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FEDERAL EXPENDITURES FOR DEVELOPMENT OF
HUMAN RESOURCES, INCLUDING HEALTH, EDUCA
TION, AND SOCIAL SECURITY
R E L A T IO N S H IP OF H EA LTH , EDUCATION, AND SOCIAL
SEC U R ITY PROGRAMS A D M IN ISTER ED BY T H E D E
PARTM ENT OF H EA LTH , EDUCATION, AND W ELFA RE
TO ECONOMIC GROW TH AND STA B ILITY
Statement submitted by Marion B. Folsom, Secretary of Health,
Education, and Welfare
We welcome the interest which is shown in the economic significance
of health, education, and social security by your letter of August 2,
1957. Because the goals of the Department of Health, Education,
and Welfare, and of associated non-Federal organizations are ex
pressed prim arily in terms of human well-being and social progress,
there is inadequate understanding of the fact that their economic
values are of major import. A detailed staff analysis has been pre
pared of the relationship.^ of health, education, and welfare problems
and programs to the subjects of economic growth, stability, and stand
ards stated in your request. The statement discusses the interde
pendence of economic and social development at national, State, and
local levels.
This Department is participating in the examination by the joint
Federal-State Action Committee of the distribution between the
States and the Federal Government- of tax resources and of program
responsibilities (including health, education, and welfare). We are
reviewing the final report of the President’s Committee on Education
Beyond the High School and have initiated a long-range study by
outside consultants of our medical research programs. In addition,
this is the season when the President’s new budget and legislative
program is still being formulated. Consequently, the attached staff
analysis has been confined, with a few identified exceptions, to the
significance of current programs under existing intergovernmental
relationships.
863
864
ECONOMIC GROWTH AND STABILITY
I
n t r o d u c t io n
The objectives of the Department of Health, Education, and Wel
fare and associated non-Federal organizations are prim arily humani
tarian : the furtherance of education, improvement of health, strength
ening of the economic security of individuals and families, preven
tion and alleviation of distress, rehabilitation of the disabled, and
promotion of consumer safety. The agencies which make up this De
partm ent : the Public Health Service, Social Security Administration,
Office of Education, Food and Drug Administration, Office of Voca
tional Rehabilitation, and St. Elizabeths Hospital were created to
serve social goals. The most fundamental tests of the value and the
effectiveness of the programs of this Department are, therefore, in
terms of human welfare.
The economic values of health, education, and welfare programs
are also of major significance and, in fact, complement their social
objectives. This Department, therefore, welcomes the opportunity
afforded by the request of the Subcommittee on Fiscal Policy of the
Joint Economic Committee to describe the economic significance of
major programs administered by the Department of Health, Educa
tion, and Welfare (D HEW ) (and inferentially by associated State
and local public and nongovernmental organizations).
This statement intends to demonstrate the complementary relation
ships between economic progress and health, education, and social se
curity by discussing:
{a) Public expenditures for health, education, and welfare as
constructive investments in the protection and development of
human resources rather than as gross burdens on the national
economy and on taxpayers;
(6) Savings in manpower and money which can be realized
by prevention and prompt treatment, in contrast to the naive
assumption that cuts in such services are “savings” to the com
munity, and the savings through rehabilitation as contrasted to
relief—the “handup” rather than the “handout” ;
(c) Floors under the incomes of individuals as stabilizing ele
ments in national purchasing power;
( d) Contributions to productivity, consumption, and economic
growth of advances in health;
( e ) Education as one of the major sources of the creativity
and growth of modern American capitalism and as a means of
enabling each individual to develop his potentialities as a citizen,
producer, and consumer.
The above themes of social and economic development are presented
within a framework of political principles which are not a part of the
economic analysis as such but which are stated explicitly here for
purposes of perspective.
(a)
Two broad principles should guide health, education, and
welfare activities at all levels of government. First, govern
ment should serve as a mechanism through which the people can
achieve goals which cannot be reached through individual effort
or voluntary, informal cooperation. Second, public programs
should be designed to encourage individual self-reliance, initia
ECONOMIC GROWTH AND STABILITY
865
tive, and creative enterprise—reserving direct maintenance for
those who are necessarily dependent.
( b) The relationships between this Department and the nonFederal public agencies should be guided by three basic principles:
(1) Generally, the prim ary public responsibilities for
health, education, and welfare should be carried out by State
and local governments with the Federal Government in a
role of stimulation and technical assistance.
(2) Federal financial assistance for continuing support of
State and local government programs should be invoked only
when it is demonstrated that such aid is necessary to foster
and maintain adequate programs in areas of national interest
or that Federal support is essential to relieve an unreasonable
and unequal burden on State and local fiscal capacity, partic
ularly in the lower income States.
(3) Temporary Federal aid may be required to overcome
a large backlog of current needs in situations which are asso
ciated with national emergencies.
( c) Directly operated Federal programs should be undertaken
(1) m areas which are recognized from a constitutional and his
torical standpoint as ones of direct Federal responsibility such as
the safeguarding of foods and drugs in interstate commerce, and
(2) in areas in which there are compelling reasons for public
action but which could not be effectively and economically dealt
with on a State or local basis—as in the case of insurance against
loss of income in old age.
This statement will now take up the economic themes under the
major headings contained in the letter of August 2, 1957, from the
subcommittee chairman to the Secretary of Health, Education, and
Welfare.
S ig n if ic a n c e
of
P
H
ealth
, E d u c a t io n , a n d S o c ia l S e c u r it y
E c o n o m ic G r o w t h
ro g ram s to
The analysis in this part of the statement is in response to the sub
committee’s question concerning the relationship of the Federal Gov
ernment’s health, education, and social-security expenditures and pro
grams to the processes of economic growth in the private sectors of
the economy. The discussion also covers State and local governments
and nongovernmental organizations. Manpower and womanpower,
personal income, and capital outlay are the broad economic categories
under which programs are described.
Relationship to manpower and wonutnpower
Contributions of education to creativity and diversity of dynamic
economy.—An outstanding characteristic of American society is that
it places a premium on innovation and adaptability and on a restless
search for ways of doing still better what is merely “good enough.”
Economic aspects of this characteristic include a fast rate of obso
lescence, high mobility of labor among occupations and industries,
rapid growth of new industries, and a widespread readiness to experi
ment with new methods and organization in distribution and services
as well as with new equipment and processes in manufacturing.
866
ECONOMIC GROWTH AND STABILITY
A foundation education available to all is essential to continuously
replenishing the supply of the enterprising, the creative thinkers, and
the experimenters. This task of strengthening education at all levels
is the more important because of one serious lack which has been ex
hibited by American science and industry. Generally speaking,
America has not given the same prestige and support to basic research
and to the theoreticians in science as to applied science, engineering,
and business. This lack of balance has been obscured by the fact that
through American history brilliant scholars have come to this country
as immigrants and refugees. Their contributions to the development
of atomic energy, to mention but one example, are immeasurable.
