Committee on Economic Security (CES)
Volume VI. Social Insurance
J. Economic Reform and Security Proposals
THE DEANE PLAN
G. Reginald Crosby
To: Alex Nordholm
From: Reginald Crosby
Subject: THE DEANE PLAN
Little is to be gained by entering upon detail discussion of the lesser points of the Deane Plan. More important than the technical difficulties of initiating the plan are the fundamentals of the scheme itself. The following list of difficulties challenge the ideas of Mr. Deane's project.
- The plan is unreal, fantastic, and lacks objectivity because it is premised on a group of hypotheses and assumptions concerning which there is no uniformity of agreement even among the best informed. No matter how logical the scheme itself may be and no matter how much statistical data may be mustered to its support, its fundamental soundness can be no more correct than the unverified and unverifiable hypotheses on which the objective superstructure is built.
- In general the plan fails to consider the significance of time sequences in economic life.
- The significance of varying lags between prices, wage rates, hours of labor, production, consumption, marketing, etc. are not considered.
- No consideration is given to the frictions that cause lags and maladjustments in economic life.
- The plan presumes that a single monetary adjustment on the basis of the hours of labor will serve (almost) the multiple economic ills of American economic life.
- The philosophy of the plan is debatable in that it would "guarantee jobs for the worker" (any kind of job at any kind of wage) and "guarantee market for industry" (always a profitable market). Yet, apart from this emphasis, the plan does not actually guarantee a continuing profitable market for industry.
- The adjustment mechanism of the plan is concerned only with the hours of labor and disregards the real significance of changes in wage rates per hour.
- The braking effect of double time payment for overtime is to be doubted, because of changing relations of hours worked, unit costs, wage costs and prices, because of lack of information about the use of the Insurance Fund, because of changes in the ten year average.
- The fundamental corrective of maintaining purchasing power of the masses is not applied until economic activity has gone into recession.
- The plan, as illustrated, hypothecates a seven year cycle, portrays a sine curve for the cycle, predicates current knowledge of the present ten year average, ignores the certainty of changes in the ten year average, evidences confusion between hours worked, purchasing power of the worker, consumption of goods.
- The plan presumes that work should be spread.
- The plan presumes that it is cheaper for the employer to spread work by hiring new men than it is to work overtime.
- The plan contemplates no changes in the spending habits of the workers and assumes that whatever purchasing power they receive will be spent and spent immediately.
- The plan proposes to operate in one stage of the cycle by decreasing purchasing power, reducing production and reducing employment.
- The plan is based on a direct relation between man-hours of labor and balanced production and consumption.
- The emphasis of the plan is on the supplemental compensation. This is a subsidy to consumption. The plan seeks this objective of subsidizing consumption in an extraordinarily round-about fashion.
- The plan assumes that the amounts paid into the Insurance Fund is prosperity on account of overtime will be sufficient to pay the entire wage bill of the "Civil Work" program and to pay all supplemental compensation to workers.
- The plan practically maintains that smoothing the hours of labor is the same thing as smoothing the cycle curve.
- The plan offers nothing to the solution of its own diagnosis of the
major cause of business cycles, i. e. over-investment
Initiation of the Deane Plan
- In its initiation the Deane Plan introduced today is an outright subsidy to consumption.
- The plan is so tied to work and lack of work that its introduction today could mean but one thing, i. e. paying workers for what they do not do, not for what they do. There are better and cheaper ways to do this than by the Deane Plan.
- Instead of guessing the averages and guessing at the "percentage by which it is desired to increase primary effective purchasing power," it would be better to support consumption outright.
- How can the "extent to which it was desired to increase effective purchasing power immediately "be objectively determined?"
- The initiation of the plan would not only require the payment of supplemental compensation to those qualifying in private industry, but would require the employment of all unemployed employables on preplanned public works within 90 days of the passage of the act. How would the total cost of this program be broken down? How much would it be for each breakdown? How would it fluctuate from month to month until expenditure on these accounts should cease?