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F L E POMN A DB L N E
UL ML Y E T N AA C D
G O T A T O 1976
R WH C F

HEARINGS
BEFORE THE

COMMITTEE ON
BANKING, HOUSING AND URBAN AFFAIRS
UNITED STATES SENATE
NINETY-FOURTH CONGRESS
SECOND SESSION
O
N

S. 50
TO ESTABLISH A NATIONAL POLICY AND NATIONWIDE
MACHINERY FOR GUARANTEEING TO ALL ADULT AMERICANS
ABLE AND WILLING TO WORK THE AVAILABILITY OF EQUAL
OPPORTUNITIES FOR USEFUL AND REWARDING EMPLOY­
MENT
MAY 20, 21, AND 25, 1976
Printed for the use of the
Committee on Banking, Housing and Urban Affairs

U.S. GOVERNMENT PRINTING OFFICE

tt-mo



WASHINGTON : 1976

F L E POMN A D B L N E
UL ML Y E T N AA C D
G O T A T O 1976
R WH C F

HEARINGS
BEFORE THE

COMMITTEE ON
BANKING, HOUSING AND URBAN AFFAIRS
UNITED STATES SENATE
NINETY-FOURTH CONGRESS
SECOND SESSION
O
N

S. 50
TO ESTABLISH A NATIONAL POLICY AND NATIONWIDE
MACHINERY FOR GUARANTEEING TO ALL ADULT AMERICANS
ABLE AND WILLING TO WORK THE AVAILABILITY OF EQUAL
OPPORTUNITIES FOR USEFUL AND REWARDING EMPLOY­
MENT
MAY 20, 21, AND 25, 1976
Printed for the use of the
Committee on Banking, Housing and Urban Affairs

U.S. GOVERNMENT PRINTING OFFICE
7»-tt6 0




WASHINGTON : 1976

COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS
W IL L IA M

P R O X M I R E , W is c o n s in ,

J O H N S P A R K M A N , A la b a m a
H A R R I S O N A . W I L L I A M S , J r .. N e w J e r s e y
T H O M A S J. M C I N T Y R E , N e w H a m p s h ir e
A L A N C R A N S T O N , C a li f o r n ia
A D L A I E . S T E V E N S O N , I ll i n o i s
J O S E P H R. B I D E N , J r ., D e la w a r e
R O B E R T M O R G A N , N o r t h C a r o lin a




C h a ir m a n

JO H N T O W E R . T exas
E D W A R D W . B R O O K E , M a ssa ch u setts
B O B P A C K W O O D , O re g o n
J E S S E H E L M S , N o r t h C a r o lin a
J A K E G A R N , U ta h

K e n n e t h A. M c L e a n , S t a f f D i r e c t o r
A n th on y T. Clu ff, M i n o r i t y S ta ff D ir e c to r
J oh n B. H e n d erso n, P r o f e s s i o n a l S t a f f M e m b e r

(II)

C O N T E N T S

S. 50, as revised by proposed substitute amendment, text, summary, and
section-by-section analysis (reprint of committee print of Senate Labor
and Public Welfare Committee).............................. ................ - _ _
_ _

5

LIST OF WITNESSES
T hursday, May 20
Alan Greenspan, Chairman, Council of Economic Advisers____________
J. Charles Partee, Governor, Federal Reserve Board___ _____ ________
Alice M. Rivlin, Director, Congressional Budget Office; accompanied by
Frank DeLeeuw_______________________________________________

32
38
64

Friday, May 21
J. Kenneth Galbraith, Emeritus, Harvard University______ __________
Melville J. Ulmer, University of Maryland__________________________
Sax A. Levitan, George Washington University___________ __________
William R. Allen, University of California, Los Angeles______ ________

84
91
97
102

T uesday, May 25
Hubert H. Humphrey, U.S. Senator from the State of Minnesota_______
Augustus Hawkins, Representative in Congress from the State of
California.____ ___________________________ ____ _____ ______ 142
Rudolph Oswald, Acting Director of Research, AFL-CIO; accompanied by
Henry B. Schechter, Department of Housing and Urban Affairs,
AFL-CIO....................................... ......................................................
Carl N. Madden, Chamber of Commerce of the United States of America;
accompanied by Richard S. Landry, Staff Executive, Banking and
Monetary-Fiscal Policy Committee............. ............... ..........................
Leon H. Keyserling.........................................— .....................................

130

203
213
226

Additional Statements and Data
Alliance for Neighborhood Government Action Council, statement of
Conrad Weiler______________ ______ ____________ ______________
America* Jewish Congress, statement received for the record_________
Catholic Bishops of the United States, statement on The Economy: Human
Dimensions____ _________________________________________ ____
Center for Social Action of the United Church of Christ, statement of
Paul Kittlaus____ _________ _______ ___________________________
Challenge Magaiine, text of interview with Senator Humphrey titled “ Do
Economists Discover Economic Laws or Are They Passed by Congress?” Chicago Tribune, reprint of article titled “ Inflation and HumphreyHawkins bill” --------------------------------------------------------------------------Commission on Social Action of Reformed Judaism, statement of Dr.
Helen Ginsberg------- ----- ----------------------------------------------------------Congressional Budget Office :
Letter from Alice M. Rivlin, Director, with data on unemployment
rates*------- ----------------------------------------------------------------------Study titled “ An Economic Analysis of the Full Employment and
Balanced Growth Act of 1976” ----------------------------------------------Economic Report of the President for January 1961, excerpts from-------International Union of Electrical, Radio, and Machine Workers, statement
of David J. Fitxmaurice, president_______________________________




<m)

368
351
146
354
178
306
354
65
158
289
366

IV

National Commission for Manpower Policy, letter and statement from Eli
Ginzberg, chairman___________________________________________
174
Richmond, Paul, West Bloomfield, Mich., statement received for the
record-----------------------------------------------------------------------------------366
Schmitz, John Noehl, economist for unemployment, San Gabriel, Calif.,
367
statement for the record_______________________________________
Statements received in response to letter of Senators Proxmire and Tower:
Bronfenbrenner, Martin, professor of economics, Duke University__
269
Eckstein, Otto, professor of economics, Harvard University_______
272
Eisner, Robert, Northwestern University_______________________
272
278
Fellner, William J., professor of economics, Yale University_______
Fels, Rendigs, treasurer, American Economic Association__________
279
Gaines, Tilford C., senior vice president and economist, Manufacturers
Hanover Trust Co., New Y o r k .____________________________
280
Lovell, Michael C., professor of economics, Wesleyan University___
281
McDonald, Stephen L., University of Texas. - .................. ........... .
282
Musgrave, Frank W., associate professor of economics, school of
humanities and sciences, Ithaca College_______________________
283
Rees, Albert, office of the provost, Princeton University__________
286
Saulnier, Raymond J., Barnard College, Columbia University______
286
Solo, Robert A., professor of economics, Michigan State University— 297
Sprinkel, Beryl W., executive vice president and economist, Harris
Bank, Chicago, 1 1
1 _________________________________________
305
Suits, Daniel B., Michigan State University.____ _______________
307
Thurow, Lester C., professor of economics and management, Mas­
sachusetts Institute of Technology......................... ............. ........
310
Weidenbaum, Murray L., director, Center for the Study of American
Business____________ ____________________________________
310
Zorn, Eugene C., Jr., Republic National Bank of Dallas---------------322
United Methodist Church, board of church and society, policy statement
on unemployment..................................... ..........................................
143
Views of noted economists received by Senator Helms:
Alchian, Armen A., professor of economics, University of California at
Los Angeles.......... .......... ..............................................................
325
Allen, William R., professor of economics, University of California at
Los Angeles..................................................................................
325
Brown, Robert S., chairman of the board and president. First Federal
Savings and Loan Association of Wisconsin........... ............. ..........
328
Buchanan, James M., professor and general director, Center for Study
of Public Choice, Virginia Polytechnic Institute and State Uni­
versity................ ............................................................. ..........
329
Harriss, C. Lowell, professor of economics, Columbia University, in
the city of New York........................... .......... .............................
329
Kemmerer, Donald L., retired professor of economic and financial
history, formerly with the University of Illinois-----------------------335
Schmidt, Wilson, professor and head, Virginia Polytechnic Institute
and State University-------- ----------------------------------------------- 336
Wallace, Irving, professor of management, Wisconsin State Uni­
versity...... ...................— ------- -------------------- ----------------------338
G. C. Wiegand, professor of economics, Carbondale, 1 1
1 ....... .........
341
Wormser, Felix Edgar, consulting mining engineer, former Assistant
Secretary of the Interior............................................. - ............--349
Washington Post, reprint of article titled “ A Strategy for Putting America
Back to Work,” by Hubert H. Humphrey................................. - ........
187




V
C harts a n d

T ables

Comparative growth rates, 1961-75________________________________
Comparative trends in non-federally-held money supply, GNP, and prices,
1955-75 _____ ______________________________________________
Cost of departures from full economy, 1953-75______________________
“ Costs” and benefits of achieving full employment by end of calendar 1980_
Costs of deficient economic growth, U.S. economy, 1965-75___________
Distribution of employment, 1975, and projected, 1978 and 1980_______
Estimates of unemployment and budget impact of various programs costing
$1 billion_____________________________________________________
Excess interests costs in the Federal budget 1965-75 contrasted with other
costs for selected budget programs_____________________ - ________
Illustrative cost estimate for a public service employment program_____
Impact of economic growth upon productivity growth_________________
Increases in average interest rates, and excess interest costs due to these in­
creases, 1952-75_______ ___ ______ _____ ________ _____ ________
Projections of added inflation for different unemployment targets_______
Relative trends in economic growth, unemployment, and prices, 1952-76-_
Summary of the potential impacts of alternative measures to stimulate em­
ployment___________________________________________ ____ ____
The lag in wages and salaries behind productivity gains, 1960-75_______
Unemployment and inflation, 1957-64 and 1965H59____ ____ _________
Unemployment and inflation, 1950-78._______ ______________________
Unemployment and inflation, 1961-76__________________ ___________
Unemployment rates for all persons 16 and over compared with unemploy­
ment rates for persons 18 and over and 20 and over_________________
Unemployment rates for all persons 16 and under compared with unemploy­
ment rates for persons 20 and over and 25 and over_________________
U.S. economic performance, under various national administrations, with
various approaches to national economic policy........... ............... ........




Page.

249
253
247
258
248
257
71
255
171
252
254
163
250
73
256
283
162
75
69
66

251




FULL EM PLO YM EN T AND BALAN CED G R O W T H ACT OF

1976
THURSDAY, MAT 20 , 1976

U.S. Senate
Committee ok Banking, H ousing, and Urban Apfairs,

W sh gton D .
a in , .C

The committee met at 10 a.m., pursuant to notice, in room 5302,
Dirksen Senate Office Building, Senator William Proxmire (chair­
man of the committee) presiding.
Present: Senators Proxmire, Tower, and Gam.
The Chairman. The committee will come to order.
Could I ask both Chairman Greenspan and Governor Partee to
come forward. We would like to have both you gentlemen as a
panel if that’s all right with you. Is that acceptable?
Mr. Greenspan. Fine.
OPENING STATEMENT OP SENATOR PROXMIEE
The Chairman. This morning we open our hearings on S. 50.
S. 50 is a real blockbuster o f a bill. It’s been called the centerpiece
of the Democratic Presidential campaign. It’s been called an engine
o f inflation. It’s been called a budget buster, costing tens of billions
o f dollars. It’s been called nothing less than an attempt to repeal
the business cycle. Professor Shiskin, a very fine economist, has
called it that It’s been called the most significant social reform of
the 1970’s. It’s been called the most significant economic reform of
the 1970’s. It’s been called a moral imperative for America. It’s
been called an end to free enterprise as we know it. It’s been called
a charter for a wholesale domination of the economy by the Federal
Government.
In spite o f all these accolades and brickbats, it has bipartisan
Support and it was reported favorably by a vote o f 25 to 10 by a
House committee and is supported by every Democratic Presidential
candidate with the possible exception of George Wallace, and the
bill represents the Federal initiative at its best and at its worst.
It’s an attempt to solve the cruelest problem o f all problems with
an interference by Government on a scale that’s unprecedented. The
inflationary effect of operating the way the bill is drafted, in my
view, especially section 402 which provides for the wages being
paid to people working in public employment being |>aid at the
highest level o f either the minimum wage or the prevailing wage,
represents a very serious problem.




<1)

2

The cost would vary from estimates of $10 billion to $10 billion,
0
depending on the state of the economy at the time. Another very
serious problem is raised with the bill’s provision for the subservi­
ence of the Federal Reserve to the President in contradiction of the
constitutional reservation of the money power in Congress.
It’s ironic that this bill should come at a time when employment
is at an all-time record, up 3 million in the last year alone, 700,000
in the last month. The work force represents a higher percentage of
noninstitutional population than it has in history and if you sub­
tract from the work force the unemployment rate you find that the
participation rate in that sense, that is people at work, is almost
as high as it was in 1968 with the peak of the Vietnam boom, and
yet the fact is unemployment is tragically, shamefully high, espe­
cially for women and blacks and young people.
Paying people to be idle is something that people, whether they’re
conservative or liberal, don’t like. Rather than have people on wel­
fare and food stamps and unemployment compensation, I think we
all agree it’s far better to have them at work. The system we have
now is wasteful, a burden on the Federal Government. It represents
a high degree of personal misery, crime, moral degeneration, and it
also represents a terrible injustice of imposing the main burden
for combating inflation on those who are less able to protect them­
selves—the unemployed.

The purpose of the bill is to give those who want a job, now 7
million, a chance to work. I think that most people could support
that. But how do we do it? How do we achieve it? By using fiscalmonetary policy to expand the private sector and by providing
public jobs for those who can’t afford it represents an enormously
difficult problem.
I’m very anxious to support this bill. I hope I can vote for it,
here and on the floor, but I’d think w have to amend it to prevent
e
what I think is an explosively inflationary potential if we pass it
in its present form. I think it’s amendable. I hope our witnesses,
although some of them undoubtedly oppose the bill, will try to help
us achieve some alternative way at least of achieving a goal of
reasonably full employment.
Senator Tower has a statement.
OPENING STATEMENT OF SENATOR TOWER

Senator T o w e r . Thank you, Mr. Chairman.
The legislation we are beginning to consider in hearings today,
the so-called Full Employment and Balanced Growth Act, has
emerged as one of the major campaign issues of 1976. Indeed, the
bill goes to the heart of what many see as the major economic ob­
jectives of the post-World War II period, sustained economic
growth, full employment, and price stabilitv. These goals are laud­
able. Who among us would not argue that sustained economic
growth is desirable, that persons who ought to work should be
able to, and that inflation should not run rampant?

The issue is not really over these objectives but the means by
which such objectives are sought to be achieved. More specifically,




3
it is whether we seek such objectives by relying primarily on free
market forces or by relying on increased Federal involvement. Most
observers agree that our economy is shaped and directed by a com­
bination of private and public forces. During the postwar period
there’s been a greatly expanded role by the public sector in the
Nation’s economy. But, the economic record in recent years, marked
by massive Federal deficits, greatly expanded Federal regulation,
and programs which frustrate full employment objectives by en­
couraging wage rigidity, should make us seriously pause before
pursuing policies that tilt the balance even further in the direction
of increased Government involvement.
Among other things, the proposed Full Employment and Balanced
Growth Act would establish the framework for national economic
planning, establish specific unemployment rate targets for the adult
labor force, establish a system of public service employment, and
alter the Federal Reserve Board’s independence in conducting mone­
tary policy.
In my opinion, this bill is the wrong approach, taken at the
wrong time, for all the wrong reasons. The economy is just now
emerging from the grips of the worst recession in the postwar
period and recovery is occurring more rapidly than many observers
had foreseen only a few months ago, and it owes its success to
the powerful driving forces that are at work in the private sector.
Those forces should be encouraged and nurtured, not supplanted by
efforts to further impose the Federal Government in our Nation’s
economy.
The approach taken in this bill, I’m afraid, would lead to an
economic police state, as efforts are undertaken to achieve economic
plans. It might artificially push unemployment down to unrealistic
levels for a short period, but this could rekindle the fires of infla­
tion and lead to much higher unemployment in the longrun. It
would substitute public employment for private employment and
do so at wage rates that provide no incentive for persons to seek
meaningful employment in the private sector, and it would se­
riously erode the independence of the Federal Reserve.
What’s needed now is not more Federal involvement in the Na­
tion’s economy. What is needed are policies that build on the foun­
dation of a solid recovery that’s already taken place by relying
on the dynamics of private market forces. Only in that way can
we really put the economy back on its feet and achieve the longrun economic stability that all of us very greatly desire. Thank
you. Mr. Chairman.
The Chairman. Senator Gam?
OPENING STATEMENT OF SENATOR DARN

Senator G a r n . Veiy briefly, Mr. Chairman, I think this is the
wrong bill, at the wrong time. It’s ill-conceived and is an inter­
ference in the private sector without parallel, a bigger dose of
socialism all at one time, than we have ever seen. I don’t know
why we can’t learn from hindsight. To look back in my opinion,
the major problems in the economy are Government caused.




4
There are problems. Senator Tower and I do not disagree with
the goals. There are a lot of us here who would like to see that hap­
pen, but why. when we can look back with hindsight and see the
miserable failures of Government and political tinkering with the
economy—and then their answer to it is to come up with more tinker­
ing. more turning it over to the politicians, take away the independ­
ence of the Federal Reserve, start dictating interest rates, and unem­
ployment rates, credit allocation—it’s all coming piece by piece—turn
it over to the politicians so we can test the wind and the whims of
what is politically popular and promise the people during election
time.
I expect that this stupidity will probably pass. There is nothing
I can do, as one vote, but oppose it, but everything I can do I will
continue to do and talk against it.
Let’s look at England. Let’s look at France. Let’s look at the other
economies. We’re just so damned stupid that we keep going down
the same road and will fall right into economic oblivion like they
are. Turn it over—where one out of every four homes in England
is owned by the Federal Government and end up with a 60-40 split
versus private sector, and on and on and on.
I ’m just absolutely appalled that we even consider something like
this. So I guess you could gather that I ’m opposed to it, Mr. Chair­
man.
Senator Tower. Would the Senator yield?
Senator Garx. Yes, I would be happy to.
Senator T o w e r . I would suggest if this bill passes we might want
to summon the labor party economic planners over from Britain
to devise a plan and maybe they can bring it down in a very short
period of time.
Senator G a r x . Maybe w e can get the Bussians to tell us about
their 5 year plans, where at the end of every 5 years they have
to buy more wheat because o f the total failure of their economic
planning.
Senator T ower. Maybe the Chinese could advise us on the “ Great
Leap Forward.”
Senator Garx. I would hate to think what condition this country
would be in, what the unemployment would be, what the gross
national product would be, if we had had the Government 25, 30
or 50 years ago that they are proposing now. The private sector built
this country. Government did not. Now we don’t trust the private
sector and there’s going to be more and more Government.
The C h a i r m a x . Chairman Greenspan, you can see what an en­
thusiastic sendoff we’re giving the bill. I ’m sure you will add your
support.
Mr. Greenspax. The chairman is always very perceptive in these
matters.
Mr. Chairman, I would like to request permission to summarize
my testimony and place the full text in the record.
The C h a i r m a n . Fine. Without objection. Before we continue I
will place the text and summary of S. 50 in the record at this point.
[Information on S. 50 follows:]




5

FULL EMPLOYMENT AND BALANCED GROWTH
ACT OP 1976
Sum m ary

and

S ectio n - b y -S ection A

n a l y s is

sum m ary

The Full Employment and Balanced Growth Act of 1976 estab­
lishes the right o f ,all adult Americans able, willing, and seeking to
work to opportunities for useful paid employment at fair rates of com­
pensation. To support that right, the act commits the U.S. Govern­
ment to fundamental reform in the management of the economy so
that full employment and balanced economic growth are achieved and
sustained. This includes the creation of a permanent institutional
framework within which the President, the Federal Reserve Board,
and the Congress are systematically encouraged to develop and estab­
lish the economic goals and policies necessary to provide productive
employment for all adult Americans, as well as the mandating o f spe­
cific employment programs to achieve the goal of 3 percent unemploy­
ment as promptly as possible, but within not more than 4 years after
the date o f the enactment of this act.

SECTION-BY-SECTION ANALYSIS
S ections 1 a n d 2. These sections include the title, table of contents,
and general findings. Among the most important general findings are:
( 1) the high social and economic costs of unemployment; (2) the
need for explicit economic goals and a coordinated economic policy
anjong the President, the Federal Reserve and Congress; (3) that in­
flation is often aggravated by high unemployment; and (4) that there
must be direct employment and anti-inflation policies to supplement
aggregate monetary and fiscal policies to achieve and maintain full
employment and balanced growth.

T IT L E I—ESTABLISHMENT OF GOALS, PLANNING AND
GEN ERAL ECONOMIC POLICIES

8 b c . 101.— S t a u c m f n t op P u rp o se. The purpose of this title is to
declare the general policies o f the act, to provide an open process under
which annual economic goals are proposed, reviewed, and established;
to provide for the development o f a long-range Full Employment
ana Balanced Growth; Plan, to provide for economy in gov­
ernment measures, to insure that monetary, fiscal, anti-inflation and
general economic policies are used to achieve the annual economic
goals, to support the long-range goals and priorities of the Full Em­
ployment ana Balanced Growth Plan, and generally to strengthen and
supplement the purposes o f the Employment Act of 1946.




6

Sec. 102— D e c la r a t io n op P o lic y . The Employment Act of 1946
is amended to declare that all adult Americans able, willing, and
seeking work have the right to useful paid employment at fair rates
o f compensation. Moreover, the Congress further declares that the
Federal Government use all practical means, including improved
anti-inflation policies, to promote full employment, production and
purchasing power.
Sec. 103—Economic Goals and t h e Economic Report op t h e
President. The Employment Act of 1946 is amended to require the
President in each annual Economic Report to recommend numerical
goals for employment, production, and purchasing power, as well as
policies to support these goals and achieve balanced growth and full
employment of the Nation's human and capital resources as promptly
as possible.
Sec. 104— Full Employment and Balanced Growth Plan. The
Employment Act of 1946 is amended to establish a process of longrange economic planning, through the Council o f Economic Advisers,
to analyze developing economic conditions, to recommend long-term
goals for full employment, production, and purchasing power, and
to propose priority policies and programs to achieve such goals and
to meet national needs. A long-term full employment goal is set at
3 percent adult unemployment, to be attained as promptly as possible,
but within not more than 4 years after the date of the enactment of
this act.
S ec . 105— E co n o m y i n G o v e rn m e n t. This section establishes poli­
cies and procedures to improve the effectiveness of the Federal Gov­
ernment through the comprehensive planning framework established
under this act. In conjunction with the submission of each Full Em­
ployment and Balanced Growth Plan, the President shall submit
proposals for improving the efficiency and economy of the Federal
Government, including, but not limited to, a review of existing Gov­
ernment rules and regulations to determine if they still serve a pur­
pose, and an annual evaluation of 20 percent o f the dollar volume o f
existing Federal programs.
Sec. 106— Fiscal and Monetary P olicies. The Employment Act
o f 1946 is amended to require that monetary and fiscal policies be util­
ized in the optimum manner necessary to achieve full employment and
balanced growth, including the requirement that the President deter­
mine the extent to which fiscal policy can be relied upon to achiece our
economic goals and priorities, so that it becomes possible to estimate
what supplementary job creation and anti-inflation policies must be
utilized to achieve the objectives of this act.
This section also requires the Federal Reserve Board to make an in­
dependent report to the President and Congress, in conjunction with
each Economic Report, identifying the extent to which the Federal
Reserve will support the economic goals recommended in the Presi­
dent’s Economic Report and, if the Federal Reserve Board does not
support such goals, to provide a full justification of why and to what
extent its policies will differ from those recommended by the President.
I f the President determines that the Board’s policies are inconsistent
with proposed economic goals and priorities, the President shall make
recommendations to the Board and Congress to insure closer conform­
ity with the purposes of this act.



7

Sec. 107— A nti-Inflation P olicies. The Employment Act of 1946
is amended to require that each Economic Report contain a comprehen­
sive set o f anti-inflafion policies to supplement monetary and fiscal
policy, including, but not limited to, analyzing inflationary trends
m individual economic sectors; actions to increase the supply of goods,
services, labor, and capital in tight markets, particularly food and energy; provision for an export-licensing mechanism for critical mate­
rials in short supply; recommendations to increase productivity in
the private sector; recommendations to strengthen and enforce the
antitrust laws; and recommendations for administrative and legisla­
tive actions to promote reasonable price stability if situations develop
that seriously threaten national price stability.
Sec. 108—C ouncil of Economic Advisers. The Employment Act o f
1946 is amended to require the Council o f Economic Advisers to pre­
pare the Full Employment and Balanced Growth Plan, to consult with
the Advisory Committee, and to meet other requirements under this
act.
Sec. 109— A dvisory Committee on Full E mployment and Bal­
anced Growth. The Employment Act of 1946 is amended to establish
a 12-member private Advisory Committee on Full Employment and
Balanced Growth to advise and assist the Council of Economic A d­
visers on matters relating to the Economic Eeport and this act. The
members of the committee shall be appointed proportionately by the
President, the Speaker o f the House o f Representatives, and the Presi­
dent pro tempore o f the Senate in a maimer broadly representative of
the Public.
T IT L E I I —COUNTERCYCLICAL, STRU CTU RAL AND
YO U TH EM PLOYM ENT P O LICIES

Sec. 201—Statement of P urpose. This title establishes supple­
mentary employment policies to close the employment gap, i f one
should exist, between the levels of employment achieved through ag­
gregate monetary and fiscal policy and the employment goals estab­
lished in sections 103 and 104. Accordingly, this title establishes a sys­
tem o f comprehensive and flexible employment policies to create jobs
in both the private and public sectors of the economy. These supple­
mentary employment policies shall vary according to economic condi­
tions and the other actions taken under this act, but focus broadly
upon reducing cyclical, structural, regional, youth unemployment, and
unemployment due to discrimination. This title also establishes a Full
Employment Office within the Department o f Labor to use special
means for training, assisting, and providing employment for those
people who are otherwise unable to find employment. Finally, this
title mandates improved integration o f income-maintenance programs
and full employment policies.
S»c. 20 — Countercyclical E mployment Policies. This section
2
requires the development and submission by the President, within 90
days o f the enactment of this act, o f a coherent and flexible counter­
cyclical program to reduce high unemployment arising from cyclical
movements in the economy. This comprehensive program shall in­
clude, as appropriate, public service employment, standby public
works, antirecession grants for State and local governments, K ill train­




8

ing in both the public and private sectors, and other programs. More­
over, this program shall be automatically implemented during periods
of high unemployment, allocate employment assistance to areas of
highest unemployment, provide for a well-balanced combination o f
job creation and related activities in both the private and public sec­
tors, and incorporate transitional mechanisms to aid individuals in
returning to regular employment as the economy recovers.
Sec. 203— Coordination With State and Local Governments and
Private Sector Economic A ctivity. This section requires the devel­
opment of policies that facilitate harmonious economic action between
the Federal Government, regions, States, localities and the private
sector. As a primary effort to achieve these ends, the President is re­
quired to submit legislation, with 90 days of the enactment of this
act, creating a permanent, countercyclical grant program that will
serve to stabilize State and local budgets during periods of recession
and high unemployment. This program shall be automatically imple­
mented when the national unemployment exceeds a specified level and
distribute its funds to those areas of most serious unemployment
Sec. 204— Regional and Structural E mployment Policies. This
section requires the establishment o f comprehensive employment poli­
cies designed to reduce the chronic underutilization of human and capi­
tal resources in certain areas of the country and in specific groups
within the labor force. As a primary effort to reduce unemployment in
chronically depressed areas, the President is required within 180 days
after the date of enactment of this act to submit legislation providing
an institutional means to make credit available: ( 1) for public and
private investment in economically depressed regions, inner cities, and
economic sectors; and ( 2) to provide an alternative source of capital
funds for local and State governments to finance public facilities.
Sec. 206— Y outh E mployment Policies. This section requires the
development and submission by the President, within 90 days of the
enactment of this act, of a comprehensive youth employment program
to: ( 1) foster a smoother transition from school to work; ( 2) prepare
disadvantaged youth with employment handicaps for self-sustaining
employment through education, training, medical services, counseling
and other support activities; (3) develop methods for combining train­
ing with work, including apprenticeship and on-the-job training in
the private sector; and (4) provide job opportunities in a variety o f
tasks including conservation, public service activities, inner-city clean­
up and rehabilitation and other jobs of value to States, local communi­
ties, and the Nation.
Sec. 206— Full Employment Office and Job Reservoirs. To in­

sure that full employment is achieved under this act, the President,
through the Secretary of Labor, shall develop policies and programs
to provide job opportunities to adult Americans who, despite a serious
effort to obtain employment, are unable to do so in the general eco­
nomic environment, or through any of the other provisions of this act.
There is established within the Department of Labor a Full Employ­
ment Office to assist the Secretary of Labor in providing such job op­
portunities through counseling, training, and referral to job opportumties in the private sector and in position drawn from sections 202,
204, and 205 of this act. Additional job opportunities will be provided,




9
subject to regulations on job need and eligibility, through reservoirs
o f federally operated or approved employment projects, to be phased
in by the President in conjunction with the annual employment recom­
mendations required under section 3 of the Employment Act of 1946,
and to achieve 3 percent unemployment within 4 years of enactment
o f this act.
S e c . 207— I n c o m e M a i n t e n a n c e a n d F u l l E m p l o y m e n t P o l i c i e s .
This section requires that full employment policies: (1) provide qual­
ity jobs that strengthen income and eliminate substandard earnings;
(z) integrate existing income maintenance polices with the full em­
ployment policies established by this act; and (3) substitute work for
income maintenance to the maximum extent feasible.
T IT L E I I I —PO LICIES AND PROCEDURES FOR
CONGRESSIONAL R E V IE W

Sec. 301— S t a t e m e n t o p P u r p o s e . This title establishes procedures
for congressional review and action with respect to the annual eco­
nomic goals in the Economic Report, the Full Employment and
Balanced Growth Plan, the report of the Board of Governors o f the
Federal Reserve System, and the other policies and provisions of this
act. This title also establishes a Division o f Full Employment and
Balanced Growth within the Congressional Budget Office to assist
the Congress in meeting its responsibilities under this act.
S e c . 302— G e n e r a l C o n g r e s s i o n a l R e v i e w . This section establishes
the responsibilities o f the Joint Economic Committee, the Committees
on the Budget, and other appropriate committees of Congress.
S e c . 303— C o n g r e s s i o n a l R e v i e w o f E c o n o m i c G o a l s i n E c o n o m i c
R e p o r t . This section requires the Joint Economic Committee to re­
—
view and make recommendations to Congress on annual numerical
goals for employment, production, and purchasing power proposed
by the President under section 3 o f the Employment Act o f 1946.
The Joint Economic Committee shall submit such recommendations
to the Committees on the Budget of both Houses, for incorporation
in the first concurrent budget resolution, subject to such modifications
as necessary to fulfill the objectives of this act and to meet the re­
quirement o f section 3A o f the Employment A ct to achieve full em­
ployment within not more than 4 years after the date of enactment
o f this act.
Sec. 304— C ongressional R e v i e w op F u l l E m p l o y m e n t a n d B a l ­
a n c e d G r o w t h P l a n . This section provides for congressional review
o f the Full Employment and Balanced Growth Plan, including re­
ports to the Joint Economic Committee from the standing committees
o f Congress on matters that relate to the plan, public hearings before
the Joint Economic Committee, and consideration o f State and local
views on the plan. Following the above actions, the Joint Economic
Committee shall report a concurrent resolution to Congress approv­
ing, disapproving or modifying the proposed plan, with such a
resolution serving as a long-term guide to the Congress with respect
to the goals, priorities, policies? and programs recommended in the
'lan. The President is to be notified or changes in the proposed plan,
or such actions as deemed appropriate.

?




10
Sec. 305—D ivision op F ull E mployment and B alanced Growth.
This section established a Division of Full Employment and Balanced.
Growth within the Congressional Budget Office to assist the Joint
Economic Committee in the discharge of its duties under this act,
particularly with respect to long-term economic analysis and plan­
ning, and to assist other committees and Members of Congress in ful­
filling their responsibilities under this act.
Sec. 306—E xercising op R ulemaking P owers. This section pro*
vides that the provisions of this title, other than section 305, be incor­
porated into the rules of the House of Representatives and Senate,,
respectively, with full recognition of the constitutional right of either
House to change such rules.
TITLE IV —GENERAL PROVISIONS
S e c . 401—Nondiscrimination. N o person in the United States;
shall on the ground of sex, age, color, religion, or national origin be
excluded from participation in, be denied the benefits of, or be sub­
jected to discrimination under any program or activity funded in
whole or in part with funds made available under this act. The Sec­
retary of Labor is empowered to enforce such nondiscrimination
through the Attorney General, title V I of the Civil Rights Act o f
1964, and such other actions as may be provided by law.
Sec. 402— L abor Standards. This section provides that policies and
programs implemented and mandated under this act shall provide
that those employed are paid equal wages for equal work, and that
the policies create a net increase in employment through work that
would not otherwise be done. The section further prescribes a range
of labor standards applicable to particular situations of employment.
S e c . 403—Authorizations. Being a general economic policy act,
the sums authorized for appropriation are those necessary to estab­
lish long-range economic planning, the Advisoiy Committee on Full
Employment and Balanced Growth, the establishment of the Full
Employment Office and job reservoirs, and other administrative mat­
ters. The authorizations and appropriations for other programs man­
dated under this act are to be determined in conjunction with each
separate piece of legislation.

[S. 50, 94th Cong., 2d eess.]
AMENDMENTS Intended to be proposed by Mr. H u m p h r e y (for himself, Mr.
W i l l i a m s , Mr. J a v i t s , Mr. B a t h , Mr. B r o o k e , Mr. C a s e , Mr. K e n n e d y , and
Mr. H a r t ) to S. 50, a bill to establish a national policy and nationwide
machinery for guaranteeing to all adult Americans able and willing to work
the availability of equal opportunities for useful and rewarding employment,
viz: Strike out all after the enacting clause and insert in lieu thereof the
foUowing

That this Act and the following table of contents may be cited as the
“ Full Employment and Balanced Growth Act of 1976” .
Sec. 1. Title.
Sec. 2. General findings.




TABLE OF CONTENTS

11

TITLE I—ESTABLISHMENT OF GOALS, PLANNING,
AND GENERAL ECONOMIC POLICIES
Sec.
See.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.

101.
102.
103.
104.
105.
106.
107.
108.
109.

Statement of purpose.
Declaration of policy.
Economic goals and the Economic Report of the President.
The FuU Employment and Balanced Growth Plan.
Economy in government.
Fiscal and monetary policies.
Anti-inflation poUcies.
Council of Economic Advisers.
Advisory Committee on Full Employment and Balanced Growth.
TITLE II—COUNTERCYCLICAL STRUCTURAL, AND
YOUTH EMPLOYMENT POLICIES

Sec. 201. Statement of purpose.
Sec. 202. Countercyclical employment policies.
Sec. 203. Coordination with State and local government and private sector eco­
nomic activity.
Sec. 204. Regional and structural employment poUcies.
Sec. 205. Youth employment policies.
Sec. 206. Full Employment Office and reservoirs of employment projects.
Sec. 207. Income maintenance and full employment policies.
TITLE III—POLICIES AND PROCEDURES FOR
CONGRESSIONAL REVIEW
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.

SOI. Statement of purpose.
302. General congressional review.
303. Congressional review of economic goals in President’s Economic Report
304. Congressional review of Full Employment and Balanced Growth Plan.
305. Division of Full Employment and Balanced Growth.
306. Exercise of rulemaking powers.
TITLE IV—GENERAL PROVISIONS

Sec. 401. Nondiscrimination.
Sec. 402. Labor standards.
Sec. 403. Authorizations.
GENERAL FINDINGS
S e c . 2. (a) The Congress finds that the Nation has suffered sub­
stantial and increasing unemployment and underemployment, over
prolonged periods of time, imposing numerous economic and social
costs. Such costs include the following:
(1) The Nation is deprived of the full supply of goods and
services, the full utilization of labor and capital resources, and the
related increase in individual income and well-being that would
exist under conditions of genuine full employment.
(2) Insufficient production is available to meet pressing na­
tional priorities.
(3) Workers are deprived of the job security, income, skill
development, and productivity necessary to maintain and advance
their standards of living.
(4) Business and industry are deprived of the production, sales,
capital flow, and productivity necessary to maintain adequate
profits, create jobs, and contribute to meeting society’s economic
needs.




12
(5) The Nation is exposed to social, psychological, and physio­
logical costs and traumas, including disruption of family life,
loss of individual dignity and self-respect, and the proliferation
of physical and psychological illnesses, drug addiction, crime, and
social conflict.
#
. . .
( 6) Federal, State, and local government economic activity is
undermined as government budget deficits occur because tax reve­
nues fall and expenditures rise for unemployment compensation,
public assistance, and other recession-related services in the areas
of criminal justice, drug addiction, and physical and mental
health.
(b) The Congress further finds:
( 1) High unemployment often increases inflation by diminish­
ing labor training and skills, underutilizing capital resources, re­
ducing the rate of productivity advance, increasing unit labor
costs, reducing the general supply o f goods and services and
thereby generating cost-push inflation. In addition, modern in­
flation has been due in large measure to errors in national eco­
nomic policy, including erratic monetary policy, inadequate
energy and food policies, and ineffective policies to maintain com­
petition in the private sector.
( 2) Although necessary for sound economic policy, aggregate
monetary and fiscal policies are inadequate by themselves to
achieve full employment production and to restrain inflation.
Such policies must be supplemented by more direct private and
public measures to create employment and reduce inflation.
(3) Genuine full employment has not been achieved, in part,
because explicit short- and long-term national economic goals and
priorities have not been established by the President, the Congress,
and the Federal Reserve. Moreover, public and private economic
policies have not been organized and coordinated to achieve na­
tional goals and priorities.
(4) Increasing job opportunities and full employment make a
major contribution to the abolition of discrimination based upon
sex, age, race, color, religion, national origin, and other improper
factors.
(c) The Congress further finds that an effective full employment
and balanced growth policy should ( 1) be based on the development of
explicit economic goals and policies involving the President, the Con­
gress, and the Federal Reserve, as well as State and local governments,
with full use of the resources and ingenuity of the private sector of
the economy, and ( 2) include programs specifically designed to reduce
nigh unemployment due to recessions, and to reduce structural unem­
ployment within regional areas and among particular labor force
groups.
(d) The Congress further finds that full employment and balanced
growth are important national requirements that will promote the
economic security and well-being of all our citizens.
TITLE I ESTABLISHM ENT OF GOALS, PLANNING
AND GENERAL ECONOMIC PO LICIES
*
STATEMENT OF PURPOSE

A ? 18the.?urP°se of this title to declare the general policies
01;
of this Act, to provide an open process under which a S n u a l 3 o S



13

goals are proposed, reviewed, and established, to provide for the devel­
opment of a long-range Full Employment and Balanced Growth Plan,,
to provide for economy in government measures, to ensure that mone­
tary, fiscal, anti-inflation, and general economic policies are used to
achieve the annual ecoomic goals and support the goals and prioritieso f the Full Employment ana Balanced Growth Plan, and generally to
strengthen and supplement the purposes and policies o f the Employ­
ment Act o f 1946.
DECLARATION OF POLICY
S ec . 102. (a) Section 2 of the Employment Act o f 1946 (15 U.S.C.
1021) is amended to read as follows:
“ d e c l a r a t io n

of

p o l ic y

“ S e c . 2. (a ) The Congress hereby declares that it is the continuing
policy and responsibility of the Federal Government to use all practi­
cable means, consistent with its needs and obligations and other essen­
tial national policies, with the assistance and cooperation o f industry,
agriculture, labor, and State and local governments, to coordinate and
utilize all its plans, functions, and resources for the purpose o f creat­
ing and maintaining, in a manner calculated to foster and promote
free competitive enterprise and the general welfare, conditions which
promote balanced growth and useful employment opportunities, in­
cluding self-employment, for those able, willing, and seeking to work,
and to promote full employment, production, and purchasing power.
“ (b) The Congress declares and establishes the right of all adult
Americans able, willing, and seeking work to opportunities for useful
paid employment at fair rates of compensation.
“ (c) The Congress further declares that inflation is a major na­
tional problem requiring improved government policies relating to
food, energy, improved fiscal and monetary management, economy in
government, the reform of outmoded government rules and regulatoins, the correction o f structural defects in the economy that prevent
or seriously impede competition in private markets, and other
measures.”
ECONOMIC GOALS AND THE ECONOMIC REPORT OF THE PRESIDENT
S e c . 103. Section 3(a) of the Employment Act o f 1946 is amended
to read as follow s:
“ S ec . 3. (a) The President shall transmit to the Congress not
later than January 20 o f each year an economic report (hereinafter
called the ‘Economic Report’) setting forth for each year—
“ ( 1) current and foreseeable trends in the levels of employ­
ment, production, and purchasing power and a review and analysis
o f economic conditions affecting these economic trends in the
United States;
“ ( 2) annual numerical goals for employment, production, and
purchasing power that are designed to achieve balanced growth
and full employment of the Nation’s human and capital resources
as promptly as possible;
" ( 3 ) a numerical long-term full employment goal which is
(A ) consistent with the minimum level o f frictional unemploy­
ment necessary for efficient job search and mobility in the labor
force, and (B ) consistent with the aggregate long-term economic




14

goals and priorities set forth in the Full Employment and
Balanced Growth Plan required under section 3A ; and
“ ( 4) the programs and policies for carrying out the policy
declared in section 2 of this Act, as well as the numerical economic
goals o f paragraph ( 2) of this subsection, together with such
recommendations for legislation as the President deems necessary
or desirable in order to achieve full employment and balanced
growth as promptly as possible.” .
FULL EMPLOYMENT AND BALANCED GROWTH PLAN
S ec . 104. The Employment Act of 1946 is amended by adding after
section 3 the following new section:
“ fu ll

e m p l o y m e n t a n d balan ced g ro w th p l a n

“ S ec . 3A. (a) In conjunction with the first Economic Report after
enactment of this section, or within ninety days after the enactment
o f this section, whichever may come earlier, and thereafter in conjunc­
tion with each annual Economic Report, the President shall transmit
to the Congress a proposed Full Employment and Balanced Growth
Plan, prepared with the assistance o f the Council o f Economic
Advisers, and in consultation with the Office of Management and
Budget. The Plan shall propose, in quantitative and qualitative terms,
and for the number of years feasible, long-term national goals related
to full employment, production, purchasing power, and other essential
priority purposes, and the major policies and programs, including
recommendations for legislation, to achieve such goals and priorities.
In developing the goals, the President shall take into account the level
and composition of each factor needed to maintain economic balance
and full resource use and to meet priority needs.
“ (b) The Full Employment and Balanced Growth Plan shall set
forth the foreseeable trends in economic and social conditions, pro­
vide estimates o f the unmet economic and social needs o f the Nation,
and identify the human, capital, and national resources available and
needed for the achievement of the economic and related social goals
and priorities established in the Full Employment and Balanced
Growth Plan.
“ (c) The Full Employment and Balanced Growth Plan shall con­
tain long-term economic goals as follows—
“ ( 1) full employment goals set as the number of jobs to be
provided for adult Americans in order to reduce unemployment
level of frictional unemployment consistent with
efficient job search and labor mobility;
“ ( 2) full production goals set at the levels of output estimated
to be yielded by achievement o f the full employment goals as
\ ? \?ve’
expected improvements in productivity; and
(3)
full purchasing power goals set at levels estimated to be
necessary for attaining and maintaining full employment and
production while contributing to an equitable distribution of
puroh&sing power.
/
In carrying out the provision o f paragraph ( 1 ) o f subsection
( c ) , the full employment goal shall be consistent with a rate o f unem­




15

ployment not in excess o f 3 per centum o f the adult Americans in the
civilian labor force, to be attained as promptly as possible, but within
not more than four years after the enactment o f the Full Employment
and Balanced Growth Act of 1976. Within one year of the date o f
enactment o f the Full Employment and Balanced Growth Act of 1976,
the President shall review the full employment goal and timetable
required by this section and report to Congress on any obstacles to its
achievement and, if necessary, propose corrective economic measures
to insure that the full employment goal and timetable are achieved.
“ Priorities, Policies, and Programs
“ (e) To contribute to the achievement o f the general economic goals
established in sections 3(a) (2) and 3 A (c) of this Act, the Full Em­
ployment and Balanced Growth Plan shall propose priority policies
and programs that comprise a full employment program that provides
productive non-wasteful jobs and that reorder national priorities and
employ the jobless in the production o f goods and services which add
to the strength o f the economy, the wealth of the Nation, and the well­
being o f the people. Such policies and programs shall not be set forth
in the programmatic detail developed by specialized Federal agen­
cies, and by others in the public and private sectors, but only suffi­
ciently to furnish an integrated perspective o f our needs and capabili­
ties and as a long-run guide to optimum private, Federal, State, and
local government action. Priority policies and programs to support
full employment and balanced growth shall initially include—
“ ( 1 ) development o f energy, transportation, food, small busi­
ness, and environmental improvement policies and programs re­
quired for full employment and balanced economic growth, and
required also to combat inflation by meeting full economic levels
o f demand;
a ( 2) the quality and quantity o f health care, education, day
care, and housing, essential to a full economy and moving gradu­
ally toward adequacy for all at costs within their means;
“ (3) Federal aid to State and local governments, especially for
public investment and unemployment related costs;
x
4(4) national defense and other needed international programs;
4
and
“ (5) such other priority policies and programs as the President
deems appropriate.
“ ( f ) The President shall establish procedures to insure that mem­
bers o f the Cabinet, relevant regulatory agencies, other relevant officers
o f the executive branch, and the Chairman o f the Advisory Commit­
tee on Full Employment and Balanced Growth have an opportunity
to review and make recommendations to the President prior to his or
her submission o f the Full Employment and Balanced Growth Plan
to the Congress. The annual reports o f departments and agencies shall
include reports on any actions and studies undertaken related to the
implementation o f the Full Employment and Balanced Growth Plan.

" (g ) A t the time of the submission of the proposed Full Employ­
ment and Balanced Growth Plan to the Congress, the President shall
transmit copies of the Plan to the Governor of each State and to other
appropriate State and loc$l officials. Within sixty days after the sub­




16

mission to Congress of the proposed Full Employment and Balanced
Growth Plan, the Governor of each State may submit to the Joint
Economic Committee a report containing findings and recommenda­
tions with respect to the proposed Plan. Any such report submitted by
a Governor shall include the views and comments of citizens within the
State, after public hearings have been held within the State.”
ECONOMY IN GOVERNMENT
S ec . 105. (a) The Congress finds and declares that widespread dup­
lication and contradiction among Federal departments and agencies,
the failure to establish long-term priorities, lack of adequate informa­
tion on the impact o f Federal regulations and programs, and the lack
of a process for developing more efficient alternatives for achieving
the Nation’s priorities are impeding the Federal Government in effi­
ciently implementing full employment and balanced growth policies.
The Congress further declares that genuine efficiency in government
requires time and planning. Accordingly, it is the purpose o f this
-section to utilize the comprehensive planning framework established
by section 104 to improve the efficiency and economy of the Federal
Government.
(b)
In carrying out this section, the President shall, in conjunction
with the submission of each Full Employment and Balanced Growth
Plan, submit proposals for improving the efficiency and economy of the
Federal Government, including, but not necessarily limited to—
( 1) a review of existing Government rules and regulations to
determine if they still serve a public purpose and are properly
designed; and
( 2) an annual evaluation of 20 per centum of the dollar volume
o f existing. Federal programs which are in effect each year, and
the submission to Congress of a formal analysis o f the economic
and social impact and value of each program.
FISCAL AND MONETARY POLICIES
S ec . 106. (a) The Employment Act of 1946 is amended by inserting
after section 3A, a^ added by this Act, the following new section:
“ FISCAL AND MONETARY POLICIES
“ S ec . 3B. ( a ) The President’s Budget and Economic Report shall
b» consistent with the Full Employment and Balanced Growth Plan,
and the Economic Report shall set forth for each year the following:
“ ( 1 ) The level and composition of Federal expenditures, measured
against estimated capabilities at full employment and production,
necessary to support the annual economic goals proposed in section 3
and to support the Full Employment and Balanced Growth Plan,
taking into account the role of the private sector and o f State and local
governments in supporting these purposes. The President shall also
make a determination of the extent to which the use of aggregate fiscal
and monetary policy, without the supplementary employment policies
provided in the Full Employment and Balanced Growth Act o f 1976,
will achieve the production, employment, purchasing power, and
priority goals required in sections 3 and 3A Whenever the economy is




17

operating at full production and employment, or subjected to exces­
sive overall strain, the general principle to be followed is that priority
expenditures established in section 3A(e) shall not in general be
reduced, allowing for some variations for countercyclical purposes,
so long as it is feasible to reduce relatively less important expendi­
tures, or to resort to means set forth in paragraph ( 2) below.
“ ( 2) Federal tax policy consistent with expenditure levels in para­
graph ( 1 ) of this section necessary to (A ) balance the Federal budget
or create a surplus under conditions of full production, employment
and purchasing power, (B ) restrain excessive economic activity and
inflation when total demand threatens to exceed the Nation’s capabili­
ties at full employment, (C) avoid fiscal drag upon the economy dur­
ing any periods of substantial economic slack, and (D ) contribute to
the needed level and distribution of purchasing power.
u(3) A monetary policy designed to assure such rate of growth in
the Nation's money supply, such interest rates, and such credit avail­
ability, including policies of credit reform, allocation, and interna­
tional capital flows as are conducive to achieving and maintaining the
full employment, production, purchasing power and priority goals
specified in sections 3 and 3A.
“ (b) The Board o f Governors of the Federal Reserve System shall
transmit to the President and the Congress, within fifteen days after
the transmission of the Economic Report or the Full Employment and
Balanced Growth Plan, whcihever may come earlier, an independent
statement setting forth its intended policies for the year ahead with
respect to its functions, the extent to which these policies will support
the achievement of the goals in section 3 and section 3A, and a full
justification for any substantial variations from the President’s goals
and recommendations. I f the President determines that the Board’s
policies are inconsistent with the achievement of the goals and policies
proposed under this Act, the President shall make recommendations
to the Board and to the Congress to insure closer conformity to the
purposes o f this Act.”
ANTI-INFLATION POLICIES
S ec . 107. (a) Section 3 of the Employment Act of 1946 is amended
by adding at the end thereof the follow ing:
“ (d ) The Economic Report shall each year contain a comprehensive
set o f anti-inflation policies, including, but not necessarily limited to—
“ ( 1) a comprehensive information system to monitor and an­
alyze inflationary trends in individual economic sectors, including
information on the international sector, so that the President and
Congress can be alerted to developing inflation problems and
bottlenecks;
“ ( 2) the use o f monetary and fiscal policy geared to the capa­
bilities o f the economy operating at full employment as provided
in section 3B;
“ (3) programs and policies in the Full Employment and Bal­
anced Growth R a n for increasing the supply o f goods, services,
labor, and capital in structurally tight markets, with particular
emphasis on increasing the supply o f food and energy;
(4)
provision for an export licensing mechanism for food and
other critical materials when the national well-being is threatened




18

because projected supplies are inadequate to meet domestic needs
without drastically increasing prices, and the establishment of
stockpile reserves of food and other critical materials m order
to meet emergencies such as floods and famines and to maintain
reasonable price stability and adequate farm income;
“ ( 5) encouragement to labor and management to increase pro­
ductivity within the national framework of full employment
through voluntary arrangements in industries and economic
sectors;
“ ( 6) recommendations to strengthen and enforce the antitrust
laws and such other recommendations as are necessary to increase
competition in the private sector; and
“ ( 7) recommendations for administrative and legislative ac­
tions to promote reasonable price stability if situations develop
that seriously threaten national price stability.
COUNCIL OF ECONOMIC ADVISERS
S ec . 108. (a) The second sentence of section 4(a) of the Employ­
ment Act of 1946 is amended by inserting “ full” immediately after
“ promote”.
(b) ( 1 ) Section 4(c) ( 1) of such Act is amended by inserting im­
mediately after the semicolon a comma and the following: “ and the
Full Employment and Balanced Growth Plan” .
( 2) Section 4 (c )(4 ) of such Act is amended by inserting “ full”
immediately after “maintain” .
( c ) ( 1 ) Section 4(e) ( 1) o f such Act is amended by inserting im­
mediately before the semicolon a comma and the following: “ and shall
consult with the Advisory Committee established under section 6.”
( 2) Section 4(e). of such Act is amended by striking out the period
at the end of paragraph ( 2) and inserting in lieu thereof a semicolon,
and by adding after such paragraph ( 2) the following:
“ (3) In this connection, the Council is authorized and directed to
seek and obtain the cooperation of the various executive and inde­
pendent agencies in the development of specialized studies essential to
its responsibilities.”
advisory com m itteee on f u l l e m p l o y m e n t a n d balan ced g r o w t h

Sec. 109. The Employment Act of 1946 is amended by adding at the
end thereof the following new section:
“ advisory

committee ; o n f u l l e m p l o y m e n t a n d balan ced g r o w t h

“ S ec . 6. (a) To furnish advice and assistance to the Council of Eco­
nomic Advisers in the preparation and review of the Economic Report
and Full Employment and Balanced Growth Plan, there is established
an Advisory Comihittee on Full Employment and Balanced Growth,
which shall consist of—

“ (1) four members appointed by the President;
“ (2) four members appointed "by the Speaker of the House of
Representatives; and
(SVfour members appointed by the President pro tempore of




19

“ (b) The Committee shall elect a Chairman, and shall meet at the
call o f the Chairman, but not less than twice a year. The members o f
the Advisory Committee shall be appointed for terms of two years
from among; representatives o f labor, industry, agriculture, consumers,
and the public at large, who are especially competent by virtue of
background and experience to furnish advice to the Council on the
views and opinions of broad segments of the public on matters involved
in the formulation and implementation of goals and policies for full
employment and balanced growth.
(c)
Each member of the Advisory Committee shall be entitled to
be compensated at a rate equal to the per diem equivalent of the rate
or an individual occupying a position at level III, of the Executive
Schedule under section 5314 of title 5, United States Code, when en­
gaged in the actual performance o f his or her duties as such a member,
ana each member shall be entitled to reimbursement for travel, sub­
sistence, and other necessary expenses incurred in the performance o f
his or her duties.
“ (d ) The Advisory Committee is authorized to establish regional
or industry advisory subcommittees to furnish advice and assistance
to it. Each such subcommittee shall consist of at least one member of
the Advisory Committee and shall be broadly representative o f the
particular region or industry, including business, labor, and consumer
interests.
“ (e) The Chairman of the Council o f Economic Advisers shall fur­
nish the Advisory Committee with such personnel, acilities, and serv­
ices as he or she aeems necessary to enable the Advisory Committee to
perform its functions under this Act.” .
T IT L E I I —COU N TERCYCLICAL, STRUCTU RAL, AND
Y O U TH EM PLOYM EN T PO LICIES

STATEMENT OP PURPOSE
S e c . 2 0 1 . It is the purpose o f this title to establish supplementary
employment policies to close the employment gap, if one should exist,
between the levels o f employment achieved through aggregate mone­
tary and fiscal policy and the employment goals established in sections
3 and 3A o f the Employment Act of 1946. Accordingly, this title es­
tablishes a system of comprehensive and flexible employment policies
to create jobs in both the private and public sectors o f the economy
that encourages the optimum contribution of the private sector and
State and local governments toward the achievement o f the goals and
purposes o f this Act. These supplementary employment policies shall
vary according to economic conditions and the other actions taken
under this Act, but shall have the broad objective o f reducing cyclical,
structural, regional, and youth unemployment, and unemployment due
to discrimination. It is also the purpose o f this title to establish a
Full Employment Office within the Department of Labor to use spe­
cial means or training and providing employment for those people
who are otherwise unable to find employment. It is the further purpose
o f this title to mandate improved integration o f income maintenance
programs and full employment policies.




20

COUNTERCYCLICAL EMPLOYMENT POLICIES

Sec. 202. (a) (1) The Congress finds and declares that—
(A ) the Nation has been unprepared to promply implement
employment policies during periods of economic downturn and
resultant high unemployment;
(B ) existing policies are so diffused and fragmented at all
levels of government that it has been impossible to implement a
comprehensive countercyclical employment program in a coordi­
nated manner; and
(C) the lack o f a coherent, flexible, countercyclical employment
policy reduces the prospects of the Nation solving economic and
related social problems which threaten fundamental national
interests and objectives, including those specified by this Act.
( 2) It is the purpose of this section to require the development o f a
-coherent and flexible countercyclical employment policy, creating jobs
in both the private and public sectors that are valuable to States, local
communities and the Nation, and thereby reducing employment gaps
that may remain despite the appropriate implementation of other
provisions of this Act.
(b) ( 1) To carry out the provisions of this section, the President
shall within ninety days after the date of enactment of this Act trans­
mit to the Congress a comprehensive proposal, together with such
legislation as is necessary, which shall establish on a permanent basis
the range of supplementary employment policies and programs neces­
sary to reduce high unemployment arising from cyclical movements in
the economy. The countercyclical action provided for in this section
relates to periods of high unemployment, regardless of the stage of
the business cycle.
( 2)
In establishing the component parts of such a comprehensive
proposal, and making a determination of the role of each, the President
should consider the following programmatic entities—
(A ) countercyclical public service employment;
(B ) accelerated public works, including the development of
standby public works projects;
(C) State and local countercyclical grant programs as speci­
fied in section 208;
(D ) the levels and duration of unemployment insurance;
(E ) skill training in both the private and public sectors, both
as a general remedy, and as a supplement to unemployment
insurance;
(F ) youth employment programs as specified in section 205;
(G ) a community development program to provide employ­
ment in activities of value to the States, local communities, and
the Nation; and
(H ) augmentation of other employment and manpower pro­
grams that would prove helpful in meeting high levels o f unem­
ployment from cyclical causes.
(c) To insure that the component parts o f the countercyclical pro­
posal establishes an integrated and flexible program, the President
Bnan—
( I ) utilize existing employment and training mechanisms as
appropriate;




21

( 2) provide for advance planning for countercyclical employ­
ment programs among the Federal Departments and agencies;
( 3 ) provide for an automatic trigger or set o f coordinated trig­
gers that would implement the program during a period of rising
unemployment, and phase out the program wiien unemployment
is appropriately reduced;
( 4) insure that allocation o f employment assistance takes into
account the severity and geographic distribution of unemploy­
ment, and the special needs of the unemployed groups within the
labor force;
( 5) provide for a well balanced combination of job creation
and related activities in both the private and public sectors of the
economy; and
( 6) incorporate effective transitional mechanisms to facilitate
individuals assisted under programs developed pursuant to this
section to return promptly to regular private and public em­
ployment as the economy recovers.

COORDINATION WITH STATE AND LOCAL GOVERNMENT AND PRIVATE SECTOR
ECONOMIC ACTIVITY
S ec . 203. (a) As an integral part o f the comprehensive countercycli­
cal employment policies established under section 202, the President
shall set forth programs and policies to facilitate harmonious eco­
nomic action among the Federal Government, regions, States and
localities and the private sector to promote the ( 1) achievement o f the
coals and priorities o f this Act and the Employment Act of 1946, and
( 2) an economic environment in which State and local governments
and private sector economic activity and employment will prosper and
essential services will be maintained.
(b)
As a primary effort to meet the requirements of this section, the
President shall within ninety days after the date of enactment of this
Act transmit to the Congress legislation creating a permanent, counter­
cyclical grant program that will serve to stabilize State and local
budgets during periods o f recession and high unemployment. In
formulating this proposal, the President shall endeavor to meet cri­
teria that establish a program ( 1 ) funded to take into account total
State and local expenditures and the national unemployment rate;
and ( 2) automatically implemented when the national unemployment
rate exceeds a specified rate.

REGIONAL AND STRUCTURAL EMPLOYMENT POLICIES
S e c . 204. (a) (1 ) The President shall within one hundred and eighty
days after the date of enactment of this Act transmit to Congress a
comprehensive regional and structural employment proposal, includ­
ing such legislation as necessary, designed to reduce the chronic under­
utilization o f human and capital resources in certain areas of the
country and in groups within the labor force. In formulating tie re­
gional components of such a proposal, the President shall encourage
private sector production and employment to locate within depressed
regions and inner cities. The President’s regional employment pro­
posal shall also include an analysis o f the extent to which Federal




22

Government tax, expenditure, and employment policies have influ­
enced the movement of people, jobs, and industry from chronic high
unemployment regions and areas, and proposals designed to correct
Federal policies that have an adverse economic impact upon such
regions and areas.
( 2)
In formulating the structural components of such an employ­
ment program, the President shall utilize existing employment and
training mechanisms and other existing programs, as appropriate, and
such other measures as necessary.
#
(b)
To further meet the requirements of this section, the President
shall transmit to the Congress, within one hundred and eighty days
after the date of enactment of this Act, legislation providing an insti­
tutional means designed to encourage ( 1 ) public and private invest­
ment in economically depressed regions, inner cities, and economic sec­
tors; and ( 2) provide an alternative source of capital funds for local
and State governments to finance public facilities. In formulating the
legislation required by this section, the President shall include provi­
sion for—
( 1 ) long-term loans at low rates of interest no higher than the
average rate of long-term Treasury borrowings plus service costs;
( 2) capitalization through public stock and bond subscriptions,
stock purchases by the State governments, local governments, and
businesses that benefit from the program, and financial assistance
from the Federal Government; and
(3) criteria setting priorities for assistance to State and local
government and businesses, with special attention to areas with
unemployment rates consistently and significantly in excess of the
national average, to achieve the objective of increasing employ­
ment in such areas, and increasing total employment.

YOUTH EMPLOYMENT POLICIES
S e c , 205.

(a) The Congress finds and declares that—
( 1) serious unemployment and economic disadvantage exist
among youths, this group constitutes a substantial portion of the
Nation’s unemployment, and this significantly contributes to
crime, drug addiction, and other social and economic problems;
( 2) many youths have special employment needs and prob­
lems which, if not promptly addressed, will substantially con­
tribute to more severe unemployment problems in the long run;
(3) a significant number of youths in certain areas even in the
best of economic circumstances do not have adequate access to
employment opportunities providing effective entry into the labor
force; and
(4) existing employment programs for youth are fragmented
and inadequate, and the special needs and problems o f youth un­
employment require the development o f a permanent, comprehen­
sive youth employment program which will meet the job needs o f
youth.
(b)
To meet the requirements o f subsection (a), the President shall
transmit to Congress within ninety days after the date o f enactment
o f this Act legislation creating a comprehensive youth employment
program which—




23
( 1 ) utilizes the resources and facilities o f existing youth em­
ployment and training programs that are designed to provide
job opportunities for youths,
( 2) provides for other policies and programs necessary to
provide employment for youths, and
(3) contributes to carrying out the policies of this A ct and the
Employment Act of 1946.
(c)
In formulating such a program, the President shall include
provisions designed to—
( 1) fully coordinate youth employment activities with other
employment and manpower programs;
( 2) develop a smoother transition from school to work by
fostering a more effective partnership between educational and
employment institutions, such as businesses, employer associa­
tions, and labor unions;
(3) prepare disadvantaged and other youths with employ­
ability handicaps for regular self-sustaining employment
through education, training, medical services, counseling, and
other support activities;
(4) develop realistic methods for combining training with
work, including apprenticeship and on-the-job training in the
private sector; and
(5) provide job opportunities for youths in a variety o f tasks,
including conservation, public service activities, inner city
cleanup and rehabilitation, and other jobs o f value to States,
local communities, and the Nation.
FULL EMPLOYMENT OFFICE AND RESERVOIRS OF EMPLOYMENT PROJECTS
S e c . 206. (a) In order to insure that full employment is achieved
under this Act, the President, through the Secretary of Labor, shall
develop policies, procedures, and programs to provide employment
opportunities to adult Americans able, willing, and seeking to work
but who, despite a serious effort to obtain employment, are unable
to do so in the general economic environment, or through any o f the
other provisions o f this Act.
{b ) There is established within the Department of Labor a Full
Employment Office to assist the Secretary o f Labor in providing
the employment opportunities required under subsection (a ). Under
the supervision o f the Secretary of Labor, the Office shall be phased
in consistent with subsection (d) o f this section.
(c)
In meeting the responsibilities to provide job opportunities
under subsection (a ), the Secretary o f Labor shall, as appropriate—
( 1 ) provide counseling, training, and other support activities
necessary to prepare persons willing and seeking work for
employment;
( 2) refer persons able, willing, and seeking to work to job
opportunities in the private and public sectors through the exist­
ing public employment placement facilities and through the
United States Employment Service; and
( 3) refer persons willing, able, and seeking to work to job
opportunities in positions drawn from sections 202, 204, and 205
or this Act.




24

(d) Insofar as adult Americans able, willing, and seeking work are
not provided with job opportunities under section 206(c) or other­
wise under this Act, such opportunities shall be provided by the Presi­
dent through reservoirs of federally operated public employment
projects ana private nonprofit employment projects approved by the
Secretary of Labor. The number and nature of such reservoirs of
employment projects shall be determined in conjunction with the poli­
cies and programs of the Full Employment Office established under
subsection (b) and the other job creation provisions of this Act. The
provisions of this subsection shall be phased in by the President, in
conjunction with the annual employment recommendations required
under section 3 of the Employment Act of 1946, in order to achieve a
rate of unemployment not in excess of 3 per centum as established by
section 3A (a) of such Act. #
t
(e) The Secretary, in carrying out the provisions of this section,
shall establish such" regulations as he or she deems necessary. Such
regulations shall include provisions for—
( 1 ) an initial determination by the Full Employment Office o f
the job seekers’ ability to be employed at certain types and dura­
tion of work so that he or she may be appropriately referred to
jobs, training, counseling, and other supportive services;
( 2) compliance with the nondiscrimination provisions of this
Act in accordance with section 401;
( 3) such priority criteria as may be appropriate to establish the
order in which persons able, willing, and seeking to work are pro­
vided jobs under this section, so that such persons who most need
employment are given first consideration and, in determining the
priority order, the Secretary shall consider such factors as dura­
tion of unemployment, the number of employed persons in a house­
hold, number of people economically dependent upon any such
person, expiration of unemployment insurance, household income,
and any other factors essential to determining employment need;
(4) appropriate eligibility criteria to limit access to the pro­
gram authorized under subsection (d ), including but not limited
to such criteria as household income, duration of unemployment,
and refusal to accept or hold a job which pays whichever is the
highest of (A ) the prevailing wage, as determined by the Secre­
tary of Labor, for that type of work in the labor market in which
such job occurs, or (B ) fair rates of compensation as determined
under section 402 of this A ct; and
(5) such administrative appeal procedures as may be appro­
priate to review the initial determination of the abilities of per­
sons willing, able, and seeking to work under clause ( 1) of this
subsection and the employment need and eligibility under clauses
(3) and (4) of this subsection.
Compliance with the requirements of clause (4) of this subsection re­
lating to a person’s eligibility for assistance may be satisfied by an
affidavit submitted by persons seeking assistance. I f such person know­
ingly provides false information in any such affidavit, he or she shall
be ineligible for any assistance under this section and shall, in addi­
tion, be subject to prosecution under section 1001 of title 18, United
StatesCode.




25

IN C O M E

M A IN T E N A N C E

AND

FU LL

EM PLOYM ENT

P O L IC IE S

S e c . 207. (a) Congress finds and declares that to achieve the goals
o f full employment and balanced growth it is essential that the em­
ployment policies prescribed by this Act and the Employment Act
o f 1946 give adequate attention to (1) providing quality jobs that im­
prove the work environment, strengthen income and eliminate sub­
standard earnings; ( 2) improving and integrating existing public
and private income maintenance programs with the full employment
policies o f this Act and the Employment Act of 1946; and ( 3) sub­
stituting work for income maintenance to the maximum extent feasi­
ble, taking account of the need for adequate income maintenance
among those who cannot be brought within the full employment
policy.
(b)
To meet the requirements o f this section, the President shall
within ninety days after the date of the enactment of this Act trans­
mit to Congress a proposal, together with such legislation as is neces­
sary, analyzing the relationship of income maintenance needs, existing
income maintenance programs, and the full employment policies re­
quired by this Act and the Employment Act o f 1946, and make rec­
ommendations on how the income maintenance and employment poli­
cies can be integrated to insure that employment is substituted for in­
come maintenance to the maximum extent feasible.

T IT L E I I I — PO LICIES AND PROCEDURES F O R
CONGRESSIONAL R E V IE W

STATEMENT OF PURPOSE
301. The purpose of this title are—
( 1 ) to establish procedures for congressional action and review
with respect to the Economic Report, the Full Employment and
Balanced Growth Plan, the report o f the Board of Governors
o f the Federal Reserve System, and the other policies and pro­
visions o f this Act and the Employment Act o f 1946; and
(2) to establish a Division of Full Employment and Balanced
Growth within the Congressional Budget Office.

S ec.

general

congressional

review

S ec. 302. (a) T o provide for comprehensive economic and employ­
ment policies to meet the objectives o f this Act and the Employment
Act o f 1946, and to provide Congress with guidance on these matters,
the appropriate committees o f the Congress shall review and revise,
to the extent deemed desirable, the economic goals, priorities, policies,
and programs proposed under such Acts by the President and the
Board o r Governors o f the Federal Reserve System. The Congress
shall initiate or develop such legislation as it deems necessary to im­
plement these proposals and objectives, after such modification in such
proposals as it deems desirable.
■(b) In addition to its responsibilities tinder the Employment Act
o f 1946 with respect to the Economic Report, the Joint Economic
Committee shall carry out overall review o f executive branch poli­
cies under this Act, with special attention to general economic condi


26

tions, the setting of national economic goals in the Economic Report,
the Full Employment and Balanced Growth Plan, and the relationship
o f economic policy measures to the fulfillment of the goals and pri­
orities established under this Act and under the Employment Act
o f 1946*
. . .
,
, „
i
(c) In addition to their responsibilities under the Congressional
Budget Act of 1974, the Committee on the Budget of the Senate and
the Committee on the Budget of the House o f Representatives shall
review, in conjunction with reporting concurrent resolutions on the
budget under the Congressional Budget Act of 1974, the fiscal policy,
economy in government policies, and Federal budget priorities recom­
mended by the President*
(d) The other appropriate committees of Congress shall review and
report on those policies or programs implemented or submitted which
relate to matters within the jurisdiction of each such committee.

CONGRESSIONAL REVIEW OF ECONOMIC GOALS IN ECONOMIC REPORT
S ec . 303. (a) In conjunction with its review o f the Economic Re­
port, and the holding of hearings on the report, as required under
the Employment Act of 1946, the Joint Economic Committee shall
review and analyze the annual numerical goals for employment, pro­
duction, and purchasing power recommended by the President in ful­
fillment of section 3 o f the Employment Act of 1946. Subsequent to
such a review, the Joint Economic Committee shall make recom­
mendations to the Congress on the appropriate annual numerical
goals for employment, production, and purchasing power, subject
to the requirements of section 3A (d) o f the Employment Act of 1946
relating to those periods when unemployment is to be reduced to given
levels.
(b) Section 301(a) of the Congressional Budget Act of 1974 is
amended—

(1) by striking out “ and” at the end of clause ( 5) ;
( 2) by redesignating clause ( 6) as clause (7 ); and
(3) by inserting after clause (5) the following new clause:
‘ ( 6) numerical goals for employment, production, and pur­
chasing power; and”.
(c) The second sentence o f section 301(c) of the Congressional
Budget Act of 1974 is amended to read as follows: “ The Joint Eco­
nomic Committee shall also submit to the Committees on the Budget
o f both Houses its recommendations as to the fiscal and monetary
policies appropriate to the goals of the Employment Act o f 1946. The
Joint Economic Committee shall further submit to the Committees on
the Budget o f both Houses, in accordance with section 3 o f the Em­
ployment Act o f 1946, recommendations on annual numerical goals
for employment, production, and purchasing power designed to achieve
JromnTlv
m
Nation’s human «»d capital resources as
w £ Pn
P o ^ l e . Thes* recommendations shall be incorporated
y the Committee on the Budget of each House in the first concurrent
4
0 subsection (a) reported by that
S S r S r S w ? modifications, i f necessary to fulfill the objectives o f
Full Employment and Balanced Growth Act o f 1976, and to meet




27

the requirement o f section 3A of the Employment Act to achieve full
employment within not more than four years after the enactment o f
the Full Employment and Balanced Growth, Act o f 1976. In the event
that the Committee on the Budget of either House modifies the annual
numerical goals for employment, production, and purchasing power
recommended by the Joint Economic Committee, that Budget Com­
mittee shall provide its reasons for such modification in the report
accompanying the first concurrent resolution.

CONGRESSIONAL REVIEW OP FULL EMPLOYMENT AND BALANCED GROWTH
PLAN
Sec. 304. (a) Each proposed Full Employment and Balanced
Growth Plan transmitted to the Congress by the President under sec­
tion 3A o f the Employment Act of 1946 (hereafter in this section re­
ferred to as a “ Proposed Plan” ) shall be referred to the Joint Eco­
nomic Committee. Within sixty days after receipt by the Congress o f
a Proposed Plan, each standing committee of the Senate and the House
o f Representatives and each joint committee o f the Congress shall
submit to the Joint Economic Committee a report containing its views
and recommendations with respect to aspects o f the Proposed Plan
which relate to matters within the jurisdiction o f such committee or
joint committee.
(b ) The Joint Economic Committee shall hold hearings for the
purpose o f receiving testimony from the Members o f Congress, ap­
propriate representatives o f Federal departments and agencies and
such representatives o f the general public and interested groups as the
joint committee deems advisable. The joint committee shall also con­
sider the comments and views on the Proposed Plan which are received
from State and local officials.
(c) Not later than one hundred and five days after the submission
o f a Proposed Plan to the Congress, the members o f the Joint Eco­
nomic Committee who are Members o f the House o f Representatives
shall report to the House, and the members of the joint committee
who are Members o f the Senate shall report to the Senate, a con­
current resolution which shall state in substance that the Congress
approves or disapproves the Proposed Plan, in whole or in part,
and which may contain such alternatives to, modifications of, or addi­
tions to the Proposed Plan as the joint committee deems appropriate
and in accord with the purposes of this Act and the Employment Act
o f 1946. The report accompanying such concurrent resolution shall
include findings and recommendations o f the joint committee with
respect to each o f the main recommendations contained in the Pro­
posed Plan.
(d ) ( 1 ) When a concurrent resolution referred to in subsection (c)
has been reported to the House o f Representatives it shall at any time
thereafter be in order (even though a previous motion to the same
effect has been disagreed to) to move to proceed to the consideration o f
the concurrent resolution. The motion shall be highly privileged and
not debatable. A n amendment to the motion shall not be in order, nor
shall it be in order to move to reconsider the vote by which the motion
is agreed to or disagreed to.

73-365 0 - 78 -3




28

(2) General debate.on any such concurrent resolution in the House
o f Representatives shall be in the Committee o f the Whole House on
the State o f the Union* and shall be limited to not more than ten
hours, which shall be divided equally between those favoring and those
opposing the concurrent resolution. A motion further to limit debate
.shall not be debatable.
(3) Except to the extent specifically provided in the preceding pro­
visions of this subsection, consideration in the House o f Representa­
tives of any such concurrent resolution and amendments thereto (or
any conference report thereon) shall be governed by the Rules of the
House of Representatives applicable to other bills and resolutions,
amendments, and conference reports in similar circumstances.
(e) ( 1) Debate in the Senate on a concurrent resolution referred to
in subsection (c), and all amendments thereto and debatable motions
and appeals in connection therewith, shall be limited to not more than
ten hours. The time shall be equally divided between, and controlled
by, the majority leader and the minority leader or their designees.
( 2) Debate in the Senate on any amendment to any such concurrent
resolution shall be limited to two hours, to be equally divided between,
and controlled by, the mover and the manager of the concurrent resolu­
tion. Debate on any amendment to an amendment, and debate on any
debatable motion or appeal shall be limited to one hour, to be equally
divided between, and controlled by the mover and the manager of the
concurrent resolution, except that in the event the manager of the
concurrent resoution is in favor of any such amendment, motion, or
appeal, the time in opposition thereto, shall be controlled by the minor­
ity leader or his designee. No amendment that is not germane to the
provisions of the concurrent resolution shall be received. Such leaders,
or either of them, may, from the time under their control on the pass­
age of the concurrent resolution, allot additional time to any Senator
during the consideration of any amendment, debatable motion, or
appeal.
(3) A motion in the Senate to further limit debate is not debatable.
A motion to recommit (except a motion to recommit with instructions
to report back within a specified number of days, not to exceed three,
not counting any day on which the Senate is not in session) is not in
ord£r. Debate on any such motion to recommit shall be limited to one
hour, to be equally divided between, and controlled by, the mover and
the manager of the concurrent resolution.
(4) The conference report on any such concurrent resolution shall
be m order m the Senate at any time after the third day (excluding
Saturdays, Sundays, and legal holidays) following the day on which
such a conference report is reported and is available to Members of
tne senate. A motion to proceed to the consideration o f the conference
report may be made even though a previous motion to the same effect
has been disagreed to.
(5) During the consideration in the Senate of the conference report
on any such ccm curat resolution, debate shall be limited to two hours,
j
between, and controlled by, the majority leader
° I ^ eir
I^bate on any debatable motion
I n K n i ?
Z
report shall be limited to thirty

•ad




< T“ roUed
O

29

( 6) Should the conference report be defeated in the Senate, debate
on any request for a new conference and the appointment o f conferees
shall be limited to one hour to be equally divided between, and con­
trolled by, the manager o f the conference report and the minority
leader or his designee, and should any motion be made to instruct the
conferees before the conferees are named, debate on such motion shall
be limited to thirty minutes, to be equally divided between, and con­
trolled by, the mover and the manager of the conference report. Debate
on any amendment to any such instructions shall be limited to twenty
minutes, to be equally divided between, and controlled by, the mover
and the manager o f the conference report. In all cases when the
manager o f the conference report is in favor o f any motion, appeal,
or amendment, the time in opposition shall be under the control o f the
minority leader or his designee.
(7) La any case in which there are amendments in disagreement,
time on each amendment in the Senate shall be limited to thirty
minutes, to be equally divided between, and controlled by, the manager
o f the conference report and the minority leader or his designee. No
amendment that is not germane to the provisions o f such amendments
shall be received.
(f )
Upon adoption of a concurrent resolution under this section
with respect to any Proposed Plan, the concurrent resolution shall
serve as a long-term guide to the Congress with respect to legislation
relevant to the goals, priorities, policies, and programs recommended
in the Proposed Plan, as modified by the concurrent resolution. A copy
o f the concurrent resolution shall be transmitted to the President by
the Clerk of the House of Representatives or the Secretary of the
Senate, as appropriate, for such actions as the President deems
appropriate.

DIVISION OF FULL EMPLOYMENT AND BALANCED GROWTH
Sec. 305. (a) There is established within the Congressional Budget
Office a Division o f Full Employment and Balanced Growth (here­
after in this section referred to as the “ Division” ) to perform long­
term economic analysis. The Division shall be headed by a Deputy
Director who shall perform his or her duties under the supervision o f
the Director o f the Congressional Budget Office and shall perform
such other duties as may be assigned to him or her by the Director.
Such Deputy Director shall be appointed in the same manner, serve
for the same period, and receive the same compensation as the Deputy
Director provided for in section 201 of the Congressional Budget Act
o f 1974.
(b) It shall be the first responsibility o f the Division to assist the
Joint Economic Committee in the discharge o f its duties under this
A ct by providing, as the joint committee may request—
( 1) information with respect to long-term economic trends,
national goals, resource availability, and the methods available to
achieve full employment and balanced economic growth;
( 2) information necessary for the preparation o f the report
and concurrent resolution referred to in section 8 0 4 (c); and
(3 ) such related information as the committee may request.
(c) A t the request o f any committee o f the House of* Representa­
tives or the Senate, or any other joint committee o f the Congress, the



30
Division shall provide to such committee or joint committee the infor­
mation necessary to fulfill its responsibilities under this Act.
(d)
At the request of any Member of the House or Senate, the JJivision shall provide to each Member any information necessary to ful­
fill his or her responsibilities under this Act.
EXERCISE OP RULEMAKING POWERS

Sec. 306. (a) The provisions of this title (other than section 305)
are enacted by the Congress—
__
*
(1) as an exercise of the rulemaking power of the House of
Representatives and the Senate, respectively, and as such they
shall be considered as part of the rules of each House, respectively,
or of that House to which they specifically apply, and such rules
shall supercede other rules only to the extent that they are incon­
sistent therewith; and
.
.
( 2) with full recognition of the constitutional right of either
House to change such rules (so far as relating to such House), at
any time, in the same manner and to the same extent as in the
case of any other rule of such House.
TITLE IV—GENERAL PROVISIONS
NONDISCRIMINATION

Sec. 401. (a) No person in the United States shall on the ground o f
sex, age, race, color, religion, or national origin be excluded from
participation m, be denied the benefits of, or be subjected to discrimi­
nation under any program or activity funded in whole or in part with
funds made available under this Act, including membership in any
structure created by this Act.
(b) Whenever the Secretary of Labor determines that a recipient o f
funds under this Act has faiied to comply with subsection (a ), or an
applicable regulation, he or she shall notify the recipient of the noncompliance and shall request such recipient to secure compliance. I f
within a reasonable period of time, not to exceed sixty days, the recipi­
ent fails or refuses to secure compliance, the Secretary of Labor is
authorized ( 1) to refer the matter to the Attorney General with a
recommendation that an appropriate civil action be instituted, ( 2) to
exercise the powers and functions provided by title V I of the Civil
Rights Act of 1964 (42 U.S.C. 2 0 d ) , or ( 3) to take such other action
00
as may be provided by law.
(c) When a matter is referred to the Attorney General pursuant to
subsection (b), or whenever he or she has reason to believe that a re­
cipient is engaged in a pattern or practice in violation of the provisions
o f this section, the Attorney General may bring a civil action in the
appropriate United States district court for any and all appropriate
relief*
(d) To assist and evaluate tho enforcement of this section, and the
broader equal employment opportunity policies o f this Act, the Secre­
tory o f Labor shall include, in the annual Manpower Report of the
President^ a detailed analysis o f the extent to which the enforcement
of this section achieves affirmative action in both the quantity and
quality o f jobs, and for employment opportunities generally.



31
LABO R

STANDARDS

S ec . 402. The policies and programs implemented and provided for
by this Act, and funded in whole or in part through this Act, shall
provide that persons employed pursuant to such policies and programs
are paid equal wages for equal work, and that such policies and pro­
grams create a net increase in employment through work that would
not otherwise be done* In providing employment under this Act, or in
submitting legislation under this Act, the President shall insure that
persons employed in jobs utilizing funds, provided in whole or in part
through this Act, be paid wages not lower than whichever is the
highest of—
(A ) the minimum wage which would be applicable to the em­
ployee under the Fair Labor Standards Act of 1938, if section
6(a*) (1) o f such Act applied to such employee and if he or she were
not exempt under section 13 thereof;
(B ) the State or local minimum wage for the most nearly com­
parable covered empolyment;
(C) (i) in the case of employers which are States, political sub­
divisions, local educational agencies, public institutions o f higher
education, or other public agencies or institutions, the prevailing
rates o f pay for persons employed in similar public occupations by
the same employer, or,
(ii) in the case of empolyers which are nonprofit private or­
ganizations or institutions, the appropriate prevailing wage de­
termined in accordance with the Service Contract Act o f 1965 or
the prevailing rates of pay for persons employed in similar oc­
cupations by the same employer, whichever is the higher, or
(D ) in the case of persons performing work o f the type to
which the Davis-Bacon Act, as amended (40 TJ.S.C. 276a—
276a-5), applies, the prevailing wage determined in accordance
with that Act.
AUTHORIZATIONS
S ec . 403. There is authorized to be appropriated such sums as may
be needed to carry out the provisions o f this Act. Notwithstanding
any other provisions of this Act, no provision shall be construed to re­
quire expenditures in excess of amounts appropriated pursuant to this
Act.
Amend the title so as to read: “ A bill to establish and translate into
practical reality the right of all adult Americans able, willing, and
seeking to work to full opportunity for useful paid employment, pro­
duction, and purchasing power goals with proper attention to balanced
growth and national priorities; to mandate such national economic
policies and programs as are necessary to achieve full employment,
production, and purchasing power; to restrain inflation; and to pro­
vide explicit machinery for the development and implementation of
such economic policies and programs.” .




32
STATEMENT OF ALAN GREENSPAN, CHAIRMAN, COUNCIL OF
ECONOMIC ADVISERS
Mr. G r e e n s p a n . I am grateful for the opportunity to appear
before this committee to discuss the views of the Council of Eco­
nomic Advisers on the proposals embodied in S. 50, the Full Em­
ployment and Balanced Growth Act of 1976. This is a set of pro­
posals which goes far beyond the Employment Act of 1946 and
which, if adopted, would have major effects upon economic policy,
the policymaking processes of the Federal Government, and, of
course, the economy itself. These proposals, therefore, deserve our
closest examination.
Implicit in this legislation, and indeed, in any meaningful eco­
nomic definition of full employment is the presumption that employ­
ment means productive jobs, that is, jobs supported by productive
facilities which enable the high levels of productivity and hence
the high wages which are the hallmark of the American worker.
When we speak of full employment, our goal is not a statistic, but
a labor market characterized by high employment and productivity.
There are only two ways to pay a high wage for a particular job.
Either there is sufficiently high output per manhour in that em­
ployment to generate the real income implicit in the wage, or the
difference is paid by someone else in the economy through a transfer
or a subsidy. Putting people on a public payroll in an unproductive
job is not much different from unemployment insurance since the
activity that is taking place contributes relatively little to the total
national product. We may call it a job, but in an economic sense,
that doesn’t make it one. Hence, I think it is important to recognize
that productive employment should be implicit both in the concept
of full employment and in any number we might use to designate
the unemployment rate associated with full employment.
The approach incorporated in S. 50 relies heavily on the ability
of the economics profession to plan or to outline fairly precisely
the path that must be followed to achieve and then maintain full
employment. I find the thrust of this argument troublesome. It
presumes a detailed forecasting capability which is far beyond
any realistic assessment of the present or immediately foreseeable
capability of the economics profession. Nor would an infusion of
additional funds significantly improve forecasting reliability.
A modem industrial economic system based even partly on market
phenomena is so complex that any model or statistical abstraction,
no matter how complex, is still a gross oversimplification of the
dynamics of the system. Models can never expect to achieve more
man very rough approximations of the dynamics of the real world.
These approximations are most useful, but they fall significantly
short of the analytic and forecasting requirements of the approach
envisioned in S. 50.

Moreover, try as we might, it will be difficult to separate political
considerations from the planning process. The Federal Government
would sanction certain growth paths for total demand which would
presumably be consistent with the unemployment targets. This goal
related projection, however, is almost certain to go wrong. For




33
clearly, whatever comes out of the straight-forward projection based
on average historical relationships will surely be considered inade­
quate by the political process setting the goals. Instead of basing
the targets on the average expectation cranked out by the analytical
process, there will be a tendency to adopt more optimistic and, by
definition, less probable sets of projections as targets or as stand­
ards of performance. This would place the goals in the outer range,
if not at the absolute extremes, of real growth, employment, and
inflation possibilities.
Consequently, as real events unfold, the economy will have been
found to have fallen short of the unrealistic politically determined
goals for the levels of production, employment, income, inflation,
and so forth. This in turn could mean that either the goals would
be abandoned or the Government would intervene further in the
system to correct the so-called “ fault/’ Historic experience suggests
that intervention is far more likely than the abandoning of unreal­
istic goals.
Implicit in S. 50’s specification that the Federal Government set
not only economic goals but the particular policies that will get us
there, is the presumption that our theoretical underpinnings enable
us to construct and successfully follow such programs.
Since such a view is unrealistic, what would S. 50 mean in prac­
tice? I f the detailed policies fail to achieve the specified goals, as a
practical matter public service jobs become the means to achieve
the 3 percent adult unemployment statistic. For this reason, I be­
lieve we must examine the impact of expanded public service em­
ployment as the means o f achieving our goal of full employment.
W e do not have experience with the large scale public employ­
ment projects contemplated in S. 50. Millions of jobs would have
to be funded under these programs in order to reduce the adult
unemployment rate as measured statistically to 3 percent.
Such large scale public employment programs would entail a
major increase in the number of workers committed to relatively
low productivity jobs in the public sector. This would certainly
slow the rise in overall productivity and hence in our standards o f
living. The programs would not contribute to the capital investment
required to create the productive jobs needed to regain a sustain­
able high employment economy. Indeed, the heavy budget costs of
funding the program would result in higher taxes on the produc­
tive private sector or greater budget deficits. This is likely to inter­
fere with private savings and capital investment, and badly needed
increases in job supporting facilities. In short, we would be cre­
ating the types o f problems which confront other countries where
bloated public sector employment has become a serious impediment
to growth, progress, and stability. This approach has proven to be
shortsighted and counterproductive.

There is no question that extremely high unemployment and
the hardship associated with it is one of the most serious problems
currently confronting this country. It is important, however, in de­
vising policies to examine the nature of the problem carefully so
that the remedies are applicable and do not focus on something
other than the real problems. There is, for an example, an implicit




34
notion in many unemployment reducing programs that unemploy­
ment is a stable and unchanging condition for those who are un­
employed. In reality, our labor markets are characterized by an
extraordinary amount of churning, involving entry and exit from
the labor force and moves between jobs, occupations, and geographic
areas. The statistics suggest that unemployment is more generally
of relatively short duration and experienced by a significant pro­
portion of the labor force.
There were, for example, close to 8 million unemployed on av­
erage every week during 1975, and there are likely to be perhaps
7 million this year. But it is not the same people who are out of
work month after month for periods of years. I f that were the case,
very specific economic policy remedies would have to be directed
toward that problem. But the problem is quite different. On av­
erage, based on past experience, we can estimate that approximately
25 million different people experienced one or more spells of un­
employment in 1975, and perhaps one-third or more o f these ex­
perienced at least two spells. On average, each spell of unemploy­
ment approximated 2 months and a large proportion of the spells
was o f very short duration. Because of the significant amount of
turnover within the unemployment rolls, the approximately 400
million total weeks of unemployment experienced in 1975 was spread
verv broadly across our average 93 million work force.
Clearly, if we are to confront appropriately tbe problem of se­
vere unemployment, it is important to recognize it for what it actu­
ally is. Public service jobs are not a sensible solution for short dura­
tion unemployment, in fact, this approach mav actually inhibit
the normal processes of job search and productive reemployment,
and thereby unnecessarily shunt workers onto public payrolls.
Although most unemployment is characterized by high turnover
and spells of short duration, some is of a severe and prolonged na­
ture. When an individual who has been specifically trained to do
a particular job loses that lob, it is often difficult to find another
job that uses those skills. When skills are not readilv transferable,
there is a structural problem that can be very painful to the worker
caught in that position. It is sometimes said that programs targeted
to the long-term unemployed might be useful to eliminate some of
this type o f unemployment. However, there is no reason to believe
that public jobs can be easily matched to the precise skills of these
displaced workers. In fact, a public employment job that does not
utilize these skills simply delays the readiustment process—the job
training or relation that must take place for the worker to become
productive again. Taking all of these factors into account, unem­
ployment insurance, coupled with job training programs for the
long-term unemployed, would appear to be the most appropriate
response to our problem of excessive unemployment. It cushions
the financial hardships associated with unemployment, allows time

rv! search' ^wation, and retraining.
Our goal should be to achieve the reestablishment of a stable econ­
omy, the generation of productive job opportunities, and a rising
standard °f hvmg. Under normal circumstances, this problem is dif­
ficult enough. There are compelling reasons, however, for believing




35
that it may be more than normally difficult in the next several years.
The employment of our labor force in productive jobs in the private
sector of the economy will require a very large increase in capital
investment. Not only must we provide the tools, the plant, and the
equipment, we must also provide the investment required by our
energy objectives and by the environmental and safety legislation
which is already on the books.
Without the investment required to produce the jobs and the pro­
ductivity growth, we will not achieve the increasing standards of
living to which we have become accustomed. Indeed, short of funda­
mental and improbable changes in our institutions or in our patterns
of behavior, inadequate investment could prevent the attainment of
high-employment conditions and price stability even if we were to
accept the lower rates of productivity increases.
Thank you very much.
The C h a i r m a n . Thank you very much, Mr. Chairman.
[The complete statement follow s:]
T estim ony

by

A lan Greenspan , C h airm an , Council or E conomic A dvisers

I am grateful for the opportunity to appear before this Committee to dis­
cuss the views of the Council of Economic Advisers on the proposals embodied
in S. 50, The Full Employment and Balanced Growth Act of 1976. This is a
set of proposals which goes far beyond the Employment Act of 1946 and
which, if adopted, would have major effects upon economic policy, the policy­
making processes of the federal government, and the economy itself. These
proposals therefore deserve our closest examination.
The bill has several major provisions which I would like to address this
morning. It would establish a single numerical goal for full employment and
commit the Federal government to the achievement of tha goal within four
years. The numerical goal is specified as “a rate of unemployment not in
excess of 3 percent of the adult Americans in the civilian labor force.” The
bill also specifies programs and policies to be used in attaining the unem­
ployment rate goal. If the unemployment goal cannot be achieved through the
use of standard fiscal and monetary policy measures, it is to be achieved by
assigning an employer of last resort role to the Federal government and
“ through reservoirs of federally-operated public employment projects and
private non-profit employment projects.” And, the bill requires an elaborate
formal system of reporting and consultation.
Implicit in this legislation, and indeed, in any meaningful economic definition
of full employment is the presumption that employment means productive jobs,
that is jobs supported by productive facilities which enable the high levels
of productivity and hence the high wages which are the hallmark of the Ameri­
can worker. When we speak of full employment our goal is not a statistic,
but a labor market characterized by high employment and productivity.
There are only two ways to pay a high wage for a particular job. Either
there is sufficiently high output per manhour in that employment to generate
the real income implicit in the wage, or the difference is paid by someone
else in the economy through a transfer or a subsidy. Putting people on a
public payroll in an unproductive job is not much different from unemployment
insurance since the activity that is taking place contributes relatively little
to the total national product. We may call it a job but in an economic sense
that doesn’t make it one. Hence I think it is important to recognize that
productive employment should be implicit both in the concept of full employ­
ment and in anv number we might use to designate the unemployment rate
associated with full employment.
There are great difficulties involved in specifying the appropriate minimum
unemployment rate, that is, the rate consistent with maximum employment,
production and purchasing power, the goals specified in the Employment Act
of 1946. Our goal should be to produce the highest level of productive em­
ployment which is sustainable over the longer run. What that level is at any




36
particular time is far easier to specify when the economy is already operating
near i . Under those conditions one is better situated to judge the balance
t
or the tradeoffs between employment, capacity and a number of other factors
whose interaction i vital to achieving and maintaining a high employment
s
stability. Our policy should focus on expanding economic activity as rapidly
as feasible until we achieve that qualitative state.
Specifying an unemployment number in advance does not, in m y judgment,
add much information to the economic policy decisionmaking process. Our
economic system i dynamic and an unemployment rate that was consistent
s
with full employment in one period may be too high or too low in some
subsequent period. Suppose, for example, we were to choose a 4 percent
unemployment rate goal but when we got into the vicinity of 4 percent we
found that we could in fact achieve and sustain an even lowy unemployment
er
rate. Under these conditions we would clearly attempt to reach the lower
rate. In that instance the 4 percent objective would not have served a par­
ticular useful purpose. On the other hand, suppose we discovered significant
pressure with respect to the utilization of resources when we reached 5
percent, just to choose a number. It would be clear at that point that an
effort to reach a 4 percent unemployment rate would create destablizing
economy into a recession and send the unemployment rate back up. However,
i we were committed at that point to achieve a 4 percent unemployment
f
rate i would be more difficult to resist the pressures to do so. I , therefore,
t
t
seems far preferable to strive to achieve the qualitative condition of full
employment as quickly as we are able to do so. Having a specific numerical
objective in advance does not seem to me to be especially helpful and when
we are again in the neighborhood of full employment i might make the
t
achievement of stable full employment more d f i
i f cult.
The approach incorporated in S. 50 relies heavily on the ability of the
economics profession to plan or to outline fairly precisely the path that
must be followed to achieve and then maintain full employment. I find
the thrust of this argument troublesome. It presumes a detailed forecasting
capability which is far beyond any realistic assessment of the present or
immediately forseeable capability of the economics profession. Nor would
an infusion of additional funds significantly improve forecasting reliability.
A modern industrial economic system based even partly on market phe­
nomena is so complex that any model or statistical abstraction, no matter
how complex, is s i l a gross oversimplification of the dynamics of the system.
tl
Models can never expect to achieve more than very rough approximations of
the dynamics of the real world. These approximations are most useful but they
fall significantly short of the analytic and forecasting requirements of the
approach envisioned in S. 50.
Moreover, try as we might, i will be difficult to separate political considera­
t
tions from the planning process. The Federal government would sanction
certain growth paths for total demand which would presumably be consistent
with the unemployment targets. This goal related projection, however, is
almost certain to go wrong. For clearly, whatever comes out of the straight­
forward projection based on average historical relationships will surely be
considered inadequate by the political process setting the goals. Instead of
basing the targets on the average expectation cranked out by the analytical
process there will be a tendency to adopt more optimistic and. by definition,
less probable sets of projections as targets or as standards of performance.
This would place the goals in the outer range, if not at the absolute extremes,
of real growth, employment and inflation possibilities.
Consequently, as real events unfold, the economy will have been found to
have
short of the unrealistic politically-determined goals for the levels
PrCi*t!ction, employment, income, inflation, etc. This in turn could mean
that either the goals would be abandoned or the government would intervene
H! * . *
Z ^stem to correct the “fault.” Historic experience suggests
that Intervention is far more likely than the abandonment of unrealistic
goals.
Implicit in S. 50's specification that the Federal Government set not onlv
E*!* butlhe Particular policies that will get us there, is the presumptlon that onr theoretical underpinnings enable us to construct and suc­
cessfully follow such programs.