The schools also have the mission of helping children develop into
mature men and women who are self-reliant with regard to their own
responsibilities, oriented toward enlightened self-interest in making
a living; knowledgeable in methods of voluntary action in nongovern
mental community agencies, and equipped to make sound decisions as
citizens on questions of governmental actions in economic matters.
Intangible though these values are, they are essential to the con
tinued vitality of free enterprise and to responsible capitalism.
School systems which are even partially successful in these respects
will make a major, though indirect, contribution toward reducing
poverty, disease, and economic failures, and will facilitate the re
covery of individuals and communities from such economic distress as
is not prevented.
Numerous studies, including several on low-income families which
have been published by the Joint Economic Committee, have demon
strated that there is a high positive correlation between levels of
educational achievement and levels of income. This association has
been illustrated both by comparison between individuals and by con
trasts between the average per capita income of communities in which
there are differences in the average number of years of school com
pleted by residents. Education—An Investment in People, which
was published by the United States Chamber of Commerce, contains
the following three illustrations:
Census Bureau figures show that men in this country with a
college or high-school education have 82 percent of all the in
comes of $10,000 a year or more. Those with an eighth-grade edu
cation or less have 77 percent of all the incomes below $500 a year.
H igh school or college trained farmers operate 57 percent of
the farms in the Nation which produce $10,000 a year or more,
whereas in contrast, farm operators with an eighth-grade educa
tion or less operate 84 percent of the farms producing less than
$1,200 annually.
Recent surveys show that within large metropolitan areas the
highest per capita retail sales (20 percent above the average) are
made to groups with the highest average adult education levels
(11 to 12 years of schooling).
I t has also been shown that the short schooling-low income pattern
in many poor families tends to pass from generation to generation
unless the cycle is broken by vigorous community action.
I t is impossible to foresee many of the new industries and occupa
tions that will arise during the working lives of today’s schoolchildren.
Millions of today’s adults have had to make drastic adjustments in
ECONOMIC GROWTH AND STABILITY
867
their jobs and ways of living as a result of such changes as the farmto-city migration, wars, and shifts in relative importance of different
industries. The foundation in education which the schools should
provide should not, therefore, be overspecialized, but should enable
men and women to adapt themselves to new occupational and social
requirements.
Long-range investments in tomorrow's manpower and womanpower .—I t is with respect to the education of tomorrow’s producers
and consumers that one of the major investments is needed. Even
though the school buildings of the United States represent roughly $30
billion of public and private outlay, while $16 billion a year are spent
on operations, the educational system is not adequate, either in plant
or personnel. No intelligent corporate management would expect
business to thrive without investing in research, in expanding and
modernizing plants, and in personnel development. Yet one of the
biggest and most important businesses in the United States—the edu
cation of children—is being shortchanged. Meanwhile, wholly inade
quate amounts are being spent on research to help improve the
efficiency of the system.
The discussions of education and training which follow will con
centrate on responsibilities of the Department of Health, Education,
and Welfare with respect to current manpower shortages that are ex
pected to persist for the foreseeable future. However, specialized and
professional education should be kept in perspective by bearing in
mind the fundamental importance of general education.
Education, public and private, is challenged by the fact that the
proportion of unskilled jobs is steadily diminishing while the demand
for semiskilled and skilled workers grows steadily. In fact, the short
ages of professional personnel are aggravated by the shortages of sub
prof essional assistants. One of the major objectives of vocational
and technical education should be to respond to long-run shortages in
critical occupations. The Federal interest in stimulating such a re
sponse is illustrated by the fact that the preparation of practical nurses
has recently been added to the categories for which portions of the
Federal grants have been earmarked by law under the current pro
gram of Federal technical and financial assistance to vocational educa
tion.
The increasing complexity of the economy requires an ever-higher
proportion of the labor force to be in occupations that call for educa
tion beyond the high school. For example, a recent study indicates
that one-half million more teachers will be needed in 1965. Enroll
ments in technical institutes, colleges, graduate schools, and profes
sional schools are increasing, but valuable manpower is being lost in
the form of youth who should complete higher education but who
either do not enter college or who drop out before they are through.
Studies have indicated that, of the top one-fourth of the high-school
graduates, about one-third fail to go to college.
The above are among the several reasons which prompted the estab
lishment of the President’s Committee on Education Beyond the High
School. The reports of that Commission are under study in the execu
tive branch.
Children and youth need a fair start in life from the standpoint of
health and of family security as well as of education. Significant in
vestments in the Nation’s future productivity are also represented,
868
ECONOMIC GROWTH AND STABILITY
therefore, by programs to advance general maternal and child health
and by programs designed to meet the special needs and potentialities
of crippled children, retarded or other mentally handicapped chil
dren, or other exceptional children.
In 1949 and 1955 studies made by subcommittees on low income of
the Joint Economic Committee demonstrated that a large proportion
of the low-income families are in broken homes and that the converse
is true. I t may be of interest to your committee, therefore, th at the
D H EW is assisting State and voluntary agencies in family protection
and rehabilitation programs, particularly through the child-welfare
and aid-to-dependent-children programs of the Social Security A d
ministration. In addition, the survivors’ benefits under the old-age
and survivors insurance program are a major source of income to
many families who have lost the wage earner through death.
Medical research is one of the areas of social investment in which
there has been dramatic progress in recent years. For example, Fed
eral appropriations for programs administered through the National
Institutes of Health, Public Health Service, have increased from
less than $1 million in 1940 to $183 million in fiscal year 1957. These
amounts include research and training grants, direct research and re
lated activities, but exclude money for construction of Federal and
federally aided research facilities. There have been very substantial
increases in non-Federal expenditures also, but in view of the prob
lems which are still to be solved and the gains to be realized, additional
efforts should be made by non-Federal organizations. This D epart
ment, with the help of leading consultants, is engaged in a long-range
study of medical research which includes among its objectives the de
termination of howTcritical resources of scientists, money, and facilities
can be utilized still more effectively and economically.
Increasing productivity and mobility (occupational amd geographi
cal) of current labor force.—Even among those adults who have re
ceived an adequate education and who remain in the same occupation
throughout their working lives there will be many who will need to
take additional courses in order to keep up with technological devel
opments. A t the secondary and higher levels, the schools of this coun
try now provide various forms of continuation, refresher, and retrain
ing courses. One of the major missions which is developing for the
community colleges is the affording of opportunities to adult workers
to improve their subject knowledge and skills within their present
iobs and to equip themselves for upgrading. The necessity for return
ing to school from time to time throughout one’s working life has long
been observed, of course, by teachers and is just as essential for other
professionals because of the increasing tempo of advances in science
and related fields. This is another of the subjects being covered in the
current review of the report of the President’s Committee on Educa
tion Beyond the High School.
