Chart 5 (derived from table VII, column H), presents in different form the principles just mentioned. Whenever the heavy line representing the ratio of actual to logical average hourly earnings rises above the shaded area, danger threatens. If the ratio remains above 1.05 for any considerable length of time, unemployment is almost certain to increase. Here we have a warning signal that should be heeded by both statesmen and labor leaders, for, if they take no notice of it, they will soon find themselves blamed by their constituents for the hard times that develop.

The following conclusions may legitimately be drawn from economic principles previously worked out and from the data presented in the accompanying tables and charts:

1. Factory wage rates from June to December 1948 were right in line with available new spending power. Therefore, claims that wages in manufacturing industries were then unreasonably high are not supported by the data. The recession which has recently been developing cannot, therefore, be justly ascribed to overreaching by unions of factory workers,

2. Table V shows that gross new spending power has shrunk materially since December 1948. Prices of farm products have broken sharply, and recent Government sample data indicate that the price level in general is declining. Those who were clamoring loudly for lower prices now discover to their chagrin that a falling price level normally spells unemployment and less money in the pay envelopes. If large-scale unemployment and depression appear, the blame rests primarily upon the Federal Government for failure to plan in advance the measures necessary for stabilizing the price level.

3. If gross new spending power continues to shrink, and if, on account of inertia or because of wage maintenance by the labor monopolies or by governmental fiat, wage rates do not fall in proportion to the decline in gross new spending power, unemployment is likely to grow rapidly, and it may reach serious proportions.

4. If, in the face of a decline in gross new spending power, the labor monopolies force wage rates up to levels materially higher than those now existing, the present mild recession may well be changed into a major depression. If this happens, both pay rolls and profits will probably shrink greatly.

HOW TO MAINTAIN FULL EMPLOYMENT

In view of the facts above stated, it appears that there are two possible ways of preventing any serious recession from getting under way. One way is for labor unions to cut wage rates, and for all producers to cut selling prices as fast as new spending power declines. To get thousands of people to do this is extremely difficult if not impossible. The other method is for the Government to keep the price level stable by adjusting rediscount rates at the Federal Reserve banks and using open-market operations extensively. This is a relatively simple procedure, which, if authorized by Congress, could easily be carried out.

DESIRABILITY OF REDEEMING PAPER IN GOLD AND SILVER

As a safeguard against inflation, all paper money should at all times be kept redeemable on demand in either gold or silver at option of the holder, but the quantity of gold or silver obtainable should be adjusted from time to time, as the value of the precious metal in terms eof goods in general varied. Such adjustments would, under normal circumstances, be slight, but it would guarantee that stability in the price level would continue year after year and decade after decade.

OBSTACLES TO FULL EMPLOYMENT MAINTENANCE

But maintaining stability in the prive level will not assure full employment if wage rates rise above the level justified by production.

There is, of course, grave danger that the union leaders will work vigorously for a fourth round of wage increases and that, as in the 1930's, the Government will also unwittingly intensify the depression by indulging in price-fixing pro

2 Those interested in a detailed discussion of the measures essential if depressions are to be prevented are referred to the following books by the present writer:

The Causes of Economic Fluctuations (Ronald Press), chapters 14 and 15.

The Keys to Prosperity (the Constitution and Free Enterprise Foundation), chapters XII to XIX. (Distributed by the Committee for Constitutional Government, 205 East Forty-second St., New York 17, N. Y. Price, cloth $4.)

grams, minimum-wage legislation, unemployment insurance, and relief spending. It appears, then, that responsibility for maintaining full employment is divided among Congress, the President, and top labor union leaders. Whether they will act to aggravate the decline or protect the public remains to be seen.

SHOULD EMPLOYERS INSURE THEIR EMPLOYEES AGAINST OLD AGE AND DISABILITY? (By Dr. Willford I. King)

WHY IS DISABILITY INSURANCE NEEDED?

