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INTKKMM)IATE PROGRAM March 28, 1940 ST^TELIIIJT k.P.A. ^PKQt'KlATIQK 1. Present Business P o s i t i o n and Outlook The Budget message was prepared at a ti;ue when business a c t i v i t y was e s t a b l i s h i n g a new h i ^ record. The message emphasized strongly t h a t many of the expenditure estimates were based on an expectation of continued h i g h business a c t i v i t y , ^nd t h a t i f t h i s expectation did not m a t e r i a l i z e , i t might be essent i a l t o reconsider the recommendations. The expectation of continued high business a c t i v i t y has d e f i n i t e l y f a i l e d to m a t e r i a l i z e . I n d u s t r i a l production, a f t e r advancing sharply from 103 i u August to e peek of 128 i n December, has already returned t o i t s prewar l e v e l , and t h i s declinc hes involved a reduction i n p r i v a t e employment of about 1,000,000. The dosmwaxd movement, though i t bes sisckened somewhat during recent ^eeks, s t i l l continues &nd there i s no clear i n d i c a t i o n t h a t we are approaching bottom. At b e s t , s f u r t h e r period o f business hesitancy seems almost c e r t a i n and the recovery therea f t e r modest and gradual. On the other hand, the weight of the evidence suggests t h a t business may decline s u b s t a n t i a l l y f u r t h e r an6 t h a t the upward movement may be deferred u n t i l the t h i r d quarter o f 1940 or even l a t e r . For the calendar year i t y can scarcely average higher 1940 the innex of i n d u s t r i a l festiv- t h t n 110 as COEpared w i t h 105 i n 1929, t h i s higher average l e v e l of a c t i v i t y , i f r e a l i z e d , nould increase private employment barely enough t o o f f s e t the growth of 600,000 i n a v a i l a b l e workers. annuel A t best, the volume of unemployment i n 1940 w i l l not be s i g n i f i c a n t l y below the 1939 average. £. Present &.P.A. Program The * . P . A . r o l l s , now at £,300,000, are 600,000 lower than i n Scomber 193a, when the volume o f business employment were about the same as off another priation. f o r the at present. 1'he I . P . A . suet l a y 800,000 by June 30 t o keep w i t h i n the present Under appro- the o r i g i n a l Budget recommendation of #1,000,000,000 f i s c a l year 1941, the average the coming a c t i v i t y and l e v e l of fc.P.A. employment i n f i s c a l year w i l l be only 1,350,000 workers, fend l . P . A . must cut i t s r o l l s below 1,000,000 i n the autumn t o keep w i t h i n t h i s average and leave some room t o meet enlarged w i n t e r needs. Under the present program, t h e r e f o r e , the number o f S.P.A. jobs i n the autumn w i l l be 1,400,000 less then a t present and 2,200,000 lass then i n December 1938. The scheduled r e d u c t i o n from present l e v e l s w i l l cut o f f the income of three m i l l i o n a d u l t s and over three million children. -3. 3. jWa f o r B^gganendatioaa A cut o f 1,400,000 i n r o l l s would have serious p o l i t i c a l and economic e f f e c t s a t any t i m e . Superimposed upon the present sharp business d e c l i n e , the r e s u l t s stay be d i s a s t r o u s . From 1926 through 1939 the program provided employment f o r an average o f 25 per cent o f th© unemployed; under the o r i g i n a l reecesaendation f o r f i s c a l 1941 t h i s f i g u r e w i l l a t best average o n l y 15 per cent and w i l l f a l l below 10 per cent i n th© autiasn. The p r o v i s i o n f o r r e l i e f employment i s t h e r e f o r e extre&ely meeker, judged by t h e standard© o f recent y e a r s . Quite apart froR the p r i n c i p l e o f need, moreover, c u r t a i l m e n t o f r e l i e f employment, a t a time nhen p r i v a t e employment i s d i m i n i s h i n g , accentuates the c o n t r a c t i o n i n buying power and i n t e n s i f i e s the cupsuletive f o r c e s of deflation. The l e a s t t h a t prudence d i c t a t e s I s t h a t the Govern* s e n t should not add t o the already I n c r e a s i n g number o f jobless. I t a Should take measures t o check the d e c l i n e . I . P . A . r o l l s should be increased over t h e next three months t o 2,750,000 and held at t h a t l e v e l u n t i l t h e c u r r e n t business d e c l i n e l a d e f i n i