The large employers of manpower which is in short supply have a
responsibility to support measures to replenish the supply of such
skills and to improve their utilization. The D H EW aids professional
level formal educational programs in the fields of public health, medi
cal research, vocational rehabilitation, and social work. In addi
tion, this Department is engaged in a wide variety of cooperative pro
grams with State and local governmental agencies and voluntary
ECONOMIC GROWTH AND STABILITY
869
organizations to furnish short term courses and on-the-job training to
their employees.
Technical assistance services of the D H EW include consultation to
States and localities, on request, with regard to the most efficient and
economical methods of organizing and administering schools, hos
pitals, and welfare agencies and with regard to the proper utilization
of scarce personnel, such as nurses. Since most grants-in-aid include
provision for part of the administrative expenses of State agencies,
such promotion of efficiency is in the immediate interest of the Federal
Government.
Even if there were a balance between the total demand and the total
supply for the whole labor force and for each occupation, there would
still be localities with labor surpluses and others with shortages. The
Joint Economic Committee has given a great deal of attention to the
chronically distressed areas and to the problems of workers, especially
older workers in declining industries who have been thrown out of
work because of the closing of individual plants. There are hundreds
of thousands who each year have to make difficult readjustments or
who lose out altogether. Continual development of retraining and
other adult education programs is needed at State and local levels and
is one of the subjects of D H EW interest in its consultative role. W ith
regard to localities which need to attract additional firms, represent
atives of labor, management, and government, and experts from uni
versities and private foundations have asserted that one of the major
factors which is considered by firms in making decisions as to where
to locate new plants is the adequacy of schools, water supplies, and
other community resources. The technical assistance programs of the
D H EW include both facilities and services in these areas.
Some types of private pension plans tend to cause workers who
could advance themselves elsewhere or whose skill and education could
be better utilized in another firm to remain in their existing employ
ment because they do not want to lose their pension credits. The oldage, survivors’, and disability insurance program offers a ground floor
to which industry and labor can and should add more protection
and supplementary benefits under nongovernmental plans. There
appears to be a tendency on the part of progressive firms to develop
pension plans which vest rights in individuals which they will have
even after leaving. This Department has urged such developments
so that the rapid growth of privately financed health and welfare
plans will not cause undesirable rigidities in the labor force.
Significance o f public-health programs to protection and expansion
o f labor force.-—The American labor force is larger today, more
healthy, and more productive than ever before due in part to the
victories won over infectious diseases and other killers and cripplers.
One measure of this improvement is the fact that life expectancy at
birth is now nearly 70 years compared with 47 years in 1900.
Improved health status reflected in lowered mortality has enabled
the manpower potential of our population to keep pace with the growth
of the economy. A p art of the reduction in mortality is due to en
vironmental health programs including the control of diseases associ
ated with impure water and milk supplies and with inadequate dis
posal of wastes. In part the reduced mortality is attributable to the
wonder drugs developed by medical research. In fan t and maternal
deaths have been cut dramatically. The burden of premature death
870
ECONOMIC GROWTH AND STABILITY
of wage earners and others due to pneumonia and influenza, tubercu
losis, and acute rheumatic fever has been lessened greatly; in the
past 10 years, the death rate has dropped 30 percent for pneumonia
and influenza, 71 percent for tuberculosis, and 76 percent for acute
rheumatic fever. As a consequence of these gains, the average male
worker participates an average of 10 years more in the work force
today than he did in 1900, despite later entrance into the labor force
and earlier retirement.
Despite the great strides in health, illness is still taking a major
toll through the premature death of workers, particularly from heart
disease and cancer, while millions of other workers lose in efficiency
while on the job and are kept at home through illnesses which might
be prevented. Accidents now constitute the leading cause of death
from ages 1 to 35 in the United States, and are a major cause of disa
bility. Some estimates place the nationwide loss from accidents at
over $10 billion. Injuries of workers off the job cause even more time
to be lost to industry than do injuries on the job. I t is for these
reasons that the Department of Health, Education, and W elfare is
giving increasing emphasis to accident prevention and occupational
health programs. The efforts of public and private labor, health, and
educational agencies and management cut industrial accident rates
about in half between 1937 and 1954. I t is believed that additional
major reductions in lost time can be achieved through cooperative
programs directed toward prevention of nonindustrial accidents.
The communicable diseases are another major cause of absence and
of low efficiency while on the job. For example, the Asian flu poses
a threat to industry and to essential community services which makes
it essential from an economic standpoint that public agencies act
vigorously to accomplish vaccinations on a priority basis. In the field
of research, discovery of a vaccine against the common cold would
be one of the largest single contributions which could be made to
productivity and to reduction of lost time.
Contributions of rehabilitation to productivity and to reduction of
dependency on public assistance.—Adequate treatment and prompt
recovery of disabled workers is a double contribution to economic
health because it restores to duty members of the labor force and
it cuts down financial burdens on families. Those burdens are fre
quently passed on to private charity, to taxpayers through public
assistance, or to social insurance funds in the form of increased dis
bursements for benefits. Even when families are able to absorb costs
of medical treatment the loss of earnings reduces purchasing power.
The value of advances in medical research and practice to prompt
recovery is so generally recognized that this statement concentrates
on the less generally known programs of vocational and social re
habilitation.
Each year an estimated 250,000 persons disabled by disease, acci
dents, or congenital conditions, come to need vocational rehabilitation
in order to work. The total number of people in the United States
today who need such services is about 2 million. Because of pro
longed disability of the family breadwinner, around 1 million people
(including 400,000 children) are receiving annually a half billion
dollars of local. State, and Federal funds. Every taxpayer shares
this cost, which is only one segment of the total expense which chronic
disability imposes upon us.
ECONOMIC GROWTH AND STABILITY
871
One of the social programs which can be most readily demonstrated
as an economic investment is that of vocational rehabilitation. In
1957 about 71,000 people were rehabilitated under this program, a
new record. Most of them were unemployed at the time rehabilita
tion began. The earnings of the others total only $18,900,000 annually.
A fter rehabilitation their earnings were increased to an estimated
rate of $137,600,000 a year. Of the taxes which they will now be
able to pay, the income taxes alone are expected to return to the
Federal Treasury within a few years the total cost of the rehabilitation
program in 1957. Furthermore, about 14,000 of these people were
receiving public assistance before they were rehabilitated. The cost
of maintaining them on public assistance for 1 year alone would
approximate the cost of their rehabilitation. The Social Security
Administration, the Office of Vocational Rehabilitation, and State
welfare and State vocational rehabilitation agencies are placing in
creasing emphasis on the rehabilitation of disabled recipients of
public assistance. Also, the Office of Vocational Rehabilitation and
the Social Security Administration have adopted policies l o o k i n g to
a thorough rehabilitation assessment by State vocational rehabilita
tion agencies of every applicant for disability benefits or for freezing
of wage credits through periods of disability under the old-age and
survivors and disability insurance system. Further improvements
in vocational rehabilitation are being made as the result of a coop
erative research program which includes special research, demonstra
tion, and improvement projects.