The question may well be raised as to why disability insurance is needed in a prosperous country like our own in which the ordinary working man can, if thrifty, accumulate a competence sufficient to provide for his declining years, and in which the children, when grown, are usually able to support their parents comfortably. As I see it, however, there are, even here, a number of sound reasons why every gainfully occupied person should have such insurance. Among these reasons are the following:

1. No one knows when accident or disease may destroy partially or completely his earning power, and, if misfortune overtakes him, it is far better for him to receive a regular disability allowance than for him and his family to be compelled to turn for support either to his relatives or to charity. The latter is a most unpleasant alternative.

2. The thrifty man who has saved carefully to provide for his declining years may, when he becomes too old to work, find that he has invested unwisely, and that, therefore, his investment income is entirely inadequate for the support of himself and his wife. He may have no living children, and hence have no recourse except to apply for charity. He is thus humiliated and made miserable-a fate which he does not deserve.

3. Many of those now receiving satisfactory incomes are lacking in foresight, and believe in letting tomorrow take care of itself. Therefore, they use up each month all that they earn, and, when the rainy day appears, look to charity or government for their support.

This means that they become parasites unfairly extracting their sustenance from the thrifty members of society.

WHY COMPULSORY RETIREMENT IS ANTISOCIAL

At present, union leaders are commonly demanding retirement pensions for all workers who attain a given age-usually either 60 or 65. Such a system merits the most vigorous condemnation, for it is thoroughly antisocial in nature Two reasons why this is true are:

1. It deprives society of the products which the retired person ought to be turning out, thus lessening the national income. As improved health conditions increase the percentage of the population made up of elderly persons, and lengthen the average span of vigorous life, this factor becomes more and more important. Therefore, every effort should be made to keep our older people self-supporting as long as possible. There is no sound reason for allowing a man to sponge his living off younger people when he is able to earn his own livelihood. This, of course, does not imply that the man who has the means to pay his way and prefers to retire early ought not to retain the right to do as he pleases with his own money. But he has no right to call upon the public for support.

2. The average man's major interest is in his work. Therefore, to induce him to retire at an age when he is still vigorous is to condemn him to a miserable existence. I am unable to cite dependable evidence, but it is asserted that some statistics somewhere show that retirement shortens greatly the lives of its victims. To me it would seem strange if this were not true.

I can see no justification for punishing those who have served society well for a long time. Instead, every effort should be made to keep the elderly people usefully employed as long as they are able to work.

WHO OUGHT TO PROVIDE DISABILITY INSURANCE?

But, eventually, many employees become disabled, and many of them will be in dire straits if they have no insurance. Is not the employer the logical person to see that such insurance is provided? As Professor Carroll R. Daugherty, now

a member of the President's Steel Board, has pointed out, the worker, like a machine, eventually wears out. He suggests that the employer therefore set aside a depreciation fund for employees as well as for machinery. Is this conclusion logical?

Before subscribing to this idea, it may be well to consider the following highly pertinent facts:

1. If you hire a man to mow your lawn once, does this obligate you to pension him for the rest of his life if he becomes disabled? If not, just how long must he work for you before you become so obligated? A month? A year? Thirty years?

2. If insurance extends only to long-service employees, what protection does the short-term employee have if he becomes disabled?

3. If obligation ceases when employment ends, how can one prevent the unscrupulous employer from discharging aging employees who are likely to become disabled?

4. Employers in industries that are monopolized by huge labor unions, and which turn out products which, like coal, have demands which are very inelastic, may successfully pass insurance and pension costs on to their customers. By contrast, any employer in a highly competitive field who insures his employees while his competitors do not must pay the cost himself, and such additional expense may well make it impossible for him to continue in business.

5. If the employer himself carries the insurance liability and he fails, his employees are left entirely unprotected when old age or sickness disables them. That this danger is very real becomes evident when the fact is considered that, in 1932, more than 31,000 concerns failed, and, even in prosperous 1941, nearly 12,000 went to the wall. The current failure rate is approaching that of 1941.

6. If the employer gives the employee permanent insurance with an insurance company, the employer loses the advantage of reducing labor turn-over. If the employer provides only term group insurance, the employee is left unprotected when he becomes old and disabled.