37
Since such a view is unrealistic what would S. 50 mean in practice? If the
detailed policies fail to achieve the specified goals, as a practical matter public
service jobs become the means to achieve the 3 percent unemployment goal.
For this reason I believe we must examine the impact of expanded public
service employment as a means of achieving our goal of full employment.
On the basis of experience with moderate size public employment programs,
numerous studies have concluded that public jobs programs do not ultimately
create significantly more jobs than any other type of current policy, whether
it be in the form of tax cuts or increased government spending for other
purposes. In fact, the evidence suggests that after two years as much as 90
percent of those public sector jobs that were funded would have been created
anyway through ongoing state and local efforts. What happens is that state
and local governments substitute federal funds for their own funds as they
expand. The additional federal money enables state and local governments
to lower taxes or raise them less than they otherwise would have. In this
sense, a good deal of public employment funds indirectly becomes a form
of general grants to state and local governments. Also, studies indicate that
it is not the hard core unemployed who tend to be placed in federally funded
public service employment job slots, but rather the jobs tend to go to persons
with good prospects for a job in the private sector of the economy where
wages are more likely to reflect productivity.
We do not have experience with the large scale public employment projects
contemplated in S. 50. Millions of jobs would have to be funded under these
programs in order to reduce the adult unemployment rate as measured sta­
tistically to 3 percent.
Such large scale public employment programs would entail a major in­
crease in the number of workers committed to relatively low productivity
jobs in the public sector. This would certainly slow the rise in overall pro­
ductivity and hence in our standards of living. The program would not con­
tribute to the capital investment required to create the productive jobs
needed to regain a sustainable high employment economy. Indeed, the heavy
budget costs of funding the program would result in higher taxes on the
productive private sector or greater budget deficits. This is likely to inter­
fere with private savings and capital investment, and the badly needed
increases in job supporting facilities. In short, we would be creating the
types of problems which confront other countries where bloaded public
sector employment has become a serious impediment to growth, progress
and stability. This approach has proven to be shortsighted and counter­
productive.
There is no question that extremely high unemployment and the hardships
associated with it is one of the most serious problems currently confronting
this country. It is important, however, in devising policies to examine the
nature of the problem carefully so that the remedies are applicable and
do not focus on something other than the real problems. There^s, for example,
an implicit notion in many unemployment reducing programs that unemploy­
ment is a stable and unchanging condition for those who are unemployed. In
reality, our labor markets are characterized by an extraordinary amount of
churning, involving entry and exit from the labor force and moves between
jobs, occupations and geographic areas. The statistics suggest that unemploy­
ment is more generally of relatively short duration and experienced by a
significant proportion of the labor force.
There were close to 8 million unemployed on average every week during
1975 and there are likely to be perhaps 7 million this year. But it is not
the same people who are out of work month after month for periods of
years. If that were the case very specific economic policy remedies would
have to be directed towards that problem. But the problem is quite different.
On average, based on past experience* we can estimate that approximately
25 million different people experienced one or more spells of unemployment in
1975, and perhaps one-third or more of these experienced at least two spells.
On average, each spell of unemployment approximated two months and a
large proportion of the spells was of very short duration. Because of the
significant amount of turnover within the unemployment rolls the approxi­
mately 400 million total weeks of unemployment experienced in 1975 was
spread very broadly across our average 9ft million work force.




38
Clearly if we are to confront appropriately the problem of severe unem­
ployment i is important to recognize i for what it actually i . Public service
t
t
s
jobs are not a sensible solution for short duration unemployment. In fact,
this approach may actually inhibit the normal processes of job search and
productive reemployment, and thereby unnecessarily shunt workers onto public
payrolls.
Although most unemployment is characterized by high turnover and spells
of short duration some is of a severe and prolonged nature. W h e n an
individual who has been specifically trained to find another job that uses
those s i l . When skills are not readily transferable there is a structural
kls
problem that can be very painful to the worker caught in that position. It
is sometimes said that programs targeted to the long-term unemployed might
be used to eliminate some of this type of unemployment. However, there is
no reason to believe that public jobs can be easily matched to the precise
skills of these displaced workers. In fact, a public employment job that does
not utilize these skills simply delays the readjustment process— the job
training or relocation that must take place for the worker to become productive
again. Taking all of these factors into account unemployment insurance,
coupled with job training programs for the long-term unemployed, would
appear to be the most appropriate response to our problem of excessive un­
employment It cushions the financial hardships associated with unemploy­
ment, allows time for job search, relocation and retraining.
Our goal should be to achieve the reestablishment of a stable economy, the
generation of productive job opportunities and a rising standard of living.
Under normal circumstances this problem is difficult enough. There are some
compelling reasons, however, for believing that it may be more than normally
difficult in the next several years. The employment of our labor force in pro­
ductive jobs in the private sector of the economy will require a very large
increase in capital investment. Not only must we provide the tools, the plant
and the equipment, we must also provide the investment required by our
energy objectives and by the environmental and the safety legislation which
is already on the books.
Without the investment required to produce the jobs and the productivity
growth we will not achieve the increasing standard of living to which we
have become accustomed. Indeed, short of fundamental and improbable
changes in our institutions or in our patterns of behavior, inadequate invest­
ment could prevent the attainment of high-employment conditions and price
stability even if we were to accept the lower rates of productivity increases.

The C h a i r m a n . Governor Partee, in your statement, if you would
like to abbreviate it in any way, we would appreciate it, because
we do have another witness; and the entire statement will be printed
in full.
STATEMEHT OF J. CHARLES PARTEE, MEMBER, BOARD OF
GOVERNORS, FEDERAL RESERVE SYSTEM
Mr. P a r t e e . I will be glad to summarize.
I
appreciate the opportunity to present the views of the Federal
Reserve Board on S. 50, the “ Full Employment and Balanced
Growth Act of 1976.” This bill would amend the Employment Act
of 1946, which requires the Federal Government to utilize all of
its resources in order to foster conditions that “ promote maximum
employment, production, and purchasing power.” The Federal Reseije. Board fully recognizes its responsibility under the 1946 act
and has reported regularly to Congress on its efforts to further the
objectives o f the law. The central question facing Congress as it
considers S. 50 is whether or not the proposed amendments will help
advance the goals of the oriflrinal act. I am sorry to say that we do
not believe they will. The bill is both too rigid and too inflationary




39
and on balance, would likely prove to be inconsistent with the long­
term economic well-being of the nation.
It is o f critical importance, we believe, that the containment of in­
flation be recognized explicitly as a national objective inseparable
from the goals of maximum employment and production. Indeed, a
principal flaw in the 1946 act is its failure to identify clearly price
stability as a long-run economic goal. S. 50 shares and extends this
shortcoming. In the Board’s judgment, the anti-inflation provisions
of the bill are too weak and too vague to be satisfactory. Nowhere
are there workable safeguards against inflation. Instead, the bill has
many provisions that would contribute further to conditions and
practices that would likely result in an intensification o f upward
price-pressures.
Certainly one inflationary feature is the bill’s objective o f 3 per­
cent adult unemployment to be reached, and sustained, within 4
years following enactment. This is a most arbitrary target. Histori­
cally, a 3 percent adult unemployment rate is very low. Over the
past 30 years, the jobless rate for those 18 and over has been in the
neighborhood of 3 percent only during 1952-53 and 1968-69, years
in which the number of men in the armed forces was over 3.5 mil­
lion—half again as high as the present level. Moreover, both o f these
periods o f heightened economic activity were characterized by demand-pull inflationary pressures and were followed eventually by
major recessions. Thus, our postwar experience has been that achieve­
ment of 3 percent unemployment is likely to be accompanied by
substantial upward price-pressures and followed by economic de­
cline, rather than by sustained full employment.
Some of the countercyclical and structural programs of S. 50
would be likely to introduce important new elements of inflationary
bias into our economic system. A significant problem of many past
stabilization programs has been timing. Although the bill calls for
the establishment of triggers and allocation formulas, I believe it
still unlikely that we would avoid the pitfall of applying the aid
too late in an economic downturn and continuing it too far into
a recovery, when the effect on price-pressures can be most pro­
nounced. Experience has shown that such defects in timing have
been particularly marked in programs o f accelerated public works—
one o f the bill’s recommended options. The inflationary implications
of some o f the other suggested programs—including those to sta­
bilize State and local government budgets over the cycle and to ex­
tend unemployment insurance— also require careful evaluation.
The major inflationary thrust from the countercyclical programs,
however, would come from the specific provisions of this bill that
make the Federal Government the employer o f last resort. While
worthy in principle, the program as specified in S. 50 has a critical
flaw. It requires the payment of prevailing wages, defined where
applicable as the highest of the following: The Federal minimum
wage, the State or local minimum wage, the prevailing wage in State
or local government, or the prevailing wage in construction, as speci­
fied bv the Davis-Bacon Act.
This program—and these wages—would have profound inflation­
ary consequences for several reasons. First, the program would re­




40
suit in substantial cost-push pressures. Private labor markets would
be tightened, and this would cause private employers to bid up wage
rates in order to obtain and retain workers. Also, by making public
jobs available at attractive wages as a matter of right, the program
would encourage workers now employed in the private sector to
press for even larger wage gains, or to transfer to governmental
jobs. As an example, any construction project under this bill would
pay the going union rate; but, since a large proportion of building
in the United States is nonunion, this wage would be higher than
many construction workers now receive and would provide for an
alternative preferable to their existing jobs.
Second, the employer of last resort program, as specified, would
very likely come to generate significant demand-pull pressures on
prices. Given our national reluctance to raise taxes sufficiently to
cover increases in Government spending, the financing of the pro­
gram would tend to add to the Federal deficit—very substantially
so, at some points in time. In this fiscal year, for example, the Fed­
eral Government is spending close to $3 billion to support some
320,000 public service employment jobs in State and local govern­
ment. The program proposed by S. 50 has the potential of being
many times larger than this. Its attractive wage provisions would
draw not only from the unemployed but also from those working
part-time or at less desirable jobs, and from those not presently in
the labor force, including retired persons, housewives, and students*
The upper bound of potential participation cannot be estimated
with any degree of accuracy. But it seems quite possible to me that
several million jobs might come to be needed to employ all o f those
seeking these positions at the relatively attractive rates of pay that
would be offered.
Far and away the most significant defect of the bill as far as in­
flation is concerned, however, results from the limitations it places
on the exercise of monetary and fiscal policy. I f I interpret S. 50
correctly, such policies are to be directed solely to the achievement
of the 3 percent unemployment goal until this target is reached. Only
when that rate is below 3 percent can macro-economic tools be di­
rected in any degree to the problems o f inflation and economic in­
stability. Instead, these fundamental techniques of demand manage­
ment are to be supplanted in the bill by a series o f specific program
initiatives. The list o f these substitute measures includes the follow­
ing: a comprehensive information system to monitor inflationary
trends, programs to encourage greater supplies of goods, services and
factors of production, export licensing, establishment of stockpile
reserves of food and critical materials, encouragement to labor and
management to raise productivity through voluntary action, and
proposals to increase competition.

Whatever the individual merits of these programs— and some are
worthy of careful consideration— one fact is abundantly clear. They
ao not constitute an effective policy of inflation control. We believe
:
be a most serious mistake to discard the use of mone*
tary and fiscal policy for stabilization purposes without first findmg some ^nfective alternative means of constraining inflation on an




41

Moreover, the bill’s adoption of a trigger point with regard to
economic goals simply does not provide a workable basis for em­
ploying accumulated knowledge about the behavior of the economy.
It would not be practicable, in my view, to focus macroeconomic
policies exclusively toward a full employment goal and then, at a
given point, abruptly shift attention to the containment o f inflation.
That is analogous to approach a stoplight at top speed, and then
applying the brakes with equal vigor; the momentum would be sure
to carry one into the intersection, or the deceleration to send one
through the car’s windshield, or more probably both. There needs to
be the latitude to modulate and balance policy objectives to changing
economic circumstances if we are to have any hope of achieving a
lasting economic prosperity.
The changes required by the bill would go considerably beyond ,
narrowing the options for modulating macropolicy objectives in
accord with perceived needs of the economy. They would also alter
dramatically the features of the existing process for review and over­
sight of the monetary policy function. In this regard, I would like
to direct my comments to two specific provisions. First, the President
is required to recommend a particular plan for monetary policy and
to submit it annually to the Congress along with his numerical goals
for employment, production, and purchasing power. Second, within
15 days o f the President’s report, the Federal Reserve Board is re­
quired to submit its intended policies for the coming year to the '
Congress, indicating the extent to which its plans support the goals
of S. 50 and providing justification for any variation from the Pres­
ident’s recommendations.
!
The Federal Reserve Board strongly objects to these proposed
new procedures on two grounds. First, they would alter the tradi­
tional relationship between the Congress, the Federal Reserve, and
the executive branch in a way that could well prove detrimental to
the economic well-being of the Nation; and, second, the procedures
specified would seriously impair the current operational flexibility
needed in the formulation and conduct of monetary policy.
The Federal Reserve Act was carefully drawn to specify a rela­
tionship between the Congress and the Federal Reserve System that
would serve to insulate the monetary authority from shortrun po­
litical pressures. This feature of the act stemmed from a wellfounded concern that excessive Government spending could be aided
and abetted if the Executive were granted the authority to control
a Nation’s money supply.
The need to turn to private financial markets in order to finance
deficit public spending performs an important function. The process
o f financing shifts purchasing power from private savers to the
Government, thus neutralizing much o f the potential inflationary
effect o f deficit financing, while the necessity of finding willing in­
vestors imposes a market discipline on the scale o f such deficits. But
even in the United States, where this discipline of the market has
largely prevailed, the Federal budget has been in deficit every year
but one since 1960. There is nothing in this record that suggests
that we can relent in the battle to avoid excessive deficit financing.
But instead S. 50 proposes to weaken one key safeguard against




42
inflationary public finance by introducing the executive branch ex­
plicitly and publicly into the making of monetary policy. And were
the Congress to mandate these new procedures, it also would sig­
nificantly dilute its preeminent role in the oversight of the monetary
process.
Moreover, the proposed procedures for the planning and evalua­
tion of monetary policy are, for operational reasons, inferior to
those now in place. Under House Concurrent Resolution 133, the
Federal Reserve Board reports on economic and financial develop­
ments, and specifies its current expectations for a variety of mone­
tary aggregates on a quarterly schedule, alternately before the Bank­
ing Committees of the House and Senate. The great advantage of
this reporting procedure is that it permits the Federal Reserve the
flexibility necessary to adapt monetary policy to changing economic
conditions. The procedures proposed in S. 50 would curtail such
flexibility*
There are two major changes in the existing process required.
First, policy planning is moved from a quarterly to what would ef­
fectively be a 12- to 15-month reference period; and, second, there
would appear to be a fixed commitment to longer-term plans for
monetary policy in support of specified numerical national economic
goals. On the basis of experience, the Board is convinced that these
changes would make the proposed planning and evaluation process
too rigid to be workable. As this committee is well aware, the ability
of economists to forecast economic events for a year or more into
the future with any high decree of reliability simply does not exist.
Two rather notable recent illustrations of forecasting imprecision
come quickly to mind: the extraordinarily high rates of inflation
that developed in 1973 and 1974 that virtually no one foresaw, and
the severity of the 1974-1975 recession, which was also quite unex­
pected. In either case, it would have been a serious error to adhere
to outdated plans based upon economic forecasts that proved wide
of the mark.
In addition, the current state of knowledge about the relationship
between movements in the monetary aggregates and real economic
activity is not nearly so precise as the comments of some economists
would have you believe. In recent quarters, for example, there ap­
pears to have been a dramatic reduction in tbe amount of money
needed to accommodate the expansion in GNP. Under these cir­
cumstances, holding to a course of monetary growth that might have
been suggested by historical relationships could have been quite
damaging. Speculative activities would have been encouraged, thus
sowing the seeds for future economic instability, and the foundation
might well have been laid for a renewal of intensified inflationary
pressures.
Uncertainties about monetary and economic relationships require
exceptional vigilance and flexibilitv by the Federal Reserve, and
serve to point out the need for flexibility as an attribute of the mone­
tary policy process. Ours is a complex and dynamic economy; its
linkages and responses are still imperfectly understood and probably
always will be. Thus, in order to accomplish the obiectives of eco­
nomic stabilization, the formulation and conduct of monetary policy




43
need to retain their flexibility to adapt to unforeseen developments
in our economic and financial system.
Let me turn now to what this bill has to offer by way of improv­
ing the tradeoff between unemployment and inflation.
High unemployment side by side with high rates of inflation pre­
sents the most difficult problem facing economic policymakers, not
only in the United States, but throughout the world. The sources of
this problem are far from fully understood, but an important part
appears to be structural in nature and, therefore, relatively immune
to monetary and fiscal policy.
The bill properly recognizes the importance of structural problems
and suggests a variety of programs to alleviate them. There are
many such programs that might prove beneficial, but I believe that
two broad areas deserve special emphasis. First are programs that
would help increase competition in product and factor markets.
There is need to reassess the effectiveness of our antitrust legislation—
with regard to both business and labor practices—and the anti­
competitive effects of Federal regulation of all kinds. We need also
to reexamine the costs and benefits of such federally mandated pro­
grams as the Davis-Bacon Act, the minimum wage for teenagers,
and extended unemployment insurance. Second are programs that
would serve to increase over time the employability of the jobless.
We need better and more imaginative training programs and an im­
proved labor market information system that would match job va­
cancies with available people, perhaps on a national basis.
Other programs are worthy of consideration. We should find ef­
fective ways to encourage more investment in productive plant and
equipment, through stronger incentives and perhaps some revisions
in the tax laws. We should stress programs to improve efficiency
in both the private and public sectors. In this regard, incidentally,
the Board would endorse the principle of zero*base budgeting, which
appears to be contemplated by the feature of S. 50 requiring the
review of one-fifth of all Federal government programs annually.
A new emphasis on structural programs such as these, together
with prudent monetary and fiscal policies, will provide our best hope
for achieving the goals of the Employment Act of 1946. But the
Board believes that S. 50, while reasserting these goals, would in
the end be counterproductive in the effort to achieve them. The bill
would release a powerful combination of demand-pull and cost-push
pressures on prices. As has been demonstrated by the experience of
many other countries—and, to a degree, by our own experience of
recent years—rapid inflation can breed economic instability and ulti­
mately retard—not promote—the growth of productive jobs. I f we
are truly to commit ourselves to the broad goals of the 1946 Act, we
need programs and policies that achieve a greater balance among
our economic objectives than is recognized in S. 50.
[The complete statement follows:]
Statem en t

bt

J . C h a r l e s P a s t e s , M e m b e r , B o ar d
R eserve S y s t e m

of

G overnors

of t h e

F ederal

I appreciate the opportunity to present the views of the Federal Reserve
Board on S. 50, the “Full Employment and Balanced Growth Act of 1978."

73-365 0-76 -4




44
This bill would amend the Employment Act of 1946, which requires the
Federal government to utilize all of its resources in order to foster conditions
that “promote maximum employment, production and purchasing power.” The
Federal Reserve Board fully recognizes its responsibility under the 1946 Act
and has reported regularly to Congress on its efforts to further the objectives
of the law. The central question facing Congress as it considers S. 50 is
whether or not the proposed amendments will help advance the goals of the
original Act. I am sorry to say that we do not believe they will. The bill is
both too rigid and too inflationary and, on balance, would likely prove to be
inconsistent with the long-term economic well-being of the nation.
Unemployment has been a very serious problem recently in the United
States, as in many other countries. But this condition is mainly a product
of the recession, which in turn was caused by the excesses and imbalances
that had developed earlier in the economy. With economic recovery, good
progress is being made in restoring jobs, and the unemployment rate has
dropped 1% percentage points over the past year.
Substantial further progress is necessary in creating new job opportunities,
thereby reducing unemployment and providing for the absorption of a steadily
growing labor force. This must be a primary objective of governmental eco­
nomic policy. It is also of crucial importance, however, that we avoid re­
T
creating the conditions that led to the past recession, and could do so again.
This means that continued attention must be directed to questions of economic
structure and balance, including avoidance of the extremely injurious effects
of rapid inflation.
We at the Board are gravely concerned that the net effect of S. 50 would
t> to add substantially to the inflationary bias already evident in the per­
e
formance of the nation’s economy, without generating a lasting increase in
productive employment opportunities. The events of recent years have demon­
strated again that rapid inflation can undermine prosperity and exacerbate
unemployment. The inflation of 1973 and 1974, with its adverse effects on real
incomes, attitudes and the quality of economic decision-making, was a major
force contributing to the subsequent deep economic recession. It should be
clear from this experience that such conditions exact their toll in terms of
economic inequity and social discontent. The American people have become
painfully aware of the costs of inflation and of the need to control it.
It is of critical importance, we believe, that the containment of inflation
l> recognized explicitly as a national objective inseparable from the goals
e
of maximum employment and production. Indeed, a principal flaw in the
1946 Act is its failure to identify clearly price stability as a long-run economic
goal. S. 50 shares and extends this shortcoming. In the Board’s judgment, the
anti-inflation provisions of the bill are too weak and too vague to be satis­
factory. Nowhere are there workable safeguards against inflation. Instead,
the bill has many provisions that would contribute further to conditions and
practices that would likely result in an intensification of upward price
pressure*.
Certainly one inflationary feature is the bill’s objective of 3 per cent adult
unemployment to be reached, and sustained, within four years following
enactment. This is a most arbitrary target. Historically, a 3 per cent adult
unemployment rate is very low. Over the past 30 years, the jobless rate for
been in tlle neighborhood of 3 per cent only during
and 1968-09, years in which the number of men in the armed forces
3% million—half again as high as the present level. Moreover, both
iii«
heightened economic activity were characterized by demandpull inflationary pressures and were followed eventually by major recessions,
iiuis, our postwar experience has been that achievement of 3 per cent unemaccompanied by substantial upward price pressures
i*
Leconomic decline, rather than by sustained full emplovment.
of a rigid unemployment goal ignores the dynamic
ti*
can *al>or force. The jobless rate of a decade or so ago
the
7tSnl? 8Las the carrent rate’ principally because of
Fpdmi
*orce and the more literal nature of our
enVmnta
labor force has relatively more new

^
the yoxm* ' and married women—than it did
!• S *
e h4gber **tes of joblessness as they search^
often intermittently and through trial and error-for a satisfactory job. It is
ofhTn




45
reasonable to think that this has biased the official jobless rate in an upward
direction.
Indeed, the fact that the bill sets forth an unemployment target while
making no mention of a comparable specific objective with regard to inflation
is illustrative of its uneven treatment of these two economic problems. I would
not urge that any fixed target for short-run price behavior be set; the meaning
of an inflation rate, in its own way, can be as changeable as the meaning of a
jobless rate. My purpose simply is to point out the bias of S. 50 in favor of
one important national goal at the expense of another.
Some of the countercyclical and structural programs of S. 50 are likely to
introduce important new elements of inflationary bias into our economic sys­
tem. A significant problem of many past stabilization programs has been timing.
Although the bill calls for the establishment of triggers and allocation formu­
las, I believe it still unlikely that we would avoid the pitfall of applying the
aid too late in an economic downturn and continuing it too far into a recovery,
when the effect on price pressures can be most pronounced. Experience has
shown that such defects in timing have been particularly marked in programs
of accelerated public works—one of the bill’s recommended options. The inflationary implications of some of the other suggested programs—including those
to stabilize State and local government budgets over the cycle and to extend
unemployment insurance—also require careful evaluation.
The major inflationary thrust from the countercyclical programs, however,
would come from the specific provisions of this bill that make the Federal gov­
ernment the employer of last resort. While worthy in principle, the program
as specified in S. 50 has a critical flaw. It requires the payment of prevailing
wages, defined where applicable as the highest of the following: the Federal
minimum wage, the State or local minimum wage, the prevailing wage in
State or local government, or the prevailing wage in construction as specified
by the Davis-Bacon Act.
This program—and these wages—would have profound inflationary con­
sequences for several reasons. First, the program would result in substantial
cost-push pressures. Private labor markets would be tightened, and this would
cause private employers to bid up wage rates in order to obtain and retain
workers. Also, by making public jobs available at attractive wages as a
matter of right, the program would encourage workers now employed in the
private sector to press for even larger wage gains, or to transfer to govern­
mental jobs. As an example, any construction project under this bill would
pay the going union rate; but since a large proportion of building in the U.S.
is nonunion, this wage would be higher than many construction workers
now receive and would provide an alternative preferable to their existing jobs.
Second, the employer at last resort program, as specified, would very likely
come to generate significant demand-pull pressures on prices. Given our na­
tional reluctance to raise taxes sufficiently to cover increases in government
spending, the financing of the program would tend to add to the Federal
deficit—very substantially so, at some points in time. In this fiscal year, for
example, the Federal government is spending close to I $3 billion to support
some 320,000 public service employment jobs in State ,and local government.
The program proposed by S. 50 has the potential of being many times larger
than this. Its attractive wage provisions would draw hot only from the un­
employed but also from those working part-time or at less desirable jobs, and
from those not presently in the labor force, including retired persons, house­
wives and students. The upper bound of potential participation cannot be
estimated with any degree of accuracy. But it seems quite possible that sev­
eral million jobs might come to be needed to employ all of those seeking these
positions at the relatively attractive rates of pay that would be offered. Such a
program might therefore involve $30 billion or more in outlays at current
average pay scales. I might note also that we have learned from the existing
public service employment programs that cost offsets in terms of reduced trans­
fer payments under other programs may not be as large as is often thought.
Only nbout one-fourth of public service program enrollees in 1975 had been
receiving unemployment insurance or public assistance prior to participation
in the program.
Far and away the most significant defect of the bill as far as inflation is
concerned, however, results from the limitations it places on the exercise of




46
monetary and fiscal policy. If I Interpret S. 50 correctly, such policies are to be
directed solely to the achievement of the 3 per cent unemployment goal until
this target is reached. Only when that rate is below 3 per cent can macroeconomic tools be directed in any degree to the problems of inflation and eco­
nomic instability. Instead, these fundamental techniques of demand manage­
ment used throughout the world in governmental efforts to combat inflation
as well as unemployment—are to be supplanted in the bill by a series of spe­
cific program initiatives. The list of these substitute measures includes the
following: a comprehensive information system to monitor inflationary trends;
programs to encourage greater supplies of goods, services and factors of pro­
duction; export licensing; establishment of stockpile reserves of food and
critical materials; encouragement to labor and management to raise produc­
tivity through voluntary action; and proposals to increase competition.
Whatever the individual merits of these programs—and some are worthy of
careful consideration—one fact is abundantly clear. They do not constitute an
effective policy of inflation control. We believe that it would be a most serious
mistake to discard the use of monetary and fiscal policy for stabilization pur­
poses without first finding some effective alternative means of constraining in­
flation on an enduring basis.
Moreover, the bill’s adoption of a trigger point with regard to economic goals
simply does not provide a workable basis for employing accumulated knowl­
edge about the behavior of the economy. It would not be practicable, in my
view, to focus macro-economic policies exclusively toward a full employment
goal and then, at a given point, abruptly shift attention to the containment of
inflation. That is analogous to approaching a stoplight at top speed, and then
applying the brakes with equal vigor; the momentum would be sure to carry
one into the intersection, or the deceleration to send one through the car’s
windshield, or more probably both. There needs to be the latitude to modulate
and balance policy objectives to changing economic circumstances if we are
to have any hope of achieving a lasting economic prosperity.
The changes required by the bill would go considerably beyond narrowing
the options for modulating macro-policy objectives in accord with perceived
needs of the economy. They would also alter dramatically the features of
the existing process for review and oversight of the monetary policy function.
In this regard, I would like to direct my comments to two specific provisions.
First, the President is required to recommend a particular plan for monetary
policy and to submit it annually to the Congress along with his numerical
goals for employment, production and purchasing power. Second, within 15
days of the President’s report, the Federal Reserve Board is required to submit
Its intended policies for the coming year to the Congress, indicating the extent
to which its plans support the goals of S. 50 and providing justification for
aion»V
a
n *rom
President’s recommendations.
TTie Federal Reserve Board strongly objects to these proposed new pro­
cedures on two grounds: (1) they would alter the traditional relationship between the Congress, the Federal Reserve and the Executive Branch in a way
a
prove detrimental to the economic well-being of the nation,
a
l.proce^ ires specified would seriously impair the current operai ^Reeded in the formulation and conduct of monetary policy.
^
deserve Act was carefully drawn to specify a relationship be­
tween the Congress and the Federal Reserve System that would serve to insuY *u*hority from short-run political pressures. This feature
I
a well founded concern that excessive government
thnritv
^ a*ded an abetted if the executive were granted the au<J
thftt
a
J1 money
’8
T is a fact of economic history
t
massivp
have come under great pressure to engage in
ieona rfiJS f l l
time or another, even though this patently
the inflflHrmnpv
he*].th
the <*°nomy. History also is replete with
in to such t e m
W
f t ve followed when governments have given
to Siinnlv thp
slm
T)ly nm the Pointing presses in order
t0 finance their deficits.

\
!

public spend!n? S r fJ L 1 T e ^ anclftl markets in «^er to finance deficit
!
m
u
c
h
2 lm >ort,L faction. The process of financing shifts
T
nt
Z
effeCt 0f dcficit
while the necessity
of finding willing
savers to the government, thus neutralizing
or nnmng willing investors imposes a market discipline on the scale of such




47

deficits. But even in the United States, where this discipline has largely pre­
vailed, the Ueuerai budget has been in deficit every year but one since 1960.
There is nothing in this record that suggests that we can relent in the battle
to avoid excessive deficit financing. But instead S. 50 proposes to weaken one
key saieguard against inflationary public finance by introducing the Execu­
tive Branch explicitly and publicly into the making of monetary policy. And
were the Congress to mandate these new procedures, it also would significantly
dilute its preeminent role in the oversight of the monetary policy process.
Moreover, the proposed procedures for the planning and evaluation of
monetary policy are, for operational reasons, inferior to those now in place.
Under House Concurrent Resolution 133, the Federal Reserve Board reports
on economic and financial developments, and specifies its current expectations
for a variety of monetary aggregates on a quarterly schedule, alternately
before the Banking Committees of the House and Senate. The great advantage
of this reporting procedure is that it permits the Federal Reserve the flexibility
necessary to adapt monetary policy to changing economic conditions. The
procedures proposed in S.50 would curtail such flexibility.
There are two major changes in the existing process required by S. 50:
(1) policy planning is moved from a quarterly to what would effectively be a
12 to 15-month reference period, and (2) there would appear to be a fixed
commitment to longer-term plans for monetary policy in support of specified
numerical national economic goals. On the basis of experience, the Board is
convinced that these changes would make the proposed planning and evalua­
tion process too rigid to be workable. As this Committee is aware, the ability
of economists to forecast economic events for a year or more into the future
with any high degree of reliability simply does not exist. Two rather notable
recent illustrations of forecasting imprecision come quickly to mind: the
extraordinarily high rates of inflation that developed in 1 T 3 and 1974 that
J<
virtually no one foresaw, and the severity of the 1974-75 recession, which was
also quite unexpected. In either case, it would have been a serious error
to adhere to outdated plans based upon economic forecasts that proved to be
wide of the mark.
In addition, the current state of knowledge about the relationship between
movements in the monetary aggregates and real economic activity is not
nearly so precise as the comments of some economists would have you
believe. In recent quarters, for example, there appears to have been a dramatic
reduction in the amount of money needed to accommodate the expansion in
GNP. Under these circumstances, holding to a course of monetary growth that
might have "been suggested by historical money/GNP relationships could have
been quite damaging. Speculative activities would have been encouraged, thus
sowing the seeds for future economic instability, and the foundation might
well have been laid for a renewal of intensified inflationary pressures.
Technical and financial innovations, accompanied by regulatory changes,
undoubtedly have accounted in part for the slower growth in the narrowlydefined money stock. For example, the spread of overdraft checking account
credit privileges, increased use of credit cards to facilitate transactions, and
the introduction of savings accounts at commercial banks for business firms all
have tended to encourage greater economizing in the use of currency and
checking account balances. These effects could not have been estimated with
any accuracy in advance, however, and in any event, I do not think that they
provide a complete explanation. The fact is that there is a potential for shortrun volatility in monetary relationships that can make economic forecasts
based on monetary inputs quite treacherous.
These uncertainties about monetary and economic relationships require
exceptional vigilance and flexibility by the Federal Reserve, and serve to
point out the need for flexibility as an attribute of the monetary policy
process. Ours is a complex and dynamic economy; its linkages and responses
are still imperfectly understood and probably always will be. Thus, in order
to accomplish the objectives of economic stabilization, the formulation and
conduct of monetary policy need to retain their flexibility to adapt to unfore­
seen developments in our economic and financial system. For these reasons
we believe the provisions of S. 50 with respect to the monetary policy planning
process would serve to impair the contribution the Federal Reserve can make
in helping to achieve our national economic goals.




48
Let me turn now to what this bill has to offer by way of improving the
trade-off between unemployment and inflation.
We have alt painfully learned that the unemployment-infiation trade-off—
which is generally thought to be shaped by our human and material resources,
our economic institutions and processes, and our social practices and aspira­
tions—has grown distinctly more unfavorable in recent years. A simple
but useful illustration of this deterioration is the so-called discomfort index,
which adds together the unemployment rate and the rate of increase in
consumer prices. Last year, that index was 15.6, while a decade ago it was
6.4 and two decades ago 4.8.
High unemployment side by side with high rates of inflation presents the
most difficult problem facing economic policymakers, not only in the United
States but throughout the world. The sources of this problem are far from
fully understood, but an important part appears to be structural in nature
and, therefore, relatively immune to monetary and fiscal policy. A look at
the composition of unemployment figures illustrates some of the structural
impediments in labor markets. Groups experiencing the greatest barriers—
discrimination, marginal skills, location in depressed areas—have jobless rates
well above the national average, even when the economy is not in a recession.
For example, in the pre-recession year of 1973, when the national average
unemployment rate was 4.9 percent, black joblessness was 8.9 percent, while
14.5 percent of all teenagers in the labor force were unemployed.
The bill properly recognizes the importance of structural problems and
suggests a variety of programs to alleviate them. There are many such pro­
grams that might prove beneficial, but I believe that two broad areas deserve
special emphasis. First are programs that would help increase competition
in product and factor markets. There is need to reassess the effectiveness
of our antitrust legislation—with regard to both business and labor practices—
and the anti-competitive effects of Federal regulation of all kinds. We need
also to reexamine the costs and benefits of such Federally mandated programs
as the Davis-Bacon Act, the minimum wage for teenagers and extended
unemployment insurance. Second are programs that would serve to increase
over time the employability of the jobless. We need better and more imagina­
tive training programs and an improved labor market information system
that would match job vacancies with available people, perhaps on a national
basis.
Other programs are worthy of consideration. We should find effective ways
to encourage more investment in productive plant and equipment, through
stronger incentives and perhaps some revisions in the tax laws. We would
stress programs to improve efficiency in both the private and public sectors.
In this regard, the Board would endorse the principle of zero-base budgeting,
which appears to be contemplated by the feature of S. 50 requiring the review
of one-fifth (by dollar value) of all Federal government programs annually.
A new emphasis on structural programs such as these, together with prudent
monetary and fiscal policies, will provide our best hope for achieving the goals
of the Employment Act of 1946. But the Board believes that S. 50, while
reasserting these goals, would in the end be counterprodxictive in the effort
to achieve them. The bill would release a powerful combination of demandpull and cost-push pressures on prices* As has been demonstrated by the
experience of recent years—rapid inflation can breed economic instability
and ultimately retard—not promote—the growth of productive jobs. If we
are truly to commit ourselves to the broad goals of the 1946 Act, we need
programs and policies that achieve a greater balance among our economic
objectives than is recognized in S. 50.

The O h a t k m a x . T want to thank both yon gentlemen very much
Chairman Greenspan. nobody can say no with greater effective
quiet elegance than you can, as yon have proved once again this
mormnor.
*
TM like to start off, though, bv asking von, Mr. Chairman, why
von ha ve snoh a strong opposition to setting a eoal, seftin " a target?
isnt that the wav every successful company operates? TSvery suc­
cessful corporation sets goals and targets. People who achieve any­




49
thing in life usually set a goal and aim for it. If that goal isn’t defi­
nite and understood there’s no basis for effectively evaluating per­
formance. It’s much easier for people if they don’t have a goal set
for them, if they’re not measured then they can deny they are fall­
ing short. If we’re going to have a reduction in unemployment and
make real progress, why shouldn’t we set this goal ?
You concentrate a lot of your attention on the mischief of setting
a goal. Maybe the goal is too low. Maybe 3 percent is too low. Maybe
it’s not balanced. Maybe we should also have a goal on inflation. But
I don’t understand why you would criticize having any goal at all.
Why ?
Mr. Greenspan. Mr. Chairman, I’m not against goals and I cer­
tainly agree with you that one cannot achieve anything without a
specific idea of purpose, direction and ultimate objective. My ob­
jection is to a specific numerical goal.
A goal does not have to be numerical to be concrete, objective,
and clear.
The Chairman. Give me an example.
Mr. Greenspan. Yes. A goal should essentially be such that one
can determine the nature of the policies required to implement the
goal. Our appropriate goal should be the lowest level of unemploy­
ment that is sustainable in a balanced sense over the longer run.
Now the reason I choose words is that they are concrete. True
enough, they do need and require interpretation, but I think the be­
lief that a specific numerical goal somehow significantly alters that
situation or aids us in interpreting the overall goal is mistaken.
My basic concern is that setting a specific numerical goal as dis­
tinct from another form of goal actually could be counterproductive
to the process itself.
The Chairman. Yes, but what you have just given us is not a
specific or a definite clear-cut, understandable goal. It’s ambiguous.
It means all things to all people. Some people might argue that 7
percent is the best we can do on unemployment. Some would say
5 percent. Some would say 3 percent. Some would say less.
Mr. Greenspan. No. I know of no economists at this stage who
would look at the existing level of unemployment, its structure, the
degree of underutilization of resources, and who would specify that
anything in the area of 7 or 7y2 percent comes under that category.
The reason I think that we-----The Chairman. It comes under the category of------Mr. Greenspan. The category of full employment or sustainable
balanced—the achievement of a goal as I would have specified. The
belief that somehow using a single number solves the problem of
evaluating whether we have reached a sustainable level of full em­
ployment, I believe, is an illusion. Is it the statistic we are achieving?
In other words, is it the goal of governmental policy to achieve a
certain state which means that every month on the first Friday of
the month the Bureau of Labor Statistics releases a number of adult
unemployment of 3 percent or less I
I submit that is not, cannot and should not be our goal because
the mere achieving of the statistic, per se, is not what we really have




50

in mind. What concerns me is that if we focus our efforts on achieve­
ment of a number we are apt to initiate policies which would be
counterproductive to what we really mean by full employment in a
very broad sense.
The Chairman. Well, I would agree that it would be insane to
just say the only thing that counts is getting adult unemployment
down to 3 percent if we get everything else. I don’t think we would
ever administer a goal with that in mind. It would be only one of
a number of measures of failure or success. We have a housing goal
now and some people regret we do have that goal. In my view it’s
been very helpful in evaluating our work in this committee. Even
if we fall short, we may be making progress, but it’s very, very help­
ful to have some specific number of that kind. We could argue that
our unemployment performance is poorer than any large industrial
country, with the possible exception of Canada which, of course, is
almost part of our economy.
Senator Tower. So is our capital investment.
The Chairman. That’s right. But at any rate, I just don’t under­
stand why there’s this strong feeling about it. Now the Nixon ad­
ministration did propose a specific target for inflation back in 1973.
They wanted a
percent inflation level at that point. Incidentally,
I put in an amendment for a 4 percent unemployment goal. It passed
this committee. It passed the Senate. It was dropped in conference,
but that has been considered by this committee and by the Senate
and accepted as a principle, that we could have an unemployment
goal.
Mr. Greenspan. Mr. Chairman, let me just say that if you had a
specific numerical goal which did not in fact impede appropriate
policy. I could see no reason to be against it. Unfortunately, a goal
as a number can actually be counterproductive in the following way,
as I think I pointed out in my prepared testimony: Namely, that
if you have a preset numerical goal significantly distant from where
you currently are, and you find that when you get down to that
goal you find that conditions are such that you still have further
leewav to so lower, obviously we should and would go lower. On
tne other hand, if the goal is set and as we approach it we find
i?*
ninn* *n*° inflationary imbalances and other difficulties
n#
which would eventually increase unemployment it would be a mis­
take to attempt to achieve that numerical goal in any context that
I can conceive of.
The pressure to endeavor to achieve the numerical goal simply
because we have adopted it may well be overwhelming and that
would be wrong policy.
The Chatrman. Well, with all respect, Mr. Chairman, it seems
to me that if you were an economist for a corporation and you said
that we shouldn t set a goal for our sales or a goal for our produc­
tion because we ought to be measured in these general terms you
want to measure our national economy in, this wouldn’t be verv
acceptable by most effective and efficient managers of that corpora­
tion. They would insist on a specific goal. I can’t understand any
real fundamental reason why this great Nation of ours shouldn’t




51
have something like that same kind of target, as I say, without ac­
cepting it as something that is a sacrosanct and must be achieved
at all costs, but as a measure, as a basis for determining whether or
not we are making progress.
Mr. Greenspan. Mr. Chairman, we would have no objection to
a number if it were appropriately qualified, but I suggest that when
you incorporate the necessary qualifications you eventually end up
with very much the same sort of formulation.
The Chairman. You qualify it. How would you qualify it?
Mr. Greenspan. I would qualify it in the way in which I. did.
I would set a goal of, say, blank percent provided that it were dear­
ly conditional upon a whole list of qualifications. I would say that
the qualifications substantially override and in a sense make rather
meaningless the numerical goal.
The Chairman. Would you give us some specific language along
that line? It would be very helpful.
Mr. Greenspan. I do not believe that there is a unique full-employment unemployment rate which we should expect to hold under
all circumstances. The minimum unemployment rate consistent with
the absence of an acceleration of the rate of inflation depends upon
many factors which vary over time, such as the demographic com­
position of the labor force, public policies that influence the incen­
tive to work and many others.
As an example we might look at the way in which the economics
profession has evaluated the unemployment rate in the fairly recent
past. In the early 1960’s, for example, it was frequently said that
the 4.1 percent unemployment rate attained in 1956 constituted a
set of conditions in the economy that was a close approximation to
full employment. Whether this rough rule-of-thumb assessment was
correct or not, we might use it as a point of departure. Since 1956,
there has been a substantial growth in the proportion of youths and
married women working in the labor force. For many reasons which
have been analyzed fully elsewhere women and teenagers tend to
have higher rates of unemployment than adult men. Consequently,
even in the absence of other factors the change in the demographic
composition of the labor force between 1956 and today alone has
operated to increase aggregate average unemployment rates by an
amount which most observers estimate to be slightly less than one
percentage point. This, of course, assumes that the shift in the com­
position of unemployment does not affect the relative “ full employ­
ment” level of each demographic group. I f so, and if 4.1 percent
constituted full employment in 1956 a comparable rate today would
appear to be somewhere in the neighborhood of 5 percent.
In addition the expanded social programs of the last two decades
the expansion of coverage and benefits under unemployment com­
pensation, AFDC, and food stamps have reduced the financial bur­
den of being unemployed. In addition, other factors such as the in­
crease in the proportion of families with more than one adult job­
holder and the increase in family savings and wealth, have also
reduced the hardships of temporary unemployment. Although we
know these effects exist and may be substantial, they ,are difficult to




52

quantify. As a consequence, most jobless are not as hard pressed as
in earlier periods to take the first job available and can spend more
time in job search. This tends to increase the measured unemploy­
ment rates.
Undoubtedlv other factors have operated to reduce unemployment
rates. The rising educational level of the labor force, the decline in
regional and structural unemployment problems, and improvements
in labor markets information are believed by some to have operated
to reduce the full-employment level of unemployment. Moreover,
some of the demographic changes which have tended to lift un­
employment rates in the past will soon begin to operate in the oppo­
site direction, as, for example, the decline in the birth rate which
began in the late 1950’s begins to reduce the proportion of young
people in the labor force.
I frankly do not know how low a rate of unemployment may be
achieved on a sustained basis in the future. Instead of guessing what
this rate may be, it seems far preferable to me to proceed by pursuing
economic recovery as fast as is consistent with the avoidance of a
reignition of inflationary presures. When the unemployment rate has
been reduced further, ana we are closer to the area where these difficult
choices must be faced, we will be much better able to judge or to
assess the economic conditions developing at that time—and to fashion
economic policies to suit those needs.
The Chairman. It seems to me the heart of the problem, at least
a big part of the problem, is to put the unemployed to work without
exerting inflationary pressure on wages. I think both you and Mr.
Partee dealt with that and dealt with it intelligently. Obviously, Dr.
Bums, the Chairman of the Federal Reserve oBard, doesn’t feel it
would be inflationary necessarily or unsound economic policy to have
the Government serve as an employer of last resort because he proposed
exactly that; but he proposed it with a wage which would be very low.
What I would like to suggest to you is that you consider the possi­
bility of having the Government as an employer of last resort with a
wage that would not be as high as specified in the bill.
I would agree that the prevailing wage would be automatically
inflationary. As Dr. Burns testified here, it would mean that you
couldn’t run most small businesses that hire people at close to the
minimum wage because they would move into the more attractive
jobs that pay more. Why couldn’t we have something like we have
in the CETA legislation that provides for the prevailing entry wage
i
which is considerably lower than the prevailing wage as a compromise!
It would mean that we would be able than to pay the people in public
service work less than in the private sector. They would have an incen­
tive for working and a reward for working:, but they would also have
an incentive to work in the private sector because they would pet still

r l t ^ i T T 16 comT ™se' something in that area— because
1
)
.roT
I think you would agree with me that it’s better to have people workinptha" to have them idle on welfare or unemployment compensation.
Mr. Grernsfak. Given those as choices, Mr. Chairman, I would
e
question, however, is what constitutes *
lob? Dries merely putting somebody on a payroll make that a fofe,
as distinct from say unemployment insurance for which they also




53

receive payment? The critical question, with respect to the public
service type of employment—which is implied in S. 50—is whether
in fact you have the infrastructure to back up the employment expan­
sion. By that, I mean the appropriate type of facilities, the type of
equipment which enables that type of job to produce a level of output
which justifies even a minimal level of wage to be paid. If you are
going to have a program of this sort, certainly you would want the
wage to be as close as conceivable to the worth of the real output of
that job.
There are numerous problems that we find in the whole concept
of employer of last resort. Certainly, the type of constitutional amend­
ment which I believe, the Chairman of the Federal Reserve has advo­
cated would basically make it very difficult to get a wage high enough
to create the problems which you suggest. It still, however, doesn’t
come to grips with the essential difficulties that we find in the concept
of employer of last resourt. These are related both to the nature of
unemployment, that is, its duration and turnover and, to the necessity
to have the tools on the capital equipment in place to insure that those
jobs will have sufficient level of productivity.
The C h a ir m a n . I have some questions on that. My time is up.
Senator Tower.
Senator T o w e r . Thank you, Mr. Chairman.
Chairman Greenspan, in your prepared testimony, you say we do
not have experience with the large-scale public employment projects
contemplated in S. 50. Millions of jobs would have to be funded under
these programs in order to reduce the adult unemployment rate, as
measured statistically, 3 percent. Can you give us an estimate of what
the cost to the taxpayer would be on an annual basis when this pro*
gram reached full function ?
Mr. G r e e n s p a n . It’s very difficult at this stage to make that evalua­
tion, Senator. It’s a very large number and it depends on a wide variety
of other assumptions. I will attempt to put in the record some rough
estimate if we can come up with one which has some meaning. The
.difficulty largely rests not only on the initial costs involved should we
go to large public service employment, but also on the terribly im­
portant Secondary effects on the economy overall. The budgetary costs
per se will obviously be very substantially dependent upon all the sec­
ondary effects as well.
Consequently, while I would say that without qualification the
number would be very large* I ’m not sure that that’s the sole criterion
you should look at. The bill has vastly more important implications
about the way our labor market operates, the nature of free collective
bargaining processes, the question of noninflationary growth, and
continued high and improving standards of living.
Senator T o w e r . I ’m sure the means by which you try to establish
an estimate will be imprecise at best. If you could mull this over and
present us with some ball park figures or perhaps alternative figures
based on different assumptions and projections of conditions and cir­
cumstances, I think it would be enormously helpful to us.
Mr. G r e e n sp a n . An estim ate o f th e lik e ly b u d g e ta r y co st at fu ll
fr u it io n o f th e la rg e -sca le p u b lic serv ice em p lo y m e n t (PSE) p ro g ra m




54
that would be needed to satisfy the goals of the proposed Full Employ­
ment and Balanced Growth Act (£5. 50) would depend critically on a
variety of assumptions as to the state of the economy, and the specific
characteristics of the program. At this juncture it is impossible to
estimate the cost of such a program with any precision. The only
substantive program characteristic contained in S. 50 at present is the
specification that the wage level to be paid in the PSE slots is to be
either the minimum wage or the prevailing wage, whichever is higher.
These characteristics, however, will have an extremely important in­
fluence upon the eventual program costs. Even more important, one
must make assumptions about the response elasticities of the labor
force, and the behavior of public employers and private employers
when confronted with a massive program never previously experi­
enced in the United States. The evidence required to make these judge­
ments does not exist at present. Consequently, the best one can hope to
offer are very broad and very tentative orders of magnitude which
are in turn based upon highly qualitative overall economic assump­
tions.
Currently the Federal budget cost per PSE job is about $10,000.
Under the prevailing wage rule this might be a lower bound estimate
of the average cost per job funded in 1980, measured in 1976 dollars.
Any cost calculation must start with where unemployment would have
been without the program. If the unemployment rate were at 3 percent,
a highly unlikely possibility, there would be little if any costs incurred
by S. 50 as there would be no large scale PSE program. A public
service employment program would have to provide for a net increase
in total employment of about 1 million for each percentage point above
3 percent that the unemployment rate would otherwise be. In addition,
however, there are several factors which make it certain that a much
larger number of PSE jobs will have to be funded in order to achieve
each net reduction of 1 percentage point in the unemployment rate.
To some extent State and local governments will respond to the
program by using PSE-funded workers for job slots now funded out
of State and local revenue sources. The evidence for the small scale
PSE programs we have had in recent years indicate high replacement
or substitution effects ranging from 0.5 all the way up to 0.9. Although
we have had no experience with massive PSE programs, most ob­
servers woud agree that the replacement effects would be less serious
but still very substantial. Some observers would probably place the
replacement effect as low as 0.3 while others would place it higher,
r
perhaps as high as 0.6 of the total number of jobs funded. In an arith­
metic sense the replacement or substitution effect alone would mean
that somewhere in the neighborhood of 1.5 million PSE jobs would
have to be funded to create each million new jobs.
Moreover, the very existence of the program would increase the
mmber of people looking for work and add further to the number of
PSE job slcrt;s which would have to be funded. Many persons currently
outside the labor force because their earning potential is less than the
prevailing wage for PSE jobs should be expected to enter the labor
force. Jobe would have to be created for these persons. In addition,
workers earning wages below the level specified in PSE jobs or who
are now employed m less pleasant jobs would have an incentive to
leave their job, become unemployed for a few weeks, and then apply




55
for a PSE job. As workers are attracted from the private to the pub­
lic sector the lowest existing wage in the private sector would rise to
the wage level in PSE job slots. This would mean a smaller number
of jobs in the private sector and a need to fund a corespondingly
larger number of PSE jobs.
We lack good estimates of these two response elasticities of workers
to the PSE program. Beyond constructing rough examples it is not
possible to ascertain the extent to which the labor force would increase
or the extent to which those employed in the private sector would seek
PSE job slots. However, the overall working age population is about
150 million so that even low response elasticities imply very large
budget costs. For each additional percentage point of the working
age population attracted to the labor force roughly 1.5 million public
sector jobs would have to be created. After allowance for the replace­
ment effect this would mean that more than 2.0 million additional jobs
would have to be funded for each percentage point increase in the pro­
portion of the working age population attracted into the labor force.
Combining these effects would suggest that a net reduction in un­
employment of 1 million via a large scale public service employment
program would require a very large number of PSE job slots to be
funded. The total number of job slots to be funded—for each percentage point reduction in the unemployment rate—would rise to 3.5 mil­
lion if one makes the assumption that the number of workers attracted
into the labor force is equivalent to 1 percentage point of the working
age population.
In addition allowance should also be made for the tendency for the
higher level of wages in the PSE programs to attract workers from
lower wage private sector jobs to the public sector because this will
also add to the gross number of jobs funded in order to achieve any
given net reduction in unemployment. Without knowing more of the
detailed program characteristics of the PSE program the orders of
magnitude of this shift are extremely uncertain. Employment in the
private sector is now more than 70 million, however, and it is reason­
able to expect that these responses will not be trivial. Consequently
we are inclined to regard the above order of magnitude as a lower
bound or minimum estimate.
These budgetary costs will, of course, be offset to some extent, though
estimates of these offsets are also uncertain. Each percentage point
reduction in the unemployment rate would reduce unemployment in­
surance and welfare costs but the reductions will be progressively
smaller as the unemployment rate returns to more normal levels. More­
over, reduction in the unemployment rate result in an enlargement of
Federal tax revenues, but the revenue offset will also become pro­
gressively smaller as the economy returns to more normal employ­
ment levels. Nonetheless, even after making generous allowance for
the off.sets, any reasonable estimate would place the net budget costs
of the Humphrey-Hawkins approach in the tens of billions of dollars.
Senator T o w e r . Is it correct to say that inflation and inflationary
expectations are themselves a cause of recession ?
Mr. G reenspan. I think the evidence is very clear on that. The
answer is yes. The effect of inflation and inflationary expectations,
as far as consumers are concerned, is to cause a degree of uncertainty




56

over their capacity to meet ever-increasing fixed costs for food, rent,
utilities and the like. Thus, inflation tends to make them pull back,
or postpone at least, purchases of large, big ticket consumer items. The
virtual collapse of the automobile market, homebuilding and the like,
in late 1974, clearly indicates that. In the business sector, inflation
creates inflationary expectations and a higher risk premium deferring
investment. I think there, too, its effect is negative. A very classic ex­
ample is the situation we have just been through. Our recent inflation
was the major cause of the 1974*75 recession. In fact I would even go
further to say that inflation is probably the greatest potential destroyer
of iobs in the economy.
Senator Tow er. Inflationary expectations also are a part of the
motivation behind the high inventory buildups; aren’t they. That is
to say, that the inventories were built up before the price increases in
expectation that prices would rise ?
Mr. Greenspan. Yes, that was part of it. However, most of the
buildup I think----Senator Tow er. Is a result of buyer resistance ?
Mr. Greenspan. Yes. It was very largely a cyclical phenomenon,
much of which was due to the collapse of final demand, but unquestion­
ably, inflationary expectations were a factor.
Senator Tower. You state without the investment required to pro­
duce the jobs and the productivity growth we wall not achieve the
increasing standard of living to which we have become accustomed.
I have been concerned that one of the most critical problems that
confront us today in terms of our economic growth is a canital short­
fall and I have frenuine fears that we will not be able to develop the
capital availability in the private sector that’s necessary to sustain a
satisfactory rate of economic growth in the future.
Do you see anything in that bill which would stimulate much
needed capital investment?
Mr. Greenspan. On the basis of studies that the Federal Govern­
ment has embarked upon in the last 6 or 9 months, we concluded that
larger capital investment is needed to sustain the sharp rises in em­
ployment necessary to achieve full employment. If we are to meet
our goal of full employment, plus the large additional capital require­
ments for energy, environmental concerns, et cetera, we will reonire
a substantial increase in the proportion of capital investment to GNP
over the next several years.
I f we are successful in bringing down the Federal deficit and the
claims of the Federal Government on our pool of savings, I believe
we can achieve the capital investment reauired to meet our croaks. If,
however, we continue with the very substantial Federal deficits, I
suspect that we are going to find we will have an incapacity to achieve
our capital investment roals. This will mean inore inflation and instability, less real growth and I fear an inability to aschieve a sus­
tainable low level of unemployment.
Senator Tow er. Then do you see a potential in this bill fo** its being
counterpttxtuchve in terms of capital expansion in the private sector?
Mr* ( t r e e n s p a n . Yes, sir. I see nothin* in this bill which in any way
01Ir
v^t° mee* our car>ital investment needs,
v * ? - Governor Partee, would you care to comment on




57
Mr. P a rte e . I agree with the Chairman. There are some provisions
in the bill that would provide perhaps some incentive for investment
in high unemployment areas. There’s one section that has some of
that in it, I believe, but that would be trivial in stimulative effect
compared with the unfavorable effect of much heavier Government
borrowing associated with the larger deficit, and the sapping of ex­
pectations and incentives that would come from the kind of labor
markets that business firms would have to deal with. So I think the
net effect of the bill would be to depress private investment rather
than to raise it.
Senator Tower. Thank you, Governor. Thank you, Mr. Chairman.
The C h airm an . Mr. Greenspan, you were talking about public serv­
ice jobs not being productive or not being productive enough to war­
rant the kind of wages which the bill calls for and therefore having
an inflationary effect. I have some sympathy for that, but it seems
to me that many of the jobs in the public sector could be highly pro­
ductive and it seems to me it would be perfectly proper and logical
to allocate a wage which would be sufficient to provide a reward for
work and at the same time be a reflection of productivity. For example,
in the health services, in parks and recreation, in such mass transit
needs as constructing railroad beds, various environmental protection
measures requiring a colossal amount of manpower and w'ork and
effort are quite productive. We had an experience with this in the
thirties with the CCCs when the young men went out and weren’t
paid very much but they planted trees and they took other action that
was enormously productive for our country, for our soil, and for our
environment in general, not to speak of tne fact that it had fine hu­
manitarian effects and personal effects on the people involved.
Now those people were paid very little, something like $25 a month
or maybe less, but I think that experience suggests that it’s not im­
proper to consider a public service job a job that can be productive
for the society and for the economy and warrant reasonable pay.
Mr. G reen sp an . Mr. Chairman, I think you have to differentiate

the ongoing types of the job slots that exist in State and local govern­
ments, which I think are largely confronted by the CETA funding
as it now stands. The types of jobs we're talking about are of necessity
batch-tvpe projects-----The C h airm a n . What type ?
Mr. G reen sp an . Batch-type. Let me be very specific. It’s a type of
iob which is a limited job with respect to its length. In other words,
it’s not a permanent type of job. The problem is that if you start talk­
ing in terms of providing long-term jobs you will withdraw people
from the labor market who are on relatively short-term spells of
unemployment, and prevent them from being reemployed in the pri­
vate sector. If your objective is to get people back to work in the
private sector, you cannot have jobs which are integral to the func­
tioning of State and local governments. It’s one question to hire people
at that level but once thev are built into the system it will be very
difficult to remove them from those jobs because the structure of
Government will have been built around them. I think we are likely
to see some very difficult problems, comparable for example, to some
of those experienced by the city of New York, where the attempt to




58
bring in or reduce the level of total employment has been rather
difficult.
The C h a i r m a n . But they have been able to do that. They out 45,000
people off their payroll in about a year, a 15 percent cut.
Mr. G r e e n s p a n . Well, I think it occurred under conditions of dur­
ess—as you're well aware. It was not simply a voluntary approach.
The Chairman. Of course not. They had to do it.
Mr. G r e e n s p a n . Let me get very specifically to the type of question
you raised. It is more than the distinction between productive and
nonproductive jobs. It’s very difficult to imagine a human activity
of any sort which has literally zero productivity. The issue is produc­
tivity relative to what alternative. If we have a very substantial num­
ber of public service employment jobs, it will mean, I believe, of
necessity, that these people will be withdrawn from private sector
job search and more productive reemployment possibilities. It is im­
portant for us to realize that when you talk in terms of jobs in the
public sector it is always necessary to ask the next question: Does this
mean fewer jobs in the longer term in the private sector? Are we
committing ourselves to large permanent public service employment?
The CHa ir m a n . That depends very largely on whether there’s a wage
incentive for going back into the private sector. Here you have a situ­
ation in some parts of our country where you have 30 and 40 percent
unemployment in our inner cities. For example, black, teenage women
nationally have an unemployment rate of 25 percent or 30 percent—
very close to it—and people located in situations like that, it seems to
me, it’s constructive to provide a job even if it is a make-work job,
although I think it shouldn’t require too much ingenuity to find jobs
that would be constructive in terms of preventing crime, constructive
in terms of providing the kind of character and the kind of habits
that would serve these people far better as thev grow older, far better
for the society, productive also in the sense that they’d have a little
money to spend and they would be able to spend it and help the private
sector provide more employment.
, ft seem to me this kind of effort in a very substantial way would
s
lust make a stronger, better country and I see the inflation problem,
but it seem to me the crux of that inflation problem is whether or
s
not the pay is so high, if you’re going to nay a premium to get people
to work into the public sector. Certainly, you could pay something
like the unemployment compensation level for people—they’re getting
it now anyway for doing nothing—and maybe a little more, 10 percent
or J) percent more, in order to provide a reward for going to work.
* °n V
"
ould b®any more inflationary than having a kind
tion*
^ situation we have now with unemployment compensaMr. Greenspan. Well, it would not if the wage levels involved are
•a ^
.m *he unemployment insurance. I would say that the
potential rests strictly on the issues which you raise. The
question is to what extent do you take people who are temporarily
out of w k and seeking a job, and by putting them into public
service jobs thereby remove them from an opportunity and an incentive
JS? * “ igh productivity private sector job with a future!
i ^H IR iAN* That 8 a good point and that’s worried me, but by
A J
ana large, when the household survey goes around to see whether




59
people are looking for work, they determine whether or not they have
looked at a want ad or two in the preceding week, whether they are
registered at the employment office and so on. So it’s not a matter
of people spending 8 hours a day going from door to door knocking
on doors. A few people do that and those people usually get work, but
most people I don’t imagine do that. If they’re working in some kind of
a job that keeps them busy 8 hours a day, they still have time to get
a better job if the job is available and they would be happy to do it
I would think if they could get a significant increase in their pay,
and that would be possible, as I say, if the public service job is at a
wagre which is sufficiently low.
Mr. G r e e n s p a n . Weil, let’s look at it from the point of view of
public employer who has particular productive job. With a decline in
unemployment the public employer will automatically have his re­
sources drained out from under him. The public employer will find
that he will be unable to complete his projects unless he keeps the
workers on the public payroll.
The C h a i r m a n . That’s going to happen from time to time. You’re
going to have to pay a price, no matter what you do. We pay a terrible
price now in idleness and crime and so forth. That would be the price
you have to pay. You would have to have some public service work that
would go unfinished, but it seems to me that’s a pretty modest price to
have to pay to provide work for people and also to provide an incen­
tive at the same time to get back into the private sector.
I f that is the principal problem, it seems to me that would be an
easy choice, at least for this Senator.
I realize you have to go. Chairman Greenspan. I think as far as
you’re concerned, the other Senators have left, so if you would like to
leave now, we appreciate very much your testimony and you have been
most helpful. I disagree with you, as you know, but I think you have,
as usual, made a very, very fine and impressive presentation and thank
you, sir. I have some questions for Governor Partee.
Mr. G r e e n s p a n . Thank you, Mr. Chairman.
The C h a i r m a n . First, Governor Partee, on page 16 of the bill it
requires the Board of Governors of the Federal Reserve System to
transmit to the President and the Congress within 15 days after trans­
mission of the economic report of the full employment and balanced
growth plan an independent statement setting forth its intended poli­
cies for the year ahead with respect to the functions and the extent
to which these policies will support the achievement of the goals in
section 8 and 3(a) and a full justification for any substantial varia­
tions from the President’s goals and recommendations and so on.
Now that particular part of the bill provides for the President, in
the following sentence, to determine that the Board’s policies are in­
consistent with the achievement of the goals and policies and the
President shall make recommendations to the Board and the Congress
to assure closer conformity to the purposes of this act.
That would put the President in a position where no President of
the United States has ever been so far as monetary policies are con­
cerned, to the best of my knowledge. He would be telling the Board
they should follow’ different monetary policies, whereas the Consti­
tution says the Congress shall have the power to coin and regulate

73-965 O- Tl - 5




60
money. We delegated that to the Federal Reserve Board and you’re
responsible to the Congress. This would give the President the au­
thority to tell you to revise your monetary operations.
How would you view that in relationship, in the first place, to the
Constitution, and in relationship further to your responsibility to the
Congress ?
Mr. Partee. One of our principal concerns with the bill has to do
with that paragraph and the one immediately preceding it, section
3B(a) (3) in which, first, the President specifies the monetary policy
in terms of a wide range of aspects of policy.
The Chairman. I want to comc to that next. That gets into a little
different problem.
Mr. P artee. Then, you see, we specify our policy and if there’s a
di fference he then can object to it or intervene again.
The Chairm an. There’s no enforcing power on the part of the Presi­
dent. He can recommend to you but you can forget it if you want to.
Mr. Partee. That’s right, although I think we have to recognize
practical realities. I think it would create many situations which
would be most difficult for everybody concerned. I don’t have any
philosophical objection to paragraph (b) myself, except for the last
sentence. That is, I don’t see why we should not specify our plans and
objectives, subject to the proviso that there would be reasons for
changing and adjusting the policy as the year goes on----The Chairm an. So you say you do not have philosophical difficulty
with having the President make recommendations to you to change
your monetary policy ?
Mr. P artee. No, sir. I say I have no objection really to the first part
of that paragraph (b). It’s only the last sentence that I object to.
The Chairm an. You do object to having the President tell you----Mr. P artee. Yes, and I would much rather have this be done in an
oversight manner by the Congress as is provided for in the bill at a
somewhat later stage in the proceeding.
The Chairm an. Now the other part I’m not so sure is so bad. It says
a monetary policy designed to assure such rate of growth in the Na­
tion’s money supply, such interest rates, and such credit availability,
including policies of credit reform, allocation, and international capi­
tal flows as are conducive to achieving and maintaining the full em­
ployment, production, purchasing power and priority goals specified
in sections 3 and 3A.
Now that does change the Employment Act of 1946. It changes it,
however, simply to provide that your policies should be designed to
achieve full employment, 3 percent unemployment. At the present
time you re required by law, by the ’46 Act, to have your monetary
policies conform to maximizing employment growth and purchasing
power. Right ?
Mr. P artee. You’re quite right. The change is the 3 percent. I might
also pist note, though, that that Paragraph (3). starting on line 11
of page 15, ig something that the President would do, not the Federal
Reserve, and T dislike the idea of the President specifying the mone­
tary policy m full particulars because------

The Chairm an. That goes back to page 15.




61

Mr. P a rte e . Monetary policy is a highly technical subject. Our
Chairman has said at times that this sort of change would mean some
fellow in the basement of the White House is going to be making
monetary policy, and I think that’s possible.
The Chairman. So that your difficulty with that, again, is the
problem of the President rather than the Congress ?
Mr. P a rte e . Right. The subparagraph (b) of section 3B says essen­
tially the same thing in terms of the Board’s specification of the pro­
gram, and that, I say, I have no philosophical objection to.
The C h airm an . N ow both you and Chairman Greenspan were criti­
cal of the failure of the bill to include a specific target for price
stability. I f Congress does legislate a voluntary long-term unemploy­
ment target, do you also recommend that we include an inflation
target ?
Mr. P a rte e . I have the same problem, I ’m sorry to say, with a spe­
cific inflation target—A numerical target—as I do with an unem­
ployment target. It seems to me that what ought to be said instead
is that there would be equal or substantial weight given to maintain­
ing or achieving the conditions that would be conducive to reasonable
price stability.
The C h airm an . I agree with that, but the only wday you can do it,
if you’re going to make the unemployment target a number, is to make
the inflation target a number.
Mr. P a rte e . I ’m afraid that’s right. What I would propose is d oin g
neither.
The C h airm a n . I understand that’s your preference, but if you’re
going to have a target, whatever it is—3 or 4 percent or whatever—
for unemployment, wouldn’t it be logical to therefore have an inflation
target ?
Mr. P a rte e . Well, if one thinks of it in operative terms, I guess it
would be better than not having any goal at all. Usually, the speci­
fication would probably be such that we will miss both. That is, the
unemployment rate target will be too bold and will be missed in fact,
and the inflation rate target that anybody would specify would be
too bold and it will be missed in fact. I suppose policymakers would
be better off, since they could say, look, we came somewhere in-between,
but missed both of them by something like equivalent amounts. So in
that sense, I think it would be preferable, even though it would be
very difficult to specify at the beginning of a year what could reason­
ably be expected in terms of progress in reducing inflation.
You mentioned the Nixon administration’s 2y2 percent goal. That
was in a year when, by the end, we were in the double-digit inflation
range. So 2V2 percent inflation was a very bold objective. My guess is
that people knew at the beginning that it couldn’t be met, but I don’t
think anybody at the beginning of 1973 expected a double-digit rate
of inflation.
The C h airm a n . I ’m glad you raised that point because I think that’s
an excellent one and it indicates that goals don’t manacle you; goals
don’t put your feet in concrete, but they can be helpful. In that case,
of course, we had double-digit inflation because we had an energy
price explosion.
Mr. P a r t e e . And a food shortage.




62

The Chairm an. And a food shortage. At the same time, that just
resulted in a colossal increase in price without comprehensive rigid
wage-price controls so it couldn’t have been contained.
Mr. Partee. And an overheated economy.
The Chairm an. It had nothing to do with monetary or fiscal policies
at large, although staff argues that your monetary policy was too
expansive, but I m not too sure about that. I believe I was urging a
more expansive one at that time.
Mr. Partee. I believe you were.
The Chairm an. Finally, you say the prevailing wage provisions of
the bill could fuel inflation. I have had some discussion with Mr.
Greenspan on that and I share his concerns. Would you give us any
help otner than what Dr. Bums has suggested ? In other words, that
people would be paid less than the minimum wage, that they be cut
off unemployment compensation, and that you write into the Consti­
tution, a constitutional amendment so the Congress couldn’t change it.
Congress obviously isn’t going to do that kind of thing. I think it
would be wrong if we did and we are not going to do it. At the same
time, isn’t there something we can do to provide for a wage which
would provide a reward for work and also an incentive to move into
the private sector, thereby not being inflationary 1
Mr. Partee. I wouldn’t disagree with your comments on that sub­
ject in your exchange with the Chairman. The point is to get a wage
that would be low enough so that people will still be eager to move
out of these jobs and back into private employment. But I don’t know
about using the entry wage for an industry which I believe was one
of your suggestions. What bothers me about that is that most people
would want to sign up for the kind of work that had the highest
entry wage, and I’m not sure whether they would be qualified or
whether they would be adequately tested to demonstrate that they are
qualified.
Let me make one comment that indicates that this question of deal­
ing with the problem of structural unemployment is really pretty
complicated. The figures I have before me indicate that in April,
80 percent of the unemployed had been unemployed for less than
27 weeks. That is, 20 percent had been unemployed for half a year
or more. Now that’s one kind of a category of people. Approximately
10 percent had been unemployed between 15 and 27 weeks, and the
remainder—about 70 percent—had been unemployed for 3 months or
less.
The C hairm an. N ow I don’t know about you, but Chairman Green­
span put the best possible interpretation on that. I would like to put
another interpretation on it. He said, look at the fact that most people
are unemployed for brief y>eriods. That’s one way of looking at it.
Another way of looking at it is that there were far more people than
just 7 million who were unemployed and therefore suffered the losses
and the pain and the humiliation in many cases of being unemployed
during that year, some 25 or 30 million people, very large proportion.
Mr. P artek. It was a very large number.
The Chairman. Far more than what people envision as having been
unemployed.
Mr. P a rtee. For temporary periods, sometimes voluntarily.




63
The C h airm an . That could have had a devastating effect on the
family. After all, most of us live close to our income and if you lose
your income for a period of a couple months that can be pretty de­
vastating.
Mr. P a rte e . But a fair proportion could be voluntary unemploy­
ment, too.
The C h airm an . What do you mean it could be voluntary unemploy­
ment?
Mr. P a rte e . Persons who decide to quit a job so that they can look
for a better one.
The C h airm an . If they’re not seeking work ?
Mr. P a rte e . So they can look for another job.
The C h airm an . I see.
Mr. P a rte e . I think that’s a very common way of improving your
status, and as a matter of fact, it’s a purpose of unemployment insur­
ance—making it possible to go out and seek a job.
My point, Mr. Chairman, was simply that I think there would need
to be programs especially tailored for those who are truly long-term
unemployed.
The C h airm an . Let me make sure I understand that. Is it true that
if you—I should know this—I shouldn’t admit my ignorance—is it
true if you quit a job that you get unemployment compensation?
Mr. P a rte e . In most States.
The C h airm an . In a lot of States you don’t. If you’re laid off you
get unemployment compensation. If you just quit to look for another
job-----Mr. P a rte e . This is a technical question and I ’m perhaps exceed­
ing my competence here. My understanding is that in most States a
few weeks longer waiting is required before you can begin to collect
unemployment compensation, but in fact you get it. My point is simply
that we wouldn’t want to draw those people into public employment
programs when they are actively looking for work and are very likely
to find it. And I agree with the Chairman that if you tied those people
up in public employment, they won’t have the job mobility needed.
On the other hand, you mentioned teenage minorities. The April
unemployment rate nationally for teenage minorities was nearly 40
percent—39 percent—and in that case I think the idea of comething like
a Job Corps or a training program or a CCC is not improper at all.
Depending on the circumstances of the groups that were being served,
there might be different kinds of public jobs. I think there could be
much more done in this area. It would involve a lot of work. There
would undoubtedly be major failures and mistakes made, but I think
overall it would be productive, and that’s what I had in mind when
I said structural programs would have a role to play.
The C h airm a n . Governor Partee, thank you very, very much for a
most helpful presentaton. I think we have gotten from you—and cor­
rect me if I’m wronar—the notion that it’s your view that you’re con­
cerned about this bill for these reasons: (1) It’s inflationary and you
feel that if we can modify the prevailing-wage section of the bill, 402,
that this might be very helpful, at least in reducing that impact; (2)
The power that this bill would give the President over the Federal
Reserve Board which may be, if not unconstitutional, certain it’s




64

against the spirit of the constitution; that those are the two principal
concerns that you have. Is that correct ?
Mr. Partee. I would cite a third concern, and that is the diversion
o f attention o f macro-policy entirely to the unemployment rate ob­
jective. That is, as I read the bill, one could not------The Chairman. We have suggested if we put a goal in there for

inflat ion that would bring that balance back.
Mr. P artee. Yes. I might also say that I think the goal on the em­
ployment side might be in terms o f employment rather than unem­
ployment. That is, the creation o f a particular number o f jobs, which
is the positive aspect o f economic planning.
The Chairm an. Well, if we had done that in 1968 we wouldn’t

have—theoretically, we wouldn’t have any unemployment problem
now. We’ve got a very big one. What’s happened is the participation
rate has so exploded we’ve got a different ball game.
Mr. P artee. Yes. You would have to make adjustments to this on an
interim basis, but you’re exposed to a highly volatile labor market
response when you look at the unemployment rate. You could say
instead that what we want this year is an increase in real GNP of 7
percent which we expect, to bring 2 million new jobs into the economy,
and we consider that a proper employment goal and we hope to do it
with a declining rate of inflation. Do it in those terms and you would
have something that economists at least would view as a more realistic
planning environment.
The Chairm an. That’s very helpful. Thank you very much.
Mr. P artee. Thank you.

The Chairm an. Our final witness today is Director Alice Rivlin,
Congressional Budget Office. We are very happy to have you. Ms.
Rivlin, if you would like to summarize your statement it all will be
printed in full, in the record., including the tables.
Ms. R iv lin . Yes, I would, Mr. Chairman. I would also like to in­
troduce a very valuable member of my staff, Dr, Frank de Leeuw, on
my left, who is our Assistant Director for Fiscal Analysis.
STATEMENT OF ALICE M. RIVLIN, DIRECTOR, CONGRESSIONAL
BUDGET OFFICE; ACCOMPANIED BY FRANK DE LEEUW, ASSIST­
ANT DIRECTOR FOR FISCAL ANALYSIS

Ms. R iv lin . Let me just summarize very briefly the main points
made in the statement.
Clearly, unemployment is a human tragedy and a national waste.
Our current level of 7.5 percent unemployment doesn’t just mean that
7.5 percent of the labor force is in trouble. It means the whole economy
is in trouble. It is a proxy for the fact that we are running our economy
way below capacity, a proxy for low sales, low income, low production,
low investment. A recovery from the recession is clearly well under­
way, but the recession was very deep. Even if growth rates continue to
be quite favorable, it will be several years before we get back to the
average unemployment rate of the last 15 years, and that average
hasn’t been very good.
Since 1960 we have been running an average unemployment rate
of 5.2 percent. Clearly, the question is, can we do better? S. 50 is an




65
attempt to provide a mechanism for doing better, for not allowing the
unemployment rate to rise so high as it has in the current recession,
and for getting the average rate down.
But lower unemployment, of course, is not the only goal of an
economy. Price stability is a goal and, as it makes policy, the Congress
has to weigh the unemployment rate against the inflation rate and
try to find ways to lower both. S. 50 sets a goal of 3-percent adult unemployment in 4 years. It suggests some tools that one might use to
get there. It establishes a procedure for formulating a plan. It is not a
set of programs of defined character or size or duration for which one
could estimate cost and effects.
This is a little fustrating for the Congressional Budget Office be­
cause part of our job is to estimate the cost of bills and this is one for
which we can really not do that. W e can only make general statements
about the effects of the various tools that one might use and their costs
and the risk of inflation.

First, it would be well to be clear about the 3-percent goal because
it does depend on how one defines adult. If one defines adult as 20
and over, that is nonteenagers, then 4-percent overall unemployment
would be consistent with 3-percent adult; or if one defines adult as
18 or over, then 3-percent adult is consistent with about 3.5 percent
overall.
The C h airm a n . D o you have it for 24 ?
Ms. R iv lin . N o , I don’t. W e can certainly supply it.
The C h airm a n . Thank you.

[The following was received for the record:]
C o n g r e ss of t h e U n it e d S t a t e s ,
C o n g r e s s io n a l B udget O f f ic e ,

Washington^ D.C.
Hon. W i l l i a m P r o x m ir e ,
Chairman, Committee on Banking, Housing and Urtan Affairs,
U.S. Senate,
Washington, D.C.
D e a r M r. C h a i r m a n : During my testimony concerning S. 50, the Full Employ­
ment and Balanced Growth Act o f 1976, before the Committee on Banking, Hous­
ing and Urban Affairs on May 20, 1976, you requested data on unemployment
rates for persons 24 and over relative to the overall unemployment rate (fo r per­
sons 16 and over).
The Bureau o f Labor Statistics publishes unemployment data for the category
“ 20 to 24 years” and for various categories ‘25 years and above.” Consequently,
the data provided in the attached Table show unemployment rates for persons 25
and over compared with the nonteenage unemployment rate and the overall un­
employment rate from 1960 to 1975.
O f interest is the fact that the gap between the overall unemployment rate
and that fo r persons 25 and over is much higher now than in the 1960s. W hile the
nonteenage gap has remained relatively constant (rising slightly with the in­
crease in overall unemployment), most of the increase is attributable to persons
in the 20 to 24 age category. There are several reasons for this.
First, there is more cyclical variability in unemployment for the 20 to 24 year
age group than for any other. This is because, lacking experience, these persons
are last-hired, first-fired. Yet they are less apt than teenagers to drop out o f the
labor force in discouragement or to return to school when unemployment is
high.
A second factor is the increase in this population cohort in the latter 1960s
that increased the supply o f young workers. W hile the cohort effect was also
there fo r teenagers, persons in the 20 to 24 age category had a stronger tendency
to remain in the labor force. For males, the draft and Vietnam disguised the




66
exrenn supply condition until the early seventies; their unemployment rates re-

maincd relatively low throughout the 1960s but rose quite a bit m the early
1970s. Female unemployment rates in the 20 to 24 age category rose steadily
relative to the overall rate for females beginning in the late 1960s. The effect of
the Increased sisse of their population cohort was exaggerated by a rapid increase
In labor force participation for females aged 20 to 24 in this period.
Fin"*IIv the proportion of the population aged 20 to 24 enrolled in school de­
clined in the 1970s. This added to the number of job seekere in this age category,
increasing the supply of young workers and adding to their unemployment
situation.
Given what appears to be an increase in the gap between unemployment rates
for All persons relative to persons 25 and above, what is this gap likely to be in
the future wh*n labor markets tiehten? In 1973. the most recent year of relatively
tight labor market conditions, the gap was 1.8 percentage points: overall unem­
ployment was 4.9 percent relative to 3.1 percent for persons 25 and over. Demo­
graphic changes over the next decade will reduce the relative size of the 20 to 24
age cohort somewhat; however, increased participation of women and further
reductions in school enrollments might he offsetting factors. A rough estimate
is that the difference between the overaU unemployment rate and the rat* for
persons 25 and over might range from 1.5 to 2.0 percentage points provided that
the overall rate is below 6 percent. If "adult” is defined as persons 25 and above, a
3 percent adult unemployment rate would mean a 4.5 percent to 5.0 percent overall
rate according to this estimate.
T verv much enloved appearing before the Committee and I hope you will call
on me if I can be of further assistance.
With best wishes,
Sincerely,
A

l ic e

M. R

iv l in

Attachment:

,

Director.

U E P O M N R T S F RA L P R O S 16 A DO E C M A E W HU E P O M N R T S F RP R O S
NML Y E T AE O L E S N
N V R O P R D IT N M L Y E T A E O E S N
20 A D O E A D 25 A D O E
N VR N
N VR
Yiir

U em lo en U em loym t U em
n o ym t
n p en
n otoym t
en
ntf 16 a do er ra 20 an over ra 25 an over
n v
te
d
te
d

1160...

mi....

1962.
1963...
1964...
1965...
1966. .
1967__

1966 _
_
1969...
1970....
1971....
1972...
1973...

14
,7

*975................................

25 /nVovtf

5.5
6.7
5.5
5.7
5.2
4.5
3.8
3.8
3.6
3.5
4.9
5.9
5.6
4.9
5.6
L
S
8.5

forci 2
®

0X 2)

0X 3)

(2)

______________ ___________ 0)

(3)

(4)

(5)

4.8
5.9
4.9
4.8
4.3
3.6
2.9
3.0
2.7
2.7
4.0
4.9
4.5
3.8
4.5
73
7.3

4.4
5.4
4.4
4.3
3.8
3.2
2.6
2.6
2.3
2.2
3.3
4.0
3.6
3.1
3.6
fi’n
6.0

0.7
.8
.6
.9
,9
.9
.9
.8
.9
.8
.9
1.0
1.1
1.1
1.1
i'i
1.2

2.5

for 8 p
,1 erson 16 »n over. C l. 2 is the u em
s
d
o
n olovm t ra
en te
wer. Cot 3 isthe u em lo efit for an p
n p yin
erson inthe civ n lab force
s
ilia
or

S rce: B rea of L b r S tistics, U . D a en of L b r.
ou
u u
a o ta
.S ep rtm t
ao

Ms. Rtvux. The tools that one might use to accomplish such a goal
<ie|>enn, of course* on what the situation is and what type of unem­
ployment one is attacking.
First, there cyclical unemployment, the unemployment resulting
from running the economy below capacity. The standard remedies for
cyclical unemployment are increasing Government spending to stimu­
late the economy or cutting taxes to stimulate the private spending*




67
But other tools for job creation are certainly possible, such as public
service employment, accelerated public works, special grants to State
and local governments, tax incentives to the private sector, or some
form of job guarantee; and these are specified in S. 50.
The Congressional Budget Office did a study in September, called
“Temporary Measures to Stimulate Employment” , in which we tried
to estimate, albeit roughly, the cost and effects of these various ap­
proaches. The study did indicate that some of these special measures,
such as public service employment, can be used to create more jobs per
dollar than, say, a tax cut or a general increase in Government spend­
ing and, indeed, the differences are rather wide.
The jobs that might be created immediately by $1 billion of spend­
ing for public service employment would range between 80,000 and
125,000, while one might expect from a tax cut a much smaller amount
of job creation initially, about 8,000 to 15,000 jobs. The spread of
these numbers would narrow after 1 or 2 years.
Over the long run, such approaches begin to have similar effects and
costs, and cost is of course not the only criteria. Moreover, it is very
difficult to design the selective public service employment and public
works type programs to do exactly what one wants to do. It is diffi­
cult to minimize the substitution of these jobs for jobs that might
have been available anyway and to encourage a return to the private
sector as the economy improves. Presumably, one encourages this best
by keeping the wage level low. But there is also structural unemploy­
ment, which everybody has referred to earlier in this session, and at
low levels of aggregate unemployment much higher rates obtain for
blacks, for women, for teenagers.
The problem is not lust one of inequity, although it is that; it is the
unevenness of unemployment which makes it much more difficult to
get the aggregate unemployment down without creating inflation. At a
5-percent overall unemployment, persons 25 to 65 enjoy an unemploy­
ment rate of well below 3 percent. That means that w
rages for those
groups may already be accelerating under pressure of a tight labor
market while unemployment remains high for other groups.
It wouldn’t be such a problem if blacks and women were competing
for the same iobs in a tight labor marekt and if young people had a
better way of getting established in the labor market. But the reme­
dies for structural unemployment are difficult to design and might be
costly.
Public employment programs designed to relieve structural unemplovment do have to provide more training and the acquisition of
skills on the job and increase job attachment. They may well be con­
siderably more expensive per job created than the kind of public
employment program one w
’ould design to cure purely cyclical un­
employment. The budget costs of attaining a given unemployment
goal are, of course, not the onlv costs that one must consider*
There are also the possible inflation costs. There is no perfect cor­
relation between inflation and unemployment, but in general, inflation
has accelerated when unemployment has dropped. We are not now sure
where the danger point reallv is, how low we can push unemployment
without danger of accelerating inflation. But clearly, reducing unem-^
ployment to a rate of 3-percent adult, no matter how you define adult,#




carries significant risks and one could not look at past history without
realizing that there was significant risk at those levels of accelerating
the inflation level.
We have made some rough estimates, and they can only be very
rough. These estimates indicate that, if one were moving the unem­
ployment rate down to 3.5 percent from a level of 5 percent, inflation
would be something like 2 points higher, a 2-percent higher rate, than
would otherwise obtain and might get worse as one tried to hold that
level of unemployment. That's a very rough estimate and many econo­
mists feel that the danger would be greater.
Of course, one might mitigate the danger of inflation with success­
ful structural unemployment programs or with other anti-inflation
measures. But there are also, as has been pointed out earlier, dangers
of escalating inflation inherent in some of the programs in S. 50,
particularly the Government as employer of last resort at the prevail­
ing wage provision.
In summary, the Congress, I believe, needs to recognize that there
are two goals to be pursued and that it will be difficult to do both, but
that it is necessary to work on the anti-inflation front very hard if the
unemployment rate is to be lowered significantly.
[Complete statement follows:]
Statement

of

A

l ic e

M. R

iv l in

, D

ir e c t o r ,

C o n g r e s s io n a l B

udget

O f f ic e

Mr. Chairman and Members of the Committee: I appreciate this opportunity
to be with you today and to comment on S.50, the “Full Employment and
Balanced Growth Act of 1976.”
Unemployment is a continuing human as well as economic problem. For
the economy it represents a waste of resources that is reflected in a lower
level of output of goods and services than could potentially be produced. For
individuals, it represents not only loss of income associated with joblessness,
but deterioration of skills and damage to a sense of pride and self-esteem. More­
over. even at high levels of aggregate employment, unemployment problems
persist for minorities, teenagers, and some other groups. Reducing unemploy­
ment is thus important not just to restore full capacity production but also
to provide the opportunity to participate in the economy for all groups of
workers.
While the overall unemployment rate has fallen since it reached a 35-year
peak last spring, it remains far above the range that any would consider
satisfactory. Even if recovery proceeds at the reasonably rapid rate that most
forecasters are now projecting, unemployment is unlikely to reach even
its 1960-1975 average of 5.2 percent for several years. Clearly there is good
reason for proposing new programs or strategies that will speed the decline
in unemployment and improve on our past unemployment record.
Reducing unemployment, however, is not the only goal of economic policy.
Reasonable price stability is another major goal which the Congress must weigh
along with the unemployment goal in shaping the nation’s economic policies.
S. 50 calls for a new process of formulating and coordinating economic policy
which, if enacted, could well lead to lower unemployment. At the same time,
however, it carries a significant risk of accelerating the rate of inflation. Tn my
fpstimonv this morning 1 would like to discuss the goals of S. 50 and the pos­
sible programs to implement those goals, and then comment on the inflation
problem.
GOAL8 OF 8. 50

S. 50. the Pull Employment and Balanced Growth Act of 1976, has several
major aspects:
Establishment of a goal of 3 percent adult unemployment to he reached as
promptly as possible, but within not more than four years after the date of
enactment or the Act.




60
Recognition that achieving a 3 percent unemployment goal will require a mix
of both aggregate demand policies and more selective targeted measures.
Recommendation that full-employment policies be accompanied by anti-inflation measures.
Extension of the organizational structures established in the Employment Act
of 1946 and the Congressional Budget Reform Act of 1974 to establish an insti­
tutional framework whereby the President, the Federal Reserve Board, and
Congress can coordinate national economic policy to achieve the goals set forth
in the Act.
While the bill specifies a full-employment goal and an administrative process,
it does not identify specific programs that would be enacted. Both the economic
impact and the budget costs differ greatly depending on which policy tools are
used to achieve the unemployment goal, which anti-inflation measures are pur­
sued, and where the economy stands at the time the process begins. An analysis
of S. 50 must necessarily be restricted to broad qualitative judgments rather
than specific estimates.

TeM n go 3Pre t Ue p y e t
h e in f ecn nmlom
a
n

The requirements for reaching the goal of 3 percent adult unemployment
depend first of all on who is classified as an adult. A useful rule of thumb in
this regard is that since the mid-1960s, the overall unemployment rate, defined
as the rate for all workers aged 16 and over, has been roughly one percentage
point above the unemployment rate for those 20 and over and 0.5 percentage
points above those 18 and over. Table 1 contains more precise comparisons on
a yearly basis.
Although demographic factors in the future could reduce this differential,
projections by The Urban Institute indicate that this approximate spread will
persist through the next decade. Thus, if we speak of 3 percent nonteenage
unemployment, we are referring to an approximate 4 percent over all rate.
Similarly, a 3 percent unemployment rate for persons 18 and over implies about
a 3.5 percent overall rate.
T B E 1—U E P O M N R T S F R A L P R O S 16 A D O E C M A E W H U E P O M N R T S
AL
NML Y E T AE O L E S N
N V R O P R D IT N M L Y E T A E *
F R P R O S 18 A D O E A D 20 A D O E
O ESN
N VR N
N VR

Y
ear
1950___ _______ ...............
1951.............. . _______
1952__________________
1953.............. . .............
1954...................._______
1955___________ .............
1956................. _______
1957___________
1958................. _______
1 *> ___________ .............
9 9
1960................. . _______
1961___________..............
1962................. _______
1963__________________
1964............ ....... _______
1965______ ___________
1966___________
1967............ ....... .............
1968___________ ........ ...
1969___________ ..............
1970................. . _______
1971___________
1972___________ ...............
1973___ _______ _______
1974................. ________
1975___________ ..............

(1)
U em loym t
n p
en
ra , 16+
te

(2)
U em loym t
n p
en
ra 18+
te,

(3)
U em loym t
n p
en
ra 20+
te,

5.3
3.3
3.0
2.9
5.5
4.4
4.1
4.3
6.8
5.5
5.5
6.7
5.5
5.7
5.2
4.5
3.8
3.8
3.6

5.1
3.1
2.8
2.7
5.3
4.2
3.9
4.0
6.5
5.2
5.2
6.4
5.2
5.2
4.7
4.1
3.4
3.5
3.2

4.8
3.0
2.7
2.6
5.1
3.9
3.7
3.8
6.2
4.8
4.8
5.9
4.9
4.8
4.3
3.6
2.9
3.0
2.7

3.5

4.9
5.9
5.6

4.9

5.6
8.5

3.1
4.5
5.4
5.1

4.3
5.0

7.9

2.7
4.0

4.9

4.5
3.8
4.5

7.3

(4)

(5)

OH2)

(1M3)

0.2
.2
.2
.2
.2
.2
.2
.3
.3
.3
.3
.3
.3
.5
.5
.4
.4
.3

0.5
.3
.3
.3
.4
.5
.4
.5
.6
.7
.7
.8
.6
.9
.9
.9
.9
.8

.6
.6
.6

.8
.9
1
.0
1
.1
1
.1
1
.1
1
.2

.4
.4
.4
.5
.5

.9

N
ote.—C m (1) is the u em loym t ra for th civ n lab force for all p
olu n
n p
en te
e ilia
or
erson 16 a d over. C lu n (2) b
s
n
o m
th un p
e em loym t ra for the civ n la o force fo all p
en te
ilia b r
r
erson 18 an over. C lu n (3) is th u em loym t ra for
s
d
o m
e n p
en te
the civ
ilian lab force exclu in teen
or
d g
agers, th is, p
at
erson 16 to 19.
s
Source: B rea of L b r S
u u
a o tatistics.




70
PROGRAMS UNDER

S.

50

Countercyclical Programs
S. 50 outlines a number of policy measures that might be implemented to
achieve the full-employment target. Standard fiscal and monetary measures
might be supplemented by special job-creating policies like public service em­
ployment, accelerated public works, grants to state and local governments, and
special tax incentives to business. Further, there is a provision of a limited job
guarantee for persons able and willing to work and seeking work.
Special employment programs are to be enacted to the extent that fiscal and
monetary policies are unable to achieve the 3 percent adult unemployment
target. Presumably what this means is that supplementary measures are to be
used if the inflationary pressures or budget costs associated with using standard
fiscal and monetary policy to achieve the unemployment target become unacceptably high.
Special countercyclical measures such as public service employment, employ­
ment tax incentives, accelerated public works, and special assistance to state
and local governments can either provide jobs directly to the cyclically unem­
ployed (as in public employment and public works), or can provide special
incentives to private industry and state and local governments to employ more
people than they otherwise would have. A recent study by CBO of temporary
measures to stimulate employment,1 concluded that some of these measures can
potentially have a higher employment impact per dollar spent than across-theboard spending or tax changes. Further, in some cases, the potential inflation
impact per job is less than for standard fiscal and monetary policy, suggesting
that using selective measures can improve the inflation-unemployment rela­
tionship.
Table 2 shows estimates of the employment impact and net budget cost (tak*
ing into account savings from unemployment compensation and higher tax pay­
ments from program participants) for alternative temporary employment pro­
grams.* Initially, there is a fairly wide variation in cost per job, although these
differences tend to narrow after a year or two of program operation. Public
employment has a lower cost per job than other measures; after a year of
operation, for instance, accelerated public works may cost about one and half
to twice as much per job as public employment. Across-the-board cuts could
entail a cost of from three to four times that of public employment.
* L.S. C o n fe ss, Congressional Budget Office, Temporary Measures to Stimulate Employ­
ment; An Evaluation of Some Alternatives , September 2, 1975.
fS * < plana.tloS*J f h^ assumptions behind these estimates can be found In
’I
of
e

Temporary Measures to Stimulate Employment cited in footnote 1 of this testimony.