A large proportion of the recipients of public assistance, particularly
families aided under the aid-to-dependent-children program, do not,
however, need vocational rehabilitation as such, but rather the coun
seling services of trained social workers. Public and private expendi
tures for maintenance of needy persons and for related services now
amount to about $5 billion a year. How much of this is unavoidable
is not known, but a rather modest investment of Federal, State, and
local funds in the additional training of social workers and in the
extension of welfare services to rehabilitate needy workers can yield
dramatic returns. In Allegheny County, Pa., for example, a demon
stration program concentrated on families which had received public
assistance for as long as 10 years. One supervisor and four trained
caseworkers whose salaries amounted to $16,000 comprised the staff
of the project. The reduction in public-assistance expenditures within
that year was $28,000. The Department of Health, Education, and
Welfare has requested funds for research to advance understanding
of the causes of dependency and evaluation of methods of reducing it.
Relationship to personal income
Improving security of personal income, savings and purchasing
power.—This section concentrates on income maintenance but it should
be remembered that the programs which contribute to the manpower
supply and to productivity are also significant to personal income,
national income, and taxpaying ability.
When the original Social Security Act was passed widespread fears
were expressed that social insurance would undermine individual
thrift. In fact, however, cash savings, life insurance policies, home
ownership and other forms of personal savings have grown in step
with overall economic trends and concurrently with the old age and
872
ECONOMIC GROWTH AND STABILITY
survivors’ insurance program. During calendar year 1956 disburse
ments under the OASI program totaled $5,847 million and consti
tuted 1.8 percent of personal income during that year. In fiscal year
1957 payments from the OASI trust fund were $6,665 million and
the assets of the fund on June 30,1957, were $23.0 billion. Although
the fund may decline slightly in 1958 or 1959 the increase in contribu
tion rates which will take place in 1960 plus the continuing income
from interest will cause the fund to resume its growth. According
to present intermediate cost estimates, the fund will reach $31 billion
by 1965, at which time it is estimated benefits payments will consist
of $10.5 billion to around 15 million beneficiaries.
A basic objective of the Social Security Act was to establish OASI
as a self-sustaining contributory system of insurance against the eco
nomic risks of old age and death. The system was intended to
replace relief as the primary income maintenance floor for the retired
and dependent survivors of workers. A landmark in progress toward
that goal was reached in 1951 when OASI disbursements passed the
Federal aid to categorical public-assistance programs. Public assist
ance is assuming its subsidiary role as a complement to social insur
ance, reaching those who cannot be insured or in a minority of cases
supplementing the benefits of those whose essential living expenses
are too high to be met by social insurance benefits and by their own
resources. However, the nearly $3 billion spent annually by Federal,
State and local governments on categorical and general assistance
reflect the fact that much still remains to be done to reduce poverty,
ill health, and ignorance in our economy. That cost is one of the
reasons, as indicated, why the Department of Health, Education, and
Welfare and associated agencies are placing increasing emphasis on
preventing dependency and expediting rehabilitation.
To keep in perspective the $11/2 billion of Federal aid for categorical
assistance (which was 2.2 percent of the fiscal year 1957 budget), it is
well to recall that in 1939 the Federal Government spent $2.6 billion
on general and work relief activities from which it has now withdrawn
entirely. I t is significant also that as a result of the increase in such
developmental programs as public health, the proportion of the
D H EW budget which is for grants for public assistance has also
dropped.
The Social Security Administration encourages th rift, intelligent
use of credit, and protects savings through guidance and examina
tion of more than 8,000 federally chartered credit unions with assets
of over $ iy2 billion. A substantial proportion of the loans are for
medical expenses.
The costs of medical care continue to be one of the major economic
and social challenges of this Nation. This is true even though pa
tients receive increasingly effective and extensive care and the steady
climb of indexes of prices of services, medicines, and facilities is off
set in whole or in part by improvements in the results per dollar ex
pended.
Despite the rapid progress that has been made, there are still large
and important areas for improvement. Private expenditures for
medical care approximate $11 billion per year. Even though 116
million Americans are now included in some type of prepayment
plan for hospital care, there are still over 50 million Americans with
out hospitalization insurance of any kind. About 65 million peo
ECONOMIC GROWTH AND STABILITY
873
pie—about 40 percent of the population—have no surgical insurance
protection. And 3 out of 5 people—about 100 million altogether—
lack insurance against general medical expenses. There are special
problems in providing health-insurance protection for certain large
groups in the population. For example, about half of the people aged
65 or over, over half of the farm population, and about two-thirds
of those in families with incomes under $2,000 a year have no in
surance against medical care costs.
While the problems that must be overcome in expanding and im
proving voluntary health insurance should not be minimized, it
appears certain that the next several years will see many advances.
There are many bright areas to warrant such confidence. About 25
percent of the private medical care bill of the American people is
covered by health insurance. This is a remarkable climb from less
than 9 percent in 1948.
This rise in coverage is all the more remarkable when we consider
the fact that the costs of medical care have increased sharply during
this period. Between 1948 and the middle of 1957 the BLS index of
hospital rates rose by 85 percent. The rapid increase in hospitaliza
tion insurance has helped many people meet these costs through pre
payment and through spreading the risk.
Perhaps the most venturesome and important new development in
the voluntary health-insurance field is the rapid evolution of major
medical expense coverage. Nonexistent a decade ago, this new form
of coverage today provides about 11 million Americans with insurance
protection against the costs of severe or long-term illness.
Temporary disability causes loss to income which has been esti
mated at $6.5 billion during 1955. Protection is provided through
legislation for temporary disability insurance by four States—Cali
fornia, New Jersey, New York, and Rhode Island. I t is believed that
this is primarily an area of State responsibility and it is hoped that
additional States will take action. The present administration has
proposed legislation to establish a program for the District of Co
lumbia.
The role of the Federal Government should be to encourage in every
sound way the further growth of voluntary insurance. This admin
istration believes that health insurance can advance most effectively
through voluntary action. While some legislation may be needed to
stimulate growth in certain areas and for certain groups, it is hoped
that substantial gains will be made by the creative effort of private
enterprise. As a step toward broader and improved coverage, the
administration has sought legislation to permit smaller insurance
firms or nonprofit associations to pool their resources in order to im
prove and expand their services.
The administration has also recommended action to improve the
health-insurance coverage of Federal employees and their families.
Although a considerable portion of industry has already undertaken
to protect its employees against the costs of unforeseen illness, the
Federal Government has not yet done so for its employees.