7. If the insurance provided by the employer is substantial enough to provide an adequate livelihood for a disabled employee and his dependents, the cost will deter the employer from hiring anyone who is weakly or aging. Therefore, the tendency is to keep unemployed all but the healthy young. Our population is aging rapidly. Nothing can be much more antisocial than a policy which compels the diminishing youthful segment of the population to support the increasing segment of oldsters-and to support them in a state of disgruntled, complaining idleness.

In view of all these facts, it seems fairly clear that employers are not the ones to furnish disability insurance. The insurance ought to be carried with regularly established insurance companies, and ought to be paid for entirely by the persons insured. In order to safeguard the public against the burden of caring for the thriftless who become disabled, the carrying of such insurance by all gainfully occupied persons should be made compulsory by law.

NATURE OF LEGISLATION NEEDED

The law should prescribe a standard insurance policy contracting to furnish the following benefits:

1. Compensation for loss of earnings during periods of disability. In case of total disability, the amounts paid should be sufficient to provide a rather meager scale of living for a family of four.

2. Ward hospital service.

3. Medical service at specified moderate fixed fees for each type of service rendered.

4. A moderate fixed amount of life insurance (say, $4,000). This minimum policy would be compulsory. Those desiring to do so should be allowed to contract for additional benefits to any extent desired.

HOW TO KEEP PREMIUMS AT A MINIMUM

Obviously, the premium payments on such a policy would not be negligible in amount, hence every effort should be made to keep them as low as possible. The cost could be kept down by providing in the policy that:

1. The amount of life insurance now carried with approved companies, the premiums on which insurance were paid up to date, could be credited against

94422-49-pt. 2-22

the total required by the new law, arrangements being made for keeping future premiums paid when they came due.

2. All social-security contributions made, to date, should be credited against the cost of the new policy.

3. No benefits should be paid for disability lasting less than 15 days. 4. In the case of partial disability, the fraction of full benefits paid should equal merely the fraction of earning power lost because of the disability.

This last proviso is extremely important. Today improved medical care enables many men to retain health and considerable vigor until they are perhaps 80 years of age. Therefore, any policy which guarantees that a man who reaches the age of 65 will receive a pension adequate to support him and his family is certain to be very expensive indeed. By contrast, a pension providing for partial disability benefits might require no payments before the insured was 75 years of age, and might not call for 100-percent-disability benefits until he was 85 years old. Making the benefits proportionate to disability would, therefore, greatly reduce the sizes of the premiums required to provide really adequate protection when it was genuinely necessary.

CAN THE AVERAGE WORKER AFFORD DISABILITY INSURANCE?

It may be contended that any adequate disabiilty insurance will cost more than the ordinary workman can afford to pay. I am not an actuary, but I do not believe that this assertion can be substantiated-especially if the insurance system were to be put upon the scientific basis here suggested. Todoy, the real hourly wage of the average worker is at least four times the size of the real hourly wage of his great grandfather, and if his great grandfather was an American, he did not often go hungry.

It appears, then, that the cost of the compulsory minimum disability insurance policy would take but a small percentage of the excess of the workingman's income above that required to provide adequate subsistence. Moreover, with such insurance in force, those people having jobs would be relieved of the expense of aiding relatives, and income recipients in general would not taxed to care for disabled persons supported by Government. Therefore, the only net burden which the universal disability insurance system would place upon society as a whole would be its cost of adminstration.

TYPE OF POLICY NEEDED

Since, as age creeps on, the disability rate tends to advance and earning power tends to decrease, the premiums on the insurance policy ought not to be in proportion to the current risk. Initial rates for boys and girls just starting work, and hence receiving low pay, might be kept below the standard level until their earning power approached that of adult workers. Furthermore, low-paid parttime workers and female workers not heads of families, might well be allowed to carry policies smaller than the minimum size required for the head of a family. It certainly would be undesirable to require the payment of the regular rate by workers whose earning power was declining because they were enfeebled by old age. Therefore, as in the case of a limited-payment life insurance policy, the standard practice should be to have all charges on the policy paid in full by the time the insured reached the age of 60 years-for, thereafter, his earnings would be likely to decrease, and this would make it more difficult for him to pay the premiums.