T B E 2.—E T A E O E P O M N A D B D E IM A T O V R U P O R M C S IN (1 B L N
AL
S IM T S F M L Y E T N U G T P C F A IO S R G A S O T G
IL IO
In l Im act
itia p
T of p
ype
rogram

P b c service em
uM
ploym
ent.......... _.......
A ti-recession aid to State an local
n
d
govern ents....................................
m
A
ccelerated pu w
blic orks.....................
T cut*............................................
ax
G
overn en purchases.........................
m t

In
crease in
jobs
(in thou
sands)
80-125
40-77
1&
-46
8-15
20-50

R u
ed ction in
un p
em loy*
m rate
ent
0.07 0.11
.04
.02
.01
.02

.07
.04
.02
.04

12 m th
on s
N bu get
et d
cost
(in m
illion
s)

In se in
crea
jobs
C thousands)
m

(754-1615

90-145

850-716
915-793
980-960
948-870

70-97
56-70
26-35
40-70

i These estim
ates assum n m etary accom od
e o on
m ation If th m ey su p w in sed to
.
e on
p ly ere crea
p
reven in
t terest rate* from risin at a resu of the exp sion fisca m re, th job
g
lt
an ary
l easu
e -creative
effect w k be h h an the n d
ou f
ig er d
et eficit cost low A
er. ccom od g m n
m atin o etary p licy w ldin
o
ou crease
IN upm vim m n affect b 25 percen o m w ich in tu , w ld red ce th bu get cost b a
y
t r ore h ,
rn ou
u
e d
y n
average abou $125 m
t
iHta.
*The incom tax cu is assu ed to be oee-th corp
e
t
m
frd
orate an tw irds p
d o-th
erson If th ta cu
al.
e x t




R u n in
ed ctio
un p
em loy­
m t rate
en
0.08 0.13
.07
.06
.02
.03

.09
.07
.03
.05

24 m th
on s
N bd
et u get
cost
(in m
illion
s)

In
crease in
jobs
(in thousands)

J492-J425

90-150

590-570
537-510
740-720
600-590

72-100
64-80
30-40
60-80

R u n in
ed ctio
unem
ploy­
m ra
ent te
0.08 0.13
.07
.07
.02
.04

.09
.08
.03
.05

N bu get
et d
cost
(in m
illion
s)
$392-1312
480-450
430-390
663-637
475-425

w en
ere tirely p
erson l, th exp sion effect w u be ab t 50 p
a e an ary
o ld
ou
ercen g ter an th n b d
t rea
d e et u get
cost a ou $175 m n low
b t
illio
er.
Source: Set app. B.

Source: U C gress, C n
.S. on
o gressio al B d O
n u get ffice, 'Tem
porary M res to S u E p y
easu
tim late m lo *
m A E a a nof Som A
ent: n v lu tio
e lternatives," Sept 2,1975, p V
. .

72

Some of the more costly programs, however, have other benefits such as the
high value of their output. Table 3 provides in summary form some of the con­
siderations discussed in Temporary Measures to Stimulate Employment in mak­
ing comparisons between programs. While special measures to stimulate em­
ployment may be less costly and potentially less inflationary in the short run,
aggregate demand policies are sometimes viewed as a more neutral way to stim­
ulate economic growth and creat jobs in the long run.
Selective measures are also sometimes criticized when their timing does not
match the need reflected in rising and falling unemployment. A program which
is truly countercyclical should include safeguards to ensure that workers move
rapidly into regular private sector and government jobs as the economy ex­
pands. For instance, countercyclical public works projects should be designed
so that they can be started up or completed in a short time. In public em­
ployment programs, wages should be lower than private-sector alternatives
(contrary to the provisions of S. 50) to ensure movement out of temporary
jobs when permanent employment becomes available. Tax incentives and grants
that create temporary jobs indirectly should also be designed with rapid phase­
out in mind.

Por m T Rdc Sr cua adFicio a Ue p y e t
rga s o c ue t ut r l n r t nl nmlom
n

When overall unemployment is in the 4 to 5 percent range, a great deal
of the remaining unemployment is due, not to any depression in the general
economy, but to what are often called “structural” or “frictional” factors.
Structural unemployment refers to an excess supply of labor in some sectors
of the labor market with a special long-term problem—for example, a local
area which is losing jobs to other regions or an industry whose output is no
longer in demand. Discrimination in some occupations against racial minorities
or women cause these groups to concentrate their supply in other occupations,
and overcrowding of these occupations is another form of structural unem­
ployment




TABU 3.—S M A Y O T E P T N IA IM A T O A T R A IV M A U E T S IM L T E P O M N
U M R F H O E T L P C S F L E N T E E S R S O T U A E ML Y E T
Employment impact
per dollar expenditure

Startup time

Phaseout flexibility

Inflation impact

Income-tax cut........ ......... Relatively low, particularly Subject to lags in individ* Potentially easy to termiIn the short run.
uals* spending.
nate.
IncrttM in Government Higher than tax cut; lower Potentially fast; subject to May be hard to terminate,
purthaats.
than special employment
policy initiation lag.
especially if useful outprograms.
put, services involved.
Accelerated public works.

Value of output

Targetability

Same as any aggregate Entirely private sector_____ None.
fiscal measure.
Same as any aggregate Mostly public sector; 2d Low.
fiscal measure, dependround effects on private
ing on employees' skill
sector.
mix.

Potentially low if wages are Potentially long; but with Wide variation; appropria- Somewhat greater than___ do..............................Can be directed at highhigh; greater job impact
wide variations dependtions easier to stop than other programs if workemployment areas, con­
front low-wage projects.
ingon type of program.
some other Government
ers highly skilled; lower
struction trades.
programs, but large-scaleif aimed at less skilled
projects may take long
workers,
to complete.
Public service employment. Relatively high if wages Potentially fast if existing Relatively flexible if job Low if aimed at unskilled Low if emphasis is solely Can be directed at most
are low.
programs expanded.
tenure limited.
workers and if wages
on job impact; if comneedy individuals.
are lower than private
brned with training can
sector alternatives.
produce useful skills.
Antirecession aid to Stale Less than PSE if skill levels Potentially fast; no new Potentially easy to termi* Moderate, depending on State and local government Can be directed at Governand local Governments.
high; more than other
programs, only transfer
nate.
skill level of employees.
services.
ments hit by recession.
Government purchases,
of funds,
public works.
Source: U.S. Congress, Congressional Budget Office, 'Temporary Measures to Stimulate Employment: An Evaluation of Some Alternatives," Sept. 2, 1975, p. VIII.




*<!

00

74

Programs to combat structural unemployment include steps to increase the
demand for labor in depressed pockets of the labor market and programs to
increase the mobility of individuals out of these pockets through encouragement
of geographic mobility, training or retraining, and removal of discriminatory
barriers, to name a few. Programs of these kinds might be more effective in
reducing structural unemployment than across-the-board increases in demand
that might have much of their impact on other sectors of the labor market.
Frictional unemployment refers to short spells of unemployment accompany­
ing job turnover or initial entry into the labor force. To some extent, frictional
unemployment represents a normal period of job search for new job seekers
or for persons who have left a job to seek a better one.3 However, some groups
of people change jobs frequently, resulting in disproportionately high unem­
ployment rates. Unskilled and disadvantaged individuals—among whom blacks
and young people are disproportionately represented—experience more frequent
spells of frictional unemployment than other groups. These persons tend to
hold jobs at the bottom of the labor market hierarchy and they become un­
employed frequently because they are fired, because they quit, and because they
leave and reenter the labor force more frequently than other workers. Job
T
attachment is weak. There is little incentive for employer or employee to
maintain a long-term work relationship since there is little if any on-the-job
training and hence no payoff to seniority. Job satisfaction is low, and this also
weakens job ties.
Increasing job attachment by providing jobs with some training and chances
for upward mobility would certainly be a desirable component of a program
designed to reduce the relatively high unemployment rates of the unskilled
and disadvantaged. In fact, failure to do so might result in continued high
rates of unemployment for these groups, making a 3 percent adult unemploy­
ment goal difficult or even impossible to achieve. Further, a case could be
made that paying structural program participants a higher wage than the
private economy pays them would increase job attachment and reduce the
frequent spells of unemployment that characterize their job market experience.
A structural program of this kind could well be more costly on a per-job
basis than countercyclical programs. Further, if the program is more attractive
than private sector alternatives, workers will be drawn from the private sector,
increasing the size of the public jobs program and driving up wages in the
private sector. Over the longer run, however, this displacement could also
result in improved working conditions in the private sector.
Since so many programs and specific program provisions are possible within
the framework of S. 50, a single cost estimate for the bill would not really be
meaningful. In some hypothetical average year in the 1980s, the unemploy­
ment goal in the bill might require some 2 million more jobs than the economy
as it performed in 1960-1975 would be able to generate. The public cost of pro­
viding these jobs could easily vary from as little as $8,000 per job to as much
as $30,000 per job. Furthermore, actual years would usually not be average
years—they would instead include years of strong private demands when little
or no economic stimulus was needed and years of weak private demands when
it would take economic stimulus well above the average to meet the unemplovment goals of the bill.
THE INFLATION PROBLEM

A serious problem of pursuing a goal of 3 percent unemployment is the risk
that inflation will begin to accelerate as the economy approaches the goal.
Tnfortunately, economists* understanding of inflation is too limited to war­
rant confidence in precise estimates of the inflationary risk. The historical
record since 1961 is shown in every summary form in Chart 1. The measure
of unemployment in the chart is the overall unemployment rate, while the
measure of inflation is the rate of change in consumer prices omitting food
and energy, whose prices have not been closely related to the unemplovment
situation.
T nemployment and inflation (omitting food and fuel prices) have generally,
V2LlI
.nti!l1W S' mored
?T
°PIx>s*te directions during this period. The 19611969 dec me in unemplovment was accompanied by worsening inflation through
^se in unemployment, by falling inflation. In
late 19<1 and 1972, price controls under the Economic Stabilization Act held
■

V

i n o tM

bUlty for adYancemeJ?




th at frictional iin«*mnioyni^nt to h lg b tr in

*” *

*******

U n ft M

States*

expectat,0M of the P08*1
’

75
inflation down; but eventually, the 1971-1973 fall in unemployment was fol­
lowed by greatly worsening inflation. The 1974-1975 rise in unemployment was
accompanied at first by rising prices, partly due to the indirect effect of higher
fuel prices and partly due to the end of price controls; but later the 1974-1975
recession saw a reduction in the inflation rate. The early 1976 improvement in
unemployment has been accompanied by some acceleration in consumer prices
other than food and energy, although falling food and fuel prices have kept
down the overall price indexes. I believe no one studying this chart should
remain complacent about the possibility of accelerating inflation as the econ­
omy nears 3 percent unemployment. Furthermore, the danger is greater the
more comprehensive the definition of “adult” under the bill.

Chart 1
Unemployment and I n fla tio n , 1961-76

Notes:

Unemployment is measured by the unemploy­
ment rate fo r a l l workers 16 and over,
seasonally adjuisted. In fla tio n is mea­
sured by 2-quarter changes, expressed at
an annual ra te , in the consumer p rice
index le s s i t s food and energy components*

Source: U.S. Department o f Labor
73-96S 0 - 7 6 - 8




76
According to one set of simulations we have prepared, the added inflation
associated with achieving a 3.5 percent overall unemployment rather than the
long-term average of 5.0 percent is around 1.25 percentage points in the Con­
sumer Price Index in the year the target is achieved and around 2 percentage
points two years after achieving the target. In other words, if inflation^ were
5 percent per year in a 5 percent unemployment economy, it would be 7 per­
cent per year two years after reaching a 3.5 percent unemployment economy.
Furthermore, if unemployment were to be held at the 3.5 percent rate in­
definitely, the simulations show a growing inflationary impact. As I noted,
these or any other estimates are based on too many uncertain assumptions to
warrant any confidence in the precise numbers. Perhaps, though, they give some
indication of the general order of magnitude of the problem.
It is possible that the careful coordination of employment programs pro­
posed in S. 50 could reduce the inflationary risk. Well-designed programs tar­
geted at particular groups could combat pockets of unemployment instead of
spreading their effects over all sectors of the labor market. Training pro­
grams, if they were successful, could shift workers from situations of labor
surplus to those of labor shortage.
On the other hand, the wage rate requirements proposed in S. 50 could
worsen the inflation threat, tinder S. 50, wages under “employer-of-last-resort”
jobs must meet certain standards; they must, for example, be at least equal
to prevailing wages paid by a local government if the local government is the
employer, and they must meet Davis-Bacon Act standards in the case of con­
struction jobs. These provisions could force private employers, many of whom
do not now pay these wage rates, to raise their wages and prices in order to
compete with publicly financed jobs.
The anti-inflation section of S. 50 points to some general approaches to the
reduction of inflationary pressures due to tight labor markets. These include
actions to ensure adequate supplies of scare commodities, particularly food
and energy, recommendations to strengthen and enforce antitrust lawT meas­
s,
ures to increase productivity in the private sector, and recommendations for
administrative and legislative actions to promote reasonable price stability
(presumably some form of price and wage controls or guidelines) if serious
inflationary pressures arise. However, there is much less focus in the bill on
these anti-inflation suggestions than on the unemployment goal; there is no
target set for inflation as there is for unemployment.
It is. I believe, in further analysis and pursuit of anti-inflation steps that
the greatest hope lies for achieving the unemployment goals of the bill. With­
out these steps there is a risk—not easily quantifiable, but quite possibly sub­
stantial—that the worsening price situation as the economy nears the unem­
ployment goal will cause a retreat from the 3 percent goal. The more we learn
about dealing with inflation, the greater the likelihood that we can achieve
the unemployment goals which we all share.

The Ottatoman. Well, thank you very, very much. That has been
verv helpful.
Mr. Shiskin told us at a meeting of the Joint Economic Commit­
tee on unemployment, I asked him about the Humphrey-Hawkins
mil, and he said it constitutes no less than an effort to repeal the
business cycle and it seems to me that that should surest quite
hallenge to competent economists like you. You have lived with
tn^ business cvcV for a lon<r, lon.qr time. It’s been a nrettv vicious
tnin<r in most respects, but it also has had some favorable effects. It’s
shaken out some of the less efficient businesses, for example, and
perhaps it s shaken some of the distortions out of the economy that
we otherwise wouldn’t have shaken out.
Obviously, if this work**, if this bill should achieve its aim and be
P
at close to 3 percent, it would do that.
1v
1
? nce we would have to pay other than inflatl0Ii:
T
.at’ although I’ve got some further questions
° n r ^ f ° ther pnces’ lf any’ do you think we would have to
pay for that!




77
Ms. R i v l i n . Of course, one has to recognize that we have already
come quite far in the direction of mitigating the business cycle,
despite the fact that we are now pulling out of a very severe reces­
sion. We now define “severe” as much less than the unemployment
rates that obtained in the 1930’s and we have greatly improved
safeguards.
The C h a i r m a n . That’s right, and few people go back beyond the
1930’s. It was true throughout the 19th century and early 20th cen­
tury. We had depressions then, not recessions, in which unemploy­
ment was far more severe.
Ms. R i v l i n . That’s right, and we built into our economy some
stabilizing mechanisms—in the Federal budget as well as a much
more active monetary policy—which have partially offset this. The
question is how much further can we go? I think S. 50 can be read
as an attempt to push the average unemployment rate down below
where it has been. It would clearly not repeal all fluctuations. That’s
too extreme a view of what could possibly be accomplished. What
it would cost to move to an average level of, say, 3 percent adult
from our average level that has been around 5.2 percent overall de­
pends, of course, on how one did it. If one did this by creating public
service jobs, one would need to creately roughly 2 million jobs. We
have made a rough estimate of what that would cost to do it that
way. It would cost $16 to $44 billion gross, but one would have some
net flow back into the Federal Treasury through increased taxes and
lowered-----The C h a i r m a n . What were those figures, $16 to what?
Ms. R i v l i n . $ 1 6 to $ 4 4 billion. That’s a very, very rough estimate
of what it would cost after running a program a couple years to
create 2 million jobs.
The C h a i r m a n . Create 2 million jobs?
Ms. R i v l i n . Right.
The C h a i r m a n . H o w did you assume it would be 2 million jobs?
We now have 7 million people out of work.
Ms. R i v l i n . I ’m not operating from where we are.
The C h a i r m a n . I f we do that, that would be 4 million jobs almost.
Ms. R i v l i n . That’s right. I think it depends on how you view S.
50. I f you view S. 50 as a way to get out of the current recession,
then one has to think about what would be the cost of going from
7.5 to 3 percent adult unemployment, but I think it may be more
useful to view S. 50 as a more longrun procedure for trying to lower
the average unemployment rate from what it’s been, down toward
3 percent adult. In that case the cost of getting out of the current
recession shouldn’t be chargable to S. 50.
The C h a i r m a n . You seem to be more relaxed about the goal than
Mr. Greenspan was. You seem to feel that even though we set the
goal at 3 percent to be achieved by 1980 that that would be the aim
but we would get down there gradually, but if we encountered infla­
tion along the way we might settle at least temporarily for a lesser
goal, or do you think this does provide the kind of rigidity that Mr.
Greenspan feared?
■ Ms. R i v l i n . Clearly, the amount of rigidity would be in the hands
*
of the Congress. What the bill does is provide a mechanism for




78
preparing the plan—having the President formulate a plan for
moving toward this goal and a procedure for having Congress review
it and okav it. As T read it, it doesn’t obligate the Congress to take
any particular legislative action, and time will tell how rigidly the
goal will be interpreted.
The C h a t r m a x . Congress and the Federal Reserve.
Ms. R i v i j n . And the President
The C h a ir m a n . And the President. Well, now, how about the
great fear expressed by Senator Tower and Senator Garn—and I
think they speak for many millions of people who are concerned
about this bill—that it would involve an enormous amount of plan­
ning, an enormous amount of interference in the private sector,
bigger government, greater tax burden—perhaps you have answered
part of the tax burden with your $16 to $44 billion, but at least they
feel—and I think, as I say, they speak for many people—that this
would be a terrible interference, almost a socializing of our economy.
How would you answer that ?
Ms. R i v i j n . Again, I don’t read S. 50 as specifying an exact set
of programs that would move toward the goal. Certainly, some
packages of programs would involve larger government If one did
it through public service employment, that’s definitely true. But
there would certainly be other mechanisms that the Congress could
consider— monetary policy, tax cuts. S. 50 doesn’t preclude using
those tools.
The C h a ir m a n . What offsetting benefits do vou see in the way of
lower welfare co«ts or greater revenues and whatever?
Ms. R tvlin. If we could attain a full employment economy, and
it doesn’t really matter exactly how you define it, we would be better
off in many, many ways. The Federal deficit is largely----The C h a t r m a n . I’m talking about the specific fiscal effect. You
talk about the $16 to $44 billion gross cost. What would be some of
the offsetting fiscal benefits?
M R t v l i n . Some of them would be more taxes collected, less un­
s*
employment compensation paid, probably some lower welfare costs.
The net cost of that rou^h size program would be in the range of
$7 to $18 billion if the offsets are taken into account.
The Chairman. N o w you talked about the remedies for structural
unemployment as being so difficult and you said when we have un­
employment of 5 percent that for a white male between the ages of
~ and 64 it’s below 3 percent. Isn’t it true that we have quite an
experience—I think this is the reason for the Employment Act, as a
matter of fact—with World War II when we found that all of a
sudden we^ could train people and employ people very well who
were field hands with very little experience and no skill. They were
taken into the big plants in Detroit and Chicago and New York and
IjO Angeles and unemployment went down to about 2 percent and
s
we eliminated structural unemployment verv quickly when we found

Wr»
P
l ° r ? d C *9
,1 P
of what we hnd for the war effort.
T T 1 th. t p*Penence tell us somethinjr about how just a massive
a
nnr structural ^
w
our
problems pretty an(i re^l,ce unemployment can solve
well?
Ms. Rivlin. Yes, but I think it tell9 us two things:




79
First, if you run a very tight labor market, some of what seemed
to be structural problems go away; it will be to the advantage of
employers to train people that they wouldn’t have thought of hiring
before; and clearly, that’s an advantage to the whole economy.
Second, it tells us that, when you run a very tight labor market,
you either have inflation or you have price controls or you have both.
In World War II we did have a very strict price control system
which was reasonably well observed, presumably in part because
it was wartime. It is questionable whether it would be possible to
run that tight a labor market now and have a strict price control
system that would work, without the moral or emotional force of
being in a war. In any case, a price control system never works
forever without distorting the economy.
So the real question is what are the substitutes that one might
devise for running such a tight labor market? Can we by public
means do some of the training that might reduce the structural
unemployment problems and alleviate the inflationary danger?
The C h a i r m a n . It seems to me this bill is very weak on specific
issues to combat inflation. It’s strong on rhetoric. It says we ought
to do everything we can to stop it. It doesn’t say what it ought to
be very well. At least that’s the way I read it and I read the bill as
carefully as I could.
What means would you suggest that we might use. The Bill says
nothing about incomes policies, nothing about wage-price controls.
What means should the committee consider? I realize it’s unrealistic
to expect us to adopt wage-price controls in view of our recent ex­
perience. Are there other means that you can suggest that we might
consider to combat inflation, since you put so much emphasis on the
inflation problem?
Ms. Rivlin. Yes. I think there is a whole list that ought to be
considered and that some kind of an incomes policy must be on the
list if one is thinking about such drastic lowering of the unemploy­
ment rate as is contemplated in the bill
The C h a i r m a n . What kind of incomes policy do you have in
mind? Wage-price guidelines, the kind we had in the early sixties?
Ms. R i v l i n . At least that, yes. I think so. I don’t think we can
tell-----The C h a i r m a n . Standby wage-price controls or the capability of
the Congress to hold up price increases if they are considered to be
massive and have a potential inflationary impact?
Ms. R tvlin. Something like that. I don’t think we can tell in ad­
vance, given past history, when inflation is likely to reescalate. But
certainly if one is planning for lowering the unemployment rate,
one has to think not only of how we eliminate and reduce the known
inflationary biases in the economy, but what do we do if things get
out of hand
The C h a i r m a n . Has your calculation of the cost of this recognized
the effect this could have on the size of the labor force? We have had,
as you know far better than I do, an enormous increase in the labor
force not only for demographic reasons but also because people who
otherwise wouldn’t consider working are doing it. Back 25 years ago,
I understand that one women in four with a school-aged child be­




80
tween the age o f 6 and 16 was at work. Today, more than half
double the proportion are in the labor force and working or seeking
work. It seems to me that if we do provide a system of getting un-

employment down to 3 percent we’re going to have far more labor
force entries. There’s going to be an expansion greater than we might
otherwise think. We can’t keep everything the same because we will
have a labor force that will be quite a problem.
I f for example, in the last year the labor force had remained sta­
tionary, we would have IV2 million less unemployed because we have
had 3 million more jobs, but only about IV2 million less employed.
Ms. R i v l i n . That’s right, and the answer is, yes, we have con­
sidered that.
The C h a ir m a n -. What assumptions do you make as to the effect
of this kind of bill on expanding the labor force ? What would it do ?
Ms. R i v l i n . I th in k we considered th a t, w hen y o u ’ re m o v in g d o w n
the u n em ploym en t rate, y o u h a v e to create 10 n ew jo b s fo r ev ery 6
u n em ployed peop le to tak e care o f th e increase in the la b o r fo rce.

The Chairm an. D o vou think this s:oal set here of 3 percent adult
unemployment is feasible; is it worthwhile?
Ms. R i v l i n . I th in k it d e p en d s on w h a t y ou m ean b y fe a sib le .
The C hairm an Well, the two previous witnesses challenged that
as being: something that was so low as to almost guarantee, in their
view, that you would have a serious inflationary problem, probably
a double*digit inflation situation, with the other provisions in the
bill that are weak on combating inflation
Ms. R i v l i n . In all honesty, I think we, as economists, have to
plead igmorance about how far the unemployment can be pushed
down without escalating inflation. Probably the onlv solution is to
try it and see. But there have been times in our history when we
had a 4 percent unemployment rate without rapidly rising prices.
There have been other times when we didn’t, when the price level
did seem to escalate around 4 percent. So I don’t think there’s
assurance to that.
The C h a ir m a n . Isn’t a lot of thpt dependent on how you handle
this public service employment? If it is substantial, that is, if people
are getting a rate of pay which still provides an incentive for going
to the private sector, it would seem to me that could have an amelior­
ating effect on that aspect of the inflation question.
Ms. R t v l i n I think it could, very definitely, and it’s likely that
using public service employment at a reasonably low wage as part
of the tools for moviner the unemployment rate down is considerably
less inflationary per job created than using general fiscal policv. But
I think the uncertainty comes in not knowing how much inflationary
expectations are now built into our economy and there is a good
deal of argument about this. We have had recent and terribly se­
vere experience with inflation and you really can’t tell whether, if
we were pushing the unemployment rate down around, say, 4 per°xnVan Prices
to go up a little bit, this would accelerate out
of sheer expectation that it would. Those are some of the kinds of
uncertainties that arc certainly around.




81
The C h a i r m a n . D o you think we ought to have an anti-inflation
goal as well as an unemployment goal?
Ms. R i v l i n . Yes, I do. I think that the bill should be more bal­
anced. It should recognize that there are these two goals. Whether
they should be absolutely numerically spelled out or couched in some
other terms, I ’m not sure.
The C h a i r m a x . Well, we spell out one numerically.
Ms. R i v l i x . Then we certainly have to spell out tlie other.
The C h a i r m a x . D o you have any feeling as to what kind of anti­
inflation goal would be realistic—2 percent, 3 percent?
T
Ms. R i v l i x . Well, that’s pretty ambitious and I think-----The C h a i r m a x . By 1 9 8 0 , what would you say would be realistic ?
Ms. R i v l i x . I d o n ’t k n o w th a t I h a v e a n u m e r ic a l a nsw er to th a t,
b u t w e w o u ld be v e r y lu c k y i f w e g o t d o w n to 2 o r 3 p ercen t in ­
fla tio n .
The C h a i r m a x . We would be lucky i f we got down to 3 percent

unemployment, too.
Ms. R i v l i x . Yes, but I don’t think that means we shouldn’t try to
do both. It does seem likely, that having such goals is useful.
The C h a i r m a x . Finally, you speak with considerable assurance of
the tradeoff between unemployment and inflation. In view of our
recent experience, I wonder how valid that really is. Here we have
had a colossal inflation in 1 9 7 4 and early 1 9 7 5 rolling along about
12 percent inflation rate with very high unemployment. We have had
a drop in both unemployment and price level at the same time. I
think when you get down to these low levels you can speak perhaps
with more assurance, but I just wonder, in view of the many other
elements that enter into the price level—energy, food and so forth—
I ’m curious as to whether or not you really feel that the Phillips
curve is still as valid a concept as we all thought it was a year and
a half ago.
Ms. R i v l i x . I don’t think economists speak with assurance about
anything these days, Mr. Chairman, but I think that the experience
of the last 2 years has been sufficiently special that we shouldn’t
quickly assume that the general relationship between accelerating
inflation and tight labor markets has suddenly gone away. I don’t
see any reason to assume that. As you referred to earlier, to the
initial causes of this double-digit inflation we’re outside the realm
of ordinary supply and demand considerations. It certainly is true
that we have had for awhile both rising inflation and rising un­
employment and we have had both falling recently, but I think there
arc ways of explaining that which are reasonably logical before we
throw away everything we thought we knew.
The C h a i r m a x . It’s been suggested that chart 1 on page 1 4 of
your statement has been the kind of evidence to suggest that infla­
tion helps to cause unemployment. Does it not show, on the con­
trary, that our attempts to combat inflation have reduced unemploy­
ment?
Ms, R i v l i x . I think there’s some of each. There are times when
inflation has caused unemployment. The oil embargo inflation was




82
a good example of that. That certainly was an inflation which acted
rather like an excise tax on the economy. People had to buy oil and
they did and they spent less on other things and that was certainly
a contributing factor to the recession that followed.
The C h a ir m a n . It seems that the whole energy nightmare that
we went through had a great deal of that. We were priced out of
the market on many things that we’d like to buy because of the
energy inflation.
Ms. R ivlin. Right. But it is also true that we have at times run
such a tight fiscal policy in an attempt to combat inflation that we
added to recession.
The C h a ir m a n * Dr. Rivlin, thank you very, very much. You have
been most helpful—excellent testimony.
The committee will stand in recess until tomorrow when we hear
from four distinguished economists: Professor Galbraith, Professor
Ulmer, Professor Levitan and Professor Allen.
[Whereupon, at 12:10 p.m., the hearing was adjourned.]




FULL EMPLOYMENT AND BALANCED GROWTH ACT OF
1976

F R ID A Y , M A Y 21, 1976

U.S.
C o m m it t e e

on

B

a n k in g ,

H

o u s in g a n d

U

S enate,
A f f a ir s ,

rban

Washington, D.C.
The committee met at 10:05 a.m., pursuant to notice, in room
5302, Dirksen Senate Office Building, Senator William Proxmire
(chairman of the committee) presiding.
Present: Senators Proxmire, Stevenson, and Garn.
The C h a i r m a n . The committee will come to order.
This morning we continue our hearings on S. 50, the HumphreyHawkins bill that would provide for a goal of 3 percent adult un­
employment in 4 years. We are very fortunate to have four very dis­
tinguished economists who are testifying on this landmark legisla­
tion.
Yesterday we were warned about the legislation by Mr. Green­
span, the Chairman of the Council of Economic Advisers, who
was very critical of the legislation; and also by Governor Partee
of the Federal Reserve Board. They were particularly concerned
about the inflationary effect and about the additional involvement
of the Federal Government in our economy.
I would like to just make a brief statement at the beginning today
to say that it seems to me that this legislation may have been ex­
aggerated in its impact by its supporters and excessively criticized
by those who oppose it. Frankly, I doubt if this legislation, if it’s
enacted in its present form, would do very much.
I say that because I was the author of the housing goals that we
put into the Housing Act of 1968 and that was also precatory, that
entreating legislation hoping that we would establish goals of 26
million housing starts in the decade beginning in 1968 or 2.6 mil­
lion a year. It was broken down to 600,000 Government assisted
housing starts per year and the rest conventional. What happened
is rather pitiful. Last year we had only about 1,100,000 housing starts
in snite of the fact we had the goal firmly established in the law.
We not only had that unfortunate experience but we had some­
thing like 54,000 Government assisted housing starts instead of the
600,000 that we pledged in 1968. Now this was completely within the
control of the Government, but it was something that was not sup­
ported by the President of the United States. It was supported too
weakly by the Congress and the result was we didn’t achieve it. We
had it in the law but we didn’t achieve it.




(83)

84
When we pass social security legislation and say a person is entitled
to a social security check and that is going to be the law, or an un­
employment compensation and provide that somebody is going to get
this check, it seems to work. The pledge is kept and the legislation
has profound influence.
But in view of our experience with housing legislation, I doubt
very much if this legislation is likely to achieve the aim that its
authors hope for unless we are able to strengthen it or its critics
have claimed unless we find ways of buttressing the legislation with
the election to office of people who will champion it.
I have no doubt in my mind if we elected John Kenneth Galbraith
as President of the United States and 535 most faithful loyal stu­
dents as Members of Congress that this would be achieved, but that’s
not going to be the case. That would be achieved, I might say, if
they didn’t have to subject themselves to reelection over the next 4
years.
At any rate, we are delighted to have you gentlemen and we will
start off with the distinguished Professor John Kenneth Galbraith,
a former president of the American Economic Association, a man
who’s just been awarded a recognition, I understand, by a Harvard
group as the funniest professor who has served there in 100 years.
We are delighted to have you.
STATEMENT OF PROF. JOHN KENNETH GALBRAITH, EMERITUS,
HARVARD UNIVERSITY

Mr. G a l b r a i t h . Thank you very much, Mr. Chairman. I don’t
know how to respond to that introduction. It’s evenhanded as to
my becoming President, I can hardly regret your pleasant reference
to that in this year when all Democrats at least have been running
for the post, but I would have to remind you that would take a con­
stitutional amendment because I was born a British subject of the
particular group the Constitution was designed to prevent from be­
coming President.
I endorse the bill before you today, Mr. Chairman. I’m going to
urge some important improvements, but these do not prevent my
applauding the strongly progressive and affirmative mood which
S. 50 reflects. Discussion and passage could not come at a better
time. It will affirm, despite much current rhetoric to the contrary,
that the Government of the United States can be, as it has been, a
force for compassion and good in the Republic. It does not solve
the unemployment problem by asking the unemployed to accommo­
date themselves to the new era of lowered expectations. It accepts
that those who ask for a reduced role of government are usually
the rich who ask for a reduced level of taxes or the predatory who
wish a lessened volume of regulation. Their voices being loud, thev
are regularly mistaken for those of the masses. In dismissing, as
I trust they will, the opposition of the President’s conservative ad­
visers, the sponsors show their understanding of one of the great
constants of economic and political behavior. It is that those who
speak most passionately about defending capitalism oppose most
y * measilJes
which its injustices are diminished, its
performance improved and its future improved or secured.




85
I would point out, after having read the testimony of my friend
Alan Greenspan yesterday, that I hope various members of the com*
mittee asked him if he would have supported the legislation passed
30 years ago by which he is now employed. My deep conviction is
that Mr. Greenspan would have opposed the original Employment
Act setting up the Council of Economic Advisers of which he is
the Chairman.
The bill is especially to be commended for the planning features
it incorporates from the companion legislation of Senators Hum­
phrey and Javits. The modern economic system, as recent experi­
ence with petroleum products, fertilizer, electrical energy, numerous
raw materials and food demonstrates, contains no mechanism for
adjusting supply to demand without shortages or disruptive move­
ments in prices. This is increasingly the case as market prices gave
way to those administered by the larger corporate enterprises or, as
in the case of petroleum products, by international cartels. A deter­
mined effort to anticipate and forestall such dislocation is thus an
essential adaptation to the facts of modem life. You will doubtless
be told that a firm commitment to free enterprise and the American
system precludes any effort to foresee problems and prevent their
occurrence, that it excludes any exercise of anticipatory intelligence
by government. This foolishness can safely be ignored. Theology we
have always with us.
I was impelled to write those words by reading the testimony and
comments of Mr. Walter Wriston of the First National City Bank,
which I hope all connoisseurs of business procedures will note and
cherish. He said the Humphrey-Javits legislation was the first step
toward an economic police state. Mr. Chairman, that’s a difficult but
alarming concept. And he went on to say that it would destroy “both
our personal liberty and our productive power.” I think both Sena­
tors Javits and Humphrey would be pleased to know that their
legislative power was that great.
The bill before you places emphasis on affirmative job creation
either by the Federal Government or as an alternative to layoffs,
reduced services and resulting unemployment by the States and
cities. This I much applaud. In recent years we have been using
the regressive and discreditable device of reducing Federal taxes
when there is need to expand employment. One group of otherwise
distinguished economists recommends such action for all economic
malperformance and on occasion also for chronic nose drip. It is a
policy that returns money to corporations and those in the upper
quartiles of the personal income tax brackets—those who least need
it. It is inefficient as a form of stimulation for, not being urgently
needed, the tax savings is not as reliably spent—it is by no means
as reliably spent as money for jobs. It cannot be directed—targeted—
as can jobs to the areas of greatest unemployment. And, coming as
it does at a time of recession, unemployment and associated strin­
gency in State and local finance, its effect is offset by increases in
State and local taxes and cuts in local services. Last autumn, as a
continuing cut in Federal income taxes was being voted in Congress,
numerous States and localities, New York State and City being
the extreme cases, were increasing local sales, business, property,




86

and other taxes and reducing police, fire, school, and other employ­
ment. Such policies make no economic sense whatever. Commenting
on the negative reactions of numerous economists to this bill, Senator
Humphrey offered the opinion that in the recent “ climate of neg­
ativism” they had “ lost their nerve and sense of creativity.” They
have also, T fear, remained too comfortably, too Ions: with policies
that once seemed innovative but which, in the full light of experience,
have become very conservative.
There will be much learned debate over whether the 3 percent
unemployment goal set in the bill is too low. This brings me to a
major—I should say my major—point. There is no answer. It de­
pends entirely on the companion action to prevent inflation.
At a 3 percent unemployment rate, there is no question, the Ameri­
can economy can be disastrously inflationary. Western European
countries, notably Germany, Switzerland, and some others, can come
much closer to full employment than we do. That is because they
have an implicit incomes policy, which I will mention a moment
later, but also because they rely heavily on foreign labor. This they
send or keep at home when it is not needed. Thus their unemploy­
ment remains uncounted in unemployment back home in Yugoslavia,
Turkey, Italy, Spain, or Portugal. Our unemployment figures in
contrast are relatively honest. In the United States in recent years
with unemployment varying at from 7 up to 10 percent, industrial
prices have gone steadily upward. Such stabilization as has been
achieved has been at the expense of farm prices and some other
commodity prices. Industrial prices have only slightly tempered
their upward movement and it’s by these current facts, Mr. Chair­
man, that we must be warned.
I must specifically and deliberately warn my liberal friends not
to engage in the wishful economics that causes them to hope that
there is some still undiscovered fiscal or monetary magic which will
combine low unemployment with a low level of inflation. That expec­
tation is in conflict with the purposes of this bill. Both fiscal and
monetary policy achieve price stability by creating idle plant and
unemployment and using these to bring moderating or downward
pressure on prices and wages. Let all who advocate this legislation
be mature. Let us not imagine that God is a liberal gentleman who
will work miracles for liberals merely because He loves His own.
We cannot combine full employment with policies that use un­
employment to stabilize prices. There is no substance to the wishful
thought, hinted at in this bill, that the higher output that goes with
full employment will lower unit costs or otherwise stabilize prices.
In step with the higher output goes higher income to buy the prod­
uct. Markets are not less strong with the greater supply. And as
capacity is approached, the ability of corporations to raise prices
increases. And the pressure of higher living costs causes unions to
ask for hisrh wa^e settlements when they have the bargaining power
to get them. As full employment is approached, inflation will become
more severe.

There is also no future in the belief that inflation should be ac­
cepted as the Ie«ser evil. Voters will alwavs react to the evil that
they are experiencing, will not measure it against the evil they




87
avoided. I hope that we will never have a political debate in which
liberals accept inflation, conservatives accept unemployment.
Since fiscal and monetary policy operate against inflation by
creating unemployment—this, not an act of nature, is the cause of
the present recession and unemployment—the only remaining al­
ternative is direct intervention in wage bargaining and adminis­
tered prices. (I think, if I may say so, that I have had perhaps
more experience with this problem than any other man still alive. I
have said many times, Mr. Chairman, that when I finished my tour
of duty as price fixer in World War II, President Roosevelt of­
fered me a job in South Africa and his thought was that that was
the farthest away he could have me from Washington.) I would
be as anxious to avoid this course as anyone, were there any alter­
native. Unfortunately, there is not.
I ’m aware of some wording in the bill which allows of this action
if all else fails. Section 107(7) asks that the Economic Report make
‘‘recommendations for administrative and legislative actions to pro­
mote price stability.” That form of words is not an adequate or even
a very brave response to what all must agree is, perhaps, the major
question raised by this bill.
I ’m also aware of the reason for wanting to sweep this issue under
the rug. The required actions are a bold departure from past prac­
tice ; there is fear of losing the support, not only of the corporations,
but also of the unions. However, this might have been better than
losing the support of those who fear inflation. And George Meany
has said many times that labor will accept an incomes policy if it
applies to all incomes, does not single out the union man for special
attention. No one can object to that position; no trade union leader
could or should ask for less.
The bill should be amended to allow prompt executive action as
full employment is approached. The authorization should include
provision for restraints on prices of corporations where there is sub­
stantial market power—I have reference here to large corporations,
perhaps those employing 1,000 workers or more—and provision for
tripartite negotiation of limits on wage and salary increases, a re­
quirement of equitable restraints on other incomes, and provision for
serious impartial administration of the policy. If, as some may still
hope, the danger of inflation is not real, these provisions will not be
invoked, will do no harm. I f they are needed, they are there.
This is a matter, it should be added, on which events around the
world are in the saddle. Nearly all European countries now have
an implicit incomes policy based on calculations of the effect of wage
increases on both domestic inflation and the competitive position
of the country’s industries in foreign markets, matters that are con­
sidered when collective bargaining arrangements are entered into.
There are implicit price ceilings from the same source. Britain and
Canada have gone on to establish and enforce formal wage and price
restraints. The recent British limitation on wage increases of 4.5
percent for the next year has gone into effect with the acquiescence
of the unions and both Government and opposition political parties.
Numerous American economists still resist these thoughts. No one
should imagine that my professional colleagues are disinterested.




88
They have a deeply vested interest in both the textbooks and th6
personal knowledge which this policy would make obsolete.
Thus I come here to urge a strong stand against unemployment
and an equally unequivocal stand against inflation too. When the
original Employment Act was passed, after the long experience of
depression, peacetime inflation was not perceived to be a problem.
We have much experience since to show that it is. Our stand for
full employment will be stronger if we end or neutralize the legiti­
mate anxieties of those who fear inflation just as we will be in a
better position to deal with inflation if our remedy does not, as now,
require that there be unemployment and recession.
In concentrating on major issues, it would be wrong to neglect
the lesser, smaller provisions for reporting and discussion that the
bill contains. The Employment Act of 1946 made the management
of the American economy a matter of specific yearly discussion and
decision and, in the best democratic manner, greatly widened the
participation in that discussion. This legislation extends and gives
more specific point to that earlier legislation.
It also, though marginally, brings monetary policy into the com*
plex of active economic policy. It was earlier excluded on the curious
grounds that anything having to do with banking was too sacred and
delicate for the ordinary processes of economic decision. Thus the
independence, so-called, of the Federal Reserve—an independence
in theory even of the President, although it has been my observation
that no Federal Reserve Chairman long resists when told plainly
by a President what he should do. There was never any basis for
this aristocratic idea except the prestige arising from the association
with money. Were it my choice, I would make the Federal Reserve
explicitly subject to the economic policy and planning herein pro­
vided. However, I recognize the desire of the authors of the bill to
avoid battles over large totemic issues.
I urge the strengthening of S. 50 along the lines that I have indi­
cated. And I urge its passage.
[Complete statement follows:]
T e s t im o n y

by

Jo h n

K enneth

G a l b r a it h ,

on

the

B a la n c e d G e o w t h A ct of

F ull

E m ploym ent

and

1976

patm an, Members of the Committee: I endorse the Bill before you
today. I will urge some important improvements; these do not prevent my
applauding the strongly progressive and affirmative mood which S50 reflects.
Uiscussion and passage could not come at a better time. It will affirm, despite
much current rhetoric to the contrary, that the government of the United
states can be, as it has been, a force for compassion and good in the Republic.
- L r * 8 U°;
fc une®Ployment problem by asking the unemployed to
l?e
themselIves to the new era of lowered expectations. It accepts that
?0r ? recced role of government are usually the rich who ask
of. taXtSsor the
who wish a lessened volume
of
^ing loud, they are regularly mistaken for those
d«S
trU8t they wm* the °PP°sition
the Presiot the ertat rnnttui im i ^ ^
t sponsors show their understanding of one
m w
w V
economic and political behavior. It is that those who

YC
0 ?*

all measureJhv

ve &r
rOt y
o

o
t

<anK caPltalism oppose most predictably

* » •""■Ml** «• I M X . ' I W M I

The Bill is the companion
corporate, fromespecially to be commended for the DlannlnE ftuhim i it in




89
The modern economic system, as recent experience with petroleum products,
fertilizer, electrical energy, numerous raw materials and food demonstrates,
contains no mechanism for adjusting supply to demand without shortages or
disruptive movements in prices. This is increasingly the case as market prices
give way to those administered by the larger corporate enterprises, or as in
the case of petroleum products, by international cartels. A determined effort
to anticipate and forestall such dislocation is thus an essential adaptation to
the facts of modern life. You will doubtless be told that a firm commitment to
free enterprise and the American system precludes any effort to foresee prob­
lems and prevent their occurrence, that it excludes any exercise of anti­
cipatory intelligence by government. This foolishness can safely be ignored.
Theology we have always with us.1
The Bill before you places emphasis on affirmative job creation either by
the Federal government or as an alternative to layoffs, reduced services and
resulting unemployment by the states and cities.* This I much applaud. In
recent years we have been using the regressive and discreditable device of re­
ducing Federal taxes when there is need to expand employment. One group
of otherwise distinguished economists recommends such action for all economic
malperformance and on occasion also for chronic nose-drip. It is a policy that
returns money to corporations and those in the upper quartiles of the personal
income tax brackets—those who least need it. It is inefficient as a form of
stimulation for, not being urgently needed, the tax saving is not as reliably
spent—it is by no means as reliably spent as money for jobs. It cannot be
directed—targeted—as can jobs to the areas of greatest unemployment. And,
coming as it does at a time of recession, unemployment and associated strin­
gency in state and local finance, its effect is offset by increases in state and
local taxes and cuts in local services. Last autumn, as a continuing cut in
Federal income taxes was being voted in Congress, numerous states and locali­
ties, New York state and city being the extreme cases, were increasing local
sales, business, property and other taxes and reducing police, fire, school and
other employment. Such policies make no economic sense whatever. Comment­
ing on the negative reaction of numerous economists to this Bill, Senator
Humphrey offered the opinion that in the recent “climate of negativism” they
had “lost their nerve and sense of creativity.” 3 They have also, I fear, re­
mained too comfortably, too long with policies that once seemed innovative
but which, in the full light of experience, have become very conservative.
There will be much learned debate over whether the four percent unemploy­
ment goal set in the Bill is too low. This brings me to a major—I should say
my major—point. There is no answer. It depends entirely on the companion
action to prevent inflation.
At a four percent unemployment rate, there is no question, the American
economy can be disastrously inflationary. Western European countries, notably
Germany, Switzerland and some others, can come much closer to full employ­
ment than we do. That is because they have an implicit incomes policy, which
I will mention in a moment, but also because they rely heavily on foreign labor.
This they send or keep at home when it is not needed. Thus their unemploy­
ment remains uncounted in unemployment back home in Yugoslavia, Turkey,
Italy, Spain or Portugal. Our unemployment figures in contrast are relatively
honest. In the United States in recent years with unemployment varying from
seven up to ten percent, industrial prices have gone steadily upward. Such
stabilization as has been achieved has been at the expense of farm prices and
some other commodity prices. By these facts we must be warned.
I must specifically and deliberately warn my liberal friends not to engage
in the wishful economics that causes them to hope that there is some still
undiscovered fiscal or monetary magic which will combine low unemployment
with a low level of inflation. That expectation is in conflict with the purposes
of this Bill. Both fiscal and monetary policy achieve price stability by creating
1 Students of the higher corporate argument, both in and out of Congress, will wish
t» reflect on the judicious reaction of Mr. Walter Wriston of Citicorp and therewith of
tho First National City Bank. Such exercise of intelligence, h e . has concluded, would
be the first step toward an “ economic police state,” a difficult but alarming concept and
“ would destroy both our personal liberty and our productive power.”
* More thought needs to be given to the means for giving countercyclical support
to states and localities.
* Challenge magazine, May/June 1976




90
idle plant and unemployment and using these to bring moderating or down­
ward pressure on prices and wages. Let all who advocate this legislation be
mature. Let us not imagine that God is a liberal gentleman who will work
miracles for liberals merely because He loves His own.
We cannot combine full employment with policies that use unemployment
to stabilize prices. There is no substance to the wishful thought, hinted at in
this Bill, that the higher output that goes with full employment will lower
unit costs or otherwise stabilize prices. In step with the higher output goes
higher income to buy the product. Markets are not less strong with the greater
supply. And as capacity is approached, the ability of corporations to raise
prices increases. And the pressure of higher living costs causes unions to ask
for high wage settlements when they have the bargaining power to get them.
As full employment is approached, inflation will become more severe.
There is also no future in the belief that inflation should be accepted as
the lesser evil. Voters will always react to the evil that they are experiencing,
will not measure it against the evil they avoided. I hope that we will never
have a political debate in which liberals accept inflation, conservatives accept
unemployment.
Since fiscal and monetary policy operate against inflation by creating un­
employment—this, not an act of nature, is the cause of the present recession
and unemployment—the only remaining alternative is direct intervention in
wage bargaining and administered prices. I would be as anxious to avoid this
course as anyone—were there an alternative. Unfortunately there is none.
I'm aware of some wording in the Bill which allows of this action if all else
fails. Section 107 (7) asks that the Economic Report make “recommendations
for administrative and legislative actions to promote price stability.” That
form of words is not an adequate or even a very brave response to what all
must agree is, perhaps, the major question raised by this Bill.
I’m also aware of the reason for wanting to sweep this issues under the
rug. The required actions are a bold departure from past practice; there is
fear of losing the support, not only of the corporations, but also of the unions.
However this might have been better than losing the support of those who fear
inflation. And Mr. George Meany has said many times that labor will accept
an incomes policy if it applies to all incomes, does not single out the union
man for special attention. No one can object to that position; no trade union
leaders could or should ask for less.
The Bill should be amended to allow of prompt executive action as full
employment is approached. The authorization should include provision for
restraints on prices of corporations where there is substantial market power,
provision for tripartite negotiation of limits on wage and salary increases, a
requirement of equitable restraints on other incomes, and provision for serious,
impartial administration of the policy. If, as some may still hope, the danger
of inflation is not real, these provisions will not be invoked, will do no harm.
If they are needed, they are there.
This is a matter, it should be added, on which events are in the saddle.
Nearly all European countries now have an implicit incomes policy based on
calculations of the effect of wage increases on both domestic inflation and
the competitive position of the country’s industries in foreign markets. There
are implicit price ceilings from the same source. Britain and Canada have gone
on to establish and enforce formal wage and price restraints. The recent British
limitation on wage increases of 4.5 percent for the next year has gone into
effect with the acquiescence of the unions and both Government and opposition.
Numerous American economists still resist these thoughts. No one should
imagine that my professional colleagues are disinterested. They have a deeply
vested interest in both the textbooks and the personal knowledge which this
policy would make obsolete.
Thus I come here to urge a strong stand against unemployment and an
ennaHy unequivocal stand against inflation too. When the original Employment
Act was passed, after the lone experience of depression, peacetime inflation
was not perceived to be a problem. We have much experience since to show
i
*!aT
l<11?11*0 1 eT m
1 T loyment will be stronger if we end or neutral-

L
hose who fear infl*tion i«8t as we will be in a
^
7
inflation if our remedy does not, as now, require
that there be unemployment and recession.




In concentrating on major issues, it would be wrong to neglect the lesser,
smaller provisions for reporting and discussion tliat the Bill contains. The
Employment Act of 1946 made the management of the American economy a
matter of specific yearly discussion and decision and, in the best democratic
manner, greatly widened the participation in that discussion. This legislation
extends and gives more specific point to that earlier legislation.
It also, though marginally, brings monetary policy into the complex of active
economic policy. It was earlier excluded on the curious grounds that anything
having to do with banking was too sacred and delicate for the ordinary proc­
esses of economic decision. Thus the independence, so-called, of the Federal
Reserve—an independence in theory even of the President, although it has
been my observation that no Federal Reserve chairman long resists when told
plainly by a President what he should do. There was never any basis for this
aristocratic idea except the prestige arising from the association with money.
Were it my choice I would make the Federal Reserve explicity subject to the
economic policy and planning herein provided. However I recognize the desire
of the authors of the Bill to avoid battles over largely totemic issues.
I urge the strengthening of S50 along the lines that I have indicated. And
I urge its passage.

The C h a i r m a n . Thank you very much, Dr. Galbraith.
Professor Ulmer.
STATEMENT OF PROF. MELVILLE J. ULMER, UNIVERSITY OF
MARYLAND

Mr. U lm er. Thank you. I endorse this bill, Mr. Chairman, but onjy
if it’s significantly revised with several important amendments. The
great merit of the Humphrey-Hawkins bill is that it starts with one
of the important truths of our time—one that I, personally, have
been trying to shout from the rooftops for nearly 10 years: that
is, to quote, that “ aggregate monetary and fiscal policies are inade­
quate by themselves to achieve full employment and to restrain in­
flation.” It seemed like an excerpt, taken verbatim, from one of my
own articles, a circumstance that could easily lead a modest man
to anticipate reading one of the great legislative landmarks of Amer­
ican history. I f I had such anticipations, they quickly deteriorated
as I went on. For despite the obviously noble motivations of its au­
thors, I found that the Humphrey-Hawkins bill contains the seeds
of its own frustration. It fails ever to confront the central economic
problem that it had presumably set out to solve.
That central problem, proved time and again by experience, is
the fundamental conflict between the goals of full employment and
price stability. It is reflected in the three-phase pattern of what I
have called the roller coaster economy. And that pattern has been
imprinted in our economic history ever since Keynesian stabiliza­
tion techniques were adopted in this country, though informally at
first, shortly after World War II. In the first phase of the pattern
there is an economic recovery typically supported by a tax reduc­
tion as is the present upswing. During this phase prices and wages
rise, though usually not so briskly. Second comes a period of pros­
perity, though never actually yielding full employment. During this
phase the rate of inflation intensifies, and before long becomes truly
alarming. We are not so far from that kind of inflation right now.
In the next, or third, phase of the cycle there is a recession, delib­
erately induced to fight inflation* The “ inducements” generally are




92

higher taxes and/or interest rates. This sequence of events is so
familiar that even the general public knows it. And it senses also,
with suitable concern, that the swings of the roller coaster have
grown progressively wider and less controllable. But unfortunately,
The authors of Humphrey-Hawkins give no evidence that they share
that common knowledge.
The proposal of this bill, in effect, would simply generate a great
economic expansion by huge expenditures on public employment,
instead of tax reductions. I would favor that, were it coupled with
specific, responsible safeguards against inflation. But without those
safeguards, the effort is destined for failure—in fact, so blatant a
failure that the promise of a true stabilization effort could be set back
10 years. I think that if the Humphrey-Hawkins bill were enacted
as it stands, and put into practice, it would stimulate a more spec­
tacular inflation than that of World War II. In the end it would not
only fail to help the presently unemployed, but would add new re­
cruits to the army of the poor. I refer to those worthy men and
women of advanced years, who had worked hard all their lives to
provide savings and pensions for a comfortable retirement* only to
find that their incomes were not even enough, in purchasing power,
to keep them properly fed. And there is nothing now in the bill that
offers the slightest hope of avoiding that eventuality.
Indeed, the bill seems married to a traditional and clearly out­
dated misconception of why prices rise. For example, it promises
to restrain "inflation when total demand threatens to exceed the Na­
tion’s capabilities at full employment.” That unrealistically simpli­
fied objective provides its own oversimplified, textbook solution:
Just stop demand from exceeding the full employment level. But
the central problem of our times, as I earlier described, is that se­
vere inflation sets in long before we get to full employment, that
it becomes so intense every time the economy expands that we never
do get to full employment. The questions this bill should confront,
but does not, is why does premature inflation develop? What can
be done to stop it?
I want to say, before closing, a few words about these questions,
and the amendments to this bill that I think the answers would
suggest. There are two related reasons why premature inflation
always develops, so that corrective recessions—six in the last 27
years have been a periodic, practical necessity. The first relates to
the quasi-monopohstic power of oligopolistic industry and labor
unions. I am not suggesting that either business or unions are anti­
social In the economic setting, we have provided for them, thev have
simply followed their own interests, rationally. In a presidential
address before the American Economic Association last year, Robert
A. Gordan remarked that: “We economists pay too little attention
that conditions economic
Italicized th« word changing. The critical change in
the postwar economic history of the United States was the svstem-

i0^
^ lyneSmn tw'h 1
n i<iaes for economic stabilization. It
meant, at least, so far as people have been able to see. that declines
in b n n > « .Btmty would „ ever
X w S t o p r o t ^ ve ”
h r or Iwt ™ y long. T lat conviction «
btemd t o i n f C e K

behavior of business and labor, as it indisputably has.




93

In a word, oligopolistic industry and organized labor have
both learned, as Wall Street puts it, to “ look across the valley.”
When business activity declines temporarily, there is virtually
no inducement to lower prices and wages in order to maintain
volume. Instead business and labor are preoccupied throughout with
the immediate preparations that should be made for the next up­
turn. There is an eagerness, an alertness on the part of oligopolists
to preserve industry discipline (which means not lowering: prices)
and to maintain and increase the industry’s share in the GNP (which
means increasing prices)—especially since, as I have shown else­
where, demand usually becomes inelastic in recessions. For its part,
each union is determined to maintain and improve the purchasing
power of its members in recession, and with prices still rising, and
given the equal determination of all other unions, this means raising
wages as much and as often as opportunity offers. I have described
this process in considerably more detail, including the inflationary
psychology it inculcates, in another paper I am submitting to this
committee. However, the common phenomenon of business firms
and unions raising wages and prices even when output is falling, is
familiar to all. Their intensified aggressiveness, as soon as conditions
improve* is equally familiar.
There is only one conceivable, effective response to this situation.
The Federal Government must have the standby power, and the
will, to impose mandatory controls on prices and wages whenever
the behavior of an industry or a union clearly contravenes the pub­
lic interest. I am convinced that this can be done flexibly, without
thwarting the allocative functions of supply and demand,* and with­
out placing our economy in a straightjacket. And I would be de­
lighted to offer this committee whatever help I can give in preparing
an amendment to this bill incorporating such ideas.
The Chairm an. Will you do that? I wish you would submit an
amendment.
Mr. U lm er. Thank you.
The second reason for premature inflation lies in a structural im­
balance in the supply and demand for labor. It arises from a critical
split in the labor force, and I refer not to females versus males, and
certainly not blacks versus whites, since 75 or 80 percent of the un­
employed are normally white. The split in question has to do with
the level of skills. A very large part of the labor force remains virtu­
ally unaffected by recessions. You can verify this by examining BLS
data on unemployment rates by occupation.* The jobless rates remain
at 1, 2, or 2V5 percent in recessions for nearly all skilled workers,
professionals, administrators, technicians, and of course government
employees. You can tell this also by simply noting stories in the
Wall Street Journal, reporting severe shortages of what is always
considered a surprising variety of skills, even during our worst re­
cessions. Meanwhile, of course, among the unskilled and the semi­
skilled unemployment rates during downturns are anywhere be­
tween 2 awl, 4 times the national average. Now, when we use the
famed -Keynesian techniques for expanding demand and employ­
ment^ we create what can only be called overfull efliplby*nent in
markets for the more skilled workers, the technicians, professionals,
and other favored personnel—an inflationary situation in which jobs




94
are chasing men and women. At the same time, the unskilled and the
.semiskilled arc helped only modestly. Hence, one essential step to­
ward providing full employment without inflation is the one pro­
posed by Humphrev-Hawkins—that is, to give the unemployed un­
skilled and semiskilled jobs in the public sector. They never are,
and under present circumstances never can be employed in the private
sector except under the most inflationary conditions.
lint public employment is expensive, even after allowing for off­
setting savings in unemployment insurance and the like. It would
unleash a flood of spending in private business markets with an in­
flationary impact that could not possibly be contained by manda­
tory price-wage controls acting alone. Therefore, instead of vagjue
sentiments, there must be a definite directive in Humphrey-Hawkins
about tax policy. Taxes should be adjusted to a level sufficient to
maintain program guaranteeing opportunities to work, that tax
objective is entirely feasible as well as essential.
In practice, in the present situation, it would probably mean
financing the entire net cost of public employment by a tax increase.
That would admittedly be a bitter pill for the public, not to men­
tion those running for office in an election year, but medicine of that
kind lias been accepted before when the public had faith in its effi­
cacy and purpose. In the present case, I think acceptance of a suffi­
cient tax increase would require much greater assurance than this
bill now provides that public employment will be truly productive,
and carefully directed at those high priority needs that still remain
tragically unfulfilled in the public sector.
The major proposal to which these comments lead is this. Along
with its promise that adult unemployment will be reduced to 3 per­
cent within 4 years, the Humphrey-Hawkins bill should contain a
second guarantee—that the annual increase in the consumer price
index will be reduced to a maximum of 2 percent within 4 years. To
satisfy that objective it will have to provide for mandatory, selec­
tive wage-price controls plus the appropriate tax policy just defined.
A program of that kind, I think, would offer the only promise there
can be of getting what we have never had—full employment without
inflation.
r J
[Complete statement follows:]
F u l l E m p l o y m e n t W it h o u t I n f l a t i o n ?
11 r o w r a i w m N o

The

F dctot

preat merit

o f th e

o r E c o n o m ic s , U n iv e r s it y op M a r y l a n d ,
RePUBLIC" S ™
N a t io n a l

Humphrey-Hawkins bill is that it starts with

one

to s h l t ' & V ^ftop°s C n w e n 6

s.



“• "“- 1

“ w "-

n s?sss» 5

95
That central problem, proved time and again by experience, is the funda­
mental conflict between the goals of full employment and price stability* It is
reflected in the three phase pattern of what I have called the roller coaster
economy. And that pattern has been imprinted in our economic history ever
since Keynesian stabilization techniques were adopted in this country, though
informally at first, shortly after World War II. In the first phase of the
pattern there is an economic recovery, typically sui>ported by a tax reduction
as is the present upswing. During this phase prices and wagse rise, though
usually not so briskly. Second comes a period of prosperity, though never
actually yielding full employment. During this phase the rate of inflation
intensifies, and before long becomes truly alarming. We are not so far from
that kind of inflation right now. In the next, or third, phase of the cycle there
is a recession, deliberately induced to fight inflation. The "inducements** gen­
erally are higher taxes and/or interest rates. This sequence of events is su
familiar that even the general public knows it. And it senses also, with suit­
able concern, that the swings of the roller coaster have growT progressively
n
wider and less controllable. But unfortunately, the authors of HumphreyHawT
kins give no evidence that they share that common knowledge.
The proposal of this bill, in effect, would simply generate a great economic
expansion by huge expenditures on public employment, instead of tax reduc­
tions. I would favor that, were it coupled with specific, responsible safeguards
T
against inflation. But without those safeguards, the effort is destined for fail­
ure—in fact so blatant a failure that the promise of a true stabilization effort
could be set back ten years. I think that if the Humphrey-Hawkins bill were
enacted as it stands, and put into practice, it would stimulate a more spec­
tacular inflation than that of World War II. In the end it would not only
fail to help the presently unemployed, but would add new recruits to the
army of the poor. I refer to those worthy men and women of advanced years,
who had worked hard all their lives to provide savings and pensions for a
comfortable retirement, only to fijid that their incomes w
^ere not even enough,
in purchasing power, to keep them properly fed. And there is nothing now in
the bill that offers the slightest hope of avoiding that eventuality.
Indeed the bill seems married to a traditional and clearly outdated miscon­
ception of why prices rise. For example, it promises to restrain “inflation when
total demand threatens to exceed the nation’s capabilities at full employment."
That unrealistically simplified objective provides its own over-simplified, text­
book solution: Just stop demand from exceeding the full employment level.
But the central problem of our times, as I earlier described, is that severe
inflation sets in long before we get to full employment, that it becomes so
intense every time the economy expands that w never do get to full employ­
’e
ment. The questions this bill should confront, but does not, is why does
premature inflation develop? What can be done to stop it?
I
want to say, before closing, a few words about those questions, and the
amendments to this bill that I think the answers would suggest. There are
two related reasons why premature inflation always develops, so that correc­
tive recessions—six in the last twenty-seven years—have been a periodic, prac­
tical necessity. The first relates to the quasi-monopolistic power of oligopolistic
industry and labor unions. I am not suggesting that either business or unions
are anti-social. In the economic setting we have provided for them, they have
simply followed their own interests, rationally. In a presidential address
before the American Economic Association last year, Robert A. Gordan re­
marked that “we economists pay too little attention to the changing institu­
tional environment that conditions economic behavior” He italicized the word
changing. The critical change in the postwar economic history of the Fnited
States was the systematic adoption of Keynesian techniques for economic
stabilization. It means, at least so far as people have been able to see thus
far, that declines in business activity would never again be allowed to progress
very far or last very long. That conviction was bound to influence the behavior
of business and labor, as it indisputably has.
In a word, oligopolistic industry and organized labor have both learned, as
Wall Street puts it. to “look across the valley.” When business activity de­
clines temporarily, there is virtually no inducement to lower prices and wages
in order to maintain volume. Instead business and labor are preoccupied
throughout with the immediate preparations that should be made for the next




96
upturn. There is an eagerness, an alertness on the part of oligopolists to pre­
serve industry discipline (which means not lowering prices) and to maintain
and increase the industry’s share in the GNP (which means increasing prices)
—especially since, as I have shown elsewhere, demand usually becomes inelas­
tic in recessions. For its part, each union is determined to maintain and improve
the purchasing power of its members in recession, and with prices still rising,
and given the equal determination of all other unions, this means raising
wages as much and as often as opportunity offers. I have described this process
in considerably more detail, including the inflationary psychology it inculates,
in another paper I am submitting to this committee. However, the common
phenomenon of business firms and unions raising wages and prices even when
output is falling, is familiar to all. Their intensified aggressiveness, as soon
as conditions improve, is equally familiar.
There is only one conceivable, effective response to this situation. The fed­
eral government must have the standby power, and the will, to impose manda­
tory controls on prices and wages whenever the behavior of an industry or a
union clearly contravenes the public interest I am convinced that this can be
done flexibly, without thwarting the allocative functions of supply and de­
mand, and without placing our economy in a straitjacket. And I would be
delighted to offer this committee whatever help I can give in preparing an
amendment to this bill incorporating such ideas.
The second reason for premature inflation lies in a structural imbalance in
the supply and demand for labor. It arises from a critical split in the labor
force, and I refer not to females versus males, and certainly not blacks versus
whites, since 75 or 80 percent of the unemployed are normally white. The
split in question has to do with the level of skills. A very large part of the
labor force remains virtually unaffected by recessions. You can verify this by
examining BLS data on unemployment rates by occupation. The jobless rates
remain at 1, 2, or 2% percent in recessions for nearly all skilled workers, pro­
fessionals, administrators, technicians, and of course government employees.
You can tell this also by simply noting stories in the Wall Street Journal, re]K>rting severe shortages of what is always considered a surprising variety of
skills, even during our worst recessions. Meanwhile, of course, among the
unskilled and the semi-skilled, unemployment rates during downtourns are
anywhere between 2 and 4 times the national average. Now, when we use the
famed Keynesian techniques for expanding demand and employment, we create
what can only be called overfull employment in markets for the more skilled
workers, the technicians, professionals, and other favored personnel—an infla­
tionary situation in which jobs are chasing men and women. At the same time,
the unskilled and the semi-skilled are helped only modestly. Hence, one essen­
tial step toward providing full employment without inflation is the one pro­
posed by Humphrey-Hawkins—that is, to give the unemployed unskilled and
semi-skilled jobs in the public sector. They never are, and under present cir­
cumstances never can be employed in the private sector except under the most
inflationary conditions.
But public employment is expensive, even after allowing for offsetting sav­
ings in unemployment insurance and the like. It would unleash a flood of
spending in private business markets with an inflationary impact that could
not possibly be contained by mandatory price-wage controls acting alone. Therefore, instead of vague sentiments, there must be a definite directive in
IIumphrey-Hawkins about tax policy. Taxes should be adjusted to a level suffi­
cient to maintain price stability. In the presence of a public employment
program guaranteeing opportunities to w
’ork, that tax objective is entirely
feasible as well as essential.
In practice, in the present situation, it would probably mean financing the
entire net cost of public employment by a tax increase. That wduld admittedly
be a bitter pill for the public, but medicine of that kind has been accepted bethe public had faith in its efficacy and purpose. In the present case,
think acceptance of a sufficient tax increase would require much greater
assurance than this bill now provides that public employment will be truly
£ a
nd
at, those hi*h Priority needs that still re­
main tragically unfulfilled in the public sector.
The major proposal to which these comments lead is this. Along with its
promise that adult unemployment will be reduced to 3 percent within 4 years,

r




97
the Humphrey-Hawkins bill should contain a second guarantee—that the an­
nual increase in the consumer price index will be reduced to a maximum of
2 percent within 4 years. To satisfy that objective it will have to provide for
mandatory, selective wage-price controls plus the appropriate tax policy just
defined. A program of that kind, I think, would offer the only promise there
can be of getting what we have never had—full employment without inflation.

The Chairman. Thank you very much, Professor Ulmer.
Professor Levitan.
STATEMENT OF PROP. SAR A. LEVITAN, GEORGE WASHINGTON
UNIVERSITY

Mr. L evitan. Thank you, Mr. Chairman. With your permission, I
would like to include my prepared statement in the record and sum­
marize it.
The C hairman. Fine. We would be happy to do that and if you
could summarize we would appreciate it.
Mr. L evitan. Mr. Galbraith endorses the bill for its rhetoric-----Mr. Gaujraith. I didn’t endorse it for its rhetoric. I endorsed it
for its content.
Mr. L evitan. I thought you said you endorsed the rhetoric.
Mr. Galbraith. I didn’t say anything about the rhetoric in the
bill.
Mr. L evitan. I f you will check the record, you did endorse the
rhetoric of the bill.
Mr. G amraith. Would you check the record on that, please?
Could we have my reference in the record?
The Chairman. Well, it’s going to take quite a while to do that.
Supposing you go ahead with your statement and then we have two
experts here transcribing and perhaps they could be able to do that
in the course of Dr. Levitan’s presentation.
Mr. L evitan. Well, whether or not he endorsed it for its mood, I
oppose it for its rhetoric.
As noble as the goals are, I agree with the chairman that there’s
no use in passing additional legislation as Congress did in housing,
without anticipating that the promises will be carried out. I think we
are still trying today, Mr. Chairman, more than 12 years after the
Great Society programs were enacted, to fulfill the excessive prom­
ises of those programs.
It’s not that the programs have not worked. They have worked
very well and they have improved the quality of life in the United
States, but we are still judging those programs on the basis of the
promises that we made and not on the basis of realistic anticipation.
The S. 50 amendments before you are in the same line, making ex­
cessive promises with little hope of delivery. To carry out the 3 per­
cent of adult unemployment, whatever the term means—it’s not de­
fined in the bill—would require the creation of roughly 3 million
jobs every year during the next 4 years. I give the arithmetic in
my prepared statement. The numbers are very simple, but compelling.
The 3 million, and possibly more, jobs that we would have to cre­
ate would more than double the number of jobs we have generated
annually in the last decade. I don’t think we can accomplish that
without excessive inflation, particularly if we want to do it in a short




98
period of 4 Years. Furthermore—as the chairman has also suggested—
even if this bill passed tomorrow, I would not expect much action
until 1977, if then.
Under those circumstances we have even less than 4 years to realize
the goal of 3 percent adult unemployment.
Now as was suggested before here, we obviously could have re­
duced unemployment much quickly than we have been doing in
the last 2 years. However, I think that to reduce unemployment
to 4 or 4Vi percent on a sustained basis but that would require a
considerable number of structural changes.
1 .
I don’t want to misquote Mr. Galbraith again, so I would just say
it’s been suggested by others besides myself that important struc­
tural changes are necessary. One, for example, that used to be in
the jurisdiction of your committee, aid to depressed areas. Dis­
crimination in employment and housing will have to be obliterated.
A more efficient public service employment system should be de­
veloped. Programs to counteract job iosses due to foreign compe­
tition will have to be implemented. Monetary policv will have to be
coordinated with an overall economic strategy consistent with tight
labor market policies.
Legislation in some of the areas has already been passed, but none
lias been adequately implemented. But the fact is, even if you passed
the necessarv legislation today, it would take years and years to see
its effects. For that reason, the realization of a high employment,
tight labor market on a sustained basis will take a great many years
even if we succeed in taking correction action now.
There are, of course, inflationary potentials in the bill. The estab­
lishment of the Government as employer of last resort under the
conditions that are spelled out under the bill present serious problems.
Another very serious weakness in the bill is that it still deals with
the same concepts of employment and unemployment that were ad­
dressed when the original Employment Act was passed in 1946, 30
years ago. There’s been a vast change in the structure of the economy
and in the way people get an income so that employment and un­
employment alone is not enough to measure labor market difficulties
or to identify labor market pathologies.
What is required is a look at the transformation in labor market
behavior as a result of $190 billion in transfer payment that we have
in the economy and the millions of persons who denend not upon
earnings for income but upon transfer payments. That creates a
new ballgame and I think that we need some new rules and new
measurements.
Congress has on previous occasions tried to get executive agencies
to generate new statistics^ that would combine employment and earn­
ings or employment and income into some type of index. Section 312
of the Comprehensive Employment and Training Act enacted by the
Congress in 1973 requires that the Labor Department come out with
more definitive labor market measurements and it required that the
JjarK)rI^nartoent report on those new indicators to Congress bv the
end o f 1974. They have not done that and it’s now a year and a half
overdue according to that bill. For some reason or other—I could
guess whv but it s not important—the Labor Department has simply
ignored the mandate from Congress.
‘




99
It is necessary to provide for additional measurements in order
to actually measure the problems that people are facing in the labor
market.
There are other technical problems in this bill—it is rather cum­
bersome in many ways. It establishes an advisory committee to the
Council of Economic Advisers which is already an advisory body
and although some of my best friends may be appointed to that com­
mittee, I really don’t think we need it.
Having said all these negative things about the bill, Mr. Chairman,
I would like to use the balance of my time to comment on the posi­
tive contributions of the bill. I think that we do need new tools for
setting economic policy and S. 50 offers the framework.
By emphasizing the limits of monetary and fiscal policies in achiev­
ing tight labor markets without excessive inflation, S. 50 focuses on
the need to strengthen structural programs as integral parts of
econimic policy. Some of the necessary structural changes are listed
in the bill and others can be added. In particular, the emphasis on
employment as an alternative to wasted human resources and ex­
panded Government transfers is commendable.
S. 50 calls attention to the isolation of monetary policy from over­
all economic policy. The remedy the amendments propose may not
be adequate, but the bill emphasizes the fact that the independence
of the Federal Reserve Board is not sacrosanct. Sound governmental
administration suggests that the Federal Reserve Board be made an
integral part in shaping the Nation’s economic policy.
Finally, S. 50 points to the need of setting annual economic goals
and improving the Nation’s economic intelligence. While this pro­
vision may raise the specter of central planning, as a taxpayer, I
would hope that any Congress which votes a $413-billion budget—
or even $394 billion—would do some planning before it embarks on
such enoromus taxing and spending ventures. The Federal Govern­
ment must also be concerned about the impact of its taxing and
spending upon State and local government operations, and it cer­
tainly cannot ignore how the total Government tax bite and spending
affects us all.
In summary, S. 50 points to pressing needs on the Nation’s eco­
nomic agenda. Its faults are that it promises more than can be
reasonably delivered. Stripped of its overzealous goals, S. 50 can
become an important tool for building a sounder economic system
if it is properly amended, but it will require very serious surgery
before it can do that.
[Complete statement follows:]
T e s t im o n y

by

Sab

A.

L e v it a n , C e n t e r fob So c ia l
W a s h in g t o n U n iv e r s it y

S t u d ie s ,

G eorge

It is clear that the overhauling of the Employment Act which is now SO
years old is long overdue, and the recent experience with the highest unem­
ployment since the Great Depression is again a reminder for the pressing need
for a new employment policy. The sponsors of S. 50 have performed, therefore,
an immense service to the strengthening of the Nation’s economic policy by
focusing on the need to amend the Employment Act. It is necessary not only
to reaffirm our faith that better times are ahead but also to plan for them.
As an increasing number of ecenomists, including some in high places, are
setting for 5 percent or more unemployment as a goal, we are indebted to the




100
sponsors of S. 50 for rejecting such forebodings. These amendments wisely
look beyond the immediate economic problems, serious as they are, to provide
for an economic climate where the Nation’s growth can be shared by increasing
numbers of its workers.
, ^ ^
While I applaud the goals of S. 50, regrettably its provisions toll short of
the mark. It establishes an unemployment target which is not likely to be
realiased; it ignores the changes that have occurred in the American economy
since the passage of the Employment Act; it establishes a cumbersome ma­
chinery: and by failing to define terms, it confuses more than it clarifies.
1. The goal of achieving 3 percent adult unemployment within four years
is likely to become another unfulfilled promise. Granted that the currently
fashionable .pronouncements suggesting that less than 5 percent unemployment
(or even higher levels) can be achieved only at the cost of high inflation
reflecting the biases of the analysts and their ideologies, it does not follow
that we can realistically hope to achieve sustained 3 percent unemployment
without rekindling inflationary pressures.
To fulfill the promise of 3 percent unemployment within four years would
require an annual economic growth in GNP of 7.5 percent. The Nation has
never achieved such a sustained high growth and there is nothing in this bill
that would justify optimism that the goal can be achieved by 1980. Moreover,
if we are to take at face value the provision of the bill that “establishes the
right of all adult Americans able, willing, and seeking work to opportunities
for useful paid employment at fair rates of compensation” (Section 2(b) ),
then growth would have to accelerate at an even greater speed to achieve
the goal of S. 50. In order to reach 3 percent adult unemployment, the Ameri­
can economy would have to generate over three million additional jobs per
year—double the number of jobs added annually during the past decade. The
arithmetic is quite simple, but compelling:
1.8 million jobs will take care of the “normal” increase in the labor force:
0.2 million jobs to provide full-time jobs to workers employed part time
for economic reasons:
0.2 million jobs to absorb discouraged workers:
0.8 million jobs to absorb ‘‘excess” unemployment;
0.3.million jobs needed to provide for the expansion in work force in a
“full employment” economy.
We are still paying today for unrealizable and excessive promises made by
the architects of the Great Society. The programs worked well, indeed, but the
accomplishments are being ignored and the efforts are being condemned today
because they did not live up to the rhetoric of advocates. I do not believe that
responsible social policy will be served by making another promise which is
not likelv to be achieved.
2. Before a 3 percent unemployment economy can be achieved without pro­
hibitive inflation, it will be necessary to overcome a great many structural
impediments:
1. Discrimination in employment, housing and other fronts will have to be
obliterated;
2. Better mechanisms than exist today will have to be designed to help
persons stranded in labor surplus areas:
3. A more efficient public service employment system will have to be de­
veloped :
4. Programs to counteract job losses due to foreign competition will have
to be implemented: and
5. Monetary policy will have to be coordinated with an overall economic
strntepv consistent with tight labor market policies.
These are minimal conditions for achieving sustained tteht labor markets
without renewed inflation. The Humphrey-Hawkins amendments recognizes
some of these problems. But the impediments to full employment are not goinsr
to hp wished away, and passing legislation is not going to correct existing
dpfifiences. The need to include a laundry list of vague social policies dealinsr
with the structure of the public employment office, policies to combat vouth
unemplovment. and measures to stimulate chronic labor surplus areas is not
apparent. To the extent that provisions in existing laws are not being carried
out effectively, the appropriate legislation shnuld be addressed and amended
or superceded, not ignored and duplicated. Moreover, experience during the




101
past 15 years with federal aid to depressed areas, 14 years witli trade ad­
justment assistance, and a dozen years of proscribing civil rights discrimina­
tion indicates that the necessary corrective measures are difficult to achieve,
and, at best, they are time consuming.
3. The bill suffers from a Rip Van Winkle effect. Reviving the too long
dormant aspirations of the 1945 Full Employment Bill* S. 50 is based on labor
market concepts of that era and ignores the experience and progress made
during the past three decades. The proposed amendments embodied in S. 50
persist with the dichotomy of employment and unemployment as the only al­
ternatives available in the labor market, and fail to recognize that about one
of every four Americans depend at least partially on transfer payments which
carry an annual price tag of $190 billion and account for 14 percent of the
total personal income of the American peox>le. In 1946, when Congress passed
the Employment Act, transfer payments amounted to $11 billion and accounted
for 6 percent of personal income.
Except for a passing reference (Section 207) to the interrelationship of work
and income, the bill ignores the problems of the working poor and those of
millions of Americans for whom work and welfare go together as a way of
life. In an economy in which one-seventh of the total personal income is pro­
vided in transfer payments, this separation of work from welfare is no longer
realistic. Indeed, Congress has already recognized on several occasions these
interrelationships, and in the Comprehensive Employment and Training Act
of 1973 it instructed the Labor Department to design indices which would
consider not only forced idleness as a measurement of problems that workers
face in the labor market but also low income. The deadline set by Congress
for the Labor Department to report on the new measurements was December
31, 1974, but the Bureau of Labor Statistics has failed to comply with the
provisions of the law. Its findings would have been most relevant to the
design of a national employment policy.
A full employment policy should not ignore the vast income transfers that
are now part of the economy. A goal of reducing adult unemployment to 3
percent is commendable but it will do very little for the working poor, some
of whom may be working full time, year-round and still exist below the
poverty threshold. The overhauling of our employment policy in 1976 should
not depend exclusively on labor market data that were developed nearly four
decades ago and that reflected economic conditions of that date. The need
today is to formulate policy that would consider employment and earnings
inadequacy and not job deficits alone.
4. The amendments indulge too much in rhetoric and stop short of concrete
measures. For example, Section 202 (c) (3) suggests the desirability of pro­
viding for an automatic job creation trigger mechanism but fails to specify
when the proposal would become operative. Recent experience suggests that the
mechanism envisioned by the bill could indeed be implemented. Why not
provide for the release of funds to soak up a definite proportion of whatever
Congress considers “excess” unemployment? Assuming that 4 percent unem­
ployment is within the tolerable range, the trigger mechanism would release
funds for job creation programs listed in Section 202 (b) (2) when forced
idleness rises above 5 percent* Since the federally-subsidized jobs are not in­
tended to guarantee jobs, the released funds niight be adequate to hire 25 per­
cent of the unemployed above the predetermined tolerable unemployment level.
If more vigorous action is desired, the mechanism could b triggered to hire a
larger proportion of the “excess” unemployed and to start at a lower level
of unemployment. Such a provision would go a long way toward establishing
sustained high employment.
5. The amendments would establish unnecessarily cumbersome machinery of
questionable value. I don’t Relieve that the cause of full employment will be
served by creating another advisory committee (Section 109). The present
Council of Economic Advisors is an advisory committee. Do these advisors
need nnother set of advisors? Nor will the cause be helped much by the job
creation project of establishing a full employment division in the Congressional
Budget Office (Section 305).
Nor will the requirements to file additional reports ameliorate deep seated
institutional difficulties. The need to coordinate monetary policv with overall
economic policy that ie consistent with tight labor market policies is generally




102
recognized. I don't believe, however, that the filing of a report by the Federal

Reserve Board is going to achieve the desired goal.
& As a H | tiTMimo and having in the past attempted to draft bills,
|i
detect that the amendments suffer from, the heavy fingers of an excessive
number of cooks. It is quite obvious that in drawing up the bill a number of
°
had to be satisfied. To obtain unanimity the amendments deal
therefore, with generalizations and avoid definition of terms. What is meant
b V ^ b i c e d growth” or “adult” unemployment? The failure to define terms
has already resalted in confusion. For example, one Concessional committee
has assumed that currently accepted definitions will prevail while a presidential
candidate who endorsed the bill expressed the view that 4.5 percent unemploy­
ment is consistent with the goals of the Humphrey-Hawkins bill. Never harms
carried a preciact, I suspect that the vagueness may be an effective political
ploy, but E ft past draftsman I know that it is bad legislation* The resulting
9
confusion is certainly not going to create jobs for the unemployed.
7. Having emphasised the shortcomings of S. 50, we should not lose sight
of its very positive contribution that hopefully would survive in a bill that is
reported out by this committee. As I suggested at the outset, we are badly
in need of new tools for setting economic policy and S. 50 offers the frame­
work.
1. By emphasizing the limits of monetary and fiscal policies in achieving
tight labor markets without excessive inflation, S. 50 focuses on the ne®d to
strengthen structural programs as integray parts of economic policy. Some of
the necessary structural changes are listed in the bill and others can be added.
In particular the emphasis on employment as an alternative to wasted human
resources and expanded government transfers is commendable.
2. S. 50 calls attention to the isolation of monetary policy from overall eco­
nomic policy. The remedy the amendments propose may not be adequate, but
the bill emphasizes the fact that the independence of the Federal Beserve Board
is not sacrosanct. Sound governmental administration suggests that the Federal
Reserve Board be made an integral part in shaping the Nation’s economic
policy.
.
3. Finally, S. 50 points to the need of setting annual economic goals and
improving the Nation's economic intelligence. While this provision may raise
the specter of central planning, as a taxpayer I would hope that any Congress
which votes a $413 billion budget (or even $394 billion) would do some plan­
ning before it embarks on such enormous taxing and spending. The Federal
Government must also be concerned about the impact of its taxing and spend­
ing upon State and local government operations. And it certainly cannot ignore
how the total government tax bite and spending affects us all.
S. in summary, S. 50 points to pressing needs on the Nation’s economic
agenda. Its faults are that it promises more than can be reasonably delivered.
But stripped of its overzealous goals, S. 50 can become an important tool for
building a sounder economic system.
The Chairm an. Thank you, Mr. Levitan.

Our final witness is Professor Allen.
STATEMENT OF PROF. WILLIAM R. ALLEN, DEPARTMENT OF
ECONOMICS, UNIVERSITY OF CALIFORNIA, LOS ANGELES, AND
PRESIDENT, INTERNATIONAL INSTITUTE FOR ECONOMIC
RESEARCH

Mr. A lle n . Thank you, Mr. Chairman.
The Chairm an. Professor Allen, we don’t have a statement from
you. I f you could confine your remarks, if possible to about 10
minutes we would appreciate it.
Mr. A lle n . Well, Mr. Chairman, there will be very little rhetoric
from me in those 10 minutes if for no other reason—though there
may be additional reasons—because there 5s no prepared statement.
T was given to understand that there would be none.
It is a privilege, of course, to be here, nonetheless, and I should



103

like to be of some use even though, for once because of today’s
seating arrangement, I find myself to the left of Professor Gal­
braith. I think Professor Galbraith may have given me a wink, at
least that’s what I felt, when he made a reference to vested interest
of textbook authors who, because of their interest, may be reluctant
to deviate from the supposed conventional wisdom. As a best selling
author himself, Professor Galbraith may have his own interests, I
would suppose. Certainly his books sell better than mine.
I oppose the bill, not because of any rhetoric in it or on behalf
of it, though there has indeed been some, but because it incorporates
bad economics, bad history, bad phychology, and I suspect even bad
politics.
The Balanced Growth and Economic Planning Act of 1975 was
introduced by Senator Humphrey, you will note, on May 21 of last
year. He should not have done it, but a civilized regard for history
calls for noting the anniversary. And now we are blessed with the
Full Employment and Balanced Growth Act of 1976.
I ’m comforted by the anticipation of the committee chairman that
the bill, if it does become law, will not achieve at least the mechan­
isms intended by its supporters. I find it ironic and discouraging that
advocates of individual responsibility, maximal range of individual
choicemaking, and minimal control and intervention by Government
are obliged to continue to fight severe rearguard actions in this
double bicentennial year, double because 1776, of course, was the
year of not only the splendid statement of political liberty by the
American statesmen but a statement of economic liberty, if you
please, by a Scottish scholar.
The proposals or current proposal, I suggest, would take us still
further along a path and deeper into a territory which is not only
imperfectly surveyed but which is uncongenial—uncongenial at least
to those of us who, on grounds of both fundamental philosophic
orientation and criteria of efficiency, value individual responsibility
and liberty to choose and who value also the enormous effectiveness
of the maximal free economy and the free society which largely
emanates from a free economy.
I believe I’m correct in saying that by and large those people
who can be designated as fme-tuners of the economy are complain­
ing about short-run, ad hoc, uncoordinated Government action, and
so one of the objectives is to increase the coordination ; and we nonfine-tuners are such very largely because we realize that we simply
do not know enough to pursue effective coordinated discretionary
policy.
Planning requires forecasting of where we are and are going and
how to follow the map. Updating a rolling, ongoing plan requires
assessment of where we have been, why we have traced that path,
and in which direction and by how much we alter which policy
variables in order either to stay on or return to the golden path.
I f I interpret them correctly, Professor Galbraith and Professor
XJlmer put considerable weight on what is known in the trade as
the Phillips curve. This is one illustration—it wasn’t mentioned, and
you won’t find it in the record-----Mr. G albraith. I don’t want to make an answer on that because
I deny it politically. I make that denial on behalf of Ulmer, too.




104
Mr. Allen. Well, that makes iiw
Joherent much of what I hearc
but I’m glad to hear the denial. We heard, along with these trade
offs, of how we cannot reasonably expect to have full employmen
without inflation or, to turn it around, how we can hope to contro
inflation without heavy unemployment, which is the guts of th
Phillips curve conception; we have heard also about monopoliei
and structural problems and various other considerations.
Astoundingly enough, in the discussion on inflation and relatec
matters, we have heard little, if anything—perhaps there has been i
mention in papers which I have not had the chance to read—oj
money, its rate of growth, and changes in the rate of growth. Now
I do not rejoice in failures of intervention in Government — the
stumblings, the fumblings, the lurching, the staggerings — which
here and abroad and through history have done, I suggest, m
ore
harm than good. It would be a great comfort were the evidence
and the prospects more encouraging, yielding justified confidence
that those who are so anxious to do good for downtrodden man­
kind would surely succeed in alleviating the pains and costs in this
vale of tears. But there is no such basis for such confidence. Both
history and theory tell us just the opposite.
We have a great deal to be modest about, and yet, in partial re~
sponse to Professor Ulmer, I submit that we H
ave hardly tried
appropriate monetary and fiscal policies to achieve full employment
with stable prices.
Can a planning board or boards foresee better and then direct
better than private specialists in the market? Are they more likely
to do so? Does it not concentrate the mind wonderfully to know
that one will bear consequences, bad as well as good, of his decisions ?
Circumstances, both objective and subjective, both domestic and
international, both econom and noneconomic, constantly change.
ic
There will be surprises. Some will gain sometimes and some will
lose sometimes from these surprises, because of both relative compe­
tence and varying chance.
It is important that the community be in a position to evaluate
performances. The basis of both freedom and efficiency is alterna­
tives. But with alternatives, that is, competition, a mere Govern­
ment prediction will not be self-fulfilling. What will be required is
not prediction but goal, with the goal to be reached, not by happy
coincidence in the midst of conventional fumbling, but by direction
and decree. The selection of the goal will be political, and its attain­
m
ent will be by methods which are political.
Increasingly, both relatively and absolutely, the weight of and
focus on political decisions and political decisionmaking will shift
attention and resources to political activity from economic activity,
and the operational criteria will be those of political strategy and
political survival rather than freedom and efficiency. So much for
the land of the free.
tio?sb 0 prUTf° c
ofhnnw
i.rcumscr^? as well as to minimize concentra­
tions of power. The circumscribing along with the minimizing is a
complex and subtle problem. For once discretionary authority is
given, it can be directed to ends of the administrator which Sere
not initially intended or foreseen.
ere




105

As an example from my own world, university administrators, in
conducting chores of admissions, financial aid, course programs, de­
gree requirements, recruitment, and reward of faculty and staff, can
allocate enormous resources in largely unaccountable fashion for
purposes of personal objectives.
Private economic power, too, is suspect, a point on which Prof.
Adam Smith and I wholeheartedly agree. But who is the more ac­
countable: the private manager or the governmental bureaucrat?
Which kind of poor forecaster and inept implementer, private or
governmental, is most likely to be diminished or relieved of his
assignment? And where is the sophistication in meeting the chal­
lenge of inefficiency—and, of course, nefariousness—of monopoly by
contributing to cartelization through government?
The C h a i r m a n . Well, thank you, and thank all you gentlemen
for very stimulating and thoughtful, excellent statements.
Dr. Galbraith, let me start with you, and others may comment if
they’d like to.
We have been told that this measure is nothing short of an effort
to repeal the business cycle. We have tried to do that, if not repeal
it, to soften its impact, and to provide a greater degree of economic
justice in the following ways that have been very far-reaching and
expensive and some of them very effective: unemployment compensa­
tion, large Federal budgets that tend to larger deficits in the reces­
sions, 34 million Americans receiving social security checks, minimum
wages and maximum hours, depressed areas legislation, food stamp
legislation, Federal support of welfare, and an immense national
housing program, farm income support, Medicare, comprehensive
employment training, a series of massive public works programs and
very large antirecession tax cuts.
Those are specific definite programs that we can understand and
some, as I say, have done a great deal. Yet we still have the business
cycle. What should make us feel that by simply passing legislation
saying our goal is going to be the elimination of the business cycle,
no higher unemployment than 3 percent—why should that achieve
what the specific extremely expensive measures have not done so?
Mr. G a l b r a i t h . Well, Mr. Chairman, I think we obviously agree
most of our efforts over the last 50 years have been devoted in eco­
nomic policy to repealing the business cycle and I can’t doubt that
we have made great progress in that direction. Difficult as these last
years have been, they have been by no means so difficult as the
catastrophic slump that w had in the 1930’s. And we should con­
e
tinue this effort, I have no doubt whatever.
The Employment Act of 1946 was specifically directed to that.
This is an amendment that reinforces that effort, particularly in the
area of direct employment providing employment as an alternative
to the use of unemployment as a stabilizing factor against inflation.
I might point out as one final reference, we have a kind of semi­
repeal that has become official with the present Administration, an
asymetrical repeal. A reading of the last report of the President’s
Council of Economic Advisers reveals the interesting fact that the
recession which we have recently been experiencing is indeed an act




106
of nature or possibly an act of God for which the Administration
and its economists hare no responsibility. The report goes on to say,
however, that the recovery from the recession is entirely the work
of the economists of the Administration. So even die Ford admin­
istration not the most progressive that we have had m history, has
come half-way to agreeing that we should repeal the business cycle,
so far at least as the recovery phase of it is concerned.
I would suppose that this bill takes the additional step of repeal­
ing it as far as the depression phase is concerned, inasmuch as we
would no longer be relying on unemployment as the stabilizing
factor in the economy.
The C h a i r m a n . Let me ask you, Mr. Ulmer, as the other supporter
of the bill on the panel, what specifically is there in this bill that

would enable us to achieve this goal ? As I pointed out, we have had
a housing goal of 2.6 million housing starts for the last 8 years and
w have com nowhere near it and we are farther below it last year
e
e
than w have been at any time. It was the worst housing year in our
e
history, with the housing goal, and as far as the Government as­
sisted housing starts which are completely within the control of the
Government, w said 600,000 by law and we had 54,000 last year,
e
about 10 percent.
Why will this bill, which is far more comprehensive, far more
difficult to achieve—what is in here that would get unemployment
down to 3 percent or even get it down much lower than it would be
without this legislation?
Mr. Ulmer. Well, I will agree certainly with you that you have
nam the situation in which the Government failed to achieve a
ed
goal that itself had established, but I wouldn’t want to generalize
therefore that every goal that the Government sets won’t be achieved.
Now I would hope that this one would, because it’s even more
important I think than the housing goal you suggested.
The C h a i r m a n . I hope so, too. All of us do. But what is here that
would enable us to—I agree it’s much more important and if it could
be achieved I’d be all for it and I’m not against establishing a goal.
I think w should establish goals. It’s the only way w can measure
e
e
performance. We have goals in corporations. We have goals in uni­
versities. We have goals for anybody who has any ambition and
anv aim and the m
ore specific it is the better.
But what I’m saying, the goal is all right. I don’t oppose that. But
what I say is what is there to make us think we’re going to achieve
this particular one?
Mr. U l m e r . I think w are being compelled by circumstances to
e
establish this goal and meet it and I think so because the fluctuations
w have been having, as I indicated in my paper, are notably getting
e
m
ore severe. We had an unemployment rate of 8.5 percent in the
last recession. That’s not so far removed from a level that I think
w could designate as depression, not recession any more, and it was
e
greater than any we had before. So was the accompanying inflation.
And so, to get back to Mr. Allen’s, Phillips curve, it’s true that is
not a stable relationship. It has in fact alarmingly been moving
toward the northeast section of the quadrant. In other words, the
tradeoff between inflation and unemployment has been getting worse




107

and worse, so bad you see that I don’t think w can tolerate any
e
more the expansionary inflations and then the so-called correctivc
recessions that we have been experiencing in the past.
Hence, I think there’s a real social compulsion behind this bill.
Furthermore, I think that the goals are achievable provided that
the bill is amended as both Professor Galbraith and I suggest, to
provide valid safeguards against inflation.
The C h a i r m a n . Now let m interrupt at that point because I
e
couldn’t agree with you more. I think we have to do that. We have
to amend this bill, if I’m going to support it at least, to provide
an inflation goal. I think Professor Galbraith is dead-right that
if you don’t do that you’re certainly not going to get an effective
operation, because the people are going to be sensitive to the per­
ceived difficulty they are in which will be an inflationary problem.
You get unemployment down, then they’re going to be concerned
about inflation and everything else is going to be scuttled. So you
have to have that goal and I think that’s a very constructive sugges­
tion that both you gentlemen have indicated.
Do I take it, Mr. Levitan, and Mr. Allen, while you oppose the
legislation, you agree that w should have, if w are going to pass
e
e
this legislation in its present form, some kind of a more specific and
effective anti-inflation provision either an incomes policy, a wageprice control, or something of the kind; otherwise, you have an un­
balanced bill that is likely to lead to serious inflation? Do you agree
with that?
Mr. L e v i t a n . May I say first, there’s something in the bill to
answer the question you posed to Mr. Ulmer and Mr. Galbraith that
is very important and that is not in the 1946 legislation; that is a
recognition of the limits of monetary and fiscal policies and the
need for structural changes in the economy. Using monetary and
fiscal policies alone w are caught between a rock and a hard place,
e
forced to make our tradeoffs between either inflation or unemploy­
ment. By introducing the possibility of structural changes, however,
S. 50 gives us a mechanism for reducing unemployment and con­
trolling inflation. The bill itself points out a few structural changes.
In my brief statement I listed other structural changes that are
necessary.
I agree with Mr. Galbraith that w shouldn’t give up on smoothing
e
the business cycle, even if w cannot obliterate it. The best way to
e
achieve this end is by a series of structural changes in the economy.
The C h a i r m a n . But let m get back to my question. Do you agree
e
that we should have more specific and effective anti-inflation pro­
visions such as wage-price controls or an incomes policy or something
of the kind?
Mr. L e v it a n . N o, I wouldn’t do that. I would rather list the nec­
essary structural changes.
The C h a i r m a n . Well, if we’re going to have a goal of 3 percent
unemployment, why shouldn’t we have 2 percent or something like
that, as Mr. Ulmer suggests, for inflation?
Mr. L e v it a n . I w ould not establish 3 percent goal because as I
suggested again , i f y o u ’re g o in g to have a $190 billion --------

The Chairman. I understand that and perhaps my question is
unfair. If you don’t want to answer it it would be understandable.
73-365— 76------ 8




108
My
th is —

-------

SasrSSSS? s If we have a 3 percent goal for unemployment,
f
< ^ r°r <
?
it. It ’s going to pass. f
do vou feel we should have a corresponding goal for inflation?
Mr. L evitan . I would say then it’s a matter for a theologian, not
for an economist.
.
The C h a ir m a k . A ll right, sir. Mr. Allen?
^
Mr. A l l e n . Well, if I may, Mr. Chairman, let me have perhaps
a couple minutes to try to tie together two or three things, and I
think that would make whatever I have to say of maximum use,
however small absolutely
We are talking here explicitly in terms of goals and objectives of
what constitutes an efficient economy, even trying to tie it down to
numerical criteria. The real question, of course, is who does what
to whom and how, and what are the gains and costs, and who bears
them, and what are the consequences of the bearing?
O f course, most people and institutions have goals, for instance,
betting on only winning horses at the racetrack. But I suggest that
rationality and prudence and foresightedness and hedging are not
synonyms for just any ofl-the-street planning and the blank verse
in which it may be couched.
_ ,
Now, in this connection, reference has been made to business
cycles and the repeal thereof. I suggest that the business cycle, like
the Phillips curve, has never existed. It ’s not a matter of repealing
either one. It ’s a matter of recognizing that they are optical illu­
sions. Indeed, it is the very lack of that regularity which one asso­
ciates with the word “cycle’’ which yields much of the policy problem.
If, in fact, there were a mechanism which generated quite uniform,
well-ordered ups and downs, we would have a much better notion
of what to do and what not to do and when to do it and by how
much. But we do not know these things, and it behooves us to be
modest about what we don’t know.
But, contrary to Professor Galbraith, I ’m suggesting that un­
employment is not the only longrun alternative to inflation. There
are in fact monetary policies, in particular, but closely associated
with fiscal policies, which in principle— and I would like to see it
tried sometime because I would be relatively optimistic over the
long pull, and the long pull is what we’re speaking of— will indeed
generate this “high level and quite stable level of employment with
a low and quite stable level of price increase.”
To respond in part to Professor Ulmer, why have inflation and
unemployment grown worse in recent years? I think most people
would agree as to the severity of the problem. But is it because we
have had in the last few years more monopoly, more nefariousness,
growing impurity of heart? I suggest that the reasons which are
usually given to "support the bill we are discussing today are not
pertinent in trying to resolve that kind of issue.
An incomesJpolicy, Mr. Chairman, let me respectfully suggest, is
not an anti-inflation policy in any interesting sense. It is a cosmetic
policy. One can keep the published price indices as low as you want




109
them by sufficiently vigorous decree but, of course, the real phe­
nomenon is still there. And once again, I point out that I believe
I ’m the only one to put emphasis on the money stock, its rate of
growth and changes in the rate of growth.
To answer, finally, in this whole context, your question: Should
we have a numerical goal for maximum inflation as well as for
maximum unemployment ? I would say no. Let’s not delude our­
selves and the community-at-large by such goals. We do the best
we can, given our ignorance, given the various constraints upon us,
some of the constraints being institutional, some being a matter of
custom and mores, and so forth. One adopts the best policies one
can generate, and I ’m quite well persuaded that at this stage of the
development of the economic arts that the best we can do— and I
wish we could do better— is to adopt a stable sort of policy, which
is not fine-tuning but quite the opposite, and you stick to that policy,
and you hope for the best. And there is reason for great hope. Let’s
give that a try, and if the rate of unemployment is ZV2 or 41,4 per­
cent and if the rate of inflation is 3Vi or 4V& percent, we may be able
to modify things to bring those numbers down. We may not. But
by and large, you do what you do best, and let the consequences come.
The C h a i r m a n . M y time is up. Senator Garn.
Senator G a r n . W ith all due respect, Professor Galbraith to your
national and international reputation, I have some very distinct dis­
agreements with your basic philosophy. Without getting into the
details, in your defense, I would say that you did not say there is
rhetoric in the bill. I have your statement before me and you were
talking about current rhetoric. But I would say there’s a great deal of
rhetoric in your first statement.
A s a conservative, an acknowledged conservative, I get a little bit
tired of the catchwords, the rhetorical “progressive, affirmative,”—
anything that’s good— motherhood— we attach progressive to it and
somehow that’s supposed to make us pass it and make it great and
wonderful for dumb citizens who don’t have Ph. D.’s in economics.
But to say this foolishness can safely be ignored concerning some
of the conservative rhetoric, I would certainly wish that the foolish­
ness of this bill could be ignored. Unfortunately, it cannot, and
if you think it passes the House committee 25 to 10 or its going to
pass this Congress because of the economic sense of it, it isn’t. It ’s
the political realities of “buying votes.” This type of philosophy al­
ways has.
I don’t know whether my philosophy is correct or not— I really
don’t— because it’s never been tried in my lifetime. I was bom in
October of 1932, so I really don’t know. But I do know that the
liberal philosophy has been tried all the years I have been alive and
I credit that for most of the problems of the economy.
We haven’t talked about the $75 billion budget deficit. We haven’t
talked about bureaucracy. The chairman talked today about what
we have tried to do and your answer was: Well, we obviously haven’t
done enough. That’s the typical philosophy here; that if a program
fails, we didn’t fund it enough. Put some more money in it; hire
some more people. I ’m sorry. I just can’t buy that philosophy on the
basis of hindsight. I only took Economics I, I I and I I I as a banking




110
and all the

mm

h in d s * * J ^ 1 S
'

^

S

!‘ 0
ofS? p^ &

S r f S n m tive’ -

i r ^ V o ^ t t o i who M k for reduced roles of Government are
fiS v to S ^ y ™

really M e ™ that, tta t on ly the rich want

Y ^ l T ’S

’t h a v e n u d e t h » t p o in t. S e n a to r, i f

rS b S 'A d
as I say, I think also that, generally speaking,
fhe S d S S S
Efficiently Articulate so that their voices comes to
be <™fuse<JI with ^ m a sse s.
^ to
the rich who
a s k f o ^ r S ic ^ i level oi texfs or the predatory who w isha lean ed
J t wmilation Well, let me tell you something. People not
t o r H i ^ T S ^ e n h im the Unireisity of C t a h - I go to my
State and I have had to campaign I was mayor, and now I have moie
™™r?,?nities to talk to people— and you talk about the masses but
? Z C t o “ lk aboutSJSituents an/citizens. I don’t lit , the tern,
■ t t l S t rings of some other philosophy; But I really get a
different picture from talking to the masses. I f you think it s onl>
the rich I would suggest maybe you come out and spend a week
with me in Utah and walk down Main Street and listen to what the
truck drivers or the cab drivers tell me, not nch people, but hard1,„ts. working people without vast education, without big money
iobs not in the technical skills— they’re so fed up with this ConC a s and this Government tampering, tinkering and government
interference in their lives, from O S H A to E P A , and big deficits I
would surest that’s from practical experience. I ha,ve traveled around
tlie rountrv giving speeches too, and I ’d like to tell you what I hear
fVom ordinary peopk not just in Utah. We’re not
the “masses” of this country want. They are not in tune with all this
“nrfM'bage”— pardon me for saying that.
You go on to say that “theology we have alwavs with us. I m
sure that’s true. I would hope this committee and this Congress,
because of your distinguished reputation, would not assume that yon
have spoken the word of God in, your testimony today and we are
supposed to fall flat because of your reputation ana follow it.
W-i

n_. lii_a-,, i-i*/iAnaAitvafiira

DOv, w e r e

w iu jij* .

wts

lc*vnnv rnr a. fe w V
,-T

.

