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Recession of 1953

Although the end of the Korean War brought a reduction in defense spending, revenues also dropped and deficits in both the full-employment and actual budgets continued in 1954. The previously scheduled lowering of tax rates reduced full-employment revenues by only $1.2 billion and the deficit in the full-employment budget fell dramatically. In contrast, the reduction in actual revenues was $6.3 billion and the deficit in the actual budget fell little.

The difference between the two reductions, $5.1 billion, can be attributed to the lower taxes collected as the result of the recession. Thus, just as in 1949, a recession period was characterized by a much larger deficit in the actual budget than in the full-employment budget. The change in the actual budget, from a deficit of $7.1 billion to one of $6.0 billion, however, misleadingly suggests that fiscal policy was only minimally less stimulative in 1954 than in 1953. In contrast, the change in the full-employment budget, fran a deficit of $8.1 billion to one of $1.0 billion, shows that the degree to which fiscal policy exerted a contractionary effect was actually much greater. Once again, rather than the recession occurring in spite of the large actual deficit, the recession caused the large actual deficit.

The recession ended in May 1954. Since 1955 and 1956 were years in which the unemployment rate was near 4 percent, the actual and fullemployment budgets were in surplus, and the values of the two surpluses were very close.

The recession of 1953-1954 dramatized the impact of technological change on particular areas of the country. The use of alternate fuels condemned to idleness many of the nation's coal areas, both anthracite and bituminous. The movement of textile manufacturers to the South silenced the looms that were the life line of New England. The geographic concentration of industries such as these exacerbated the influences of automation and frictional unemployment. While unemployment rose across the board in the 1950's, workers in areas of substantial labor surplus accounted for nearly one-third of the unemployed, even though they represented only one-fourth of the nation's labor force.

In the case of coal, when demand declined or when machines replaced the miners, the effect was community-wide. Areas such as the mining towns of Pennsylvania and West Virginia lacked the diversified economic environment that afforded alternate opportunities for employment. Furthermore, most other businesses in the towns were dependent upon the major industry. Thus, not only workers but shopkeepers as well felt the impact of changes in the industrial structure and faced the prospect of economic decline.

The initiative for a solution to the plight of depressed areas came from Congress. While several legislators in the mid 1950's presented depressed area legislation, the most important of these was offered by Senator Paul Douglas (D-IL). Seeing the economic decay of the southern coal regions of his own state, Douglas believed that only the federal government could confront and conquer the problem.

Dissatisfied with the inaction of the Eisenhower Administration on the issue, Douglas gained the support of the Democratic faction of the JEC, of which he was chairman. Working together, they recommended a comprehensive program of assistance to depressed areas. Douglas submitted his original bill on the matter on July 23, 1955. Realizing the necessity for some action, the Administration submitted its own bill for area redevelopment shortly thereafter. Yet, critical, almost irreconcilable differences prevented the enactment of any legislation on the issue for the next six years.

The core of both the Douglas and Eisenhower programs was federal assistance to industry. The Administration bill (S. 2892) manifested the Eisenhower concern for limited federal participation in local affairs. It called for the establishment of a $50 million revolving fund to provide loans for new or expanding industries in depressed areas. In contrast, the Douglas bill (S. 2663) exhibited a concern with other factors that contributed to economic growth. It included: 1) a $100 million loan fund for new or expanding industry; 2) another $100 million fund for the construction of public facilities; 3) a program to retrain workers, with extended UI benefits; and, 4) tax amortization for industries that settled in depressed areas.