Eckstein Sees Deep Recession If Not Tax Cut, Spending Hike

Otto Eckstein, professor of Economics, told the Senate Budget Committee Wednesday the unless the government immediately takes strong stimulating measures the economy will quickly slide into its worst post-war recession.

"The economy is sinking like a stone, in its fastest rate of decline since the 1958 recession and it looks like this one will be at least as bad, if the administration continues its present anti-inflation campaign," Eckstein said last night.

Eckstein proposed that the government stimulate the economy through a combination of tax reduction and spending increases amounting to at least $25 billion.

He also proposed that the Federal Reserve Board allow the money supply to grow at a 9 per cent rate. Eckstein said the present target rate of 6 per cent and realized rate of 3 to 3.5 per cent are inadequate and further declining growth rates.

"There is a gap between actual and potential full-employment GNP of from $50 to $75 billion," Eckstein said. "Even taking the conservative figure and a multiplier of around two, the stimulus has to be at least $25 billion, not the $4 or $5 billion the Administration is talking about."

Eckstein said his proposals would not "fan the fires of inflation," as some senators feared.

"We are headed for a recession so deep that there won't be tight markets and the trade-off will be between one per cent decreased unemployment and only one-half or three-fourths per cent inflation," Eckstein said.

There is no way to get inflation down to low numbers in one year "no matter what," Eckstein said, so the administration should take action to avert a disastrous recession.

"I've been going down [to Washington, D.C.] to talk to committees for years now, and for once I think the politicians are starting to listen to the econometricians--there were six senators who showed up for the presentation instead of the usual one," Eckstein said.

Arthur M. Okun, senior fellow of the Brookings Institution, and Murrary L. Weidenbaum, professor of Economics at St. Louis's Washington University and a former Nixon administration assistant secretary of the Treasury, joined Eckstein in the budget committee presentation.