insufficiently attentive to the tactical support of ground troops. There have been differences over antisubmarine warfare. And if there is unnecessary duplication in the strategic air arm and the supercarriers, we are wasting billions.

No layman can give the answer to these problems; but he can recognize in them plenty of ways to get more defense for his dollar. Again, however, he must remember that even if a cut of as much as $20 billion could be made—over a third of the total for national security — our economy would still be under stress and our budget would still total $60 billion.

The Prospect Before Us

This examination of general government expenses and military expenses suggests that considerable savings and much more efficient use of the defense dollar can be effected. What is equally important is a major, inescapable conclusion: the United States cannot live within its means under conditions favorable to the survival of a free society until genuine peace prevails in the world.

With such a peace, defense expenditures could be safely reduced to $20 billion annually or less, a reduction of two thirds from the present level. Without such a peace, factors far beyond our control will largely determine our course and our economy.

There is no question that the leaders of the Kremlin are the most powerful influence in our fiscal problems. As long as they cling to their notion of forcing their way of life on the rest of the world, we are going to have to strain our resources, our pockets, and our national will to the limit. For there can be no real peace until this policy of conquest is changed to one of live and let live.

We can hope for such a shift of policy only through a positive program based upon present realities. Our military strength must be so built up that the Communist leaders can have no choice except to abandon any plan to dominate the world by arms. We have to convince them, too, that they cannot take over the world nation by nation through dividing and inciting. We must persuade them beyond any doubt that this time the free nations are going to stick together and work together. Finally, we must make it plain to the Soviet people, and to any Soviet leaders open to conviction, that we in America and in other free nations really want peace.

The prospect of living within our means, marked against this horizon of uncertainty and dreadful challenge, is dim and distant. It will come closer as we come closer to a genuine and durable peace, and no sooner. Our program is not easy even though the goal is clear. But if any generation of Americans, present or future, is to have the satisfaction of living within its means, it is a program we must fairly start and patiently pursue until the goal is reached.