Notes on the U. S. Political Economy

The 1960-61 recession has displayed two contradictory characteristics: it has been the mildest postwar recession when measured in terms of the cutbacks in output, capital investments and inventories, but the worst in terms of unemployment and business failures.

The paradox has its origin in the stabilization policies of the Federal Government. These policies have been concerned with the volume, but not the direction, of the flow of funds going to or emanating from the private sector of the economy. In times of recession, budget deficits have, in effect, swelled the cash holdings of businesses and households. The increased total of unemployment compensation and social security payouts (related to earlier-than-intended retirements) has helped maintain aggregate consumer purchasing power. Easier credit has supplemented budgetary deficits. Acceleration of Government contract awards has also acted as a brake on over-all recessionary trends, and has in large part been responsible for eventual upturns.

The fiscal and monetary policies of the Government have thus far in the postwar period undoubtedly helped in dampening cyclical fluctuations. The business cycle being itself an “aggregate” of a vast series of...