47

9

j

•

J agree it’s a political police State with the other things we re doing

in this committee— going to credit allocation, more and more inter­
ference over and over again— we’re heading for an economic police
state in this countrv and I would further submit that England, the
country of your birth, is a perfect example of what socialism can
do and government interference, and even the Labor Party over there
is now finally starting to decide maybe they goofed a little bit.
M r . G a i b r a i t i i . I should make a minor correction. I ’m Canadian
by birth. We were British subjects when I was born.
‘ Senator G a r x . Well, I wish you would examine the philosophy
of England and see what has "happened to them. I don't know




I ll

wliy we can’t learn from hindsight. I’m sorry. I don’t mean to chas­
tise you so much, but I’m so frustrated back here at the constant
political responses to economic problems, the unwillingness to try
anything but what gets us reelected, and the “masses” of the American
people being ignored because it isn’t just the rich that want less
government; it isn’t just the businesses. We pass legislation—the
chairman can tell you about the Real Estate Settlement Procedures
Act. I’ve got a file that didn’t com from the big bad businessmen
e
and the savings and loans and bankers. It came fro m p eop le who
were so tired of government telling people what to do. ^
Do you have any estimate of the budget cost of this proposal
at all?
Mr. G a lb r a ith . Mr. Chairman, I don’t think that I can respond
in detail to my friend, the Senator from Utah. I made a statement.
He made a statement. I think we have had approximately equal
time
Senator G a r n . I’m only asking a question that I think this com­
mittee is entitled to know.
Mr. G a lb r a ith . I’m committed to the democratic process. I would
not challenge the Senator’s right to his rather lengthy and I think
not given up my rights to the first amendment of the Constitution,
sure you would agree that the cost will depend entirely on the extent
of the unemployment that needs to be dealt with by the bill. Without
the knowledge of what the contemporary context will be—the number
of unemployed—one cannot offer an estimate of what the cost will be.
Senator G a r n . I’m glad that you agree that as a Senator I have
not given up mv rights to the first amendment of the Constitution.
Let me put it this way. I happen to feel the unemployment rate
now isn’t over 3 or 3Vi percent. Let m give you some examples. You
e
could come out with m to one of the ski resorts during the winter
e
and see “masses” of young people who love to ski in the winter so
they work in the summer and then they go on unemployment so
they can live in dorms and ski all winter. They are included as part
of the unemployment. There are wives who like to work occasionally
but they really don’t need the income to support their family. I
think the unemployment statistics are vastly overrated and at least
half of the unemployment is certainly not som
eone who is the bread
winner who is not hardcore unemployed. I hate to admit it, but I
have an uncle who is a carpenter and he doesn’t like to work in
Utah in the winter so he manages to get canned in the winter and
he gets unemployment. How do we deal with that? I think we’re
already about 3 percent in the really unemployed.
Mr. G a lb r a ith . Well, Senator, I would just have to disagree with
you. If anything, the unemployment statistics underestimate the ex­
tent of the unemployment and on this I’m sure that I would have
the support of my colleagues here.
Senator G a r x . Y o u disagree with me that there are students who
do that?
Mr. G a lb r a ith . Certainly there are, and I must say, Senator, I
was distressed to hear from you about the decline of the work ethic
in Utah.




112
Senator Garn. These are mostly California kids who come to Utah
Galbraith. Utah and California then. Although I must tell
Senator, and you can use this when you’re campaigning: As a
skier I understand how much they are attracted to that good powder
snow. But the truth of the matter is that after a Jong period of
unemployment a very large number of people—-women, the minori­
ties—becom discouraged and withdraw from the labor force, lhere
e
is, thus, a very strong tendency for the unemployment figures to mini­
mize, to understate the unemployment.
, _ ,
Senator Gar**. Well, I would disagree. On the matter of the bill
saying adult, how would you define adult? There’s controversy over
whether it should be 16 or 18 or 20. Do we inflate the unemployment
figures with young people like my own son who maybe can’t get a job
but certainly with a U.S. Senator for a father with an income of $4”
.
).000
a year he isn’t really hurting. X can take care of him. Do we inflate it
bv including those younger age groups? Where would you define
adult?
Mr. G a ib r a tth . I confess I don't know the answer to that. What
is the definition in the bill ?
The C h a irm a n . There’s a difference of opinion between the two
authors of the bill. Mr, Hawkins has 18 years and Mr. Humphrey
has 20 years; 18 years would provide an overall unemployment of
8V percent and 20 years would be 4. I’ve heard that the candidate
4
for the Presidency from Georgia, Mr. Carter, assumes it’s 24 years.
That would make it W i. So there is ambiguity about it.
Senator G a r n . The House bill was 16, Mr. Chairman.
The C h a irm a n . Well, all right. Then it doesn’t say adult.
Senator G a r n . It defines adult employment as age 16.
The C h a irm a n . That’s Hawkins’ approach; you say 16 instead of
18. All right. Then it’s 3 percent.
Senator G a r n . I have no other questions at this time
The C h a irm a n . Senator Stevenson.
Senator S te v e n so n . Thank you, Mr. Chairman.
I confess I read this bill for the first time last night and was dis­
appointed. I thought of a plaint of Woodrow Wilson who said, as
I recall, never has nothing been done so systematically as nothing is
being done now. This bill does nothing. It proposes that the Presi­
dent propose something for the Congress to do, and you might want
to read it too. Senator Garn. After reading it you might consider
becoming a cosponsor.
Senator Garn. I don't think the millennium is readv to happen, Mr.
Senator.
"
1
Senator S te v e n so n . It has only one quantitative goal in it and
that’s the 3 percent unemployment. I couldn’t, in reading the bill
last night, figure out what tliat one quantitative goal means. What
does 3 percent unemployment mean? Are we assuming a BLS defini­
tion of unemployment which is basically the definition of persons
seeking work and if the objective is to supply work for those seeking
work, isn’t there a contradiction in this one quantative goal? What
is the goal in this bill, which does nothing except to establish that
one goal?
you,




113
Mr. U lm e r . Were you asking what is meant b y 3 percent ?
Senator S te v e n s o n . I’m sorry, but you have been targeted as a
supporter of the bill, so you would be the place for me to start.
Mr. U lm e r . Well, Im sorry. I don’t quite understand your prob­
lem. It seem to me the bill states pretty flatly that it aims at achiev­
s
ing through public employment an unemployment rate of 3 percent
for adults. Now I agree that the definition of adult should have
been clarified. I understood it to mean 20 and over simply because
BLS keeps its statistics that way. So it would not include teenagers.
Senator S te v e n so n . That’s not the question. It’s not just the ques­
tion of adults- It’s the definition of unemployed adults. Who do w
e
mean? Persons seeking work?
M r . U l m e r . Yes. People seeking work who haven’t found it.
Senator S te v e n so n . Nobody understands this question except m
e.
I don’t,want it to become a technical question. I’m not sure I under­
stand it. But if the objective is to supply work to people seeking
work and the definition of unemployed is persons seeking work and
the objective is 3 percent and you fulfill the objective of supplying
people seeking work with work, the objective becomes zero, doesn’t
it? You cut on people at some point at which you reach 3 percent of
whoever it is, do you cut them off from work under whatever the
programs are that I’m told are at some point down the road?
Mr. U lm e r . It is assum that there’s some basic minimum unem­
ed
ployment level below which we cannot get, called frictional unem­
ployment, people in between jobs, for example. We can’t avoid that
in the dynamic economy, and while the bill doesn’t say so, I would
imagine it would require that people would not be eligible for em­
ployment in these public projects unless they were unemployed for
some minimum period of time.
Senator S te v e n so n . We’re going to figure out who the frictionally
unemployed are and make them ineligible for these public service
jobs?
Mr. U lm e r . Well, I think this bill would do in a more generous
way what our economy does at all times. It takes the people who are
either, best, equipped or handier for particular jobs and hire them
and it stops at some point, and we have to stop at some point. Now
the authors of this bill thought that 3 percent for adults would be
the stopping place. I personally think it ought to be 2 percent, but
I’m very glad to stop at 3 percent for the time being.
Senator S te v e n so n . Well, it’s an abstract goal. Why don’t we
make it full employment? Why exclude the frictionally unemployed?
Mr. U lu e r . For administrative purposes we need some kind of
objective measure, and in the sense this bill gives us one.
Senator S te v e n so n . And for administrative purposes you have
come up with an unworkable goal for administrative purposes.
The C h a irm a n . Dr. Galbraith I think wanted to comment on this.
Mr. G a lb r a ith . I must say I am a little puzzled by this inter­
change, Senator Stevenson. There’s some history back of this. The
full Employment Act of 1946 was originally called the FuU Em­
ployment Act. After very lengthy debate, this was changed to the
Employment Act to avoid the notion of a particular goal. It was
also felt that it was an unnecessary, radical step at that time and it




114
nrovoked a ereat deal of objection from Senator Taftand others.
\nd as a compromise the attention of the admmi^rafaon Tras direeted to the problem of employment rather than to full employment.
T d ort t u K h S

t h e *

w j . 4 - any doubt that th *

a . «a ™ ».

°^T he^Siinphrev-H aw kiiis bill attempts to correct that fa u lt b y

specifying a figure which reflects, broadly speaking, the mfflamum
to which one can at any time expect the imemployn^t to fall,
granted, as Professor Ulmer says, that some people w i l l J *
changing jobs, that there will be seasonal unemployment and all the
rest. Three percent is obviously somewhat arbitrary, but I think it s
n an unreasonable figure. Both Ulmer and myself would have
ot.
added—and indeed this morning did urge—that there be a com­
panion goal, although I would avoid a specific numerical figure, as
to the amount of inflation that would be considered tolerable m the
Senator S t e v e x s o x . Professor Galbraith, you haven’t answered
that narrow question either—3 percent of what?
Mr. G a l b r a i t h . Three percent of the labor force.
Senator Stevexsox. Of the entire labor force?
Mr. G a l b r a i t h . Three percent of the entire labor force, yes; the
entire adult labor force.
.
Senator S t e v e k s o x . The unemployed seeking employment; those
who have dropped out----Mr. G a l b r a i t h . That’s right, sir.
Senator S t e v e n s o n . I’m sorry I interrupted you, but 1 wanted to
get that straight. That’s not clear in the bill.
. . .
Mr. G a l b r a i t h . X o w as to the operative aspect of it, it is of course
clear that there would be additional supporting legislation and of
course also additional appropriations, but it seem to m the mes
e
chanies of the bill are not seriously open to criticism, that when
unemployment is substantially above that level it becomes the de­
clared policy of the administration in power to initiate the public
employment directly by the Federal Government or the support to
State and local employment or the other fiscal action somewhat less
specifically spelled out which would seek to get the unemployment
down to the target level,
i
#
^
,
Senator S t e v e x s o x . N o w on that point, on this question of meth­
odology, do you support the wage levels that have been contem­
plated* for the public service sector jobs, Davis-Bacon prevailing
w
aires, and I can’t recall what else is in there?
Mr. G a l b r a i t h , There’s also a specification as to the minimum
wage. I think I generally would, yes. I have never been as aroused
about the Davis-Bacon Act as my conservative colleagues are.
Senator S t e v e n s o x . Let m ask the others then. Is there a concern
e
on the part of others that the wage levels, whatever they are con­
templated to be in this program, would draw persons out of the
private sector into the public sector with both inflationary and re­
cessionary consequences?
Mr. Levitax. Certainly, if vou take seriously the provision to
guarantee a job at the prevailing wage, and the average wage in
public employment is higher than in the private sector. If you are




115
going to guarantee a minimum wage of let us say, $4 or $5 an hour,
certainly not an unusual rate in the public sector, I would guess that
at least 10 million people would give up private sector jobs to get on
the public payroll. I think 10 million is not an exaggeration because
there are more than 10 million people in the United States that are
getting less than $4 an hour.
Dr, Schultz in his testimony before the Labor and Public Welfare
Committee, pointed it out very clearly. He didn’t quantify it, but I
would say that you could expect 10 million people to be looking for
jobs in the public sector rather than in the private sector.
Senator S t e v e n so n . Then it would have consequences to the pri­
vate sector.
Mr. L e v it a n . Obviously, and that’s why a guarantee is not a
realistic approach.
Senator S t e v e x s o x . Well, is it a guarantee of a certain price or
wage level ?
Mr. L e v it a n . Well, obviously, if you’re going to do it the way
Dr. Burns suggested, by guaranteeing jobs below minimum wages,
there wouldn’t be many takers and there wouldn’t be any problem.
But if you guarantee wages at the going rate in the public sector,
you would have millions of people transferring to the public sector.
That would obviously be completely inflationary and would m
ake
the total costs prohibitive.
Mr. U l m e r . I think Mr. Levitan has raised questions of fact and
given his own interpretation of them. The bill says it will pay a
minimum wage or a prevailing wage. The minimum wage obviously
for the menial workers that Mr. Levitan was talking about, the
minimum wage isn’t $4 an hour anywhere, so I don’t know how he
arrived at the figure that there would be 10 million transferers from
the private to the public sector.
Mr. L e v it a n . Section 402(C) of the bill provides that prevailing
rates will be paid and section 402(D) provides that they will be
paid the applicable Davis-Bacon rates.
Mr. U l m e r . Are you changing the word “prevailing” to “going?”
It says prevailing.
Mr. L e v it a n . Prevailing means that.
Senator S t e v e n so n . “Prevailing” is a word of art and the pre­
vailing rate of compensation is frequently higher than the prevail­
ing wage. The prevailing rate for subcontractors of Federal pro­
grams is frequently higher than the prevailing wages for private
sector workers in similar occupations.
Mr. U l m e r . If one wants to direct attention to the Davis-Bacon—
and I think adding this to the bill was superfluous and wrong—I
don’t think it should be there. I think to state the minimum wage or
the prevailing wage is a good and workable thing and I don’t think
there will be any particular transferers except in Mr. Levitan’s m
inrl.
Mr. L e v it a n . No. The fact is, and again I don’t have the bill in
front of me, it talks about three types of wage rates. One is the
minimxan wage; another one is a prevailing rate, the one we have
been paying the last few years under the Emergency Employment
Act and title I I and V I of the Comprehensive Employment and
Training Act; and the third type is under Davis-Bacon. These arc




116
three different rates and presumably if you’re going to hire a per­
son as a clerk in the city of Washington, then you would have to
pay $8,000 a year or $4 an hour. So what we’re talking about then
is millions of people who are getting less than the prevailing rate in
State and local government who would then obviously opt for the
guaranteed job at the State and local government.
Now the way Dr. Burns would resolve the problem and still have
the Government act as an employer of last resort is to pay less than
the minimum wage. But I’m not buying that. Under that approach
w can achieve full employment presumably if, as Senator Stevenson
e
suggests, anybody who does not accept the"job would not be counted
as unemployed. On the other hand, since the bill includes the usual
liberal provisions of prevailing rates and Davis-Bacon rates, then
the cost of this bill is prohibitive.
Senator S tev e n so n . My time has expired. As drafted, the bill
requires the rate which is the highest, which I gather at least you,
Professor Galbraith, would not.
Mr. U l m e r . First of all, as I have said, I think Davis-Bacon
should not be in there, but I also think Mr. Levitan has given his
own unrealistic, in fact almost damning interpretation of what the
prevailing rate would be interpreted as. This would be something
that the administrators of this bill would be interpret and I can
see no reason why they have to do it in a way that would absolutely
murder the objectives of the bill. If people in civil service in state
and local governments are getting a certain wage, I would say that’s
the prevailing wage. It wouldn’t attract them into the Federal proj­
ects and why should anybody do this just because Mr. Levitan would
like them to do so?
Mr. L e v it a n . I think the w ords have clear m eaning.
Senator G a r n . Mr. Levitan, if I might interrupt, I don’t think
you re understanding Mr. Ulmer. It says the higher. It mandates
Davis-Bacon.
Mr. U lm e r . I say Davis-Bacon should be out.
^ Senator G a r n . But Mr. Levitan was saying with Davis-Bacon in.
So I agree with you, it ought to be out.
Mr. L e v it a n . I’m not advocating it, but it is in the bill. I’ve heard
Mr. Biemiller testify in favor of this bill, and he certainly was not
testifying in favor of a bill that does not provide for prevailing
Mr. U l m er . I don’t know . Is that a question?
The C h a i r m a n . May I point out that if you look at page 49 of
the bill, lines 8, you see it is the highest of the minimum wage or
the prevailing wage in a number of categories—public employment,
nonprofit organizations or institutions, as well as in construction.
Isow, of course, in construction you’d have Davis-Bacon. In these
others you don’t have Davis-Bacon. In these others you don’t have
Davis-Bacon. However, there is a problem here because if you pav
the highest of the minimum wage or the prevailing wage for people
working for hospitals, working on roadbeds and so forth, you’re go­
ing to pay a wage which is much higher than manv people get and I
think Mr. Levitan is probably about right, at least 10 million people
are able to earn now doing work which may be less dignified or less




117
attractive and certainly is less remunerative. Therefore, you’re going
to have an automatic inflation, a wage price inflation in many indus­
tries. It may be necessary. It may be ethical. We ought to go into
this tiling with our eyes open. This is what this is going to do. If
we do get 3 percent unemployment combined with this kind of in­
terpretation for those who work in the public sector, you have a
tough problem.
Now one suggestion I made yesterday that I think might help to
solve this—we do it in the CETA legislation—is to make this in­
stead of the prevailing wage the entry wage. That would reduce
the amount. Most of these people would be entering this for the
first time. They have been able to work that in the CETA legisla­
tion and it would mean that instead of having an automatic over­
night very large increase in wages, which would result in higher
prices, you would moderate that very considerably.
How would you consider that, Mr. Levitan?
Mr. L e v it a n . Well, it would correct the situation some, but fol­
lowing the record of public employment that we have had since
1971 under the Emergency Employment Act and since 1973 under
CETA, you would still have an average wage of about $8,000 per
year. But in some cases, if you would just limit the guarantee to
entry level jobs, you would obviously cut down on the total costs.
The C h a i r m a n . We looked at the entry jobs. Of course, the mini­
mum wage is about $4,000 a year, a little over $2 and hour, to maybe
$4,600 a year. The prevailing wage we found wasn’t much higher
than the minimum wage, the prevailing entry wage.
Mr. L e v it a n . That, Senator, would depend on the area that you’re
talking about.
The C h a i r m a n . It varies, but in many industries it’s $2.40, $2.50,
$2.60, so it wouldn’t result in $8,000 annual wage.
Mr. L e v it a n . It depends on the occupations and the areas.
The C h a i r m a n . I think this gets us to the crux of a very serious
roblem as far as I’m concerned, and I think Dr. Bums, although
is proposal was I’m sure put forward with tongue in cheek, he pro­
posed a government should be an employer of last resort but that
people should be paid less than the minimum wage and it should
be made a constitutional amendment so that Congress couldn’t easily
increase it, and he would cut people off unemployment compensation
and require them to go to work at this low pay. It would have a
devastating effect on the economy. Somebody getting $8 or $9 thou­
sand on unemployment compensation would be reduced to getting
$4,000 or less and, of course, it would mean they would lose their
home and car and we’d have a depression. So it would seem to me
what we could do is provide something of this kind that I’m sug­
gesting here, an entry criteria, which would provide some incentive
reward for work, something higher than the minimum wage, higher
hopefully than the unemployment compensation, but lower than the
pay in the private sector.
Mr. L e v it a n . Then you would not achieve a 3 percent unemploy­
ment with that kind of proposal.
The C h a i r m a n . W hy n o t ?

K




118
Mr.

L e v it a n .

For the simple reason that you have now roughly

W 2 million people collecting unemployment insurance. The average

unemployment insurance is----The C h a ir m a n . You’re cutting off unemployment compensation if
they don’t take it.
Mr. L e v it a n . Then you’re going to have to change radically the
whole system.

The C h a i r m a n . Sure.
M r. L e v it a n . If you do th at, then I suppose it could be done.
The C h a i r m a n . We have a system now where we’re spending

a
lot of money getting nothing except idleness.
Mr. L e v it a n . Senator, you know very well that that kind of legis­
lation is not going to be" enacted. Liberals are not going to be in
favor of it.
The C h a i r m a n . I’m not saying that you reduce the income of
people on unemployment compensation. You provide a reward, but
you compromise this.
Mr. L e v it a n . H o w much of an incentive would you offer above
the unemployment insurance?
The C h a i r m a n . There’s plenty of room. The difference between
unemployment compensation and the private wage by and large of
unemployment compensation is about 50 percent. In some cases it’s
higher. The UAW happens to be a little higher. There’s plenty of
room to provide a difference, maybe a 20 percent or 30 percent pre­
mium above unemployment compensation that would still be well
below the private wage which by and large is 100 percent above the
unemployment compensation payment.
Mr. G a l b r a it h . There's always been a principle, not well enforced,
that if a job is available in the category in which the man is qualified,
he doesn‘t get the compensation. So this would not be introducing a
new principle in this regard.
Mr. U l m e r . Absolutely.
The C h a i r m a n . You wouldn’t object then. Dr. Ulmer?
Mr. TTl m e r . That would be a fine addition.
The C h a i r m a n . Mr. A lle n , you wanted to com m ent?
Mr. A l l e n . Mr. Chairman, let m suggest that the discussion over
e
-eJas^ or.15 minutes, while not without interest and certainly not
without significance, illustrates som of the difficulties of trying to
e
resolve matters of economic policy without the aid of any economic
analysis We had to go, I think, to the third commentator in response
to Senator Stevenson’s original question before anything was said
about price, the price of the commodity in question.*
There w as talk about the size o f the labor force. There w as talk
about the size o f unem ploym ent and how vou g o about m easuring it.
N othing was said about price, ju st as earlier, nothing h ad been said
about money. And economic discussion on the issues we have taken
up th is m orning which exclude both m oney and relative prices is
bound to be, at best, som ew hat superficial.
-TJ1 C h a ir m .a n . May I interrupt a minute. I think the cornerstone
6

of Professor Galbraith s and Professor Ulmer’s presentation was that
you have to recognize price. They com in loud and clear and eme
flation ° n




6

nee<*s a mechanism to prevent in -

119
M r. A

llen .

N o , sir.

The C h a i r m a n . They proposed one.
Mr. A l l e n . I’m talking about relative prices, not the price index.
And when you’re talking about unemployment, presumably you’re
talking in som sense, some reletvant, pertinent sense about overall
e
surplus, where the quantity of the item, in this case labor services,
being supplied is greater than the quantity being demanded. But one
always has to add “at a specified price.” If the price is higher, then
the shortage becomes even greater. If the price is made lower, the
shortage becomes less, until finally you clear the market.
N o w the supporters and indeed the drafters of this bill have, I
take it, quite conspicuously avoided saving very much about the
details of relative prices, of wage rates, if you please. Now, we have
to recognize that in the labor market, as in other marekts, both the
quantity demanded and the quantity supplied are functions of price.
There is not simply a labor force in any society this side of the
totalitarian society—you cannot simply go around counting noses.
What you do is to ask, in effect, at such*and such a price, at such and
such a wage, how many people are willing to supply their services;
and if that price, I repeat, is high enough there are going to be more
who want jobs at that high price than there will be people who want
to hire them, and that surely is the elemental and elementary crux
of the matter.
The C h a i r m a n . Mr. Galbraith?
Mr. G a l b r a it h . I must say that there are various things in Profes­
sor Allen’s responses that puzzle me I’m a little bit puzzled, as I am
sure Professor Ulmer is, as to why Professor Allen tests all economics
by whether it conforms to a conservative position, or would be
deemed acceptable to Adam Smith. This is a test which is not pe­
culiar to Professor Allen. It’s a common one with conservative econ­
omists, but I don’t think it’s for that reason more valid.
I’m puzzled also as to his reference to the neglect of money. Pro­
fessor Ulmer and I would agree on the importance of an eclectic
policy which uses monetary policy and fiscal policy and in the
areas of great market power goes on to supplement that with direct
intervention in the wage-price bargain. We are not excluding
fiscal policy and we are not excluding monetary policy. I think I’m
citing Professor Ulmer correctly when I say most of us would think
that this bill was workable or possible if aggregate demand ex­
ceeded the supplv of goods at the 3-percent unemployment level.
If I interpret ^Professor Allen correctly—and there is a depth of
ambiguity in his responses which makes this difficult—he is saying
monetary policy is something separate and distinct and that there
are undiscovered marvels, undiscovered wonders of gadgetry here.
Of if they are discovered, they are known only to himself and
Milton Friedman.
Could I ask him a question? If there is this marvelous possibility
by which some genius can take monetary policy and administers it
out of the Federal Reserve and thereby reconciles full employment
with stable prices, how in the name of Heaven does it happen that
it has never been tried or it hasn’t succeeded vet?
M r. A l l e n . W ell, I ’m personally impressed by the dispassionate
analysis o f m y colleague on m y righ t who determines truth and




120
error on the basis of his labeling of conservative economists, though
I’m pleased to be put in the company of both Adam Smith and
Milton Friedman. T h e fact is, Professor Galbraith, in 1952 and
1956 and—in contrast to com
e—in 1960, I was a Stevensonian,
Senator----Mr. G a l b r a i t h . But one can be politically intelligent and eco­
nomically conservative.
Mr. A x l e n . Yes. People come in strange combinations, including
just the opposite. I will tell you an anecdote, I think a sense of
delicacy which does not always prevail among economists should
prevent my naming the person’s name. I hope you will take my
word for the assertion that he is at the very highest levels of
monetary management in this country. He told me in conversation
in December 1970 that athe monetarists have been all over me.” I
believe that’s a verbatim remark. But he went on to say, “We have
tried their prescription, and it has not worked.”
Well, I was delicate then as I am here, and I did not ask him
pointblank to point to the historical record and show me over what
prolonged period—because the prescription calls for an indefinitely
prolonged period—have we followed the monetarist prescription.
The inflation that we have had is very easily predictable from the
miserable record of the Federal Reserve—and not just in the last
half dozen years but for the last half century—that people like me
are very m
odest about what economists and so-called economists
can do/1 wish we could do better, but apparently the pressures of
the office in the Fed are such that even when you have very dis­
tinguished people with splendid track records, of advanced age so
that thev have no later career ahead of them, who have already
garnered all of the honors, even such people, who you might sup­
pose would be willing if need be to spit into the eye of the Devil,
cannot in fact maintain the kind of clearheadedness and hardnosed
analytic, dispassionate, and fearlessly administered policy which
they would have advocated as professors of economics.
Mr. G a l b r a it h . Doesn’t that give you any doubts as to the quality
of the instrument ?
Mr. A l l e n . If by instrument you mean the Federal Eeserve, I
would like to shoot it at dawn.
Mr. G a l b r a it h . I’m referring to monetary management.
Mr. A l l e n . Management, yes. where management means—and this
refers back to an earlier allusion of m
ine—tne fine tuning of pulling
those levers and twisting those knobs. We don’t know enough for that.
We don’t know enough partly because of statistical data, and I cer­
tainly am with the sponsors of this bill when they try to improve the
quality and coverage of data. It stems partly" from various lags,
which even with the purest of heart and the greatest of courage and
firm dedication of duty, will create probably insurmountable diffi­
est
culties. I think w simply cannot do that kind of stabilization job.
e
and therefore people like me say, don’t try it. You’re apt to exacer­
bate the current problem, make things much worse; rather, you should
minimize discretionary ad hoc policy. All of the advice of establish­
ing miracle goals, I think this discussion has suggested, adds not one
bit to the analytics of the situation and is apt to be simplv an embar­
rassm to those who try to administer it. And the community can '
ent



121

get along very well without having any more governmental embar­
rassments.
The C h a i r m a n . My time is up. Could I have Mr. Galbraith and
Mr. Ulmer respond?
Mr. G a l b r a i t h . I just have one further question for Professor
Allen. I agree with his desire expressed at the very start of his state­
ment —and I’m sure this will bring an appreciative response from
Senator Garn—to maximize liberty of choice. But I wonder why he
excludes from that objective the liberty of choice of the unemployed
man who has no means of livelihood beyond his unemployment com­
pensation and whose life is desperately constricted for that reason.
Why does liberty of choice include liberty of choice only for the rela­
tively small number who are employers and relatively affluent and
exclude the very large number of people who are unemployed and
whose liberty is for that reason so much narrowed?
Mr. A l l e x . I would give Professor Galbraith the courtesy of as­
cribing that to his renowned wit. He surely cannot be taken seriously.
Mr. G a l b r a i t h . If you see humor in that, your sense of humor is
much deeper than mine, as well advertised as mine is.
I would really very much like to have your answer to the question
or I shall assume that you have no answer.
Mr. A l l e x . By humor, I meant unamusingly ludicrous. Neither I
nor anyone else that I know of, anyone I would associate with, re­
joices in the difficulties of people who are suffering. While there’s no
way to measure this sort of thing, as there’s 110 way to measure a great
many things we have been throwing around today, including the
rate of unemployment with wholly unsatisfying results. I suspect
that I could draw up a catalog as long and as impressive of the frail­
ties of people and their misfortunes as the next person.
The question before us is not who is pure in heart and who re­
sponds in most sensitive fashion to the sufferings of mankind. The
question is what are the options before us? What can we do? What
do we know? And we would do very well indeed to be careful that in
trying to do good we do not in fact make the situation much worse.
That’s the crux of the matter. I recognize the possibility that in my
caution, in my misgivings, in my doubts, in my reading of the record
and in my analytics, I might be quite wrong. But I think I am right.
The C h a i r m a x . Mr. Ulmer.
Mr. U l m e r . I was impressed very early in Mr. Allen’s first talk here
by his suggestion that he didn’t know enough about economic man­
agement to have any opinions about it. I really wish he would have
stopped there.
Mr. A l l e x . I have opinions. My opinion is th a t none o f us know
enough.
Mr. U l m e r . I

see. But you can certainly speak more authoritatively
for yourself and have. However, he did sort of change his mind as he
went through his initial talk halfway and suggested he did have a
secret that no one else!had—that is, no one else other than David
Ricardo who wrote in the early part of the 19tli century and all the
orthodox economists vho followed him right tip through 1929—they
all kne>y,as Mk.Alfen does, that if we only control the quantity of
money we can control society and, of course, over this period we had
giant recessions, giant depressions occurring approximately every 12




122
years culminating in the greatest of all, the 1929 depression. I think;
this is the product of monetary policy, or I should say, exclusive re­
liance on monetary policy because, as Professor Galbraith said earlier,
neither he nor I would want to cast monetary policy out the window.
The Chairman. Senator Garn.
Senator Garn, May I sav in defense of Professor Allen, that to get
“theological'5 again.‘I will go home and pray every night that we
have more economists like him who have a little common sense to go
along with the theory. I suppose I resent and get irritated by the
constant implications by liberals that those of us who have a different
economic philosophy somehow don’t care about the poor. I ’m not a
rich man, Professor. I live on my Senate income. I did not come from
a rich family. You might check my background. I ’m a little tired of
the insinuations that it’s only the rich and it’s only the big people
who don’t like Government and we somehow are heartless, and I re­
sent that frankly, and I suggest maybe you and the other liberal
economists start living in the real world, get out of Harvard, get out
of the ivory tower, get out with the people and listen to them and
face an election and find out about what’s really going on.
Let me give you an example— food stamps. Boy, I ’d like to cut food
stamps in half. W hy? Because I want people to go hungry? Hell, no.
Because we don’t do a good enough job for the truly needy, the elderly
people living on fixed incomes who can’t help it, for the physically
handicapped, because of all the damned bums who could work who
get the food stamps— the students, the strikers. A friend of mine, an
orthopedic surgeon, found his kids on food stamps at the University
of Washington. Maybe if we started eliminating the professional
poor, those who decided to make their living by being poor, then you
and I could agree on really helping the truly needy who can’t help
themselves and do a great deal more for them than we do. We don’t
do enough.
Let stop the rhetoric about accusing those of us who are conservative
that we are not compassionate. I ’ll match my compassion any day of
the week with anybody’s.
On this comment about whether we can really do this 3 percent, I
sat here----The Chairman. Could Mr. Galbraith have a chance to respond?
Mr. Galbraith. Could I answer your question? I was going to
make two points to the Senator. While he expressed personal distaste
for liberals, I don’t want to reciprocate. I have the highest----Senator Garn. For liberal philosophy, sir, not liberal individuals.
Mr. Galbraith. I have the highest affection for conservatives and

I would hope the species would be preserved.
Senator Garn. W hy don’t you give us the chance to find out wheth­
er we’re right or wrong? We have been able to prove over 40 years
that the liberal philosophy is wrong.
Mr. Galbraith. That s a problem of the voters rather than me, and
the fact that the voters so uniformly reject you might not be an error
of the voter.
^Senator G a r n . They hardly rejected m e , sir. I won in the year of
n atergate as a Republican, with only two new Republicans elected
in the United States Senate.




123
Mr. Galbraith. Perhaps there are eccentricities in your electorate
as----Senator Garn. I wouldn’t say that. They also elected a liberal.
Mr. Galbraith. I ’m only responding to your comment that you’re
one of two in the whole country.
Senator Garn. W hy? Because it’s easy to promise, to buy votes, to
take easy approaches, not to get into the technicalities, details and
not trying to explain the hard positions. No. Votes are always bought.
H arry Hopkins used to say, “tax, tax, tax; spend, spend? spend; elect,
elect, elect”; and that’s the philosophy we’re dealing with. It ’s great
to be a liberal. You can buy votes.
I ’d like to ask Professor Allen two questions.
Mr. Galbraith. I shall yield to Mr. Allen.
Senator Garn. I sat here for iy 2 .years and have notably been im­
pressed by both liberal and conservation economists and those in be­
tween for their total failure, particularly in 1975, to predict what has
happened. So in light of that, do we really have the forecasting
ability and policy skill to achieve a strict numerical goal of 3 per­
cent ? Is it possible? You have alluded to that yourself. I would agree
with you. Most economists think they know more than they do, and
if they would only look in hindsight at their track records and see
how miserably wrong— cab drivers flipping coins are just about as
good, without Ph. D.’s.
Mr. A llen. I don’t believe we do in any substantive, interesting
sense. You can make the unemployment rate pretty much what you
want by appropriate definition and measurement technique. One of
the points I was trying to make a moment ago is that quite unhappi­
ly— because the life of the analyst would be much easier if these
things could be measured well— the very notion, the concept of unem­
ployment is a very subtle one. I don’t think anyone listening to the
proceedings today would have gained any flavor of the nature of the
subtlety and the sophistication involved and appropriate considera­
tion of it. And indeed, that, in turn, illustrates one of my main con­
cerns in this whole area of discussion of policy.
Perhaps for convenience, since our time is limited, perhaps because
of the diverse nature of the audience, for other reasons in addition,
things have to be made simple to the point of simplistic. I assert that
the notion of unemployment is a difficult one to grab hold of, and for
that reason alone, although there are certainly others which can be
added, the answer to your question is, no, we cannot get 3 percent and
hold it except by manipulation of definition and techniques of mea­
surement.
Senator G a r n . We have a vote, but I would like to ask one more
question of Professor Ulmer. The adult unemployment rate is im­
proving, not as fast as we would like, but at least improving. Assum­
ing we were able to correct that fairly well within the next year or
two, rather than taking this approach, you talked about the critical
nature of unemployment among the groups that were not so well edu­
cated and well trained, wouldn’t we be better off to concentrate our
efforts on structural unemployment and targeting rather than setting
3 percent? We can still do that and not correct the problems of un­
employment of teenagers and blacks and others in those categories.
73-365— 761 ■ —
9




124
Mr. Ulmbk. Well, I think that bill that we have before us provides
for exactly the things that you’re speaking about. After all, most of
the. unemployed are the unskilled and the semiskilled and they are—
of course, we have a disproportionate amount of blacks, but they are
only about 20 percent of the unemployed. Similarly, we have a dis­
proportionate amount of youth, but they are about 8 percent of the
unemployed. So we are still dealing with largely adults and they are,
however, largely unskilled and semiskilled. And when we put them
in public jobs, and they are the ones who will be getting most of
them, we are dealing with this on a structural basis. That’s exactly
what it is. The bill incidentally suggests geographical structures, too.
Senator Garn. One last comment about the 1974 elections. I would
s»iggest the results of the 1974 elections were hardly due to economic
theory or political philosophy. I would suggest that the reason the
Republican Party did so badly was because of the dishonesty of a
President named “Tricky Dick” and I would suggest some of my
liberal colleagues who were elected in the class ot 1974 should love
Mr. Nixon. They should think he was the greatest thing that ever
happened, because in their States they wouldn’t otherwise have been
elected on a liberal political philosophy. They were elected because of
the sins— and I deplore them as much as any Democrat— of Richard
Xixon. I ’m sorry the man was there. It did great harm to our party.
That was the real reason the Republican Party was defeated. It had
nothing to do with conservative economic policy.
Mr. Galbraith. I must say that I can, with all good will, concede
that point to the Senator from Utah. I would like to concede another
)oint to him. I said in my comments that the people who resisted
egislation of this sort, conservatives, tended to be the privileged
and the affluent. I will certainly modify that and say they have very
effective middle income allies and acolytes like tne Senator from
Utah.
Senator Garn. I appreciate that. Thank you.
The Chairman. Senator Stevenson.
Senator Stevenson. Well, Mr. Chairman, there’s very little time.
There’s a vote we all have to get to. What I would like to do is put
a proposition to our witnesses and see what happens even after I have
to go vote.
Speaking of our late and lamented President, shouldn’t we have
realized when Mr. Nixon finally climbed on the Keynesian bandwagon
that something was wrong with Keynes?
Senator Garn. That’s when we should have assumed that some­
thing was wrong with Nixon.
Senator Stevenson. This is an amalgam of old economics and old
politics and it is of limited utility in a new era; we are moving out
of times when aggregate demand policies were appropriate, and into
another time when we are going to have to rely to a far greater ex­
tent than we have realized on sectoral supply policies, structural
changes, none of which are addressed in this proposal. I think it was
one of my father’s supporters— I thank you for the tribute to his
olitical acumen— who said something about structure. We ought to
p identifying the structural priorities, the structural changes that
are necessary. I heard Walter Wriston articulate that basie approach,
particularly to the supply management aspect.

1

E




125
The proposition is, are we moving into such an era; and if so, in
addition to such goals as are identified in this proposal, shouldn’t we
really be trying to identify the structural goals and to identify the
structural changes, not just the structural employment, that has to
be done here, instead of legislating bills to ask the President to ask
us to do something some time? I invite all the members, Mr. Chair­
man to respond to that.
The Chairman. Mr. Galbraith.
Mr. Galbraith. M ay I respond very briefly. On Senator Steven­
son’s first half-serious observation, I would point out that Mr. Nixon
came abreast of Keynes 30 years after the publication of his G eneral
T h eo ry at the point where it was becoming partly obsolete. So it was
hardly a reckless step on the part of a Republican.
This morning, if I may say so, sir, I think both Mr. Ulmer and I
have accepted that much of the old economics is indeed obsolete. The
Humphrey-Hawkins bill does retain such of it as remains relevant;
namely, the role of the Government as supplementing aggregate de­
mand and in addressing unemployment to the areas of greatest need
for the purpose of minimizing the consequences of unemployment. It
does go beyond the old system of what we have come to call New
Deal economics in one important respect in introducing a planning
apparatus. We have gone from a Humphrey-Javits bill to take care
of sectoral distortions of precisely the sort you mentioned, or at least
identify them. The resulting action remains, of course, for other parts
of the Government.
Both Ulmer and I this morning, in as strong language as either of
us could devise, have urged the importance 01 going on to deal with
the problem that Keynes did not touch upon. That is the danger of
the wage-price spiral as you approach full employment.
It is what keeps us from using the full resources of the Government
in the economy to avoid labor waste at the present time.
The Chairman. I hesitate to interrupt. Unfortunately, we have 5
minutes before the end of the rollcall, so I ’m going to have to go and
I think Senator Stevenson wants to make the rollcall, too. So let me
just say that I want to commend all four of you----Senator Stevenson. I ’m going to have to run, too, but would it be
possible to get the comments on the record?
The Chairman. That’s an excellent idea. You could continue to
respond to that proposition. This has been an outstanding panel and
I think the difference of opinion has been most helpful with very
vigorously expressed viewpoints and we have learned a lot more
about it. The committee will stand in recess until Thursday when we
hear from Senator Humphrey and Hawkins.
Senator Stevenson. Mr. Chairman, may I ask for a response off the
record which might be added to the record, if you have something to
say in response to that proposition ? It can go in the record right now
if you’re w illing to state them.
Mr. Ulmer. Well, the only thing I think I could add to what Profefssor Galbraith said was that this bill is a response to our ‘ ealiza­
r
tion that simple Keynesian aggregate policies will not do the job of
achieving full employment without inflation. Hence, amount must be
taken of certain structural imbalances in the economy juad the ionee




126
I addressed myself to was that within the labor force itself, as be­
tween skilled and other workers, providing Government jobs for the
unskilled who cannot otherwise get jobs in the private sector is an
explicit recognition of the structural imbalance in our labor force.
Mr. A l l e n . Just a word to our departed Senators to wind up things
for m at least. When President Nixon adopted, if that’s quite the
e.
word, Keynes, I think he thereby illustrated something of interest;
namely, tliat there are great pressures on the part of the decisionmak­
ers, those responsible for the promoting and administering policy, to
do something. You have a problem, and the New York Times writes
editorials berating you, so you do something. We do such things as
the disaster of August 15, 1971, But doing something, just almost
anything to be active, is even older than Keynes. People with author*
ity have been doing things to other people in all recorded history.
What they do to these other people is usually better left undone. But
Keynes himself, to his great credit, for he was a remarkably intelli­
gent and able man, said that, to use his own expression, once we have
largely resolved the problem of unemployment, then “the classical
medicine” must be allowed to do its work, the classical medicine being
the operation of a decently free pricing mechanism.
Mr. L e v it a n , I agree with the thrust of Senator Stevenson’s final
com ent and item number four in my prepared statement deal’s spe­
m
cifically with that point.
[Whereupon, at 12:30 p.m., the hearing was adjourned.]




FULL EMPLOYMENT AND BALANCED GROWTH ACT OF
1976

TUESDAY, M AY 25, 1976

U.S. Senate,
Committee on Banking, Housing and Urban Affairs,
Washington, D.C.
The committee met at 10 a.m., pursuant to notice, in room 5302,
Dirksen Senate Office Building, Senator William Proxmire (chair­
man of the committee), presiding.
Present: Senators Proxmire, Stevenson, Tower, Helms, and Garn.
Also present: Senator Hubert H. Humphrey and Congressman Au­
gustus F. Hawkins.
The Chairman. The Committee will come to order.
This morning we are honored to have two authors of the Hum­
phrey-Hawkins bill. As I said when we opened these hearings a
few days ago, this is perhaps the most controversial and important
and significant bill that the Congress will have before it this year,
certainly the most controversial bill this committee will have before
it.
I would like to say something about this bill this morning when
the two authors are present. I want very much to support this bill
if I can and I am hesitant to do so for reasons I will state. I am
for this bill to the extent that I am for it beacuse it takes the idle
off welfare, unemployment compensation, food stamps and puts them
to work. Now I would think that conservatives would be as much
or more for the bill for that reason as the liberals would be. In
doing so it prevents the misery, the loss of self-respect of unem­
ployment and reduces crime and social disintegration, and if we
would do nothing else except prevent the economic basis for the
shameful sale of arms abroad I would favor it and I think it
would help do that.
By helping cities to reduce their welfare burden and increasing
their tax revenues it’s worth four times as much as revenue sharing
to State and cities. In other words, it would make a favorable
difference to the budgets of cities and States more than four times
the $6 billion annual dollar revenue sharing provides. It solves
problems of New York City which have plagued this committee and
the Congress and Philadelphia without any question in my mind.
My difficulty with this bill—the reasons I can’t support it in its
present form are two. In the first place, it’s inflationary and perhaps,
double digit inflationary. Every economist among those who have
testified before us, those opposing the bill like Professor Levitan




(127)

128

and Professor Allen, those favoring the bill like Professors (M braith
and Ulmer, those who take a neutral position like Dr. Alice Rivlin,
agree that the bill in its present form is inflationary and perhaps
hiehlv inflationary.
. .
.
T?he Budget Office has an estimate which is the most conservative
as to its effect Others think it would be far more inflationary than
that. Economists like Ackley and Samuelson who have been very
liberal economists by and large feel in its present form it would be
an inflationary bill.
,, ... _
Now economists may be wrong, but consider this: I he bill at it s
presently drafted is one-sided. It has & clear-cut specific numerical
objective for unemployment of 3 percent adult unemployment, but no
clear-cut numerical objective for inflation. It simply says the Presi­
dent and the Congress will watch inflation closely and do what they
have to do.
Furthermore, and this is the element that seems to me makes it
most decisively inflationary by providing prevailing wages, it
greatly increases the negotiating strength of workers seeking em­
ployment by providing an employment option at equal pay. It would
sharply reduce the ability of private firms to hire low-pay employees
and there’s an appealing element of social justice here, but there’s
also a blockbuster inflationary effect.

The result is higher pay for pizza hustlers, check-out counter girls
and perhaps 10 or 15 million other low paid jobs and, of course,
there’s nothing wrong with that except higher prices.
The second reason I’m reluctant about the bill in its present form
is that it seems to guarantee a result that it probably can’t achieve.
Setting a goal is one thing. Achieving that goal is a great deal
harder. If this should pass in its present form, my guess is that
the odds would be at least 5 to 1 that we would not achieve the
goal for more than a very short time for many, many years to come.
Our housing goals are an example of that. Our environmental
goals are examples, too. In the housing area we set a goal in 1968
of 26 million housing starts. We’re nowhere near it, nowhere near
it. Last year we were farther short of that ^oal than we were before
we had goals established. So just establishmg goals doesn’t do the
job.
Nevertheless, I think it is desirable to have a goal. You can
measure the performance of the Congress and the President on the
basis of having goals and I’m for establishing goals.
I might point out, though, Senator Humphrey and Congressman
Hawkins, that back in January of 1973 this committee passed a
bill which on the basis of my amendment established a 4 percent
goal for unemployment. It also had a 2y2 percent goal for inflation.
It passed this committee. It passed the Senate. It went to conference
with the House. Unfortunately, Congressman Hawkins, your col­
leagues wouldn’t acept it and it was turned down in conference.
But it had that basis, fundamental objective that you’re trying to
achieve, and so I don’t think it’s something that is unrealistic in
that sense.
Anyway, congratulations on a noble effort. I hope you will work
with us to modify this bill so it will not be as nearly inflationary




129
and it can achieve something like the goal you set. I think maybe we
< do that.
can
Senator Tower I
Senator Tower. Thank you, Mr. Chairman.
Mr. Chairman, last week this committee held 2 days of hearings
on the Humphrey-Hawkins bill. One of the most troublesome aspects
of the testimony heard during these hearings was as the chairman
has so ably pointed out, the widespread agreement that this legisla­
tion would have a severe inflationary impact on the nation’s economy.
During the first day of the hearings, for example, Federal Reserve
Board Governor Partee said, “The bill is both too rigid and too
inflationary and, on balance, would likely prove to be inconsistent
with the long-term economic well being of the nation.” Testimony
given the committee by a panel of well known economists on the
second day supported Governor Partee’s conclusion. The fact that
such testimony came from economists of different persuasions makes
it all the more impressive.
John Kenneth Galbraith, for example, noted that “as full employ­
ment is approached, inflation will become more severe.” Melvin
Ulmer of the University of Maryland contributing editor to the
New Republic, testified if the Humphrey-Hawkins bill were enacted
as it stands and put into practice, it would stimulate more spectac­
ular inflation than that of World War II.
Dr. Levitan, Director for Social Policy Studies at GWU and a
widely recognized expert in manpower policies, testified that the
goal of achieving 3 percent adult unemployment within 4 years
is likely to become another unfulfilled promise and that “it does not
follow that we can realistically hope to acliieve a sustained 3 per
cent unemployment without rekindling inflationary pressures.”
This opinion, of course, is not confined to testimony received
before the committee. Michael Wachter, of the University of Penn­
sylvania, one of the economic advisers of Presidential candidate
Governor Carter, was recently quoted in Business Week as saying:
An attempt to get down to 3 percent unemployment by 1980 or so, chiefly
with aggregate demand stimulus, could cause inflation of 15 percent or more.

This body of opinion regarding the inflationary impact of the
proposed bill should not and cannot be lightly brushed aside. It’s
significant for at least two very important reasons. One is that the
inflationary forces which would be unleashed by this bill would
frustrate achievement of the very goal that its authors desire,
namely, full employment.
As Council of Economic Advisers Chairman Greenspan noted in
his testimony before the commitee last week, inflation is probably
potentially the greatest destroyer of jobs as any major factor in
the economy. The second is that wage and price controls will need to
to be imposed on the Nation’s economy if the bill’s unrealistic unem­
ployment goal is to be achieved ^
without rampant inflation. The
imposition of controls would be disastrous and would be certain to
cause massive distortions anomalies and inequities in the economy
as we have already experienced with our previous round of wage
and price controls.




130!
It would be unwise to harden the Nation with a self-defeating
and unrealistic promise that cannot be fulfilled or with enormously
disruptive controls that would severely harm the Nation’s economy.
The Chathman. Thank you, Senator Tower.
Senator Stevenson?
Senator Stevenson. I have nothing now.
The Chairman. Senator Humphrey.

S T A T E M E N T O F H U B E R T H . H U M P H R E Y , U .S. S E N A T O R F R O M
T H E S T A T E O F M IN N E S O T A
Senator Humphrey. Mr. Chairman and my colleagues in the Sen­
ate, I greatly appreciate the candor with which you have expressed
your view this morning about this proposed legislation. We all know
that legislation is subject to refinements. I don’t come here with an
inflexible position. I do not say that every word that’s in
bill is
the alpha and omega of economic policy or of legislative strategy.
I simply say that we have tried to provide an answer to a problem
that others are unwilling to attack, at least at the administrative
level, and I have a great deal of respect for economists, but after
they’re all through talking about the inflationary impact of this I
want to know what they plan on doing about 7Vi to 8 million people
unemployed.
Now I want to commend the chairman on his resolution in this com­
mittee on an inflation rate of 2V£ percent and a goal of unemploy­
ment of 4 percent. We personally think, Congressman Hawkins and
myself, that our bill is within that ballpark. We have 3 percent as a
goal for adult unemployment. If you put in youth unemployment,
that brings it up to Z z or 3.6 percent or 3.7 percent, depending on
V
the number of young people unemployed. So we’re not far off.
I just thought I’d mention just a few things first before I get into
my prepared testimony.
Setting a goal, as you have indicated, is one thing; but achieving
a goal is another. But as Senator Tower has indicated—I should say,
foma
man’ aS ^°U * c^ca^ c a £°al siyes us some measure of pe'rn
e^
Today, because we have no goal at the national level, whatsoever
fault it may be all we do is recite statistics. What were the last sta­
tistics that we had ? Well, investment is a little better than it was.
J^roduction is a little better than it was. Profits are appreciably better
than they were. Income for people on the job is a little better than
it was.
After we get all through with it, they say, but we still have 7V
i
percent unemployed, but then you’re supposed to feel good because
there are more people employed than there were a month ago. Well
J ®, more P^P16 in the United States than there were a
Uf
c
♦ifg0’ ^
are. “ ore People employed. But the simple fact is,
™ k # recitation of the facts, you come out just about where you
re before, that 7A percent of the people are unemployed. But more
significantly, there are 12 percent of the people unmployed in Rhode
Island; there are 11 percent of the people unemplo^Fin Boston!




131
there are at least 12 to 14 percent—I forget the latest figure—in De­
troit, maybe up as high as 16 percent. And there’s another 10 percent
of the people unemployed in Cleveland.
Now these general statistics are not very—the IVi is a general sta­
tistic—is not very satisfactory when lives are involved and when in­
come is involved and when production is involved.
My challenge to the critics—and I say this not to the members of
this committee that have the responsibility to examine this legisla­
tion and to probe and indeed to ask us to come up with our rationale
for what we have proposed here—that’s your job—but my challenge
to the Federal Reserve Board and to the Council of Economic Ad­
visers is: What do you propose?
Mr. Chairman, we sat in the Joint Economic Committee and lis­
tened to the Council of Economic Advisers telling us there was really
nothing you could do about these unemployed. They say that in due
time the private economy supposedly will absorb them. Well, if that’s
the case, then what are they all worried about this bill then? If it’s
going to be absorbed in due time without inflationary impact, then
you’ve got the best of two worlds. But they say if you’ve got the bill
and you get full employment you will have inflation, but if you
don’t have the bill and you have full employment you won’t have in­
flation.
Now what kind of garbage is that? That’s exactly what it boils
down to. So I don’t say that the Humphrey-Hawkins bill is some­
thing out of the Old or the New Testament and it isn’ the rediscov­
ered Dead Sea scrolls and it didn’t com from on high, but it is an
e
attempt to deal with a problem.
Mr. Wachter, whoever he is, comes around here in this Business
Week magazine and says 15 percent inflation. He didn’t back it up.
We callea Business Week and said, “Where did you get that figure?
What’s the backup?” They said, “Well, we don’t nave any backup on
it.” That’s exactly like me standing here and telling you we can do
all of this in 1 year and then get that printed. There’s a constant
effort here to demean this proposal in the economic journalism and
all I say to these economists and these editorial writers is, “What
do you propose to do with the number of people in this country that
are without work? On the one hand, you complain about the cost of
government”—I’m speaking of them now. They complain about the
Federal deficits which are due to the recession. They complain about
the welfare mess, which is due to the people being out of work, at
least in part. They complain about the fact that people are on unem­
ployment compensation instead of going to work. And when we come
along and say there may be some way we can get something done
about that, they say that won’t work either.
The whole crowd ought to be fired. They simply have no answers.
They simply want to bellyache, and if they will come to my drug­
store I’ll give them something to take care of their pain. We have
something called Donnetal. It’s a little mixture of phenobarbitol
along with a certain amount of medicinals that wiU take care of gas­
tric pain. I’ve got some up there. They last 8 hours. They are what
are called Extend Tabs. That’s exactly what they need.




132
Now, having given my little soliloquy here, let me get down to what
I have prepared for you.
We are being told, Mr. Chairman, that the United States can no
longer have full employment and price stability. We are being told
that w must have a certain number of people unemployed, giving
e
them welfare checks instead of useful jobs, because that’s what it
boils down to.
We’re being told in order to have price stability for those of us
here that we should have increased institutions for a certain number
of other people. In other words, we are being told what was once told,
that the only way you could have a cotton economy was to have slav­
ery and the minute you started to pay people what they ought to be
aid that somehow or another it would destroy the economy. We are
eing told the very same thing that I remember when we started to
put people in the hotel business, the workers in hotels, under the Fair
Labor Standards: “Why, if you pay those people more than 90 cents
an hour the hotel rate will go up.” Why should some of us that can
afford to buy a hotel room have to get a cheaper room at somebody’s
expense that’s a maid or somebody taking care of them. So we put
them under the Fair Labor Standards and they maybe had to raise
the price of the hotel a little bit or the price of a martini so before
you went to the hotel room you didn’t realize what was happening to
you.
Now it’s my judgment, because our economic process has remained
unchanged for decades, our institutions are no longer effective in cop­
ing with the problems of the modem economy and the modern world.
The bill before you, the Full Employment and Balanced Growth
Act of 1976, takes a different point of view, seeking to change the
way w formulate and implement national economic policy. It is
e
based on the premise of, our ecenomy will improve only if we make
an effort to reshape our economic policy machinery.
The act says—and you know what it says—the ^President and Con­
gress, through lack of intelligent and coordinated policies, have al­
lowed the disaster of widespread unemployment and high inflation
to overtake the lives of millions of our families with increasing fre­
quency and duration. To correct this, the act requires the President
and the Congress, as a first and constant priority, to jointly develop
and implement the policies and programs that will prevent a recur­
rence of these avoidable national tragedies. The bill itself provides
a new mechanism and a broad range of policies and programs to serve
as the means to meet this responsibility.
Now that’s title I. There is, as you know, in this bill the title I,
which is the policy making machinery for the goals that are set, and
then title II, which has a number of other programs that are in­
volved, is sort of a backup. I think that these two would need to be
looked at both together and separately. Although there is disagree­
m over som of the specific provisions of the legislation before you,
ent
e
there is widespread agreement that a new mechanism similar to S.
50 is necessary for managing national economic policy and I com­
mend this committee for being able to say to the Congress of the
United States that we ought to have as a goal 4 percent, not more
than 4 percent of unemployment. That’s youth and all. And not

E




133

more than 2Vi percent goal of inflation. That’s not far off from
what’s in this bill.
A fundamental provision of this act sets the goal of reducing un­
employment to 3 percent within 4 years. This is an ambitious goal.
I know that. But there are several reasons why I believe we should
strive to achieve it. We may not be able to achieve it, but I’m not
going to settle for 6 percent or 7 percent. Why not set a figure and
see if we can’t achieve it? That’s the way people do things. Mo­
hammed Ali said, “I’ll cold'cock Dunn in the fifth round,” and he
did, and I’ll tell you this, that a number of other people set goals.
The automobile industry sets goals. How many cars are they going
to produce and sell? How do you think they sell those cars if they
don’t have a goal? They get on the back of the dealers and say,
“Hey, we’re going to sell V number of millions of cars and you get
busy or you may lose your franchise.” They get it going. In Gov­
ernment, w say, “Just hang around, it will all work out fine.” I
e
don’t believe that. I believe m goals and production and work and
lots of it, old-fashioned work, hard work.
Well, first of all, the term adult which I have defined in persons
18-years-of-age and over, which implies an overall unemployment
rate of about 3Vi percent. This is only % percentage point below
what was considered full employment in the Kennedy-Johnson years
or in the 1960s. I might add that we went below 4 percent for 4
years during that period, while holding inflation to an average of
4 percent and we were actually—that’s in the worst of the war years,
in the Vietnam years.
Now secondly, we must have new economic policies to get at stub­
born pockets of unemployment if w are to achieve this long-term
e
goal, and the bill provides for such policies. There is no iron law
that decrees you can’t reduce adult unemployment to 3 percent. You
and I know very well and I won’t burden you with it, that other
countries have done it. What’s so different between this economy
and Germany and Sweden and the United Kingdom and Japan and
France? We are always talking about, we don’t want to be second
best to the Russians. There isn’t a member of Congress that wouldn’t
get up and give one speech a year about w don’t want those Russians
e
to have more missiles than we have. Why doesn’t somebody get up
and say we don’t want Japan to have a better rate of employment
than we? Why don’t we have some priorities here? We’re all the
time worrying about whether the Russians have a new bomber or a
new weapon system, but w never seem to worry about the fact that
e
in the 1962 to 1973 period, in the 11 or 12 years while the United
States had an average unemployment rate of 5 percent, in the boom
times, the countries of Japan and France, United Kingdom and
Gexmany had an average unemployment rate of 1.8 percent. Are we
going to be told that thejr are so much better?
Why don’t w get first in the economy? Why don’t we get first in
e
getting people to work instead of first in seeing whether we can get
a digger missile?
Finally, it should be remembered that a goal is an objective not
an absolute requirement. I’m fully aware that there are those who
argue that the full-employment goal cannot be achieved given the




w

imperfections in our economy, and I would say to them, whether
^
they know it or not, they are expressing abandonment of faith in our
democratic capitalistic system. These are the bunch of people that say
capitalism will work and they are supposed to be the high priests of
capitalism. You talk about defections within the faith.
I happen to believe that we can do it, and the very people that
are up here—the big bankers, the big editorial writers—all telling
you that we can’t do this sort of thing, are the people that say, now
vou must remember we’ve got to have the profit system, I believe in
the profit system, but I’d like to have it shared around a little bit
Let everybody get a little piece of it.
Others are'saying to wait; things will somehow get better. I hose
are the ones that can afford to wait. They would do nothing to an­
swer the need of more than 7 million workers who remain unem­
ployed today. They would ignore the fact that for the past 5 years
our Nation "has had an average economic growth rate of only 1.8
percent and that this has resulted in the loss of $500 billioin in the
production of goods and services. That staggering loss never would
have occurred had we sustained the previous historical average
growth rate of 4 percent, and if we follow their advice and continue
to observe the inadequate policies now in force, it is estimated that
the Xation will lose another $600 billion to $900 billion in goods
and services by 1980; and that is if you have a goal of 4 percent
unemployment.
My argument, though, to those critics of this bill—and I am pre­
pared to take them on—I want them to come up here and justify
this incredible loss of production. I want to know why this country
can only have a 1.8 average growth rate. I want to know why these
captains of industry and finance, these highfalutin economists think
that’s all right. I don’t think it’s all right at all and I’m not saying
that this bill is all that it ought to be, but it's a damned site better
than just being critical of what we are trying to do. We at least
have som goals here, and yet w have got people here that are saying
e
e
well, it’s just fine. Why is it just fine? Because they are doing just
fine, and a lot of other folks.
Now w are not here in Congress to preside over a crippled econ­
e
omy or play the role of indifferent witnesses to the dissolution of
families, increased sickness, death and crime that stem directly from
the evaporation of jobs in a sick economy. We are here—and I want
to emphasize this—to fulfill our responsibility to provide leadership
to revitalize our economy. Xow that’s what S. 50 and H.R. 50 is all
about. I’m certainly not ready to concede that the United States
which actually made it possible for most countries of Europe to
rebuild their economies following World War II, camiot equal their
econom performance.
ic
Xow, Mr. Chairman, I’m asking that all of my testimony be in­
corporated in the record and I’m going to run along here because
you want to ask som questions.
e
What is this legislation? What is it not? This legislation is not a
public service jobs proposal. The principal thrust of this act is to
encourage the creation of job opportunities to private enterprise
through tax credit and budget policies that will stimulate the private




135
sector in a balanced and sustainable way. What I do—I read the
editorials. I read that w are talking about a centralist state, a state
e
capitalism. I have an editorial on my desw from the St. Paul Pioneer
Press Dispatch, a whole column, two columns wide, on the editorial
page from the top to the bottom, and it ends up by saying this is
statism, state capitalism and centralism of government.
What this is is the bill for private enterprise. It’s to give private
enterprise continuity of policy. What have we been having? Zigs
and zags and phases and freezes and taxes and surtaxes and God
only knows what. Any investor that had the fiduciary responsibility
these last few years and invested other people’s money ought to be
examined because as late as December 1974 the President of these
United States, with a full-blown recession on his hands before his
eyes, was talking about a 5 percent tax increase, and within 15 days
he made a 180 degree turn. How can any businessman plan that way ?
There is no forecasting, no planning. They just sit around here and
just decide; well, we’ll let the market forces work their way until
they see disaster before them, slapping on the surtax just like that
without prenotice to anybody, putting on wage-price freeze after
they had disavowed any possibility of a wage-price freeze, taking it
off just about the time it began to work, and that’s exactly the his­
tory and if w had time here w could document the history of eco­
e
e
nomic confusion, economic mismanagement in this economy right
down from 1972 to this very hour.
Nobody even today knows what the Federal Reserve Board is
going to do the next day. Now we’re hearing they’re tightening up
the money. It looks like there might be a little prosperity. Nothing
frightens them quite so much. Maybe I will get out our way. It
might actually get as far as Minnesota, Mr. Chairman. That would
be tough. Once it gets beyond the precincts of the eastern seaboard
and starts moving our way they get a little worried about it. We’re
not that worried out home. Just between us, w think we could use
e
a little of it.
So we have a bill here that I think makes som sense. I asked the
e
Congressional Budget Office to make some estimates as to productiv­
ity and production and inflation under this bill. No one knows how
significant these inflationary pressures could be but estimates can
be made.
At my request, the Congressional Budget Office has made such
estimates in conjunction with the economic analysis of the Full Em­
ployment and Balanced Growth Act. These estimates show that ef~
forts to reach a 3% percent overall unemployment target by increas­
ing aggregate demand could increase inflation by roughly i percent­
age point by 1980, or 2 percentage points by 1982—in other wordsr
an annual increase in inflation of approximately 0.6 percentage
points.
Now that’s low. I grant you that. But may I say that—let’s take
your figure of 2 percent of inflation. This economy could endure
that if you had full employment. It’s not the best of all worlds but
what is the best of all worlds? The main thing is what are your
choices? The CBO study indicates that even these statistics could
overestimate the inflationary impact because they do not take into
account the anti-inflation measures included in the legislation.




136
Now listen to *hi«- The bill requires the inflation situation be con­
stantly monitored and the President to annually submit a compre­
hensive set of anti-inflation policies that are relevant to changing
conditions. Now we have been criticized in this bill, Con­
gressman Hawkins and I, because we didn’t spell out all of the antiinflation devices that may be used. Well, the reason is that we don’t
want to set it in cement. We simply say to the President, you take a
look each year, you and your Council of Economic Advisers, with the
Federal Reserve Board, with the Office of Management and Budget,
with vour Cabinet, and if you see that there are inflationary pres­
sures "building up, present us with your proposals.
Now I personally happen to believe in the Wage-Price Council,
as you know, the Price Stability Council. I believe in investigation.
I believe even in delay in price and wage increases to check their
possibility of inflationary impact, and I would be prepared in this
legislation to see some more precise language if that’s necessary. But
I resent the attack that’s been made upon this bill that it ignores
the possibility of inflation.
To the contrary, it calls upon the President to be fully aware and
to constantly monitor any possibility of inflationary impact by the
measures proposed in this bill and I think that’s important and we
are not going to let the critics get by pretending that it isn’t a matter
of our concern.
Now would the wage standards cause a shift from private to pub­
lic employment? Some people have argued that the wage standards
are so generous they would cause a shirt from private to public em­
ployment and aggregate inflation. I don’t believe this is true. I believe
the wage standards are “neutral” between the private and public
sectors because they simply reaffirm existing, fair wage standards.
The key to understanding the wage standards is to carefully read
section 402. That section states that people employed under the bill
shall receive “equal wages for equal work.” It then prescribes a
range of wage standards from the minimum wage to prevailing
wages for similar employment in the specific labor markets. This
means that som
eone doing a job that merits the minimum wage will
be paid that wage, while a skilled worker doing a job of higher value
will be paid commensurate wages. I believe this is a flexible and fair
set of wage standards, but again, Mr. Chairman, this is subject to
our careful analysis and review and the committee can work its will.
How m
uch will the Full Employment and Balanced Growth Act
of 1076 cost? Now that’s the big one. The immediate costs of this
act is limited, of course, to the expense of setting up the machinery
for the act. There will be, of course, substantial indirect budget costs
if all the legislative actions mandated by this bill are undertaken.
It is impossible to estimate those costs precisely, because they de­
pend on such things as the strength of the private sector economic
recovery, the rate of growth in the labor force, and the specific de­
sign of job creation programs mandated under the act.
In the study mentioned earlier, the Congressional Budget Office
took these factors into account and made some rough budget estimate
costs. After 24 months of operation, a program to reduce unemploy­
ment to 2>2 percent by 1980 would have a net cost in the range of
\;




137
$8 to $16 billion says the CBO. The gross cost would fall in the
range of $23 to $44 billion, but these costs are drastically reduced
when cutbacks in welfare and unemployment compensation payments,
along with increased tax revenues, are taken into account.
I’m going to simply say you’ve got a choice between costs. Do you
want to be paying people to do nothing or do you want to pay some
people to do something? And I’m of the opinion that when you pay
people to do something that you get more out of it than you do
when you pay people to do nothing.
These budgetary costs are significant, but simply compare them
with the high cost of unemployment; compare these costs with more
than $600 billion in lost production of goods and services that will
result if we continue to follow the present course and fail even to
approach full employment; compare the cost with the $14 billion a
year in lost Federal tax revenue for each one percentage point of
unemployment; compare the cost of this bill with the more than $20
billion in extra welfare and unemployment expenditures due to the
present high levels of unemployment; contrast the cost with the con­
tinued misery and lost hope of millions of our people who will be
unemployed during this period.
In my mind, a full employment policy is a bargain, no matter how
you look at it.
Well, Mr. Chairman, that’s more than I maybe should have said
here today, but I just finished reading a couple editorials this morn­
ing. That’s why I was a little warmed up when I got here—editors
that are well paid and have full employment and have got them­
selves a pension fund and health fund and fringe benefits and are
doing just fine, and they sit around and say there’s nothing we
can do; let the market force work its will. That’s what we’ve got here
today. We’ve got this conflict in attitudes. Let the market forces
work, et cetera, et cetera, et cetera. If the forces of the market work
their will, an awful lot of people will be economic casualties.
The purpose of Government is to establish justice, to assure domes­
tic tranquility, to provide for the common defense, and to promote
the general welfare and to secure the blessings of liberty for ourselves
and our posterity. There’s not a word in the Constitution about mar­
ket forces and there’s not one word in the Bible about market forces
and there’s not one word, may I say, in the Emancipation Proclama­
tion about the market forces. But there are a lot of words about jus­
tice, fair play, compassion, decency.
We’ve got somebody running around here trying to redefine our
whole life. The whole purpose of the Declaration of Independence
doesn’t talk about market forces and that’s what this year is all
about—life, liberty and the pursuit of happiness. You don’t pursue
much happiness it you’re ground down in the dirt by so-called mar­
ket forces. It says governments are instituted to secure these rights.
How do you pursue happiness in filth and degradation and slums
and unemployment and misery and sickness?
I have a strong view about this matter of Government policy and
I’m fed up to the teeth with people wh oare only the critics and who
say: Well, we can’t do this and we can’t do that. I challenge those
tliat say uris bill is off the mark by saying what are you going to




138
do to put them to work or are we being told by high priests of
finance, are we being told by spokesmen in the public, that it’s just
jim dandy just to let people rot? What are we going to do about
youth unemployment that’s directly related to youth crime except
wring our hands and talk about getting tougher and mandatory
sentences and what have you?
The biggest public works program in this country today, Mr,
Chairman, is building jails, and you and I know that’s a fact. It’s
next to highways, building jails. And I don’t think that’s the way
the United States ought to start its third century.
That’s my little testimony this morning.
The Chairman. Thank you very much, Senator Humphrey.
[Complete statement follows:]
Statem ent

of

S en ator H ubert H , H u m p h r e y , C h a ir m
J o in t E c o n o m ic C o m m i t t e e

a n of t h e

M r. C h a irm a n , M e m b e rs o f th e C o m m itte e , o u r n a t io n h a s b e e n flo u n d e r in g
in a n e n v ir o n m e n t o f e c o n o m ic a n d in t e lle c t u a l s t a g n a tio n . E v e r y d a y o u r le a d e r s a n d th e p re s s te ll o u r p e o p le w h a t w e c a n ’ t d o . T h e U n ite d S ta te s c a n
n o lo n g e r h a v e f u ll e m p lo y m e n t a n d p r ic e s t a b ilit y , w e a r e to ld . W e m u s t
k e e p a c e r ta in n u m b e r o f p e o p le u n e m p lo y e d , g iv in g th e m w e lfa r e c h e c k s in -,
ste a d o f u s e fu l jo b s .
I b e lie v e th in g s a r e n o t w o r k in g w e ll b e c a u s e w e a r e n o t p u t tin g o u r n a ­
tio n a l e n e r g ie s in t o m a k in g th em w o r k . B e c a u s e o u r e c o n o m ic p o U cy p r o c e s s
h a s re m a in e d u n c h a n g e d f o r d e ca d e s , o u r in s tit u t io n s a r e n o lo n g e r e f f e c t i v e in c o p in g w it h th e p ro b le m s o f th e m o d e r n w o r ld .
T h e F u ll E m p lo y m e n t an d B a la n c e d G r o w t h A c t o f 1976 ta k e s a d iffe r e n t
p o in t o f v ie w , se e k in g t o ch a n g e t h e w a y w e f o r m u la t e a n d im p le m e n t n a ­
t io n a l e c o n o m ic p o lic y . I t is b a sed o n th e p r e m is e t h a t o u r e c o n o m ic p e r f o r m -,
a n c e w ill im p r o v e o n ly i f w e m a k e a n e ff o r t t o r e s h a p e o u r e c o n o m ic DOlicv
m a c h in e r y .
T h e A c t sa y s th a t th e P re s id e n t a n d C o n g r e ss, t h r o u g h l a c k o f in t e llig e n t
a n d c o o r d in a te d p o lic ie s , h a v e a llo w e d th e d is a s t e r o f w id e s p r e a d u n e m p lo y ­
m e n t a n d h ig h in fla tio n to o v e r ta k e t h e liv e s o f m illio n s o f o u r f a m ilie s w it h
in c r e a s in g fr e q u e n c y a n d d u r a tio n . T o c o r r e c t th is, t h e A c t r e q u ir e s th e
P r e s id e n t a n d C o n g re ss, a s a fir st a n d c o n s t a n t p r io r it y , t o jo i n t ly d e v e lo p
a n d im p le m e n t th e p o lic ie s an d p r o g r a m s t h a t w i l l p r e v e n t a r e c u r r e n c e o f
th e se a v o id a b le n a tio n a l tra g e d ie s. T h e b ill i t s e l f p r o v id e s a n e w m e ch a n is m
a n d a b r o a d r a n g e o f p o lic ie s a n d p r o r g a m s t o s e r v e a s t h e m e a n s t o m e e t
th is r e s p o n s ib ility .
i w 1Jh« u g h vtlle r e l s d is a sre e m e n t o v e r so m e o f t h e s p e c ific p r o v is io n s o f th e
le g is la tio n b e fo r e y o u , th e re is a lr e a d y w id e s p r e a d a g r e e m e n t t h a t a n e w
s im ila r t o S . 50 is n e c e s s a ry f o r m a n a g in g n a tio n a l e c o n o m ic
p o lic y . I n r e ce n t te s tim o n y b e fo r e S e n a to r N e ls o n ’s S u b c o m m itte e o n E m p lo v ™ ’ ,a
, M ig r a to r y L a b o r , a d iv e r s e p a n e l o f p r o m in e n t e c o n o m is ts
in c lu d in g C h a rle s S c h u ltz e , A r th u r L a ffe r , R o b e r t N a th a n , L e o n Keyserling
th a ^ tW s w a s th e < *se. I b a r e a t ta c h e d th e r e le ^ a n t p o r t io n o f t h e ir te stim o n y f o r th is C o m m it te e 's c o n s id e r a tio n .
A fu n d a m e n ta l p r o v is io n o f th e A c t se ts th e g o a l o f r e d u c in g a d u lt n n e m p lo y m e n t t o th r e e p e r c e n t w it h in f o u r y e a r s fo ll o w i n g e n a c tm e n t o f t h e
w h t ? r£
a S a “ b itio u s * o a l> c e r t a in ly , b u t t h e r e a r e s e v e r a l r e a s o n s
w h y I b e lie v e w e s h o u ld s t r iv e t o a c h ie v e it .
F irs t, I b e lie v e w e s h o u ld d efin e th e te rm " a d u l t ” a s p e rs o n s 18 v e a r . n t ■
u f m X ° ^ e r ’t ” ,5 ^ lm p lle s a n o v e r a ll u n e m p lo y m e n t r a t e o f a b o u t 3 .6 % . T h is
is o n ly o n e h a lf o f a p e rc e n ta g e p o in t b e lo w w h a t w a s c o n s id e r e d “ f n l l e m pU jym ent” m th e K e n n e d y -J o h n s o n y e a r s . I m ig h t a d d t h a t w e w e n t b e fo ^

a v S fg e

anantF™
nul
’

v id e s f o r su ch p o lic ie s . T h e r e is n o ir o n l a w




196® WWle holdin«
’
th a t d ecrees y o u ^ ^ t

red u ce.

139
adult unemployment to 3%, because other industrialized countries have done
it. Over the period of 1962-73, while the U.S. had an average unemployment
rate of 5 percent, the countries of Japan, France, United Kingdom, Sweden,
and Germany had an average unemployment rate of 1.8 percent.
Finally, it should be remembered that a goal is an objective—not an abso­
lute requirement. The purpose of setting goals is so that we can do better, not
achieve perfection for all times. This bill provides for annual review of the
goal and, it should be emphasized, requires the President in the first year to
review the full employment goal and timetable and “ report to Congress on any
obstacles to its achievement, and if necessary, propose corrective economic
measures to insure that the full employment goal and timetable are achieved.”
I am fully aware that there are those who argue that the full employment
goal of this bill cannot be achieved, given the imperfections in our economy. I
would say to them that whether they know it or not they are expressing
abandonment of faith in our democratic enterprise system. They are saying
it is fatally flawed, that we cannot produce jobs for all who are willing and
able to work without producing galloping inflation. They are saying they
believe that a large number of American workers must be consigned to the
waste and despair of unemployment for the sake of price stability.
Other than saying, “ Wait, things will somehow get better,” they would do
nothing to answer the need of the more than seven million workers who remain
unemployed today. They would ignore the fact that for the past five years our
nation has had an average economic growth rate of only 1.8 percent and that
this has resulted in the loss of $500 billion in the production of goods and
services. That staggering loss never would have occurred had we sustained
the previous historical average growth rate of 4 percent. And if we follow
their advice and continue to observe the inadequate policies now in force,
the nation will lose another $600 billion to $900 billion in goods and services
by 1980.
We are not here in Congress to preside over a crippled economy or play
the role of indifferent witnesses to the dissolution of families, increased sick­
ness, death and crime that stem directly from the evaporation of jobs in a sick
economy. We are here— and I want to emphasize this— we are here to fulfill
our responsibility to provide leadership to revitalize our economy and get
people back to work at decent wage levels that are not rapidly eroded by
serious inflation. That’s what S. 50 is all about. It provides a framework and
the procedures for the leadership that we promised to furnish when we took
our oath of office.
I certainly am not ready to concede that the United States, which actually
made it possible for most of the countries of Europe to rebuild their economies
following World War II, cannot now equal their economic performance.
As I have indicated, better economic performance will occur only if we
establish a new mechanism and policies to achieve it. S. 50, the Full Employ­
ment and Balanced Growth Act of 1976, as amended, provides a new structure
with the following elements:
(1) A new cooperative process is created among the President, Congress and
the Federal Reserve for the establishment of annual, numerical economic goals,
which will encourage the development of a unified annual economic policy.
(2) New requirements are placed on the Federal Reserve to make it a full
partner in national economic decisions.
(3) The President is required to determine the extent to which budget
policy can be relied upon to achieve full employment so that government
spending does not excessively inflate the economy.
(4) A planning capability is provided for in the Executive Office of the
President to give us a better idea of where the economy is headed over the
long-run and how we can most efficiently achieve full use of our human and
capital resources.
(5) The Act also provides for economy in government measures. It requires
that 20% of Federal spending be intensively reviewed and evaluated each year,
thus every program would receive detailed scrutiny at least once every five
years.

(6) The Act requires that work be substituted for welfare, unemployment
compensation, and income maintenance spending to the maximum practical
extent.
73-365— 70------ 10




140
(7) Comprehensive anti-inflation policies are required in
"}{*
the annual policymaking process, with an emphasis on increasing productivity
and the supplies of necessities such as food and fuel.
(8) Provision is made for a range of employment programs that focus on
structural problems of unemployment in depressed regions, stat^ , and among
groups in the labor force who have special unemployment problems, such as
youth. These provisions are designed to provide job opportunities primarily in
* (9) A comprehensive counter-cyclical employment program is required, with
*
special emphasis on a grant program to stabilize State and local
budgets during recessions and thereby prevent contradictory fiscal actions at
different levels of government.
(10) After the private sector has been fully utilized, and all other pro­
visions o f this Act have been employed, the Federal g o v e r n m e n t is responsible
for ensuring that the remaining unemployed above 3 percent adult unemploy­
_
ment are provided jobs.
.
, , ._ .
Let me now comment on some of the questions that have been raised about
S. 50, including the extent to which it encourages public vs. private jobs, the
requirement placed upon the Federal Reserve Board, the inflation impact, the
wage provisions, and the costs of the bill.
. . _
This legislation is not a public service jobs proposal. The principal thrust
of the Act is to encourage the creation of job opportunities in private enter­
prise through tax, credit, and budget policies that will stimulate the private
sector in a balanced and sustainable way. Many o f the auxiliary programs,
such as the incentives program to revitalize depressed areas, and the skillstraining and job-placement grants and loans from the development financing
i n s t i t u t i o n , are specifically designed to create jobs in private industry. More­
over, the programs for emergency public works and community development
would provide jobs in private business by channeling funds to private con­
tractors. The increased income from these government activities will in turn
stimulate additional private sector jobs.
With respect to the Federal Reserve Board, I know there are some nervous
Nellies who have canonized the FED and say that the Act’s requirements
would destroy that Agency’s independence. I would advise them to read S. 50
to be assured that it does nothing of the kind. In point of fact, it simply
requires the Federal Reserve Board to regularly indicate to Congress the
objectives of its projected monetary policy and to assess how that policy
supports the employment, growth and price stability recommendations ^made
by the President to the Congress. Congress would then be in a position to
weigh the Administration’s proposals, the Federal Reserve’s intended policies,
determine the adequacy or inadequacy of these plans and take whatever action
is necessary to coordinate monetary policies with other policies in order to
meet our national economic goals. In my view, this is in keeping with the
Congress’ constitutional responsibility to provide broad guidance to the Federal
Reserve Board.
Will a full employment policy seriously accelerate inflation? Those who
argue that more production and employment cause inflation have got things
turned upside down. The principal way to reduce prices is to increase pro­
duction, productivity, and the supply of goods and services like food and
health care.
I
am not propounding a theory, but reporting the facts. During the early
1950’s, and again in the mid-1960’s, increased production and employment was
accompanied by lower rates of inflation. Our recent experience with unemploy­
ment and inflation tells the same story. In 1975, when we reached an un­
employment rate of about 9%, we had an inflation rate that for many months
exceeded 10%. Since then, as production was increased and unemployment re­
duced, the rate of inflation dropped by about one half.
Although I believe production and productivity are the best weapons against
inflation, I recognizing that as the economy approaches full utilization of its
human and capital resources, bottlenecks and price pressures are likely to
develop. No one knows how significant these inflationary pressures could be,
but estimates can be made. At my request, the Congressional Budget Office has
made such estimates in conjunction with an economic analysis of the Full
Employment and Balanced Growth Act of 1976. These estimates show that




141
efforts to reach a 3.5% overall unemployment target by increasing aggregate
demand could increase inflation by roughly 1 percentage point by 1980, or 2
percentage points by 1982—in other words, an annual increase in inflation of
approximately 0.6 percentage points.
As the CBO study indicates, even these estimates could overstate the in­
flationary impact of S. 50 because they do not take account of the anti-inflation
measures included in the legislation. The bill requires the inflation situation
to be constantly monitored, and the President to annually submit a compre­
hensive set of anti-inflation policies that are relevant to changing economic
conditions. There is full provision for these actions to be as thorough and
tough as necessary “ to promote reasonable price stability if situations develop
that seriously threaten national price stability.”
Would the wage standards cause a shift from private to public employment?
Some people have argued that the wage standards are so generous they would
cause a shift from private to public employment and aggregate inflation. I
don't believe this is true. I believe the wage standards are “ neutral” between
the private and public sectors because they simply reaffirm existing, fair wage
standards.
The key to understanding the wage standards is to carefully read section
402. That section states that people employed under the bill shall receive
“ equal wages for equal work/* It then prescribes a range of wage standards
from the minimum wage to prevailing wages for similar employment in the
specific labor markets. This means that someone doing a job that merits the
minimum wage will be paid that wage, while a skilled worker doing a job of
higher value will be paid commensurate wages. I believe this is a flexible and
fair set of wage standards.
How much will the Full Employment and Balanced Growth Act o f 1976
cost? The immediate cost of the Act is limited to the expense o f: (1) expand­
ing the staff of the Council of Economic Advisers to carry out long and short
range planning functions and assist the President in preparing recommended
policies and programs to achieve the goals of the measure; (2) creating a
Public Advisory Commission to provide input from State and local govern­
ments and the private sector; and (3) creating a reservoir of public employ­
ment jobs to be utilized when necessary to maintain a full employment econ­
omy. That direct budget cost is estimated at $50 million a year.
There will be, of course, substantial indirect budget costs if all of the legis­
lative actions mandated by this bill are undertaken. It is impossible to esti­
mate these costs precisely because they depend on such things as the strength
of the private sector economic recovery, the rate o f growth in the labor force,
and the specific design of the job creation programs mandated under the A ct
In the study I mentioned earlier, the Congressional Budget Office took these
factors into account and made some rough budget cost estimates. After twentyfour months of operation, a program to reduce unemployment to 3.5 percent
by 1980 would have a net cost in the range of $8-16 billion. The gross cost
would fall in the range of $23-24 billion, but these costs are drastically re­
duced when cutbacks in welfare and unemployment compensation payments,
along with increased tax revenues, are taken into account.
These budgetary costs are significant, but simply compare them with the
high cost of unemployment. Compare these costs with the more than $600
billion in lost production o f goods and services that will result if we continue
to follow the present course and fail to even approach a full employment
economy. Contrast the costs with the $14 billion a year in lost federal tax
revenue for each one percentage point o f unemployment. Compare the costs
with the more than $20 billion in “extra” welfare and unemployment expendi*
tures due to the present high levels of unemployment. Contrast the costs with
the continued misery and lost hope of the millions o f people who will be un­
employed during ail of this period. In my mind, a full employment policy is
a bargain no matter how you look at it.
One point I wish to emphasize in discussing the bill is the stress it places
on substituting paid employment for welfare and unemployment insurance
payments insofar as it is reasonably possible to do so. From the point of view
o f morale and training purposes, it is far better for otherwise idle workers to
be performing useful* productive tasks. Putting people to work is both humane
and a practical idea. In fact, Mr. Chairman, much o f this bill is premised on




142
the conservative belief that we ought to put people to work instead of keeping
them on the dole.
Despite claims from alarmists and the timidity o f those who would maintain
our painful status quo, there is nothing radical in the provisions of the Full
Employment and Balanced Growth Act of 1976. It says in effect that the
President and Congress shall coordinate their efforts to plan and implement
the policies and programs which are needed to reach out and hold prosperity.
It says this nation can be the master of its own economic destiny if it will
but marshal the resources and talent to do so.
Mr. Chairman, in conjunction with my prepared testimony, I would like to
submit for the record a recent Washington Post article on the bill, my testi­
mony before the House Subcommittee on Manpower, Compensation, and Health
and Safety and the Senate Subcommittee on Employment, Poverty and Migra­
tory Labor, a letter from Dr. Eli Ginzburg, Chairman of the National Com­
mission on Manpower Policy, an editorial and interview from the May-June
issue of Challenge magazine, and the Congressional Budget Office study of
S. 50.
Thank you, Mr. Chairman.

The Chairman. Congressman Hawkins, you have quite an act to
follow,
S T A T E M E N T O F A U G U S T U S F . H A W K IN S , R E P R E S E N T A T IV E
IN CO N G R ESS FR O M T H E S T A T E O F C A L IF O R N IA

Mr. Hawkins. Well, Fm not going to try to do that, Mr, Chair­
man.
I think, along with Senator Humphrey, that this bill has been
misunderstood and let m spend just a few minutes of my time and
e
yours describing som of the misconceptions about the bill itself.
e
I think som of the critics have not read the bill. During more
e
than 2 years of testimony by the Subcommittee on Equal Opportuni­
ties in the House Education and Labor Committee, we quizzed some
of these experts and I found that they had not even read the bill, let
alone understand what the bill is all about.
Fm going to deviate from my prepared statement and I hope that
will be inserted in the record.
The Chairman. Yes. Without objection, that will be inserted.
Mr. Hawkins. I will merely confine myself to a limited amount
of time to think there are others to be heard from and I think the
public needs to be heard from on this bill and not just a few pro­
fessional economists.
I started out in my prepared statement, however, by saving that
this is one of the great moral issues of our time, that the moral
tragedy of current policies is that they deliberately create and
countenance high levels of unemployment. If you have not introduced
in the record thus far two very excellent statements on the moral
dimensions of unemployment, one by the Catholic bishops of the
United States and the other a policy statement by the Board of
Church and Society of the United Methodist Church, may I offer
those docum
ents for the record because I think they deal with the
moral question of unemployment and I think that we listen too
darn m
uch to som economists at least who are talking about infla­
e
tion and the other problems who perhaps haven’t read the bill but
who neglect to mention the physical, social, and psychological impact
of the waste which is now being created by mistaken policies.