t e l y reversed. This increase would o f f s e t about h a l f o f the d e c l i n e i n p r i v a t e employment which has already occurred. out o f private jobs, pins the new worker* The remaining 5 0 0 , 0 0 0 thrown costing on t h labor market a t the r e to of 50,000 a month, would be added t o the number without jobs of say s o r t . " 4"' 4. H^o^aadat^o^s I n order t o c a r r y out t h i s progress., i t i s reeo&mended t h a t you ask Congress f o r t h e f o l l o w i n g a p p r o p r i a t i o n s f o r S.P.A. alone* 5* a. An l a n e d l a t e d e f i c i e n c y a p p r o p r i a t i o n o f 1110,000,000 f o r the remainder o f t h i s f i s c a l year, b. An a p p r o p r i a t i o n o f 11,200,000,00c- f o r the f i s c a l year 1941, w i t h the p r o v i s i o n t h a t the fund® w i l l be a v a i l a b l e f o r expenditure w i t h i n the f i r s t seven months o f the f i s c a l year t o the f u l l e s t e x t e n t nece?ssary* o" nmmim These reeooaeada t i o n s would i n v o l v e a n a x l a t t i increase i n expenditures o f about # 7 5 0 , 0 0 0 , 0 0 0 between now and the end o f January 1941 over t h e ®Bount i n d i c a t e d by the Budget f o r t h i s period. The increase would be o f f s e t t o t h e extent o f about 1800^000,000 by t h e excess o f t a x r e c e i p t s over the Treasury e s t i mates which i s no* assured by the c u r r e n t hesivy March income tax c o l l e c t i o n s and by the Treasury* s s u b s t a n t i a l underestimation of eusto&s revenues. As o f February 1 , 1941, t h e r e f o r e , the Treasury cash balance would be about #450,000,000 and the public debt about 144,500,000,000, a f t e r allowing f o r t h e additional W,P«A. expendi t u r e s here recommended. These figures do not include any proceeds from sew taxes reeomrsnded i n the Budget message. Thus, the pro- posed Increase i n I . P . A . expenditures can be met easily without reducing the Treasury cash balance below a safe margin, without exceeding the statutory debt l i m i t a t i o n , without using gold I n the S t a b i l i s a t i o n l e a d , aad without the issuance o f s i l v e r c e r t i f i c a t e s . -5- The s t a t u t o r y debt f i g u r e o f 044,500 t 000,000 sa of February 1, 1941, i s - r r i v e d A by c r r y i n g *«AVinga bonds «t t h e i r ai&turity velue, i n ccordnce sslth the a d m i n i s t r a t i v e practice followed by tbe Treasury• The maturity v&lns of tbeae savings bor.de w i l l on t h a t date exceed the c- sfc redemption t shown on the face of fch« bonds by «bout SI,000,000,000, There are sound l e g a l reasons f o r b e l i e v i n g t h a t t h i s involves &n overstatement by t n i s amount of the outstanding debt eubjcct t o statutory limitations. Febru ry Thus the t r u e margin of s s f e t y on 1941, w i l l be tbout 41,000,000,000 i rger than the Treasury f i g u r e s , under current l u t a i n i s t r a t i v e p r a c t i c e , reveal. f p C w ^ ' ^ w t Mareh 28, 1940 STATEJfEKT OS W. P. A. APPROPRIATION 1. Present Business P o s i t i o n and Outlook The Budget message was prepared a t a t i n s when business was e s t a b l i s h i n g a new h i g h record. activity The message emphasised s t r o n g l y t h a t many of the expenditure estimates were based on an expectation of continued hig£ business a c t i v i t y , and that i f this expectation d i d not ^materialise, i t might be e s s e n t i a l t o reconsider the recoESTtendations. The expectation o f continued h i g h business a c t i v i t y has d e f i n i t e l y failed t o materialise. I n d u s t r i a l production, a f t e r advancing sharply fro® 103 i n August t o a peak of 128 i n December, has a l r e a d y returned t o i t s prewar l e v e l , and t h i s decline has involved a reduction i n p r i v a t e employment of about 1,000,000. The downward movement, though i t has slackened somewhat during recent weeks, s t i l l continues and there i s no clear i n d i c a t i o n t h a t we are approaching bottom. At b e s t , a f u r t h e r per- i o d o f business hesitancy seems almost c e r t a i n and t h s recovery t h e r e a f t e r modest and gradual. On tfee other hand, the weight of the evidence suggests t h a t business may decline s u b s t a n t i a l l y f u r t h e r and t h a t t h s upward movement may be deferred u