Protection o f consumer’s from economic cheats and from hazards to
health.—The Food and Drug Administration is charged with protect
ing consumers against situations involving danger to health, filth,
and insanitation, and economic cheats which might arise in the regu
874
ECONOMIC GROWTH AND STABILITY
lated industries. A basic aim is to insure the integrity of composition
and labeling of foods, drugs, and cosmetics. One fourth to one third
of the family budget goes into these products for which $65 billion
is spent annually. The same programs protect the honest business
man from unfair competition from the unscrupulous minority among
the 800,000 manufacturers, distributors, and retailers of foods, drugs,
and cosmetics.
Relationship to capital outlay
Capital outlay for education.—Capital outlay for public elementary
and secondary schools was approximately $2.5 billion during 1955-56.
While some 63,000 new classrooms were built, it should be noted that
35,000 of these were needed to meet new enrollment alone, and 20,000
for normal replacements, leaving only 8,000 to be applied to the deficit
of 159,000 classrooms. In dollar terms there was an immediate need
for an investment of $6.4 billion just to catch up with basic require
ments. In order to help the State and local authorities eliminate the
backlog and provide accommodations for record increases in enroll
ment, the administration proposed an emergency Federal program to
aid borrowing by State and local school agencies and to provide grants
over a 4-year period.
The D H EW now administers a program of payments to federally
affected school districts for the construction of schools. From 1951
through 1957, Federal appropriations of $765 million have aided the
building of about 35,000 classrooms.
This Department collaborates with the Housing and Home Finance
Agency in its administration of a program of loans to colleges for
housing and related facilities for students and faculty. In view of the
increasing pressure on the physical facilities of colleges and universi
ties, it is significant that the number of projects under construction
under this program will be almost tripled between fiscal year 1956
and the end of the current fiscal year.
Capital outlay for medical care, research, and training.— Programs
of grants-in-aid and technical assistance to State and local govern
ments and nonprofit organizations were established by the Hospital
Survey and Construction Act, as amended, and the Medical Facilities
Survey and Construction Act.
In view of the obvious economics of prevention and of early diag
nosis and treatment, it is significant that 610 health centers and 131
diagnostic facilities have been built or approved for construction under
programs through June 30,1957. The 62 medical rehabilitation facil
ities will contribute to the more timely return of family and paid
workers to activity. Eighty nursing homes and 114 chronic disease
hospitals will afford facilities for the care of long-term patients which
are more appropriate for such patients and less expensive than are the
general hospitals. Reductions have been made in the deficits of beds
for general use as a result of the building and the approval for build
ing of 2,321 general hospitals (including both new facilities and addi
tions). Another measure of progress is the fact that when the hospital-aid program began there Mere about 10 million people who lived
in areas without acceptable hospital facilities. Today that number
has been cut to less than 3 million. To date these projects represent
an investment of nearly $2.9 billion of which more than two-thirds
was supplied by State and local governments and nonprofit organi
zations.
ECONOMIC GROWTH AND STABILITY
875
The Health Research Facilities Act of 1956 established a 3-year
program of grants for the construction of health-research facilities on
a matching basis. An authorization of $30 million was provided for
each year beginning in 1957. Through September 30,1957, a total of
122 research institutions in the Nation have received grants under this
program; 48 of these institutions are medical schools. Federal funds
for these grants total $56.5 million; matching amounts are provided
by the institutions.
The medical schools have been so hard pressed by rising operating
costs that they have had to defer much-needed expansion and many
improvement projects. I t takes 6 to 8 years to plan, build, and staff
a new medical facility and to graduate the first class of students. I t
is estimated that by 1965, the gross ratio of physician to population
will be lower than in 1950. The annual number of medical-scliool
graduates will have increased from 6,900 to 7,400. However, over
8,000 graduates a year would be required to keep up with population
growth alone, making no allowance for future needs. In view of
these facts, Congress has been requested to expand the health-research
facilities program to include help in the construction of medical-teach
ing facilities and to increase the length of the program from 3 to 5
years. The expanded legislation would authorize $225 million of
Federal funds, which, together with an equal amount of matching
funds from institutions, would constitute a temporary program of
needed resources for medical research and teaching.
Donations o f surplus property to health and educational institu
tions.—The surplus-property program makes available to health and
educational institutions real and personal property which is no longer
needed by the Federal Government but which can be utilized by such
institutions. Not only does such a program constitute a considerable
aid-in-kind to health and education at the local levels, but it also
salvages much property which otherwise would be lost to public use.
Property with an acquisition value of $225 million ($15 million for
real property) was transferred during fiscal year 1957.
Protection and development of natural resources.—Clean water is
essential to both economic growth and to protection of the public
health and well-being. W ater pollution damages use of water for
public water supplies, propagation of fish and aquatic life and wild
life, recreational purposes, and agricultural, industrial, and other
uses. The Public Health Service has long-standing programs of re
search, public information, and technical assistance to the States,
other public bodies, private industry and organizations, and individ
uals. These activities have been supplemented by programs of grants
to States and interstate agencies to assist in the establishment and
maintenance of pollution-abatement, programs and of grants to aid
localities in the construction of facilities to treat urban sewage and
other wastes which are a public responsibility. Industrial wastes ac
count for a major segment of the pollution load and the costs for treat
ment of such wastes should be met by private enterprise.
The known adverse effects of air pollution are of serious national
concern. These include its contribution to civic and economic blight,
the corrosion of industrial facilities and domestic houses, reduction in
visibility with consequent hazards to transportation, damage to agri
cultural products, and severe human discomfort. The Public Health
876
ECONOMIC GROWTH AND STABILITY
Service is therefore, assisting States, communities, and private organ
izations through research, surveys, and consultation.
Among the factors which are increasing the complexity of waste
treatment and materials handling, as well as of environmental sani
tation generally, is the emergence of atomic energy and the use of its
many byproducts. The Public Health Service is working with other
Federal agencies, States, private industry, and other non-Federal
organizations in research programs and applications of safety
measures.
F
actors i n
the
D
e t e r m in a t io n o f t h e
K
in d a n d
S
iz e o f
P
rogram s
The discussion in this p art is in response to the subcommittee’s ques
tion as to the standards employed by the Department of Health, E d u
cation, and W elfare in determining the kind and size of programs of
the Department.
Framework within which the Department o f Health , Education , and
Welfare programs are developed and evaluated
Evaluations of need according to specific health, education, and
welfare criteria must be related by this Department, as part of the
executive branch, to overall Federal policies, including legislative
and budgetary programs. Defense requirements—to cite but one
example—now claim most of the Federal budget and the size of other
programs, however important, are strongly influenced by this inescap
able requirement of national security.
The most basic factor in a democracy and one of the most intangible
is the popular demand for initiation, expansion, or contraction of
programs. Such a demand has been expressed from time to time in
the enactment of legislation for the aid of specifically defined cate
gories of people; e. g., the needy blind.
