Prophets of doom predicted that the United States could not escape a
runaway inflation during the war and an economic collapse after the war.
These predictions have not been borne out. On the contrary, the record of
economic stabilization during the war and during the period of reconversion
has been an outstanding accomplishment.
We know, however, that nothing is as dangerous as overconfidence, in war or
in peace. We have had to fight hard to hold the line. We have made
strenuous efforts to speed reconversion. But neither the danger of a
postwar inflation nor of a subsequent collapse in production and employment
is yet overcome. We must base our policies not on unreasoning optimism or
pessimism but upon a candid recognition of our objectives and upon a
careful analysis of foreseeable trends.
Any precise appraisal of the economic outlook at this time is particularly
difficult. The period of demobilization and reconversion is fraught with
uncertainties. There are also serious gaps in our statistical information.
Certain tendencies are, however, fairly clear and recognition of them
should serve as background for the consideration of next year's Federal
Program. In general, the outlook for business is good, and it is likely to
continue to be good--provided we control inflation and achieve peace in
management labor relations.
Civilian production and employment can be expected to increase throughout
the next year. This does not mean, however, that continuing full employment
is assured. It is probable that demobilization of the armed forces will
proceed faster than the increase in civilian employment opportunities. Even
if substantial further withdrawals from the labor market occur,
unemployment will increase temporarily. The extent to which this
unemployment will persist depends largely on the speed of industrial
expansion and the effectiveness of the policies of the Federal Government.
Along with extraordinary demand there are still at this time many critical
shortages resulting from the war. These extraordinary demands and shortages
may lead to a speculative boom, especially in the price of securities, real
estate, and inventories.
Therefore, our chief worry still is inflation. While we control this
inflationary pressure we must look forward to the time when this
extraordinary demand will subside. It will be years before we catch up with
the demand for housing. The extraordinary demand for other durable goods,
for the replenishment of inventories, and for exports may be satisfied
earlier. No backlog of demand can exist very long in the face of our
tremendous productive capacity. We must expect again to face the problem of
shrinking demand and consequent slackening in sales, production, and
employment. This possibility of a deflationary spiral in the future will
exist unless we now plan and adopt an effective full employment program.