143

[Documents follow:]
A

P o l ic y S t a t e m e n t

on

U nem ploym ent

(By the Board of Church and Society, The United Methodist Church)
I

Historically, The United Methodist Church has been concerned with the
moral issues involved with the social problem of unemployment. Governmental
policies have been called for that would insure full employment in order that
workers may fully participate in society with dignity, so that families may be
economically secure, and so that the nation may achieve coherent high priority
goals. These statements have appeared in various versions of The Social Creed,
in statements from boards and agencies of the church, and in resolutions from
The General Conference.
II
This subject must be addressed once more. Americans are currently ex­
periencing the longest and deepest recession since the Great Depression of the
1930 s. The official unemployment rate for the first five months of 1975 was
S.6%. The consumer price index rose 11% in 1974.
From 1946 to 1974, the official unemployment rate averaged 4.7%. By Euro­
pean standards this is a high average and marks an upward drift. In the de­
cade of 1950-59, unemployment in the United States averaged 4.51%; in the
decade of 1960-69, the average was 4.78%; in the first five years of the 1970's,
unemployment averaged 5.4% and, the projected rates made in the President’s
January 1975 Economic Report for the next five years of the 1970*s is 7.5%.x
Each percentage point . currently represents approximately 900,000 workers
who are jobless. There is a burdensome psychological, social, and economic
cost to the nation for this high level of unemployment.2 These present and
projected high levels of unemployment represent “an acute crisis superimposed
on a long-term crisis that stems from the chronic failure of our econmy to
generate an adequate supply of decent paying jobs.” *
III
Various studies have shown that the social costs of unemployment are both
immediate and long term. The effects linger for decades. Between 1953 and
1974, the average American family forfeited a total income of $18,750 due to
unemployment/ Income was lost that could have gone into housing, health,
education, food, and recreation. A 1969 Labor Department study of young
workers showed that “inability to get part-time work meant having to leave
school, even below the college level.” * Levitan and Taggart concluded, “care­
ful studies have indicated a significant positive correlation between juvenile
delinquency and unemployment.” * Frank Furstenberg examined the findings
of 46 studies and concluded that ‘‘economic uncertainty brought on by un­
employment and marginal employment is a principal reason why family rela­
tions deteriorate.” 7 When Patrick V. Murphy, President of the Police Foun­
1 B y inspection, The Economic Report of the President, 1975 (W a s h in g to n . D .C . :
U .S . G o vern m en t P r in tin g Office, 1 9 7 5 ) , Table C - 2 6 , p. 2 7 9 . T h e projection s into the la s t
h a lf o f th e 1970*8 are quoted in K eyserlin g, " T o P rocrastin ate or T o P la n ,” Vieicpoint,
v o l. 5, no. 2, Second Q uarter, 1 9 7 5 , p. 3.
8 Leon K ey serlin g estim ates th a t betw een 1 9 5 3 through 1 9 7 4 . w e fo rfeited more than
$ 2 .0 trillio n w orth o f gross na tion al product (1 9 7 4 d o llars) due to un em ploym en t and
un d erp rod u ctio n . A b o u t $ 7 0 0 billion w orth o f lo ca l, state, an d federal revenues w ere
th u s lo st. T h ese revenues could have been used fo r both a ru ral an d urban renaissance.
See K ey serlin g . ibid.t p. 3.
» H elen G in sburg. Unemployment* Subemploymentf and Public Policy (N e w Y o r k : N ew
Y o r k U n iv ersity , School o f Social W o r k ; C enter fo r S tu dies in Incom e M ain ten an ce
P o lic y , 1 9 7 5 ) . p. iii.
4
L eon H . K ey serlin g , Full Employment Without Inflation (W a s h in g to n , D .C . : C on­
feren ce on E con om ic I^ o g r e s s , 1 9 7 5 ) , p. 9.
6
V e ra C. P e rrella , “ Y o u n g W o rk ers an d T h e ir E a r n in g s ,” Monthly Labor Review
( U .S . G o vern m en t P r in tin g Office. 1 9 7 1 ) , vol. 9 4 , J u ly 1 9 7 1 , p. 6.
•
T h e T w e n tie th C en tu ry F u n d , The Job Crisis for Black Youth (N e w Y o r k : P raeger,
1 9 7 1 ) , p. 2 9 .
t R e p o rt o f a S p ecial T a sk F o rce to the Secretary o f H ea lth , E d u ca tion and W elfare*
Work in America (W a s h in g to n , D .C . : D ecem ber 1 9 7 2 ) , p. 1 4 7 .




144
dation, was asked what would he do to help reduce crime, he said he would
recommend “reducing the unemployment in the central city.” 8 Professor M.
Harvey Brenner of John Hopkins School of Hygiene and Public Health fears
that “if the current recession persists, it will bring a dramatic rise in mental
illness, alcoholism and suicide.” # Professor Brenner studied the relationship
between unemployment and mental hospitalization between 1922-1968 and
concluded that there is a positive relationship between recessions and mental
disorders. “As employment drops, mental hospital admissions rise.” 1 Braginsky
0
and Braginsky concluded from their studies: “Regardless of how a person
becomes surplus, he or she is socially transformed. Lifestyles, expectations,
goals, roles and appearance all change . . . The trauma leaves a permanent
scar . . . long after the victim moves out of surplus status and back into the
social mainstream.” 1 One of the primary hindrances to the institutionaliza­
1
tion of coherent public full-employment policies is callousness to these social
facts, both in the private and political sectors.
IV
Americans tend to be more tolerant of a high unemployment rate than are
the citizens of other developed countries.1 Furthermore, the size of the un­
2
employment problem is consistently understated in the United States because
of the definition used for counting the employed and the unemployed. “Un­
employed” is defined as being out of work during the survey week, available
for work, and having looked for a job during the past four weeks. An employed
person is one who has worked for pay any time during the survey week.1
3
A partial explanation for this tolerance of unemployment may be found in a
popular belief system that posits a trade-off of unemployment for lower prices.
A popular misunderstanding of the Phillips Curve holds that full employ­
ment leads to rising prices and high unemployment means less inflation. How­
ever, since the experience of “stagflation” in the economy (rising unemploy­
ment accompanied with rising prices), many former adherents to the trade­
off theory have begun to waver. In fact, many economists do not believe there
is a proven relationship between employment levels and price levels. “This
theory, sometimes called the ‘tradeoff’, has been refuted by the overwhelming
weight of experience during two decades or longer, and specially during the
8 The Waahinoton Post, A u gu st 11. 197 5 , n. 2.
*
Quoted by Berkeley Rice, “ The W o r ry E p id em ic,” Pyschology Today, A u g u s t 1 9 7 5
p. 74,
M /M rf,. p. 75.
M D orothv D . B ragin sky and B eniam in M . B ragin sk v . “ Surplus P e o p le : T h eir L o s t
Fa ith in the S e lf and S v ste m .” Psycholoov Today, A u g u st 1 9 " 5 , p. 70.
™ F o r exam ple, unem ploym ent in the U nited S tates averaged about 4 . 8 % in th e vears
3 9 6 0 -7 0 . D uring this s«m e period, unem ploym ent in O erm anv w as .6 % , in Japan. 1 . 3 % ;
in Sweden, 1 . 7 % ; in France. 2 0 % ; and, in G reat B ritain , 3 .1 % . On the average, u n ­
em ploym ent in the U .S . w as 2 7 6 % higher than in these developed countries in the sam e
tim e span. A lso, when these developed countries attem pted to control inflation by re ­
pressing the economic grow th o f the cou ntry, the resu lt w as less grow th and m ore
inflation. F o r a discussion, see K evserling. op. cit.. p. 24.
M gpp Monthht Labor Review (W a sh in g to n , D .C . : U .S . G overnm ent P r in tin g Office,
Ju ly 1 9 7 5 ), p. 75.
I t follo w s from the definition th at w orking one hour per week qualifies a person as
being employed. A lso, the definition excludes from unem ploym ent those persons w ho
become discouraged and do not believe th^re is w ork and do not seek w ork a fte r fou r
weeks o f unem ploym ent. In A p ril. 1975, part-tim e unem ploym ent reached 1 .7 % o f the
civilian labor force i c o n c ^ le d unem ploym ent. those who became discouraged, reached
1 .2 % o f the labor force. W h en these addition s are made to the official un em nloym en t
APr*l o f 8 .9 % , the resu lt is a rate o f ap proxim ately 1 1 .7 % or m ore th an 1 0 .5
m illion people. See K eyserling. “ T o P rocrastin ate or T o P la n ," op. cU., p. 2.
N or do the official unem ploym en t sta tistics tnke into account the q u alitv o f Jobs.
There are m any persons w orkin g fu ll-tim e w ho still earn less than poverty line w ages.
In 1966, the Labor D epartm en t developed a subem ploym ent index w hich ‘ included five
g ro u p s: ( 1 ) the officially unem ployed. ( 2 ) in volu n tary pnrt-tim e w orkers, ( 3 ) an estim ate o f the m ale ‘undercount’ in the census, assu m in g h a lf the m issin g m ales to be sob emplo.ved, (4 ) an estim ate o f the num ber o f ad u lt m ale discouraged w orkers, ( 5 ) fu ll­
tim e workers w ith wnges under the povertv threshold. A fte r conducting ten in ten sive
surveys in in n e r-d tv poverty arens, the U .S . D epartm en t of Labor discovered th a t t*ubem ploym ent ranged from 2 4 % in B oston to 4 7 % in San A n tonio in these im pacted areas
T h e average unem ploym ent rate a t the tim e w as 3.7<£. In 1 970 the un em ploym en t rate
w as 5 % , a subsequent study by a Senate subcom m ittee discovered subem pioym en t to
range from a low of 5 0 % in the poverty areas of S t. P aul to a high o f 7 3 % in the
poverty areas o f San An tonio. T h is is the core o f the urban crisis and it is w orsen in g
F o r further discussion, see G insburg, op. cit., pp. 9 4 - 1 1 4 .




145
most recent years.” 1 Even The Economic Report of the President, 1975 con­
4
cedes that the ‘tradeoff' theory is difficult to defend: “Despite considerable
empirical work allowing for the role of further variables and lags, it has
proved difficult to defend the claim of a long-run Phillips tradeoff (sic) be­
tween inflation and unemployment.1 However, public policies which result in
5
higher joblessness continue to be pursued based upon this trade-off assumption
even though no positive correlation between the level of employment and
prices has been clearly demonstrated.
An alternative explanation for inflation can be found in a “multiple cau­
sation” theory. Administered prices, the cost of wars, the rising world demand
for commodities, the energy shortages, the food shortages, currency deval­
uations, profits, taxation, interest rates, and monetary and fiscal policies are
among the contributing factors to inflationary pressures. There is surely a
persistent push toward inflation caused by military expenditures. The 1974
Report o f the Joint Economic Committee summarized:
Defense spending tends to be inflationary. Defense goods and services cannot
be consumed by the public, and to the extent that they are employed by the
military, they are unavailable for civilian purposes. The removal of goods
and services from the civilian economy may create or contribute to shortages.
Defense programs inject expenditures into the economy but they do not pro­
duce goods and services to satisfy consumer needs. Arms are not sold to the
public.1
6
In fact, 68% of all federal purchases were for military expenditures in
1974.1 Dollars spent for military procurement create fewer jobs than the same
7
dollars spent for civilian needs.1 This multiple approach to the causes of infla­
8
tion furnishes a more coherent explanation than does the “ trade-off” theory
and is suggestive for policy changes to deal both with joblessness and inflation.
V
Following World War IX, the Senate passed The Full Employment Bill of
1945 which declared that “all Americans able to work and seeking work have
the right to useful, remunerative, regular and full-time employment . .
This “ right to employment” bill w defeated in the House of Representatives.
’as
Instead, The Employment Act of 1946, a weaker substitute was passed. This
law states that the federal government has the responsibility to create con­
ditions “ under which there will be afforded employment opportunities, includ­
ing self-employment, for those able, willing, and seeking to work, and to pro­
mote maximum employment, production, and purchasing power.” ® A more
0
vague concept, “ maximum employment” , was substituted for the concrete
goal of full employment. In fact, however, the promise of “ maximum employment“ was never realized. Monetary and fiscal policies have been knowingly
followed in order to create joblessness. The wT
ord “ feasible” has crept in as a
modifier of “ maximum employment” In 1975, “ maximum employment” is being
defined as at about 5% unemployment by the Administration.2 Almost three
1
decades after the 1946 act, it is time to develop public policies that incorporate
the following in order to achieve full employment.
1.
It should become a recognized public policy that every citizen of the
United States has a right to meaningful, useful, rewarding employment con­
tributing to the public good at a wage that is supportive of an adequate
standard of living with human dignity.
14 K eyserling:, P u ll E m p lo ym e n t W ith o u t Tn flntion, op. d t . t p. 4.
56 Th e Econom ic R ep o rt o f the P resident, 1975, op. cit., p. 90.
M U .S. C on gress. J o in t E co n o m ic C om m ittee. J o in t Econom ic R ep o rt on th e 1974 Eco­
no m ic R e p o rt o f th e President, 93rd C ongress, 2n d S ession (W a s h in g to n , D .C .: U.S.
G o v e rn m e n t P r in tin g Office, 1 9 7 4 ). p, 64.
w Econom ic R ep o rt of the P res id e n t, 1975, op. c lt„ T a b le C - l , p. 249.
18 One b illion d o lla rs spen t on defense crea tes 92,0 00 j o b s ; th e sam e a m ou n t spen t on
m e e tin g d om estic needs by sta te and lo ca l gov ern m en ts crea tes 110.000 jo b s. T e stim o n y
Riven b y B en n ett H a rrison . “ T estim on y b e fo re S enate S u b com m ittee on E m p loy m en t,
M a n p ow er, and P o v e r ty , A p ril 26, 1 97 5 ” in Com prehensive M a n p o w e r R e fo rm , 1 9 7 2 :
H e a rin g s p a rt 5 (W a s h in g to n , D .C .: U.S. G ov ern m en t P r in tin g Office, 1 9 7 2 ). p. 1579.
19 C ou n cil o f E co n o m ic A d visers, “ T h e E m p loy m en t A c t : T w e n ty Y ea rs o f E x p e rie n c e ."
In J oh n A . P e le h a n ty (e d ,), M a n p o w e r Problem s and Policies (S cra n to n , P a .: In te r­
n a tio n a l T e x tb o o k C o., 1 9 6 9 ), p. 5.
* Q n o t e d in G ln sb n rg, op. c it.t p. 5.
® G in sb u rg , op. c it,, p. 27.




146
2. In order to realize this right, the federal, state, and local governments
should institute a planning process which develops policies and programs
through which a full employment economy is achieved.
3. This planning process should include an analysis of the changing volume
and composition of the labor supply in order to develop policies to deal with
involuntary unemployment and underemployment; with discrimination in jobs
based on sex, age, race, color, religion or national origin; and, with the prob­
lems of the work environment, the quality of work, job satisfaction, labormanagement relations, and worker participation in employment decisions.
4. Public policy should be developed to achieve full employment practices
along with reductions in annual hours of paid work, flexible work schedules,
paid vacation and sabbaticals, and more extensive combinations o f education
and employment.
5. Public service jobs and sheltered workshops should be created by an
office whose function would be to provide useful and rewarding employment
for any American, able and willing to work and unable otherwise to obtain
work. Consideration should be planned for such individuals and groups as have
faced special obstacles in finding and holding useful and rewarding employ­
ment, e.g., those suffering discrimination, the physically or mentally handi­
capped, older workers, youths, veterans, inhabitants of depressed areas, and
workers displaced by the relocation, closing, or reduced operations of indus­
trial facilities.
6. Other national economic goals, such as stable prices and a favorable
balance of trade, should be sought without limitations or compromising the
right to employment.
7. Day-care centers should be created so that working parents may pursue
their work in peace o f mind that their children are receiving adequate nur­
ture and care.
8. Unemployment insurance coverage should be extended to cover all of
the unemployed. Benefits should be expanded to meet the real economic needs
of the jobless.2
3
9. Fiscal and monetary policy should be utilized for the goal of creating a
vital economy and full employment2
3
10. Production should be geared to meet coherent priority goals of the na­
tion. e.g., mass transit, energy, housing, health, education, rural and urban
renaissance, and the environment.
A

S tatem ent

of

the

T

he

C a t h o l ic B is h o p s
E conom y : H u m a n D

of

the

U

n it e d

States

on

im e n s io n s

“This unemployment returning again to plague us after so many repetitions
during the century past is a sign of deep failure in our country. Unemploy­
ment is the great peacetime physical tragedy of the nineteenth and twentieth
centuries, and both in its cause and in the imprint it leaves upon those who
inflict it, those who permit it, and those who are its victims, it is one o f the
great moral tragedies of our time.”
The Bishops of the United States,
Unemployment, 1930.
1.
This was the judgment of our predecessors as they responded to the economic
crisis of 1930. As pastors, teachers and leaders, we recall and emphasize their
words ris our country faces important economic, social and moral decisions in the
uidst of the highest unemployment since the 1930s.
*
^se 0fl? cinJ 1- u n em p loyed w ere cov ered b v u n em p loym en t In surance
v
in 1974, Those^ cov ered receiv ed a benefit w h ich a vera ged 3 6 % o f a vera ge w e e k ly earnT r ! V 4 y™ a e m p lo y m e n t See Econom ic R ep o rt of the P res id e n t, 1 975, op. c it., T a b le
“ T h e■ cost: o f the p resen t recession is a stron om ica l. The C om m ittee on th e B u d g e t
o f the U.S. Senate re p orted th a t the p resent recession is c o s tin g $200 b illio n in lo s t
p r o d u c t : $r>3 billion in lo st fed era l revenues : and a ri«e o f $15 b illio n in th e c o s t o f
program s designed to aid the jobless. See U .S. S enate C om m ittee on the B u d get. F ir s t
Cnnqretxlonal Resolution on the B udget— F t scat Y e a r 1976, 9 m Congress. 1st Session
(W ashington, D .C .: L .S . G overn m en t P rin tin g Office, 1 9 7 5 ), p. 114.




147
I. THE CHTJBCH’S CONCERN

2. Despite recent hopeful signs, the economy is only slowly and painfully
recovering from the recent recession, the worst since World War II. We are
deeply concerned that this recovery may lack the strength of duration to
alleviate the suffering of many of the victims of the recession, especially the
unemployed. It is the moral, human and social consequences of our troubled
economy which concern us and their impact on families, the elderly and chil­
dren. We hope in these limited reflections to give voice to some of the concerns
of the poor and working people o f our land.
3. We are keenly aware of the world-wide dimensions of the problem and
the complexity of these issues of economic policy. Our concern, however, is not
with technical fiscal matters, particular economic theories or political pro­
grams, but rather the moral aspects of economic policy and the impact of these
policies on people. Our economic life must reflect broad values of social justice
and human rights.
n . TH E CHUBCH’ S TEACHING

4. Our own rich heritage of Catholic teaching offers important direction
and insight. Most importantly, we are guided by the concern for the poor and
afflicted shown by Jesus, who came to “ bring good news to the poor, to pro­
claim liberty to captives, new sight to the blind, and to set the downtrodden
free” (Luke 4:18). In addition, the social encyclicals of the Popes and docu­
ments of the Second Vatican Council and the Synod of Bishops defend the
basic human right to useful employment, just wages and decent working con­
ditions as well as the right of workers to organize and bargain collectively.
They condemn unemployment, maldistribution of resources and other forms
of economic injustice and call for the creation of useful work experiences and
new forms of industrial organization enabling workers to share in decision­
making, increased production, and even ownership. Again and again they point
out the interrelation of economics and ethics, urging that economic activity
be guided by social morality.
5. Catholic teaching on economic issues flows from the Church’s commitment
to human rights and human dignity. This living tradition articulates a number
of principles which are useful in evaluating our current economic situation.
Without attempting to set down an all-inclusive list, we draw the following
principles from the social teachings o f the Church and ask that policy-makers
and citizens ponder their implications.
a. Economic activity should be governed by justice and be carried out with­
in the limits of morality. It must serve people’s needs.1
b. The right to have a share of earthly goods sufficient for oneself and one’s
family belongs to everyone.®
c. Economic prosperity is to be assessgjl not so much from the stun total of
goods and wealth possessed as from the distribution of goods to norms of
justice.*
d. Opportunities to work must be provided for those who are able and
willing to work. Every person has the right to useful employment, to just
wages, and to adequate assistance in case of real need.4
e. Economic development must not be left to the sole judgment of a few
persons or groups possessing excessive economic power, or to the political
community alone. On the contrary, at every level the largest possible number
of people should have an active share in directing that development.®
f. A just and equitable system of taxation requires assessment according to
ability to pay *
g. Government must play a role in the economic activity o f its citizens. In­
deed, it should promote in a suitable manner the production of a sufficient

1Vatican

38—
39.

II, The Church In The Modem World, 04; John XXIII, Mater et Magistra,

* Vatican II. The Church Tn The Modem World, 09.
* John XXIII, Mater et Magistra, 73.
„
n
r m
/P i u s XI, On The Reconstruction of The Social Order, 74; John XXIII, Pacem In Ter11, 18; Vatican II, The Church In The Modern World, 67; Paul VI, A Call To Ac­
tion, 0.
1Vatican II. The Church In The Modem World, 65.
* John X X ni, Mater et Magistra, 132.




148
supply of material goods. Moreover, it should safeguard the rights o f all citi­
zens. and help them find opportunities for employment.
^ ^
6 These are not new principles. They are drawn directly from the teachings
of the Church, but they have critical relevance at this time o f economic dis­
tress. Under current conditions many of these principles are being consistently
violated.
i n . DIM ENSIONS OF T H E ECONOMIC SITUATION

7. In these reflections we wish to examine briefly the dimensions of our
economic problems in three areas: unemployment, inflation and distribution of
wealth and income.
A. Unemployment
8. In October, government figures show eight million persons were un­
employed, representing 8.6% ot the work force.8 Millions of other persons have
given up seeking work out of discouragement or are in part-time jobs although
they desire full-time work. Taking this into account, the actual level of un­
employment in our country is over 12%. It is estimated that 20 million people
will be jobless at some time this year, and that one-third of all Americans will
suffer the traumatic experience of unemployment within their families.
9. The official unemployment rate does more than understimate the true ex­
tent of joblessness. It also masks the inequitable distribution of unemploy­
ment The figures for October indicate that minorities, blue collar workers,
young people and women bear a disproportionate share of the burdens of job­
lessness *
10. These realities clearly indicate that the nation's commitment to genuine
full employment has been seriously eroded, if not abandoned. Since World
War II, unemployment has been substantial, persistent and drifting upward.
In fact, when joblessness rose dramatically during the latest recession, it took
the form of an acute and visible crisis, superimposed on a long-term unemploy­
ment problem which has persisted for decades.
11. The costs of this tragic under-utilization of our country’s human re­
sources are enormous. In economic terms, these high levels of unemployment
cost literally hundreds of billions of dollars in lost revenue and increased
expenses for all levels of government.
12. As lamentable as these financial costs are, the social and human impact
is far more deplorable. In our society, persons without a job lose a key measure
of their place in society and a source of individual fulfillment; they often feel
that there is no productive role for them. Many minority youth may grow
up without meaningful job experiences and come to accept a life of dependency.
Unemployment frequently leads to higher rates of crime, drug addiction, and
alcoholism. It is reflected in higher rates of mental illness as well as rising
social tensions. The idleness, fear and financial insecurity resulting from un­
employment can undermine confidence, erode family relationships, dull the
spirit and destroy dreams and hopes. One can hardly bear to contemplate the
disappointment of a family which has made the slow and painful climb up
the economic ladder and has been pushed down once again into poverty and
dependence by the loss of a job.
13. The current levels of unemployment are unacceptable and their tre­
mendous human costs are intolerable. Unemployment represents a vast and
tragic waste of our human and material resources. We are disturbed not only
by the present levels of joblessness, but also by official government projections
of massive unemployment for the rest of this decade. We sincerplv hnpp that
these figures do not represent resignation to the human and economic waste
implied in these rates of unemployment. As a society, we cannot accept the
7
T<M X X I I I , M a te r et M a g is tra , 2 0 ; V a tica n I I , Th e Church I n The M o d e m W o rld ,
in
67. 70.
" T h e E m p loym en t S it u a t io n : O ctob er 1 9 7 5 ; U .S. D ep a rtm en t o f L a b or, B u rea u o f
L abor S ta tistics : N ovem ber 7, 1975.
• D epartm ent o f L n b or figures fo r O ctob er 1975 in d ic a t e :
One o ’^t o f five teenagers w ere iobless.
Over 1 1 % o f all bine co lla r -workers w ere o u t o f w ork ,
1 4 .2 % o f nil m in ority persons w ere rmemnlovert.
N early 4 0 % o f all m in ority teenagers w ere .ioWess.
134 o f our 150 m a jor urban areas w ere officia lly listed as areas o f su b sta n tia l subem ­
ploym ent.




149
notion that some will have jobs and income while others will be told to wait
a few years and to subsist on welfare in the interim. For work is more than
a way to earn a living. It represents a deep human need, desired not only for
income but also for the sense of worth which it provides the individual.
B. Inflation
14. There are those who insist that we must tolerate high levels of unemploy­
ment for some, in order to avoid ruinous inflation for all. Although we are
deeply concerned about inflation, we reject such a policy as not grounded in
justice. In recent years, our country has experienced very high levels of in­
flation. During this past year, there has been some reduction in inflation, but
there are already signs of its renewal, spurred by large increases in food and
fuel prices.
15. Inflation weakens the economic stability o f our society and erodes the
economic security of our citizens. Its impact is most severe on those who live
on fixed incomes and the very poor. The double distress of inflation and reces­
sion has led to a painful decline in real income for large numbers of people
in recent years. Clearly, steps must be taken to limit inflation and its impact.
16. However, low unemployment and high inflation are not inevitable part­
ners, as history and the experience of other industrialized countries bear ou t
Policy-inakers should seek and use measures to combat inflation which do not
rely upon high rates of joblessness. For many of our fellow citizens, the major
protection against inflation is a decent job at decent wages.
C . D istribu tion o f In com e and W ea lth

17. Within our country, vast disparities of income and wealth remain. The
richest 20% o f our people receive more income than the bottom 80% com­
bined. In the area of ownership, the disparities are even more apparent. The
top one-fifth of all families own more than three-fourths of all the privately
held wealth in the United States while over one-half of our families control
less than 7% of the wealth.
18. The distribution of income and wealth are important since they in­
fluence and even determine our society’s distribution of economic power. Cath­
olic social teaching has condemned gross inequality in the distribution of ma­
terial goods. Our country cannot continue to ignore this important measure
o f economic justice.
IV. POLICY DIRECTIONS

19. Fundamentally, our nation must provide jobs for those who can and
should work and a decent income for those who cannot. An effective national
commitment to full employment is needed to protect the basic human right to
useful employment for all Americans. It ought to guarantee, through ap­
propriate mechanisms, that no one seeking work would be denied an oppor­
tunity to earn a livelihood. Full employment is the foundation of a just eco­
nomic policy; it should not be sacrificed for other political and economic goals.
We would support sound and creative programs of public service employment
to relieve joblessness and to meet the vital social needs of our people (housing,
transportation, education, health care, recreation, etc.).
20. The burden and hardship of these difficult times must not fall most
heavily on the most vulnerable: the poor, the elderly, the unemployed, young
people and workers o f modest income. We support efforts to improve our un­
employment compensation system and to provide adequate assistance to the
victims of the recession. Efforts to eliminate or curtail needed services and
help must be strongly opposed.
21. We continue to support a decent income policy for those who are unable
to work because of sickness, age, disability or other good reason. Our present
welfare system should be reformed to serve our country and those in need
more effectively.
22. Renewed efforts are required to reform our economic life. We ask the
private and public sectors to join together to plan and provide better for our
future, to promote fairness in taxation to halt the destructive impact of in­
flation and to distribute more evenly the burdens and opportunities o f our
society. We also ask that consideration be given to a more efficacious use of
the land, the nation’s primary resource in order to provide gainful employ­
ment for more people. We should explore the impact of technology and en­
deavor to preserve the small family farm and other approaches to economic




150
life which provide substantial and productive employment for peopte*J } ** Jot
enough to point up the issues in our economy and to propose solutions to our
national problem? while accepting uncritically the presupposition o f an eco­
nomic system based in large part upon unlimited and unrestrained profit.
23. We pledge our best efforts in support of these goals. We call on local
parishes, dioceses, Catholic institutions and organizations to undertake edu­
cation and action programs on issues of economic justice. We renew our com­
mitment to assist the needy and victims of economic turmoil through programs
of financial assistance and active participation in the dialogue over the formu­
lation and implementation of just economic policies. We call on our people
to pray for our country in this, time of need and to participate in the difficult
decisions which can still fulfill the promise of our land,
24. Working together with renewed vision and commitment, our country has
the productive capacity and human and material resources to provide ade­
quately for the needs of our people. We take this opportunity to renew the
challenge of our fellow Bishops o f 45 years a g o:
“ Our country needs, now and permanently, such a change of heart as will,
intelligently and with determination, so organize and distribute our work and
wealth that no one need lack for any long time the security o f being able to
earn an adequate living for himself and for those dependent upon him.”
The Bishops of the United States,
Unemployment j 1930
Appendix
In adopting this resolution, the Bishops sought to link this effort to a major
statement issued in 1919 on similar matters. Entitled, “The Bishops' Program
For Social Reconstruction,” the statement called fo r : minimum wage legis­
lation; unemployment insurance and protection against sickness and old age;
minimum age limit for working children; legal enforcement of the right o f
labor to organize; a national employment service; public housing; and a long
term program of increasing wages.
It also urged: prevention of excessive profits and incomes through regula­
tion of public utilities and progressive taxes on inheritance, income, and ex­
cess profits; participation of labor in management; a wider distribution of
ownership through cooperative enterprises and worker ownership in the stock
o f corporations; and effective control of monopolies even by the method of
government competition if that should prove necessary.
Most of these proposals have been enacted. Partial progress has been made
toward others. The 1919 statement provides a historical framework for the
current resolution and evidences a long-standing concern for economic justice
on the part of the Catholic community in this country.

Mr. Hawkins. If we can assum that these policies are unneces­
e
sary from an economic point of view, then it certainly should remind
us that economic policies should not be formulated in a vacuum
'without human consideration.
Now let me, rather than deal with them, simply indicate that
studies made and presented in testimony before the Subcommittee on
Equal Opportunities indicated a very close correlation between un­
employment and mental illnesses, child abuse, suicides, and a host of
other problems, including crime; and I think we cannot just simply
ignore this in listening to som of the cries by individuals who neces­
e
sarily should be worried about inflation but who use this as the only
way of approach.
A lot of this rests on the trade-off theory. I know that the Con­
gressional Budget Office has been quoted by som of these individuals
e
and has been referred to this morning, but let me just read from
that report itself pertaining to H.R. 50 and S. 50.
The Congressional Budget Office, and I quote directly, said this:
Most economists would agree there’s some rate of unemployment both of
capital and labor below which significant inflation usually develops, but there




151

is considerable disagreement over the rate considered inflationary. In terms
of the labor market, most would place a critical level above 3 percent of the
labor force at the present time. However, most would also agree that measures
to reduce structural imbalances in the labor market to improve labor mobility,
to reduce frequent occurrences of unemployment among the unskilled and to
improve employability by training and elimination of discrimination would
lower the unemployment rate at which the labor market becomes tight. If such
measures were adopted and were effective, a noninflationary unemployment
rate would potentially be even lower than 3 percent.
I think that’s a very significant statement because it indicates the
Congressional Budget Office at least has indicated that there are
some things that can be done to offset the inflationary costs of in­
creasing wages or of lowering unemployment. Instead of looking in
that direction, it seems to m that we conclude that wage earners are
e
the culprit and that we cannot look in other directions.
Now certainly the bills under consideration do contain these other
measures and, in addition thereto, a list of anti-inflationary m
easures
or programs that can be used, and we never thought that simply by
considering one aspect, one economic aspect, that the problem oi in­
flation was going to be solved, and so the bill I think necessarily
includes these others. And I suggest that individuals should reaii
the other provisions of the bill.
Now it’s rather strange that those that talk greatest in many in­
stances about inflation, the fear of inflation, never stop to think
that by ending discrimination, for example, inflationary pressures
could be greatly reduced because by ending such discrimination
against minorities, women and young people we would increase pro­
duction and productivity, thereby increasing supply. Now it never
occurred to them, therefore, to speak out against discrimination or
to speak out against excessive interest rates which add to the cost
of production or to speak out against monopolistic practices or ad­
ministered prices or the other things that have been the chief causes
of inflation in this country over the last three decades. They confine
themselves to only one aspect of the problem.
Now I think that it would also be true, in speaking of inflation
versus unemployment, that this implies a complete support of the
tradeoff theory and I know very few noted econom
ists today who
support the tradeoff theory. Mr. Arthur Bums has discarded it and
has embraced full employment. He may prefer to bring it about in
a different manner from the authors of this bill, but at least he has
discarded the tradeoff theory; and so has Mr. Greenspan and so has
apparently the President himself, although his policies seem to con­
tinue based on the tradeoff theory, reading from his 19T5 Economic
Report on page 96. The President stated:

Despite considerable empirical work allowing for the role of farther variables
and lags, it has proved difficult to defend the claim of the long run PhUlips
tradeoff between inflation and unemployment.

S o I think it’s difficult fo r anyone to come before this or any other
com m ittee to defend the tradeoff theory juid to tell us that it’s neces­
sary to create unemployment to fight inflation and that we can’t
fight both o f them at the saime time.
I think, as we did before our committee, we should ask fo r the
evidence. W here is the evidence that excessive o r high levels o f em­
ploym ent have contributed to inflation over the past 30 years?




152
Where is the evidence that since 1969 this has been the cause of our
economic troubles? Who presents any evidence as to that? It’s simply
a blind allegiance, a continuation of present policies. ^
Now as Senator Humphrey has so well said, this is not a per se
public service employment bill. It’s a policy and planning bill. Cer­
tainly it would be politically unfeasible, costly and unnecessary to
create millions of jobs in the public sector. This is not, however, to
say that public service employment or public sector employment is
wrong. Certainly as long as w have a growing population, a dynamic
e
country, there will always be the necessity of adding individuals in
the public sector. But this bill is not addressed to that problem.
There are many other bills pending which I think we can use to
address the problem of public service employment, but this bill is
specifically designed to stimulate through the right type of fiscal and
monetary policies and other programs jobs in the private sector, and
I, for one, just can’t understand—I’m bewildered, shocked, and sur­
prised that there are persons in the private sector who cannot see
the importance of clarifying our economic policy today in a way
that’s going to help them the most and the rest of us hopefully
indirectly.
In this legislation, for example, we specifically authorize the use
of fiscal policies to stimulate employment, production, and balanced
growth. That m
eans basically in the private sector. I know they deal
a lot with regulations. The President has proposed an economic pro­
gram before the National Chamber of Commerce that deals both with
tax incentives and with the elimination of regulations. I don’t know
whether the President has read this bill and I don’t know whether
som of those who applauded him have read the bill, but the bill first
e
of all deals in a policy way with the question of the stimulation of the
private sector. It certainly does not prohibit—as a matter of fact, it
encourages tax incentives if that is the thing that should be used at any
particular time; not tax incentives, however, in the general sense. Ob­
viously, I think a tax incentive that ended up in creating jobs in a for­
eign country doesn’t help the Americans. It’s really not the type of tax
incentive that we’re talking about But we are talking about tax incen­
tives that do increase production and the employment of American
citizens.
The bill also deals specifically with the question of regulations and
I direct in this instance your attention to page 14 of the bill which
apparently has not been read by some of these sam individuals.
e
Hopefully it has been read by those who have advised the President,
but it says on page 14 of the bill that in carrying out this section
the President shall, in conjunction with the economics of each full
employment and balanced growth plan submit proposals for improv­
ing the efficiency and economy of the Federal Government, including
but not necessarily limited to a review of existing Government rules
and regulations to determine if they still serve a public purpose and
are properly designed and (2) an annual evaluation of 20 percent
of the dollar volume of existing Federal programs which are in
effect each year the submission to Congress of a formal analysis of
the econom and social impact and value of each program.
ic




153
Now that, of course, certainly lies well within the perspective of
eliminating wasteful programs, of providing economy, of doing
away with regulations, and throughout the bill w do everything
e
possible to say that this is a bill to stimulate the private sector.
Second, the legislative intent as expressed in these hearings by the
authors of these bills indicate that that is the intent of the authors
of the bill, and if it isn’t as clear as it should be in som of the lan­
e
guage in the bill it certainly has been backed up time after time
with certainly these hearings.
Now in addition to that, the second tier of programs in the bill
constitute supplementary programs and these too are geared to the
private sector. It simply mentions that if w cannot through mone­
e
tary and fiscal policis close the gap, that we do outline a series of
supplementary programs—the comprehensive youth program, the
countercyclical aid to State and local governments, structural pro­
grams to reach the structural defects in the economy and so on. But
these, too, are geared to the private sector. They are not public service
programs. They are geared to the private sector and only as a last
resort, at the tail end of the bill when w speak of the residual pro­
e
grams for those who, through all the channels of this bill, all the
conventional channels in the economy have not been able to find a
job, do we again talk about a reservoir of public projects, but these
too are not Federal jobs. They are jobs that will be at the State and
local level and at nonprofit institutions. So this is a final area of
last resort in the bill.
Now no one could possibly, reading this bill, therefore go to the
tail end of the bill, pick up the little programs that have to do with
the residual aspects of our economy and make this the principal part
of the bill. To do so is a disservice both to the private sector and to
public service employment.
Now I think that it should also be thoroughly understood that
there are those that, having read the bill, are perhaps deliberately
creating false impressions as to the bill and I don’t know what the
purpose could be m this particular instance because certainly it seem
s
to me that it is an incorrect reading of the bill, by any stretch of
the imagination, to say that it would be inflationary or that it would
be excessively costly. There’s no evidence to that.
Now I know that som reference has been made to prevailing
e
rates of pay and to the wage provisions of the bill, but I call your
attention again to the bill and what the bill says about this.
The bill on page 49 outlines specific areas in which prevailing rates
of pay will operate. It will operate only in the case of employers
which are State political subdivisions, local and educational agencies,
and so forth, and in the case of employers which are nonprofit pri­
vate organizations or institutions. These are very limited areas.
Even in these limited areas, prevailing rates of pay will be paid
only in the instance where the same employer is involved, which
simply means where an employer employs a diverse group of emloyees that he must pay all on the same basis. There shall be no
iscrimination against those who may be employed under any pro­
vision in this bill or Any other provision. Thefe shall be no discrim­
ination of | e > s doiiig the same work.
> r& n

S




154
Now that’s all that this section relates to and I can’t see how any­
one could possibly say that one individual doing exactly the same
work as another individual should be paid a different wage rate, and
that’s the only protection that’s involved in the bill in this instance*
Mr. Chairman, I just think that there are those who without think*
ing, I think sometimes who pick up their information from news­
papers or from som source that is suspect, who just simply conclude
e
that som things are wrong and, having locked themselves in, they
e
are not willing to admit they made mistakes.
Now one of the great objections—and this is the last point that
I’d like to m
ake—in connection with this bill has been the question
of planning and particularly if you say centralized planning, that’s
supposed to just, wreck completely any discussion of the subject.
Now planning is not a strange word to Americans and the only plan­
ning that we are talking about in this bill is Government planning
of its own, not planning for the private sector. There’s nothing in this
bill that provides the Government is going to do the planning or is
going to dictate or allocate resources or tell the private sector what
to do. This is planning by the Government.
Now who in the devil can object to that? Who can object to high­
way planning, to planning of our energy resources of the future?
We have always done it. Why shouldn’t we continue to do it and
what’s wrong with it? What is wrong with the idea that somehow
w
e’re going to say the .next year, the next 5 years, we are going to
plan the economy in such a way at the Federal level in order to avoid
certain difficulties? The Federal budget is planning. That’s what the
Federal budget is and that’s what the President when he submitted
his budget to us told us it was. He said it’s a road map of where
w
e’re going to get from here to there. How in the devil can you get
from here to there without some planning? That’s all it is.
Now as to whether it should be centralized, where else except in
Washington is the Federal complex going to operate? Do they prefer
that it be in som elite country club or over at some corporate retreat
e
oa the Atlantic coastline? I certainly am sure they don’t mean that
it’s going to be in the longshoremen’s hall out in San Francisoo.
That planning has to be done here in Washington under our demo­
cratic processes and I’m sick and tired of those individuals who some­
how assum that the elected public officials of the people in our
e
representative democracy are not speaking for those people and
that som
ehow there’s something wrong that w meet at a central
e
point and make decisions.
I think this is where the decision should be made. They should
be made by the elected officials, but they should certainly be made in
consonant with all sections of the Nation and in consonance with the
President, Certainly one pf the points that I would like to suggest is
that those in the business community—and I know a lot of us have
had som experience in that community—readdress themselves to the
e
real implications of this. We are not going to get tax incentives and
we are not going to get a reduction in regulations unless the Chief
Executive and the Congress get together. The President cannot ad­
dress himself to a group of business people and promise them any tax
incentives. It’s going to have to be done under some formal, coherent




155
fashion in the legislative process and we cannot do it unless we have
the rare privilege of being able to amount to two-thirds vote, which
is impractical in the near future, as a Congress.

So it simply means that w m have som coordination betw
e ust
e
een
the Chief Executive and the legislative branch, but it must be under
specific goals. It must be within a policy in which there’s going to
be some give and som take. This idea that any one of us. any seg­
e
ment of the community, is going to advance at the expense of another
has too long prevailed and I think that type of approach has to stop.
I think this is. as Senator Humphrey has said, not a bill which is
ideal. I certainly have som objections to provisions in it myself, but
e
I think that it’s a vehicle that w can use and I think we’d better
e
use it because som of the testimony by Mr. Greenspan and others
e
before the subcommittee which I’ve read was that w cannot with­
e
stand another recession and that is exactly what w are headed for
e
in the next several years unless w begin to change current econom
e
ic
policies.
I think w should address ourselves to how these policies artf
e
formulated and how they are implemented. I say that the democratic
process has offered to us the best opportunity it seem to m to use
s
e
the vehicle before us, to address the problems that the chairman has
raised this morning, to have them answered, and I think that we
can answer them but I think it would be a mistake to just simply
and blindly follow the current econom policies into another reces­
ic
sion. These policies have given us five recessions since 1953. Certainly
they have given us more than $3 trillion loss in goods and services
that the American people have not enjoyed, a great loss in revenues,
social and psychological impact of these policies prove to be devastat­
ing on all of us, and I think the social tensions that they can breed
have not vet been fully felt and that another recession would cer­
tainly bring some of these problems to the surface.
I think this is an opportunity. It’s a challenge. And I think that
in submitting to you S. 50 and H.R. 50 w provide you with the op­
e
portunity of helping America, and that’s the way I look at it.
[Complete statement follows:]
State m e n t

op

A

ugustus

F . H a w k i n s , R e p r e s e n t a t iv e
S t a t e o p C a l if o r n ia

in

C ongress

from

the

The “ Full Employment and Balanced Growth Act” addresses one of the great
moral tragedies of current economic policies: The deliberate creation and
countenance of high levels of unemployment.
The physical, social, and psychological impact of the waste is beyond calcu­
lation. It should remind us, however, that economic policies should not be
formulated in a vacuum devoid of human considerations. Even if they were
approved by every economists in this country, which is far from the truth,
they would be socially undesirable and morally wrong. In addition they ignore
the law by which we have sought to establish an overall economic policy to
guide us.
The Employment Act of 1946 mandated “ Maximum Employment, Production,
and Purchasing Power*’ as an overall national economic policy” . . . with the
requirement to provide “ useful employment opportunities for all those able,
willing and seeking work” .
Our failure to pursue consistently this economic goal has produced five
recessions since 1953 and the forfeiture of over $3 trillion in total national
production, over $1.5 trillion in wages and salaries, and over $800 billion in
revenues.

73*365 0 - 76 - 1
1




156

Current misguided economic policies are based not on the 1040 law but on
the belief that (1) high unemployment is needed to contain inflation (the
trade-off theory), and (2) that excessive Federal spending is a primary cause
of our economic troubles.
Empirical evidence disproves the trade-off theory* For example, between
1909 and 1975 rising prices have accompanied high unemployment.
During the Eisenhower Administration when we experienced three reces­
sions, unemployment rose from 3.5% to 8.5% and the inflation rate from
0.5% to 1.2% with a budget deficit and a highly restrained economic growth
rate (2.4%) which solved neither the unemployment problem for inflation.
This would seem to support Arthur Burns who in a recent speech stated:
“ Whatever may have been true in the past, there is no longer a meaningful
trade-off between unemployment and inflation.’’
And even President Ford seems convinced. In his 1975 economic report
(page 96) he stated:
“D e s p ite c o n sid e r a b le e m p ir ic a l w o r k a llo w in g f o r t h e r o le o f f u r t h e r va ri­
a b le s a n d o f la g s , i t h a s p r o v e d d ifficu lt to d e fe n d t h e c la im o f a long-run
P h illip s tr a d e o ff b e tw e e n in fla tio n a n d u n e m p lo y m e n t.”

Still influential voices are raised against lowering unemployment, and in
opposition to just wage demands. This view was best expressed by “ Business
Week ’ in 1952 in the following w ords: “ There’s no assurance against inflation
like a pool of genuine unemployment.”
Likewise the basis on which current Federal budget cuts are predicated is
patently false, namely, that we are spending too much a share of the Nation’s
resources, thereby creating deficits, and increasing the cost of money.
The facts are: Federal expenditures as a per cent of total national produc­
tion has increased from 20% in 1953 to 21.8 in 1976. This is a negligible change
in view of the current deficiency in national production. Under full employ­
ment and production, the percentage would decline to 20.43% (estimated).
But why are we spending excessively on certain items such as unemploy­
ment compensation, welfare, food stamps, and medicare? Precisely, because
of unemployment and inflation caused by current misguided policies.
Unemployment compensation expenditures have increased from $4.2 billion
in 1973 to almost $20 billion in 1976 with very minimal opposition from any­
one.
Welfare recipients have not been as well received. Despite tighter regulations
and constant condemnations welfare payments have increased over 20 percent
in the last two years.
More specifically on the cost of “ Full Employment and Balanced Growth” ,
I have attached to my statement the estimate which we have prepared from
subcommittee (Subcommittee on Equal Opportunities, House Education and
Labor Committee) testimony.
Using average annual rough estimates of implementing programs over the
four year period implied in HR 50/S50 in terms of budget outlays ($29 billion)
and anticipated revenues from GNP benefits ($36 billion) a net gain is derived.
Critics have attempted to confuse the theory of “cost” by ignoring the con­
cept of benefits. Thus, a dynamic economy would appear to cost more than a
static one.
Certainly eighty million employed persons cost more than forty million. It
cost more for TWA to operate its planes filled with passengers than having
them sit on the ground.
Again, the critics of HR 50/ S 50 have deliberately failsified its provisions
as requiring millions of unproductive, make-work public jobs. “ I f eight million
persons were to be paid $7,500 each annually to paint oil paintings and per­
form Swan Lake” they would say, “ Where would we get the money to pay
them?”




157
The “ Full Employment and Balanced Growth Act*’ is basically a policy and
planning hill, not strictly an employment bill. Its main reliance is on stimu­
lating jobs in the private sector through positive monetary and fiscal policies
and only secondarily by supplementary programs, such as counter-cyclical aid,
youth employment, and structural reforms.
Anyone who has read the bill would clearly understand this.
Section 102 declares the policy of fostering and promoting free competitive
enterprise.
Section 201 indicates that supplementary employment policies are designed
“ to close the employment gap, if one should exist.”
Section 206 places certain responsibilities on the secretary of labor to use
all existing and conventional channels in providing job opportunities before
utilizing residual “ reservoirs of federally operated public employment projects
and private nonprofit employment projects’. Even then criteria must be estab­
lished to insure real need and limited access to the program.
It is unfortunate that some well-intentioned representatives o f the private
sector have been misled over the issues of tax incentives and more rational
regulations in business operations as if full employment was in conflict with
such ideas. Inducements to full production and employment lie at the very
heart of the specific goals set in the legislation, assuming, of course, such
inducements are not give aways or injuries to the public.
From a practical point of view, the pending proposals constitute the surest
way of achieving meaningful success. The President cannot without Congress
deliver such inducements. And only rarely can the Congress have its way
without the cooperation of the executive branch.
The word ‘‘Planning” seems also to disturb some people, especially if de­
scribed as “centralized” . Planning in the existing proposal relates to the Gov­
ernment in its operation and in no way suggests planning for or dictating to
the private sector.
Planning is not new. The Employment Act of 1946 clearly created planning
machinery. The Federal budget involves planning. President Ford in his budget
message to Congress in January stated it well when he said: "The Budget . . .
is a good roadmap of where we have been, where we are now, and where we
should be going as a people.”
As to whether it should be centralized in Washington, the issue was de­
termined by our founding fathers who decided on a representative democracy
in which the people govern themselves through elected Representativs.
Who else then except elected officials and where else except at the seat of
government should economic policies be formulated and implemented.
S 50 is thus deeply rooted in the constitutional processes. Building on the
Employment Act of 1946, it stresses accountability by making officials re­
sponsible for observing and implementing the law. It clarifies the goals we
seek. It provides for the formulation of policies through duly constituted
public channels. It stresses cooperation with all sections of the economy—and
between the Congress, the President, and the Feedral Reserve Board. And,
finally, it provides for coordination of our diverse national purposes with an
overall economic policy.

The C h a ir m a n . Well, thank both of you gentlemen very much for
two excellent statements and for a real challenge.
Senator H u m p h r e y . Mr. Chairman, might I ask permission to
have included following my testimony—and I understand that the
full text of my testimony as prepared will be printed----The C h a ir m a n . That*s correct.
Senator H u m p h r e y . A number of items that I brought along
with me which staff will provide for you. I call your attention in




158
particular to a letter from Dr. Eli Ginsberg, chairman of the National
Commission on Manpower Policy and, secondty, the Congressional
Budget O
ffice Study which w are releasing today. I thank you very
e
much.
[The material referred to follows:]
Ax

E c o n o m ic A n a l y s i s o f t h e F u l l E m p l o y m e n t a n d
B a l a n c e d G r o w t h A ct of

1976

PREFACE

This study, “An Economic Analysis of the Full Employment and Balanced
Growth Act of 1976,” was initiated at the request of the Joint Economic Com­
mittee. It was prepared by Nancy S. Barrett and Michael S. Owen of the
Congressional Budget Office’s Fiscal Analysis Division.
A l i c e M. R i v l i n ,
Director.
SUM MARY

S.50,
the Full Employment and Balanced Growth Act of 1976, establishes a
goal of 3 percent adult unemployment to be achieved within 4 years and out­
lines a set of organizational structures and an administrative process designed
to improve coordination of economic policy at the national level. While it
mandates the use of certain types of programs to achieve the full-employment
goal, it does not directly establish specific employment programs.
Both the economic impact and future budget costs of S.50 will depend on a
number of different factors:
The underlying strength of private demands in the economy that determines
how much unemployment there would have been without passage of S.50;
The particular policy mix selected to reduce unemployment to the 3 percent
range;
The definition of “ adult unemployment” : If “adult” is defined as non-teenage,
the 3 percent target for adults translates to around 4 percent for overall unemplyoment; if “adult" is defined as persons 18 years and older, it translates
to around 3.5 percent overall unemployment.
When these factors are taken into account, this study concludes that enact­
ment of S.50 could result in lower unemployment, but at the risk of substan­
tially higher inflation, particularly if the 3 percent target is viewed as a shortrange goal and if teenagers are included in the definition of adult. A set of
simulations by CBO shows that reaching a 3.5 percent overall unemployment
rate instead of 5.0 percent by 1980 might add roughly 2 percentage points to
the inflation rate by 1982. In the long run, on the other hand, it is possible
that careful development of employment programs targeted at pockets of high
structural unemployment could reduce these inflationary risks. Training pro­
grams, if successful, could shift workers from situations of labor surplus to
those of labor shortage. Further, vigorous pursuit of anti-inflation measures
might increase the feasibility of achieving a 3 percent unemployment goal in
a non-inflationary environment.
Budget costs will also vary widely, depending on the state of the economy
and the policy mix adopted under S. 50. This report provides estimates of the
cost of public employment programs under certain hypothetical economic as­
sumptions. They range from $16 billion to $44 billion, depending on what is
assumed about the definition of adult and the amount of displacement from
other employment. If public employment programs attract previously-employed
persons from low-paying jobs in the private sector or if state and local govern­
ments use public employment funds to hire workers they may have employed
anyway, net employment is not increased by the full number of new public
jobs. Xet budget costs of a $16 to $44 billion program would be less as a result
of lower unemployment insurance payments and higher tax receipts. They
might range from $7.0 billion to $19.9 billion after a year of operation. It
should be stressed, however, that these estimates are merely an illustration




159
o f one possible set o f budgetary implications for S.50. Under different eco­
nomic conditions and using a different policy mix than those shown, budget
costs could vary widely.
S.
50 provides a limited job guarantee provision whereby the government
would stand ready as employer of last resort to provide jobs at prevailing
wages when adult unemployment exceeds 3 percent. The section mandates
wage standards for the job guarantee program, standards which add to the
inflationary impact of the bill. Higher wages, on the other hand, may have
other benefits as an income maintenance device and a way to draw more
attentian to improving pay and working conditions in low-level private sector
jobs.
S.50,
the Full Employment and Balanced Growth Act of 1976, has several
major aspects:
Establishment of a goal of 3 percent adult unemployment to be reached as
promptly as possible, but within not more than 4 years after the date of enact­
ment of the Act.
Recognition that achieving a 3 percent unemployment goal will require a
mix of both aggregate demand policies and more selective targeted measures.
Recommendation that full employment policies be accompanied by anti­
inflation measures.
Extension of the organizational structures established in the Employment
Act of 1946 and the Congressional Budget Reform Act of 1974 to establish an
institutional framework whereby the President, the Federal Reserve Board,
and Congress can coordinate national economic policy to achieve the goals set
forth in the Act.
An economic analysis of S.50 should deal with its probable impact on the
economy and an estimate of its budgetary costs. However, while the bill speci­
fies a full-employment goal and an administrative process, and mandates the
creation of certain types of programs, it does not directly establish specific
programs. Both the economic impact and the budget cost will differ greatly
depending on which measures are selected to achieve the full-employment goal.
Some job-creating measures are likely to have a greater inflationary impact
than others. Further, anti-inflation policies recommended in the bill may vary
consistently in effectiveness depending on which measures are chosen and
how rigorously they are pursued. Regional, inter-industry, and demographic
impacts will also vary with program design. Budget costs are also highly un­
certain, since the cost per job of alternative measures to stimulate employment
varies greatly. At best, an economic analysis can provide an illustration o f
the effect of some measures that might be enacted to achieve the full employ­
ment goal and programmatic mandates o f S.50.
Even this illustrative analysis, however, requires answers to three prelim­
inary questions: First, what does the goal of 3 percent adult unemployment
mean, in terms o f who is classified as “adult” ? Second, what is the starting
point for measuring the effects and costs of S.50; that is, is it to be viewed
as an anti-recession bill designed to reduce unemployment from its current
level of 7.5 percent, or should that short-run reduction be thought of as
something the economy will probably achieve in any case and S.50 viewed as
a program to lower the long-term average unemployment rate from around
5 percent to near 3 percent? Finally, what mix of tools might be used to achieve
the full employment goal?
Considerations in Defining the Unemployment Goal
The requirements for reaching the goal of 3 percent unemployment depend,
o f course, on who is classified as an adult. A useful rule of thumb in this
regard is that since the mid-1960s the unemployment rate for all workers aged
16 and over has been roughly one percentage point above the unemployment
rate for those 20 and over and 0.5 percentage points above those 18 and over.1
Table 1 contains more precise comparisons on a yearly basis. Although demo­
graphic factors in the future could reduce this differential, projections by the
Urban Institute indicate that this approximate spread will persist through
the next decade. Thus, if we speak of 3 percent non-teenage unemployment we
are referring to an approximate 4 percent overall rate. Similarly, a 3 percent
unemployment rate for persons 18 and over implies about a 3.5 percent overall
rate.
1 T hfs means 16 and 17 year olds account fo r about h a lf the total o f teenage unem­
ploym ent.




160
TABLE I.—UNEMPLOYMENT RATES FOR ALL PERSONS 16 AND OVER COMPARED WITH UNEMPLOYMENT RATES
FOR PERSONS 18 AND OVER AND 20 AND OVER

(1)
Year

(2)

(3)

Unemployment
rate, 16+

Unemployment
rate, 18+

Unemployment
rate, 20+

<l)-<2)

0 )-< 3 )

5.3
3.3
3.0
2.9
5.5
4.4
4.1
4.3
6.8
5.5
5.5
6.7
5.5
5.7
5.2
4.5
3.8
3.8
3,6
3.5
4.9
5.9
5.6
4.9
5.6
8.5

5.1
3.1
2.8
2.7
5.3
4.2
3.9
4.0
6.5
5.2
5.2
6,4
5.2
5.2
4.7
4.1
3.4
3.5
3.2
3.1
4.5
5.4
5.1
4.3
5.0
7,9

4.8
3.0
2.7
2.6
5.1
3.9
3.7
3.8
6.2
4.8
4.8
5.9
4.9
4.8
4.3
3.6
2.9
3.0
2.7
2,7
4.0
4.9
4.5
3.8
4.5
7.3

0.2
.2
.2
.2
.2
,2
.2
.3
,3
.3
.3
.3
.3
.5
.5
.4
.4
.3
.4
.4
.4
.5
.5
.6
.6
.6

0.5
.3
.3
.3
.4
.5
.4
.5
.6
.7
.7
.8
.6
,9
.9
.9
.9
.8
.9
.8
.9
1.0
1.1
1.1
1.1
1.2

1950.......................
_____
1951________ _______ ____
1952.......... ........... .
.....
1953_______ ________
1954________________
1955________________
1956.................... ........
1957________________
1958________________
1959...................... .
I960...._____ _______
1961.............................
1962________________
1963________________
1964.......... ........... .
1965________________
1966________________
1967..............................
1968.— ......... ...........
1969________________
1970....................... .
1971..........................
1972.............................
1973____________ _
1974________________
1975.................... .

(4)

(5)

Source: Bureau of Labor Statistics.
Note.—Column (1) is the unemployment rate for the civilian labor force for all persons 16 and over. Column (2) is the
unemployment rate for the civilian labor force for all persons 18 and over. Column (3) is the unemployment rate for the
civilian labor force excluding teenagers, that is, persons 16 to 19,

Baseline for Evaluating Employment Policy in S.50
In determining the starting point for reducing unemployment in S.50, it is
useful to separate the intentions o f the bill into two aspects. In part, S.50
is designed to coordinate and ensure a vigorous recovery from the current
recession. In part, it is designed to improve on past performance and perma­
nently bring adult unemployment close to 3 percent.
It is important to bear in mind that the economy is beginning a recovery
from its deepest postwar recession. Even though there has been substantial
growth in the economy beginning in the second half of 1975, unemployment
is still 7.5 percent. Projections of economic growth based on current economic
policies put unemployment in the 6.4 to 6.9 percent range by the end of 1977.2
Further, a sustained 5 percent average annual real rate o f growth beyond
1977 would not push unemployment below 5 percent until about 1981. Achieving
3 percent adult unemployment without any special jobs programs would re­
quire much more rapid growth over the next four years—sustained annual
growth rates in the 7 percent range. Alternatively, countercyclical employment
programs such as public employment, incentives to the private sector, tempo­
rary assistance to state and local governments, and accelerated public works
could absorb some of the unemployment, reducing the unemployment rate
associated with any rate of real output growth.
If it is viewed primarily as a long-range program for maintaining full em­
ployment, the costs of recovering from the current deep recession should not
be attributed to S.50. Viewed in this way, the role of S.50 is to improve the
long-range average behavior of unemployment. Unemployment since 1960 has
averaged 5.2 percent. Some of this unemployment has resulted from the econ­
omy operating at less than full capacity in recession periods; some is due to
longer-run factors. Based on this historical benchmark, the 3 percent adult
unemployment target (or 3.5 to 4 percent overall) of S.50 can be evaluated
8 C ongressional B ud get Office, Budfjet Options f o r F isc a l Y ear 197 7 : A R ep ort to the
Senate and House C om m ittee* on the B udg et, M arch 15, 1976, p. 20.




161
relative to a 5.2 overall rate of unemployment rather than the present 7.5
percent.
Given the many unpredictable events that befall modern economies—ex­
ternal price fluctuations, wars, changes in trade relationships, and the like—
together with the many internal instabilities in our complex economic system,
some cyclical activity is likely to occur. The role of the administrative mech­
anisms outlined in S.50 is to improve coordination of economic policy and
reduce instability as well as provide special employment programs. Its in­
tended result is to reduce the historical gap between actual unemployment and
the full-employment goal. However, even with improved coordination of fiscal
and monetary policy, some cyclical unemployment is still likely to occur.
This paper will focus on the second, or long-range aspect of S.50. Viewed in
this way, the policies and costs attributable to S.50 require (on the average)
less additional stimulus to the economy and entail lower budget costs than
would the entire job of bringing unemployment from its present 7.5 percent
to 3.5 to 4 percent.
Alternative Policy Options
S.50 outlines a number of policy measures that might be implemented to
achieve the full-employment target. Standard fiscal and monetary measures
might be supplemented by special job-creating policies like public service em­
ployment, accelerated public works, grants to state and local governments, and
special tax incentives to business. A number of anti-inflation measures are
also described. Further, there is a provision of a limited job guarantee for
persons able and willing to work and seeking work.
Special employment programs are to be enacted to the extent that fiscal
and monetary policies are unable to achieve the 3 percent adult employment
target. Presumably what this means is that supplementary measures are to
be used if the inflationary pressures or budget costs associated with using
standard fiscal and monetary policy to achieve the unemployment target be­
come unacceptably high. Further, certain demographic groups, regions, and
industries may experience high unemployment rates even when the overall
unemployment rate is in the target range, and special targeted programs might
be sought to alleviate these special unemployment problems.
The choice of employment programs also depends on the underlying causes
o f unemployment. Across-the-board measures are generally not considered to
be the best remedies for unemployment that results from lack of skills, job
dissatisfaction, regional problems, or special industry dislocations. Increasing
aggregate demand to reduce these types o f unemployment in relatively tight
labor markets will be more inflationary than targeted programs. However, in
practice, it is not always possible to distinguish cyclical unemployment (that
due to inadequate aggregate demand) from the longer-run varities.
Cyclical Unemployment.—Cyclical unemployment occurs as a result of the
economy operating below capacity. This condition can be eliminated by ex­
pansionary aggregate demand policies— tax cuts, across-the-board increases
in spending, and expansionary monetary policy. However, as the economy moves
toward capacity, inflation typically begins to pick up. This means that one’s
view o f whether or not the economy is at or below capacity, and hence, how
much o f the prevailing unemployment should be characterized as cyclical,
depends on liow much added inflation one is willing to accept (or reduce by
direct price controls or other anti-inflation measures) in exchange for a given
reduction in unemployment.
Historical evidence alone cannot provide a definitive answer to the question
o f how far fiscal and monetary policy can bring the economy toward a fullemployment goal before inflation picks up substantially. While it is not always
true that unemployment and inflation go in opposite directions— the last few
years have demonstrated that they can sometimes go up together—failing
unemployment has been associated with rising inflation for most of the last
three decades. This is shown in Chart 1. The periods in which the “ tradeoff”
appears not to exist were often characterized by special factors, such as direct
wage and price controls and government materials allocation in 1951-52 when
low rates o f inflation were associated with failing unemployment, and large
increases in food and energy prices in 1973-74 when high rates of inflation
occurred simultaneously with rising unemployment. Because we are currently
experiencing a legacy o f inflationary expectations that has followed in the




162

wake of recent high rates of inflation, it is extremely difficult to predict how
much added inflation would be associated with any expansionary fiscal and
monetary policy strategies adopted today.
CHART 1
UNEMPLOYMENT AND INFLATION

1950-1978

PERCENT

SOURCE:

Bureau o f

Labor

S tatistics.

NOTE:
I n f l a t i o n i s m e a s u r e d by t h e p e r c e n t
c h a n g e f r o m two q u a r t e r s e a r l i e r i n t h e C o n ­
sumer P r i c e I n d e x , e x p r e s s e d a t an a n n u a l r a t e .




163
While projections of the potential inflationary impact of achieving various
unemployment targets are highly uncertain, simulation models can provide
evidence of past relationships between prices and unemployment. Projecting
these into the future is one way to gauge the magnitude of the inflationemployment tradeoff, although this technique is, of course, subject to error.
One set of simulations by CBO3 shows that if .expansionary aggregate de­
mand measures were enacted in 1976: III (the third quarter of calendar year
1976) to achieve various unemployment targets by 1980, reducing unemploy­
ment by 0.5 percentage points (below 5 percent) would add roughly 0.3 to 0.4
percentage points to the Consumer Price Index (CPI) by 1980 and 0.5 to 0.7
by 1982. That is, if inflation were 5 percent per year in a 5 percent unemploy­
ment economy, it would be 5.5 to 5.7 percent two years after reaching a 4.5
percent unemployment economy, and roughly 7 percent per year two years
after reaching a 3.5 percent unemployment economy. The details of the simu­
lations are shown in Table 2. If this tradeoff exists, whether or not one is
willing to exchange more jobs for higher prices at these rates is still a matter
o f values. Further, various anti-inflation measures as outlined in S.50 could
conceivably improve price performance as the economy expands towards full
employment.
TABLE 2.—PROJECTIONS OF ADDED INFLATION FOR DIFFERENT UNEMPLOYMENT TARGETS
Unemployment target for 1890 (percent)
Addition to CPI in 1980 (in percentage points relative to the 5 pet
unemployment target)______________________________________
Addition to CPI in 1982 (in percentage points relative to the 5 pet
_______
unemployment target)___________ ________ _______

5.0

4.5

4.0

3,5

0

0.3-0.4

0.8-0.9

1.1-1.4

1.6-1.9

0

.5 - .7

1.1-1. 5

1.7-2.3

2.4-3. 3

3.0

Source: U.S. Congress, Congressional Budget Office, "A Simplified Wage-Price Model," September 1975.

For purposes of illustration only, we will define unemployment above 4.0
percent as cyclical and the rest noncyclical; that is, based on longer-run
factors.4 Thus, of the 5.2 percent average unemployment over the 1960-75
period, about 1.2 percentage points will be attributed to the economy operating
below potential and the other 4 percentage points to longer-run factors.® If
a higher definition of cyclical unemployment had been used, say 5.0 percent,
then less of the past unemployment would be attributed to the economy oper­
ating below potential (in this case only 0L2 percentage points on the average)
and more to longer-run factors.
Standard fiscal and monetary measures are one way to reduce cyclical un­
employment. In addition, special countercyclical measures such as public serv­
ice employment, special tax incentives to private industry, accelerated public
work, and special assistance to state and local governments can also be used on
a temporary basis either to provide jobs directly to the cyclically unemployed
(as in public employment and public works), or to provide special incentives
to private industry and state and local governments to employ more people
than they would have anyway. A recent study by CBO of temporary measures
to stimulate employment,6 concluded that selective measures can potentially
have a higher employment impact per dollar spent than across-the-board fiscal
policy. Further, in some cases, the potential inflation impact per job is less
than for standard fiscal and monetary policy, suggesting that using selective
measures can improve the inflation-unemployment tradeoff.
3 T h e sim u la tio n s a re based on a tw o-eq u a tion w a g e-p rice m odel in w h ich there is a
la g g e d m utual in terd ep en d en ce betw een w ages an d p r i c e s ; p rice ch an ges depend in part
on w a g e ch a n ges and w age ch an ges depend in p a rt on cu rre n t and p ast p rice changes. A
t e ch n ic a l p a p er d escrib in g the m odel in d eta il is a va ila b le fr o m the F isca l A nalysis D iv i­
sion , C on g ression a l B u d g et Office.
*
T h e d is tin c tio n is m ade to a llo w an e stim a te o f th e num ber o f jo b s th a t w ou ld be
re q u ired fo r v a rio u s em p loy m en t p rog ra m s u n d er S. 50. I t Is n o t an a tte m p t to prejudge
th e d esired in fla tion -u n em p loy m en t tra d eoff.
5 T h is d is tin c tio n betw een c y c lic a l and n o n cy c lica l u n em p loym en t m eans th a t whenever
u n e m p lo y m e n t exceed s 4 p ercen t, b oth kinds o f u n em p loym en t o c c u r sim ultaneously, sug­
g e s t in g th a t b o th c o u n te r c y c lic a l a n d s tr u ctu ra l p rog ra m s need to be develop ed in tandem .
6 U .S . C on gress, C on g ression a l B u d get Office, Te m p o ra ry M easures to S tim u la te E m ­
p lo y m e n t: A n E v a lu a tio n o f Some A lte rn a tiv e s , S eptem b er 2, 1975.




164
Table 3 shows estimates o f the employment impact and net budget cost
(taking into account sayings from unemployment compensation and higher
tax payments for alternative temporary employment programs).7 InitiaUy,
there is a fairly wide variation in cost-per-job, although these differences tend
to narrow after a year or two of program operation. Public employment has a
lower cost-per-job than other measures, although more costly programs have
other benefits reflected in the value of their output After a year of operation,
for instance* accelerated public works may cost about one and a half to twice
as much per job as public employment. But across-the-board tax cuts could
entail a cost of from three to four times that of public employment.
Table 4 provides in summary form some of the considerations discussed in
Temporary Measures to Stimulate Employment in making comparisons between
programs. While such special measures to stimulate employment may be less
costly and potentially less inflationary in the short run, aggregate demand
policies are sometimes viewed as a more neutral way to stimulate economic
growth and employment and are also sometimes thought to be more effective
ways to create jobs in the long run than selective measures. In addition, as
compared to aggregate demand programs, targeted programs may be difficult
to implement and imprecise or untimely in their impact.
7 A d etailed ex p la n a tion o f th e a ssu m p tion s behind these estim ates can be fo u n d In
Tem porary M easures to S tim u la te E m p lo y m e n t; cited in fo o t n o t e 6 o f th is paper.




T B E 3.—E IM T S O E P O M N A D B D E IM C O V R U P O R M C S IN $ B L N1
AL
ST A E F M L Y E T N U G T PA T F A IO S R G A S O T G 1 IL IO
12 mo

Initial impact
Type of program

Public service employment..............
Anti-recession aid to State and local
governments..................... .....
Accelerated public works................
Tax cut*....... ..........................
Government purchases..... .............

Reduction in
unemploy­
ment rate

Net budget
cost
(in millions)

Increase in
Jobs
(in thousands)

Reduction in
unemploy­
ment rate

Net budget
cost
(in millions)

Increase in
jobs
(in thousands)

80-125

0.07-0.11

$754-$615

90-145

0.08-0.13

$492—
$425

90-150

850-716
915-793
980-960
948-870

70-97
56-70
26-35
40-70

.07- .09
.06- .07
.02- .03
.03-.05

590-570
537-510
740-720
600-590

72-100
64-30
30-40
60-80

40-77
16-46
8-15
20-50

.04- .07
.02-.04
.01- .02
.02- .04

1 Thete estimates assume no monetary accommodation. II the money supply were increased to
prevent interests rates from rising as a result of the expansionary fiscal measure, the Job-creating
effect would be higher and the net deficit cost lower. Accommodating monetary policy would increase
the expansionary effect by 25 percent or more which in turn, would reduce the budget cost by an
wense of about $125 million.
* The income tax cut is assumed to be one-third corporate and two-thirds personal. If the tax cut




24 mo

Increase in
jobs
(in thousands)

Reduction in
unemploy­
ment rate
0.08-0.13
.07.07.02.04-

.09
. 08
.03
.05

Net budget
cost
(in millions
$392—
$312
480-450
430-390
663-637
475-425

were entirely personal, the expansionary effect would be about 50 percent greater and the net budget
cost about $175 million lower.
Source: See app. B.
Source: U.S. Congress, Congressional Budget Office, Temporary Measures To Stimulate Employ­
ment: An Evaluation of Some Alternatives," Sept 2,1975.

TABLE 4.— SUMMARY OF THE POTENTIAL IMPACTS OF ALTERNATIVE MEASURES TO STIM ULATE EMPLOYMENT

Employment impact per
dollar expenditure

Startup time

Phaseout flexibility

Inflation impact

Value of output

Targetability

Income-tax cut__________ Relatively low, particularly Subject to lags in individ- Potentially easy to termi­ Same as any aggregate Entirely private sector____ None.
fiscal measure.
nate.
in the short run.
uals' spending.
Mostly public sector; 2d Low.
Increase in Government Higher than tax cut; lower Potentially fast; subject to May be hard to terminate, Same as any aggregate
fiscal measure, dependround effects on private
than special employment
policy initiation lag. especially if useful out­
purchases.
put, services involved.
ing on employees' skill
sector,
programs.
mix.
Accelerated public works.. Potentially low if wages are Potentially long; but with Wide variation; appropria­ Somewhat greater th a n ____do____________ ____ Can be directed at b r ­
high; greater job impact
wide variations depend- tions easier to stop than
other programs if workers______________ employment areas, confrom low*wage projects.
ing on type of program. some other Government
highly skilled; lower if__________________ struction trades,
aimed at less skilled
programs, but large scale
workers.
projects may take long to
complete.
Public service employment. Relatively high if wages are Potentially fast if existing Relatively flexible if job Low if aimed at unskilled Low if emphasis is solely on Can be directed at most
low.
programs expanded.
tenure limited.
workers and if wages are
job impact; if combined
needy individuals,
lower than private sector with training can produce
alternatives.
useful skills.
Antirecession aid to State Less than PSE if skill levels Potentially fast; no new Potentially easy to termi­ Moderate, depending on State and local government Can be directed at Governand local Governments.
high; more than other
programs, only transfer
nate.
skill level of employees. services.
ments hit by recession.
Government purchases,
of funds,
public works.

,

Source: U.S. Congress, Congressional Budget Office, "Temporary Measures to Stimulate Employment: An Evaluation of Some Alternatives," Sept 2 1975, p. VIII.




167
Noncyclical Unemployment.— S om e u n em p lo y m en t Is ca u se d b y fa c to r s o th e r s
th a n t h e b u s in e s s cy cle, an d th u s c o n tin u e s even w h en th e eco n o m y a p p ro a ch es
c a p a c ity a n d in fla tio n b eg in s to in c r e a se . In som e ca ses, h ig h r a te s o f c y c lic a l
u n e m p lo y m e n t e x a c e r b a te str u c tu r a l p rob lem s an d it is g e n e r a lly a g r e e d th a t
r e d u c in g or e lim in a tin g c y c lic a l u n em p lo y m en t co n trib u tes t o th e e ffe c tiv e n e s s
o f a l l ty p e s o f em p lo y m en t p ro g ra m s. H en ce, c y c lic a l an d o th e r ty p e s o f u n ­
e m p lo y m e n t sh o u ld n o t be v ie w e d a s e n tir e ly se p a r a te p rob lem s.
A m a jo r c a u s e o f n on -cyclical u n em p lo y m en t is an e x c e s s su p p ly o f la b o r
i n so m e p o c k e t or p o c k e ts o f th e la b o r m ark et. T h ese p o c k e ts m ay b e reg io n a l,
th e y m a y r e s u lt fr o m a d e c lin e in d em a n d for a p a r tic u la r p ro d u ct req u irin g
la b o r w it h a sp e c ia liz e d sk ill, or th e y m ay be d u e to th e c r o w d in g o f som e
in d iv id u a ls in to a lim ite d n u m b er o f o ccu p a tio n s b eca u se o f d isc r im in a tio n ,
la c k o f e d u c a tio n , or o th e r b a r r ie r s t h a t p rev en t o c c u p a tio n a l m o b ility . P r o ­
g r a m s d e s ig n e d to in c r e a se th e d em a n d fo r lab or in t h e s e p o c k e ts a n d /o r to
i n c r e a s e t h e m o b ility o f in d iv id u a ls o u t o f th e p o ck ets (b y g eo g r a p h ic m o b ility
a llo w a n c e s , t r a in in g or r etra in in g , a n d rem o v a l o f d isc r im in a to r y b a r r ie r s, to
n a m e a f e w ) m ig h t be m ore e ffe c tiv e in red u cin g t h is so r t o f u n e m p lo y m en t
t h a n a cro ss-th e-b o a rd in c r e a s e s in d em a n d th a t m ig h t o n ly d r iv e u p w a g e s in
o th e r s e c to r s o f t h e la b o r m a rk et w h e r e u n em p lo y m en t is n o t a problem .
A se c o n d k in d o f n o n -cy clica l u n e m p lo y m en t c o n sis ts o f s h o r t s p e lls o f u n ­
e m p lo y m e n t a c c o m p a n y in g job c h a n g e or in itia l en try in to th e la b o r fo rce. T o
so m e e x t e n t, t h is r e p r e s e n ts a n o rm a l p erio d o f job se a rch fo r n e w jo b s e e k e r s
o r f o r p e r s o n s w h o h a v e le f t a job to se e k a b e tte r one. (M a n y in d iv id u a ls ta k e
a f ir s t jo b o r c h a n g e jo b s w ith o u t e x p e r ie n c in g u n em p lo y m en t, h o w e v e r .) *
S o m e g r o u p s o f p eo p le e x p e r ie n c e fre q u e n t o ccu rre n c es o f u n em p lo y m en t,
r e s u lt in g in h ig h u n e m p lo y m e n t r a tes. U n sk ille d an d d is a d v a n ta g e d in d iv id u a ls
— a m o n g w h o m b la c k s a n d y o u n g p eo p le a r e d isp r o p o r tio n a te ly r e p r e se n te d —
e x p e r ie n c e m o r e fr e q u e n t sp e lls o f t h is so r t o f u n em p lo y m en t th a n o th e r
g r o u p s. T h e s e p e r s o n s te n d to h o ld jo b s a t th e b ottom o f th e la b o r m a r k e t
h ie r a r c h y a n d th e y b eco m e u n em p lo y ed fr e q u e n tly b eca u se th e y a r e fired , b e­
c a u s e th e y q u it, a n d b e c a u se th e y le a v e an d r een ter th e la b o r fo r c e m o re f r e ­
q u e n tly t h a n o th e r w o rk ers. Job a tta c h m e n t is w eak . T h e r e is li t t l e in c e n tiv e
f o r e m p lo y e r or e m p lo y e e to m a in ta in a long-term w ork r e la tio n sh ip s in c e th e r e
i s l i t t l e i f a n y on-the-job t r a in in g a n d h e n c e no p a y o ff to se n io r ity J o b s a t is ­
f a c t io n i s lo w , a n d t h is a ls o w e a k e n s jo b ties.
I n c r e a s in g jo b a tta c h m e n t by p r o v id in g jo b s w ith som e t r a in in g a n d c h a n c e s
f o r u p w a r d m o b ility w o u ld c e r ta in ly b e a d e sir a b le co m p o n e n t o f a p rogram
d e s ig n e d to r e d u c e th e r e la t iv e ly h ig h u n em p lo y m en t r a te s o f th e u n s k ille d a n d
d is a d v a n t a g e d . I n fa c t, f a ilu r e to d o so m ig h t r e s u lt in c o n tin u e d h ig h r a te s
o f u n e m p lo y m e n t f o r t h e s e g rou p s, m a k in g a 3 p ercen t a d u lt u n e m p lo y m en t
g o a l d iffic u lt o r e v e n im p o s sib le to a c h ie v e * F u r th er, a c a s e c o u ld b e m a d e
t h a t p a y in g p a r t ic ip a n t s a h ig h e r w a g e th a n in th e c o u n te r c y lic a l p ro g ra m
a n d p r o v id in g in g e n e r a l a m o re a t tr a c tiv e w ork e n v iro n m en t w o u ld in c r e a s e
jo b a t ta c h m e n t a n d red u ce th e fr e q u e n t s p e lls o f u n em p lo y m en t t h a t c h a r a c te r ­
iz e t h e ir jo b m a r k e t ex p erien ce. T h is m e a n s t h a t su ch p r o g r a m s a r e b ou n d to
b e m o r e c o s tly o n a per-job b a sis th a n co u n te r c y c lic a l p ro g ra m s. F u r th e r , i f
th e y a r e m a d e m o re a ttr a c tiv e th a n p r iv a te se c to r a lte r n a tiv e s , w o r k e r s w ill
b e d r a w n fr o m th e p r iv a te se cto r , in c r e a s in g th e siz e o f t h e p u b lic jo b s p ro ­
g r a m a n d d r iv in g u p w a g e s in th e p r iv a t e sector. O ver th e lo n g e r ru n , h o w e v e r ,
t h i s d is p la c e m e n t c o u ld r e s u lt in im p r o v ed w o rk in g c o n d itio n s in t h e p r iv a te
se c to r .
" I t Is sometimes noted that this type o f unemployment may be higher in the United
States than in other countries because o f higher mobility and greater expectations of the
possibility fo r advancement in the labor market here.
* It should be noted that the unemployment rate for adult white males has been below
3 percent in six years since 1965. In 1969 the rate was 1.9 percent. High rates o f noncy clical unemployment in the United States are confined to certain groups or pockets o f
the labor force. Further, other countries are able to achieve overall employment rates
below 2 percent. Viewed in these terms, a 3 percent adult unemployment target does not
seem unrealistic i f employment programs are effective in dealing with the special factors
contributing to high unemployment fo r certain groups and are not limited to across-theboard measures o r programs that simply create jobs without increasing employment sta­
bility o r jo b attachm ent.

Focusing on a single unemployment target for the entire labor force may give the mis­
leading impression that once the target is achieved unemployment is no longer a problem.
Serious unemployment problems may persist even if the overall target Is met.




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I f t h e lin e b e tw e e n c y c lic a l a n d n o n -cy clica l u n e m p lo y m e n t i s d e fin e d a t 4
p e r c e n t ( t h e a r b itr a r y d is t in c tio n m a d e e a r lie r ) , th e n a c c o r d in g to t h e m a n ­
d a te o f S .5 0 v a r io u s p ro g r a m s g o in g b ey o n d c o u n te r c y c lic a l e f fo r ts w o u ld b e
req u ired to p ro v id e e n o u g h jo b s to re d u c e u n e m p lo y m e n t fr o m 4 p e r c e n t o v e r a ll
to 3 p e r c e n t f o r a d u lts . P r e su m a b ly , e lig ib ilit y to p a r tic ip a te in t h e s tr u c t u r a l
p ro g ra m s w o u ld be lim ite d t o a d u lts . ( S p e c ia l p r o g r a m s f o r te e n a g e r s a r e a l s o
m a n d a te d in a s e p a r a te s e c tio n o f S . 5 0 ) . I f a d u lt is d efin ed a s n o n te e n a g e , t h e
b ill w o u ld m a n d a te a r e la t iv e ly s m a ll e m p lo y m e n t p ro g ra m ( in a d d itio n t o
c o u n te r c y c lic a l m e a s u r e s ) to a c h ie v e th e 3 p e r c e n t ta r e g t, s in c e te e n a g e r s a c ­
c o u n t f o r a b o u t o n e p e r c e n ta g e p o in t o f u n em p lo y m en t.10 P r o je c tio n s o f c u r r e n t
d em o g ra p h ic tr e n d s in e m p lo y m e n t a n d la b o r fo r c e p a r tic ip a tio n b y T h e U r b a n
I n s tit u te s u g g e s t t h a t in 1 9 8 0 a 4 p e r c e n t o v e r a ll u n e m p lo y m e n t r a t e w o u ld
m e a n a b o u t 3 .2 p e r c e n t fo r p e r s o n s 2 0 a n d o v er, or a b o u t 1 8 6 ,0 0 0 u n e m p lo y e d
p e r s o n s 2 0 a n d o v e r b a se d o n a p r o je c te d la b o r fo r c e o f 9 2 .8 m illio n f o r n o n ­
teen a g ers. I f a d u lt is d efin ed a s p e r s o n s 1 8 a n d o v e r th e r e w o u ld b e m o r e u n ­
em p lo y m en t o v e r a n d a b o v e th e 3 p e r c e n t a d u lt u n e m p lo y m e n t t a r g e t w h e n
th e eco n o m y is a t a 4 p e r c e n t o v e r a ll u n e m p lo y m e n t ra te. T h e U r b a n I n s t it u t e
p r o je c ts th e u n e m p lo y m e n t r a te f o r p e r s o n s 1 8 a n d o v e r w o u ld b e a b o u t 3 .6
p e r c e n t in 1 9 8 0 i f th e o v e r a ll r a te w e r e 4 p ercen t. T h is w o u ld m e a n a b o u t
5 9 0 ,0 0 0 u n em p lo y ed p e r s o n s 1 8 a n d o v e r b a sed o n a p r o je c te d la b o r f o r c e o f
9 8 .4 m illio n f o r p e r s o n s 1 8 a n d over.

The Inflation Problem
A se r io u s p ro b lem a s s o c ia t e d w it h p u r su in g a g o a l o f 3 p e r c e n t a d u lt u n ­
em p lo y m en t i s t h e r isk t h a t in fla tio n w ill b eg in to a c c e le r a te a s t h e eco n o m y
a p p ro a ch es th e g o a l. T w o m a jo r s o u r c e s o f in fla tio n n eed to b e id e n tifie d . T h e
first i s lik e ly to be a s s o c ia te d w it h a n y a tte m p t to re d u c e u n e m p lo y m e n t t o
lo w le v e ls . T h e se co n d is r e la te d to a sp e c ific p r o v is io n o f S .50.
F ir s t, a s n o te d in th e a n a ly s is o f c y c lic a l u n em p lo y m en t, in fla tio n i s lik e ly
to p ick up a s th e eco n o m y m o v e s c lo s e r to p o te n tia l. A s e x p a n s io n a r y fis c a l a n d
m o n e ta ry m e a su r e s a r e u se d to b rin g th e eco n o m y c lo s e r to c a p a c it y a n d t h e
u n em p lo y m en t r a te f a lls , so m e a d d e d in fla tio n i s lik e ly . W h ile e c o n o m is ts '
u n d e r sta n d in g o f in fla tio n is to o lim ite d to w a r r a n t a n y c o n fid e n c e in p r e c is e
e s tim a te s o f th e in fla tio n a r y risk , t h e h is t o r ic a l reco r d s in c e 1 9 6 0 d o e s s u g g e s t
th a t in fla tio n p ick ed up c o n sid e r a b ly in th e l a t e 1 9 6 0 s w h e n u n e m p lo y m e n t
a p p ro a ch ed 3 p ercen t fo r a d u lts. T h e v e r y h ig h r a te s o f in fla tio n e x p e r ie n c e d
in th e 1 9 7 0 s ca n b e tr a ced la r g e ly to fa c to r s o th e r th a n tig h t la b o r m a r k e ts , b u t
a n a tte m p t t o d r iv e u n em p lo y m en t to t h e ta r g e t m a n d a te d in S .5 0 w it h in f o u r
y e a r s w o u ld r e s u lt in a n a c c e le r a tio n o f w a g e in fla tio n s im ila r to t h a t e x ­
p er ie n c e d in t h e la t e 1 9 6 0 s. In d eed , so m e o f th e p ic k u p o f in fla t io n in 1 9 7 3
m a y h a v e b een d u e to th e d e c lin e in th e o v e r a ll u n e m p lo y m e n t r a te t o 4 .6
p ercen t, a r a te c o n sid e r a b ly h ig h e r th a n th e g o a l o f S .50.
A cco r d in g to th e sim u la tio n s in T a b le 2, th e a d d ed in fla tio n a s s o c ia t e d w it h
a c h ie v in g a 3 .5 p e r c e n t u n e m p lo y m e n t ta r g e t r e la t iv e to a 5 .0 p e r c e n t t a r g e t
is a ro u n d 1 .2 5 p e r c e n ta g e p o in ts in th e y e a r th e ta r g e t is a c h ie v e d a n d a r o u n d
2 p er c e n ta g e p o in ts tw o y e a r s a f t e r a c h ie v in g t h e ta r g e t. I f u n e m p lo y m e n t
w e r e t o b e h e ld a t th e 3 .5 p e r c e n t r a te in d e fin ite ly , th e s im u la tio n s s h o w a
g r o w in g in fla tio n a r y im p act.
T h e se co n d p o te n tia l so u r c e o f a d d ed in fla tio n is th e r e q u ir e m e n t in S .5 0
th a t w a g e s in p u b lic em p lo y m en t p ro g ra m s m u s t m e e t c e r ta in s ta n d a r d s . T h e y
m u st, fo r ex a m p le, b e a t le a s t e q u a l to p r e v a ilin g w a g e s p a id b y t h e lo c a l
g o v e r n m e n t i f th e lo c a l g o v e r n m e n t is th e em p loyer, a n d th e y m u s t m e e t D a v is B a c o n s ta n d a r d s in th e c a s e o f c o n str u c tio n job s.
P a r tic u la r ly sin c e p e r so n s w h o r e fu s e p r iv a te s e c to r jo b s a t le s s t h a n p r e ­
v a ilin g w a g e s or “f a ir r a te s o f c o m p e n sa tio n ” w o u ld be e lig ib le f o r “em p lo y ero f-la st-reso rt” jo b s, th e s e p r o v isio n s w o u ld ten d to d r iv e u p w a g e s in p r iv a t e
in d u stry , w h e r e m a n y w o r k e r s d o n o t n o w ea rn t h e s e w a g e r a te s. W h ile h ig h e r
w a g es, p a r tic u la r ly in sp e c ia l p ro g ra m s ta r g e te d a t th e p o o r a n d u n s k ille d
m ig h t h a v e o th e r b en efits— b oth a s a n in co m e m a in te n a n c e d e v ic e a n d a w a y
w If cyclical unemployment were defined as 4.5 percent, however, the structural pro­
grams would be larger and cyclical programs smaller. Further, if high rates o f structural
unemployment persist for certain groups— such as black teenagers— additional programs
may be desired even if the mandated target has been achieved for the adult labor force




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to r e d u c e jo b tu r n o v e r a n d f r e q u e n t o c c u r r e n c e s o f u n e m p lo y m e n t— t h e s e p ro ­
v is io n s o f S .5 0 a r e lik e ly to r e s u lt in a h ig h e r a v e r a g e le v e l o f w a g e s econ om yw id e t h a n w o u ld o t h e r w is e p r e v a il, a d d in g to th e in fla tio n a r y p r e s s u r e s th a t
c o u ld a r is e fr o m t h e e c o n o m y o p e r a tin g c lo s e to c a p a c ity . N o e s tim a te o f t h e
a d d e d in fla t io n fr o m t h is s o u r c e ca n b e m a d e, h o w e v e r , w it h o u t a m o re sp e c ific
s t a t e m e n t o f t h e w a g e p r o v is io n s e n v isio n e d .
I t i s p o s s ib le t h a t t h e c a r e f u l c o o r d in a tio n o f e m p lo y m e n t p r o g r a m s p ro p o sed
in S .5 0 c o u ld r e d u c e th e in fla tio n a r y risk . W e ll- d e sig n e d p r o g r a m s co u ld b e
t a r g e t e d o n p o c k e ts o f u n e m p lo y m e n t in s te a d o f sp r e a d in g th e ir e ffe c ts o v e r
a ll s e c to r s o f t h e la b o r m a r k e t. T r a in in g p ro g ra m s, i f s u c c e s s fu l, co u ld s h i f t
w o r k e r s fr o m s it u a t io n s o f la b o r su r p lu s t o th o s e o f la b o r sh o r ta g e . P u r su e d
o v e r a p e r io d y e a r s , su c h m e a s u r e s c o u ld im p r o v e th e in fla tio n /u n e m p lo y m e n t
tr a d e o ff. A s a lo n g - r a n g e g o a l, th e r e fo r e , p u r s u it o f a 3 p e r c e n t a d u lt u n ­
e m p lo y m e n t t a r g e t w o u ld se e m m o re r e la s tic ( in te r m s o f it s p o te n t ia l in fla ­
t io n a r y c o n s e q u e n c e s ) t h a n i f i t is v ie w e d a s a sh o r t- r a n g e ta r g e t.
T h e a n ti- in fla tio n s e c tio n o f S .5 0 a d d s so m e o th e r a p p r o a c h e s to t h e r e d u c tio n
o f in fla t io n a r y p r e s su r e s . T h e s e in c lu d e a c t io n s to e n su r e a d e q u a te su p p lie s
o f s c a r c e c o m m o d itie s, p a r t ic u la r ly fo o d a n d e n e r g y , r e c o m m e n d a tio n s to
s t r e n g t h e n a n d e n f o r c e a n t it r u s t la w s, m e a s u r e s to in c r e a s e p r o d u c tiv ity in
t h e p r iv a t e se c to r , a n d r e c o m m e n d a tio n s f o r a d m in is tr a t iv e a n d le g is la t iv e
a c t io n s to p r o m o te r e a s o n a b le p r ic e s t a b ilit y i f s e r io u s in fla tio n a r y p r e s s u r e s
a r is e . A lt h o u g h t h e b ill d o e s n o t s p e c ify , t h e s e a c t io n s m ig h t in c lu d e p r ic e a n d
w a g e c o n tr o ls, g u id e lin e s , o r a n in c o m e s p o lic y . I n a n y c a se, t h e b ill f o c u s e s
m u c h l e s s o n t h e s e a n ti- in fla tio n s u g g e s t io n s th a n o n th e u n e m p lo y m e n t g o a l;
t h e r e i s n o t a r g e t s e t f o r in fla tio n a s th e r e is f o r u n e m p lo y m e n t.

