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2. DIRECT MEASURES

When a recession begins - as happened in thc past months, com-pletely in accord with the forecast of the Institute for Economic Studi-es presented in the Federal Exeeutive Council memorandum - it would be mistaken and extremely dangerous to deepen it by radical reorganizations such as was done in 1961 and 1965. The first task of current economic policy is the halting of the recessive movements on the highest possible level. This can be achieved in the following way:

1.    The appearance of disproportions between supply and demand which inevitably lead to cumulative slowing down of aggregate demand must be prevented. This means that the investment, consump-tion and export markets have to be brought into equilibrium by special measures.

2.    With respect to the investment market, a scries of measures are possible, of which the most important are three:

(a)    Leave the interest on business Capital to enterprises as funds earmarked exclusively for investment.

(b)    Engage construction capacities with housing construction, im-provements and road building. These three activities have the minimum import content and therefore their development represents the most suitable instrument for maintaining an expansion without burd-ening the balance of trade. In connection with housing construction it is worth observing that after the reform the share of individual sav-ings in the country's monetary accumulation in housing tripled (from 9°/o in 1964 to 27% in 1968). Those are significant funds which could be channeled into housing construction by means of well organized mortgage credit.

(c)    Enable the formation of current inventories in enterprises by credits. Accumulation of inventories in recession and decumulation in the upswing represent a spontaneous anticyclical reaction of work collectives.

3.    Vigorously support export expansion by export credits, exchangc ratę ingredients (tax rebates, transport preferentials, etc.) and, where necessary, by premiums.

9. Increasing investment and export demand make possible increas-ed employment in those two sectors, which along with unchanged average personal incomes leads to increased consumption demand. Eventual corrections can be carried out by means of consumer credit. An increase of aggregate demand makes possible an increase in pro-duction, which leads to an increase in productivity of labor which again makes possible raising of personal incomes along with unchanged prices. I must warn that the consumption market cannot be maintained in equilibrium by directly increasing personal incomes without all of the cited intermediate steps, for that would lead to inflation (of the so-called cost-push type).

5. An increase of the foreign trade deficit is not a reflection of »living beyond one’s means«, as is commonly thought, but the retlec-tion of systematic defects and mistaken economic policy. Wages in

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