/specialCollection/BerlinWall/1961-Summer/1961-07-12c.pdf

Read from the scan by GLM-OCR; expect the odd misread word.

# SECRET

# Appendix A

## C. The Korean Experience

Economic developments in the first half of 1950 and the spring of 1961 display many resemblances. Then, as now, there was a rapid recovery from recession. The 1948-49 recession ended its eleven-month life in October 1949; the trough of the recent slump was in February 1961. The 1948-49 and 1960-61 recessions were comparable in size; Gross National Product in constant dollars fell 2.3 percent from 1948-IV to 1949-II; the decline was 2.1 percent from 1960-II to 1961-I. The drop in industrial production amounted to 8.4 percent in 1948-49; in 1960-61, it was 8.0 percent. The percentage rates of unemployment (as a percentage of the civilian labor force) were strikingly alike: 6.8 and 6.9 for 1949-III and 1949-IV, respectively, are matched by 6.8 and 6.9 for 1961-I and 1961-II. The levels of unemployment indicate that slack in the use of labor was equally large in October 1949 and February 1961.

Figures on capacity operating rates in manufacturing, however, indicate that underutilization of capital was considerably more marked at the 1961 trough. Eight months intervened between the trough of the 1948-49 recession and the North Korean attack. Meanwhile, output gained very sharply. Real GNP posted gains of 3 percent in each of the first two quarters of 1950. Industrial production rose 15 percent from December 1949 to June 1950. In the second quarter of 1950, unemployment was down to 5.7 percent of the labor force. Thus far, 1961 has had four months of expanding activity. From March to May, industrial production matched the pace of the 1950 expansion; the rise in real GNP in the second quarter was a healthy 2 percent, but did not equal the rate of increase of early 1950. Unemployment has shown virtually no improvement to date and remains 6.8 percent of the labor force. The greater unemployment today, amounting to an extra one percent of the labor force, is evidence of far greater economic slack than existed in mid-1950. This is abundantly confirmed by Federal Reserve data on industrial output of major materials; in June 1950, production of these items amounted to 93 percent of capacity; the operating rate for May 1961 was 77 percent of capacity. Primary metals and coke production was at 97 percent of capacity in June 1950 in contrast with the May 1961 level of 68 percent. Full employment had not yet been achieved by mid-1950, but the distance to full employment was much shorter than it is currently.

The outbreak of the Korean War accelerated the growth of output and initiated a sharp rise in prices. In one quarter, from 1950-II to 1950- III, real GNP rose by more than 4 percent. The price index for GNP, which had remained stable through the first half of 1950, jumped by 2 1/2 percent in the third quarter. Developments in key economic magnitudes are shown in Table 2.