Budget Implications of S.50
O n e c o n c e r n in e v a lu a t in g S .5 0 is th e p o te n t ia l b u d g e t co st. T h e d ir e c t c o s t
a s s o c ia t e d w it h t h e n e w a d m in is tr a t iv e s t r u c t u r e s p ro p o se d b y S .5 0 is lik e ly
t o b e s m a ll, b u t t h e c o s t o f e m p lo y m e n t p r o g r a m s t h a t m ig h t be n e e d e d to
a c h ie v e t h e 3 p e r c e n t a d u lt u n e m p lo y m e n t ta r g e t, w h ile d ifficu lt to e s tim a te ,
c o u ld , in so m e c ir c u m s ta n c e s b e q u ite h ig h .
In d e e d , t h e c o s t o f su c h p r o g r a m s in a n y h y p o th e t ic a l y e a r is im p o s s ib le
to e s t im a t e b e c a u s e t h e c o s t w ill d ep en d c r it ic a lly on th e s t r e n g t h o f p r iv a t e
d e m a n d s in t h e e c o n o m y a n d t h e p o lic y m ix s e le c te d t o r e d u c e u n e m p lo y m e n t
t o t h e 3 p e r c e n t ra n g e. I n p e r io d s o f p e a k e c o n o m ic a c t iv ity , p r o g r a m c o s ts
m a y b e lim it e d to ta r g e t e d m e a su r e s to r e d u c e a r e la t iv e ly s m a ll a m o u n t o f
n o n - c y c lic a l u n e m p lo y m e n t; in r e c e s s io n p e r io d s, la r g e r a n d t h e r e fo r e m o re
c o s t ly c o u n te r c y c lic a l e m p lo y m e n t p r o g r a m s w o u ld b e n eed ed . F u r th e r , c o s ts
w i l l v a r y w it h t h e m ix o f p o lic y o p tio n s a d o p te d .
S ta n d a r d fis c a l p o lic y m e a s u r e s — t a x c u t s a n d acro ss-th e-b o a rd in c r e a s e s in
s p e n d in g — e n t a il h ig h e r c o s ts o n a p er-job b a s is t h a n s p e c ia l e m p lo y m e n t
p r o g r a m s l i k e p u b lic s e r v ic e em p lo y m e n t, p u b lic w o rk s, a n d s p e c ia l t a x in ­
c e n t iv e s a n d e m p lo y m e n t s u b s id ie s t o p r iv a t e in d u s tr y . M o n e ta r y p o lic y , o n
t h e o t h e r h a n d , in v o lv e s n o a d d e d b u d g e t c o s ts .
C o s ts in a n y y e a r w ill a ls o d ep en d on t h e s iz e o f t h e la b o r f o r c e ( in a b s o lu t e
t e r m s t h e p r o g r a m c o s t w i ll g r o w a s t h e la b o r f o r c e g r o w s ) , t h e d e fin itio n o f
“a d u lt ,” a n d d e fin itio n s o f c y c lic a l a n d n o n - c y c lic a l u n e m p lo y m e n t (p r o g r a m
c o s t s a r e lik e ly t o b e d iffe r e n t f o r c y c lic a l p r o g r a m s ).
E s t im a t io n o f c o s ts a l s o d ep e n d s on th e b a s e lin e a g a in s t w h ic h c o s ts a r e
e v a lu a t e d . U n d e r t h e E m p lo y m e n t A c t o f 1 9 4 6 t h e f e d e r a l g o v e r n m e n t h a s
p u r s u e d f u l l e m p lo y m e n t g o a ls th r o u g h a w id e r a n g e o f s t r a t e g ie s , a lt h o u g h
e m p h a s is h a s b e e n o n s ta n d a r d fisc a l a n d m o n e ta r y m e a su r e s . S .5 0 i s in te n d e d
t o im p r o v e o n p a s t p e r fo r m a n c e by o ffe r in g a n u m e r ic a l g o a l f o r u n e m p lo y m e n t
a n d a n e x p a n d e d s e t o f a d m in is tr a t iv e m e c h a n is m s t o c o o r d in a te n a tio n a l
e c o n o m ic p o lic y in p u r s u it o f t h a t m a n d a te . C o n se q u e n tly , o n e m e a s u r e o f t h e
a d d e d c o s t s o f S .5 0 i s t h e c o s t o f p o lic ie s to im p r e v e o n a v e r a g e p a s t p e r fo r m ­
a n c e — t h a t is , t o r e d u c e u n e m p lo y m e n t fr o m i t s 1 9 6 0 - 7 5 a v e r a g e o f 5 .2 p e r c e n t
o v e r a ll t o 3 p e r c e n t f o r a d u lts .
G iv e n t h e il l u s t r a t i v e d e fin itio n o f u n e m p lo y m e n t in e x c e s s o f 4 p e r c e n t a s
c y c lic a l, t h e n t h e d iffe r e n c e b e tw e e n t h e h is t o r ic a l a v e r a g e o f 5 .2 p e r c e n t a n d
4 p e r c e n t c a n b e v ie w e d a s t h e f a ilu r e o f s t a b iliz a t io n p o lic y o n t h e a v e r a g e to
a c h ie v e f u l l c a p a c it y le v e l s o f o u tp u t a n d e m p lo y m e n t. Im p r o v e d c o o r d in a tio n
o f m o n e ta r y a n d f is c a l p o lic y c o u ld p o t e n t ia lly im p r o v e o n t h is a v e r a g e p a s t




170
p erfo rm a n c e, r e d u c in g t h e a v e r a g e a m o u n t o f c y c lic a l u n e m p lo y m e n t i n t h e
f u tu r e a n d h en ce t h e f u t u r e c o s ts o f c o u n te r c y c lic a l e m p lo y m e n t p r o g r a m s.
A lth o u g h S .5 0 m a y r e s u lt in b e tte r c o o r d in a tio n o f n a tio n a l e c o n o m ic p o lic y
in t h e f u t u r e a n d h en ce le s s c y c lic a l u n e m p lo y m e n t th a n in t h e p a st, i t m a y b e
u s e f u l to e x a m in e t h e g e n e r a l o rd er o f m a g n itu d e o f a n e m p lo y m e n t p r o g r a m
t h a t w o u ld p ro v id e en o u g h jo b s to b r in g c y c lic a l u n e m p lo y m e n t f r o m i t s
1 9 0 0 - 7 5 a v e r a g e o f 5 .2 p e r c e n t t o 4 ,0 p e r c e n t a n d to p r o v id e e n o u g h j o b s in
n o n -cy clica l em p lo y m en t p ro g ra m s to red u c e a d u lt u n e m p lo y m e n t to 3 percen t.1*
I n 1 9 8 0 , th e t o ta l c iv ilia n la b o r f o r c e i s e s tim a te d to b e a b o u t 1 0 2 .5 m illio n
p e r so n s ( a t 5 .2 p e r c e n t u n e m p lo y m e n t).1* R e d u c in g u n e m p lo y m e n t fr o m 5 .2
p e r c e n t t o 4 .0 p ercen t o f t h a t la b o r fo r c e th u s in v o lv e s a b o u t 1 .2 3 m illio n
u n em p lo y ed p erso n s. U n d e r t h e a s s u m p tio n t h a t a b o u t 1 0 n e w j o b s n e e d t o b e
c r e a te d fo r e v e r y s ix p erso n r e d u c tio n in u n e m p lo y m e n t d u e t o in c r e a s e s in
th e la b o r fo r c e a s u n e m p lo y m e n t f a lls , a c o u n te r c y c lic a l e m p lo y m e n t p r o g r a m
in 1 9 8 0 w o u ld in v o lv e a p p r o x im a te ly 2 m illio n jo b s.
A s sh o w n in T a b le 3, a w id e v a r ia tio n in th e c o s t p er jo b i s p o s s ib le d e p e n d ­
in g o n th e p o lic y m ix ad o p ted . P u b lic e m p lo y m e n t, fo r in s ta n c e , h a s a r e la ­
t iv e ly lo w cost-per-job. H o w e v e r , p u b lic e m p lo y m e n t p ro g ra m s m ig h t j u s t d is ­
p la c e so m e w o r k e r s w h o h a d p r e v io u sly b een em p lo y ed , r a th e r t h a n in c r e a s in g
n e t em p lo y m en t b y t h e f u l l n u m b er o f n e w p u b lic jo b s. F o r e x a m p le , so m e
w o r k e r s w h o h a d p r e v io u sly b een em p lo y ed , r a th e r th a n in c r e a s in g n e t em ­
p lo y m e n t by th e f u l l n u m b er o f n e w p u b lic jo b s. F o r ex a m p le , so m e w o r k e r s
m ig h t be a ttr a c te d fro m lo w -p a y in g jo b s in t h e p r iv a te se c to r . F u r th e r , i f
p u b lic em p lo y m en t p ro g ra m s a r e a d m in is te r e d th r o u g h s t a t e a n d lo c a l g o v e r n ­
m en ts, th e se g o v e r n m e n ts m a y u s e p u b lic em p lo y m e n t f u n d s to h ir e w o r k e r s
th e y m a y h a v e h ir e d a n y w a y . I f su c h d isp la c e m e n t w e r e to r u n h ig h a s 5 0
p ercen t, th e n u m b er o f p u b lic jo b s r eq u ired to em p lo y 2 m illio n a d d itio n a l
p eo p le d o u b les ( t o 4 m illio n ) , d o u b lin g th e c o s t p er n e t a d d itio n to e m p lo y ­
m en t. O th er p ro g ram s lik e a c c e le r a te d p u b lic w o r k s m a y e n t a il lo w e r d is ­
p la cem en t r a te s b u t a h ig h e r c o s t p e r job. T h e jo b -c rea tin g im p a c t o f o t h e r
in d ir e c t m ea su res, lik e p r iv a te se c to r su b s id ie s a n d t a x in c e n tiv e s , i s m u c h
m o re d ifficu lt to e s tim a te th a n fo r d ir e c t jo b -c rea tin g p ro g ra m s.
A n illu s t r a tiv e co st e s tim a te fo r "a c o u n te r c y c lic a l p u b lic s e r v ic e e m p lo y ­
m en t p ro g ra m is sh o w n in T a b le 5.1* R a n g e s a r e p ro v id ed , d e p e n d in g o n w h a t
i s a ssu m e d a b o u t d isp la cem en t. A U .S . D e p a r tm e n t o f L a b o r s t u d y 15 o f p a s t
ex p e r ie n c e in c o u n te r c y c lic a l p u b lic e m p lo y m e n t p ro g ra m s a d m in is te r e d
th r o u g h s t a t e a n d lo c a l g o v e r n m e n ts e s tim a te s a 4 0 p e r c e n t d isp la c e m e n t r a te
in p a s t ex p erien ce. A n e v a lu a tio n o f p a s t e x p e r ie n c e w ith p u b lic s e r v ic e e m ­
p lo y m e n t u n d er C E T A ( th e C om p reh en siv e E d u c a tio n a n d T r a in in g A c t o f
1 9 7 3 ) su g g e s ts th a t f u tu r e p ro g ra m s c o u ld be d e sig n e d to re d u c e t h is a m o u n t
o f d isp la c e m e n t sig n ific a n tly . T h e m o st o p tim is tic v ie w is t h a t d is p la c e m e n t
co u ld be sig n ific a n tly red u ced a n d p e r h a p s e v e n e lim in a te d e n t ir e ly b y su c h
m e a su r e s a s r e s tr ic tin g e lig ib ilit y to p e r so n s u n e m p lo y e d fiv e w e e k s or lo n g e r
a n d by a d m in is te r in g th e p ro g ra m s a t th e fe d e r a l le v e l in s t e a d o f th r o u g h
s t a t e a n d lo c a l g o v ern m en ts. A t an a ss u m e d c o s t o f $ 8 ,0 0 p er jo b a p r o g ra m
to p ro v id e 2 m illio n n e w jo b s w o u ld c o s t fro m $ 1 6 b illio n ( w it h n o d is p la c e ­
m e n t) to $ 2 7 b illio n ( w it h 4 0 p e r c e n t d isp la c e m e n t.) O f co u rse, d isp la c e m e n t
co u ld be ev en h ig h e r th a n 4 0 p ercen t, w ith c o s ts g o in g u p p r o p o r tio n a te ly .
n Standard fiscal policy measures are not, of course, costless. Tax cuts add to the fed­
eral budget deficit, but do not Increase the resources allocated to the public sector. In ­
creases in government purchases add to budget costs, but may not be traceable to specific
employment measures. If monetary policy Is used as a principal stabilization instrument,
there are no budget costs involved.
» Additional structural programs may be desired to deal with pockets of high unem­
ployment even If the 3 percent goal Is reached. However, this possibility Is not specifically
mandated in S. 50, and consequently will not be dealt with here.
18 This estim ate is 1.3 million above the Bureau of Labor Statistics projection of 101.2
million. CBO assumes somewhat higher participation rates for certain groups in the labor
force in 1980, resulting in the higher labor force estim ate. The Urban In stitu te projects
an even higher labor force for 1980.
14 Alternative policy options would have different costs. Some, like across-the-board tax
cuts would be considerably more expensive— perhaps three to four times as expensive—
as public employment. Other options, like expansionary monetary policy would be less
expensive.
15 U.S. Department of Labor, Office of the A ssistant Secretary for Policy Evaluation and
Research, "An Evaluation of the Public Employment Program," by George E. Johnson
and James D. Tomola, Technical Analysis Paper No. 17-A, September 1974, pp. 14-55.




TABLE 5.— ILLUSTRATIVE COST ESTIM ATE FOR A PUBLIC SERVICE EMPLOYMENT PROGRAM

[Inb n of d lla
illio s o rs]
Initial cost
Estimated cost (1980)
Unemployment target

3 pet,
nonteenage

Noncydieal component: Public employ­
ment and training ($10,000 average
cost per Job)............ ............................... 2.9-5.8
Cyclical component: Countercyclical
public employment ((8,000 average
coit per job)..--------------------------------- 16.4-27.4
Total cost........................................

19.3-33.2

3 pet, 18
3 pet,
and over nonteenage

10.5-21.1

1.8-3.6

16.4-27.4

10.3-17.1

26.9-48.5

Cost after 12 mo of program operation

Estimated net budget
cost (1980)

12.1-20.7

Estimated cost

3 pet, 18
3 pet,
and over nonteenage

7.2-14.4
10.3-17.1
17.5-31.5

2.9-5.8
13.7-24.4
16.6-30.2

Not*.—This table presents Congressional Budget Office staff calculations. Cost estimates are presented in ranges with the low end based on an assumption of zero displacement and the high end on
a 40 pet displacement rate. A higher displacement rate would increase upper-range costs in all cases.




Estimated net budget
cost

3 pet, 18
3 pet,
and over nonteenage

10.5-21.1

1.2-2.5

Cost after 24 mo of program operation
Estimated cost

3 pet, 18
3 pet,
and over nonteenage

5.0-10.1

2.9-5.8

Estimated net budget
cost

3 pet,
3 pet, 18
and over nonteenage

3 pet, 18
and over

10.5-21.1

0.9-1.9

3.9-8.0

12.7-23.0

5.8-10.6

5.3-9.8

13.7-24.4

12.6-23.0

4.5-8.4

4.1-7.9

23.2-44.1

7.0-13.1

10.3-19.9

16.6-30.2

23. 1-44.1

5.4-10.3

a 0-15.9

Average costs per Job are in 1976 dollars. Inflation that occurs between 1976 and 1980 could increase
these costs. See the appendix for further details,

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E s tim a t e s o f t h e n e t b u d g e t c o s ts o f t h e p r o g r a m s a r e a ls o s h o w n i n Table
5. T h e s e t a k e in to a c c o u n t t h e b u d g e t s a v in g s t h a t o ccu r w h e n w o r k e r s n o
lo n g er c o lle c t u n e m p lo y m e n t c o m p e n sa tio n a n d b e g in to p a y t a x e s a n d c o n ­
t r ib u te to s o c ia l se c u r ity . B u d g e t s a v in g s a r e s o m e w h a t le s s w h e n y o u n g e r
w o r k e r s a r e in c lu d e d s in c e th e y a r e le s s lik e ly to h a v e b een d r a w in g u n e m p lo y ­
m e n t b en efits. I f jo b s a r e g iv e n to w o r k e r s w h o w o u ld h a v e b een r e c e iv in g
u n em p lo y m en t co m p en sa tio n , t h e c o s t p er jo b is red u ced b y a n a v e r a g e o f
$ 3 ,9 0 0 p er w o rk er (t h e c u r r e n t s a v in g s ) , in a d d itio n to th e e ffe c t o f in c r e a s e d
t a x p a y m e n ts. T h e s e o ffs e ttin g s a v in g s a r e la r g e r fo r p r o g r a m s lik e p u b lic
em p lo y m en t th a t h a v e a h ig h e r jo b im p a c t th a n fo r a g g r e g a te d e m a n d m e a s ­
u res, e s p e c ia lly i f th e n e w ly e m p lo y e d p e r s o n s h a v e b een r e c e iv in g u n e m p lo y ­
m en t co m p en sa tio n . O th er b u d g et s a v in g s r e s u lt fr o m h ig h e r c o r p o r a te t a x
p a y m e n ts a n d p e r so n a l t a x p a y m e n ts fr o m h ig h e r in c o m e s o f p e r s o n s p r e ­
v io u s ly em p lo y ed . T h e s e s a v in g s b eg in to s h o w u p m o re w it h t h e p a s s a g e o f
tim e, a s h ig h e s t le v e ls o f u n e m p lo y m e n t a n d in c o m e g e n e r a te h ig h e r p r o fits
a n d w a g e s th r o u g h secon d -rou n d “m u ltip lie r ” e ffe c ts. A fte r 2 4 m o n th s o f p ro ­
g ra m o p era tio n , n e t b u d g et c o s ts a m o u n t t o a b o u t a th ir d o f p r o g r a m o u tla y s .
T h u s, a p ro g ra m c o s tin g fro m $ 1 3 .7 to $ 2 4 .4 b illio n in o u tla y s m ig h t e n t a il
a n e t b u d g et c o s t b e tw e e n $ 4 .5 b illio n a n d $ 8 .4 b illio n a f te r t w o y e a r s o f o p e r ­
a tio n . A d e ta ile d e x p la n a tio n o f t h e a s s u m p tio n s b eh in d t h e s e e s t im a t e s i s
p ro v id ed in t h e A p p en d ix.
I n a d d itio n to c o u n te r c y c lic a l e m p lo y m e n t p ro g ra m s, o th e r e m p lo y m e n t p o li­
c ie s a r e a ls o m a n d a te d u n d e r S .50. A lth o u g h t h e b ill d o e s n o t s p e c ify , t h e s e
m ig h t ta k e t h e fo rm o f su b s id ie s to p r iv a te in d u s tr y to h ir e a n d t r a in d is ­
a d v a n ta g e d w o rk ers, g r a n ts to firm s t h a t m o v e to r e g io n s e x p e r ie n c in g h ig h
u n em p lo y m en t or m o b ility a llo w a n c e s to in d iv id u a ls w h o m o v e o u t o f su c h
reg io n s, a n d g r a n ts to s t a t e a n d lo c a l g o v e r n m e n ts to p r o v id e t r a in in g a n d jo b
p la c e m e n t se r v ic e s. A n a n a ly s is o f t h e p o te n tia l e f fe c tiv e n e s s o f su c h m e a s u r e s
a n d co n se q u e n tly th e p o te n tia l c o s t o f red u c in g a g iv e n a m o u n t o f u n e m p lo y ­
m e n t by th e s e m e a n s w o u ld b e h ig h ly c o m p lex a n d b ey o n d t h e s c o p e o f t h e
p r e se n t stu d y .
O ne p o ssib le o p tio n , ch o se n o n ly b e c a u se th e c o s t is le s s d ifficu lt to e s tim a te
th a n fo r o th e r o p tion s, is th e p r o v isio n o f a d iffe r e n t k in d o f p u b lic e m p lo y ­
m en t. S u ch a p rogram w o u ld n o t sim p ly p r o v id e w o rk f o r p e o p le w h o a r e
te m p o r a r ily jo b le ss, a s in th e c o u n te r c y c lic a l c a s e . I f u n e m p lo y m e n t is d u e
to h ig h r a te s o f jo b tu r n o v e r, a s is t h e c a s e w ith u n sk ille d a n d d is a d v a n t a g e d
w o rk ers, on-the-job tr a in in g , an a t tr a c tiv e w a g e a n d w o r k in g e n v ir o n m e n t
m ig h t be n eed ed to in c r e a s e job a tta c h m e n t a n d r ed u ce fr e q u e n c y o f u n ­
em p lo y m en t. I f t h is w e r e th e c a se, i t w o u ld m e a n a h ig h e r c o s t p er jo b t h a n
fo r c o u n te r c y c lic a l p u b lic e m p lo y m e n t p ro g ra m s.
T h e s iz e o f th e p rogram n eed ed to b rin g a d u lt u n e m p lo y m e n t to 3 p e r c e n t
d ep en d s on th e d e fin itio n o f a d u lt. I f a d u lt is d efin ed a s n o n te e n a g e t h e n in
1 9 8 0 o n ly a b o u t 2 3 0 ,0 0 0 jo b s w o u ld b e req u ired , a ss u m in g c o u n te r c y c lic a l e m ­
p lo y m e n t p ro g ra m s h a v e ab sorb ed u n e m p lo y m en t in e x c e s s o f 4 p e r c e n t o v e r a ll.
I f a d u lt u n em p lo y m en t m e a n s p e r s o n s 1 8 a n d ab o v e, th e n a b o u t 8 4 0 ,0 0 0 jo b s
w o u ld be req u ired .
N o n c y c lic a l p u b lic e m p lo y m e n t p ro g ra m s m a y h a v e a h ig h e r c o s t p er jo b
th a n c o u n te r c y c lic a l p u b lic e m p lo y m e n t (a lt h o u g h n o t n e c e s s a r ily a h ig h e r
c o s t p er jo b th a n o th er, m ore c o s tly c o u n te r c y c lic a l e m p lo y m en t o p t io n s ). T h is
is b e c a u se th e n o n c y c lic a l p ro g ra m s a re lik e ly to in v o lv e tr a in in g in a d d itio n
t o p a r tic ip a n ts ’ sa la r ie s. I f th e y a lso p ay h ig h e r w a g e s a n d o ffer a m o re
a t tr a c tiv e w o r k in g en v ir o n m e n t in o rd er to in c r e a s e job a tta c h m e n t a n d re­
d u ce fr e q u en cy o f u n em p lo y m en t t h is a d d s to th e c o st p er job. M oreover, th e
m ore a ttr a c tiv e th e job r e la t iv e to p riv a te - se c to r a lte r n a tiv e s , t h e h ig h e r t h e
prob ab le r a te o f d isp la c e m e n t.
T h e e s tim a te s in T a b le 5 a ss u m e a c o s t p er job o f $ 1 0 ,0 0 0 a n d a d is p la c e ­
m en t ra te o f b e tw e e n 2 0 p e r c e n t a n d 6 0 p ercen t. R e g io n a l a n d in d u s tr y e m ­
p lo y m e n t p ro g ra m s w ill a lso h a v e a h ig h e r c o s t p er job th a n p u re c o u n te r ­
c y c lic a l p ro g ra m s sin c e th e y a r e lik e ly to e n ta il r e lo c a tio n c o s ts a n d tr a in in g .
H o w ev er, d isp la c e m e n t is n o t lik e ly to be h ig h a t th is w a g e le v e l.
A s in th e c a s e o f th e c o u n te r c y c lic a l p u b lic em p lo y m en t p ro g ra m s, n e t budge t c o s ts fo r th e n o n c y c lic a l p ro g ra m s a re a lso sh ow n . A d e ta ile d b rea k d o w n
o f th e c o m p u ta tio n s b eh in d th e se e s tim a te s is p ro v id ed in th e A p p en d ix .
A fte r 2 4 m o n th s of p rogram o p era tio n , a p u b lic em p lo y m en t p ro g ra m t o r e ­
d u ce u n em p lo y m en t fro m 5 .2 p e r c e n t o v e r a ll to 3 p ercen t fo r a d u lts in 1 9 8 0




173
m ig h t c o s t b e tw e e n $ 1 6 .6 b illio n a n d $ 4 4 .1 b illion , d e p e n d in g on th e d e fin itio n
o f a d u lt a n d on t h e a m o u n t o f d isp la c e m e n t o f em p lo y m en t fro m o th e r p a r ts
o f t h e eco n o m y . H ig h e r r a t e s o f d isp la c e m e n t th a n th o s e a ss u m e d in th e e s t i ­
m a te s w o u ld r e s u lt in e v e n h ig h e r p ro g ra m co sts. T h e n e t b u d g et c o s ts o f
s u c h a p ro g ra m , t a k in g in to a cco u n t s a v in g s in u n e m p lo y m e n t in s u r a n c e o u t ­
la y s a n d h ig h e r t a x p a y m e n ts , m ig h t r a n g e from $ 5 .4 to $ 1 5 .9 b illio n . O n ce
a g a in , i t s h o u ld be s t r e s s e d th a t th e se e s tim a te s r e fe r to o n ly o n e a p p ro a ch
to c r e a t in g jo b s — p u b lic e m p lo y m e n t p ro g ra m s— a n d to a n “a v e r a g e ” s t a t e
o f t h e eco n o m y .
Other coats.— O th e r p r o v isio n s o f th e b ill in c lu d e a te e n a g e u n e m p lo y m e n t
p r o g ra m , in c r e a s e d r e s p o n s ib ilitie s f o r th e C ou n cil o f E c o n o m ic A d v is e r s a n d
t h e F e d e r a l R e s e r v e B o a r d , e s ta b lish m e n t o f a F u ll E m p lo y m e n t O ffice in th e
U .S . D e p a r t m e n t o f L ab or a n d a D iv is io n o f F u ll E m p lo y m e n t a n d B a la n c e d
G r o w th w it h in t h e C o n g r e s sio n a l B u d g e t Office. T h e s e p r o v is io n s w o u ld a d d to
t h e c o s t s s h o w n in T a b le 5.
Offsetting Benefits
W h a te v e r t h e c o s ts o f a c h ie v in g a 3 p e r c e n t a d u lt u n e m p lo y m e n t g o a l, th e r e
a r e o f fs e tt in g b en efits.
J o b le s s n e s s e n t a ils a lo s s o f o u tp u t. T h e a d d ed o u tp u t th a t r e s u lts fro m t h e
e m p lo y m e n t p r o g r a m s m a n d a te d in S .5 0 w ill v a r y w ith th e p o lic y m ix s e le c te d .
T a x c u t s w ill s t im u la t e p r iv a te e m p lo y m e n t a n d o u tp u t. P u b lic e m p lo y m e n t
p r o j e c t s m a y a d d p u b lic w o r k s an d g o v e r n m e n t s e r v ic e s. W h ile a n e v a lu a t io n
o f t h e a d d itio n a l o u tp u t t h a t w o u ld be p ro d u ced by 2 m illio n a d d itio n a l w o r k e r s
w o u ld d ep en d o n w h a t th e y a r e p u t to w o rk d oin g, i t is lik e ly t h a t th e v a lu e
o f t h a t o u tp u t to th e eco n o m y a s a w h o le w o u ld a t le a s t o ffs e t th e c o s ts to t h e
f e d e r a l b u d g e t o f p u tt in g th e m to w ork .
I n a d d itio n , j o b le s s n e s s e n t a ils m a n y s o c ia l c o s ts t h a t c a n n o t a lw a y s b e
m e a s u r e d — d e te r io r a tio n o f w o rk h a b its a n d sk ills , lo s s o f s e lf e s te e m , in c r e a s e d
in c id e n c e o f crim e, a n d o th e r p rob lem s. P u t t in g 2 m illio n a d d itio n a l p eo p le
to w o r k w o u ld e lim in a t e so m e o f th e se le s s m e a su r a b le b u t e q u a lly im p o r ta n t
c o s ts .
Government as Employer of Last Resort
O n e o f t h e d iffic u ltie s w it h th e E m p lo y m e n t A c t o f 1 9 4 6 i s t h a t i t f a i l s to
p r o v id e a n e n fo r c e m e n t m e c h a n ism to e n su r e t h a t f u ll e m p lo y m e n t w ill b e
a c h ie v e d . S e c tio n 2 0 6 o f S .5 0 a tte m p ts to p r o v id e su c h a m e c h a n ism by m an *
d a t in g t h e f e d e r a l g o v e r n m e n t to sta n d a s e m p lo y e r o f la s t r e s o r t fo r a d u lt
A m e r ic a n s u n e m p lo y e d in e x c e s s o f th e 3 p e r c e n t g o a l.
S e c t io n 2 0 6 o f S .5 0 s t a t e s th a t a d u lt A m e r ic a n s a b le, w illin g , a n d s e e k in g
w o r k w h o a r e u n a b le to fin d jo b s th r o u g h o th e r p r o v is io n s o f S .5 0 s h a ll b e
p r o v id e d j o b s th r o u g h fe d e r a lly o p e r a te d p u b lic e m p lo y m e n t p r o je c ts a n d a p ­
p r o v e d p r iv a t e n o n p r o fit e m p lo y m e n t p r o je c ts. T h is so -ca lled jo b g u a r a n te e
is n o t n e c e s s a r ily u n lim ite d , h o w ev er. A c c o r d in g to S .50, t h e s iz e o f t h e p u b lic
e m p lo y m e n t p r o g r a m m a y b e lim ite d a s lo n g a s a d u lt u n e m p lo y m e n t is n o t
in e x c e s s o f 3 p e r c e n t. F u r th e r , e lig ib ilit y o r p r io r ity c r it e r ia b a se d e s s e n t ia lly
o n n e e d c o u ld b e e s ta b lis h e d u n d e r t h e p r o v is io n s o f S .50.
W h ile t h e r e h a v e b een m a n y in te r p r e ta t io n s o f w h a t a f e d e r a l jo b g u a r a n te e
m ig h t im p ly ( S . 5 0 d o e s n o t s p e c ify t h e p r o v is io n s a n d c o v e r a g e o f t h e jo b
g u a r a n te e — i t o n ly la y s o u t g u id e lin e s ) , o n e w a y t o v ie w th e em p lo y er-o f-la st
r e s o r t f e a t u r e o f S .5 0 is t h a t i t m ig h t in v o lv e t h e r o u g h e q u iv a le n t o f t h e
s t r u c t u r a l e m p lo y m e n t p r o g r a m s sh o w n in T a b le 5. T h is w o u ld m e a n p r o v id in g
f r o m 2 3 0 , 0 0 0 t o 8 4 0 ,0 0 0 a d d itio n a l jo b s b y 1 9 8 0 (d e p e n d in g o n t h e d e fin itio n
o f “a d u l t ” ).
T w o m a jo r q u e s tio n s c o m e to m in d in c o n n e c tio n w it h t h e jo b g u a r a n te e
p ro g r a m . F ir s t , S e c tio n 2 0 6 s t ip u la te s t h a t th e f e d e r a l jo b g u a r a n te e sh o u ld
a ls o c a r r y w it h i t a g u a r a n te e o f th e p r e v a ilin g w a g e f o r t h a t t y p e o f w o r k in
t h e la b o r m a r k e t in w h ic h t h e jo b occu rs. I n th e c a s e o f c o n s tr u c tio n jo b s, th e y
m u s t m e e t D a v is - B a c o n A c t s ta n d a r d s ; a n d th e y m u s t be a t le a s t e q u a l to
p r e v a ilin g w a g e s p a id by a lo c a l g o v e r n m e n t i f t h e lo c a l g o v e r n m e n t j s t h e
e m p lo y e r . T h is p r o v is io n w o u ld u n d o u b te d ly d r iv e u p t h e a v e r a g e le v e l o f
w a g e s f o r t h e e c o n o m y a s a w h o le, b o th in g o v e r n m e n t a n d in t h e p r iv a t e
s e c t o r a s p r iv a t e e m p lo y e r s a r e fo r c e d to c o m p e te w it h g o v e r n m e n t f o r w o rk ers.
A s m e n tio n e d e a r lie r , t h is w o u ld a d d to t h e p o te n t ia l in fla tio n im p a c t o f S .5 0
u n le s s o f fs e tt in g a n ti- in fla tio n m e a s u r e s w e r e a d o p ted .




174
T h e s e w a g e s ta n d a r d s a r e lik e ly t o a t t r a c t w o r k e r s fr o m o t h e r s e c t o r s o f
t h e eco n o m y , a d d in g to t h e s iz e o f t h e f e d e r a l e m p lo y m e n t p r o g r a m r e q u ir e d
to a c h ie v e th e 3 p e r c e n t u n e m p lo y m e n t t a r g e t. F o r in s t a n c e , a t a d is p la c e ­
m en t r a t e o f 5 0 p ercen t, a p u b lic e m p lo y m e n t p ro g ra m to p r o v id e 2 3 0 , 0 0 0 a d ­
d itio n a l jo b s w o u ld h a v e 4 6 0 ,0 0 0 p a r tic ip a n ts.
T h e p o s s ib ility t h a t t h e em p lo y er-o f-ia st r e s o r t f e a tu r e o f S .5 0 w o u ld r e s u lt
in a la r g e an d u n w ie ld ly b u r e a u c r a c y c a n n o t b e ru led o u t, p a r t ic u la r ly in v ie w
o f th e a t tr a c tiv e w a g e s t h a t w o u ld b e o ffered . A t t h e sa m e tim e , h o w e v e r , t h is
f e a tu r e c o u ld d r a w m o re a t te n t io n to im p r o v in g th e q u a lity o f li f e in th e
p r iv a te se cto r . T h is h a s b e e n t h e c a s e in c e r ta in E u r o p e a n c o u n tr ie s t h a t
e n a c te d jo b g u a r a n te e p ro g ra m s in t h e 1 9 6 0 s . U p g r a d in g w o r k in g c o n d itio n s in
lo w - lev el p riv a te - se c to r jo b s c o u ld b e f a c ilit a t e d by a p p r o p r ia te s u b s id ie s t o
b u sin e s s to p ro v id e t r a in in g a n d a n im p r o v e d w o r k in g e n v ir o n m e n t. T o th e
e x t e n t t h a t in c r e a s e d t r a in in g a n d b e tte r w o r k in g c o n d itio n s e n h a n c e w o r k e r
p r o d u c tiv ity , so m e o r a ll o f t h e in fla tio n e f fe c ts o f t h e h ig h e r w a g e s m ig h t be
o ffset. F u r th e r , o v e r th e lo n g e r ru n , in d iv id u a ls w o u ld r e tu r n to t h e p r iv a t e
s e c to r a s w a g e s a n d w o r k in g c o n d itio n s im p r o v e.

Congress

o p t h e U n it e d S t a t e s ,
J o i n t E c o n o m ic C o m m i t t e e ,

Washington, D.C., May $5,1976.
H on . W

il l ia m

P r o x m ir e ,

Dirksen Senate Office Bldg.,
Washington, D.C.
D ear B i l l : S. 50, t h e F u ll E m p lo y m e n t a n d B a la n c e d G r o w th A c t of 1976,
is n o w b ein g c o n sid e r e d b y t h e B a n k in g , H o u s in g a n d U r b a n A f fa ir s C om ­
m itte e a n d th e L a b or a n d P u b lic W e lfa r e C o m m itte e.
T h e s e c o m m itte e s w ill b e c o n s id e r in g t h e n e w H u m p h r e y - H a w k in s b ill, in tr o ­
d u ced o n M arch 16, 1 9 7 6 , in th e fo r m o f a m e n d m e n t 14 6 8 . T h is n e w le g is la t io n
b ea rs l i t t l e resem b la n ce to t h e o r ig in a l b ill t h a t w a s in tr o d u c e d o n M a rch 20,
1975.
D e s p ite m a jo r ch a n g e s in th e r e v is e d le g is la tio n , m a n y c o n tin u e t o c r it ic iz e
th e o r ig in a l b ill, w h ic h w a s p r im a r ily d r a f te d f o r d isc u s sio n p u r p o se s a t field
h e a r in g s h eld by th e J o in t E c o n o m ic C o m m itte e an d th e S u b c o m m itte e on
E q u a l O p p o rtu n ities o f th e H o u s e E d u c a tio n a n d L ab or C o m m itte e. W e h a v e
h a d a t le a s t fo u r n e w s s t o r ie s t h a t r e v ie w e d t h e w ro n g b ill.
T h e s tr a te g y a n d m a jo r p r o v isio n s o f t h e n e w H u m p h r e y - H a w k in s b ill a r e
r e v ie w e d by m e in a M ay 1 4 th op-ed p a g e a r t ic le in th e W a s h in g to n P o st,
w h ic h I am en clo sin g . I t w a s th e r e v is e d a n d c o m p r e h e n siv e fo r m o f t h e F uU
E m p lo y m e n t a n d B a la n c e d G ro w th A c t o f 1 9 7 6 th a t w a s a p p r o v e d b y th e
H o u se E d u c a tio n an d L ab or C o m m itte e b y a v o te o f 2 5 to 1 0 on M ay 4 , 1 9 7 6 .
T h o s e w h o h a v e stu d ie d th e b ill c a r e f u lly a r e u s u a lly su p p o r tiv e o f th e
le g is la tio n or m a jo r p a r ts o f it. F o r ex a m p le , D r. E li G in zb u rg, C h a ir m a n o f
th e N a tio n a l C o m m issio n fo r M a n p o w er P o lic y , su p p o rts m a n y o f t h e p ro­
v is io n s o f th e b ill. T h e M ay-Ju n e is s u e o f C h a lle n g e m a g a z in e , a le a d in g eco ­
n o m ic s p u b lic a tio n , s ta te d in a n e d ito r ia l t h a t th e “F uU E m p lo y m e n t an d
B a la n c e d G ro w th A c t o f 1 9 7 6 is th e m o st c o n se q u e n tia l s o c ia l le g is la t io n to
co m e a lo n g sin c e th e E m p lo y m e n t A c t o f 1 9 4 6 .”
A co p y o f D r. G in zb u rg ’s le t te r a n d th e C h a lle n g e m a te r ia l a r e en c lo se d . I
u rg e y o u to rea d th em . I a m c o n v in c e d t h a t t h e s tr a te g y th e m e a s u r e em b o d ie s
is th e b e st w a y to a ss u r e t h a t o u r fr e e , c o m p e titiv e e n te r p r ise s y s t e m r e a c h e s
it s f u ll p o te n tia l.
S in c e r e ly y o u rs,
H ubert H. H um ph rey ,

Chairman.
N ational Commission

for

M anpower Policy ,

March 25, 1976.
C o n g ressm a n A ugustus F . H a w k i n s ,

U.S. House of Representatives,
Washington, D.C.
D ea r Congressman H a w k i n s : I a p p r e c ia te y o u r c o u r te sy to p e r m it m e to
co m m en t on H R -50 by le t te r r a th e r th a n by a p p ea rin g fo r m a lly a t th e h e a r ­




in g s w h ic h y o u r S u b -C o m m ittee is h o ld in g . T h e N a tio n a l C o m m issio n f o r
M a n p o w e r P o lic y h a s e x p lo r e d m a n y is s u e s c o n ta in e d in H R - 5 0 d u r in g th e
p a s t s e v e r a l m o n th s a n d m y co m m e n ts a r e in fo r m ed by th e se d is c u s sio n s. H o w ­
e v e r , I w a n t to s t r e s s t h a t t h e C o m m issio n w ill n o t c o m p lete i t s reco m m en ­
d a tio n s on a n e m p lo y m e n t s t r a t e g y fo r th e n a tio n u n til it fin a liz e s it s S eco n d
A n n u a l R e p o r t to th e P r e s id e n t a n d th e C o n g ress w h ic h is d u e in th e f a l l
o f 1 9 7 6 . H e n c e m y c o m m e n ts m u s t be v ie w e d a s in d ic a tiv e o f th e p r e s e n t
t h in k in g o f th e C o m m issio n , n o t a s r e fle c tio n s o f it s c o n sid er ed c o n c lu sio n s .
1. T h e C o m m issio n s h a r e s w ith H R - 5 0 t h e c o n v ic tio n th a t o p p o r tu n itie s
f o r jo b s f o r a ll A m e r ic a n s a b le an d w illin g to w ork sh o u ld be p la c e d a t th e
v e r y to p o f t h e n a tio n ’s a g e n d a fo r a n a c t iv is t m a n p o w e r p o lic y . I n it s f ir s t
a n n u a l rep o rt, t h e C o m m issio n o u tlin e d m a n p o w e r p o licy “a s a s e t o f co m ­
m itm e n ts a n d p r o g r a m s a im e d a t f a c ilit a t in g th e e m p lo y a b ility o f a ll p e r s o n s
a b le a n d w illin g to w o r k ; th e s tr e n th e n in g o f th e m a n p o w e r in fr a s tr u c tu r e t o
e n h a n c e th e m a tc h in g o f p e o p le a n d jo b s ; an d p r o v id in g v a r io u s ty p e s o f
s p e c ia liz e d su p p o r t in th e fo r m o f tem p o ra r y jo b s, in co m e su p p o rt a n d o th e r
t y p e s o f m a n p o w e r a s s is t a n c e to in d iv id u a ls a n d g r o u p s w h en t h e eco n o m y is
u n a b le to p r o v id e a d e q u a te e m p lo y m en t o p p o r tu n itie s.” T o e ffe c tu a te s u c h a
c o m p r e h e n s iv e a p p ro a ch w ill re q u ir e m a n y o f th e e le m e n ts in H R - 5 0 .
2 . T h e C o m m issio n is a p p a lle d a s is H R - 5 0 by th e c u m u la tiv e h u m an , so c ia l,
a n d e c o n o m ic w a s t e s r e s u ltin g fro m th e s e r io u s sh o r t- fa ll in jo b s p a r tic u la r ly
s e v e r e s in c e l a t e 1 9 7 4 b u t c h a r a c te r is tic o f m o st o f t h e p ost-W orld W a r I I
p e r io d .
T h e C o m m issio n n o te d in i t s fir st a n n u a l rep o rt “t h a t th e t h r e a t o f r e n e w e d
in fla t io n a r y p r e s s u r e s d o e s n o t j u s t if y th e c o n tin u a tio n o f p o lic ie s t h a t c a r r y
e x c e s s i v e h u m a n a n d e c o n o m ic c o sts, w h ic h t h is y e a r w ill e x c e e d $ 2 0 0 b illio n
in l o s t o u tp u t a lo n e ” an d t h a t “In c o n s id e r in g th e c o s t o f p u ttin g in d iv id u a ls
b a c k to w o rk , i t sh o u ld be n o te d th a t th e r e a r e a ls o s u b s ta n tia l c o s ts to d o in g
n o th in g . I t h a s b een e s tim a te d t h a t fo r e v e r y p e r c e n ta g e p o in t in c r e a s e in
t h e u n e m p lo y m e n t r a te a b o v e 4 p ercen t, t h e f e d e r a l d e fic it in c r e a s e s by a lm o s t
$ 1 6 b illio n — $ 1 4 b illio n b e c a u se o f r ed u ced t a x r e c e ip ts a n d $ 2 b illio n b e c a u se
o f in c r e a s e d t r a n s f e r p a y m e n ts . T h e p r o c e ss a ls o w o r k s in r e v e r se .”
3 . T h e C o m m issio n i s c o n v in c e d a s is H R - 5 0 th a t th e d a n g e r o f r e n e w e d
k in d lin g o f in fla tio n a r y p r e s s u r e s c a n n o t j u s t if y a m acro-p olicy t h a t w ill
le a v e u s w it h su c h e x c e s s iv e ly h ig h u n e m p lo y m e n t r a t e s a s h a v e b een c a lc u ­
la t e d by b o th O M B a n d C B O u n d e r th e ir p r e s e n t e s tim a te s .
T h e C o m m issio n in i t s fir st a n n u a l rep o rt f u r th e r n o te d :
“T h a t t h e p r e s e n t in fla tio n a r y p r e s s u r e s d id n o t a r is e fro m a s h o r ta g e o f
w o r k e r s a n d t h e ir a m e lio r a tio n sh o u ld n o t b e so u g h t a n d c a n n o t b e a c h ie v e d
b y c o n tin u in g h ig h le v e ls o f u n e m p lo y m e n t.”
“T h e C o m m issio n f u lly u n d e r s ta n d s th e n a tio n a l d e s ir e to e x e r c is e b u d g e ta r y
r e s t r a in t a n d p la c e a c e ilin g on d eficits. I t n o te s, h o w e v e r , t h a t th e p r e s e n t
f e d e r a l b u d g e t d e fic its a r e d u e in p a r t to th e r e c e n t r e c e ss io n w it h it s h ig h
le v e l o f u n e m p lo y m e n t w h ic h h a s r e s u lte d in la r g e in c r e a s e s in tr a n s f e r p a y ­
m e n ts a n d lo w e r t a x r e v e n u e s . T h e c o s t o f p r o v id in g m o re e m p lo y m e n t op p or­
t u n i t i e s th r o u g h e x p a n s io n a r y m acro-econ om ic p o lic ie s w o u ld be le s se n e d o v e r
t h e lo n g r u n b y t h e e x t e n t to w h ic h f e d e r a l t r a n s f e r p a y m e n ts a r e r ed u ced a n d
f e d e r a l t a x r e c e ip ts a r e in c r e a s e d .”
“ I n t im e s o f e x c e s s iv e in fla tio n a r y p r e s su r e s , w h e n a c o o lin g o f t h e eco n o m y
m a y b e c o n sid e r e d d e sir a b le — a lth o u g h re c e n t e x p e r ie n c e r a is e s se r io u s q u e s­
t io n s a b o u t t h e u n e m p lo y m e n t- in fla tio n tr a d e off— s e le c tiv e d em a n d m a n a g e ­
m e n t, t h a t is, p u b lic jo b c r e a tio n , in c o m e su p p o rt, a n d o th e r m a n p o w e r p ro ­
g r a m s c a n p r o v id e so m e c u sh io n in m itig a t in g so m e o f t h e a d v e r s e e ffe c ts o f
a d e f la tio n a r y p o lic y ”
4
T h e C o m m is sio n s h a r e s w it h H R - 5 0 th e c o n v ic tio n t h a t t h e a c c o m p lish ­
m e n t o f a f u l l e m p lo y m e n t g o a l r e q u ir e s th e c lo s e a r t ic u la tio n o f e c o n o m ic
a n d m a n p o w e r p o lic ie s. T h e C o m m issio n n o te d in i t s a n n u a l rep o rt t h a t A n
im p o r ta n t a s p e c t o f t h e d e v e lo p m e n t o f m a n p o w e r p o lic y is i t s in te r r e la tio n ­
s h ip w it h m a cro - eco n o m ic p o lic y . A lth o u g h m a cro -eco n o m ic p o lic ie s h a v e t h e
p r im a r y r o le in d e te r m in in g t h e le v e l o f a g g r e g a te r a p lo y m e n t , m a n ^ w e r
p o lic y c a n su p p le m e n t t h e e f fe c tiv e u s e o f fisc a l, m o n e ta r y a n d b u d g e ta r y
p o lic y in m a x im iz in g e m p lo y m e n t, p a r tic u la r ly b y a d d r e s s in g s t r u c t u r a l or
g e ^ T P o m m U sio n , h o w e v e r , h a s n o t h a d t h e o p p o r t u ^ t y t o CTplore t h e ^ ^
C
c iflc le g i s l a t i v e a n d a d m in is tr a t iv e s tr u c tu r e s p ro p o sed in H R - 5 0 , in c lu d in g
t h e e s ta b lis h m e n t o f a F u ll E m p lo y m e n t O ffice in th e D e p a r tm e n t o f L ab or.




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5 . S o m e c a u tio n i s in d ic a te d in e s ta b lis h in g a s in g le r a t e o f u n e m p lo y m e n t
a s a n a b so lu te ta r g e t. H o w e v e r , t h e n eed to s e t so m e m e a s u r e a b le o b je c tiv e s
is a p p recia ted * H o w e v e r , a s in g le r a t e c a n n o t a lo n e su ffice s in c e t h e d is t r ib u ­
tio n o f u n e m p lo y m e n t a n d i t s c o n se q u e n c e s i s n o t sp r e a d e v e n ly a c r o s s t h e
p o p u la tio n . T h er efo re , c a u tio n i s s u g g e s te d in d e v e lo p in g a n o p e r a tio n a l s ta n d ­
a rd fo r “f u l l e m p lo y m e n t”—-not h o w e v e r in t h e p u r s u it o f t h a t g o a l.
6 . T h e C o m m issio n a g r e e s w ith t h e e m p h a s is in H R - 6 0 t h a t s t r e s s e s t h a t
a fu ll-em p lo y m e n t p ro g ra m m u s t p r o v id e “p r o d u c tiv e n o n - w a ste fu l jo b s .”
7. T h e C o m m issio n a ls o a g r e e s w ith H R - 5 0 t h a t th e r e is " w id e sp r e a d d u p li­
c a tio n a n d c o n tr a d ic tio n a m o n g fe d e r a l d e p a r tm e n ts a n d a g e n c ie s .” I a m fo r ­
w a r d in g a t th is tim e t h e C o m m issio n ’s s p e c ia l rep ort, M a n p o w e r P r o g r a m
C o o rd in a tio n . I n b o th t h is s p e c ia l rep o rt a n d i t s F ir s t A n n u a l R e p o r t, t h e
C o m m issio n m a d e a n u m b er o f r e c o m m e n d a tio n s fo r im p r o v in g t h e in te r r e ­
la tio n s h ip s a m o n g m a n p o w e r p ro g ra m s. I n i t s F ir s t A n n u a l R e p o r t t h e C om ­
m issio n c o n c lu d e d : “t h a t s u b s ta n t ia l g a in s c a n b e m a d e fr o m im p r o v e d c o ­
o r d in a tio n o f m a n p o w e r a n d r e la te d p ro g ra m s, b u t t h is c a n b e a c c o m p lish e d
o n ly i f c o n s tr u c tiv e a c tio n s a r e ta k e n a t e v e r y le v e l— fe d e r a l, s t a t e a n d lo c a l.”
I t i s th e h o p e o f t h e C o m m issio n t h a t C o n g r e ss w i ll th r o u g h f u t u r e le g is la t io n
f a c ilit a t e a n d m a n d a te c o o r d in a tio n o f e x is t in g a n d f u t u r e m a n p o w e r le g is ­
la tio n .
8. T h e C o m m issio n a g r e e s w it h H R - 6 0 in t h e n e e d f o r im p r o v e d in te g r a tio n
o f in co m e- m a in ten a n ce p r o g r a m s a n d f u ll e m p lo y m e n t p o lic ie s.
A s i t s F ir s t A n n u a l R e p o r t s t a t e s : “T h e C o m m issio n su p p o r ts e a r ly a c tio n to
c o n v e r t tr a n s f e r p a y m e n ts in to w a g e s f o r w o r k e r s w h o h a v e b een u n e m p lo y e d
f o r lo n g p e r io d s o f tim e .” A c c o r d in g ly , th e C o m m issio n i s e x p lo r in g h o w a p ro­
p o rtio n o f th e e s tim a te d $ 4 0 b illio n o f e m e r g e n c y in co m e t r a n s f e r p a y m e n ts in
fisca l y e a r 1 9 7 6 c a n b e c o n v e r te d to c r e a t in g e m p lo y m e n t o p p o r tu n itie s f o r th e
u n em p lo y ed in t h e p u b lic se c to r , a s w e ll a s e x p lo r in g n e w a p p r o a c h e s fo r
m a in ta in in g a n d e x p a n d in g jo b o p p o r tu n itie s fo r t h e u n e m p lo y e d a n d p o­
te n tia lly u n em p lo y ed in t h e p r iv a t e se c to r .
W ith reg a rd t o th e U n e m p lo y m e n t I n s u r a n c e S y stem , t h e C o m m issio n h a s
recom m en d ed :
E n a c tm e n t o f le g is la t io n to im p r o v e th e c o v e r a g e , b en efit le v e ls , a n d fin a n c in g
o f th e sy ste m .
A stu d y to d e te r m in e w a y s U I c a n b e tr a n sfo r m e d in p a r t in to a m a n p o w e r
su p p o rt p ro g ra m w ith e m p h a s is o n e x p a n d in g t r a in in g o p p o r tu n itie s a n d m o­
b ility a ss ista n c e .
A stu d y o f th e v a r io u s ty p e s o f w o rk -b a sed e a r n in g p r o g r a m s t h a t m ig h t
be e s ta b lish e d f o r th e lo n g term u n e m p lo y e d in lie u o f f u r th e r e x t e n s io n o f
TJI or fo r c in g th o s e w h o h a v e e x h a u s t e d th e ir b e n e fits o n to w e lf a r e r o le s. (T h e
C o m m issio n o ffered a s o n e p o s s ib ilit y c o m m u n ity d e v e lo p m e n t p r o je c ts w h ic h
o ffer em p lo y m e n t an d t r a in in g o p p o r tu n itie s to th e lo n g term u n e m p lo y e d in
in n e r c it ie s an d r u r a l a r e a s .)
E lim in a tio n o f d u p lic a tio n a n d in e ffic ie n c ie s in w o r k t e s t p r o c e d u r e s u sed
in U I, F o o d S ta m p s, a n d W ork I n c e n t iv e p ro g ra m s.
9. T h e C o m m issio n is sy m p a th e tic w it h t h e ra n g e o f c o u n te r c y c lic a l p ro­
p o sa ls o f H R - 5 0 w ith o u t a s y e t h a v in g h a d a n o p p o r tu n ity to a s s e s s th e m in
d e ta il,
10. W h ile t h e C o m m issio n h a s s t a f f w o r k u n d e r w a y w it h r e s p e c t t o r e g io n a l
an d s tr u c tu r a l e m p lo y m e n t p o lic ie s i t i s u n a b le a t t h is t im e to c o m m e n t on
th e s e p r o v isio n s in H R - 5 0 b e c a u se i t h a s n o t y e t h a d a d e t a ile d d is c u s s io n
o n t h e s e p o lic y m a tte r s.
11. T h e C o m m issio n s h a r e s t h e c o n c e r n e x p r e s s e d in H R - 6 0 w it h t h e n eed
f o r str e n g th e n e d y o u th e m p lo y m e n t p o lic ie s . I t i s c u r r e n tly is s u in g a v o lu m e
o f e x p e r t p a p e r s o n t h is s u b je c t w h ic h w ill s h o r tly b e a v a ila b le .
12. T h e C o m m issio n i s s y m p a t h e tic t o t h e p r o p o sa l c e n te r e d in H R - 5 0 re­
la t in g to “R e s e r v o ir s o f E m p lo y m e n t P r o j e c t s ” a lth o u g h i t h a s n o t a s y e t h a d
th e o p p o rtu n ity to e x p lo r e t h e ir p o te n t ia l.
13. T h e C o m m issio n i s in a c c o r d w it h t h e p r o p o sa l o f H R - 6 0 f o r a Con­
g r e s sio n a l d e te r m in a tio n a s to p r io r ity o f c la im a n t s f o r p u b lic s e r v ic e em p lo y ­
m en t jo b s a n d o th e r ty p e s o f m a n p o w e r s e r v ic e s . I n p a r tic u la r , f a m ily in co m e
sh o u ld b e a p rim a ry c o n sid e r a tio n . I n i t s S ec o n d I n te r im R e p o r t t o t h e C on­
g ress, th e C o m m issio n r e c o m m e n d e d : “ t h a t C o n g ress e s ta b lis h a m a x im u m
f a m ily (o r h o u se h o ld ) in c o m e c e ilin g f o r p e r s o n s to b eco m e e lig ib le f o r P S E




177
jo b s .” Thfe C o m m issio n a d v a n c e d t h is r e c o m m e n d a tio n on th e b a s is o f t h e in ­
e q u ity o f h a v in g se c o n d a r y w a g e e a r n e r s o f so m e f a m ilie s c o m p e tin g w ith
u n e m p lo y e d f a m ily h e a d s o f o th e r f a m ilie s fo r a lim it e d n u m b er o f p u b lic ly
su p p o r te d jo b s.
T w o a d d itio n a l v ie w s o f t h e C o m m issio n w h ic h p e r ta in to th e o b je c tiv e s
o f H R - 5 0 m a y be o f in te r e st.
I n t h e C o m m is sio n ’s F ir s t A n n u a l R ep ort, it w a s n o te d t h a t “A d d r e s sin g th e
c o n tin u e d p ro b le m s w ill r e q u ir e sig n ific a n t c h a n g e s in m a n y o f t h e p r e s e n t
c o n c e p ts a n d p o lic ie s , a c o n sid e r a b le r e d ir e c tio n o f m a n y o f o u r p ro g ra m s, a n d
so m e r e s tr u c tu r in g o f o u r eco n o m ic an d m a n p o w e r in s t it u t io n s .”
T h e r e p o r t w e n t on t o s t a t e t h a t “In a s s e s s in g t h e s t a t e o f o u r n a tio n ’s
m a n p o w e r p o lic y in t h e f a ll o f 1 9 7 5 , it is t h is g r o w in g a c c e p ta n c e o f c h r o n ic a lly
h ig h u n e m p lo y m e n t w h ic h th e C o m m issio n ju d g e s to be i t s m o st c r it ic a l a n d
t h e m o st d is q u ie t in g fin d in g. I f t h e n a tio n — a n d it s le a d e r s h ip — c o n tin u e s to
a c c e p t a s in e v ita b le a h ig h le v e l o f u n e m p lo y m e n t a n d c o n se q u e n tly le s s e n s
i t s s e a r c h f o r e a r ly a n d e ffe c tiv e r e m ed ies, th e u n e m p lo y e d a n d t h e n a tio n
w i l l h a v e b eco m e th e v ic t im s o f a se lf- fu lfillin g p r o p h e c y .”
A s in d ic a te d in th e b e g in n in g o f t h is c o m m u n ic a tio n , t h e C o m m issio n is
p r e s e n tly in m id - str ea m in f o r m u la tin g i t s d e t a ile d p r o p o sa ls w it h r e sp e c t to
a n a t io n a l m a n p o w e r p o licy , in c lu d in g e m p lo y m e n t s tr a te g y . H o w e v e r , I h o p e
t h a t m y sp e c ific c o m m e n ts c o n v e y t o y o u t h e fr e q u e n t p a r a lle lis m b e tw e e n
t h e C o m m is sio n ’s p r e lim in a r y a p p r o a c h to e m p lo y m e n t p ro b lem s a n d t h e p ro ­
p o s a ls c o n ta in e d in H R ^ 5 0 . Y ou c a n be a s s u r e d th a t a s t h e C o m m issio n m o v e s
a h e a d to d e e p e n i t s a n a ly s is a n d f o r m u la t e s it s r e c o m m e n d a tio n s i t w ill g iv e
c lo s e a t t e n t io n to HR--50.
I a m a l s o e n c lo s in g a cop y o f m y r e m a r k s p rep a red f o r t h e J o in t E c o n o m ic
C o m m itte e ’s N a t io n a l C o n feren ce on F u ll E m p lo y m e n t s in c e th e y su p p le m e n t
s o m e o f t h e c o m m e n ts s e t o u t a b o v e.
S in c e r e ly ,
E

li

G in z b e r g ,

Chairman
E n c lo s u r e .
S t a t e m e n t o r E l i G in z b e r g , C h a i r m a n , N a t io n a l C o m m is s io n
P o l ic y

for

M anpow er

N o t e : S in c e t h e C o m m issio n is c u r r e n tly e n g a g e d in d e v e lo p in g i t s reco m ­
m e n d a t io n s a b o u t o u r e m p lo y m e n t s t r a t e g y w h ic h w ill n o t b e fin a liz e d b e fo r e
t h e f a l l o f 1 9 7 6 , th e fo llo w in g p o in ts m u s t b e v ie w e d a s in d ic a tiv e o f i t s th in k ­
in g , n o t a s c o n sid e r e d c o n c lu sio n s.
1. T h e r e i s n e e d t o p la c e t h e is s u e s o f j o b s f o r a ll A m e r ic a n s a b le a n d w il l ­
i n g t o w o r k a t t h e to p o f th e n a tio n ’s a g e n d a .
2. T h e h u m a n , so c ia l, a n d e c o n o m ic c o s ts fr o m a la r g e s h o r t f a ll o f jo b op ­
p o r t u n it ie s g o e s f a r b ey o n d t h e $ 2 0 0 b illio n p lu s c a lc u la t e d lo s s o f G N P t h i s
year.
3. T h e n u m b e r o f p o te n tia l a p p lic a n ts f o r jo b s, n o t n o w in c lu d e d in t h e
c o u n t o f t h e u n e m p lo y e d in c lu d e s m a n y w h o a r e d isc o u r a g e d , t h e se r io u s ly
h a n d ic a p p e d , t h e p r e m a tu r e r e tir e e s , a m in o r ity o f p a r t- tim e w o r k e r s w h o w a n t
f u ll- t im e w o rk , m a n y on th e sc h o o l r o lls w a it in g f o r t h e jo b m a r k e t t o im p r o v e,
m a n y h o u s e w iv e s w h o w a n t to w ork , p e r s o n s on t h e fa r m w a it in g f o r a n
o p p o r tu n ity to s h if t to a r e g u la r job, a n d m a n y in r e c e ip t o f t r a n s f e r p a y m e n ts .
N o o n e k n o w s f o r s u r e h o w m a n y a r e r e p r e s e n te d in t h e s e g r o u p s b u t th e y
p r o b a b ly e x c e e d t h e n u m b er o f c o u n te d u n e m p lo y ed .
4. T h e f a c t t h a t u n e m p lo y m e n t a n d u n d e r e m p lo y m e n t b e a r p a r t ic u la r ly
h e a v ily o n c e r t a in p o p u la tio n g r o u p s a n d c e r t a in a r e a s m u s t b e e m p h a s iz e d .
M in o r it ie s a n d y o u th h a v e r a t e s t h a t a r e fiv e to te n tim e s a s h ig h a s w h it e
m a r r ie d m en .
5 . A f ir s t r e q u ir e m e n t to c lo s e t h e g a p b e t w e e n p o te n t ia l jo b s e e k e r s a n d j o b s
i s t o im p r o v e t h e o p e r a tio n o f m a cro -eco n o m ic p o lic ie s. T h e f e d e r a l g o v e r n m e n t
m u s t b e c o n c e r n e d a b o u t a r e n e w a l o f t h e in fla tio n a r y sp ir a l. H e n c e i t sh o u ld
e x p lo r e n e w w a y s o f m o n ito r in g a n d d a m p e n in g w a g e - p r ic e p r e s s u r e s a s i t
r e s o r t s t o m o r e s t im u la t iv e p o lic ie s, in c lu d in g c o n s u lt a tio n w it h b u s in e s s a n d
la b o r a b o u t t h e a v e r a g e s iz e o f w a g e a n d p r ic e a d ju s tm e n ts .
6 . S in c e p o t e n t ia l jo b c la im a n t s h a v e d iffe r e n t n e e d s t i m e sh o u ld b e re­
f le c t e d b y m a n p o w e r p o lic ie s t h a t a d d r e s s th e m a s f o r In s t a n c e :




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R e p ro g ra m m in g t h e $ 1 b illio n p in s o f c u r r e n t e x p e n d itu r e s f o r y o u th t o p r o ­
v id e f o r th o s e w h o se e k to e n t e r t h e la b o r m a r k e t a t 1 8 or s o a c o m b in e d
sch o o l-w o rk e x p e r ie n c e o v e r 2 / 3 y e a r s , in v o lv in g b o th th e p r iv a t e a n d p u b lic
s e c to r t r a in in g s lo ts.
W h en o ld e r u n s k ille d m en a n d w o m e n lo s e t h e ir j o b s w it h in 5 y e a r s o f b e in g
e lig ib le f o r s o c ia l s e c u r ity , w ith l i t t l e p r o sp e c t o f b e in g reem p lo y ed , a n e x ­
p a n d e d p ro g ra m su c h a s O p e r a tio n M a in str e a m a p p e a r s a p p r o p r ia te .
E ffo r ts s h o u ld be m a d e to c o n v e r t t h e U I sy s te m , a f t e r a c e r t a in p o in t— i.e.
2 6 w e e k s o r so, in to a m a n p o w e r tr a in in g , e m p lo y m e n t se a r c h , or p u b lic s e r v ic e
em p lo y m en t.
R e c e ip ie n ts o f A F D C w it h n o y o u n g c h ild r e n to c a r e f o r a t h o m e s h o u ld b e
en co u ra g ed to w o rk p a r t o r fu ll- tim e , in p u b lic se r v ic e em p lo y m e n t, p r e fe r a b ly
r e c e iv in g m a n p o w e r s e r v ic e s t h a t w ill in c r e a s e th e ir e m p lo y a b ility .
T h o s e in r e c e ip t o f d is a b ility p a y m e n ts sh o u ld b e e n c o u r a g e d t o e n te r su p ­
p o r te d w o r k p ro g ra m s a n d / o r s h e lt e r e d w o r k sh o p s to lin k th e m m o r e c lo s e ly
to r e g u la r jo b s.
L o w in c o m e a n d m in o r ity g ro u p m em b er s w it h lim it e d s k ills sh o u ld h a v e
th e o p p o r tu n ity f o r s e r io u s s k ill t r a in in g a n d tr a n s it io n a l e m p lo y m e n t ( a s
u n d er T it le s I a n d I I o f C E T A ) so a s to b e a b le to im p r o v e t h e ir o c c u p a tio n a l
s t a t u s a n d in co m e.
7. T h e m bre c o m m u n itie s a r e a b le t o d e e v e lo p a s h e lf o f p r o je c ts t h a t a r e
la b o r in te n s iv e th e b e tte r t h e p r o sp e c ts f o r u s in g P S E a s a c o u n te r - c y c lic a l
d e v ice. T h e f e d e r a l g o v e r n m e n t sh o u ld a ls o e x p lo r e v a r io u s t a x a n d in v e s t m e n t
p o lic ie s (s u c h a s a r e u se d in S w e d e n ) to s t im u la t e e m p lo y m e n t in t h e p r iv a t e
se c to r in c y c lic a l d e c lin e s. T h e s t a t e s sh o u ld c o n sid e r ( a s in N .Y .) w h e t h e r
i t w o u ld b e b e n e fic ia l to u s e t h e U I s y s te m to h e lp m a in ta in m o r e e m p lo y e e s on
th e p a y r o ll b u t r e d u c in g t h e ir w o r k w eek , a n d su p p le m e n tin g t h e ir red u c e d
e a r n in g s v ia U I.
8. A s th e n a tio n m o v e s to w a r d a fu ll- e m p lo y m e n t p o lic y i t is d e s ir a b le t h a t
i t e x p e r im e n t w it h t h e f o llo w in g c o m p le x is s u e s an d le a r n a s i t g o e s :
( a ) H o w to c r e a te p r o d u c tiv e jo b s in t h e p u b lic se c to r t h e o u tp u t o f w h ic h
th e p u b lic r e c o g n iz e s a s b e in g w o r th w h ile a n d i s w illin g to p a y fo r.
( b ) T h e e s ta b lis h m e n t o f w a g e s a n d w o r k in g c o n d itio n s on p u b lic jo b s t h a t
d o n o t je o p a r d iz e t h e s ta n d a r d s a c h ie v e d by th e r e g u la r w o r k f o r c e ; b u t a t
t h e sa m e tim e d o n o t p u ll w o r k e r s o u t o f th e ir p r e s e n t jo b s b e c a u se t h e p u b lic
jo b s p a y b etter .
( c ) A r e a liz a tio n t h a t p u b lic jo b s c a n n o t s o lv e th e in co m e n e e d s o f f a m ilie s
b u t o n ly d e liv e r on th e p r o m ise o f p r o v id in g w o r k f o r e v e r y b o d y a b le a n d
w illin g t o w o r k .
( d ) E x p lo r e th e p o te n t ia l f o r r e d u c in g t h e e x tr e m e c y c lic a l s w in g s in e m ­
p lo y m e n t o f c e r ta in in d u s t r ie s su c h a s c o n s t r u c t io n ; a n d t h e p o s s ib ilit y o f
lo n g -tim e fin a n c in g a s s is t a n c e f o r s tr e n g th e n in g im p o r ta n t n a tio n a l o b je c tiv e s
su c h a s m o d e r n iz in g t h e in fr a s t r u c tu r e o f o u r o ld e r c it ie s a n d a d v a n c in g ou r
en erg y in d ep en d e n c e.
[From the Challenge, M&y-June 1 9 7 6 ]
Do E

c o n o m is t s

D

is c o v e r

E

c o n o m ic

L

a w s or

A

re

T

hey

P assed

by

Co n g r e s s ?

( F r o m th e e d ito r )

N o t w is h in g t o p r e ju d ic e a n y o n e f o r o r a g a in s t t h e H u m p h r e y - H a w k in s b ill,
I w ill lim it m y s e lf to a f e w c a s u a l rem a rk s.
T h e r e a d e r w ill fin d t h e c o m p le te t e x t a n d a n in te r p r e tiv e in te r v ie w w it h
S e n a to r H u m p h r e y in t h is iss u e . I t w ill b e e v id e n t t h a t th e “F u ll E m p lo y m e n t
a n d B a la n c e d G ro w th A c t o f 1 9 7 6 ’* i s th e m o st c o n se q u e n t s o c ia l le g is la t io n
to co m e a lo n g s in c e th e E m p lo y m e n t A c t o f 1 9 4 6 . T h e b ill i s a p la n f o r p la n ­
n in g , a n d fir st o f a ll, f o r p la n n in g f u l l e m p lo y m e n t w it h o u t in fla tio n . I t i s a
la r g e g e n e r a liz a tio n a b o u t t h e o b je c tiv e s o f t h i s co u n tr y a n d h o w t o r e a c h
th e m . I f i t b eco m es la w , w e w ill, in e ffe c t, h a v e re a c h e d a g r e e m e n t o n a n
e x p e r im e n t a n d a co m p a ct t h a t w i l l ta k e u s o n a lo n g jo u r n e y in to u n c h a r te d
te r r ito r y . T h is w ill g iv e e c o n o m is ts p le n ty t o d o e v e n th o u g h t h e y m a y t h in k
t h e d o in g o f i t i s im p o ssib le .
T h e r e i s n o n e e d t o r e h e a r s e t h e o ld a r g u m e n ts a b o u t h o w m u c h e a s ie r i t i s
t o a r r a n g e to h a v e u n em p lo y m en t, in fla tio n o r b o th . E c o n o m is ts a r e p a s t m a s ­
t e r s a t t h e s e th in g s. B u t i t i s a lw a y s w o r th a re m in d e r t h a t t h e c o s ts a r e




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in to le r a b ly h ig h . T h e J o in t E c o n o m ic C o m m itte e h a s su p p lie d u s w it h so m e d is ­
q u ie tin g n e w fig u res. W e h a v e lo s t $ 5 0 0 b illio n in p o te n tia l in co m e a n d p ro­
d u c tio n in th e la t e recession . W e w ill lo s e a n o th e r $ 8 0 0 to $ 9 0 0 b illio n b e tw e e n
n o w a n d 1 9 8 0 . F e d e r a l, sta te a n d lo c a l g o v e r n m e n ts w ill h a v e lo s t $ 4 0 0 b illio n
b y th e n — i f w e f a i l to do b etter. Y ou d o n ’t h a v e to b e a g r e a t ch a m p io n o f
g r o w th m a n s h ip to reco g n ize h o w d e v a s t a t in g a ll t h is is. I t is s m a ll c o m fo r t
t h a t 9 0 p e r c e n t o f th e lab or fo r c e i s s t ill em p lo y ed . W e h a v e tu r n e d o n to a
h ig h c o s t road . I f w e ca n n o t or w ill n o t g e t o ff it, t h a t is a n a d m is s io n o f
f a ilu r e . T h e p r ic e w ill b ecom e h ig h er, n ot lo w e r , a s w e g o on.
Y o u c a n n o t le g is la t e in te llig e n c e , o f co u rse. B u t y o u c a n l e g is la t e o b je c tiv e s ,
a n d a fr a m e w o r k a n d a p roced u re fo r r e a c h in g th e m . T h is is h o w t h e b ill
s h o u ld b e v ie w e d . T h e v a s t r e s e r v o ir o f in te lle c t a m o n g e c o n o m is ts c a n th e n
b e ta p p e d to m a k e su r e th a t th e p r o v isio n s a r e a p p lie d w ise ly .
I t w ill b e a g r e a t to n ic to t h e m o r a le o f th e r e a d e r to k n o w t h a t t h e A F L C IO is su p p o r tin g th e H u m p h rey -H a w k in s b ill. I h o p e th a t G eo rg e M ean y
w ill n o t b e e m b a rra ssed i f I p a r a p h r a se M arx. E c o n o m is ts h a v e in te r p r e te d
th e eco n o m y lo n g en ou gh . T h e p o in t is to c h a n g e it. T h a t m e a n s le s s fo r e c a s tin g
a n d m o r e p la n n in g . T h is is th e a n s w e r to th e r id d le in t h e t itle .
T he N ew H u m p h b e y -H a w k in s B il l
( I n t e r v ie w — H u b e r t H . H u m p h r e y *)
Question. I n M arch , a n ew d r a ft o f th e H u m p h r e y - H a w k in s b ill, “T h e F u ll
E m p lo y m e n t a n d B a la n c e d G ro w th A c t / ’ w a s in tr o d u c e d in t h e S e n a te a n d
H o u se . W h y d o w e h a v e a n ew v e r s io n n o w ?
A n sw e r . T h e o r ig in a l b ill w a s a lw a y s v ie w e d a s a p r e lim in a r y v e h ic le fo r
f o c u s in g d is c u s s io n on fu ll em p lo y m en t. In t h e c o u r s e o f h e a r in g s a ro u n d t h e
c o u n tr y , w h ic h C o n g ressm a n H a w k in s an d I co n d u cte d , c e r t a in lim it a t io n s in
t h e o r ig in a l d r a f t b ill b ecam e a p p a ren t. F ir s t , t h e 18-m o n th t im e ta b le fo r
r e a c h in g 3 p e r c e n t u n em p lo y m en t se e m e d to a m b itio u s. I t w a s a g o a l w h ic h
w o u ld b e d ifficu lt to a c h ie v e w ith o u t d e s t a b iliz in g th e e co n o m y , p e r h a p s c a n s*
in g a n a c c e le r a tio n o f in flation . S eco n d , th e o r ig in a l H u m p h r e y - H a w k in s b ill
d id n o t h a v e a c o m p r e h e n siv e s e t o f e c o n o m ic a n d jo b - c r e a tin g p o lic ie s to
a c h ie v e f u l l em p lo y m en t. T h e g o a ls w e r e e x t r e m e ly a m b itio u s a n d th e m e a n s
m o d e st. T o r e a c h f u ll em p lo y m en t i t w ill b e n e c e s s a r y to u t iliz e t h e f u ll r a n g e
o f e c o n o m ic p o lic ie s a t th e fe d e r a l, s ta te , a n d lo c a l le v e ls , a n d in t h e p r iv a t e
eco n o m y . W h a t w a s n eed ed w a s a g e n e r a l e c o n o m ic p o lic y b ill, n o t j u s t a jo b s
b ill.
F in a lly , t h e e a r lie r b ill h a d a p r o v isio n w h ic h a llo w e d p e o p le w h o d id n o t
g e t jo b s w it h w h ic h th e y w e r e s a t is f ie d t o s u e t h e f e d e r a l g o v e r n m e n t. T h a t
se e m e d to b e p u ttin g th e c a r t b e fo r e th e h o r se — p r o v id in g a le g a l g u a r a n te e
b e fo r e w e s e t u p t h e job -creation m e c h a n is m s n e c e s s a r y to p r o v id e t h e jo b s.
Question. W h y d o n 't w e d is c u s s t h e n e w v e r s io n s e c tio n b y s e c tio n ? T h e fir s t
d e a ls w it h t h e e s ta b lish m e n t o f g o a ls, p la n n in g , a n d g e n e r a l e c o n o m ic s p o lic ie s .
A n sw e r . I t sh o u ld b e sa id a t th e o u ts e t t h a t t h e b ill i s a g e n e r a l e c o n o m ic
p o lic y b ill in te n d e d to su p p lem en t a n d s t r e n g th e n t h e E m p lo y m e n t A c t o f 1 9 4 6 .
I t b e g in s b y m a k in g a firm n a tio n a l c o m m itm e n t to f u l l e m p lo y m e n t. T h e
s t a t e m e n t t h a t r e fe r s to p ro m o tin g m aximum e m p lo y m e n t, p r o d u c tio n , a n d
p u r c h a s in g p o w e r in th e 1 9 4 6 A c t is c h a n g e d t o s a y t h a t i t i s t h e r e s p o n s ib ility
o f t h e f e d e r a l g o v e r n m e n t to p r o m o te full e m p lo y m e n t, p r o d u c tio n , a n d p u r ­
c h a s in g p o w er. W e h a v e p u t f u ll e m p lo y m e n t b a ck in to t h e E m p lo y m e n t A ct.
Question. W h y d o y o u s a y “b a ck ” ? W a s i t e v e r in ?
A n sw e r . I t w a s in w h en th e d e b a te b eg a n on t h e E m p lo y m e n t A c t o f 1 9 4 6 .
T h e b ill w a s in it ia lly c a lle d th e F u ll E m p lo y m e n t A ct* b u t in t h e p r o c e s s o f
m a k in g c o n g r e s s io n a l a cco m m o d a tio n s in o r d e r to a c h ie v e p a ss a g e , “f u l l ” w a s
d ro p p ed a n d i t b eca m e th e E m p lo y m e n t A c t o f 1 9 4 6 .
N o w , t h e se co n d a n d m a jo r p a r t o f t h e p o lic y d e c la r a t io n is t h a t C o n g ress
d e c la r e s a n d e s ta b lis h e s th e r ig h t o f a ll a d u lt A m e r ic a n s a b le, w illin g , a n d
s e e k in g t o w o rk , to o p p o r tu n itie s f o r u s e f u l e m p lo y m e n t a t f a i r w a g e s . T h is
i s a m a jo r n e w co m m itm en t to w o rk , a n o ld - fa s h io n e d v a lu e t h a t w e h a v e
g o t t e n a w a y fr o m in r e c e n t y e a r s.
1 Senator H ubert H. Humphrey of M innesota is th e Chairman o f the Joint Economic
Committee.




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T h e n e x t s e c tio n o f t h e b ill, d e a lin g w it h a n n u a l
E c o n o m ic R e p o r t o f t h e P r e s id e n t, i s a n im p o r ta n t m °< M < »tton t o t h e E m ­
p lo y m e n t A c t o f 1 9 4 6 . T h a t A c t r e q u ir e s t h a t t h e P r e s id e n t lo o k ^ tr e n d s a n d
s e t g e n e r a l g o a ls in t h e E c o n o m ic R ep o rt. T h e d ifficu lty i s t h a t t h e o b je c tiv e s
h a v e a lw a y s b een v a g u e . T h e r e w a s l i t t l e e ffo r t to c o o r d in a te t h e g o a ls a n d
o f C o n g ress, a n d o f t h e F e d e r a l R ^ e r v ^ T h U w i U
a lw a y s b e t h e c a s e to so m e e x te n t, g iv e n th e s e p a r a tio n o f P ° w ^
e m b o d ie d
in o u r sy s te m . B u t i t ’s p o ss ib le to m a k e in s t itu t io n a l c h a n g e s
^
c o u ra g e th e P r e sid e n t, th e C on gress, a n d th e F e d e r a l R e s e r v e t o r e s o lv e t h e ir
d ifferen ce s o v e r g o a ls an d p o lic ie s m u ch m o re sy s te m a tic a lly T h a t ’s w h a t t h is s e c tio n d o e s in s e v e r a l w a y s . F ir s t , i t r e q u ir e s t h e P r e s id e n t
to s e t n u m e r ic a l a n n u a l g o a ls e a c h y e a r f o r e m p lo y m e n t, p r o d u c t i o n , a n o p u r c h a sin g p o w er. H e h a s to su b m it t h e s e a s p a r t o f t h e E c o n o m ic R ep o rt.
t h e F e d e r a l R e s e r v e m u s t su b m it a n in d e p e n d e n t r e p o rt t o C o n g ress, in d ic a t in g
w h e th e r o r n o t i t w ill su p p o r t t h e g o a ls o f th e P r e sid e n t, a n d w h a t p o lic ie s i t
w ill u s e to su p p o rt th o s e g o a ls. I f t h e F e d e r a l R e s e r v e c a n n o t su p p o r t t h e
g o a ls, i t m u s t g iv e f u ll ju s tific a tio n t o t h e P r e s id e n t ^
C o n g ress. F in a lly ,
C o n g ress is to lo o k a t b o th th e P r e s id e n t ’s p r o p o sa ls a n d t h e F e d e r a l R e s e r v e
r ep o rt a n d e s ta b lis h a n n u a l n u m e r ic a l e co n o m ic g o a ls f o r th e c o u n tr y . C on ­
g r e s s w ill d o t h is a s p a r t o f th e c o n g r e s sio n a l b u d g e t r e s o lu tio n p r o c e ss, w h ic h
is w h e r e g o a ls sh o u ld be se t. I n t h e l a s t y e a r C o n g r e s s d e b a te d t h e s iz e o f t h e
d eficit, a n in str u m e n t o f e c o n o m ic p o licy , w it h o u t lo o k in g a t t h e o b je c tiv e s o f
th a t p o licy . A s a r e s u lt o u r eco n o m ic p o lic y h a s su ffered .
Question. I h a v e th e b ill in fr o n t o f m e, a n d I se e a r e fe r e n c e t o lo n g -term
f u ll em p lo y m en t g o a ls a s w e ll a s sh o rt-term g o a ls.
A n sw er. W h a t w e h a v e tr ie d to do in t h is b ill, in a d d itio n to c la r if y in g o u r
a n n u a l o b je c tiv e s , is to d e v e lo p a lon g-ran ge d im e n s io n to n a tio n a l e c o n o m ic
p o licy a n d t o p ro v id e th e m e a n s o f s e tt in g lo n g -ra n g e g o a ls f o r em p lo y m e n t,
p ro d u ctio n , a n d p u r c h a sin g p ow er. T h is r e q u ir e s t h a t w e lo o k a t t h e tr e n d s
a n d p ro b lem s w e f a c e o v e r a lo n g e r p erio d a n d d e v e lo p p o lic ie s n o w to d e a l
w ith th o s e p ro b lem s. T h is b ill p r o v id e s fo r lon g-ran ge th in k in g on e c o n o m ic
p o lic y so th a t w e c a n d e te c t p ro b lem s b e fo re th e y b ecom e c r is e s , s e t n e w
p r io r itie s, a n d d ev elo p a lt e r n a tiv e p o lic ie s to a c h ie v e ou r a im s e ffe c tiv e ly .
T h e o th e r a sp e c t o f t h e lon g-ran ge eco n o m ic p la n n in g s e c tio n w h ic h i s p a r ­
t ic u la r ly im p o r ta n t is th a t i t p r o v id e s a w a y fo r u s to lo o k a t p a r t ic u la r in ­
d u s tr ie s a n d se c to r s an d se e w h a t k in d s o f o b je c tiy e s an d p o lic ie s w e o u g h t
to e s ta b lis h in th o se se cto r s. T h is w ill e n a b le u s to u n d e r sta n d a n d m a n a g e
th e su p p ly s id e o f th e eco n o m y m u ch b etter.
Question. W h a t is th e fu n c tio n o f th e F u ll E m p lo y m e n t a n d B a la n c e d
G ro w th P la n ?
j , .
. ,
_
A n sw er. G o a l s e tt in g in r e c e n t y e a r s h a s b een d o m in a te d b y e c o n o m is ts w h o
f o r e c a s t w h a t is lik e ly to o ccu r in th e f u tu r e b a se d on tr e n d s in th e p a st.
T h e r e ’s c o n sid e r a b le m e r it in t h a t a n d w e c a n ’t ig n o r e tren d s. B u t n a tio n a l
g o a ls o u g h t to go b ey o n d th e tr e n d s o f th e p a st. T h e p u rp o se o f s e tt in g n a ­
t io n a l g o a ls is to do b etter . N a tio n a l eco n o m ic g o a ls a r e n o t j u s t t e c h n ic a l
c o n sid e r a tio n s fo r e c o n o m ists, b u t a r e b road c h o ic e s th a t sh o u ld r e fle c t t h e
s p ir it a n d d ir e c tio n o f a so c ie ty .
Question. T h is b ill m a k e s f u ll e m p lo y m e n t th e p rim a ry n a tio n a l g o a l.
A n sw er. T h a t ’s rig h t. T h is b ill s a y s th a t f u l l e m p lo y m e n t is m o re im p o r ta n t
th a n a n y o f o u r o th e r eco n o m ic g o a ls, b e c a u se f u l l e m p lo y m e n t o f o u r h u m a n
a n d c a p ita l reso u r c e s is c r u c ia l to th e o v e r a ll p er fo r m a n c e o f th e e c o n o m y
a n d to th e a c h ie v e m e n t o f ou r o th e r g o a ls. S o m a n y o f th e p ro b lem s t h a t w e ’v e
h a d in r e c e n t y e a r s a r e th e r e s u lt o f ou r f a ilu r e to rea ch f u ll em p lo y m en t. W e
h a v e p eo p le w ith o u t p r o d u c tiv e roles, u n u se d p la n t ca p a c ity , a n d la r g e d e fic its
b e c a u se w e h a v e n o t h a d a f u lly em p lo y ed eco n o m y . E v e n in fla tio n , to so m e
e x te n t, h a s b een th e r e s u lt o f h a v in g a n u n d erem p lo y e d eco n o m y . T h e p ro b ­
le m s o f c itie s , w e lfa r e , y o u th , e d u c a tio n , cr im e — t h e y ’re a ll lin k e d to u n ­
em p lo y m en t.
Question. In fla tio n w ill be a v e r y ir r it a tin g is s u e fo r e c o n o m ists, b u t l e t s
h o ld th a t fo r a m in u te. W h a t is th e r e la tio n sh ip b e tw e e n th e P r e s id e n t ’s E c o ­
n o m ic R ep o rt a n d th e F u ll E m p lo y m e n t an d B a la n c e d G ro w th P la n ?
A n sw er. Y ou can lo o k a t th e P r e s id e n t’s R e p o r t a s p a rt o f a n a n n u a l eco ­
n o m ic p la n th a t th e P r e sid e n t su b m its to C o n g ress ea ch y ea r. T h e F u ll E m ­
p lo y m e n t a n d B a la n c e d G ro w th P la n co m p le m e n ts th e a n n u a l p la n by e x t e n d ­
in g th a t v ie w se v e r a l y e a r s in to th e fu tu r e . I t is a lso a m e a n s w h e r e b y t h e




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b ro a d o u tlin e s o f t h e E c o n o m ic R e p o r t ca n b e su p p lem en ted w ith co n sid er a b ly
m o r e d e t a ile d a n a ly s is o f w h a t's g o in g on in p a r tic u la r se c to r s a n d in d u str ie s.
Question. W h y is t h is p la n to b e su b m itted a n n u a lly ?
A n sw e r . T h a t ’s a go o d q u e stio n a n d on e t o w h ich T in n o t su re I h a v e a
d e f in it iv e a n sw e r . I t w a s th o u g h t in th e fo r m u la tio n o f th e b ill th a t it w a s
b e s t to s u b m it th e p la n a n n u a lly so th a t th e P r e sid e n t a n d th e C o n g ress cou ld
f o c u s o n i t e a c h y e a r a s p a r t o f th e ir lon g-term v ie w o f w h a t ’s g o in g on in th e
ec o n o m y , a n d be k e p t on th e ir to e s w ith resp ect to lo n ger-term p rob lem s. B u t
y o u c a n a r g u e t h a t su c h a tim e ta b le r e q u ires th e P r e s id e n t a n d C o n g ress to
do a g r e a t d e a l in a sh o r t tim e a n d fo r t h a t rea so n y o u m a y w a n t to d o i t
e v e r y t w o y e a r s . T h e r e a r e a d v a n ta g e s an d d is a d v a n ta g e s on b oth sid e s . B u t
i t w a s o u r b e st ju d g m e n t w h e n w e com p leted th e b ill th a t w e o u g h t to try to
do it ev ery year.
Question. T h e b ill r e q u ir e s th e C ou n cil o f E c o n o m ic A d v is e r s t o p rep a re th e
p la n , b u t a t p r e s e n t th e C ou n cil h a s th r e e m em b ers a n d it s s ta ff is sm a ll. Y et
t h e b ill d o e s n ’t sa y a n y th in g a b o u t e n la r g in g th e C ou n cil.
A n sw e r . I t ’s n o t q u ite r ig h t to s a y th a t th e p la n w ill b e p rep a red j u s t by
t h e C o u n cil. T h e P r e s id e n t p r e p a r e s th e p la n w ith th e a s s is t a n c e o f th e C o u n cil
o f E c o n o m ic A d v ise r s, a n d in c o n s u lta tio n w it h th e O ffice o f M a n a g e m e n t an d
B u d g e t, u s in g th e f u ll reso u r c e s o f th e fe d e r a l g o v ern m en t. T h e Office o f M a n ­
a g e m e n t a n d B u d g e t w o u ld p la y a la r g e ro le in th e fo r m u la tio n o f t h e p la n .
A s y o u k n o w , t h e y h a v e a la r g e s t a ff th a t m a k e s a d e ta ile d r e v ie w o f g o v e r n ­
m e n t a c t i v i t i e s a n d t h e ir im p a c t on v a r io u s p a r ts o f th e eco n o m y . S o y o u h a v e
q u ite a lo t o f a d d itio n a l s ta ff th ere. B e y o n d th a t, i t ’s c le a r th a t th e C o u n cil
o f E c o n o m ic A d v is e r s w o u ld h a v e to be s u b s ta n t ia lly e n la r g e d in o rd er to
f u lf ill t h e m a n d a te o f t h is n ew act. H o w m u ch la r g e r is d ifficu lt to s a y u n til
w e h a v e w o r k e d o u t t h e p r e c is e g u id e lin e s fo r th e p la n it s e lf .
Question. O ne m o re q u e stio n w ith r e sp e c t to t h is p a r t o f th e b ill. W e a re
g o in g to n e e d a tr e m e n d o u s a m o u n t o f d e t a ile d d a ta a n d in fo r m a tio n on th e
v a r io u s s e c to r s o f t h e econ om y. I d o n ’t se e a n y p r o v isio n fo r o b ta in in g th is
in fo r m a tio n . I n th e H u m p h r e y - J a v its b ill th e r e i s a D iv is io n o f E c o n o m ic
I n f o r m a tio n . W h y w a s t h is le f t o u t?
A n sw e r . Y o u ’re r ig h t th a t w e n eed m u ch b e tte r in fo r m a tio n i f w e h o p e to
d o a n e f fe c tiv e jo b o f eco n o m ic p la n n in g in t h is c o u n tr y . I th in k t h a t t h e b ill
p r o v id e s a su ffic ie n t m a n d a te to g a th e r a ll t h e in fo r m a tio n t h a t w ill b e n eed ed .
I f i t d o e s n o t, t h e n t h e b ill sh o u ld b e str e n g th e n e d to p u t m o re e m p h a s is on
in fo r m a t io n a n d a n a ly s is .
Question. N o w t h is s e c t io n / o f t h e b ill h a s a v it a l e le m e n t I t c a lls f o r ob­
t a in in g a 3 p e r c e n t r a t e o f u n e m p lo y m e n t w it h in fo u r y e a r s a f te r p a s s a g e o f
t h e b ill. T h a t lo o k s lik e a tr e m e n d o u s ly d ifficu lt o b je c tiv e .
A n sw e r . I t ’s a v e r y a m b itio u s g o a l. I t m e a n s t h a t y o u n e e d to g e t th e a d u lt
u n e m p lo y m e n t r a t e d o w n to 3 p e r c e n t by 1 9 8 0 . W e h a v e n ’t p e r fo rm ed t h a t w e ll
in m a n y y e a r s . H a v in g s a id th a t, h o w e v e r , i t i s im p o r ta n t to e m p h a s iz e t h a t
t h is b ill p r o v id e s n e w p o lic ie s to a c h ie v e t h e s e a m b itio u s g o a ls. I f w e w e r e
t o u s e o n ly a g g r e g a t e m o n e ta r y a n d fisc a l p o lic ie s to tr y t o a c h ie v e 3 p e r c e n t
a d u lt u n e m p lo y m e n t in th a t tim e p erio d , w e w o u ld n o t b e su c c e s s fu l. B u t
T it le I I h a s a b ro a d r a n g e o f c a r e f u lly t a r g e te d e m p lo y m e n t p r o g r a m s to g e t
a t u n e m p lo y m e n t in d ifficu lt p o c k e ts o f t h e eco n o m y .
B e y o n d th a t, t h e b ill re q u ir e s t h e P r e s id e n t t o m a k e a fo r m a l rep o rt to C on­
g r e s s in t h e f ir s t y e a r in d ic a tin g a n y o b s ta c le s t o t h e a c h ie v e m e n t o f t h e g o a l
a n d , i f n e c e s s a r y , p r o p o sin g c o r r e c tiv e e c o n o m ic m e a s u r e s to s e e t h a t t h e g o a l
is a t ta in e d .
L e t m e a d d th is. M y ju d g m e n t is t h a t y o u ’ll n e v e r a t t a in 3 p e r c e n t u n e m p lo y ­
m e n t u n le s s y o u s e t i t a s a go a l. Y o u w o n ’t e v e n co m e clo se. T h e p u r p o se o f a
g o a l is to m e a s u r e p e r fo rm a n c e. T h e 3 p e r c e n t fig u r e is n ’t j u s t a fig u r e on u n ­
e m p lo y m e n t. I t ’s a w a y o f d is c ip lin in g o u r s e lv e s to r a is in g p r o d u c t iv it y ; t o
im p r o v in g o u r to o ls o f i n d u s t r y ; to a d o p tin g m o re s e n s ib le m o n e ta r y , cred it,
a n d in t e r e s t p o l i c i e s ; to t a k in g a g o o d h a r d lo o k a t t h e t a x s tr u c tu r e . S e t tin g
a to u g h g o a l is a w a y o f c o m p e llin g t h e g o v e r n m e n t to ta k e t h e m e a s u r e o f
w h a t i t r e a lly h a s to d o in s t e a d o f b e in g s a t is f ie d w it h a slo p p y , la c k a d a is ic a l
effo r t.
Question. T h e r e a r e tw o p r o c e d u r e s f o r r e v ie w in g t h e F u ll E m p lo y m e n t a n d
B a la n c e d G r o w th P la n , o n e b y m em b er s o f t h e c a b in e t a n d o th e r s e n io r m em ­
b e r s o f t h e a d m in is tr a t io n , a n d t h e se c o n d b y t h e g o v e r n o r s.