One consideration is that of whether or not a serious problem falls
within an area which under the Constitution and historical precedent
is an area of direct Federal responsibility. The safeguarding of foods,
drugs, and cosmetics in interstate commerce is an example.
Another historical fact to which the Department of Health, Educa
tion, and Welfare gives considerable weight is the respect for and the
utilization of the resources of voluntary organizations and of civic
and professional leaders from outside the Government. In both its
direct operations and in its cooperative programs, therefore, the De
partm ent of Health, Education, and Welfare makes extensive use of
the advice, studies, and technical resources of nongovernmental groups.
Of necessity, there are many intangible facets of health, education, and
welfare which are not susceptible to precise measurements and which
must be evaluated through informed judgments.
The basic role which American history and law has assigned to
States and to communities in health, education, and welfare is one of
the foremost considerations which shapes the Department of Health,
Education, and W elfare’s approach to social problems. I t is a funda
mental cause of the fact that usually a determination that Federal
action is needed in these areas is linked with a determination that the
action should be in cooperation with the States and communities.
Throughout this statement, leading quantitative criteria are identi
fied in relationship to the appropriate programs but this must be
ECONOMIC GROWTH AND STABILITY
877
kept in perspective by bearing in mind considerations of economy,
legislative processes and public policy.
Summary o f characteristics o f the Department o f Health , Education ,
and Welfare grants-in-aid
Most of the programs of the Department of Health, Education, and
Welfare are carried out through technical and financial assistance to
States and localities and to nonprofit institutions. Although the
Department is responsible for technical assistance to grantees, overall
program review, and for insuring observance of certain safeguards of
Federal funds and Federal interests, the prim ary responsibility for
planning and executing programs is in the participating States, loca
lities, and institutions. To a major extent the initial analysis of needs
and of sizes of programs desirable to meet those needs begins at the
local and State levels. There is considerable variation, therefore,
from one jurisdiction to another and from one program to another in
the standards which are employed and in the manner of their applica
tion.
On the other hand, a large number of methods and criteria have
been developed cooperatively by the Department of Health, Education,
and W elfare and associated agencies to analyze needs and costs and to
evaluate the effectiveness of grant-in-aid programs. This statement
is supplemented by the study Grants-in-Aid Administered by the
United States Department of Health, Education, and Welfare, May
1957. That study includes for each program factors which are speci
fied by law and administrative directives as significant, among other
considerations, in determining the size of established programs and the
allocation of available moneys among grantees. The study also refers
to some of the major considerations which are a part of the social
background and legislative history of the origin of these programs.
In view of the wide diversity of conditions contained in the substan
tive laws and appropriations which govern grants-in-aid, generaliza
tions must be used with caution. However, the grants-in-aid
programs fall into three broad categories which are summarized here
for the convenience of the subcommittee:
(a)
The largest single category o f grants administered by the
Department o f Health, Education , and Welfare is in the field of
public assistance.
Federally aided public assistance payments are made by the
States; to needy aged and blind persons, to needy persons with
permanent and total disabilities, and in behalf of needy dependent
children, to supplement other income or resources these needy
people may have. In the public assistance field, each State is re
sponsible for defining need and for determining the extent to
which the State program will meet it. As a result, the average
amount of payments and the part of the population aided under
public-assistance programs vary considerably among States be
cause of difference among States in definitions of need, in fiscal
ability to meet need, and in amount and kinds of other income
and resources available to low-income families and individuals.
The Federal Government has undertaken to share with each
State a given proportion of expenditures for public assistance—
within specified limits. Federal funds are available for money
payments directly to needy individuals, for related services and ad97735— 57 ---- 57
878
ECONOMIC GROWTH AND STABILITY
ministrative expenses, and for expenditures for medical care in
behalf of needy persons paid to physicians, druggists, hospitals,
and other providers of medical care and related services.
The formula for Federal sharing in money payments to needy
persons provides a larger Federal share of smaller payments than
of larger payments. Since States with relatively low per capita
income generally make relatively small monthly payments, the
Federal share for these States generally represents a larger share
of total expenditures than in the higher income States where in
dividual payments tend to be larger. Thus, while the allotment
procedures based on need and fiscal resources of States referred
to under the discussion of formulas below, do not apply in the
public assistance programs, existing arrangements result to some
extent in giving relatively more Federal aid to States with limi
ted resources and greatest need.
Another distinguishing characteristic of the public assistance
grants is th at the enabling substantive legislation places no limit
on the total amount of Federal funds which may be appropriated
for any given period. Each year, Congress appropriates a total
amount estimated to be sufficient to cover the Federal share of
public assistance expenditures. In years when the Federal esti
mate has been short of the amount required to share in actual
State expenditures within the specified limits, Congress has pro
vided additional funds beyond the original appropriation.
(&) Another important type o f grants consists o f those in which
fimds are allotted among the States in accordance with specified
measures o f need.
These measures are customarily incorporated in a formula
that is contained in the governing legislation. Funds allotted by
formula are especially im portant in such fields as control of
specified categories of diseases, hospital construction, water pol
lution control, vocational education, library services, and voca
tional rehabilitation. In these programs it is normally provided
that no State shall receive less than a specified minimum amount,
with the remainder of the appropriated funds allotted according
to the formula stated in the law.
There is in the Department of Health, Education, and W elfare
a common approach to grant formulas: (1) in the design of
grants so as to foster activity where the need for aid is greatest
and (2) to reflect differences in the capacities of the several States.
One usual measure of need is the population to be served—either
the total population or a special segment of the population, such
as children. A second element included in many formulas is State
financial capacity—a frequently used measure of which is per
capita income.
The total amount that the Federal Government can distribute
under each formula is determined in advance by specific congres
sional appropriations. Congress annually appropriates a sum for
each program that does not exceed an amount authorized in the
governing legislation. Also related to the operation of the for
mulas is a frequent provision for the “matching” of Federal funds
by State funds. In many cases the States are required to match
Federal funds dollar for dollar or in some other ratio provided in
the law.
ECONOMIC g r o w t h : a n d s t a b i l i t y
879
(c)
O f growing importance in recent years are grants to in
dividuals and institutions in support o f research, training, and
other stated purposes.
In these programs the distribution of funds is determined in
accordance with guidelines provided by law and by administra
tive regulation. The objectives of these programs are to support
activities in needed research areas and to provide for the training
of individuals in fields in which personnel shortages exist.
Among the grants of this type are the research project, research
fellowship, and training and traineeship programs administered
by the National Institutes of Health of the Public Health Service.
Also of this type are the grants for special vocational rehabilita
tion projects and for the advanced training of public health
personnel and professional nurses.
