Evening star., 1948-12-16

uS0 ShsI "NSNHsS
OF Readjustment
Supply Seen Catching Up
With Demand; Will Mean
Return to Efficiency
By David Laurence
Several times since VI day econ
omists have noted the signs Of an
oncoming recession only to have
business squirt upward after a brief
lull This does not mean that the
signs were not significant or that
they were not as important as when
they appeared in previous situations
that might be termed comparable.
But 1t does mean that corrective
factors set in which changed the
picture and arrested the downward
trend.
Something of the same kind is
happening this month. Undoubt-
edly there are signs of diminished
employment and curtailment Of
business operations. They could be
significant Of a major change, but
the probabilities are that they are
indicative of the very process of
readjustment which has been going
on since the end of World War II.
The national economy Is operat-
ing today on volume of business
running from $225, 900, 100000 to
s250,OOO, 100000. Nobody alive today
has ever witnessed this experience
before, and history records none. Sc
what happens when such giant
economy gets a setback is entirely
different from what has happened
before. What would have been the
beginning Of a tailspin before is
taken in its stride by the national
economy.
Supply Catching Up.
There is a readjustment going on
In, every industry where supply is
catching up to demand. This,is oc-
curing in many lines. 1t means
that companies with a vanishing
backlog of orders now must do some
selling. They cease to be order
takers" rationing goods to favored
customers. From now on they turn
to normal operations. This means
a return also to efficiency and the
pruning Of expenses. 1t may mean
a reduction of profits, too.
One trouble about the profit fig
ures to date is that they have been
interpreted for ulterior reasons.
Labor economists, for instance, have
probably furnished the right facts
to their chiefs but the latter have
chosen instead to quote profit fig
ures as a justification for further
wage increases. Undoubtedly there
are businesses where the pay scales
are not as high as they should be.
But 1t is also true that most of the
profits recently came as result Of
abnormal sales volume. Once the
volume drops off, the fixed expenses
do not drop off correspondingly
Once the wage levels are held at a.
fixed point or increased In the face
Of declining volume of sales, the
drop of In profits can easily be so
large as to change the whole picture
for an otherwise prosperous COM
pany.
Already the so-called "break
even" point for many companies is
higher than at any point ever
reached before. This means that
the fixed expenses, including wages.
are so high that when volume drops
off it brings the red line OF deficits
too close for comfort. Economizing
is the immediate consequence.
Profits Tax Feared.
There is another side to the prob
lem-the case of the large profits
which are about to be taxed away
to get more revenue for the Gov
ernment. Fearing excess profits
taxes, many companies which have
been spending money for expansion
of facilities call halt to such plans.
This Is defationary and results in
cancellation of orders or withhold
ing Of contracts-and 1t affects en-
ployment very quickly. |
These readjustments are difficult
enough when natural factors, such
as supply and demand, are at work,
but when the impact of govern
mental action is added, the result is
hesitation and uncertainty and an
abandonment of expansion plans. 1t
probably will not be known for sew
eral weeks just how many billions
of dollars of work-and hence en-
ployment-were Cancelled by the
fears engendered since election.
Whether or not justified, such fears
have been spread and they have
done untold damage to many work
ers who are being laid of today.
Certain talkative leaders on the
radical side may honestly believe
themselves to be friends OF the
workingman, but they do not realize
how their reckless talk causes busl- |
ness uneasiness and holds up plan
ming in an otherwise fast-moving
economy.
Business will not develop re-
cession, because the money being !
spent for armament and for inter-
national aid-approximately S2l,-
600 900 ,0G0-is so powerful a force
in the stream of business that re-
adjustments in one line or indus
try cannot depress the overall pic
ture in another. The interdepend-
ence of industries Is more impor-
tant than ever before, but individ-
ual industries are in better shape
thanks to the profits of 1948 and
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