Of course, when the scientific system of disabiilty insurance was put into operation, the elderly workers would not possess these new paid up policies; hence, their monthly premium charges would tend to be heavy. However, those who had for many years been contributing to the Federal social-security fund would find that their credits from this fund would materially reduce the premiums which they must pay on their new policies. Furthermore, a considerable proportion of the elderly workers would possess paid-up life insurance policies carried with reliable companies. Crediting such amounts would reduce greatly the sizes of the companies. Crediting such amounts would reduce greatly the sizes of the premiums called for by the new policies.

Many thrifty elderly workers would have accumulated property enough to bring in considerable investment income. With the new insurance to take care of emergencies, this investment income would help to meet current expenses, and make it possible to pay the new premiums without causing undue hardship.

TREATMENT OF LOW-INCOME WORKERS

However, there would doubtless be some cases in which it would be impossible for elderly persons to meet the charges. Occasionally, also, one would find younger heads of families having earning power so low that they could not pay the required premiums and still exist. But, in case of disability, the need of such poor people for income would be much more intense than would the need of persons in the higher income brackets. What policy should be followed in such cases?

In those instances in which wage deductions to pay insurance premiums reduced the family income below the level necessary to provide a decent scale of living, the worker would perforce have to get aid from his relatives or apply to the local authorities for relief-just as distressed persons have been doing for years. Relief of poverty is not a proper function of the Federal Government. Getting unwarranted assistance from the local administrator may prove a bit difficult, and may undermine one's standing with his acquaintances. Grafting at Uncle Sam's expense is commonly looked upon as a legitimate sport.

THE UNEMPLOYMENT FACTOR

More important in setting up a workable insurance plan is the problem of how to safeguard the insurance fund against heavy premium losses during periods of unemployment. Probably the best way of combating this difficu'ty would be to require that the initial rate, and monthly premium be at least 50 percent higher than the regular rate, and that premiums be continued at this advanced level until the insured employee had accumulated an unemployment reserve equal to a year's premiums at the regular rate--this reserve to be kept intact unless the worker in question lost his job. Should this contingency occur, the reserve would be used during his period of idleness to keep his premiums paid in full. When the worker again found employment, he would be required to build the reserve up again until it once more equaled a year's premiums. If the insured person eventually became permanently disabled, any surplus remaining would become his property.

EVERY TUB SHOULD STAND ON ITS OWN BOTTOM

As previously stated, all gainfully employed persons and all other recipients of sizable incomes should be required to carry this disability insurance, for no one, rich or poor, can tell in advance who will need its protection at a later date. Every person should pay for his insurance at a rate estimated by competent actuaries to be adequate to cover its entire cost. The whole insurance set-up should be kept on a sound business basis with every taint of charity entirely eliminated except in those cases in which it proved necessary for the local authorities to supplement the incomes of workers in the very low income brackets.

The insurance fund should receive no contributions from the Public Treasury, and under no circumstances, should the employer pay any part of the premiums. Any governmentally managed insurance system which either apparently or in reality forces anyone except the beneficiary to pay part or all of the cost is almost certain to lead to waste and extravagance on a large scale, for people are always ready to be lavish with other people's money.

Unemployment insurance furnishes an excellent illustration of this general principle. Since the workingman does not directly pay the premiums, he looks upon the whole arrangement as a wonderful opportunity to get something for nothing. If he can get almost as much for idling as for working, he is careful not to find a job until his insurance runs out.

When he does not work, production declines and business lags. Everyone suffers.

Unemployment insurance kept British business in a depressed condition most of the 20 years between the two world wars.

Unemployment insurance helped to paralyze German industry, pave the way for Hitler, and thus bring on World War II. When next the demand for goods slackens seriously in our own country, we will probably learn first hand how destructive a Nation-wide system of unemployment insurance can be. and how foolish it is to maintain any insurance system in which the prospective beneficiaries do not bear the entire expense involved.