Old-age, survivors, and disability insurance
The old-age, survivors, and disability insurance program is quite
different from the grants-in-aid programs. I t is a contributory social
insurance program providing benefits to the insured and to their
families when earned income is cut off by disability or death. Its
financial operations do not form a part of the regular Federal budget
and are not derived from general taxes. Instead, employees, em
ployers, and self-employed who are covered pay contributions into
two special trust funds, an old-age and survivors insurance trust fund
and a disability insurance trust fund, and benefits are paid from those
funds, not from the general funds of the Treasury. The amount of
annual disbursements for benefits from these trust funds is not deter
mined in effect by the usual process of budgetary recommendations
and congressional appropriation nor by State of local standards and
programs. Instead, the basic elements are the acquisition and claim
ing of rights by eligible workers or their survivors under the benefit
provisions of the program. The major amendments to the original
legislation have expanded coverage to 9 out of 10 workers, including
self-employed, and the amendments have also increased benefit levels
from time to time, partially in response to rising earnings and prices.
Consideration of available quantitative factors and continuing search
for improvements
In the context of the preceding discussion, it should be pointed
out that the Department of Health, Education, and W elfare makes
the optimum use of quantitative data and criteria which are relevant.
This is done in the formulation of recommendations by this D epart
ment for and against the initiation of programs, in the evaluation
of the effectiveness and economy of existing programs (including
the use being made of Federal aid by grantees), and in the develop
ment of estimates and budgetary review with respect to the amounts
of Federal moneys which should be appropriated within the limits
set by law and overall Federal policies. Furthermore, the Department
of Health, Education, and Welfare, in collaboration with associated
agencies and outside consultants, is continually engaged in the review
of existing criteria and in the development of better methods of meas
uring need for programs, indicators for their optimum size, and guides
to redistribution of responsibilities. The list which follows is only
illustrative of major considerations;
880
ECONOMIC GROWTH AND STABILITY
(a) In the health and rehabilitation fields:
(1) Numbers and types of communities not reached at all by
public health agencies or only by agencies not having a minimum
staff and other resources;
(2) Numbers and types of communities without a minimum
standard number of hospital beds or other health facilities of
designated classes per 1,000 population;
(3) Categories of population requiring special medical facil
ities, e. g., chronically ill;
(4) Problems identified and measured through special studies
and through continuous survey activities such as the national
health survey;
(5) Proportions of population in defined groups, e. g., public
assistance recipients, crippled children, disabled workers unable
to afford appropriate medical and rehabilitation services;
(6 ) Deaths from preventable diseases;
(7) Numbers, and financial needs of institutions training in
the health professions;
(8) Numbers of public health personnel needed by State and
local agencies.
( b ) In the area of education and specialized train in g :
H ) P lant requirements in relation to projected enrollments;
(2) Shortages in selected categories of manpower, e. g.,
scientists;
(3) Im pact on enrollments in individual school districts of
immigration of workers in Federal activities.
(o) In the area of income maintenance:
(1) Relative severity of selected economic risks involving in
come loss;
(2) Numbers and income status of persons subject to selected
economic risks;
(3) Income maintenance levels in relation to minimum budget
requirements, and to standards of living;
(4) Opportunities for employment of selected categories of
individuals, e. g., aged, blind, disabled.
Intergovernment relationships
I t is a basic responsibility of the Department of Health, Education,
and W elfare to reexamine from time to time progress toward program
goals and the willingness and ability of State and local governments,
nongovernmental organizations, and individuals to assume more or
all of the costs now being met by Federal aid. Such reexamination
includes consideration of the conditions under which Federal partici
pation may be withdrawn. Such determinations must be made
through our democratic political processes and, as is the case of the
initiation of programs, this Department, generally speaking, can ter
minate programs only pursuant to the conditions established in sub
stantive and appropriation legislation.
A t present this Department is actively assisting the Joint FederalState Action Committee in an intensive review of program and fiscal
relationships between the Federal Government and the States. That
review includes the major financial factors which have been considered
in the past in the evaluation of grant-in-aid programs including such
problems as the variations in fiscal capacities among the several States.
881
ECONOMIC GROWTH AND STABILITY
C o n t r ib u t io n s
to
E
q u il ib r iu m i n a
C h a n g in g E
conom y
The analysis in this p art is in response to the subcommittee’s ques
tion as to the usefulness or limitation of health, education, and socialsecurity programs for stabilization.
General interrelationships of programs and economic stabilization
Because health, education, and welfare programs must be oriented
toward basic human needs and geared prim arily to long-range social
trends, this statement has discussed the factors which govern programs
in normal times before analyzing the potential adjustments to reces
sions and booms.
Certain needs are so urgent that they must be given priority over
policies to compensate for fluctuations in private expenditures. School
construction, for example, should be accelerated in spite of the fact
that privately financed construction and employment in the building
trades are at record levels for peacetime. The child who is ready to
enter school should start now—he cannot be put on a shelf until a
depression comes and supplies the impetus of an economic emergency
to the building of more new schools. A similar principle holds for
those who need medical care facilities.
Although there is somewhat more flexibility in the timing of con
struction of environmental health facilities (mainly waterworks and
waste treatment plants), the pressure on supplies of clean water is
becoming so severe and wastes have so far outrun treatment in many
areas that many States, localities, and private industries need to build
facilities as rapidly as possible.
Another reason why construction of truly essential public facilities
should not be deferred is that no one can predict if or when there will
be a serious recession in the private sectors of the economy. For the
same reason, service and income maintenance programs cannot be
governed prim arily by the expectation of declines. Finally, it is more
in accord with American tradition and temperament to set as goals
the prevention rather than the alleviation of depressions.
However, secondary adjustments have been made and will continue
to be made in the financing, scope, and timing of some programs either
to avoid feeding inflation or to help offset declines in employment and
income. An outstanding example of deferment in the interests of na
tional defense and of economic stability is that of the restraints placed
on building of community facilities during wars—which is one of the
causes of current backlogs of pubilc works. Some programs have
built-in stabilizing effects. The compensating characteristics of the
major ones are summarized below.
Effects of current income maintenance programs
Generally speaking, the beneficiaries of old-age and survivors’ and
disability insurance who are not working at all and the recipients of
public assistance spend their social-security payments on necessities.
In the absence of the social-security programs their income—and their
purchases—would be lower and would fluctuate according to the
changing resources and policies of private agencies and of local “poor
relief” authorities. Both the old-age and survivors’ and disability
insurance and the public-assistance programs? therefore, are longrange sustaining factors in consumer purchasing power and in the
markets for subsistence and essential services such as medical care.
882
ECONOMIC GROWTH AND STABILITY
A t the same time, the contributions which workers pay to the old-age
and survivors’ and disability insurance fund form a type of savings
against the day when they or their survivors will need support for a
basic standard of living. Such savings are being made when the con
tributors can best afford them and have a margin of income above
subsistence. This program, therefore, is a stabilizing element over
a period of years for individuals and their families as well as a steady
ing influence on national income.
