SOMEONE ought to remind Washington budget cutters what happened to the American economy back in 1929. There is a danger that forgetfulness now will lead into duplicating what happened then.
To begin with, the stock market crash and the Great Depression that came with it was caused by a combination of two conditions, the first of which we already have now and the second of which can too easily appear.
In 1929 the United States enjoyed enormous productivity. The markets were bursting with every conceivable variety of goods. But as productivity rose, public buying power shrank. Labor-saving machinery had unrolled across both the factories and farmlands of America. One of the great historic migrations flowed West as the dispossessed from farms and the unneeded from factories in the East moved anywhere they might somehow do better.
Ingenuity displaced labor
When Franklin Delano Roosevelt became president in March 1933, there were approximately 10 million people in the ranks of the unemployed. They had been made unneeded by cotton pickers, corn huskers, grain combines, and scores of other machines. Human ingenuity had reduced the need for human labor.
But American political ingenuity had not faced up to the problem, indeed, did not even recognize the existence of the problem. Who was to buy the products of the more efficient farms and factories? A man who is unemployed has no income. A man who has no income has no purchasing power. Those 10 million unemployed were subtracted from the ranks of buyers. America in 1929 was bursting with goods and starving for buyers. The economy collapsed for want of buyers.
Roosevelt's great innovation was to revive the purchasing power of the unemployed. We tend to think of the New Deal ''safety net'' - that complex of devices for helping people out of unemployment, out of misery - as having been set up for humane reasons.
There were humane reasons behind what was done, but the economic effect was just as important. The ''entitlement'' programs so criticized today put money back into the hands of plain people, making it possible for them again to become consumers - of food, clothing, housing, even entertainment.
We are now in a period of rising productivity and growing redundancies. Industry is ''downsizing'' in order to become more efficient. This in itself is a good thing. But it leaves a problem for the politicians. Most of the 40,000 men and women being laid off by AT&T have homes, spouses, children, and bills to pay. Unless they can find other jobs they become unemployed, and therefore a drain on the economy instead of contributors to it.
A warning to Congress
If Congress actually cuts back heavily on entitlements at the very time when industry is steadily downsizing, then the United States will be moving into a repetition of 1929, when shrinking consumption took the ground out from under rising production.
Washington has been warned. Retail sales were slack during the Christmas season. Stores and shopping malls were bursting with goods. But buyers were too few and their purses were too shallow. People were being careful. Too many of their friends were out of work. They had to think about saving for the time when they too might be looking for another job.
William F. Buckley, the prime philosopher of today's new political conservatism, once mused about the possible desirability of a guaranteed minimum income for every American. Perhaps something along that line ought to be explored now.
The eager budget cutters in Washington should realize that every time they cut back a ''welfare'' program they are also cutting down the market for American goods.