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A n sw er. T h e p r o c e d u r e s f o r c a b in e t r e v ie w a r e S tr a ig h tfo r w a r d a n d q u ite
s im ila r to c a b in e t r e v ie w o f o t h e r c o m p r e h e n siv e f e d e r a l p o lic ie s . A ll t h e d e ­
p a r tm e n ts, a g e n c ie s, a n d r e g u la t o r y c o m m is sio n s t h a t a r e in v o lv e d in a c t iv it ie s
w h ic h h a v e a s u b s ta n t ia l im p a c t on t h e e c o n o m y in th e c o n t e x t o f t h e lon gra n g e p la n a r e to s u b m it r e p o r ts t o t h e C o u n cil o f E c o n o m ic A d v is e r s , in d i­
c a tin g t h e e x t e n t o f t h a t in te r a c tio n . A f te r t h a t ’s d o n e a n d t h e P r e s id e n t h a s
r e v ie w e d a f u lly c o o r d in a te d p la n , th e n t h e p la n is s e n t o u t to th e g o v e r n o r s
a t th e sa m e tim e t h a t t h e P r e s id e n t se n d s i t t o C on gress. T h a t ’s a l i t t l e u n ­
u su a l, b u t y o u a r e n o t g o in g to h a v e s u c c e s s fu l n a tio n a l e c o n o m ic p la n n in g
u n le ss th e r e is w id e sp r e a d d is c u s s io n a n d d e b a te a t th e s t a t e a n d lo c a l le v e ls
a b o u t w h a t ’s in t h e p lan . E c o n o m ic p la n n in g i s n o t j u s t e c o n o m ic fo r e c a s tin g
a n d i t ’s n o t j u s t eco n o m ic p o lic ie s. I t r e a lly h a s to d o w it h b u ild in g a c o n s e n s u s
a b o u t t h e d ir e c tio n in w h ic h w e w a n t o u r s o c ie ty to m o v e in th e fu tu r e . A n d
so th e b ill c a lls f o r h e a r in g s a t t h e s t a t e a n d lo c a l le v e ls , o u t o f w h ic h sh o u ld
com e so m e im p o r ta n t in p u t on h o w th e p la n o u g h t t o b e m o d ified a s i t m o v e s
th r o u g h C o n g ress.
Question. T h e b ill h a s tw o v e r y im p o r ta n t s e c tio n s on fis c a l a n d m o n e ta r y
p o lic ie s a n d in fla tio n a n d i t d e a ls w ith t h e s e s u b je c ts w it h in th e fr a m e w o r k
o f p la n n in g a s d esc rib ed in t h is b ill.
A n sw er. T h e e m p h a s is in t h e b ill in th e fir st in s t a n c e is o n u s in g f is c a l p o lic y
to th e m a x im u m e x t e n t t h a t w e c a n to a c h ie v e f u ll e m p lo y m e n t. B u t i t r eco g ­
n iz e s t h a t fisc a l a n d b u d g e t p o lic ie s a lo n e a r e n o t a d e q u a te t o a t t a in f u l l em ­
p lo y m e n t. I f w e r e lie d o n ly on th o s e p o lic ie s, w e w o u ld sim p ly b e p u m p in g up
o v e r a ll d em a n d f a r m o re th a n t h e eco n o m y co u ld to le r a te , w h ic h c o u ld g e n ­
e r a te a d d itio n a l in fla tio n . S o in t h e fisc a l p o lic y s e c tio n t h e r e i s a f o r m a l re­
q u irem en t t h a t t h e P r e s id e n t d e te r m in e t h e e x t e n t to w h ic h fisc a l p o lic y ca n
be r e lie d o n to a c h ie v e f u ll em p lo y m en t. W e w ill th e n k n o w to w h a t e x t e n t
th e su p p le m e n ta r y jo b c r e a tio n p o lic ie s o f T it le I I w ill h a v e t o be im p le m e n te d .
On th e su b je c t o f m o n e ta r y p o lic y , t h e P r e s id e n t h a s b een s ile n t in t h e p a s t
w h e n m a k in g h is eco n o m ic p r e s e n ta tio n s. H e sim p ly l e f t m o n e ta r y p o lic y to
th e F e d e r a l R e s e r v e B o a r d . T h is b ill r e q u ir e s th e P r e s id e n t to m a k e sp e c ific
re co m m en d a tio n s w ith r e sp e c t to m o n e ta r y p o lic y a n d t o c o r r e la te th e m w ith
fisc a l p o licy .
Qustion. B u t d o e sn ’t t h a t s t ill le a v e m o n e ta r y p o lic y to t h e F e d e r a l R e s e r v e
B o a r d a n d o n ly req u ire th e m to e x p la in w h a t t h e y ’re d o in g ?
A n sw er. Y es, it d oes. A n d i t s t ill le a v e s th e F e d e r a l R e s e r v e a n in d e p e n d e n t
in s t itu t io n m a n a g in g th e n a tio n 's day-to-d ay m o n e ta r y a ffa ir s .
Question, H o w ca n t h is b e ju s tifie d in v ie w o f th e a im s o f t h is b ill?
A n sw er, Y ou d o n ’t h a v e to d e str o y th e o v e r a ll in d e p e n d e n c e o f t h e F e d e r a l
R e s e r v e in o rd er to en c o u r a g e i t to d e v e lo p p o lic ie s a n d p r o g r a m s w h ic h a r e
in lin e w ith th e g e n e r a l e co n o m ic g o a ls o f t h e P r e s id e n t a n d t h e C o n g ress. Y ou
h a v e to rem em b er t h a t A r th u r B u r n s h a s c o n s is te n tly s a id t h a t t h e F e d e r a l
R e s e r v e w o u ld do i t s b e st to f u lfill a n y le g a l m a n d a te s on g o a ls fr o m th e
C o n g ress.
Question. W o u ld n ’t i t be b e tte r t o c a ll on C o n g ress to s e t lim it s on m o n e ta r y
p o lic y w it h in a g iv e n p erio d o f t im e ?
A n sw er. N o. I th in k y o u a n d I b o th k n o w t h a t i t w o u ld b e p r o fo u n d f o lly
fo r C o n g ress t o try d ir e c tly to r e g u la te m o n e ta r y p o licy . I t ’s a v e r y c o m p li­
ca te d te c h n ic a l a r e a w h ic h C o n g ress d o e s n ’t u n d e r sta n d w e ll a n d w h ic h it
w o u ld n o t h a v e tim e to h a n d le on a d ay-to-d ay b a sis. I t w o u ld c a u s e c h a o s to
h a v e C o n g ress s e tt in g d a ily o r m o n th ly m o n e ta r y p o lic ie s. W h a t C o n g ress
o u g h t to d o is s e t b a sic n a tio n a l ec o n o m ic g o a ls, to m a k e th o s e e x p lic it, a n d to
req u ire th e F e d — to th e m a x im u m e x t e n t c o n s is te n t w it h m a in ta in in g i t s g en ­
e r a l in d ep en d e n c e— to a c h ie v e th o s e g o a ls.
Question. A lo t o f p eo p le a r e g o in g to b e tro u b le d a b o u t t h e q u e stio n o f in ­
fla tio n an d th e r e is a s e c tio n h e r e th a t d e a ls w it h t h a t p rob lem .
A n sw er. I th in k t h a t t h e in fla tio n se c tio n is a ste p fo r w a r d in e x is t in g a n ti­
in fla tio n p o lic ie s. A t t h e p r e s e n t tim e th e P r e s id e n t is n o t req u ired t o m a k e an y
fo r m a l reco m m en d a tio n s on in fla tio n a n d w e 'v e r e a lly h a d v e r y w e a k a n t i­
in fla tio n p o lic ie s fo r a n u m b er o f y e a r s . T h is b ill r e q u ir e s th e P r e s id e n t to
su b m it, a s p a rt o f th e a n n u a l E c o n o m ic R ep o rt, a co m p r e h e n siv e s e t o f recom ­
m e n d a tio n s on a n ti-in fla tio n p o lic ie s. T h e s e ru n a ll th e w a y fr o m t h e p ro p er
u se o f m o n e ta ry a n d fisc a l m e a su r e s to sp e c ific a lly ta r g e te d p o lic ie s to in c r e a s e
su p p ly in str u c tu r a lly tig h t m a r k e ts su c h a s en erg y a n d fo o d . T h is s e c tio n a lso




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r e q u ir e s t h e P r e s id e n t to m a n a g e t h e ex p o r t o f c r itic a l m a te r ia ls a n d to d e­
v e lo p n e w te c h n iq u e s f o r in c r e a s in g U .S . p ro d u ctiv ity . F in a lly , th e b ill h a s a
b a ck u p p r o v isio n u r g in g th e P r e s id e n t to ta k e w h a te v e r o th e r a d m in is tr a tiv e
a n d l e g is la t iv e a c t io n s a r e n e c e s sa r y to p rom ote p rice s ta b ility .
Question. A n y r e fe r e n c e to w age-p rice co n tr o ls is n o ta b ly a b sen t. S u r e ly th e
a u th o r s o f th e b ill a r e a w a r e o f th e p h en om en on o f a d m in is te r e d p r ic e s an d
w a g e s.
A n sw e r . T h a t ’s w h y t h e r e ’s a str o n g sta te m e n t on a n tit r u s t p o lic y a n d on
im p r o v e m e n t o f p r o d u c tiv ity . A n d th e r e ’s n o th in g in t h is b ill to p r e v e n t th e
P r e s id e n t fr o m u s in g s tr o n g e r m e a n s to d e a l w ith a d m in is te r e d p r ic e s i f n e c e s­
sa r y . A s f a r a s c o n tr o ls a r e con cern ed , th e ir u s e fu ln e s s is d e b a ta b le a n d I
w o u ld c e r t a in ly q u e stio n g iv in g t h e P r e sid e n t a u th o r ity to im p le m e n t th e m a t
p r e s e n t. M y ju d g m e n t is th a t t h is is s u e w ill be lo o k ed ov er v ery c a r e fu lly in
c o m m itte e . I t m a y w e ll be n e c e s sa r y t o h a v e a n in c o m e s p o lic y f o r in d u s t r ie s
w h e r e th e r e ’s a n o p p o r tu n ity f o r p rice-riggin g. I t ’s b een reco m m en d ed th a t w e
m ig h t h a v e a d e la y p erio d b e fo r e c e r ta in w a g e a n d p rice in c r e a s e s a r e m ade.
B u t w e d id n ’t p u t a n y su c h p r o v isio n s in th e b ill b e c a u se w e w o u ld lik e to s e e
i f w e c a n d o t h e jo b w it h o u t th em . T h a t ’s m y p referen ce. I f w e g e t c o o p e r a tio n
fr o m in d u s t r y a n d fr o m lab or, w e ca n su cceed . I f w e d o n ’t, th e n th e p u b lic
in te r e s t w ill h a v e to b e se r v e d w ith e x e c u tiv e c a jo lin g an d p e r su a d in g , a n d
w it h a m u c h m o re e f fe c tiv e C o u n cil on W a g e a n d P r ic e S ta b ility , w h ic h c a n
u s e i t s su b p o e n a p o w e r an d b rin g p u b lic ity to b ea r to en fo r c e f a r b e tte r se lfd is c ip lin e in a d m in is te r e d p r ic e in d u s tr ie s.
Question. T h is t i t le o f th e b ill f in is h e s u p w it h th e e s ta b lis h m e n t o f a n A d ­
v is o r y C o m m itte e on F u ll E m p lo y m e n t an d B a la n c e d G row th . C ou ld y o u d e ­
sc r ib e h o w t h a t C o m m itte e is s e t u p a n d w h a t i t s fu n c tio n s w ill b e?
A n sw e r . T h e p u rp o se o f th a t C o m m itte e is t o b rin g a b road ra n g e o f p r iv a te
o p in io n in to t h e w o r k in g s o f th e C o u n cil o f E c o n o m ic A d v ise r s a s th e y f u lf ill
th e ir r e s p o n s ib ilit ie s u n d e r t h is a c t, p a r tic u la r ly w ith r e sp ect to th e F u ll E m ­
p lo y m e n t a n d B a la n c e d G ro w th P la n . I t's a n effo r t to op en u p th e p o lic y ­
m a k in g p r o c e s s a t t h e n a tio n a l le v e l, w h ic h is s o m e th in g t h a t I b e lie v e is v e r y
im p o r ta n t.
Question. In p a r tic u la r t h is s e c tio n a u th o r iz e s t h e C o u n cil to e s ta b lis h re­
g io n a l a n d in d u s tr y a d v is o r y s u b c o m m itte e s to fu r n is h a d v ic e a n d a ss is ta n c e .
A n sw e r . T h a t k in d o f r e g io n a l a n d s e c to r a l e m p h a s is ca n be q u ite u se fu l.
F r e n c h p la n n in g , fo r e x a m p le , h a s b een q u ite s u c c e s s fu l w h e n i t h a s fo c u se d
o n p r o b le m s o f p a r tic u a lr se c to r s. W e h a v e h a d so m e o f th e sa m e p a y o ff in th is
c o u n tr y in t h e e ffo r ts o f J o h n D u n lo p w it h r e s p e c t to th e c o n str u c tio n in d u s tr y .
Question. W o u ld i t b e f a ir to s a y t h a t t h e H u m p h r e y - H a w k in s b ill in c o r ­
p o r a te s a la r g e p a r t o f th e H u m p h r e y - J a v its “B a la n c e d G ro w th a n d E c o n o m ic
P la n n in g A c t ” ?
A n sw e r . P a r t o f t h e g e n e s is o f t h is b ill i s t h e H u m p h r e y - J a v its p la n n in g b ill.
W h a t w e a tte m p te d to d o w a s slim d o w n t h a t b ill a n d p u t it in to t h e c o n te x t
o f a b ro a d r a n g e o f n a tio n a l f u l l e m p lo y m e n t p o lic ie s.
Question. Y o u h a v e a c t u a lly co m b in e d t h e H u m p h r e y - J a v its a n d H u m p h reyH a w k in s b ills, w h ic h m e a n s t h a t y o u h a v e co m b in e d th e is s u e s o f p la n n in g a n d
f u l l e m p lo y m e n t.
A n sw e r . I n la r g e m e a su r e t h a t is tru e. N o t o n ly i s t h a t t h e co r r e c t t h in g to
d o on i t s m e r its , b u t it s ig n if ic a n tly s tr e n g t h e n s t h e p o litic a l a p p e a l o f t h e
b ill. S till, i t m a y b e a p p r o p r ia te to t r e a t so m e a s p e c ts o f th e p la n n in g is s u e
s e p a r a te ly .
Question. T h e r e ’s o n e n o ta b le f e a tu r e o f t h e H u m p h r e y - J a v its b ill t h a t 's
l e f t o u t o f t h e H u m p h r e y - H a w k in s b ill, a n d t h a t i s a n E c o n o m ic P la n n in g
B o a r d . T h e f u n c t io n s o f a n E c o n o m ic P la n n in g B o a r d a r e n o w a p p a r e n tly
lo d g e d m a in ly in t h e C o u n cil o f E c o n o m ic A d v is e r s a n d in a su b o r d in a te w a y
in th e O ffice o f M a n a g e m e n t a n d B u d g e t. I s t h a t a c o r r e c t o b s e r v a tio n ? I f so,
w h a t i s t h e r e a s o n f o r d o in g t h i s ?
A n sw e r . T h a t i s a c o r r e c t o b se r v a tio n , a n d t h e r e a s o n f o r d o in g i t w a s p r in ­
c ip a lly t o u t iliz e t h e e x i s t in g in s t it u t io n s o f t h e f e d e r a l g o v ern m en t. W h en w e
ste p p e d b a ck a n d to o k a lo o k a t w h a t w e h a d d o n e in t h e H u m p h r e y - J a v its
b ill, a lth o u g h w e c o u ld s e e so m e a d v a n ta g e s to h a v in g a c o m p le te ly se p a r a te
in s t it u t io n f o r p la n n in g , th e r e w e r e so m e d is a d v a n t a g e s in s e g r e g a t in g i t fr o m
t h e C o u n cil o f E c o n o m ic A d v is e r s a n d t h e O ffice o f M a n a g e m e n t a n d B u d g e t.
W e w a n t e d t o a v o id b r e a k in g t h e lin e o f r e s p o n s ib ility a n d a u th o r it y in t h e




m
g e n e r a l a r e a o f e co n o m ic p o lic y , a n d w e w a n t e d t o a v o id
e m in e n t I n s titu tio n . F o r th o s e t w o r e a so n s, w e d e c id e d t o ^ M O l i d t f e j )h o r t
a n d long-run eco n o m ic p o licy -m a k in g in th e C o u n cil o f E c
™ n inv
Question. T it le I I d e a ls w ith c o u n te r c y c lic a l, str u c tu r a l, a n d y o u th
m en t o o lic ie s T h is se c tio n p r o v id e s m e a su r e s to su p p le m e n t a g g r e g a t e m neS r f a n d X a l p o l i c ^ . I t d e a ls w ith m ic r o eco n o m ic issu es. a n d t h e s tr u c tu r e
o f th e econ om y. C ou ld y o u t e ll u s t h e p h ilo so p h y b eh in d t h is p a r t o f t h e b ill
J . T . L ' S . r . S ; . p r e m ise
m o n .t.r y and
fisc a l p o lic ie s c a n n o t b v t h e m s e lv e s a c h ie v e r e a s o n a b ly f u ll e m p lo y m e n t a n d
S
s ta b ility W e n eed a s e r ie s o f c a r e fu lly t a r g e te d e m p lo y m e n t p r o g r a m s
t h a ? co m p lem en t t h e a g g r e g a te p o lic ie s a n d g e t t o th e
m en t In a se n s e y o u ca n th in k o f T it le I I a s a s e r ie s o f p o lic ie s to c lo s e w h a t ­
ev e r em p lo y m en t g a p w ill r e m a in a f t e r w e ’v e u s e d m o n e ta r y a n d fis c a l P o licy
a n d t h e f u ll s tr e n g th o f t h e p r iv a te se c to r to t h e m a x im u m e x t e n t p o ss ib le
^ 0 ^ ° e T # to n g T h fs^U tle is o r g a n iz e d in a w a y th a t r e q u ir e s th e P r e s id e n t to su b ­
m it s ix s e p a r a te le g is la t iv e p r o p o sa ls to C o n g ress o v e r Periods o f 9 0 t o 1 8 0
d a y s, e a c h d e a lin g w ith a sp ec ific iss u e . I t m ig h t be u s e f u l i f w e r e v ie w e d
^ A n s w e r ^ T M t ’s fine. T h e fir s t s e c tio n r e q u ir e s t h e P r e s id e n t t o t a k e a ll e x is t ­
in g a n d p ro p o sed c o u n te r c y c lic a l e m p lo y m e n t p o lic ie s, su c h a s c o u n te r c y c lic a l
p u b lic se r v ic e em p lo y m en t, c o u n te r c y c lic a l s t a t e a n d lo c a l g r a n ts , a n d u n ­
em p lo y m en t in su r a n c e , a n d to su b m it t o C o n g ress a c o m p r e h e n siv e s t r a t e g y
f o r d e a lin g w it h h ig h le v e ls o f u n e m p lo y m e n t c a u s e d b y r e c e ss io n . A p r o g r a m
o f th a t k in d w o u ld b e a u to m a tic a lly p h a se d in a n d o u t to m o d e r a te t n e busi-

ness cycl6«

P u b lic w o r k s h a v e b een c r itic iz e d b e c a u se i t t a k e s to o lo n g t o g e a r th e m up.
T h is b ill w o u ld h a v e a s h e lf o f p u b lic w o rk s, re a d y to b e u se d , t r ig g e r e d in to
a c tio n w h e n u n e m p lo y m en t r a t e s s t a r t t o g o up, a n d a u to m a tic a lly p h a s e d o u t
w h en u n em p lo y m en t r a te s f a il.
T h e n e x t se c tio n g o e s on to e m p h a s iz e th a t i t is e s s e n t ia l to d e v e lo p a
p erm a n en t c o u n te r c y c lic a l g r a n ts p ro g ra m to s t a b liz e s t a t e a n d lo c a l g o v e r n ­
m en t b u d g e ts d u r in g p e r io d s o f r e c e ssio n . I n th e la s t m a jo r r e c e s s io n m a n y
s t a t e a n d lo c a l b u d g e ts w e r e fo r c e d in to d e fic it b e c a u se o f f a l lin g t a x r e v e n u e s
a n d r is in g e x p e n d itu r e s. A s a r e s u lt, g o v e r n m e n ts tr ie d t o c u t e x p e n d itu r e s a n d
r a is e s ta x e s, w h ic h c a u se d s t a t e a n d lo c a l b u d g e ts t o m o v e in e x a c t ly th e
o p p o site d ir e c tio n fro m n a tio n a l fis c a l p o licy . S o t h e p r in c ip a l p u r p o se o f t h is
s e c tio n i s to p ro v id e th e m e a n s to c o o r d in a te n a tio n a l, s t a t e , a n d lo c a l fisc a l
p o lic ie s.
,
Question. T h e th ir d p ie c e o f le g is la t io n req u ired d e a ls w it h r e g io n a l a n d
s tr u c tu r a l em p lo y m en t p o lic ie s.
A n sw er. I n a d d itio n to th e c o u n te r c y c lic a l u n e m p lo y m e n t p ro b lem t h a t w e
fa c e , a n e v e n m o re d ifficu lt p ro b lem i s c a u se d by d e c lin in g or c h r o n ic a lly d e­
p r e sse d re g io n s o f t h e co u n tr y w h e r e p ro d u ctio n f a c i lit ie s a r e in su ffic ie n t to
k eep p eo p le em p lo y ed . A s im ila r p rob lem e x is t s w h e r e w e h a v e g r o u p s in th e
la b o r fo r c e t h a t fo r o n e r e a s o n o r a n o th e r a r e in a d e q u a te ly p re p a r e d t o f ill th e
k in d s o f jo b s t h a t a r e a v a ila b le . T h is c a u s e s p e r s is te n t p o c k e ts o f u n e m p lo y ­
m en t, r e g a r d le s s o f th e g e n e r a l s t a t e o f t h e econ om y.
I m ig h t j u s t g o on to a d d t h a t a s a p a r t o f t h e re q u ir e m e n t t o m e e t r e g io n a l
str u c tu r a l u n em p lo y m en t p rob lem s, th e fe d e r a l g o v e r n m e n t is re q u ir e d t o d e ­
v e lo p a d o m e stic d e v e lo p m e n t b a n k fo r th e p u rp o se o f e n c o u r a g in g d e v e lo p m e n t
in c h r o n ic a lly d ep ressed a r e a s, by m a in ta in in g p u b lic f a c ilit ie s , a n d b y p ro ­
v id in g c r e d it to p r iv a te firm s to lo c a te p la n ts in th o s e a rea s.
Question. Y es, I ’v e lis t e d t h a t a s m y fo u r th le g is la t iv e re q u ir e m e n t. A re
th e r e n o e x is t in g le n d in g a g e n c ie s t h a t c a n p erfo rm t h is t a s k ?
A n sw er. Y ou c a n a lw a y s m o d ify e x is t in g a g e n c ie s to do th is , a n d w e r e a lly
h a v e n o t e s ta b lis h e d a b ra n d n e w b a n k h ere. W e sim p ly h a v e g iv e n t h e P r e s i­
d e n t a m a n d a te to d ev elo p a n in s t itu t io n a l a r r a n g e m e n t fo r p r o v id in g t h is e c o ­
n o m ic a s s ista n c e . I f h e d e c id e s th a t a n e x is t in g in s t itu t io n c a n d o th e job , h is
p rop osal, o f co u rse, w ill b e e x a m in e d .
Question. T h e fifth p ie c e o f le g is la t io n req u ired is a c o m p r e h e n siv e y o u th
em p lo y m en t p rogram .
A n sw er. A s y o u k n ow , t h is is o n e o f th e c r itic a l s tr u c tu r a l e m p lo y m e n t p rob ­
le m s w e fa c e . T h e to ta l n u m b er o f te e n a g e r s a n d y o u n g a d u lts w h o w e r e jo b ­




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le s s i n J a n u a r y 1 9 7 6 w a s 3 .7 m illio n , a lm o s t h a l f t h e t o t a l n u m b er o f A m eri­
c a n s u n e m p lo y e d . G iv en th e s iz e a n d sp e c ia l n a tu r e o f th is p rob lem , w e n eed ed
to f o c u s o n y o u th a n d p u ll to g e th e r a ll t h e t r a in in g a n d jo b c r e a tio n effo r ts
t h a t a r e n e w b e in g m a d e o r c o n te m p la te d in fr a g m e n te d p ro g ra m s.
T h e m a n p o w e r s t u d ie s t h a t h a v e b een d on e, n o t o n ly by th e J o in t E co n o m ic
C o m m itte e a n d o th e r c o m m itte e s o f C on gress* b u t by o u ts id e p r o fe ss io n a ls ,
s h o w t h a t y o u th u n e m p lo y m e n t to d a y is to a la r g e d e g r e e a p rob lem s e p a r a te
a n d d is t in c t fr o m a d u lt u n em p lo y m en t. I t 's v e r y d ifficu lt to b rin g th e n u m b er
o f y o u n g p e o p le t h a t a r e a v a ila b le f o r g a in fu l e m p lo y m e n t in to th e p r iv a te
m a r k e t. T h e r e fo r e w e d ir e c t o u r a t te n t io n in t h is b ill to w a r d s a p e r v a s iv e ,
p e r s is t e n t, n a g g in g p rob lem o f y o u th u n e m p lo y m e n t t h a t i s n o t o n ly a n e c o ­
n o m ic lia b ilit y , b u t a s o c ia l d isa s te r .
Question. T h e r e ’s a s e c tio n h e r e th a t lo o k s v e r y m u ch lik e a n e w C iv ilia n
C o n s e r v a tio n C orps. I t t a lk s a b o u t jo b o p p o r tu n itie s in a v a r ie ty o f ta sk s, su c h
a s c o n s e r v a tio n , p u b lic se r v ic e , c le a n in g u p o u r c it ie s , a n d so fo r th . D id th e
s p o n s o r s p a r t ic u la r ly h a v e in m in d so m e th in g lik e t h e C C C ?
A n sw e r . Y es, d e fin ite ly .
Question, B e fo r e w e co m e t o t h e s ix t h p ie c e o f le g is la t io n req u ired o f t h e
P r e s id e n t, l e t ’s d is c u s s t h e F u ll E m p lo y m e n t O ffice a n d th e r e s e r v o ir s o f e m ­
p lo y m e n t p r o je c ts.
A n sw e r . T h e F u ll E m p lo y m e n t O ffice a n d r e s e r v o ir s o f e m p lo y m e n t p r o je c ts
a r e d e s ig n e d t o p r o v id e a b a ck u p to in s u r e t h a t if, a f t e r a c o m p r e h e n siv e e ffo r t
h a s b e e n m a d e to a c h ie v e f u l l e m p lo y m e n t th r o u g h th e p r iv a te se c to r a n d
t h r o u g h o th e r p r o v is io n s o f t h is b ill, w e find t h a t th e r e a r e s t i l l so m e p e o p le
w h o a r e u n a b le t o o b ta in em p lo y m e n t, th e n t h e s e p eo p le a r e p ro v id ed w ith
u s e f u l e m p lo y m e n t o p p o r tu n itie s. T h e P r e s id e n t is r eq u ired t o p h a s e in t h e s e
p r o j e c t s in c o n ju n c tio n w it h t h e a n n u a l e m p lo y m e n t r e c o m m e n d a tio n s re q u ir e d
in t h e e a r lie r p o r tio n o f t h e b ill, in o rd er to a c h ie v e a r a te o f a d u lt u n e m p lo y ­
m e n t n o t in e x c e s s o f 3 p e r c e n t w it h in fo u r y e a r s .
Question. T h e s i x t h p ie c e o f le g is la t io n t h a t t h e P r e s id e n t is re q u ir e d to su b ­
m it t o C o n g r e s s d e a ls w it h t h e in te g r a tio n o f e m p lo y m e n t a n d in co m e m a in te ­
n a n c e p r o g r a m s.
A n sw e r . T h is i s a v e r y im p o r ta n t s e c tio n b e c a u s e i t t e lls y o u a g r e a t d e a l
a b o u t t h e p h ilo s o p h y o f t h e b ill. T h e s p ir it o f t h i s b ill i s to s u b s tit u te w o rk
f o r w e lf a r e . I t ’s d e s ig n e d t o b r in g a h a lt to t h e p r a c tic e o f s im p ly e x te n d in g
u n e m p lo y m e n t c o m p e n s a tio n lo n g e r a n d lo n g e r a s a w a y t o b u y o ff th e u n ­
e m p lo y e d a n d t o p r e v e n t th e m fr o m b e c o m in g s o c ia lly d is r u p tiv e . I t r e q u ir e s
t h e d e v e lo p m e n t o f p o lic ie s t o s u b s t it u t e w o r k f o r in c o m e m a in te n a n c e t o th e
m a x im u m e x t e n t f e a s ib le , g iv e n t h e lim it a t io n s a n d s p e c ia l p r o b le m s o f t h e
p e o p le in v o lv e d .
Question. B e f o r e w e g o o n t o T it le I I I , l e t m e a s k a s k y o u a g e n e r a l q u e s­
tio n . T i t l e I I e n v is a g e s s i x r e a lly c o m p r e h e n s iv e a n d fa r - r e a c h in g p ie c e s o f
le g is la t io n t h a t a r e to b e s u b m itte d t o C o n g r e s s b y t h e P r e s id e n t b e tw e e n 9 0
a n d 1 8 0 d a y s fr o m t h e t im e o f t h e p a s s a g e o f t h i s b ill. H o w c a n t h e P r e s id e n t
a c c o m p lis h s u c h a n e n o r m o u s t a s k w it h in s u c h a s h o r t p e r io d o f t im e ? W h y
d id t h e sp o n s o r s th in k i t b e t te r t o o u t lin e t h e p r in c ip le s f o r t h e s e s i x p ie c e s
o f le g is la t io n r a th e r t h a n p r o v id in g t h e d e t a ils in t h e p r e s e n t H u m p h rey H a w k in s b ill?
A n sw e r . W it h r e s p e c t t o t h e f ir s t q u e s tio n , t h e P r e s id e n t, th r o u g h h i s t h o u ­
s a n d s o f e x e c u t iv e b r a n c h o fficia ls, o u g h t t o b e w o r k in g o n t h e s e p r o b le m s n o w
a n d s h o u ld h a v e b een a t w o r k o n th e m in t h e p a s t. S o i t ’s n o t a s i f t h e e x e c u ­
t i v e b r a n c h i s b e g in n in g fr o m p o in t zero . A t le a s t I h o p e n o t. B e y o n d t h a t, t h is
b ill w i l l b e d is c u s s e d in C o n g r e s s f o r m a n y m o n th s, g iv in g t h e P r e s id e n t a n d
h i s a d v is e r s a m p le tim e t o g e t r e a d y t o m e e t t h e s e r e q u ir e m e n ts . H o w e v e r , I f
a n y o f t h e s e tim e t a b le s i s to o tig h t, t h a t 's a s m a ll p ro b lem w h ic h c a n b e r e ­
s o lv e d d u r in g t h e c o u r s e o f c o m m itte e h e a r in g s.
W it h r e s p e c t t o t h e s e c o n d q u e stio n , o r ig in a lly t h e r e w a s a n e ffo r t t o w r it e
in d e t a i ls o f t h e p r o g r a m m a tic m a n d a t e s t h a t a r e n o w in t h i s b ill. T h a t w a s
a b a n d o n e d b e c a u s e i t b e c a m e c le a r t h a t y o u w o u ld lo s e t h e p e r s p e c tiv e t h a t
y o u c o u ld g e t b y w r it in g a g e n e r a l e c o n o m ic p o lic y b llL Y o u w o u ld h a v e s o
m u c h d e t a i l In e a c h s e c t io n o f t h e le g is la t io n t h a t y o u c o u ld n ’t s e e t h e Im ­
p o r t a n t g e n e r a l f r a m e w o r k t h a t w a s b e in g s e t u p b y t h i s a c t* A n o th e r r e a s o n
f o r n o t d o in g I t i s t h a t i f w e h a d w r it t e n In a l l t h e s e d e t a ils , t h e b ill w o u ld
h a v e b e c o m e a le g is la t i v e m o n s tr o s ity , r e q u ir in g r e f e r r a l t o m o a t of t h e co m ­
m i t t e e s o f C o n g r e ss, a n d e m b r o ilin g u s in j u r is d ic t io n a l d is p u t e s t h a t w o u ld
h a v e p r e v e n te d u s from p a s s in g a n y le g is la t io n a t all*




186
Question. T it le I I I d e a ls w it h p r o c e d u r e s f o r C o n g r e s sio n a l r e v ie w . W ill
y o u e lu c id a te t h e s e ?
,
_
A n sw e r . T it le I I I e s ta b lis h e s g e n e r a l p r o c e d u r e s a n d p o lic e s t o g iv e C o n g r e s s
a f u ll p a r tn e r sh ip in t h e f o r m u la tio n a n d e s ta b lis h m e n t o f a l l t h e e c o n o m ic
p o lic ie s t h a t a r e r e q u ir e d in t h e e a r lie r s e c tio n s o f t h e b ill. C o n g r e s s m u s t
r e v ie w a n d e v e n tu a lly e s ta b lis h e c o n o m ic g o a ls o n a n a n n u a l b a s is , th r o u g h
th e F u ll E m p lo y m e n t a n d B a la n c e d G r o w th P la n , t h e b u d g e t r e s o lu tio n , t h e
re p o r ts o f th e F e d e r a l R e s e r v e , an d , o f co u rse, a ll t h e le g is la t io n t h a t w o u ld
b e su b m itte d by t h e P r e s id e n t a s p a r t o f T it le I I . T h is r e v ie w w o u ld t a k e
p la c e th r o u g h m a n y c o m m itte e s o f C o n g r e ss w it h t h e le a d b e in g t a k e n b y t h e
J o in t E c o n o m ic C o m m itte e s p la y in g r o les, d e p e n d in g u p o n t h e p a r t ic u la r j u r i s ­
d ic tio n o f t h e m a tte r in v o lv e d .
Question. T h e J o in t E c o n o m ic C o m m itte e p la y s t h e p r in c ip a l p a r t in t h is ?
A n sw er. T h e J o in t E c o n o m ic C o m m itte e p la y s t h e p r in c ip a l r o le i n g e n e r a l
r e v ie w o f t h e a c t, t h e s e t t in g o f a n n u a l g o a ls, th e r e v ie w o f t h e p la n , a n d t h e
su b m iss io n o f c o n c u r r e n t r e s o lu tio n s t o t h e flo o r o f t h e H o u s e a n d t h e S e n a te ,
a p p ro v in g , r e je c tin g , or m o d ify in g t h e p la n .
Question, W h a t h a p p e n s i f t h e P r e s id e n t ’s p ro p o sed p la n i s m o d ifie d o r r e ­
je c te d ? H o w d o y o u g e t c o o r d in a tio n b e tw e e n t h e P r e s id e n t a n d C o n g r e s s?
A n sw er. T w o w a y s . F ir s t th e r e s o lu tio n i t s e l f w ill b e s e n t to t h e P r e s id e n t
a n d I th in k in m o st y e a r s y o u ’l l h a v e a P r e s id e n t a tte m p tin g , e v e n t h o u g h i t
w ill n o t b e r eq u ired b y la w , t o m a k e a n a c c o m m o d a tio n w it h C o n g ress. B e ­
y o n d th a t, a n d in a s e n s e m o re im p o r ta n t, C o n g ress w i l l u s e t h e c o n c u r r e n t
r e s o lu tio n s o n a p la n a s a g u id e t o it s le g is la t iv e a c t iv ity , a n d i t 's th r o u g h
le g is la t io n th a t C o n g ress c o n tr o ls t h e e x e c u t iv e a s w e ll a s n a tio n a l e c o n o m ic
p o licy . A n d so by t h is d e v ic e lo n g -ra n g e p o lic ie s w ill b e b e tte r c o o r d in a te d .
Question. H o w m u c h d e t a il or g e n e r a lit y d o y o u s e e in t h e p la n ?
A n sw er. W e d o n ’t h a v e a c o m p le te a n s w e r t o t h a t y e t. W e n e e d t o s tu d y
th e is s u e c a r e fu lly a s w e s e t u p p la n n in g a p p r o p r ia te f o r t h e U n ite d S ta te s .
M y o w n b ia s i s to w a r d a r a th e r s h o r t a n d sim p lifie d p la n to b e t a k e n t o t h e
flo o r o f t h e H o u se a n d S e n a te , w ith g r e a te r d e t a il em b o d ie d in a s u p p le m e n t
t o th e p la n . I n t h a t w a y , a m em b er o f C o n g ress c a n u n d e r sta n d a n d d e b a te
t h e p r io r itie s a n d p o lic ie s in t h e p lan .
Question. T h e r e is o n e o th e r in s t it u t io n e s ta b lis h e d in t h is b ill, a D iv is io n
o f F u ll E m p lo y m e n t a n d B a la n c e d G ro w th in th e C o n g r e s sio n a l B u d g e t Office.
A n sw er. T h e p u r p o se i s to b o lste r t h e s t a f f o f C o n g r e ss in d e a lin g w it h t h e
c o m p lic a te d s e t o f r e q u ir e m e n ts u n d e r eco n o m ic p la n n in g a n d to e n s u r e t h a t
th e r e i s a d e q u a te te c h n ic a l a s s is t a n c e in d e v e lo p in g , r e v ie w in g , a n d m o d if y in g
th e p la n .
Question. W h a t k in d o f su p p o rt d o e s t h e b ill h a v e ?
A n sw er. T h e su p p o rt f o r t h e b ill is a lr e a d y a sto n is h in g . T h e r e i s a c o a lit io n
o f lab or, b u sin e ss, ch u rch a n d o th e r g ro u p s in c lu d in g t h e A F L -C IO , t h e F u ll
E m p lo y m e n t A c tio n C ou n cil, t h e U A W , th e N a t io n a l F a r m e r s U n io n , a n d m a n y
o th e rs. I n C o n g ress w e h a v e su p p o rt o n t h e H o u se s id e fro m t h e S p e a k e r o f
t h e H o u se, C o n g ressm en B o llin g , R e u s s, P e r k in s a n d o v e r a h u n d r e d o th e r s.
O n th e S e n a te sid e, e v e n th o u g h w e h a v e n o t y e t c ir c u la te d t h e b ill, w e h a v e
e ig h t co-spon sors a t th e p r e s e n t tim e , in c lu d in g S e n a to r s W illia m s , N e ls o n ,
a n d J a v its .
Question. M y l a s t q u e stio n is th is . T h is b ill r e a lly a tte m p ts to c h a r t a n e w
co u r se f o r e co n o m ic p o licy -m a k in g in t h is c o u n tr y , I th in k y o u a g ree. B u t
th e r e a r e m a n y e c o n o m ists w h o u n d o u b te d ly w ill b e sk e p tic a l a b o u t t h e ob­
j e c t iv e s o r a t le a s t a b o u t th e ir f e a s ib ility . W h a t’s y o u r r e a c tio n t o t h i s k in d
o f s k e p tic ism ?
A n sw er. T h e r e a r e tw o a n sw e r s. F ir s t , I b e lie v e w e h a v e h a d a c lim a te o f
n e g a tiv is m a n d f a ilu r e fo r so m a n y y e a r s t h a t m a n y o f o u r in te lle c tu a l le a d e r s
h a v e lo s t th e ir n e r v e a n d s e n s e o f c r e a t iv ity . W e h a v e b een p u ttin g m u c h o f o u r
en erg y in to e x p la in in g u n d er-a ch iev em en t a n d to o li t t l e in to a c h ie v e m e n t. T h is
b ill d o es c h a r t a n e w c o u r se f o r ec o n o m ic p o lic y t h a t c h a lle n g e s t h e c u r r e n tly
a ccep ted id ea s. T h a t c h a lle n g e i s b a d ly n e e d e d i f w e a r e to com e to g r ip s w it h
th e eco n o m ic p ro b lem s o u r s y s te m fa c e s .
B e y o n d th a t, w e o u g h t t o h a v e t h e g r a c e a n d good s e n s e to b e m o d e s t a b o u t
w h a t w e h a v e p resen ted . A n y b ill t h a t h a s j u s t b een in tr o d u ce d c a n b e im ­
p roved . I h o p e w e c a n g e t c o n s tr u c tiv e su g g e s tio n s on th e b ill in t h e c o u r s e
o f c o m m itte e h e a r in g s, an d p e r fe c t w h a t h a s b een p rop osed .




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[ F r o m t h e W a s h i n g t o n P o s t . M a y 14, 1 9 7 6 ]

H u b ert H . H u m p h rey— A

S tra te g y

fob

P u t t i n g A m e r ic a B a c k t o W o r k

[Mr. Humphrey is a Democratic Senator from Minnesota. This article was
written in response to editorials on jobs legislation that appeared in The Post
on March SO and M a y S .]
M o st A m e r ic a n s h a v e b e g u n to r e a liz e th a t th e r e i s s o m e th in g fu n d a m e n ta lly
w r o n g w it h o u r n a tio n ’s eco n o m y .
D u r in g t h e p a s t fiv e y e a r s , U .S . e c o n o m ic g r o w th a v e r a g e d l e s s t h a n oneh a l f i t s h is t o r ic a l r a te . A s a resu lt* t h e n a tio n lo s t so m e $ 5 0 0 b illio n in p ro ­
d u c tio n o f g o o d s a n d s e r v ic e s in t h e l a s t fiv e y e a r s a lo n e. A n d w e c a n e x p e c t
to lo s e a n o th e r $ 6 0 0 to $ 9 0 0 b ilU on b y 1 9 8 0 .
T h a t a s t o u n d in g w a s te l i e s a t t h e c e n te r o f o u r e co n o m ic p rob lem s. A n d c o m ­
in g to g r ip s w it h i t r e q u ir e s fu n d a m e n ta l r e fo r m o f t h e w a y in w h ic h w e m a n ­
a g e o u r eco n o m y . I t r e q u ir e s t h a t t h is n a tio n a n s w e r th e b a s ic q u e stio n o f
w h e t h e r o r n o t i t i s a n im p o r ta n t fu n c t io n o f g o v e r n m e n t t o a s s u r e t h a t a ll
c it iz e n s w i llin g a n d a b le t o w o r k a r e g iv e n a n o p p o r tu n ity to d o so.
T h e F u ll E m p lo y m e n t a n d B a la n c e d G ro w th A c t o f 1 9 7 6 , a u th o r e d b y R ep .
A u g u s t u s H a w k in s a n d m e, i s o n e p ro p o sed a n s w e r t o t h a t q u estio n . T h is
m e a su r e , co -sp o n so red b y m a n y o th e r m em b er s o f b o th h o u s e s o f C o n g ress,
p r o p o se s a g e n e r a l e c o n o m ic p o lic y fr a m e w o r k a n d a p a c k a g e o f p r o g r a m s t h a t
v a r y fr o m y e a r to y e a r d e p e n d in g o n eco n o m ic c o n d itio n s a n d d e c is io n s b y
C o n g r e s s a n d t h e P r e s id e n t. T h is f le x ib ilit y i s a m a jo r s tr e n g th o f t h e b ill.
T h e A c t i s b a se d on t w o sim p le, y e t p ro fo u n d , p r e m is e s : F ir s t , t h a t w o r k
a n d p r o d u c tiv ity a r e b e tte r th a n w e lf a r e a n d w a s t e ; an d , se co n d , t h a t t h e f u l l
u s e o f o u r h u m a n a n d c a p it a l r e s o u r c e s i s in t h e b e s t in te r e s t o f a ll t h e A m e r i­
c a n p eo p le.
T h e p r in c ip a l t h r u s t o f t h e A c t i s t o e n c o u r a g e t h e c r e a tio n o f jo b o p p or­
t u n i t i e s in p r iv a t e e n te r p r is e th r o u g h ta x , c r e d it a n d b u d g et p o lic ie s t h a t w ill
s t im u la t e t h e p r iv a t e s e c to r in a b a la n c e d a n d s u s ta in a b le w a y .
M a n y o f t h e a u x ilia r y p ro g ra m s, s u c h a s t h e in c e n t iv e s p ro g ra m t o r e ­
v i t a li z e d e p r e s se d a r e a s , t h e sk ills - tr a in in g a n d jo b -p la ce m en t g r a n t s a n d lo a n s
fr o m t h e d e v e lo p m e n t fin a n c in g in s t itu t io n s , a r e sp e c ific a lly d e s ig n e d t o c r e a te
j o b s in p r iv a t e in d u s tr y . M oreover, t h e p r o g r a m s f o r em e r g e n c y p u b lic w o r k s
a n d c o m m u n ity d e v e lo p m e n t w o u ld p r o v id e jo b s in p r iv a t e b u s in e s s by c h a n ­
n e lin g f u n d s t o p r iv a t e c o n tr a c to r s. A d d itio n a l a c t iv it i e s u n d e r t h e b ill w ill
su p p le m e n t a n d n o t s u p p la n t t h e p r iv a t e se cto r . I t i s not a p u b lic s e r v ic e j o b s
p r o p o sa l.
T h e A c t s e t s a n i n it ia l o b je c tiv e o f r e d u c in g u n e m p lo y m e n t a m o n g a d u lts to
n o t m o r e t h a n th r e e p e r c e n t w it h in f o u r y e a r s . T h is i s a n a m b itio u s g o a l, b u t
i t c a n b e d o n e. T h e P r e s id e n t i s r e q u ir e d t o in fo r m C o n g r e ss o f h is v ie w s o n
t h i s g o a l a n d t o reco m m en d a n y c h a n g e s h e b e lie v e s a r e n eed ed .
T h e A c t a l s o p r o v id e s f o r a n e w c o o p e r a tiv e r e la t io n s h ip w h e r e b y t h e P r e s i­
d e n t a n d t h e C o n g ress, w o r k in g w it h t h e F e d e r a l R e s e r v e B o a r d , w o u ld e s ta b ­
l i s h e x p lic it , n u m e r ic a l g o a ls e a c h y e a r fo r e m p lo y m e n t, p r o d u c tio n a n d p u r­
c h a s in g p o w e r . T h a t i s t h e m o st c r u c ia l r e fo r m in t h e le g is la tio n .
L a s t y e a r , b y c o n tr a st, in s t e a d o f s e t t in g p o s it iv e g o a ls t h a t w o u ld c h a lle n g e
e c o n o m ic p o lic y , t h e d e b a te d e g e n e r a te d in t o n o th in g m o re th a n a su p e r fic ia l
d is c u s s io n o f t h e s iz e o f t h e fe d e r a l d e fic it a n d t h e r a t e o f in c r e a s e in t h e
m o n e y su p p ly . N o p r o g r e s s w a s m a d e a n d p o lic y su ffe r e d .
I n a d d itio n , t h e b ill p la c e s n e w r e q u ir e m e n ts o n t h e F e d e r a l R e s e r v e t o m a k e
i t s c r e d it a n d in t e r e s t r a t e p o lic ie s resp o n d t o t h e s e n a tio n a l e c o n o m ic p o lic y
d e c is io n s . I f t h e y d o n o t, t h e P r e s id e n t c a n m a k e r e c o m m e n d a tio n s t o t h e
B o a r d a n d C o n g r e s s t o e n s u r e c lo s e r c o n fo r m ity . D r . A r th u r B u r n s, F e d e r a l
R e s e r v e B o a r d C h a irm a n , h a s s t a t e d r e p e a te d ly t h a t C o n g ress h a s b een r e m is s
in f a i l i n g t o s e t sp e c ific e c o n o m ic g o a ls t h a t t h e B o a r d c o u ld s t r iv e to a c h ie v e .
T h e A c t f u r t h e r r e c o g n iz e s t h a t r e n e w e d in fla tio n m a y b e c o m e a s e r io u s
t h r e a t a s o u r e c o n o m y m o v e s to w a r d f u l l e m p lo y m e n t a n d p r o d u c tio n . T h e r e ­
f o r e , i t r e q u ir e s t h e P r e s id e n t t o su b m it a d e t a ile d a n d c o m p r e h e n siv e s e t
o f a n ti- in fla tio n p o lic ie s t o C o n g ress e v e r y y e a r . T h is p ro g ra m m u s t in c lu d e
a n in fla t io n in fo r m a t io n s y s t e m t o a le r t t h e P r e s id e n t a n d C o n g r e ss t o e m e r g ­
in g in fla t io n p r o b le m s, a p ro g ra m t o e x p a n d t h e su p p ly o f g o o d s, se r v ic e s ,
la b o r a n d c a p it a l i n t i g h t m a r k e ts, a n d r e c o m m e n d a tio n s t o s tr e n g t h e n a n tit r u s t e n f o r c e m e n t a n d t o in c r e a s e co m p e titio n . F u r th e r m o r e , t h e P r e s id e n t i s
7 3 - 3 6 5 — 7 6 --------1 8




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req u ired t o reco m m en d a n y a d m in is tr a t iv e o r le g is la t iv e a c t io n s h e f e e ls a r e
n e c e s sa r y t o p r o m o te r e a s o n a b le p r ic e s t a b ility .
I d isa g r e e w it h th o s e w h o c la im t h a t lo w u n e m p lo y m e n t m e a n s h ig h in fla tio n .
I n t h e 1 9 6 0 s in fla tio n a v e r a g e d o n ly 2 .3 p e r c e n t a n d t h e u n e m p lo y m e n t r a t e
a v e r a g e d 4 .8 p e r c e n t. I n t h e l a s t f e w y e a r s w e h a v e s e e n t h a t a s u n e m p lo y ­
m e n t ca m e d o w n fr o m t h e 9 p e r c e n t le v e l, in fla tio n w a s c u t i n h a lf — fr o m
a b o u t 1 2 p er c e n t to 6 p er c e n t
T h is b ill i s n o t in te n d e d to p r o v id e a ll o f t h e a n s w e r s t o e v e r y e c o n o m ic
s it u a tio n t h a t m ig h t d e v elo p . B u t i t d o e s f a c e u p t o t h e c r u c ia l n e e d t o s t r e a m ­
lin e g o v e r n m e n t a n d m a k e i t m o r e efficien t a n d r e sp o n siv e .
I t r e q u ir e s t h e C o n g ress a n d t h e P r e s id e n t t o u n d e r ta k e a c o m p le te r e v ie w
o f a ll e x is t in g g o v e r n m e n t r u le s a n d r e g u la t io n s t o d e te r m in e w h ic h s t i l l s e r v e
t h e p u b lic in te r e s t a n d w h ic h sh o u ld b e e lim in a te d . A n d i t f u r th e r r e q u ir e s
th e m to c a r r y o u t e a c h y e a r a n in -d ep th e v a lu a t io n a n d r e v ie w o f 2 0 p e r c e n t
o f th e d o lla r v o lu m e o f e x is t in g f e d e r a l p ro g ra m s. T h u s, a i l g o v e r n m e n t p ro ­
g r a m s w o u ld r e c e iv e a s p e c ia l in t e n s iv e e v a lu a t io n a t le a s t o n c e e v e r y fiv e
y e a r s , th e r e b y g iv in g C o n g r e ss a n d t h e e x e c u t iv e b ra n ch t h e in fo r m a tio n
n e c e s sa r y t o a m en d , e x t e n d o r e lim in a t e p ro g ra m s.
A s a r e s u lt, t h e b ill d o e s w h a t m a n y p e o p le o n ly t a lk a b o u t. T h a t is , i t f a c e s
u p to t h e p ro b lem s o f o v e r r e g u la tio n , e x c e s s iv e b u r e a u c r a c y a n d p r o g r a m s t h a t
d o n ’t w o rk o r c o s t to o m u c h .
T h e A c t a ls o c a lls f o r m o r e s y s t e m a t ic a n d str u c tu r e d lo n g -ra n g e p la n n in g .
I t b eca m e o b v io u s w ith t h e e n e r g y c r is is a n d f o o d p r ic e e x p lo s io n o f t h e m id1 9 7 0 s t h a t w e m u s t d o a m u c h b e tte r jo b o f a n tic ip a t in g f u t u r e p ro b lem s, t h e ir
eco n o m ic im p a c t a n d w h a t t o d o a b o u t th e m . T h e b ill a llo w s u s t o lo o k a h e a d .
B e y o n d th e s e m e a su r e s, I a m c o n v in c e d t h a t e c o n o m ic p o lic y m u s t b e b ro a d ­
en ed to t r e a t s y s t e m a t ic a lly s t r u c t u r a l p r o b le m s t h a t im p e d e g r o w th , e m p lo y ­
m e n t a n d p r ic e s t a b ility . T h e b ill r e fle c ts t h is c o n v ic tio n a n d w o u ld r e q u ir e
a r a n g e o f su p p le m e n ta l p o lic ie s :
— a c o m p r e h e n siv e y o u th e m p lo y m e n t p ro g ra m t o p r o v id e jo b s , t r a in in g a n d
e m p lo y m e n t s e r v ic e s to y o u n g p e o p le w h o a r e u n a b le t o fin d w o r k w it h o u t
a ss ista n c e .
— a fin a n c ia l in s t itu t io n r e s p o n s ib le f o r e n c o u r a g in g p r iv a t e a n d p u b lic in ­
v e s tm e n t in ec o n o m ic a lly d e p r e s se d r e g io n s, e c o n o m ic s e c to r s a n d in n e r c it i e s ;
and
— a p ro g ra m d e sig n e d t o c o r r e c t f e d e r a l ta x , sp e n d in g a n d e m p lo y m e n t p o l­
ic ie s th a t h a v e u n d e r m in e d t h e e c o n o m ic s t r e n g t h o f c e r ta in r e g io n s a n d a r e a s
o f th e co u n tr y .
T h e A c t r e c o g n iz e s t h a t p u b lic p o lic y h a s r esp o n d ed m u c h t o o s lo w ly d u r in g
p erio d s o f eco n o m ic in s t a b ilit y a n d s e e k s to e lim in a t e t h is p ro b lem w it h a
co m p r e h e n siv e co u n te r - c y c lic a l m a n p o w e r p ro g ra m , in c lu d in g su c h e le m e n ts
a s a c c e le r a te d p u b lic w o r k s, c o m m u n ity d e v e lo p m e n t, a n ti- r e c e ss io n su p p o r t
t o s t a t e s a n d lo c a l g o v e r n m e n ts, a n d em e r g e n c y p u b lic s e r v ic e jo b s. T h e s e p r o ­
g r a m s a r e d e sig n e d to b e g in a n d e n d a u to m a t ic a lly a s e c o n o m ic c o n d itio n s w a r ­
ra n t.
F in a lly , th e A c t c r e a t e s a n e w F u l l E m p lo y m e n t O ffice in t h e D e p a r tm e n t o f
L ab or. I t i s req u ired to a s s is t a ll t h o s e a b le a n d w illin g to w o r k to fin d d e c e n t
jo b s. A r e s e r v o ir o f u s e f u l p u b lic a lly fin a n c e d j o b s w ill b e a v a ila b le f o r th o s e
w h o h a v e n o o th e r e m p lo y m e n t o p p o r tu n itie s, u p t o t h e lim it s o f t h e a n n u a l
n u m e r ic a l e m p lo y m e n t g o a l s e t b y C o n g ress.
T h e d ir e c t c o s t o f a u th o r iz in g t h e A c t is le s s t h a n $ 5 0 m illio n t o e s ta b lis h
t h e g e n e r a l p o lic y fr a m e w o r k f o r f u l l em p lo y m en t. T h e in d ir e c t c o s ts — t h a t is ,
th o s e d e te r m in e d by su b se q u e n t le g is la t io n t o f u lfill t h e m a n d a te o f t h e A c t w ili b e a r r iv e d a t e a c h y e a r w it h in t h e g o a l- se ttin g p ro cess.
A s su m in g a n o rm a l eco n o m ic reco v e r y , I s e e n o r e a so n t o e x p e c t in d ir e c t
b u d g et c o s ts to e x c e e d $ 8 to $ 1 2 b illio n , a f t e r t a k in g in to a c c o u n t t h e d r a s t ic a lly
d e c rea sed c o s ts o f w e lf a r e a n d t h e in c r e a s e d r e v e n u e s fr o m t a x e s . I n c o n tr a st,
u n d er p r e se n t p o lic ie s, e x c e s s iv e u n e m p lo y m e n t in 1 9 7 6 a lo n e w ill c o s t th e
U .S . T r e a su r y m o re th a n $ 5 0 b illio n in lo s t t a x r e v e n u e s a n d in c r e a s e d c o s ts
f o r u n em p lo y m en t c o m p en sa tio n , fo o d s ta m p s a n d w e lfa r e .
T h e F u ll E m p lo y m e n t a n d B a la n c e d G ro w th A c t e m b o d ie s t h e b e s t in c u r ­
r e n t th in k in g a b o u t h o w to e n su r e f u l l p r o d u c tio n in o u r eco n o m y a n d m o d ­
ern , co o rd in a ted p o licy -m a k in g in o u r g o v e r n m e n t. U n d o u b ted ly , it w ill b e re­
fined a n d im p r o v ed d u r in g d e b a te , d is c u s s io n a n d c o m m itte e h e a r in g s. B u t th e




189
s tr a te g y s e t f o r t h in th e A c t p ro v id e s o u r b e st c h an ce f o r su s ta in in g a h e a lth y
e c o n o m y w h ile p r o v id in g th e g r e a te s t o p p o rtu n itie s f o r p ro d u c tiv e an d con ­
s tr u c tiv e w o r k to a ll A m e r ic a n s .

T h e C h a i r m a n . V e ry good. Th e questions I ’m going to ask I w ant
to m ake it clear, as I said at the beginning, I w ant very much to
support th is b ill i f I can, and we d id report out o f th is com mittee a
b ill th a t w ould have provided a goal o f 4 percent unemployment as w ell
as 2 1 4 percent in fla tio n goal back in 1973. I feel more strongly about
th a t now than I d id then, but I w ant very much to support this b ill,
but I do have some problems w ith it.
N o. 1, Senator H u m p h rey, w hy not set a goal fo r inflation? W e
set goals o f 3 percent fo r unem ploym ent. W e te ll the President
to fo llo w specific detailed policies to achieve it. Y ou have in this
measure o f 50 pages, in w hich a great deal o f it is devoted to unem­
ploym ent— p ro p erly so— you have, fo r exam ple section 202. counter­
cyclical policies. A section on unem ploym ent, 200 fu ll em ployed
office, section 207 income m aintenance and fu ll em ploym ent policies—
a ll throu g h i t you have strong, heavy emphasis o n *p ro vid in g jobs.
T h ere ’s one section, a n ti-in fla tio n a ry policies, and as you said, it is
an eloquent e ffo rt to try to challenge the President to come fo rw ard
w ith an a n ti-in fla tio n program , but it doesn't re a lly specify an kind
o f program , and there is no goal in here— there’s no specific goal fo r
in fla tio n , so th a t you have an asym m etrical, unbalanced kind o f
s itu atio n .
N ow I th in k th a t D r. G a lb ra ith p u t his fin g er on it when he said
i f we’re going to achieve som ething close to 3 percent unem ploym ent
or fu ll em ploym ent, we’re going to have to meet this in flatio n prob­
lem . I t ’s going to in h ib it you every step o f the w ay. Y o ivre not
going to be able to p u t this in to effect unless you’re able to hold
down prices, and I th in k th a t one step m ig h t be to set a specific goal
fo r in flatio n . W h y not do it?
Senator H u m p h r e y . I must say, M r. C h airm an, th a t I would have
no p a rtic u la r objection to th a t. 1 supported yo u r o rig in a l resolution
fro m th is com m ittee. I f 37
ou’re going to have an em ploym ent goal,
there’s no reason a t a ll th a t you shouldn’t have an a n ti-in flatio n goal.
W e say th a t we are convinced in our own m inds here th a t we can
reach the level o f 3 percent unem ploym ent rate w ith o u t excessive
in fla tio n . I don’t say there w ouldn’t be some in fla tio n a ry im pact, but
I w ould not object to th a t. I th in k you have a very v a lid p oint.
T h e C h a i r m a n . N o w the other p o in t I ’d like to make in connection
with th is, o r the other question I ’d lik e to ask— and perhaps Con­
gressman H aw kin s , you could deal w ith this. Y o u discussed this very
ab ly in y o u r presentation. You discussed th a t p re v a ilin g wage prob­
lem th a t we have, and we had a discussion o f th a t when the econ­
omists were before us. Y o u indicated th a t it seems fa ir and it shouldn t
be in fla tio n a ry sim ply to pay people the same fo r public service jobs
as they w ould be p aid in the p rivate sector.
N o w the problem th a t arises i f we do th a t is the fo llo w in g : num ber
one, you w ill lim it the available lab or pool fo r p riv a te em ploym ent.
Y o u w ill strengthen the bargain in g position o f the person seeking
em ploym ent. L e t me g ive you the most recent history o f w hat s hap­
pened. T h is is a re p o rt on the experience we have had on construc­
tio n wage settlem ents w ith in the last 2 months last m onth. M ost




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settlements are com ing in a t less th an 7 ^ percent fo r the firs t year.
T h e operating engineers in Boston, 4.2 percent. A num ber o f locals
have settled fo r no increase a t a ll. W here locals have th e pow er to
do so, they are ro llin g up b ig settlements in B aton Rouge, L ouisiana,
construction trades won firs t year increases o f $1.20 to $2.08 an hour,
p ipefitters in N ew M exico where energy construction keeps em ploy­
m ent high calls fo r a tw en ty percent increase.
N ow I realize th a t you m ig h t achieve a g reat deal o f justice and
achieve it suddenly, as Senator H u m p hrey emphasized so w e ll, by
enabling people who are p aid too little now to be p aid m ore, b u t it
seems to me th a t we ought to have as o rd erly a tran s itio n here as
we can.
Senator H u m p hrey emphasized the fa c t th a t it ’s b etter to pay
people to w o rk than to pay people to s it around and do no th in g ,
w hich is w hat we do now. W h y w ouldn’t it be lo g ical to have a
modest incentive to work? In other words, pay them m ore than they
w ould get unem ploym ent compensation, pay them m ore than they
w ould get under w elfare, b u t less than in tn e p riv a te sector so th ere’s
an incentive to w o rk in to the p riv a te sector and you don’t have the
clear in flatio n ary push th a t you w ould otherwise have on wages in
the p rivate sector i f you pay the same am ount fo r people in the
public em ploym ent operation ?
I realize it ’s d ifficu lt, but I th in k some compromise lik e th a t makes
sense and the economists who support th is b ill, Professor G a lb ra ith
and Professor U lm e r, agree th a t th a t w ould be logical fro m th e ir
standpoint.
M r. H a w k i n s . I don’t th in k they have even read the b ill then,
because the b ill refers to the occupation by the same em ployer.
Th e C h a i r m a n . I ’ve read th a t.
M r. H a w k i n s . I t ’s im p ractical, Senator, to believe th a t persons
p erfo rm ing the same w o rk are going to be receiving d ifferen t wages.
T h e C h a i r m a n . Now look at our experience in the depression. I
ju st went over the wages th a t were p aid. C C C wages, W P A wages,
P W A wages, and the wages at th a t tim e were substantially below
w hat they were p aid in the p riv ate sector— they were outrageously
low and they should have been higher than they were, b u t we d id
provide jobs and everybody agrees then it was a lo t better to do
th a t than to get some k in d o f handout and s it around.
M r. H a w k i n s . W e ju st don’t believe th a t we have reached th a t
p o in t or w ould reach th a t p o in t under the operation o f this b ill. I
th in k w hat you’re assuming is th a t the depression o f the typ e th a t
we experienced w ould be brought about, and I th in k th a t o n ly as­
sumes the continuation o f current policies, not d ifferent policies^
N ow I th in k th a t the past is no real judge about w h at we can
achieve in the fu tu re and I th in k we shouldn’t be led in to breaking
the wage structure o f A m erica.
The C h a i r m a n . W e’re not breaking the wage structure. T h is
wouldn’t reduce w hat’s being p aid in the p riv ate sector. W h a t it
would do, however, instead o f people now on unem ploym ent com­
pensation and maybe g ettin g $5,000 a year, i f they go to w o rk they
w ould get $6,000 or $7,000 a year and there would be an incentive,
but not the $10,000 th a t th ey’d get by m oving into the p riv ate sector.
A t the same tim e you say in your b ill th a t this w ill not replace jobs




191
in the p riv a te sector. I th in k it ’s a good provision. I t would seem
th a t this is a w ay th a t you can cope w ith w h at w ould seem to be the
most expressly and c learly in flatio n a ry elem ent o f the b ill.
M r. H a w k i n s . I don’t reach the conclusion th a t you reach th a t
th is is a very in fla tio n a ry section o f the b ill. W e are ta lk in g about a t
the most— and I th in k you w ould agree w ith this— less than 2 m il­
lio n persons, even i f th a t m any, th a t would be so employed under
these conditions. N ow I can’t see how you can say that" 2 m illio n
persons out o f 200 m illio n persons------T h e C h a i r m a n . H e re ’s the problem .
M r. H a w k i n s [co n tin u in g ]. In the to ta l economy, th a t these p er­
sons are going to exert th a t type o f in flatio n ary pressure. I t ju st
doesn’t fo llo w .
T h e C h a i r m a n . The argum ent is th a t there are 10 or 15 m illio n
people in this country th a t are p aid low wages. Now i f they have
the option o f ta k in g a lob th a t is more d ig n ified , th a t is perhaps
m ore a ttrac tive , th a t w ill pay $8,000, $10,000 a year, because there
are people who are p aid th a t fo r doing re lativ ely sim ple w ork, they
are going to take th a t and they are going to take the public option
ra th e r th an agree to continue to w ork in the p riv ate sector and we
have made a lo t o f progress, enormous progress, in the last years
in im p ro vin g the wages a fte r taxes and a fte r in flatio n fo r our people,
b u t I am a fra id i f you m ake this b ig leap a ll o f a sudden th a t the
in fla tio n a ry effects are going to be so great you are going to b u ild
up an enormous resistance in the country and the Congress and it ’s
going to be v ery, very h ard to provide th is kin d o f w ork.
M r. H a w k i n s . I th in k it ’s a m atter fo r fu rth e r exploration. I ’m
o n ly g iv in g you m y views th a t I th in k it c ertain ly is a phase o f the
b ill w hich addresses its e lf to a d ifficult problem th a t you indicate,
but I don’t th in k th a t in try in g to solve th a t problem we should in
any w ay do anything th a t m ig h t destroy com parable wages being
p aid to in d ivid u als doing the same am ount o f w ork. I th in k th a t the
th ru st o f the b ill is to increase p ro d u ctivity and to make an in d i­
v id u a l productive. T h ere’s nothing in the b ill w hich w ould say to
an em ployer, fo r exam ple, th a t a person who’s not productive has
to be em ployed. T h e whole thrust o f the b ill is to im prove produc­
tiv ity .
T h e C h a i r m a n . T h a t’s rig h t. W h a t concerns me is th a t an em­
p lo yer m ig h t have difficu lty h irin g workers i f you have a situation
w here the w orkers are g ettin g as much as it seems to me th a t this
b ill m ig h t provide.
.
Senator H u m p h rey , w ould vou lik e to comment on this?
Senator H u m p h r e y . D r. G insberg, in his rep ort to us fro m the
N a tio n a l Commission fo r M anpow er P o licy , touched on this item ,
M r. C h airm an . H e said as follow s:

moves

A s th e n a tio n
to w a r d a fu U e m p lo y m e n t p o lic y , i t is d e s ir a b le th a t it
e x p e r im e n t w it h th e f o llo w in g c o m p le x issu e s a n d le a r n a s it go es : H o w to
c r e a t e p r o d u c tiv e jo b s in t h e p u b lic s e c to r a n d th e o u tp u t o f w h ic h th e p u b lic
r e c o g n iz e s a s b e in g w o r th w h ile a n d i t w illin g to p a y f o r ;

secondly— th is is to w h at you have directed you r attention
t h e e s ta b lis h m e n t o f w a g e s a n d w o r k in g c o n d itio n s o n p u b lic
je o p a r d is e t h e s ta n d a r d s a c h ie v e d b y th e r e g u la r w o r k fo r c e b u t a t th e s a m e tim e
d o n o t p u ll w o r k e r s o u t o f th e ir p re se n t jo b s b e ca u se th e p u b lic jo b s p a y b e tte r .




192
The

C h a ir m a n ,

That’s right

Senator H u m p h r e y . T h is is I th in k a m a tter th a t requires o u r very
carefu l attention here in this com m ittee and in other com mittees. I
th in k w hat we were concerned about is th a t w ith the numbers o f
unemployed now being low er th an we had to endure in the g reat
depression and w ith the lim ite d num ber o f people th a t w ould lik e ly
be on public service jobs under this b ill, it is our judgm ent th a t
there w asn't this danger o f the p u ll th a t you’re ta lk in g about. B u t
I ’m not unaware o f it and we are prepared to w ork w ith you to see
i f we can’t refine th a t provision.
The C h a i r m a n . Senator Tow er?
Senator T o w e r . T h an k you, M r. C hairm an.
I w ant to commend m y colleagues on th e ir very lu cid testim ony.
H ow ever, I th in k it raises some questions th a t have not heretofore
been raised. I w ould note th a t most o f the witnesses th a t have ap ­
peared before the com m ittee have pointed out th a t th is proposal
would be in flatio n ary.
Now I ’m wondering i f you gentlem en are prepared to support the
im position o f wage and price controls to contain w hatever explosive
in flatio n ary effect th is m ig h t have.
Senator " H u m p h r e y . W e ll, Senator, know ing your strong opposi­
tion to wage and price controls, and know ing o f your splendid rec­
ord and your unwillingness to impose such burdens upon the econ­
omy, we hesitated to include th a t specific provision in this b ill. W e
thought th a t it w ould be much b etter to leave the language more
flexible so that we could approach the problem o f in flatio n in a
much more comprehensive m anner.
Fm no addict o f wage and price controls, Senator. Y o u and I
are not fa r ap art on th a t subject as a m atter o f fact. I know o f yo u r
real resistance to it and I d id n ’t w ant to have anything in th is b ill
th at would engender your im m ediate opposition.
Senator T o w e r . I ’m touched by your concern fo r m y concern.
Senator H u m p h r e y . I fe lt th a t you w ould be, b u t I see no tears
yet. B u t I do th in k th a t the provision th a t wo have m ig h t be m ore
clearly spelled out, M r. C hairm an, but I don’t w ant to appear here
as an irresponsible m an in any w ay. I ’m not unaware o f the im p o r­
tance o f the in flatio n and the tragedy o f in flatio n . M y own judgm ent
is th a t p ro d u ctivity is the best answer to in flatio n and I noticed
again— and I ’m sure you are a ll fa m ilia r w ith the outstanding w o rk
o f D r. Ginsberg who is possibly the N atio n ’s forem ost m anpower
specialist— lie says as follo w s: “The present in flatio n a ry pressure
d id not arise from a shortage o f workers and th e ir am elioration
should not be sought and cannot be achieved by continuing h ig h
levels o f unem ploym ent.” H e says: “T h e commission is convinced,
as is H .B . 50, th a t the danger o f renewed k in d lin g o f in flatio n a ry
pressures cannot ju s tify a m acropolicy th a t w ill leave us w ith such
excessive h igh unem ploym ent rates as has been calculated by O M B ,
and so fo rth .
Now there are some o f us th a t believe, fo r example— and I speak
only now fo r m yself— th a t the W ag e-P ricc S ta b ility C ouncil w ith
investigative powers, powers o f subpoena, can be very h e lp fu l; th a t
guidelines can be very h e lp fu l. There m ay be even specialized indus­
tries in which there’s such control both ’in prices and wages where




19 3

there needs to be some delay, where public opinion can be brought
to bear. B u t I w ant to say th a t the step o f imposed wa^e-price
control is a very serious step and I d id not w ant to p u t th a t in the
b ill and affix m y name to it. I thought th a t an adm inistration should
be able to ome up here w ith more flexible policies than th a t. There
are m any ways to address the problem o f in flatio n , as you know,
Senator*
Senator T ower . One witness touched on the question o f em ploy­
a b ility and I th in k th a t fro m tim e to tim e most o f us have acknow l­
edged th a t un em p lo yab ility is a p a rt o f the problem o f unem ploy­
m ent. Y o u r b ill doesn’t in any w ay address its e lf to this problem
o f e m p lo yab ility, o f m anpower tra in in g .
Senator H u m p h r e y . Yes, it does. I t relates to m anpower tra in in g
re la tin g to skills, the developm ent o f skills and the tra in in g th a t is
nccessary fo r w ork. A n d i f i t ’s not sufficiently specific on it, it is
a fac to r th a t should surely be added. There are, as has been said here,
the w o rkin g poor and then there are those th a t are re a lly unem ploy­
able and there are those th a t need the kin d o f tra in in g th a t make
them em ployable. W e can be more specific, Senator.
S enator T ower . C e rta in ly , there are a lo t o f jobs going begging
in th is country. P ick up the w ant ads every day and I th in k we fa il,
not because we haven’t trie d , but because perhaps we have been un­
able to come up w ith solutions, but certain ly this is a problem th a t
I ’m prepared to address m yself to and th a t is th a t question o f un­
e m p lo ya b ility because we have to elevate the m argin o f em ployable
out o f th a t category they are in now.
S enator H u m p h r e y . I th in k the C E T A program in m any ways
has been h e lp fu l in it.
Senator T ow er . Some o f our program s have.
Senator H u m p h r e y . I th in k we m aybe need more emphasis upon
it. I w ould encourage th a t th a t emphasis be placed in any type o f
leg islatio n th a t relates to fu ll em ploym ent.
Senator T ower . N ow a num ber o f economists have expressed the
concern th a t one o f the economic crises th a t we are going to have
to face up to in this country is the s h o rtfa ll o f cap ital. I th in k
everybody agrees th a t expanded c ap ital investm ent is an u ltim ate
producer o f jobs because it expands our capacity to produce or to
produce m ore efficiently or to raise per m an p ro d u ctivity .
W h a t in your b ill w ould serve as any k in d o f stim ulus to ex­
panded c a p ita l investm ent and w ould it involve a m a tter o f cred it
allocation ? I remem ber one tim e th a t you said yourself, Senator
H u m p h rey; som ething to the effect th a t a lo t o f o u r c ap ital invest­
m ent is going where it should not go, perhaps in ham burger stands
and p izza parlo rs when it should be going in to in d u stria l production
o r d is trib u tio n o r communications and th is sort o f th in g . W h a t k in d
o f comment do you have on th a t ?
.
Senator H u m p h r e y . W e ll, firs t o f a ll, the^ title I o f the b ill re ­
lates to economic p o licy. H o p e fu lly the adm inistration,^ whoever is
in charge, w ill try to develop the p riv a te sector by g iv in g free en­
terp rise its so-caued M agna C arta. Its expression o f v ita lity and
freedom w ould have consideration in the ta x program s fo r the de­
velopm ent o f c ap ital— w h at .we call cap ital fo n a atio iu C a p ita l fo rm a ­
tio n , o f course, is helped by increased p ro d u ctivity . I t 8 helped by
a more prosperous economy. There isn’t any doubt about that*



194
The best w ay to get c ap ital is to do business and to have a p ro fit
in the business th a t you do, b u t F m not unaw are o f and, in fa c t, I ’m
fu lly cognizant o f the tremendous needs fo r investm ent c a p ita l. I f
we w ent only in to the energy field, we w ould fin d incredible needs.
T herefore, since investm ent is so v ita l to job fo rm atio n , you w ould
have to have ta x policies, s ir, and cred it policies th a t w ould allo w
cap ital form ation in much la rg e r amounts than we have had up to
date. I th in k I understand the th ru st o f your question and I do not
find m yself in any opposition to th a t im p o rtan t developm ent; nam ely,
o f cap ital form atio n .
Senator T ower . N ow title I I I o f the b ill w ould assign some ra th e r
sweeping powers to the J o in t Econom ic C om m ittee. A s a m a tter o f
fact, committees o f the Congress w ould be required to subm it th e ir
comments to the J E C and Governors o f the States w ould, and J E C
would make recommendations on m onetary policy. T h e B udget Com ­
m ittee w ould be required to carry out J E C recommendations.
A re we not in effect establishing the J E C as a v irtu a l economic
czar w ith in the Congress ?
Senator H u m p h r e y . N o. M y judgm ent is th a t it should be a com­
m ittee th a t is sufficiently developed in every w ay— m em bership, staff
and so on— to give broad economic counsel and advice to the Con­
gress. I f it isn’t so a t the present tim e, then we can m ake it so.
H ow ever, I am not addicted to a p a rtic u la r com m ittee ju risd ictio n .
I don’t th in k th a t’s the most im p o rtan t p a rt o f the b ill. I do th in k
th a t the J o in t Econom ic C om m ittee can p la y a very significant role
and it ought to. I t was set up under the Em ploym ent A c t as the
counterpart to the President’s C ouncil o f Econom ic A dvisers. I t is
supposed to be the economic advisory body to the Congress. W h e th e r
it has fu lfille d th a t function p ro p erly o r not is subject to debate and
argum ent, but I th in k it could be.
A g ain , m ay I say th a t’s a p a rt o f the b ill th a t I look upon as sub­
ject to amendment or adjustm ent as you m ay deem necessary.
Th e im p o rtn t p a rt o f this b ill is title i , the economic policy
mechanism, and those features in title I I th a t I th in k are supple­
m entary to m aking this b ill re a lly produce the results th a t it ’s
designed to achieve.
Senator T ower . M r. W achter’s name has come in to question. B y
w av o f identification, he’s a member o f Jim m y C a rte r’s economic
advisory team and he estimates— g ettin g back to *in flatio n w hich robs
the pockets o f the poor fa r more than it does the pockets o f the
rich— M r. W achter estimates th a t an attem pt to get down to 3percent unem ploym ent by 1980 or so chiefly w ith aggregate dem and
stim ulus could cause in flatio n o f 15 percent or more. H e re ’s a man
who m ay be the chief economic adviser to the next D em ocratic can­
didate fo r the Presidency o f the U n ite d States, unless you are success­
fu l in ganging up on him and stopping him .
So I just wonder i f a statement com ing fro m a m an who is lik e ly
to have a great deal o f influence gives you any pause ?
Senator H u m p h r e y . W e ll, we m ay exact a price out o f M r. C a rte r
and say th a t he doesn’t have M r. W achter, th a t possibly M r. W ach ter
is^ subject to plausible argum ent. I ’m not at a ll sure about M r.
W achter’s background or his role. Y o u ju st have to bear w ith me.
M r. C arter d idn’t consult w ith me on his economic adviser, but I ’m




195
sure th a t he w ill consult w ith both o f us, Senator To w er, i f lie gets
to be P resident. I w ill tr y m y best to see th a t he gives you good
advice.
Senator T ower . W e ll, i f he arrives a t the convention w ith less
th a n enongh delegates to nom inate on the firs t b allo t, I ’m sure a
g re at num ber o f people w ill have considerable influence over w hat
he does.
I th in k m y tim e is up, M r. C hairm an.
T h e C h a ir m a n ’. Senator Stevenson.
S enator H u m p h r e y . W o u ld you p erm it me to make a call ? Address
y o u r question firs t to Congressman H aw kin s and I ’l l be rig h t back,
i f you w ill. Is th a t a ll rig h t?
Senator S te v e x s o x . B y a ll means, go ahead, but m y question was
fo r you. I could y ie ld to Senator H elm s i f he has some questions.
I have a question fo r both o f these gentlem en, M r. C hairm an.
T h e C h a ir m a n . Senator H elm s.
Senator H e lm s . W e ll, suppose you ask your question o f M r. H a w ­
kins. I have one fo r h im also, and then I also have one fo r Senator
H u m p h rey .
Senator S t e ve x s o x . Congressman H aw kin s, w ith changes o f the
k in d th a t you and Senator H u m p hrey were discussing w ith the
chairm an, 1 th in k I can support this b ill, but I have some problem s
w ith i t and I have read it . Y o u have both spoken fo rc e fu lly about
unem ploym ent, and the unem ploym ent levels o f the U n ite d States
are a n a tio n al disgrace, and as you and Senator H u m p hrey— Sena­
to r H u m p h rey in d ig n an tly — have indicated, the Governm ent should
act.
M y problem w ith th is legislation is th a t it contains no action and
I have read it more than once. M y question to you and also to Sena­
to r H u m p h rey is : W h a t action does th is legislation take? A s I
read it , i t requires the President to propose to the Congress action
to be taken in the fu tu re — and you and Senator H u m p h rey have
some v ery strong ideas I th in k about w h at action needs to be taken
and— action needs to be taken to d ay, n o t years fro m now— a fte r rec­
om m endations fro m whoever th a t P resident is. Y o u spell some o f
these actions out here—developm ent o f energy, tran sp ortation , food,
sm all business, and environm ent im provem ent policies. W e know
w h a t k in d o f actions. I agree w ith you about the tradeoff. I don’t
th in k there’s anv coincidence th a t the N atio n suffered sim ultaneously
th e w orst recession since the G reat Depression and the worst in fla ­
tio n since the C iv il W a r a t about the same tim e the o il prices were
q u ad ru p lin g . So w h y don’t we adopt an energy policy now instead
o f w aitin g ?
.
. . . .
M y question to both o f you is, w hat action does th is b ill take and
i f i t takes none, as I th in k , then is it wise to sim ply establish more
goals— w e have done th a t before— goals w hich m ay o r m ay n o t be
re alistic w h ich in a ll likelih o o d w ould be disappointed and w hich
could pass as a substitute fo r action?
In other w ords, postpone action and action th a t we should have
taken a lo n g tim e ago?
. , ,
,
M r. H a w k in s . Senator, I don’t th in k there are tw o in d ivid u als
who have been m ore id en tified w ith action than the tw o authors
o f the b ill.




196
Senator S t e v e n s o n . T h a t’s correct.
M r. H a w k in s . C e rta in ly Senator H u m p h rey hasbeen re a lly id e n ti­
fied w ith m ore action than I have in m y career, and I agree w ith
you in p rin cip le. The b ill as we have indicated is called a po licy b ill
and I th in k w h ile the b ill its e lf does not si>ell out the action p ro ­
grams th a t I th in k you and I w ould c ertain ly agree on, the b ill
would require those action program s.
The reason we don’t have action today is th a t i t ’s easy fo r the Con­
gress, fo r the C h ie f E xecutive, to get off the hook by not ta k in g any
action. N ow in setting specific goals th a t we m ust accom plish, in ­
cluding the 3 percent w ith in 4 years fo r w hich we have been c r iti­
cized tim e a fte r tim e, this is an action goal. T o reach th a t goal cer­
ta in ly means th a t we w ould begin to act to do so. I t w ould place
responsibilities on the President, responsibilities th a t he doesn't
have a t the present tim e or doesn’t assume. T h e President can sit
back and do nothing. T h e Congress can, in its com plexity, sim ply
fool around w ith legislation perhaps passed in one House and not
passed in the other. These things take place now. T h ere’s no re­
sponsibility placed on anyone in term s o f any objective or to effecuate the purposes o f the act. N ow we could obviously spell out in more
d etail some o f the action program s to w hich you have re ferred . T h is
is s tric tly a problem o f ju risd ictio n . I f we were to begin doing th a t—
and we have been criticized already because we have trie d to spell
out as specifically as possible some o f the program s th a t could be
operated— this b ill is not intended to bind the P resident, o r the
Congress fo r th a t m atter, to a specific program .
I t sim ply says th a t as o f a given space in tim e, given certain eco­
nomic conditions, then the Congress and the President w ould decide
w hat is most appropriate a t th a t tim e in term s o f specific program s.
I f we were to spell out action program s I ’m quite sure th is b ill
w ould have been referred to every standing com m ittee in the House
and probably the same in the Senate. So we could not invade the
ju risd ictio n o f other committees. W e sim ply say th a t the President
is to subm it legislation along the general lines w hich we have out­
lin e d ; the Congress is dutybound to consider them . W e place g reater
responsibility on the J o in t Econom ic C om m ittee fo r w hich some
people have objected. W e have placed the g reater responsibility on
the committees o f the Congress to handle this legislation and it
seems to me th a t’s as fa r as we could go.
I f we attem pted to spell out the action program s, th is b ill w ould
take 10 years to be passed because everybody w ould say, w e ll, look, I
disagree w ith this p ro visio n ; I disagree w ith th a t provision, and we
feel in spelling out the p olicy, m aking specific goals, saying th a t
w ith in 4 years you have to get unem ploym ent down to 3 percent, th is
is going to require the type o f action th a t I th in k you and I w ould
agree to.
Senator S tevenso n . W e ll, you m ay not have answered the ques­
tion. I ’m not suggesting th a t they be spelled out. I ’m suggesting
th a t we take them and not run the ris k o f establishing more goals
and be disappointed, o f ta k in g an action w hich is not an action,
deceiving the A m erican people and in v itin g fu rth e r delays.
Senator H um phrey, when you were out o f the room I m entioned—
I know m any o f your ideas and you have spelled them out very




197
fo rc e fu lly . T h ere are references in th is b ill to food policies and we
know w h at action needs to be taken. A ll th is does it seems to me,
and I have read it, is th a t the President w ould propose to Congress
actions th a t w ould be taken by the President. A ll I ’m saving is
th a t I share your in d ig n atio n . I th in k the unem ploym ent levels in
the U n ite d States are a disgrace and the Governm ent should act
now to prom ote the general w elfare and------Senator H u m p h r e y . Senator, there are tw o levels th a t I th in k we
have to look a t, tw o levels o f action. One is to update the E m ploy­
m ent A c t o f 1946. I t is not only a policy com m itm ent by the Congress,
but also the establishm ent, h o p efu lly, o f a mechanism fo r the im ­
provem ent o f the design o f economic policy, a more coordinated
and in teg rated economic policy.
N ow th a t is in section 1 o f this b ill. Section 2 o f this b ill, or title I I
I should say, relates to a num ber o f m atters which have been before
the Congress from tim e to tim e— countercyclical aid , public service
jobs, emergency public works, to m ention some.
T here is nothing at a ll that should fo restall the Congress o f the
U n ite d States m oving on those as it wants to in a tim ely fashion.
F o r exam ple, we have b ills rig h t now to provide public service jobs.
W e surely ought to have action fo r emergency public works. I t is
ju s t m y judgm ent th a t we w ould be better off looking down the
road here a period o f years to have our fiscal and budget policy,
our tax policy and m onetary policy more closely coordinated w ith
our em ploym ent goals. Therefore w hatever we have to do in the
natu re o f emergency public works or even long-term public works
or countercyclical aids or public service jobs w ould be better designed.
I th in k we’d get more fo r our money. I th in k you’d get better re­
sponse.
B u t you r point o f g ettin g at the problem o f unem ploym ent w ith
action now is w ell taken. T h is b ill, s ir, I ’ve got to be honest w ith
you, is w h at I call a policy b ill not fo r tom orrow m orning, but fo r
next year. T hen we w ill gear up this country in a concerted attack
upon w h at I consider to be the pervasive and lin g e rin g problem o f
unem ploym ent. I believe there’s sufficient evidence to te ll us th a t
we are in a different b a ll game today than we were 10 years ago.
S tru c tu ra l changes have taken place in our economy, as you a ll know,
and there are problems o f em ploym ent w ith m in o rity groups, w ith
you th , w ith women and others, as Congressman H aw kin s has said,
th a t are d ifferen t and unique. P a rtic u la rly in these tim es o f greater
awareness, there is a greater desire on the p a rt o f people to p a rtic i­
pate and m aybe a greater need.
So we have to deal w ith those problem s, but I don’t w ant to be put
in the box o f saying we should w ait to do som ething on unem ploy­
m ent problem s w h ile Congressman H aw kin s and Senator H u m p hrey
argue about th e ir b ill. Th e answer is no. W e do have to approach
the problem s now as best we can. Y o u and I have supported tax
reductions. W e have supported public service job and a ll o f tin s.
M y concern has been, and X th in k I have sensed th is fro m a num ­
ber o f o th er Mem bers o f Congress, th a t somehow o r another the

re a lly w o rried me so m uch is th a t --------,
in g to n and then we get a ta x increase out a t the States, n e have a



198
stimulated tax policy in the Congress and the Executive and then we
have a restrictive policy from the point of view of the Federal Re­
serve Board, I remember so well Dr. Burns saving to us— and I
think you were there that day, Senator Proxmire— I asked him,
“ Now if you had a mandate from the Congress as to goals”— this
is 2 years ago, before this bill had ever seen the light of day— in
fact, it was one of the reasons I got interested in this legislation.
I said, “Mr. Burns, I have been complaining about you and the
Federal Reserve Board and sometimes I feel like I have been unfair
because we have never rally told you what we wanted.” I said, “ I f
the Congress and the President were to tell you that we ought to
achieve a certain degree of or have as a goal a certain degree of
production and a certain degree of employment and a certain, as
you have indicated today, rate of inflation, would you and the Fed­
eral Reserve Board cooperate? And what was his response? I think
I can almost remember his words exactly. “We are a law abiding
agency, Senator, and if the Congress will give us guidance, if the
Congress will specifically say what it wants as its goals, we will do
our level best to try to achieve those goals within an overall policy.”
That’s exactly what we have got here. That’s what we’re trying to do.
Again, to go back to Senator Stevenson, as far as tomorrow morning
immediate relief, this bill is not directed to that purpose as you
know.
Senator S t e v e n s o n . Mr. Chairman, I think that’s a very helpful
statement by Senator Humphrey and if this bill can be made more
comprehensive with the changes of the kind that you and the chair­
man have been discussing, then I think I could support it, as a state­
ment of goals and of their general policies and with the hope that
there are no illusions in the country that this is not action and with
the hope that it doesn’t become a substitute for action.
Senator H u m p h r e y . It is not a substitute for action.
Senator S t e v e n s o n . It’s nothing more than a general policy state­
ment.
Senator H u m p h r e y . It is an incentive for action. It is a blueprint
for action and it will require action by the President and the Con­
gress and it lays out a structure in which that action can take place
and I ’ll tell you quite honestly, none of this legislation is going to
work— I don’t care what kind it is—if there isn’t a will to make it
work. I f you’ve got people that have got the dead hand of indiffer­
ence and apathy on this legislation, it just isn’t going to work.
That’s one of our problems today. Indeed, the best legislation with
poor administration is not very good, and bad legislation with good
administration is better. We just simply have got to have the will
and the push to get the job done.
I think Senator Stevenson’s description is very proper and fair.
This isn’t a miracle. If you pass it, it doesn’t mean you’re going to
get full employment by the fact that you pass it. But it does say,
“Mr. President, how about living up to the law and the law states
the following,”
I consider that even with what we have done under the Employ­
ment Act of 1946, it could be argued that the administration is in
violation of the law. That’s not unusual in government, however.




19 9

W e have been having a lot of that over a long period of time, but
the Employment Act laid down maximum employment, maximum
production, and maximum income. They didn't say full. And that
was supposed to be a directive to the Government. The directives to
the Government are oftentimes avoided or evaded. The directive
to the citizen when the IR S says “ Pay your tax”— they mean it.
When we say to the President of the United States, “ Present us
with a program, even under the Employment Act of 1946, for maxi­
mum production.” He says, “W ell, you know, that was a nice
thought.” They make a speech on that. But I think this refines the
Employment Act of 1946.
Mr. H a w k in s . Senator, I would say if this bill had been in opera­
tion effective as a law at the time the $6.2 billion program submitted
by the Congress to the President was submitted to the President,
that the President would have been hardpressed not to have signed
that bill. That, to me, is the significance of it because the President
could not have justified that veto of a bill that had been worked out
by the Congress in violation of the principles contained in this bill.
* Senator Stevenson. W ell, my time has expired.
The C h a irm a n . Senator Heims.
Senator H elm s. Thank you, Mr. Chairman.
Mr. Hawkins, I ’m perfectly willing to award you and my dis­
tinguished colleague from Minnesota, Senator Humphrey, a gold star
for your foreheads for having the best of intentions. But I really
wonder, when I hear a proposal such as this, whether we really
believe in the free enterprise system that we boast about in this coun­
try. This bill is a flat contradition of that system.
"Let me ask you, as a man who’s represented a fine district for
many years, how many small businssmen have come to you and said,
“ Look, I could hire more people if I could just get the government
off my back.” I would dare say you have had this experience day
after day, week after week, haven’t you? Would that be a fair state­
ment?
Mr. H a w k in s . I think it would be a fair statement. I ’m not going
to tell you what I told them, however, at this time unless you so
request, but I certainly think it is a problem and I agree with you
that that is the attitude of innumerable small business persons.
Senator H e lm s . I think it’s the attitude of practically all of them.
Certainly I know of no businessman in ISorth. Carolina who would
not come here and testify under oath that he could hire more people
if it weren’t for all of the Federal regulations, and all o f the laws
and all o f the programs that have been enacted and instituted with
great fanfare and publicity by the Congress— and then largely turned
over to bureaucrats to administer.
I
was interested in Senator Humphrey s comments, something to
the effect, “if we don’t let the dead hand of apathy run this pro­
gram.” I imagine he’s talking about the bureaucrats I don’t know
any dead hands of apathy in the bureaucracy downtown They go
gung-ho downtown, harrassing and badgering the small business
Pe£ t ° o r
Senator H elm s, le t me te ll you s o m e th in * I
was a m ayor o f a c ity o f a h a lf a m illio n . T h a t’s p re tty good sized.




200
T h a t’s bigger th an some States. A n d I had the same c iv il servants
th a t the predecessors had. I got tw ice as much w o rk out o f them and
got five tim es more done, to be immodest about it. I made them w o rk
and le t me te ll vou, the firs t th in g we d id w as go through o u r w e lfa re
rolls and start a t the firs t vocational re tra in in g program and bv the
tim e I got through, in 4 years o f being m ayor, we p ra c tic a lly had
no welfare program because we put them to work. W e had the first
alcohol and drug abuse center in the United States. W e took the
police department and gave them a 40-hour week and got more work
out of them than we had on the 50-hour week.
You want to know a small businessman who doesn’t say— 1 11 take
you right on out to Humphrey’s drug store. You know what I found
out ? Those folks that are getting a little social security are our
customers. They like it. Those folks that even got unemployment
compensation out there are our customers and you want to know
what would have happened without them? W e would have gone
broke. A lot of people are here talking about the dead hand of Gov­
ernment. I f they didn’t get their social security, if they didn’t get
their unemployment compensation, if they didn’t get their S S I and
some of these "things, they would have had more trouble than they
even know of. Don’t misunderstand me.
Senator H e l m s . I ’m sure you’ve also heard about O S H A and other
agencies which have gone to absurd lengths to harrass the small
business men and women of America.
Senator H u m p h r e y . Don’t misunderstand me I understand the
importance of private enterprise and I ’m here to tell you that private
enterprise has benefited when they got income. That’s the only thing
that keeps private enterprise going, not these speeches. W hat mv old
dad said is, “ Son, when they come into the store with money in the
pocket we got a chance to get it in the cash register, period,” That’s it.
Senator H e l m s . That’s very interesting and I appreciate that en­
lightenment about the Senators dad. Let’s turn to the reference made
to C E T A here, Mr. Chairman. Now this is one of these programs
that ivas going to do such great things. But what is the record?
In North Carolina, Senator and Mr. Hawkins, $9.5 million of the
Federal Government money— that is to say the taxpayers of the
United States— was spent to produce precisely 73 jobs— costing $130,000 per job. The director of the C E T A program said— and I think
he’s correct in this— “ the majority of Congress must realize that the
answer to our economic problems cannot be found simply by pouring
money into public sector employment and emergency jobs.” Now
that’s the meat of the coconut when we start considering proposals
such as the Humphrey-Hawkins bill.
Now. Senator Humphrey can talk about his fine father and the
checks that go in the cash register and all that, but I ’m absolutely
persuaded that the small businessmen in this country are fed up to
here with all the regulations, guidelines and other forms of Federal
liarrassment.
Mr. H a w k i n s . Senator, on that point------Senator H e l m s . J ust 1 minute, please.
Sir. H a w k i n s . I don’t know whether you were in the room or not
but we attempted to address that problem on page 14 of the bill,




201
section B , and I call yo u r p a rtic u la r attention to paragraphs one
and tw o in w hich it is required th a t a review o f existing Governm ent
rules and regulations to determ ine i f they s till serve a public purpose
and are p ro p erly designed; and tw o, an annual evaluation o f 20
percent o f the d o lla r volum e o f existing F ed eral program s. In this
b ill, fo r the firs t tim e, not in rhetoric, we begin to address ourselves
to the problem o f fu lly review ing those rules and regulations about
w hich you speak and also an evaluation o f w asteful program s so we
can elim in ate them . T h is is not rhetoric. I t ’s in the b ill and I suggest
th a t th is is the proper w ay to address ourselves to th a t problem .
I t ’s v ery easy fo r us, as elected officials, to make an appeal to those
business persons who are com plaining, but this fo r the firs t tim e does
som ething concrete about it and I suggest th a t a carefu l reading o f
th a t p a rtic u la r section, i f there are any m odifications, any strength­
ening th a t you w ould suggest, it certainly is our in ten t to do this and
1 w ould certain ly be, fo r one, in fa v o r o f strengthening th a t p ro ­
vision o f the b ill.
S enator H e lm s . I re iterate, s ir, th a t I give you and Senator
H u m p h rey a gold star fo r your good intentions. N ow I notice in
S enator H u m p h rey ’s statem ent, page 3, he alludes to “over the period
o f 1962 to 1973 w h ile the U n ite d States had an average o f unem ploy­
m ent rate o f 5 percent, the countries o f Japan, France, U n ite d K in g ­
dom , Sweden, and G erm any had an average unem ploym ent rate o f
1.8 percent.”
S enator H u m p h r e y . R ig h t.
S enator H e lm s . W h a t was th e ir in flatio n ra te , Senator?
Senator H u m p h r e y . I t depends on w hich country you’re ta lk in g
about.
S enator H e lm s . Y ou take any country you lik e .
Senator H u m p h r e y . G erm any’s was less th an ©ill’s.
Senator H elm s . I beg your pardon.
Senator H u m p h r e y . I th in k th a t’s tru e.
Senator
W e’l l get it and p u t it in the record.
Senator H u m p h r e y . A n d the Swiss m ark is a better currency than
ours, Senator, i f you w ill pardon me, and they also had below 1
percent unem ploym ent. Th ey had to im p o rt a m illio n and a h a lf
w orkers, a m illio n and a h a lf fo rig n workers and up even as h ig h as
2 m illio n .
Senator H e lm s . A ll rig h t, but S w itzerlan d was not included in
yo u r statem ent th a t I quoted. N ow we have had discussion here th is
m orning about d ie things we have done— such as ta x reduction, w hich
is a very appealing th in g . Everyone w ould lik e to have a ta x reduc­
tio n every tim e, pay day rolls around. P u b lic service jobs are voted
on th e Senate floor and in the House o f Representatives, bu t. sad
to say, th is in e vita b ly leads to g reater deficits. T h e F ed eral debt
today is in excess o f $600 b illio n and i t ’s going to cost between $43
and $47 b illio n th is year to pav the interest alone. Now th a t’s w h at’s
w rong. W e can pass a ll sorts o f b ills w ith a ll sorts o f fancv title s ,
b u t i t ’s the same th in g as standing in th a t w indow and huffing and
puffing to blow down the W ashington m onument. I say u n til we get
th is F e d e ra l G overnm ent straightened o u t W r e n o t going to accom­
p lish a n y th in g .




202
Senator H u m p h r e y . Senator, I think you’re making a wonderful
argument for our bill.
Senator H e lm s . In all candor, your logic escapes me. I certainly
have said nothing on behalf of your bill.
Senator H u m p h r e y . I don’t agree with you. Let me tell you, the
President’s own Manpower Commission points out it’s been estimated
that every percentage point increase in tne unemployment rate above
4 percent the Federal deficit incrass by almost $16 billion, $14 billion
because of reduced tax receipts and $2 billion because of increased
transfer payments. So here’s the Commission on which the Secretary
of Defense, Agriculture, Commerce, Labor, H E W , Administrator of
the Veterans’ Affairs and a large number of others served, and they
come in here and tell you why you’ve got the deficit. You and I
know why we have the deficit. The deficit is due to the fact that the
economy has been in the doldrums. That’s why the State and local
governments in 1975 lost $27 billion worth of revenue. When you’re
not making it, you can’t have it.
Senator H elm s. Senator, I would suggest that we have deficits
because we have had an irresponsible Congress for a generation that
has spent far more each year than it’s taken in. That’s been the name
of the political game and that’s why we have such a staggering
deficit, and such stifling inflation.
Now I wish it were possible to pass a law to solve the unemploy­
ment but it’s not that simple. W e ’ve got to let this free enterprise
system work and get the Government off the backs o f the people
who can create— the only people who can create jobs in this country.
The Federal Government can’t do it and your bill can’t do it, and
won’t do it.
Senator H u m p h rey . Senator, I wouldn’t disagree with a word that
you just said in terms of giving the free enterprise system a chance to
create the jobs. That’s the whole purpose here. One of the ways you
get it is with investment, with credit, with budget policies and tax
policies to give the free enterprise system a chance to work, and that’s
what we’re trying to do.
Senator H elm s. Senator, I respect you, and our disagreement, as
always, as a friendly one, but if you believe your bill will do that,
you’ll believe anything.
Senator H u m p h rey . W ell, maybe you should believe a little more.
Senator H elm s. Thank you very much.
The C h a irm a x . W ell, thank you gentlemen very much, not only
for your statements but your superb responsiveness to our questions.
Our final witnesses will be Mr. Andrew Biemiller, A F L -C I O ;
Dr. Carl Madden, Chahber of Commerce of the United States: and
Dr. Leon H . Keyserling, one of the best economists in the country
and one of the authors of the legislation.
Mr. B ie m ille r. Mr. Chairman, I regret that I have other appoint­
ments that I must keep. I have some of my colleagues here with me
who will speak for the A F L -C I O .
The C h a irm a x . A ll right, sir. Fine. Your statement will be
delivered by one of your colleagues?
Mr. B ie m ille r. Rudolph Oswald, the Acting Director of our
Office of Research, and Henry Schechter, of our Department of
Housing and Urban Affairs.




203

T h e C h a ir m a n . Supposing then we s tart off w ith M r. Oswald.
Y o u ’re R udolph O swald and w hat is your position again?
M r. O sw ald . A c tin g D ire c to r o f Research fo r the A F L -C IO .
T h e C h a ir m a n . A ll rig h t, sir.