n t i l the t h i r d quarter of 1940 or even l a t e r . -2f or the calendar year 1040 t h e index e f i n d u s t r i a l a c t i v i t y ear. scarcely average higher than 110 a * com pa red with 106 l a 1939| t i l t higher average Itvrel of a c t i v i t y , i f r e a l i s e d , would increase p r i v a t e employment barely enough growth of 600,000 i n a v a i l a b l e workers* t o o f f s e t the annual At b e s t , the volume ef unemployment i n 1940 w i l l net be s i g n i f i c a n t l y below the 1959 average* 2. Present P. A. Program The fc. P. A. r o l l s , now a t 2,300 # 000, are (500,000 lower than i n December 1936, when t h e volumes o f business a c t i v i t y and employment were about the same as a t present. The £.P.A. must l a y o f f m o t h e r 300,000 by Jane 30 t o keep w i t h i n t h e present appropriation. Swter t h e o r i g i n a l Budget reeeamendatl «n o f $1,000,000,000 f o r the f i s c a l 3 car 1941, t h e average l e v e l of B.P.A, employment i n t h e o q r l a g f i s c a l year w i l l fee only 1,360,000 workers, and mxst cut i t s r o l l s below 1,000,000 i n the Autumn t o keep w i t h i n t h Is average and l e a r e so*** room t o meet enlarged t i n t e r needs, tinder t h e presert progrs®, t h e r e f o r e , t h e number o f W. P.A. jobs i n ths Autumn w i l l be 1,400,000 less t h a n a t present and 2,200,000 less t h a n i n December 1938. The scheduled r e d u c t i o n from present l e v e l s w i l l cut o f f t h e income e f t h r e e m i l l i o a a d u l t s «*.d ever three m i l l i o n children. 3. Basis for Keccamendat•• me A c u t o f 1,400,000 l a P.A. r o l l s would have serious p o l i t i c a l and economic e f f e c t s at any t i m e . Superimposed uooe 3- the present sharp business d e c l i n e , t h e r e s u l t s may be d i s a s t r o u s . Proa 1936 through 19S9 t h e W.P.A. program provided employment f o r en average of 25 per cent of t h e unemployed; under t h e o r i g i n a l recoasaendation f o r f i s c a l 1941 t h i s f i g u r e w i l l at best average only 15 per cent and w i l l f a l l below 10 per cent i n t h e Autumn. The p r o v i s i o n f o r r e l i e f employment i s t h e r e f o r e extremely meager judged by t h e standards of r e c e n t years. Quite apart from the p r i n c i p l e o f need, moreover, c u r t a i l m e n t o f r e l i e f employment, a t a t i n e when p r i v a t e employment i s d i m i n i s h i n g , accentuates the c o n t r a c t i o n i n buying power and i n t e n s i f i e s t h e cumulative forces of deflation. The l e a s t t h a t prudence d i c t a t e s i s t h a t the Govern- ment should not add t o the already i n c r e a s i n g number of j o b l e s s . 4. Recommendat ions I n order t o maintain W.P.A. r o l l s at t h e i r present l e v e l of 2,300,000 workers u n t i l the decline i n private employment has been d e f i n i t e l y reversed, i t is recossended t h a t you ask Congress for the following a p p r o p r i a t i o n s ^ ^ 7. a. An isetediate deficiency appropriation of 180,000,000 for the remainder of this f i s c a l year. 000 b. The appropriation of #},000,000,/recommended i n your Budget message f o r the f i s c a l year 1941, but with the added provision that the funds be nade f u l l y available for expenditure w i t h i n the f i r s t seven months of the f i s o a l year. These recommendations w i l l merely permit W.P.A. to maintain i t s present r o l l s j they w i l l not enable W.P.A. t o add t o i t s r o l l s any o f t h e worker* nam being l a i d o f f by privet© i n d u s t r y , nor any o f th* new * r r k © r « earning on th© labor » r k e t at the r a t e o f 50,000 a south. Or. both humane end economic grounds, t h i s c o n s t i t u t e s s minima* program. 