In addition, old-age and survivors’ and disability insurance benefit
payments to some degree vary inversely with the level of business
activity, as a result of the fact that benefits are payable to eligible
beneficiaries under age 72 only so long as they are not earning more
than specified amounts in employment. Thus, in good times when
employment opportunities are plentiful, many persons otherwise
eligible for benefits will choose to work and to forego their benefits.
In times of declining activity when employment is tighter, however,
older persons and perhaps many widows may be among the first to
lose their jobs, and they will then decide to exercise their benefit rights.
On the other hand, as old-age and survivors’ disability insurance con
tributions are computed as a percentage of wages, their total volume
automatically swells as payrolls and earnings of the self-employed rise
in good times, and declines as the latter shrink in bad times.
As regards public-assistance payments which are related directly to
current need, the number of needy persons naturally can be expected
to vary more or less inversely with the general level of economic
activity.
Anti-inflationary effects o f other H E W programs
One of the most serious types of inflation is that in which the pro
duction of goods and services is far below the demand of consumers or
of public requirements (as in w ar). The contributions of health and
education to productivity and the size of the labor force which have
been previously outlined are therefore indirect but important coun
terweights against the danger of too many dollars bidding up the
prices of limited resources.
Another element of inflation is the piling up of debts by individuals
beyond their future ability to pay. The education of future con
sumers and homemakers and such special programs as those of credit
unions contribute to a higher quality of personal credit management.
Poor health, disability, and premature aging are among the major
causes of poor credit risks and bad debts. Such causes are attacked
directly by improved medical care, public health, and rehabilitation
programs.
Potential acceleration o f capital outlay for health and education in
event o f a recession
According to information and estimates developed by State and local
authorities, the backlogs of needs for public school construction, water
pollution control, hospitals and medical facilities total approximately
$22 billion. I t is clear, therefore, th at if it were necessary for the
Nation to undertake an emergency expansion of public works there
would be no occasion for “make work” projects.
The backlog of equipment, needs for new buildings and the reequip
ment of existing buildings cannot be estimated with any degree of
ECONOMIC GROWTH AND STABILITY
883
precision but is believed to be very substantial. To a limited extent
the D H EW does participate in meeting the costs of equipment as an
integral part of a number of current grants programs, e. g., for re
search facilities. No recommendations are being made here for large,
separate reequipment programs. However, this subject is commended
to the attention of your committee for study because : (a) it should be
possible to accelerate reequipment and related modernization much
more rapidly than new construction; ( b ) localities which do not need
additional structures might benefit from modernization programs;
(c) direct employment effects would be felt in plants not directly
reached by changes in construction; ( d ) private expenditures for
equipment are sub ject to serious cyclical fluctuations; and (e) the
potentialities in this field have not received as much attention as has
been given compensatory public works proposals.
Problems o f financing income maintenance, services, and capital outlay
during recession
Additional studies should be made of the impact of recessions on the
revenues of the Federal Government, States, and localities. From this
Department’s standpoint similar studies are needed of the effects on the
finances of nonprofit organizations and on industries with waste dis
posal problems.
Under conditions of severe recession the relative inflexibility of
State and local tax sources and the disparities between the fiscal
capacities of the several States could become serious handicaps to
effective nationwide action. Many communities and some States prob
ably could not increase their revenues enough to enable grant-in-aid
income maintenance, service, and capital outlay programs to be ex
panded in the areas of greatest need. Other jurisdictions might par
ticipate only by increasing regressive taxes to such an extent as to
adversely affect purchasing power, e. g., through increased sales taxes,
thereby negating much of the stimulus of the expenditure programs.
Those problems were recognized as major ones by the recent Commis
sion on Intergovernmental Relations. They deserve further study by
public agencies and by private research organizations and by scholars.
Conclusions are difficult to reach on this infinitely complicated sub
ject. I t has been neglected in contrast to the attention which has been
given to the theoretical possibilities of changing the sizes of programs,
particularly public works.
Other areas of inadequate knowledge a re :
(a) Direct and indirect effects of specific programs on reemploy
ment;
(b) Immediate and indirect effects on purchasing power and
m arkets;
( c ) Immediate and indirect effects, industry by industry. I t is
interesting in this connection to note that under some circumstances
a drastic expansion of public works could cause inflation in construc
tion without immediately facilitating reemployment in depressed in
dustries; and
(d) Effects on the localities in which the program expansion takes
place and the indirect effects on other localities.
( e) Legal, administrative, and technical preparations which must
be made at all levels by government and which could cause serious
delays between the time decision was made to expand programs and
884
ECONOMIC GROWTH AND STABILITY
the time at which the effects began to show in distressed areas. Some
studies have indicated that if antirecessionary action included a de
cision to expand Federal grants for public works, it would take more
than a year before such action would be reflected in a substantial
amount of new construction.
C o n c l u s io n
Need for wider understanding o f relationships between economic de
velopment and social programs
Public officials are interested in the economic as well as the humani
tarian benefits of programs in the fields of health, education, and
welfare, and they have been able in many instances to demonstrate the
relationship between these programs and the Nation’s economic devel
opment. The illustrations which have been given here could be aug
mented by many public and private agencies. Expenditures in health,
education, social security, and rehabilitation have been analyzed and
described as investments by individual scholars and by far-sighted
leaders of business, labor, and professional groups. Pioneering
studies have been made by private research organizations, including
the National Planning Association and the Committee for Economic
Development. Beports on the subject include several which have
been published by the Jo in t Economic Committee.
Generally speaking, however, the potentialities of social develop
ment have been seriously neglected in economic analysis. In striking
contrast are the countless volumes which are written, the support
which is given to special courses in universities, and the research proj
ects which are financed to cover such already well-worked fields as
transportation, public finance, banking and credit, commodities, agri
culture, etc. Meanwhile, capital outlays for new factories and equip
ment are classified as “investments” but capital outlays for the edu
cation and training of the men and women who will staff those plants
are still generally treated as being only “expenditures” and “tax
burdens.” Too often still the maintenance of machines is appraised
more highly in conventional economic terms than is the maintenance
of manpower and womanpower.
Your committee would be rendering a service to American economic
thought and to education of the public by commending this lack of
balance to the attention of universities and research organizations.
Restatement o f basic economic philosophy o f the Department of
Health , Education , and Welfare
The burdens of disease, disability, ignorance, and insecurity can
not be escaped by underinvestment in health, education, and welfare.
Such conditions will have a costly impact on private charities, the
budgets of governments, the efficiency of industry, and the purchasing
power of consumers. Therefore, National, State, and local public
and private agencies should lay still more emphasis on prevention,
control, and rehabilitation. The Nation’s continued economic growth
can be assured over the long run only by adequate and prudent invest
ments in America’s basic resources—the human resources.
@FedFRASER