6. Set bad o f Financing fcainfcens&ce o f employment s t an average l e v e l o f 2,200,000 wrtotirs. through January 1041 would i n no way i n t e r f e r e w i t h the f i « c a l progres o u t l i n e d i n the Budget message l a s t January. Although t h i s wo«ld i n v o l v e a mxiwum increase i n expenditures o f about $600,000,000 over t h e amount in»aiest«d by the Budget f o r t h i s p e r i o d , the increase would be o f f s e t by t h e excess o f t a x r e c e i p t s over th© Treasury estimates which i s so* assured by t h e c u r r e n t heavy March income t a x c o l l e c t i o n s end by the ?reasury*s s u b s t a n t i a l underestimation of customs revenues* As of February 1, 1941, t h e r e f o r e , the Treasury cash balance would be about |T00,000,000 suae the public debt about $44,600,000,000, a f t e r si lowing for the a d d i t i o n a l * . ? . A . expenditures here recommended. These figures do cot I n c M e any proceeds from mew taxes recosmended i n t h e Budget messare. Thus, the proposed Increase i n ft.P.A. ex- penditures can be sset easily Without reducing t h e Treasury cash balance be lev a safe margin, without exceeding the statutory debt l i m i t a t i o n , without using gold i n the S t a b i l i s a t i o n Fund, and without the issuance of s i l v e r c e r t i f i c a t e s . ,f/ / -6- The s t a t u t o r y debt f i g u r e of H4,600,000,000 as o f February 1, 1941, i s a r r i v e d at by c a r r y i n g savings bonds at t h e i r saaturity value, i n accordance w i t h the admini s t r a t i v © p r a c t i c e f o l l o w e d by t h e Treasury, The m a t u r i t y valua o f these saving* bonds w i l l on t h a t date exceed t h e cash redemption value sheen on t h e f a c e of the bar.cs by about 11,000,000,000. There a r e sound l e g a l reasons f o r b e l i e v i n g t h a t t h i s involves an overstatement by t i l s aeount of the outstanding debt subject t o s t a t u t o r y l i m i t a t i o n s , Thus t h e t r u e margin o f s a f e t y on February i , 1941, w i l l be ^bcut %1,000,000,000 l a r g e r t h a i t h e Treaaurv f i g u r e s , on t h « basis o f c u r r e n t a d m i n i s t r a t i v e 1 practice, reveal. March 28, 1940 STATEMENT OH W.P.A. APPROPRIATION Present Business P o s i t i o n q i f l O q t ^ f r The Budget message was prepared at a time when business a c t i v i t y was establishing a new high record. The message emphasized strongly that many of the expenditure estimates were based on an expectation of continued high business a c t i v i t y , a n d that i f t h i s expectation did not m a t e r i a l i z e , i t might be essent i a l to reconsider the recommendations. The expectation of continued high business a c t i v i t y has d e f i n i t e l y f a i l e d to m a t e r i a l i z e . I n d u s t r i a l production, a f t e r advancing sharply from 103 i n Angust to a peak of 128 i n December, has already returned to i t s prewar l e v e l , and t h i s decline has involved a reduction i n private employment of about 1,000,000. The downward movement, though i t has slackened somewhat during recent weeks, s t i l l continues and there i s no clear indicat i o n that we are approaching bottom. At best, a further period of business hesitancy seems almost c e r t a i n and the recovery therea f t e r modest and gradual. On the other hand, the weight of the evidence suggests that business may decline substantially f u r t h e r and that the upward movement may be deferred u n t i l the t h i r d i n e r t e r of 1940 or even l a t e r . -2- For the calendar year 1940 the Index of i n d u s t r i a l a c t i v i t y can scarcely average higher than 110 as compared with 105 i n 1939; t h i s higher average l e r e l of a c t i v i t y , i f r e a l i z e d , would increase private employment barely enough to offset the annual growth of 600,000 i n available workers. At best, the volume of unemployment i n 1940 w i l l not be s i g n i f i c a n t l y below the 1939 average. 2. Present W.P t A t Program The W.P.A. r o l l s , now at 2,300,000, are 800,000 lower than i n December 1938, when the volume of business a c t i v i t y and employment were about the same as at present. The W.P.A. must l a y o f f another 800,000 by June 30 to keep within the present appropriation. Under the o r i g i n a l Budget recommendation of 11,000,000,000 f o r the f i s c a l year 1941, the average l e v e l of W.P.A. employment i n the coming f i s c a l year w i l l be only 1,350,000 workers, and W.P.A. must cut i t s r o l l s below 1,000,000 i n the autumn to keep within t h i s average and leave some room to meet enlarged winter needs. Under the present program, therefore, the number of W.P.A. jobs i n the autumn w i l l be 1,400,000 less than at present and 2,200,000 less than i n December 1938. The scheduled reduction from present l e v e l s w i l l cut o f f the income of three m i l l i o n adults and over three m i l l i o n children. -3- 3. Basis f o r Recommendations A cut o f 1,400,000 i n W.P.iL. r o l l s would have serious p o l i t i c a l and economic e f f e c t s a t any t i m e . Superimposed upon the present sharp business d e c l i n e , the r e s u l t s nay be d i s a s t r o u s . From 1936 through 1939 the W.P.A. program provided employment f o r an average o f 25 per cent o f the unemployed; under t h e o r i g i n a l recommendation f o r f i s c a l 1941 t h i s f i g u r e w i l l a t beat average o n l y 15 per cent and w i l l f a l l below 10 per cent i n t h e autumn. The p r o v i s i o n f o r r e l i e f employment i s t h e r e f o r e extremely meager, judged by the standards o f recent y e a r s . Quite apart from the p r i n c i p l e o f need, moreover, c u r t a i l m e n t o f r e l i e f employment, a t a time when p r i v a t e employment i s d i m i n i s h i n g , accentuates the c o n t r a c t i o n i n buying power and i n t e n s i f i e s the cumulative f o r c e s of deflation. The l e a s t t h a t prudence d i c t a t e s i s t h a t the Govern- ment should not add t o the already i n c r e a s i n g number o f j o b l e s s . But t h i s i s not enough. The Government should do more than merely a b s t a i n from adding to the already i n c r e a s i n g number o f j o b l e s s . I t should take energetic measures t o h a l t the d e c l i n e . I.P.A. rolls should be increased q u i c k l y t o 3,000,000 and h e l d a t t h a t l e v e l u n t i l the c u r r e n t business d e c l i n e i s d e f i n i t e l y reversed. 4. Recommendations I n order t o c a r r y out t h i s program, i t i s recoiamended t h a t you ask Congress f o r the f o l l o w i n g a p p r o p r i a t i o n s * / ^ ^ (P. J/. oJU^ju : ; -4- a. An immediate d e f i c i e n c y a p p r o p r i a t i o n o f 1150,000,000 f o r the remainder o f t h i s f i s c a l year. b. An a p p r o p r i a t i o n o f | l , 2 0 0 , 0 0 Q / f o r the f i s c a l year 1941, w i t h the p r o v i s i o n t h a t the funds w i l l be f u l l y a v a i l a b l e f o r expenditure w i t h i n the f i r s t seven months o f the f i s c a l year. 000 Method pf F i f i a n c ^ These reccasmendations would i n v o l v e a maximum increase i n expenditures o f about #800,000,000 between now and the end o f January 1941 over t h e amount i n d i c a t e d by the Budget f o r t h i s period. The increase would be o f f s e t t o the extent o f about $500,000,000 by the excess o f t a x r e c e i p t s over the Treasury e s t i mates which, i s now assured by the c u r r e n t heavy March income t a x c o l l e c t i o n s and by the T r e a s u r y ' s s u b s t a n t i a l underestimation o f customs revenues. As o f February 1 , 1941, t h e r e f o r e , the Treasury cash balance would be about #400,000,000 and the p u b l i c debt about 000 # 4 4 , 5 0 0 , 0 0 0 , / a f t e r a l l o w i n g f o r the a d d i t i o n a l W.P.A. expenditures here recommended. These f i g u r e s do not Include any proceeds from new taxes recommended i n t h e Budget message. Thus, the proposed increase i n WJP.A. expenditures can be met e a s i l y w i t h o u t reducing t h e Treasury cash balance below a safe margin, w i t h o u t exceeding t h e s t a t u t o r y debt l i m i t a t i o n , w i t h o u t using g o l d i n the S t a b i l i z a t i o n Fund, and w i t h o u t t h e issuance o f a i l v e r certificates. -5- The s t a t u t o r y debt f i g u r e of $44,500,000,000 as of February 1 , 1941 i s a r r i v e d at by c a r r y i n g savings bonds at t h e i r m a t u r i t y value, i n accordance w i t h the a d m i n i s t r a t i v e p r a c t i c e followed by the Treasury. The m a t u r i t y value of these savings bonds w i l l on t h a t date exceed the cash redemption value shown on the face of the bonds by about $1,000,000,000. There are sound l e g a l reasons f o r b e l i e v i n g t h a t t h i s involves an overstatement by t h i s amount of the outstanding debt subject t o statutory l i m i t a t i o n s . Thus the t r u e margin o f safety on February 1 , 1941 w i l l be about 11,000,000,000 l a r g e r than the Treasury f i g u r e s , under current a d m i n i s t r a t i v e p r a c t i c e , r e v e a l .
@FedFRASER