STATEMENT OF RUDOLPH OSWALD, ACTING DIRECTOR OP
RESEARCH, AFL-CIO; ACCOMPANIED BY HENRY SCHECHTER,
DEPARTMENT OF HOUSING AND URBAN AFFAIRS, AFL-CIO
The C h a ir m a n . I w ant to apologize to you gentlemen fo r keeping
you so long but you can understand we started at 9 :30 this m orning.
I w ould suggest i f you can do so th a t you sum marize your statements
as b rie fly as possible and then we w ill have some questions.
M r. O sw ald . T h an k you, Senator.
M r. C h airm an , we are happy to te s tify in support o f the revised
H u m p h rey -H a w kin s F u ll Em ploym ent B ill, S. 50.
F u ll em ploym ent has a lw a j’s been a top p rio rity goal o f organized
labor. W e define fu ll em ploym ent as a job at a decent wage fo r
every A m erican who is able to w ork and who is seeking work.
S. 50 aims a t tran s latin g fu ll em ploym ent rhetoric in to fu ll em­
ploym ent re a lity . I t sets up a reasonable, practical, and w orkable
mechanism to tu rn the prom ise o f fu ll em ploym ent in to jobs.
W e don’t look at fu ll em ploym ent as some philosophically correct
abstraction. F u ll em ploym ent to us is an economic necessity. Jobs
are the lifeb lo o d o f the A m erican economic system.
A job is a key measure o f a person’s place in society— w hether th a t
person is a fu ll-fled g ed p artic ip a n t in society or on the outside look­
in g in . W o rk is the basic source o f income in our society.
F ro m jobs come the wages th a t generate mass purchasing power—
mass b u ying power th a t stim ulates increasing output o f goods and
services and raises fa m ily liv in g standards.
U n fo rtu n a te ly , the A m erican economy too often fa lls fa r short
o f fu ll em ploym ent. H ig h and persistent joblessness condemns m il­
lions o f A m ericans to the economic scrap-heap. T h is is m o rally
w rong, socially w rong, and econom ically w rong.
U nem ploym ent statistics represent people. T h ey represent fam ilies.
E v e ry 1 percent o f our unem ploym ent rate represents almost one
m illio n people. T o these people unem ploym ent is personal tragedy
and fa m ily tragedy.
T h e fa c t th a t the loss o f job and steady income is tem p o rarily
alle via te d by unem ploym ent compensation, public assistance, and
food stamps is no consolation to those who w ant steady w ork.
A n d most workers are in debt fo r th e ir homes, cars, refrigeratoi-s,
television sets and other appliances— and the fe a r o f harassment,
g u ilt fo r b ills unpaid, and the shame o f possible bankruptcy haunt
the unem ployed.
Prolonged in vo lu n tary unem ploym ent causes other changes w inch
are not alw ays evident. There is the loss o f the h ab it o f w o rkin g ,
the loss o f self-esteem , often accompanied by stresses and strains in
fa m ily relationships. Tensions between husband and w ife , caused by
unem ploym ent, o ften lead to divorce courts, and tensions between
parents and child ren often result in alcoholism , drug abuse and crim e.
T h e trag ed y o f unem ploym ent causes social and com m unity problems as w e ll as personal and fa m ily tragedies. A n d the economic
73-363— 76------- 14




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waste o f productive hum an resources is a loss w h ich can n ever be
recaptured. In 1975 the gap between A m erica’s p o te n tia l f u ll em ­
ploym ent o u tp u t and . actual o u tp u t o f goods and services— con­
servatively estim ated by the U .S . Commerce D ep artm en t— was m ore
than $225 b illio n . T h is staggering loss o f o u tp u t was m ore th a n
$1,000 p er m an, wom an and c h ild in the U n ite d States.
Th e C h a ir m a n , M r. O sw ald, I hate to in te rru p t, b u t th is is a
15-page statem ent and as I tim e you it w ill take you m ore th a n h a lf
an hour to read it. I w ould appreciate i t i f you could sum m arize it .
W e w ill p rin t the w hole statem ent in th e record. I had a chance to
read it last n ig h t and i t ’s a fine statem ent. C ould you go over i t
b riefly ?
M r. O s w a l d . Yes, Senator. T h ere are a few item s th a t I ’d p a r­
tic u la rly lik e to h ig h lig h t. O ne item th a t we emphasize is th a t f u ll
em ploym ent is a precondition fo r price s ta b ility and a h ea lth y, b a l­
anced expanding economy th a t produces g ro w in g revenues to p ay fo r
fu ll em ploym ent. T h is refers to some o f the e a rlie r questions o f the
previous witnesses and I th in k th a t our testim ony here shows th a t the
huge deficits in recent years were not the cause out ra th e r th e re su lt
o f the N atio n ’s economic problem s.
In d o lla r term s, the 1975 calendar yea r fed e ral deficit w ould have
been only $7.5 b illio n instead o f the actual $73.4 b illio n th a t existed
according to the C ouncil o f Econom ic A dvisers, and th a t is a t an
estim ate o f 4 percent unem ploym ent ra th e r th an 3 percent the goal
sets fo rth .
In com bining F ed e ral, state and local governm ents, the d eficit
w ould not have been. In stead o f a d eficit o f $63.5 b illio n , there w ould
have been a surplus o f $29.9 b illio n .
S im ila rly , w hat I w ould lik e to h ig h lig h t is th a t w h ile c u rre n tly
the A d m in is tra tio n talks o f a 7Vz percent unem ploym ent, ra te , a
tru e r picture we feel w ould be an unem ploym ent rate o f 10.2 p e r­
cent, i f one included the discouraged w orkers and the w orkers who
are required to w o rk p a rt-tim e because fu ll-tim e jobs are not a v a il­
able. W e have been p u blishing in the A F L - C IO a m ore realists
level o f unem ploym ent in those term s th an the figures th a t are h ig h ­
lig h ted by the B ureau o f L ab o r S tatistics, although the Com m issioner
has been rep o rtin g a s im ila r figure in his rep ort m o n th ly to the
J o in t Econom ic C om m ittee.
In our statem ent we indicate the series o f recom mendations adopted
by the A F L -C IO last Decem ber in supporting a feasible fu ll em ploy­
m ent act and m any o f these elements are included in S. 50 and is in f u ll
accord w ith our endorsement o f S. 50.
W e emphasize our concern w ith the F ed eral Eeserve B o ard
and its fa ilu re to emphasize the setting fo rth o f fu ll em ­
ploym ent as one o f its goals. In th is respect, Senator H u m p h rey in d i­
cated, th a t M r. B urns had said th a t he was interested in a declara­
tio n o f policy fo r the F ed eral Reserve B oard. W e feel th a t S. 50 sets
fo rth th a t policy in term s o f h avin g the F ed eral Reserve B oard m ake
regular reports to Congress, and rep o rtin g how its actions w ould
be in conjunction w ith the other actions o f the A d m in is tra tio n , in
terms o f setting fo rth the goal o f m eeting f u ll em ploym ent.




205
W e feel th a t some o f the actions o f the Federal Reserve B oard
in recent years were p a rt o f the cause o f the current h ig h unem ploy­
m ent and therefore it ’s absolutely necessary fo r the inclusion o f the
F ed e ral Reserve B oard reference in S. 50. Then the Fed w ill act in
its role o f co n tro llin g money cred it to b rin g about fu ll em ploym ent
and w ill consult w ith the Congress, th a t is the elected body, to set
fo rth the objectives and plans th a t w ould b rin g about fu ll "employ­
m ent.
Th e other item s th a t I ’d lik e to h ig h lig h t in term s o f our testi­
mony is th a t the emphasis in section 3 (A ) requires the P resident to
prepare and tran sm it to the Congress annually a fu ll em ploym ent and
balanced gro w th p lan , inclu d in g n ational goals and p rio ritie s. I t ’s this
sort o f emphasis on the to ta l program fo r fu ll em ploym ent and b al­
anced grow th th a t we th in k is the h ig h lig h t o f S. 50. x h e fa c t th a t it
requires the various adm in istrative bodies to set fo rth a program th a t
w ill reflect the specific targets and goals th a t the b ill sets fo rth in term s
o f b rin g in g the economy to a 3 percent unem ploym ent rate.
W h a t has us concerned is the most recent projections by the
C ouncil o f Econom ic A dvisers th a t w ould leave us a t a 5 percent
unem ploym ent level in 1980, whereas the goal o f S. 50 w ould direct
the C ouncil o f Econom ic A dvisers and the A d m in istratio n to set
fo rth a program to lead to a 3 percent unem ploym ent level fo r a
fu ll em ploym ent economy.
T h e curren t actions o f the F ed eral Reserve B oard— and we h ig h ­
lig h t these in our prepared statem ent— would seem to im p ly th a t they
are m oving tow ards a new tig h t money and hig h interest rate policy.
W e are p a rtic u la rly concerned th a t this sort o f a policy w ill choke the
m ortgage money supply a t a tim e when the construction industry
is s till not recovered fro m the depression, w ith the housing starts
rate s till at only 55 percent o f the prerecession h ig h and to ta l un­
em ploym ent rates in the construction in d u stry o f over 15 percent.
A t th is p o in t we are equally concerned th a t th e actions o f the
F e d th a t seem to im p ly tig h te n in g the money supply and raisin g
interest rates are going to choke o ff th e a b ility o f the housing in ­
d ustry to recover and also in term s o f its im pact on u tilitie s , w ith
m edium q u a lity u tility bonds already m oving back up to 10 percent,
in d ic atin g a real concern fo r th is v ita l energy elem ent in the economy
to adjust to the cu rren t needs o f our economy, and we are concerned
th a t the F ed is not responsive to the to ta l direction o f the needs o f
the economy as voiced often by Congress.
T h e emphasis th a t we place on the need fo r selective c red it
regulations th a t are m entioned in section 3B o f S , 50 w ould
be useful in designing fiscal and m onetary policies th a t w ould be
consistent w ith r a il em ploym ent and balanced g ro w th plans. W e
feel th a t the flexib le use o f such tools in economic policy w ould
allo w fo r g reater fle x ib ility and w ould take the restrictive general
m onetary policies’ s tra itja c k e t aw ay fro m the other tools th a t we
have to fig h t in fla tio n ana recession and th a t the curren t dependency
upon m onetary p o licy has resulted in re stra in t on g ro w th and in
savings and c a p ita l fo rm atio n in general.
The emphasis that is exemplified in S. 50— is that monetary policy

alone cannot solve America’s economic problems. The economy is too




206
b ig and too com plex. M o n etary policies affecting the supply and a v a il­
a b ility o f money and cred it and the level o f interest rates are o f g reat
im portance- O th er tools o f economic policy are im p o rtan t also. T h u s,
we m ust be concerned about fiscal p o licy, the G overnm ent’s ta x ,
investm ent and spending policies, and m anpow er policies w hich deal
w ith the broad range o f job related program s, in clu d in g public
service jobs, m anpower tra in in g , unem ploym ent com pensation and
so fo rth .
In essence, our view o f S. 50 is th a t S. 50 coordinates the efforts to
achieve economic grow th and f u ll em ploym ent.
I th in k the other th in g th a t I ’d lik e to emphasis is th a t in our
view S. 50 is not a job creating b ill in and o f its e lf, b u t i t ’s a
general economic policy b ill th a t coordinates the activities o f the
President, the Congress and the F ed eral Reserve to develop and act
on the n atio n al goals and p rio ritie s fo r fu ll em ploym ent.
Th e other item th a t we w ould lik e to emphasize som ewhat in
keeping w ith the emphasis o f Congressman H a w k in s e a rlie r is in
term s o f the social needs o f A m erica. W e are concerned w ith the
emphasis o f fig h tin g fo r hum an w elfare and social progress and
m eeting the problems th a t unem ploym ent causes fo r people. W e are
concerned th a t c iv il rig h ts, m inim um wage and other leg islatio n
m ay not re ally provide the prom ise unless there are the jobs fo r
people. S. 50 would give the country the o p p o rtu n ity to provide the
economic grow th and social progress th a t accompanies fu ll em ploy­
m ent.
The emphasis th a t we see is th a t S. 50 is an investm ent in the
fu tu re and provides fo r the w e lfare o f people. I t ’s im p o rtan t in
term s o f our outlook fo r the next 5 years and the decades th e re a fte r
by em phasizing the im portance o f hum an life and jobs in term s
o f th a t social recognition in our economy.
I th in k th a t’s the emphasis o f our statem ent, Senator,
T h e C h a i r m a n . T h an k you very much, M r. O sw ald. Y o u d i d a n
expert job o f sum m arizing the statem ent tersely and very w e ll. T h e
entire statem ent w ill be p rin ted in fu ll in the record,
M r. O s w a l d . T h an k you, Senator.
[Com plete statm ent o f the A F L - C IO fo llo w s :]

S t a t e m e n t o f A n d r e w J . B ie m t ix e b , D ir e c t o r o f L e g is l a t io n , A m e r ic a n
F e d e r a t io n o f L a b o r a n d C o n g r e s s o f I n d u s t r i a l O r g a n i z a t i o n s
Mr. C h a irm a n , w e a r e h a p p y to t e s t if y in su p p o rt o f th e r t v ie s d H u m p h rey H a w k in s F u ll E m p lo y m e n t B ill, S, 5 0 .
F u ll e m p lo y m e n t h a s a lw a y s b een a to p -p rio r ity g o a l o f o r g a n iz e d lab or.
W e d efin e f u ll e m p lo y m e n t a s a jo b a t a d e c e n t w a g e fo r e v e r y A m e r ic a n w h o
is a b le to w o rk a n d w h o is s e e k in g w ork .
S.
5 0 a im s a t t r a n s la t in g f u l l e m p lo y m e n t r h e to r ic in to f u ll e m p lo y m e n t
r e a lity . I t s e t s u p a r e a so n a b le , p r a c tic a l, a n d w o r k a b le m e c h a n ism to tu r n
th e p r o m ise o f f u ll e m p lo y m e n t in to jo b s.
W e d o n ’t lo o k a t f u l l e m p lo y m e n t a s so m e p h ilis o p h ic a lly c o r r e c t a b s tr a c tio n .
F u ll em p lo y m e n t to u s is a n e c o n o m ic n e c e s s ity . J o b s a r e t h e life b lo o d o f th e
A m erica n eco n o m ic sy ste m .
A jo b is a k ey m e a su r e o f a p e r s o n ’s p la c e in s o c ie ty — w h e th e r t h a t p erso n
is a fu ll-fled g ed p a r tic ip a n t in s o c ie ty o r o n th e o u ts id e lo o k in g in . W o rk is th e
b a sic so u rc e o f in co m e in o u r s o c ie ty .
F ro m jo b s co m e th e w a g e s t h a t g e n e r a t e m a ss p u r c h a sin g p o w e r — m a s s b u y ­
in g p o w er th a t s tim u la te s in c r e a s in g o u tp u t o f g o o d s an d s e r v ic e s a n d r a is e s
f a m ily liv in g sta n d a rd s.




207
U n f o r tu n a t e ly , th e A m e r ic a n eco n o m y to o o fte n f a lls f a r s h o r t o f f u l l e m ­
p lo y m e n t. H ig h a n d p e r s is t e n t jo b le s s n e s s co n d em n s m illio n s o f A m e r ic a n s
to t h e e c o n o m ic scrap -h eap . T h is is m o r a lly w ron g, so c ia lly w ro n g , a n d ec o ­
n o m ic a lly w ro n g .
U n e m p lo y m e n t s t a t i s t i c s r e p r e s e n t p eop le. T h e y r e p r e s e n t f a m ilie s . E v e r y
o n e p e r c e n t o f o u r u n e m p lo y m e n t r a te r e p r e s e n ts a lm o s t o n e m illio n p eop le. T o
t h e s e p eo p le, u n e m p lo y m e n t is p e r s o n a l tr a g e d y a n d fa m ily tr a g e d y .
T h e f a c t t h a t th e lo s s o f jo b a n d s te a d y in co m e i s te m p o r a r ily a lle v ia te d by
u n e m p lo y m e n t c o m p e n sa tio n , p u b lic a s s is ta n c e , a n d fo o d s ta m p s i s n o c o n s o ­
la t io n to t h o s e w h o w a n t s te a d y w ork .
A n d m o st w o r k e r s a r e in d e b t f o r t h e ir h o m es, ca rs, r e fr ig e r a to r s , t e le v is io n
s e t s a n d o th e r a p p lia n c e s— a n d th e f e a r o f h a r a ss m e n t, g u ilt fo r b ills u n p a id ,
a n d t h e s h a m e o f p o s s ib le b a n k ru p tcy h a u n t th e u n em p lo y ed .
P r o lo n g e d in v o lu n t a r y u n e m p lo y m e n t c a u s e s o th e r c h a n g e s w h ic h a r e n o t
a l w a y s e v id e n t. T h e r e is t h e lo s s o f t h e h a b it o f w o rk in g , t h e lo s s o f s e lf ­
e s te e m , o f te n a c c o m p a n ie d b y s t r e s s e s a n d s t r a in s in fa m ily r e la tio n s h ip s . T e n ­
s io n s b e tw e e n h u sb a n d a n d w ife , c a u se d b y u n em p lo y m en t, o f te n le a d to d i­
v o r c e c o u r ts, a n d te n s io n s b e tw e e n p a r e n ts a n d c h ild r e n o f te n r e s u lt in a lc o ­
h o lism , d r u g a b u se an d crim e.
T h e tr a g e d y o f u n e m p lo y m e n t c a u s e s s o c ia l a n d c o m m u n ity p ro b lem s a s w e ll
a s p e r s o n a l a n d f a m ily tr a g e d ie s. A n d t h e e co n o m ic w a s te o f p r o d u c tiv e h u m a n
r e s o u r c e s i s a lo s s w h ic h c a n n e v e r b e r eca p tu red . I n 1 9 7 5 t h e g a p b e tw e e n
A m e r ic a ’s potential f u l l e m p lo y m e n t o u tp u t a n d actual o u tp u t o f g o o d s a n d
s e r v ic e s — c o n s e r v a tiv e ly e s tim a te d by t h e U .S . C om m erce D e p a r tm e n t— w a s
m o r e th a n $ 2 2 5 b illio n . T h is s t a g g e r in g lo s s o f o u tp u t w a s m o r e th a n $ 1 ,0 0 0
p e r m a n , w o m a n , a n d c h ild in th e U n ite d S ta te s .
T h e A m e r ic a n eco n o m y i s s t i ll o p e r a tin g in 1 9 7 6 w it h t h e sa m e o u tr a g e o u s
w a s t e o f p r o d u c tiv e p o te n tia l. I n t h e fir s t q u a r te r o f 1 9 7 6 t h e eco n o m y was
o p e r a tin g w it h o n ly 7 1 p e r c e n t o f m a n u fa c tu r in g c a p a c ity b e in g u tiliz e d — so
t h a t 2 9 p e r c e n t o f m a n u f a c t u r in g w a s id le . T h e g o v e r n m e n t’s u n em p lo y m en t
fig u r e s in d ic a te d a n u n e m p lo y m e n t r a t e o f 7 .6 p e r c e n t in t h e fir s t q u a rter, b u t
t h e m o r e r e a lis t ic c a lc u la t io n s o f t h e A F L - C I O in c lu d in g d isc o u r a g e d w o r k e r s
a n d h a l f t h e in v o lu n ta r y p a r t- tim e w o r k e r s, in d ic a te a first-q u a r ter d o u b le ­
d ig it u n e m p lo y m e n t r a t e o f 1 0 .5 p e r c e n t— m o r e t h a n o n e o u t o f e v e r y 1 0
w o r k e r s s t i l l s u ffe r in g u n em p lo y m e n t.
T h e r e i s s t i l l a v a s t a m o u n t o f sla c k in t h e k e y m a n u fa c tu r in g a n d c o n str u c ­
tio n s e c to r s o f t h e A m e r ic a n eco n o m y . I n A p r il o f t h is y e a r e m p lo y m e n t in
m a n u f a c t u r in g w a s 1 8 .9 m illio n — s t il l m o r e t h a n a m illio n jo b s b e lo w t h e prer e c e s s io n 1 9 7 3 p e a k o f 2 0 .2 m illio n j o b s in m a n u fa c tu r in g . A n d A p r il e m p lo y ­
m e n t in c o n tr a c t c o n s tr u c tio n w a s 3 .3 m illio n — s t i l l 7 0 0 ,0 0 0 jo b s sh o r t o f th e
p r e - r e c e ssio n p e a k o f 4 m illio n c o n s tr u c tio n jo b s. I n h o u s in g co n str u c tio n , n e w
s t a r t s a r e s t i l l o n ly 5 5 p e r c e n t o f t h e p re- r e c e ssio n h ig h , in s p it e o f t h e n a ­
t i o n ’s d ir e n e e d f o r m o re h o m es.
M u ch o f t h e o p p o sitio n t o t h e H u m p h r e y - H a w k in s f u ll e m p lo y m e n t le g is la ­
tio n s t e m s fr o m b a s e le s s m y th s a b o u t in fla tio n , b u d g e t d e fic its, a n d g o v e r n ­
m e n t sp e n d in g .
T h e h u g e d e fic its in r e c e n t y e a r s w e r e n o t t h e c a u s e b u t r a th e r t h e r e s u lt
o f t h e n a t io n ’s e c o n o m ic p rob lem s. L a s t y e a r , t h e P r e s id e n t in h is b u d g e t
m e s s a g e c a n d id ly n o te d t h a t i f u n e m p lo y m e n t in 1 9 7 5 a n d 1 9 7 6 w e r e a t 1 9 7 4
le v e ls , t h e r e w o u ld be n o d eficit. T h e P r e s id e n t s t a t e d t h a t " lo w e r t a x r e c e ip ts
a n d p a y m e n t s t o t h e u n em p lo y e d a lo n e m o re t h a n a c c o u n t f o r th e d e fic its e x ­
p e c te d in b o th 1 9 7 5 a n d 1 9 7 6 .”
I f t h e U .S . e c o n o m y h a d b een o p e r a tin g a t f u l l em p lo y m e n t, a c c o r d in g t o
t h e C o u n c il o f E c o n o m ic A d v ise r s, t h e 1 9 7 5 c a le n d a r y e a r f e d e r a l d e fic it w o u ld
h a v e b e e n o n ly $ 7 .5 b illio n in s te a d o f t h e a c t u a l d e fic it o f $ 7 3 .4 b illio n . T h e
C o u n c il fig u r e s a r e b a se d on a d e fin itio n o f f u ll e m p lo y m e n t a s 4 p e r c e n t u n ­
em p lo y m e n t. W e c o n s id e r 3 p e r c e n t u n e m p lo y m e n t t h e o n ly a c c e p ta b le fo r m u la .
A n d f o r f e d e r a l, s t a t e a n d lo c a l g o v e r n m e n ts com b in e d , in c a le n d a r y e a r
1 9 7 5 t h e r e w o u ld h a v e b e e n a co m b in ed s u r p lu s o f $ 2 9 .9 b illio n in s t e a d o f a
c o m b in e d d e fic it o f $ 6 3 .5 b illio n , th e C o u n cil rep o rted .
S o i t i s c le a r fr o m t h is A d m in is tr a tio n ’s e s t im a t e s in t h e 1 9 7 6 R e p o r t o f t h e
C o u n c il o f E c o n o m ic A d v is e r s t h a t g o v e r n m e n t b u d g e t d e fic its w ill b e s h a r p ly
r e d u c e d a n d u lt im a t e ly e lim in a t e d e n tir e ly w h e n t h e A m e r ic a n e c o n o m y i s
o p e r a t in g a t f u l l e m p lo y m e n t.
A
I n f a c t , t h e T a b le on p a g e 5 5 o f t h e 1 9 7 6 C o u n c il's R e p o r t s h o w s t h a t i f
th e r e h a d b e e n f u l l e m p lo y m e n t fr o m 1 9 6 9 th r o u g h 1 9 7 5 t h e f e d e r a l t r e a s u r y




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w o u ld h a v e h a d a $ 3 4 , 2 b illio n s u r p lu s — w h e r e a s h ig h u n e m p lo y m e n t a n d t h e
r e s u ltin g lo s s o f f e d e r a l t a x r e v e n u e s r e s u lte d in a n a c t iia l 1 9 6 9 - 1 9 7 5 c u m u ­
l a t iv e f e d e r a l d e fic it o f $ 1 3 4 . 9 b illio n .
T h e tr u e c o s ts o f S. 5 0 f u l l e m p lo y m e n t p r o g r a m s w o u ld b e f a r l e s s t h a n
o p p o n e n ts o f S. 5 0 h a v e c o n te n d e d . T h e y ig n o r e in c r e a s e d t a x r e v e n u e s a n d
re d u c e d u n e m p lo y m e n t c o s ts a n d r e d u c e d w e lf a r e c o s ts . A n d th e y ig n o r e t h e
s tim u la t io n to p r iv a te - se c to r jo b - c r e a tio n t h a t r e s u lt s fr o m f u l l e m p lo y m e n t.
T h ir ty y e a r s a g o , o r g a n iz e d la b o r p a r t ic ip a t e d in t h e e ffo r t t h a t p r o d u c e d
t h e E m p lo y m e n t A c t o f 1 9 4 6 . T h a t A c t c o m m itte d t h e TLS. g o v e r n m e n t to
c r e a te c o n d itio n s “u n d e r w h ic h th e r e w ill b e a ffo r d e d u s e f u l e m p lo y m e n t op ­
p o r tu n itie s , in c lu d in g se lf- e m p lo y m e n t, f o r t h o s e ab le, w illin g a n d s e e k in g to
w o rk , a n d t o p r o m o te m a x im u m e m p lo y m e n t, p r o d u c tio n a n d p u r c h a s in g
p o w e r .”
U n fo r tu n a te ly , t h e g o o d in te n t io n s o f t h a t le g is la t io n w e r e j u s t t h a t — g o o d
in te n tio n s . I t la c k e d t h e m a c h in e r y a n d p r o c e d u r e s to t r a n s la t e t h e c o m m it­
m e n t in to r e a lity . D u r in g m o s t o f t h e y e a r s s in c e 1 9 4 6 , t h e A m e r ic a n e c o n o m y
h a s o p e r a te d s u b s t a n t ia lly b e lo w “m a x im u m e m p lo y m e n t, p r o d u c tio n a n d p u r ­
c h a s in g p o w e r .”
S in c e 1 9 6 9 , t h e A m e r ic a n e c o n o m y h a s m o v e d f u r th e r a w a y fr o m t h a t 1 9 4 6
c o m m itm e n t th a n e v e r b efo re. L a s t m o n th t h e r e w e r e s e v e n m illio n u n e m p lo y e d
a c c o r d in g t o t h e g o v e r n m e n t’s officia l rep o rt, w h ic h w e o f t h e A F L - C I O b e ­
lie v e is g r o s sly u n d e r sta te d . M ore a c c u r a t e u n e m p lo y m e n t c o u n t w o u ld a d d
u p t o 9 .7 m illio n p e o p le o r 1 0 .2 p e r c e n t o f t h e la b o r fo r c e — in c lu d in g c lo s e to
o n e m illio n d isc o u r a g e d u n e m p lo y e d w h o h a v e g iv e n u p h o p e o f fin d in g w o r k
a n d o n e- h a lf o f th o s e w o r k e r s w h o a r e c o m p e lle d to w o r k p a r t- tim e b e c a u s e
fu ll- tim e jo b s a r e n o t a v a ila b le .
T h e n eed f o r f u ll e m p lo y m e n t h a s g r o w n g r e a t e r o v e r t h e p a s t 3 0 y e a r s .
T h a t n e e d h a s n e v e r b een g r e a t e r t h a n it i s to d a y .
F o r m a n y y e a r s , th e A F L - C I O h a s b een s e e k in g a r e a lis tic , f e a s ib le f u l l e m ­
p lo y m e n t m e a su r e — a b ill t h a t is w o rk a b le, t h a t c a n b e a d o p te d , t h a t c a n b e
im p lem en ted .
W e c o n sid e r th e r e v is e d IIu m p h r e y - H a w k in s b ill, S. 5 0 , i s t h a t m e a su r e .
W e a r e p ro u d to h a v e p la y e d a p a r t in w o r k in g on t h e b ill. W e c o m m e n d
th e c o o p e r a tiv e s p ir it o f t h e s p o n s o r s o f t h e b ill a n d th e ir s ta ffs , w h o w o r k e d
to g e th e r o v e r m a n y w e e k s to a c h ie v e t h is r e v is e d F u ll E m p lo y m e n t B i l l w h ic h
i s b e fo r e y o u n ow .
T h e A F L - C IO C o n v e n tio n in O cto b er 1 9 7 5 d ir e c te d t h e A F L - C I O E c o n o m ic
P o lic y C o m m itte e to s tu d y f u ll e m p lo y m e n t p r o p o sa ls p e n d in g in t h e C o n g r e ss
a n d to id e n tif y th e e s s e n t ia l e le m e n ts in a n a c h ie v a b le a n d w o r k a b le F u l l. E m ­
p lo y m e n t A ct,
On D e c e m b e r 5 , t h a t C o m m itte e s p e lle d o u t t h e f o llo w in g n in e e s s e n t ia l
e le m e n ts f o r a f e a s ib le F u ll E m p lo y m e n t A ct. T h e s e p r in c ip le s w e r e en d o r se d
in F e b r u a r y by th e A F L - C I O E x e c u t iv e C ou n cil.
1. F u ll E m p lo y m e n t m u s t m ea n , in f a c t , jo b o p p o r tu n itie s, a t d e c e n t w a g e s ,
fo r a ll th o s e w h o a r e a b le to w o r k a n d se e k e m p lo y m e n t. T h is m e a n s t h a t t h e
u n e m p lo y e d a t a n y tim e , w o u ld b e o n ly p e r s o n s w h o a r e te m p o r a r ily j o b le s s —
s u c h a s e n tr a n ts in to t h e la b o r fo r c e , p e o p le m o v in g fr o m o n e jo b to a n o th e r
o r fr o m o n e p a r t o f t h e c o u n tr y to a n o th e r , or p e o p le w h o a r e t e m p o r a r ily jo b ­
le s s a s a r e s u lt o f se a s o n a l flu c tu a tio n s in th e ir sp e c ific in d u s tr y .
2. T h e C o n g ress m u s t d e c la r e , a s w e do, t h a t th e A d m in is tr a tio n f o r e c a s t s
o f u n e m p lo y m e n t— 7 .9 p e r c e n t in 1 9 7 6 , 7 .2 p e r c e n t in 1 9 7 7 , 6 .5 p e r c e n t in 1 9 7 8 ,
5 .8 p e r c e n t in 1 9 7 9 , a n d 5 .1 p e r c e n t in 1 9 8 0 — a r e c o m p le te ly u n a c c e p ta b le . T h e
C o n g r e ss m u s t u n d e r ta k e a n im m e d ia t e a n d s u s ta in e d c a m p a ig n t o r e d u c e
u n e m p lo y m e n t to 3 p e r c e n t o f t h e c iv ilia n la b o r f o r c e a n d k e e p i t fr o m i n ­
c r e a s in g , in t h e fu tu r e , to m o re th a n 3 p ercen t.
3. T h e C o n g ress m u s t r e q u ir e t h e P r e s id e n t a n n u a lly to s u b m it to it t a r g e ts ,
p o lic ie s a n d p r o g r a m s to a c h ie v e f u ll e m p lo y m e n t a n d to m e e t n a tio n a l n e e d s.
4. T h e P r e s id e n t m u s t b e r e q u ir e d t o p r o p o se sp e c ific f e d e r a l ta x , e x p e n d i­
tu re, b u d g et a n d m o n e ta r y p o lic ie s a n d p r o g r a m s to m e e t t h e ta r g e t s h e prop o se s f o r f u ll em p lo y m en t, b a la n c e d e c o n o m ic g r o w th a n d n a tio n a l n eed s.
5. T h e C o n g ress sh o u ld e s ta b lis h a c o n s u lt a tiv e bod y, c o m p o se d o f m a jo r
g ro u p s, in th e eco n o m y , to r e v ie w t h e P r e s id e n t 's g o a ls a n d p o lic ie s.
6. T h e C o n g ress sh o u ld p r o v id e p r o c e d u r e s fo r p ro m p t C o n g r e s sio n a l r e v ie w
a n d a c tio n on th e P r e s id e n t's e c o n o m ic g o a ls a n d p o lic ie s.




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7. T h e F e d e r a l R e s e r v e , a s a k e y g o v e r n m e n t a g e n c y in t h e eco n o m ic a r e a ,
sh o u ld b e r e q u ir e d to j u s t if y to th e P r e s id e n t a n d t h e C o n g ress th e m a n n er in
w h ic h i t s p o lic ie s c o n c e r n in g in te r e s t r a te s, th e m o n e y su p p ly a n d a v a ila b ilit y
o f c r e d it w ill h e lp m e e t t h e t a r g e t s a n d o b je c tiv e s t h a t a r e e sta b lish e d .
8. T h e fu ll- e m p lo y m e n t g o a l m u s t be good jo b s a t good p a y . T o th e e x t e n t
t h a t t h e e c o n o m y ’s r e g u la r c h a n n e ls o f p r iv a t e a n d p u b lic e m p lo y m e n t f a i l t o
a c h ie v e t h a t g o a l, th e g o v e r n m e n t m u s t m a in t a in a p u b lic e m p lo y m e n t p ro ­
g r a m to p r o v id e a d d itio n a l jo b s a t p r e v a ilin g r a t e s o f p ay, b u t in n o c a s e le s s
t h a n t h e f e d e r a l m in im u m w a g e . S u ch a p ro g ra m sh o u ld b e o f su ffic ien t s iz e
t o k e e p u n e m p lo y m e n t b e lo w 3 p ercen t.
9 . T h e C o n g r e ss m u s t e s ta b lis h f u ll e m p lo y m e n t a s th e to p -p rio r ity o b je c tiv e
o f n a tio n a l e c o n o m ic p o lic y to m a in ta in th e s tr e n g th o f A m e r ic a n so c ie ty . T h e
C o n g r e s s m u s t r e a liz e t h a t a n o b se s sio n w ith b u d g e t d e fic its ig n o r e s th e b e n e ­
f its o f a f u l l e m p lo y m e n t eco n o m y — in c r e a s e jo b s a n d in c r e a s e d e a r n in g s, re­
d u c e d u n e m p lo y m e n t b e n e fits a n d w e lf a r e c o sts, in c r e a s e d s a le s fo r b u sin e ss,
in c r e a s e d s a v in g s a n d in v e stm e n t, a n d in c r e a s e d t a x re c e ip ts.
W e b e lie v e t h a t t h is r e v is e d S. 5 0 is in f u l l a cco rd w ith th e s e e s s e n t ia l
p r in c ip le s.
T h is is a b ill t h a t s e t s fo r th th e g o a l o f r e d u c in g u n em p lo y m e n t to 3 p e r c e n t
a s p r o m p tly a s p o ss ib le , b u t w it h in no m o re th a n fo u r y e a r s a f te r th e d a te
o f e n a c tm e n t. I t is a ta n g ib le a n d f e a s ib le g o a l, a n d i t p r o v id e s t h e m a ch in e ry
t o a c h ie v e t h a t g o a l.
T h is is a b ill t h a t s a y s to th e P r e s id e n t : “Y o u a r e r eq u ired to su b m it a f u ll
e m p lo y m e n t p ro g ra m t o t h e C o n g ress e a c h y e a r .”
T h is is a b ill t h a t s a y s to t h e C o n g r e ss: “ Y ou m u s t r e v ie w a n d a c t on th e
P r e s id e n t ’s f u ll e m p lo y m e n t p r o p o sa ls."
A n d v e r y im p o r ta n tly , S. 5 0 s a y s to t h e B o a r d o f G o v ern o rs o f th e F e d e r a l
R e s e r v e S y s t e m : “Y ou m u s t su b m it to tlie P r e s id e n t a n d th e C o n g ress a s t a t e ­
m e n t o f in te n d e d m o n e ta r y p o lic ie s f o r t h e c o m in g y e a r . A n d y o u m u s t d em on ­
s t r a t e h o w t h o s e p o lic ie s w ill su p p o rt a c h ie v e m e n t o f th e f u ll em p lo y m en t p ro ­
g r a m o r a f u l l j u s t if ic a t io n fo r a n y s u b s ta n t ia l v a r ia t io n fro m th e f u ll e m ­
p lo y m e n t p r o g r a m .”
T lie A F L - C I O h a s a v e r y c le a r a n d f o r th r ig h t p o s it io n on th e r o le an d th e
f u n c t io n s o f th e F e d e r a l R ese r v e .
I n 1 9 7 5 t h e A F L - C I O C o n v en tio n a d o p te d a s tr o n g s t a t e m e n t w h ic h s a i d :
“ C o n g r e s s m u s t d ir e c t t h e F e d e r a l R e s e r v e to r e d u c e in te r e s t r a te s on b oth
lo n g - te rm a n d sh o rt-term lo a n s a n d to p r o v id e su ffic ie n t e x p a n sio n o f m on ey
a n d c r e d it to e n c o u r a g e b a la n c e d e c o n o m ic g r o w th . T h e F e d e r a l R e s e r v e sh o u ld
a l s o be d ir e c te d t o a llo c a te a s u b s ta n t ia l p o r tio n o f a v a ila b le c r e d it f o r su ch
h ig h - p r io r ity p u r p o se s a s h o u sin g , c o m m u n ity f a c i lit ie s a n d e s s e n t ia l c a p ita l
i n v e s t m e n t a n d to cu rb th e flo w o f c r e d it f o r s u c h a c t iv it i e s a s la n d sp e c u la ­
tio n , in v e n to r y - h o a r d in g , fo r e ig n s u b s id ia r ie s a n d c o n g lo m e r a te ta k e o v ers.
“T h e e n t ir e s t r u c t u r e o f t h e F e d e r a l R e s e r v e S y ste m m u s t be c h a n g e d —
t h r o u g h su c h e s s e n t ia l a c tio n s a s a y e a r ly a u d it by t h e G e n e r a l A c c o u n tin g
O ffice, a b o litio n o f t h e b a n k er-d o m in a ted O p en M a r k e t C o m m itte e a n d a b so rp ­
t io n o f i t s f u n c t io n s b y th e B o a r d o f G o v ern o rs, r e d u c tio n o f t h e te r m o f office
o f t h e g o v e r n o r s to se v e n y e a r s a n d t h e c h a ir m a n t o f o u r y e a r s , a n d e x te n s io n
o f m e m b e r sh ip o n t h e g o v e r n in g b o d ie s an d a d v is o r y c o m m itte e s o f t h e e n tir e
s y s t e m t o r e p r e s e n t a tiv e s o f m a jo r g ro u p s in t h e eco n o m y , in c lu d in g o r g a n iz e d
la b o r .”
T h e e x t r a o r d in a r y p o w e r o f t h e F e d e r a l R e s e r v e s y s t e m c o m e s fr o m t h e
p o w e r o f t h e “F e d ” to c o n tro l th e n a tio n 's su p p ly o f m o n e y an d c r e d it a n d
i t s p o w e r t o d o m in a te t h e s e tt in g o f in te r e s t r a te s. T h e h e a lt h o f t h e A m e r ic a n
e c o n o m y a n d j o b s o f A m e r ic a n w o r k e r s a r e d ir e c t ly a ffe c te d b y t h e F e d 's
m o n e y , c r e d it a n d in te r e s t r a te p o lic ie s.
F o r o v e r t w o d e c a d e s , t h e F e d e r a l R e s e r v e h a s o p e r a te d a s i f i t w e r e a
f o u r th b r a n c h o f g o v e r n m e n t— co-eq u al to t h e E x e c u tiv e , t h e C o n g ress a n d th e
J u d ic ia r y . Y e t t h e r e i s n o p r o v isio n in th e C o n s titu tio n f o r su c h a b ra n ch o f
t h e U .S . g o v e r n m e n t.
T h e F e d e r a l R e s e r v e s y s te m i s a c r e a tu r e o f t h e C o n g r e ss, c r e a te d b y th e
C o n g r e ss. A n d y e t , in o u r o p in io n , t h e C o n g r e ss h a s n o t p r o v id e d e f fe c tiv e
g u id a n c e o r e f fe c tiv e o v e r s ig h t on th e F e d e r a l R e s e r v e , w h ic h is a k ey f a c t o r
i n d e t e r m in in g t h e c o u r s e o f d e v e lo p m e n ts o f t h e A m e r ic a n eco n o m y .




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I n 1 9 6 9 , t h e F e d e r a l R e s e r v e , In ta n d e m w it h t h e N ix o n A d m in is tr a t io n ,
e n g in e e r e d a r e c e s s io n c o m b in e d w it h in fla tio n . T h e F e d e r a l R e s e r v e ’s m o n e y c r u n c h w a s a m a jo r f a c t o r in c r e a t in g a r e c e s s io n a r y d e c lin e in s a le s , p r o d u c ­
tio n , a n d e m p lo y m e n t a n d in g e n e r a t in g a r a p id r is e o f u n e m p lo y m e n t. T h e
F e d e r a l R e s e r v e ’s p o lic y s e n t i n t e r e s t r a t e s u p to t h e ir h ig h e s t le v e ls i n 1 0 0
y e a r s — d ir e c tly in c r e a s in g c o s t s a n d p r ic e s . T h is p o lic y a ls o b o o ste d th e m in ­
d ir e c tly , th r o u g h t h e r e c e s s io n a r y c o n d itio n s w h ic h su p p r e s s e d t h e a d v a n c e o f
p r o d u c tiv ity a n d th e r e b y a d d e d t o u p w a r d p r e s s u r e s o n u n it c o s ts .
T o w a r d s t h e e n d o f 1 9 6 9 , t h e C o n g r e ss a d o p te d t h e C r e d it C o n tr o l A c t, w h ic h
g iv e s th e P r e s id e n t a n d th e F e d b r o a d p o w e r to r e g u la te a n d c o n tr o l t h e e x ­
te n s io n o f c r e d it in o r d e r to fig h t in fla tio n . B u t t h i s g r a n t o f a u th o r it y w a s
p e r m is s iv e ; i t w a s n o t a d ir e c t iv e a n d n o th in g h a p p e n e d to c h a n g e t h e F e d ’s
co u rse.
I n s te a d o f u s in g s e le c tiv e c r e d it r e g u la t io n p o w e r s g r a n te d u n d e r t h e 1 9 6 9
C r e d it C o n tro l A ct, t h e A d m in is tr a t io n a n d t h e F e d h a v e in s is t e d u p o n r e ly in g
u p o n t ig h t m o n e y p o lic ie s a n d h ig h in t e r e s t r a t e s a s t o o ls f o r a l l se a s o n s .
W h e n e v e r th e y th in k t h e eco n o m y is o v e r h e a tin g , th e y tu r n to so - c a lle d g e n e r a l
m o n e ta r y p o lic y t h a t h a s r e p e a te d ly d e m o n s tr a te d a s e le c t iv e in ju r io u s a d ­
v e r s e e ffe c t u p o n h o u s in g a n d S t a t e a n d lo c a l g o v e r n m e n t c o n str u c tio n .
I n su b se q u e n t r e c e ss io n s , t h e F e d h e ld d o w n t h e g r o w th o f t h e m o n e y su p p ly
a n d th e A d m in is tr a tio n h a s v e to e d jo b - c r e a tio n b ills . W ith m isg u id e d , m is ­
p la c e d z e a l th e y a r g u e th a t r a p id p r o g r e s s to w a r d f u ll e m p lo y m e n t w o u ld
b rin g in fla tio n . S u ch in fla tio n , in t h e ir v ie w , c o u ld o n ly b e f o u g h t w it h g e n e r a l
m o n e ta r y p o lic y a n d h ig h in t e r e s t r a t e s , w h ic h , in tu r n , w o u ld b r in g o n t h e
n e x t r e c e ss io n a n d m o r e u n e m p lo y m e n t.
A s a r e s u lt, t h e A d m in is tr a t io n a n d t h e F e d a r e w illin g t o a c c e p t h ig h u n ­
e m p lo y m e n t f o r y e a r s in to t h e f u t u r e . T h e A d m in is tr a t io n ’s fis c a l 1 9 7 7 b u d g e t
p r o je c ts 6 .9 p e r c e n t u n e m p lo y m e n t in 1 9 7 7 , 6 .4 p e r c e n t in 1 9 7 8 , 5 .8 p e r c e n t in
1 9 7 9 , a n d 5 .2 p e r c e n t— m o re t h a n 5 m illio n p eo p le— s t i ll u n e m p lo y e d in 1 9 8 0 .
T h e r e c e ss io n o f 1 9 6 9 - 7 0 c o s t th e A m e r ic a n p e o p le b illio n s o f d o lla r s o f lo s t
in c o m e an d m illio n s o f w o r k e r s su ffe r e d t h e in d ig n it y o f u n e m p lo y m e n t. B u t
th e C o n g ress d id n o th in g to in t e r f e r e w it h t h e s e d e s t r u c t iv e p o lic ie s o f th e
F e d e r a l R e se r v e .
In e a r ly 1 9 7 3 , o n ce a g a in , t h e F e d e r a l R e s e r v e , in lo ck -step w it h t h e N ix o n
A d m in is tr a tio n , b e g a n a s h a r p ly r e s t r ic t iv e p o lic y — fo llo w in g t h e r e la t iv e ly
e a s ie r m o n e ta r y p o lic y o f 1 9 7 2 , w h ic h h a p p e n e d t o b e a p r e s id e n t ia l e le c t io n
y ea r. T h e F e d e r a l R e s e r v e , th r o u g h i t s m o n e y -cru n ch p o lic y — p a r t ic u la r ly t h e
te r r ib le s e v e r e cru n ch b e tw e e n t h e e a r ly s p r in g a n d a u tu m n o f 1 9 7 4 — w a s a
m a jo r f a c to r in m a n u fa c tu r in g t h e s t e e p e s t a n d m o s t p ro lo n g e d r e c e s s io n s in c e
th e 1 9 3 0 ?s c o m b in e d w it h in fla tio n . A b y-p rod u ct o f t h is p o lic y h a s b een a s h i f t
in in co m e d is tr ib u tio n to m o n e y le n d e r s.
I t b ro u g h t th e e co n o m y to t h e e d g e o f d is a s t e r in t h e la t t e r p a r t o f 1 9 7 5 ,
I t b ro u g h t h u g e lo s s e s in in c o m e t o t h e A m e r ic a n p eop le. I t b r o u g h t e v e n
h ig h e r in te r e s t r a t e s th a n in 1 9 6 9 - 7 0 . I t b r o u g h t u n e m p lo y m e n t to t h e h ig h e s t
le v e l s in c e 1 9 4 1 , w h e n t h e c o u n tr y w a s c o m in g o u t o f th e G r e a t D e p r e s s io n .
Y et, o n ce a g a in , t h e C o n g ress d id n o th in g to in te r fe r e w it h t h e d e s t r u c t iv e
p o lic ie s o f th e F e d e r a l R e s e r v e .
T h e U .S . C o n stitu tio n g iv e s C o n g r e ss t h e r ig h t to “c o in m o n e y a n d r e g u la t e
th e v a lu e t h e r e o f.” T h is p o w e r h a s b e e n d e le g a t e d to t h e F e d e r a l R e s e r v e a s
a n a g e n t o f C o n g ress, B u t t h e d e le g a t io n o f p o w e r h a s b een p e r v e r te d b y t h e
F e d e r a l R e s e r v e in to a m y th o f in d e p e n d e n c e , w h ic h th e C o n g ress h a s p e r m itt e d
to p e r sist.
In 1 9 7 5 t h e l e g is la t iv e h is to r y o f H o u s e C o n c u r r e n t R e s o lu t io n 1 3 3 — w h ic h
c a lls on t h e F e d t o “c o n s u lt ” w it h t h e H o u s e a n d S e n a te B a n k in g C o m m itte e s
— a n d a c tio n s on H o u se a n d S e n a te p r o p o s a ls w h ic h p re c e d e d c o n g r e s s io n a l
a p p r o v a l o f t h is r e s o lu tio n , r e fle c t a la c k o f d e te r m in a tio n b y t h e C o n g r e s s t o
c h a lle n g e t h e F e d ’s c a r e f u lly c u lt iv a t e d m y th o f in d e p e n d e n c e a n d i t s d isa s tr o u s s o c ia l a n d e co n o m ic p o lic ie s.
W h a t s ta r te d o u t in t h e H o u s e a s a p ro p o sed co m m a n d fr o m C o n g r e s s t o
t h e F e d e r a l R e s e r v e to b rin g a b o u t lo w e r in t e r e s t r a t e s to s t im u la t e t h e econ omy— a n d w h a t s ta r te d o u t in t h e S e n a te a s a s t a t e m e n t o f h o p e t h a t t h e F e d
w o u ld e x p a n d m o n e y a n d c r e d it to h e lp b r in g a b o u t ec o n o m ic r e c o v e r y fr o m
t h e r e c e ssio n — en d ed u p a s a s im p le r e q u e s t f o r c o n s u lta tio n b y t h e F e d e r a l
R e s e r v e B o a r d w it h t h e S e n a te a n d H o u s e B a n k in g C o m m itte e s on t h e F e d ’s




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“o b je c tiv e s a n d p la n s w it h r e s p e c t to th e ra n g e s o f g r o w th o r d im in u tio n o f
m o n e ta r y a n d c r e d it a g g r e g a t e s in t h e u p co m in g tw e lv e m o n t h s / ’
O n F e b r u a r y 2 5, 1 9 7 5 , D r. B u r n s to ld th e c h a ir m a n o f th e S e n a te B a n k in g
C o m m itte e : “I t h in k t h e F e d e r a l R e s e r v e sh o u ld be in s u la te d fro m t h e p o ­
l i t i c a l p r o c e ss, a s i t h a s b een th r o u g h th e y ea rs. I th in k it h a s b een b e tte r f o r
t h e c o u n tr y t h a t i t h a s b een .”
S e n a to r P r o x m ir e a s k e d D r. B u r n s : “A r e y o u s u g g e s tin g C o n g ress is le s s
d e d ic a t e d t o f ig h tin g in fla tio n com p ared to th e m em b ers o f th e F e d e r a l R e ­
serv e B o a rd ?”
D r. B u r n s r e p l i e d : “I so m e tim e s th in k s o ; y e s .”
F r o m t h i s e x c h a n g e , o n e c a n o n ly d r a w th e c o n c lu sio n t h a t D r. B u r n s d o e s
n o t t r u s t t h e d e m o c r a tic p r o c e ss a n d p rob ab ly d o e s n o t t r u s t th e m em b er s o f
t h e C o n g ress.
T h is b r ie f s u m m a r y c le a r ly in d ic a te s th e n e e d f o r th e la n g u a g e n o w in th e
H u m p h r e y F u ll E m p lo y m e n t B ill, S. 5 0 , a s f o l l o w s :
“ T h e B o a r d o f G o v e r n o r s o f th e F e d e r a l R e s e r v e S y ste m s h a ll tr a n s m it to
t h e P r e s id e n t a n d th e C on gress, w ith in fifte e n d a y s a f t e r th e tr a n s m is s io n
o f t h e E c o n o m ic R e p o r t or th e F u ll E m p lo y m e n t a n d B a la n c e d G ro w th P la n ,
w h ic h e v e r m a y co m e e a r lie r , a n in d e p e n d e n t s t a t e m e n t s e t t in g fo r th it s in ­
t e n d e d p o lic ie s fo r th e y e a r a h e a d w ith re sp e c t t o i t s fu n c tio n s , th e e x t e n t to
w h ic h t h e s e p o lic ie s w ill su p p o rt th e a c h ie v e m e n t o f th e g o a ls in s e c tio n 3
a n d s e c tio n 3A , a n d a f u ll ju s tific a tio n f o r a n y s u b s ta n t ia l v a r ia t io n s fr o m th e
P r e s id e n t ’s g o a ls a n d reco m m en d a tio n s. I f th e P r e s id e n t d e te r m in e s th a t th e
B o a r d ’s p o lic ie s a r e in c o n s is te n t w it h th e a c h ie v e m e n t o f th e g o a ls an d p o lic ie s
p r o p o se d u n d e r t h is A ct, th e P r e s id e n t s h a ll m a k e r e c o m m e n d a tio n s to t h e
B o a r d a n d to t h e C o n g ress to in s u r e c lo s e r c o n fo r m ity to th e p u r p o se s o f t h is
A c t .”
I t i s e s s e n t ia l f o r e ffe c tiv e a n d co-ord in ated e co n o m ic p o licy -m a k in g t h a t
C o n g r e s s r e c e iv e s th e sp e c ific ta r g e ts, g o a ls a n d a ss u m p tio n s o f th e F ed 's
B o a r d o f G o v e r n o r s a n d O pen M a rk et C o m m itte e— c o n c e r n in g th e r a te o f e c o ­
n o m ic g r o w th , t h e u n e m p lo y m e n t ra te , t h e fe d e r a l fu n d s r a te an d o th e r in ­
t e r e s t r a te s , a s w e ll a s t h e r a te o f g r o w th o f t h e m o n e y su p p ly a n d p a c e o f
in fla tio n . S in c e t h e F e d is a c r e a tu r e o f th e C o n g ress, th e r e i s n o r a tio n a l
r e a s o n f o r p e r m itt in g n o n -resp o n ses fr o m it s officia ls.
T h e re c o r d o f t h e p a s t s e v e n y e a r s c le a r ly in d ic a te s t h e u r g e n t n e e d o f th e
C o n g r e s s to a s s e r t it s e lf , n o t m erly in th e o v e r s ig h t f u n c tio n on th e F e d w h ic h
h a s b een s o r e ly n e g le c te d , b u t a ls o a d o p tin g le g is la t io n to b r in g th e F e d
m o r e d ir e c t ly in to t h e str u c tu r e o f th e U .S . g o v e r n m e n t.
T h is r e c o r d a ls o u n d e r sc o r e s th e n eed f o r t h e F e d , u n d e r d ir e c t m a n d a te
o f t h e C o n g ress, to u t i li z e s e le c tiv e c r e d it r e g u la tio n so t h a t th e r e w ill be an
a llo c a t io n o f a v a ila b le c r e d it on th e b a s is o f s o c ia l p r io r it ie s a n d so t h a t exh o r b ita n t ly h ig h in te r e s t r a te s ca n b e a v o id e d a n d la s t in g e c o n o m ic s t a b ility
a c h ie v e d .
S e c t io n 1 0 4 o f S. 5 0 w o u ld ad d a n e w s e c tio n 3 A t o t h e E m p lo y m e n t A c t o f
3 9 4 6 . T h e n e w S e c tio n 3 A r e q u ir e s t h e P r e s id e n t to p r e p a r e a n d t r a n s m it to
t h e C o n g r e s s a n n u a lly a F u ll E m p lo y m e n t an d B a la n c e d G r o w th P la n , in c lu d ­
in g n a t io n a l g o a ls a n d p r io r itie s. S u c h p r io r itie s a r e to b e in c lu d e d f o r p e r ­
s p e c t iv e a n d g u id a n c e o f a ll co n cern ed , r a th e r t h a n in a n y p r o g r a m a tic d e ­
t a i l. P r io r it ie s w o u ld in c lu d e su ch e s s e n t ia ls a s e n e r g y d e v e lo p m e n t, tr a n sp o r ­
t a t io n , fo o d , h e a lt h c a r e a n d h o u sin g .
T h e la c k o f a n a d e q u a te su p p ly o f f a c ilit ie s a n d r e s o u r c e s in t h e s e a r e a s
lia s c o n tr ib u te d s ig n if ic a n tly to ec o n o m ic in s t a b ilit y , to a p a tte r n o f in fla tio n
a n d r e c e ss io n .
I t i s f o r t h a t r e a so n , t h a t S e c tio n 1 0 6 o f S. 5 0 w o u ld a d d a n e w S e c tio n 3 B
t o t h e E m p lo y m e n t A ct. T h e n e w S e c tio n 3 B d ir e c t s t h e P r e s id e n t to s e t f o r th
in h i s a n n u a l E c o n o m ic R ep o rt, fisc a l a n d m o n e ta r y p o lic ie s t h a t w o u ld b e
c o n s is t e n t w i t h a b a la n c e d g r o w th p la n , w it h d u e c o n s id e r a tio n fo r t h e a f o r e ­
m e n tio n e d p r io r it ie s .
T h e s e t o o ls o f f ic s a l a n d m o n e ta r y p o lic y co u ld b e e m p lo y e d w it h m u c h
g r e a t e r f le x ib ilit y a n d v a r ia b ilit y th a n h e r e to fo r e , a s t h e o c c a s io n w a r r a n ts.
A s a p r a c t ic a l m a tte r , w e h a v e r e lie d o n ly u p o n t h e u s e o f g e n e r a l m o n e ta r y
p o lic y t o f ig h t in fla tio n . T h e r e s u lt h a s b een r e p e a te d p e r io d s o f t ig h t m o n e y
a n d h ig h i n t e r e s t r a te s , sh a r p d e c lin e s in r e s id e n tia l c o n s tr u c tio n a n d in s t a t e
a n d lo c a l c o n s tr u c tio n , f o llo w e d b y g e n e r a l ec o n o m ic r e c e s s io n a n d h ig h u n ­
e m p lo y m e n t




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F u r th e r m o r e , t h e fin a n c ia l a n d b u s in e s s c o m m u n ity h a s ] * * o m e _ » o m od>
a w a r e o f t h e r e lia n c e a p a n g e n e r a l m o n e ta r y p o lic y a n d «>
a b o u t i t s im p a c t, t h a t t h is b u sin e s s- fin a n c ia l c o m m u n ity a c t s i n a n tic ip a t io n
o f t ig h t m o n e y a n d h ig h in t e r e s t r a t e s . A t t h is t im e , in M a y 1 9 7 6 , w h i le w e
s t i l l h a v e v e r y h ig h u n e m p lo y m e n t a n d th e r e i s tr e m e n d o u s e x c e s s i v e liq u id it y
fn o u r fin a n c ia l in s t itu t io n s , t h e F e d h a s a lr e a d y g iv e n s o m e d g n s < t i g h t e n ^ *
t h e m o n e y su p p ly a n d r a is in g in te r e s t r a t e s , a n d t h e m a r k e t h a s r e a c t e d . W e
a r e b a ck t o d o u b le -d ig it in te r e s t r a te s , 1 0 p e r c e n t, o n m e d iu m q u a lit y u t ilit y
b on d s. A n d la s t w eek , F.VM A ( t h e F e d e r a l N a t io n a l M o r tg a g e ^ s o c i a t l o n ,
is s u e d fou r-m o n th c o m m itm e n ts to p u r c h a s e h o m e m o r tg a g e s a t p r ic e s t h a t
" °Let m ^ p o i n t * t o ^ j u s T t s v o t y p e s o f m e a s u r e s t h a t h a v e b e e n a d o p te d b y th e
c o u n tr y w h ic h p ro b a b ly h a s t h e s t r o n g e s t eco n o m y in t h e W e s te r n w o r ld . W h en
in fla tio n a r y p r e s s u r e s w e r e m o u n tin g in G er m a n y in 1 9 < 2 - 7 3 , a n 1 1 p e r c e n t
t a x w a s im p o se d o n p r iv a t e c a p it a l e x p e n d itu r e s .
O n t h e m o n e ta r y p o lic y sid e , d u r in g t h e t ig h t m o n e y p e r io d s o f 1 9 ^ 4 — 9 t5,
1
to h o ld d o w n in te r e s t r a te s, t h e G e r m a n a u t h o r it ie s im p o s e d a te m p o r a r y
m o r a to r iu m on fo r e ig n b o n d is s u e s in t h e G erm a n m a r k e t, a n d a ls o p r o h ib ite d
G erm a n fin a n c ia l in s t it u t io n s fr o m u n d e r w r it in g E u r o b o n d i s s u e s t h a t w e r e
to be re p a id in G erm a n m a rk s.
S u ch m e a su r e s a n d o th e r s e le c t iv e c r e d it r e g u la t io n c o u ld b e e x e r c is e d in
t h e U n ite d S t a t e s w it h th e t o o ls t h a t a r e m e n tio n e d in S e c tio n 3 B f o r u s e in
d e s ig n in g fisc a l a n d m o n e ta r y p o lic ie s t h a t w o u ld b e c o n s is te n t w it h t h e f u ll
e m p lo y m e n t a n d b a la n c e d g r o w th p la n . W ith t h e f le x ib le u s e o f s u c h to o ls,
eco n o m ic p o lic y co u ld b e ta k e n o u t o f t h e r e s t r ic t iv e g e n e r a l m o n e ta r y p o lic y
s tr a ig h t ja c k e t w h ic h h a s p r e v e n te d a c t io n s t h a t c o u ld a l l e v i a t e t h e p a tte r n
o f in fla tio n a n d r e c e ss io n , t h e g r e a t e s t r e s tr a in t u p o n g r o w th in in c o m e , s a v ­
in g s an d c a p ita l fo r m a tio n .
T h e A m e r ic a n e co n o m y w ill n o t b e a b le t o a c h ie v e f u l l r e c o v e r y f r o m th e
tw o back-to-back r e c e s s io n s d u r in g th e l a s t se v e n y e a r s , u n le s s m o n e ta r y p o lic y
p r o v id e s a su ffic ien t e x p a n s io n o f m o n e y a n d c r e d it to b o o st s a le s , p r o d u c tio n
a n d em p lo y m en t r a p id ly . A n d a v a ila b le c r e d it m u s t b e a llo c a t e d o n t h e b a s is
o f n a tio n a l p r io r itie s, r a th e r th a n t h e d is c r im in a to r y p o lic y w h ic h p r o v id e d
c r e d it d u rin g r e c e n t sq u e e z e s f o r in v e n to r y - h o a r d in g , f o r e ig n in v e s t m e n t an d
g a m b lin g c a sin o s, w h ile r e s tr ic tin g f o r h o u sin g , s m a ll b u sin e s s, a n d s t a t e an d
lo c a l g o v e r n m e n ts.
.
In a d d itio n , th e reco rd s h o w s t h a t t h e e co n o m y c a n n o t r e a c h a n d m a in t a in
p ro sp er o u s c o n d itio n s u n le s s th e s t r u c t u r e o f in t e r e s t r a t e s i s b r o u g h t d o w n
s ig n ific a n tly to a 3 p ercen t-6 p e r c e n t o r a t le a s t a 4 p ercen t-7 p e r c e n t ra n g e.
T h e m a jo r d e te r r a n t to a str o n g r e v iv a l o f h o m e -b u ild in g — w h ic h i s s t i l l in
th e F e d e r a l R e s e rv e-in d u ced d e p r e s sio n — is t h e m o r tg a g e r a t e w h ic h lin g e r s in
t h e n eig h b o rh o o d o f $¥2 to 9 ^ 4 p e r c e n t f o r h o m e s a n d 9 to 1 0 p e r c e n t fo r
a p a r tm e n ts.
H o w e v e r , m o n e ta r y p o licy , a lo n e, c a n n o t s o lv e A m e r ic a ’s e c o n o m ic p ro b lem s.
T h e eco n o m y is to o b ig a n d to o co m p le x . M o n eta ry p o lic ie s a f fe c tin g t h e su p p ly
a n d a v a ila b ilit y o f m on ey a n d c r e d it a n d th e le v e l o f in t e r e s t r a t e s a r e o f
g r e a t im p o r ta n ce. O th e r to o ls o f eco n o m ic p o lic y a r e im p o r ta n t a lso . T h u s,
w e m u st be co n c e r n e d a b o u t fisc a l p o lic y , t h e g o v e r n m e n t’s ta x , in v e s t m e n t
a n d sp e n d in g p o lic ie s. M a n p o w er p o lic y d e a ls w it h a b ro a d r a n g e o f jobr e la te d p ro g ra m s, in c lu d in g p u b lic s e r v ic e jo b s, m a n p o w e r tr a in in g , u n e m p lo y ­
m en t c o m p e n sa tio n a n d so fo r th .
A ll th e to o ls o f e c o n o m ic p o lic y m u s t b e u se d to g e th e r , a s w e in t h e A F L C IO se e it, in a c o o r d in a te d e ffo r t to a c h ie v e e c o n o m ic g r o w th a n d f u l l em ­
p lo y m e n t. T h is co u ld b e a c h ie v e d u n d e r S. 5 0 .
S. 5 0 is n o t a jo b -c rea tin g b ill in it s e lf . I t is a g e n e r a l e c o n o m ic p o lic y b ill.
I t e s ta b lis h e s t h e p r o c e d u r e s a n d in s t it u t io n a l s tr u c t u r e w h ic h w o u ld r e q u ir e
th e P r e sid e n t, t h e C o n g ress an d t h e F e d e r a l R e s e r v e to d e v e lo p a n d a c t on
l l ie n a tio n a l g o a ls a n d p r io r itie s fo r f u l l e m p lo y m e n t a n d b a la n c e d eco n o m ic
gro w th .
T h e b ill a lso p r o v id e s to o ls to go f u r th e r th a n t h a t w h e n n e c e s s a r y . I f th e
fu ll u se o f o v e r a ll fisc a l a n d m o n e ta r y p o lic ie s sh o u ld f a i l to c lo s e t h e e m ­
p lo y m e n t gap, T it le I I o f S. 5 0 e s t a b lis h e s t h e b a s is f o r su p p le m e n ta r y e m ­
p lo y m e n t m e a su r e s— su c h a s a c c e le r a te d p u b lic w o rk s, c o u n te r - c y c lic a l g r a n ts
to s t a t e s an d lo c a l g o v e r n m e n ts a n d y o u th e m p lo y m e n t p r o g r a m s, a s w e ll a s
im b lic se r v ic e job s.




213
S o t h e m a jo r f o c u s o f t h e b ill is o n th e c r e a tio n a n d m a in te n a n c e o f jo b
o p p o r tu n it ie s in t h e n o r m a l o p e r a tio n s o f th e econ om y. P u b lic S e r v ic e jo b s
a r e a r e s id u a l p ro g ra m , d e p e n d in g on t h e s iz e o f t h e n e e d s t o re a c h a n d m a in ­
t a in f u l l e m p lo y m e n t.
T h e r e a r e so m e m e m b e r s o f th e C o n g ress w h o a r e lo u d in t h e ir c a lls f o r a
b a la n c e d b u d g et. S. 5 0 is th e b ill to a c h ie v e a b a la n c e d b u d g e t I t i s u n iv e r s a lly
a c c e p te d t h a t e a c h p e r c e n ta g e p o in t o f u n e m p lo y m e n t c o s ts t h e f e d e r a l tr e a s u r y
$ 1 6 b illio n — $ 1 4 b illio n in lo s t t a x r e v e n u e s a n d $ 2 b illio n in a d d e d s o c ia l c o s ts .
F u l l e m p lo y m e n t, th e r e fo r e , is t h e o n ly r a t io n a l w a y t o b a la n c e t h e b u d g et.
A n d to t h o s e w h o a sk , “H o w m u c h w ill i t c o s t ? ” w e a s k : “H o w m u c h i s th e
c o s t o f u n e m p lo y m e n t i n te r m s o f w a s te d h u m a n s k ills , in te r m s o f s o c ia l p ro b ­
le m s? ”
T h o s e w h o p u t b u d g e t d e fic its b e fo r e p eo p le h a v e n o f a it h in A m erica . T h e y
w o u ld c o n d e m n A m e r ic a to c o n tin u e d id le p la n ts , id le m a c h in e r y , id le p ro ­
d u c tiv e e q u ip m e n t, a n d id le m a n p o w e r.
T h e r e i s p le n ty o f w o r k to be d o n e in A m e r ic a , a n d t h e r e a r e p le n ty o f
w o r k e r s r e a d y , w illin g a n d a b le to d o t h a t w o rk . T h e o n ly t h in g m is s in g i s t h e
jo b s.
T h e f r o n t ie r s o f t h e 1 8 t h a n d 1 9 th c e n tu r ie s a r e n o w gon e. B u t t h e r e a r e
s t i l l f r o n t ie r s a n d c h a lle n g e s w h e r e t h e s k ills a n d t a le n ts o f t h e A m e r ic a n
p e o p le a r e s o r e ly n eed ed .
A m e r ic a m u s t m o v e fo r w a r d to m e e t th e e n e r g y c r is is, w h ic h c a n p r o v id e
s c o r e s o f th o u s a n d s o f jo b s in t h e c o m in g d eca d e, i f th e fe d e r a l g o v e r n m e n t
w o u ld o n ly p r o v id e t h e p o lic y a n d t h e p ro g ra m s.
A m e r ic a m u s t p u sh o n t o m e e t t h e m a s s iv e b a c k lo g o f n e e d s o f i t s p e o p le f o r
e d u c a tio n , h e a lth , h o u sin g , tr a n sp o r ta tio n , a c le a n a n d s a f e e n v ir o n m e n t, a n d
w id e r o p p o r tu n it ie s f o r r e c r e a tio n a n d c u ltu r e . T h e r e ’s m o re t h a n e n o u g h w o r k
h e r e t o k e e p A m e r ic a b u sy f o r a lo n g tim e t o com e.
T h e r e i s n o la c k o f a w ill to w o r k in A m e r ic a . T h e r e i s o n ly a la c k o f jo b s.
T h e A m e r ic a n la b o r m o v e m e n t h a s b een f ig h tin g f o r h u m a n w e lf a r e a n d
s o c ia l p r o g r e s s s in c e t h e e a r lie s t d a y s o f o u r c o u n tr y . I n t h i s B ic e n t e n n ia l y e a r
w e j o in in c e le b r a t in g t h e a c h ie v e m e n ts o f t h e p a s t 2 0 0 y e a r s .
F r o m S o c ia l S e c u r it y t o c iv il r ig h ts, fr o m m in im u m w a g e t o M ed ica re, fr o m
t h e e c o n o m ic b a t t le s o f t h e 1 9 3 0 ’s t o t h e fig h t f o r e q u a lity in t h e 1 9 0 0 ’s, t h e
A m e r ic a n la b o r m o v e m e n t h a s b een h e lp in g t o c h a n g e t h e f a c e o f A m e r ic a f o r
t h e b e tte r .
N o w w e h a v e in t h i s c o u n tr y a n o p p o r tu n ity t o m o v e f o r w a r d o n le g is la t io n
to a c h ie v e f u l l e m p lo y m e n t— w it h t h e k in d o f h e a lt h y e c o n o m ic g r o w th a n d
s o c ia l p r o g r e s s t h a t a c c o m p a n ie s f u l l e m p lo y m e n t.
W e r e c o g n iz e t h a t t h e r e is n o s in g le p ro g r a m t h a t w il l a c h ie v e f u l l em p lo y ­
m en t. R e ly in g o n b u s in e s s a lo n e w o n 't d o it . N e it h e r w i ll r e ly in g o n g o v e r n ­
m e n t.
E s t a b lis h in g a f u l l e m p lo y m e n t eco n o m y w i l l r e q u ir e t h e c o n c e r te d e ffo r t o f
all s e g m e n t s o f t h e eco n o m y — b u t i t m u s t s t a r t w it h t h e g o v e r n m e n t. G o v ern ­
m e n t m u s t h a v e a n a r s e n a l o f w e a p o n s d e s ig n e d f ir s t t o r e d u c e to d a y 's h ig h
u n e m p lo y m e n t a n d t h e n t o k e e p i t d o w n .
A ll t h i s c o m e s u n d e r t h e b ro a d h e a d in g o f a n in v e s t m e n t in t h e f u t u r e —
a n in v e s t m e n t i n A m e r ic a t h a t w ill b u ild a h e a lt h y e co n o m y . T h a t i s w h y w e
u r g e e a r ly a c t io n b y C o n g ress o n t h e H u m p h r e y - H a w k in s f u l l e m p lo y m e n t
b ill, S. 5 0 .

T h e C h a ir m a x . N e x t is M r. C a rl M adden.

STATEMENT OF CARL MADDEN, CHAMBER OF COMMERCE OF THE
UNITED STATES OF AMERICA; ACCOMPANIED BY RICHARD S.
LANDRY, STAFF EXECUTIVE, BANKING AND MONETARY-FISCAL
POLICY COMMITTEE
M r. M a d d en . T h a n k you, M r. C hairm an.
I have w ith m e accom panying me D r. R ic h a rd S . L a n d ry , staff
executive o f the C ham ber’s B an kin g and M o n eta ry -F is ca l P o licy
C om m ittee.




214
W e very much appreciate th e o p p o rtu n ity to appear before th e
com m ittee. I w ould lik e to subm it o u r testim ony fo r th e record and
tr y to sum m arize very in fo rm a lly and as b rie fly as I can th e position
th a t the cham ber takes concerning S. 60.
T he Cham ber is, as n early every o th er elem ent o f A m erican society
today, 30 years a fte r th e passage o f the E m ploym en t A c t o f 1946,
com m itted to h ig h levels o f em ploym ent and to the p o licy d eclaratio n
o f the E m ploym ent A c t, and I th in k i t is exactly fo r th is reason
th a t we oppose S. 50.
I t seems to us th a t S. 50 is inconsistent w ith the common wisdom
and the good sense o f the A m erican people.
A s to its p lan n in g m echanism, i t seems to us th is imposes a new
la y e r o f in s titu tio n a l com plexity on the G overnm ent w ith o u t solvin g
the problem w hich it is the G overnm ent’s jo b to solve. I t does not
seem to us th a t the mere im position o f p lan n in g m achinery to deal
with^ the g reat problems^ o f p o licy th a t the TJ.S. Congress and the
President m ust face is going to reduce one w ith the disagreem ent and
the debate and the d ifficu lty o f resolving these questions.
_ .^ ® r exam ple, energy p o licy is m entioned as a p a rt o f the p la n .
j
th in k we w ould a ll agree th a t we have debated energy p o licy
and we have debated it , and we have been unable to come to "a
reasonable conclusion on a long-range energy po licy despite th a t
debate. T h e mere im position o f p lan n in g m achinery is not lik e ly to
change th a t situ ation and, fu rth erm o re, it is, i f a n yth in g , e litis t, it
seems to us, in the sense th a t the representatives o f consumer, lab o r,
business and others who are called on fo r advice do not necessarily
represent the views o f the A m erican people, but thev w ould be b u ilt
in to the m achinery o f th is b ill in such a w ay th a t they m ig h t come
to th in k th a t they represent the view s o f the A m erican people.
w e fav o r, instead, the open debate, the ju ris d ic tio n a l arran g e­
ments fo r Congress, the current process by w hich we reach decisions
m the U n ite d States, w hich is a fo rm o f governm ent to w hich
AVinston C h u rc h ill’s euphemism s till applies. I t m ay be “the w orst
in the w o rld except fo r a ll the rest,” but it w o rk s ‘b etter than the
p lann ing o f dem ocratic societies w hich have been accompanied by
in flatio n and chronic unem ploym ent in lead in g nations and it cer­
ta in ly works b etter th a n an a u th o rita ria n p lan n in g w hich has fa ile d
to brin g the socialist countries o f E astern E u ro p e, o f Russia and o f
C hina w ith in h a ilin g distance o f the standard o f liv in g in the U n ite d
States.
Second, there’s an assum ption in the p lan n in g process in the b ill,
lh a t assumption is there’s som ething chronically w rong w ith tlio
processes o f the m arketplace as they are now conditioned by a very
significant sector o f our m ixed economy devoted to w e lfare . T h is
assumption is not any surprise to the Cham ber o f Commerce. T h is
was the assumption o f the M u rra y F u ll Em ploym ent b ill introduced
; fi. T?gres? i n 1945’ and SO"16 o f the same people w ho fe lt then
■
th a t the U nited States free enterprise system was stagnating s till feel
th a t w ay, although in the in te rim th a t system has created 30 m illio n
jobs m the p riv ate sector, not counting the num ber o f jobs created
m the public sector, and i t has doubled the re al per cap ita o f A m e ri­
cans once more in a generation, as o u r p er capita income has been
doubled each generation fo r the last 200 years.




215
N orm an M acrae, the deputy edito r o f the London Econom ist—
Septem ber 25, 1975— pointed out in the year o f the b irth o f Jesus
th ere were about 250 m illio n people in the w o rld and they had a
pei^ cap ita income o f $100. T h ere are 700 m illio n people in the w o rld
1,976 years la te r, and they had a per capita real income o f about $100
in c u rren t d o lla r equivalent. In the last 200 years o u r income has
risen to the p o in t where today we have a real G N P per cap ita o f
over $6,000 p er person in the U n ite d States and we have doubled the
real standard o f liv in g in the country per person in every generation
in these 200 years.
N ow the notion th a t such a system is somehow chronically unable
to supply the goods and services needed by the A m erican people is
ludicrous. I t ’s not ju s t wrong. I t ’s ludicrous and I w an t to call the
chairm an’s atten tio n to the false assumption in this b ill th a t there
is a chronic pool o f unem ployed w hich results fro m the chronic
stagnation o f the TJ.S. economy w hich is the philosophy behind
the b ill. T h a t philosophy violates the common sense o f Am ericans
a ll over the country.
T h e re a l problem o f unem ploym ent, i t seems to us, w hich we would
lik e to deal w ith , is the problem o f excess unem ploym ent in good
tim es and th a t em ploym ent problem is very d ifferen t fro m the as­
sum ption about unem ploym ent th a t is contained in th is b ill, but I
w o u ld lik e to postpone th a t fo r a m inute and tu rn now to the politics
o f the b ill ju s t b rie fly .
I t seems to us th a t th is b ill is a series o f em pty shells and it
orders the President, somewhat in the s p irit o f K in g C anute to
h o ld back the tides, to solve the unem ploym ent problem w ith in a
90-day p eriod a fte r the b ill is passed. I th in k Senator Stevenson’s
question was extrem ely apropos when he pointed out th is b ill doesn’t
c a ll fo r any action. I t calls fo r the P resident to solve the unem­
ploym ent problem and to do so by creating six o r eig h t new pro­
gram s w hich have not yet been designed, b u t the substance o f w hich
has been debated in the Congress and in the J o in t Econom ic Com­
m ittee and th is com m ittee fo r some tim e and studies concerning
w hich are available and proposals to deal w ith w hich have been
discussed and are m entioned in o u r testim ony.
A n o th e r p o litic a l indication o f the b ill is a tire d old p o litic a l
im p lica tio n th a t we in the business com m unity have been fa m ilia r
w ith now fo r a least a generation. I t is th a t one puts in to the hopper
a p o o rly designed b ill— and th is is one o f the w orst d ra fte d pieces
o f le g islatio n in m odem tim es in economic p o licy in m y personal
ju dgm ent— and then those who oppose the b ill on the grounds th a t
it is p o o rly d ra fte d are labeled w ith the accusation th a t because they
oppose th is p a rtic u la r piece o f leg islatio n th ey, therefo re, oppose the
goals o f the leg islatio n .
, ,
.
N o th in g could be fu rth e r fro m the tru th in respect to the business
com m unity in th e U n ite d States. W e are in fa v o r o f h ig h levels o f
em ploym ent, reasonable price s ta b ility , sustainable g ro w th , and
p rotection o f A m ericans against the ris k o f in d u s tria l and urban life ,
and we are in fa v o r o f those goals together, and we w ould lik e to
pursue those goals in a reasonable sensible w ay together, and we
th in k th is b ill does n o t do th a t.




216
X o w , as fo r the economics o f th e b ill, we were d elig h ted to h ear
the questions asked o f the authors o f th is b ill by th is com m ittee,
by its chairm an and its members, because w e th in k those are cru cial
questions to the success o f the b ill. W h y is there no in fla tio n goal in
the b ill? W e ll, i f there were an in fla tio n goal and one set a 2 V i
percent ra te o f in fla tio n vis-a-vis w hatever rate o f unem ploym ent
was app ro p riate, you w ould be no b etter o ff than we are now w ith
the E m ploym ent A c t o f 1946 because the very issue is th a t the re ­
lation sh ip between in fla tio n and unem ploym ent has to be faced. I t
isn’t a question o f the P h illip s curve, to be sure. T h a t trad eo ff has
been somewhat and p ro p erly I th in k discredited by the evidence. B u t
there is a d ifficu lty o f m olding those tw o goals together, w hich is
unassailably the g reat problem o f the in d u s tria l w o rld and the
dem ocratic cap italist w o rld and has been fo r the last generation,
and th is b ill, by leavin g th a t question m oot, trie s to avoid the issue.
B u t i f the issue were made e x p lic it, I th in k i t w ould m erely come
head on to where we are now.
T h e p re va ilin g wage question in S. 50 is equ ally im p o rta n t and
equally poorly thought out in the b ill, as the question and the discussion
to th a t question v ery c learly and p ro p erly illu s tra te d . Y esterd ay
I was in Chicago a t the N a tio n a l Association o f R estaurants. T h ere
are 500,000 food establishm ents in the U n ite d States, the largest
single nuum ber o f re ta il establishm ents in the country. I t is claim ed
bv th a t in d u stry th a t th ey em ploy 9 percent o f the la b o r force,
w hich is the largest p ro p o rtion o f the lab o r force em ployed by any
branch o f the re ta il trad e, and they provide larg e amounts o f em ­
ploym ent to youngsters, to people who are inexperienced, who are
learn in g the discipline o f w o rk and a ll the rest th a t goes w ith th a t,
and they are deeply concerned about the in a b ility o f the U n ite d
States to face up to" the question o f youth unem ploym ent. T h ey see
the prospects o f a m inim um wage b ill w hich is not only going to
be indexed b u t the tip cred it in present la w is going to be removed
according to the proposed leg islatio n and there w ill be no d istinc­
tio n to be made between youth em ploym ent and ad u lt em ploym ent in
th is crucial in d u stry. A n d they p o in t out i f th is happens and they
have to liv e under th is k in d o f regim e, th a t they w ill surely add a
15 o r 20 percent service charge to th e ir b ills and they w ill control
the tip s o f th e ir employees and they w ill have to tu rn fro m young
people whom they b rin g in to the lab o r force fo r the firs t tim e to ad u lt
workers who are m ore productive and, therefo re, could m ore ju s tify
the wage raise.
H ow ever, in add itio n , the fas t food in d u stry, w hich is one o f the
fastest grow ing industries in the U n ite d States w ill get faster and it
w ill get faster because there w ill be few er people and more machines
and God knows w h at the food w ill be lik e as a consequence. B u t
th a t’s the w ay this in d u stry feels and it feels this w ay because o f
the im pact o f the m inim um wage on youth em ploym ent and th is
b ill doesn’t come close to discussing th a t question in reference to
p re va ilin g wage rates.
Y ou have already said th a t it w ould induce employees to s h ift
fro m the p riv ate to the public sector, and one o f the reasons th a t
ought to be brought out is the wages o f the Governm ent workers in




217
the U n ite d States are h ig h er than the wages in the p riv ate sector
and th a t’s because o f th e m ix o f the labor force in the Governm ent
sector versus the p riv a te sector. B u t you know th is is not a poor
p u b lic sector, a poverty stricken public sector facin g a luxurious
p riv a te sector. On^ the con trary, the people who labor in p riv ate
enterprise in the U n ite d States are actu ally receiving less in actual
wages than in G overnm ent and so p re va ilin g wages in public em ploy­
m ent as set fo rth in S. 50 w ill surely s h ift em ploym ent fro m p rivate
jobs to p u b lic jobs.
In a d d itio n to th a t, as we a ll known, and we have heard testim ony
here and before Senator Nelson’s com m ittee and elsewhere, it
is im possible to th in k th a t you can create 1 m illio n public service
jobs and increase em ploym ent by a n et 1 m illio n jobs because o f
displacem ent o f public service jobs fo r already auhorized local gov­
ernm ent jobs on the rolls w hich cannot be financed by hardpressed
local governm ents a ll over the countrv. A n d S ar L e v ita n him self,
who was the leading exponent o f p ublic service em ploym ent, has
p u b lic ly acknowledged th a t the displacem ent o f w orkers resulting
fro m p ublic service em ploym ent m ay be as much as on e-h alf o f the
to ta l num ber o f jobs created.
B u t w ith respect to the question o f creating jobs, do you know th a t
it costs $40,000 o f c ap ital in the U n ite d States p riv ate sector these
days on the average to creat a single productive job? A n d th a t
is because we have to use c a p ita l and knowledge and managem ent
s k ill and m arketin g techniques in order to give people w hat they
w a n t against the com petition o f the b rillia n t Germ ans and the
F ren ch and th e Japanese and the Swedes, who are no slouches in
p roducing goods and services th a t people w an t. A n d the notion
th a t one can m erely wave a m agic wand o f $10,000 and create a job
w h ich is going to lie productive violates the notion not m erely o f the
fre e enterprise system but o f the w hole in d u s tria l revolution w hich
was developed to y ie ld the increases in standard o f liv in g th a t have
occurred a ll over the w o rld because it was realized exactly th a t one
jo b is m ore productive than another.
A n d critics o f the corporate w o rld even say th a t the one advantage
w e have in b ig business is th a t the ch ief executive can reorganize
the corporation fro m tim e to tim e in order to change the m ixtu re o f
jobs and, th erefo re, increase the p ro d u ctivity o f th e corporation.
W ag e and p rice controls are a very im p o rtan t question. T h ere is
weasel language in the b ill w hich w ould lead easily to the auth o riza­
tio n o f w age and price controls except the words aren’t used.
N o th in g is said about em p lo yab ility.
N o goals indeed are offered fo r investm ent, one o f the most im ­
p o rta n t questions fac in g us as against our com petitor nations.
I f we are going to have goals in this b ill, w hy not goals fo r in vestm ent o r taxation? W h y not goals fo r energy sufficiency t W liv not
goals fo r th is, th a t and the other th in g w hich are slid over m th is
1F in a lly , I w ould lik e to say th a t there is a w ay to deal w ith th e
cru cial question o f persistent and perm anent unem ploym ent above
desired levels d u rin g good tim es. B y the w ay, Senator, as jo u know ,
the forecast fo r 1977 are p re tty w ell in , and we are going to have




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a stronger recovery t W
was expected before. W e have' created
3,300,000 jobs since A p r il o f 1975 w ith o u t th is b ill, 700,000 I believe
in the firs t q u arter o r th is y ea r, and because o f th e increase in th e
num ber in the la b o r force, because people are com ing back in to the
lab o r force, the unem ploym ent ra te has not declined as m uch as we
w ould lik e it to , b u t the la b o r force its e lf, as o u r frien d s fro m th e
A F L -C IO agree, is a flex ib le , v a ria b le q u a n tity and one could get
a g reat deal o f increase in em ploym ent b y w hatever means w ith o u t
necessarily g ettin g to th e c ru cial question o f the perm anent em ploy­
m ent ra te in good tim e .
T h a t cru cial question concerns yo u th unem ploym ent and i t con­
cerns the unem ploym ent o f people w ho are given a disincentive to
•work b y a w elfare mess th a t has existed on the books o f th e C on­
gress fo r a t least a decade.
T u rn in g to you th unem ploym ent, we have th e testim ony o f the
J o in t Econom ic C om m ittee studies themselves. H a rfo rd Professor o f
Economics M a rtin F eld stein d id a study fo r th e J o in t Econom ic
Com m ittee in 1973, a b rillia n t piece o f w o rk ; and i t id e n tifie d th e
nature o f unem ploym ent as being th e result o f an active lab o r
m arket in w hich there was a w eak jo b attachm ent o f people to th e ir
jobs and n o t a perm anent pool o f unem ployed. A n d he pointed o u t
th a t i f you do not lik e a s p lit level m in im um wage ra te, w hich some
o f our friend s in W ashington oppose w ith vehemence and have done
fo r 30 years, despite evidence th a t i t does delay and reduce the em­
ploym ent o f young people, then you could go fo r a voucher system
whereby you give th e non-coUege you th a scholarship, as it were,
corresponding to the subsidy given to college students in p riv a te u n i­
versities by p h ila n th ro p y and p u b lic universities b y u n d erp ricin g .
,You could give the young person a tic k e t by w hich he goes to a
p riv a te em ployer and gets a subsidy fo r his wage w ith o u t the prob­
lem arisin g as to w hether th e p riv a te em ployer is abusing a ta x
cred it th a t m ig h t be granted as another alte rn ativ e. O r one can re ­
surrect the CCCs i f one could g et the youth o f today to go o u t in
the country, although the evidence o f th e u n filled jobs, the dead-end
jobs, th a t young people won’t take, suggests th a t young people o f
today are less lik e ly th a n th e poorer people o f the 1930s to be w ill­
in g to go out and do h a rd w o rk on th e farm s and in th e forests o f
the U n ite d States.
I was in the CCCs personally and I saw the value o f th a t program
in th e 1930s to poor kids in A p p a la ch ia and P ittsb u rg h . I w orked
in the Shenandoah V a lle y d ig g in g post holes fo r farm ers to s trin g
w ire, and th a t was a g reat program , b u t we have seen no such p ro ­
posals in th is legislation. W e see a bunch o f em pty shells.
A s to the w e lfare system, there has been a b rillia n t study by
M a rth a G riffith s o f the w e lfa re system fo r the J o in t Econom ic Com ­
m ittee, and she reveals the exact sense in w hich reasonable people
who are on w elfare are w e ll advised not to go to w o rk because th e
tax ra te on th e ir sm all a d d itio n a l earnings is som ething lik e 80 o r
90 percent. W e even had recommended to the Cham ber misViiwg out
the w elfare system and o th er w e lfa re reform s.
I ju s t m ention those to show you th a t it ’s o u r view th a t, i f I m ay,
this b ill rem inds me o f a poem by D r . B u m s o f the Sm ithsonian In ­
s titu tio n . L e t me quote it. H e s aid : L e t us dam n the stu p id , eager



219
beaver who doesn’t know his Aspen fro m a pole in the ground and so
persists in b arkin g up the w rong tree.”
T h a n k you.
T h e C h a i r m a n . T h a n k you very much.
[C om plete statem ent fo llo w s :]
St a t e m

ent

of t h e

Cham

ber

of

Commerce

of t h e

U

n it e d

St a te s

(B y C arl H . M ad d en )
M y n a m e Is C a r l H . M ad d en . I a m C h ie f E c o n o m ist o f t h e C h a m b er o f C om ­
m e r c e o f t h e U n ite d S ta te s . T h e N a t io n a l C h a m b er a p p r e c ia te s t h e o p p o r tu n ity
t o p r e s e n t i t s v ie w s o n S. 5 0 , t h e “ F u ll E m p lo y m e n t a n d B a la n c e d G ro w th A c t
o f 1 9 7 6 / ' d a te d M a rch 1 6 , 1 9 7 6 . T h e m a jo r in te r e s t o f t h i s biU i s t o a c h ie v e ,
w it h in f o u r y e a r s o f e n a c tm e n t, t h e g o a l o f fu U e m p lo y m e n t f o r a ll a d u lt
A m e r ic a n s a b le , w illin g a n d se e k in g , to w o rk . F u ll e m p lo y m e n t i s c o n str u e d a s
c o n s is t e n t w it h a n u n e m p lo y m e n t r a t e o f n o t m o r e t h a n t h r e e p ercen t.
S. 5 0 i s t h e w r o n g w a y to in c r e a s e e m p lo y m e n t. W e o p p o se is.
THE NEW PLANNING MACHINERY

T o a c h ie v e a t h r e e p e r c e n t u n e m p lo y m e n t r a t e w it h in f o u r y e a r s f o r a d u lt
A m e r ic a n s, t h e b ill c r e a t e s e la b o r a te g o v e r n m e n ta l m a c h in e r y t h a t w o u ld p re­
p a r e e a c h y e a r a n e w F u ll E m p lo y m e n t a n d B a la n c e d G ro w th P la n , to b e su b ­
m itt e d t o t h e C o n g r e s s b y t h e P r e s id e n t in h is a n n u a l E c o n o m ic R ep o rt. I n
sh o r t, t h e b ill w o u ld in s t it u t e a s y s te m o f lo n g a n d s h o r t r a n g e n a tio n a l e c o ­
n o m ic p la n n in g a s i t s m a jo r a p p ro a ch t o a c h ie v in g f u l l e m p lo y m en t.
W h a t i s t h e n a tu r e o f t h e p la n n in g m a c h in e r y ? F ir s t , t h e P r e s id e n t ’s p la n ,
s u b m itte d e a c h y e a r to t h e C o n g ress, w o u ld p ro p o se, in q u a n t it a t iv e a n d quaUt a t i v e te r m s, lo n g -te rm g o a ls f o r fu U e m p lo y m e n t, p r o d u c tio n , p u r c h a s in g p o w er,
a n d o t h e r p r io r it y p u rp o ses. I t w o u ld , in e s s e n c e f o r e c a s t f u t u r e g r o w th , f u t u r e
u n m e t e c o n o m ic a n d s o c ia l n e e d s, a n d t h e h u m a n , c a p it a l, a n d n a tio n a l r e s o u r c e s
a v a ila b le t o a c h ie v e i t s g o a ls. W h a t's m ore, i t w o u ld f u r n is h n o t o n ly “a n in t e ­
g r a t e d p e r s p e c tiv e o f o u r n e e d s a n d c a p a b ilitie s ,” b u t s e r v e a s a lo n g ru n g u id e
to “o p tim u m F e d e r a l, s t a t e a n d lo c a l g o v e r n m e n t a c tio n .” I t w o u ld r a n g e o v e r
su c h p r io r it y p r o g r a m s a n d p o lic ie s t o su p p o r t fu U e m p lo y m e n t g o a ls a s en e r g y ,
t r a n s p o r t a tio n , fo o d , s m a ll b u sin e s s, e n v ir o n m e n ta l im p r o v e m e n t, t h e q u a n tity
a n d q u a lity o f h e a lt h ca re, e d u c a tio n , d a y c a r e , h o u sin g , f e d e r a l a id to s t a t e a n d
lo c a l g o v e r n m e n ts , n a tio n a l d e fe n se , o t h e r n e e d e d in te r n a tio n a l p ro g ra m s, a n d
“s u c h o t h e r p r io r it y p o U cies a n d p r o g r a m s a s t h e P r e s id e n t d e e m s a p p r o p r ia te .”
A n d it w o u ld m a n d a t e sp e n d in g on “priority p o lic ie s a n d p r o g r a m s t h a t co m ­
p r is e a f u l l e m p lo y m e n t p ro g ra m ,” in so m e o r a l l o f t h e s e sp e c ific fie ld s— sp e n d ­
in g t h a t “ sh a U n o t in g e n e r a l b e red u ced , a llo w in g f o r so m e v a r ia t io n f o r
c o u n te r c y c U c a l p u r p o se s ,” e v e n w h e n t h e e c o n o m y “i s o p e r a t in g a t f u l l p ro d u c­
tio n a n d e m p lo y m e n t, o r su b je c te d to e x c e s s iv e o v e r a ll s t r a in .”
S ec o n d , t h e P r e s id e n t w o u ld h a v e to c o o r d in a te t h e p la n w it h in t h e E x e c u t iv e
B r a n c h b e fo r e su b m iss io n to t h e C o n g ress. A p u b lic - p r iv a te A d v is o r y C o m m itte e
o n F u l l E m p lo y m e n t a n d B a la n c e d G ro w th t o t h e P r e s id e n t w o u ld b e s e t u p ,
a u th o r iz e d t o s e t u p in tu r n r e g io n a l o r in d u s t r ia l a d v is o r y su b c o m m itte e s t o
a d v is e t h e A d v is o r y C o m m itte e, a n d t o in c lu d e b u sin e s s, la b o r, a n d c o n su m e r
in te r e s t s . A ll t h e s e p e o p le w o u ld f u r n is h a d v ic e to t h e C o u n c il o f E c o n o m ic
A d v is e r s to t h e P r e s id e n t “on t h e v ie w s a n d o p in io n s o f b ro a d s e g m e n t s o f t h e
p u b lic o n m a t t e r s in v o lv e d in t h e fo r m u la tio n a n d im p le m e n ta tio n o f g o a ls a n d
p o U c ie s f o r f u l l e m p lo y m e n t a n d b a la n c e d g r o w th .” T h e n t h e C o u n c il w o u ld t a k e
t h e s e v i e w s in t o a c c o u n t in p r e p a r in g t h e P r e s id e n t ’s F u U E m p lo y m e n t a n d
B a la n c e d G r o w th P la n , l a t e r su b m itte d t o C o n g r e ss a n d t o t h e 0 0 g o v e r n o r s, f o r
t h e ir c o m m e n t a n d r e c o m m e n d a tio n s w it h in 6 0 d a y s, b e fo r e i t w o u ld b e su b s e ­
q u e n tly r e v ie w e d o n b e h a lf o f C o n g r e ss b y a p p r o p r ia te s t a n d in g c o m m itte e s a n d
th e j o i n t E c o n o m ic C o m m itte e .
T h ir d , t h e B o a r d o f G o v e r n o r s o f t h e F e d e r a l R e s e r v e S y s te m w o u ld su b m it
to t h e P r e s id e n t a n d t h e C o n g r e s s e a c h y e a r a n in d ep e n d e n t s t a t e m e n t s e t t in g
fo r t h i t s in te n d e d p o U c ie s f o r t h e y e a r a n d h o w t h e p o U c ie s su p p o r t fu U e m ­
p lo y m e n t. I f t h e P r e s id e n t a d ju d g e d t h e su p p o rt in a d e q u a te , h e w o u ld m a k e
r e c o m m e n d a tio n s t o t h e B o a r d o f G o v e r n o r s t o s e t t h e ir p o lic ie s in t o " c lo se r
c o n f o r m it y t o t h e p u r p o se o f t h i s A ct." I n t h i s o o n t t M t a , a s e c t io n in 8 . 0 0


7!-3#6 O - 7* - 15


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m a n d a t e s t h a t t h e P r e s id e n t ’s E c o n o m ic R e p o r t e a c h y e a r s h o u ld in c lu d e “a
c o m p r e h e n siv e s e t o f a n ti- in fla tio n p o lic ie s ,” in c lu d in g a r e p o r tin g s y s t e m o n
in fla tio n a r y tr e n d s, m o n e ta r y a n d f ls c a l p o lic ie s , a p la n to in c r e a s e t h e s u p p ly
o f g o o d s, s e r v ic e s, lab or, a n d c a p ita l, e x p o r t l ic e n s in g , . p r o d u c tiv ity p r o g r a m s
f o r m a n a g e m e n t a n d lab or, a n d w a g e a n d p r ic e c o n tr o l p ro g ra m s.
N e x t , t h e b ill s e t s u p s t il l f u r th e r g o v e r n m e n ta l m a c h in e r y . T h e r e i s t o b e, in
p la c e o f t h e e x i s t i n g U .S . E m p lo y m e n t S e r v ic e , a F u ll E m p o y m e n t O ffice in th e
L a b o r D e p a r tm e n t t o h e lp t h e S e c r e ta r y p r o v id e Job o p p o r tu n itie s. T h e r e i s to
b e a n e w C o n g r e s sio n a l r e v ie w p r o c e ss, w h e r e b y “t h e a p p r o p r ia te c o m m it t e e s o f
t h e C o n g r e ss s h a ll r e v ie w a n d r e v is e , t o t h e e x t e n t d e e m e d d e sir a b le , t h e ec o ­
n o m ic g o a ls, p r io r itie s , p o lic ie s, a n d p r o g r a m s ” o f b o th t h e P r e s id e n t a n d t h e
F e d e r a l R e s e r v e S y ste m , p lu s a n “o v e r a ll” r e v ie w by t h e J o in t E c o n o m ic C om ­
m it t e e a n d a b u d g e t r e v ie w by t h e S e n a te a n d H o u s e C o m m itte e s o n t h e Q u d g et.
T o h e lp t h e B u d g e t c o m m itte e s, t h e r e i s to b e a n e w d iv is io n o f t h e C o n g r e s­
s io n a l B u d g e t Office, c a lle d t h e D iv is io n o f F u ll E m p lo y m e n t a n d B a la n c e d
G ro w th .
F in a lly , t h e b ill p r o p o se s t h a t e a c h y e a r t h e C o n g ress, th r o u g h c o n c u r r e n t
r e s o lu tio n s o f e a c h H o u se , sh o u ld v o t e t o a p p r o v e o r d is a p p r o v e t h e P r e s id e n t ’s
p la n , in c lu d in g w h a t e v e r “a lt e r n a t iv e s to, m o d ific a tio n s of, o r a d d itio n s t o t h e
P r o p o se d P la n ,” t h e J o in t E c o n o m ic C o m m itte e d e e m s a p p r o p r ia te .
THE NEW PLANNING PROCESS

A rm ed w it h t h e n e w g o v e r n m e n ta l p la n n in g m a c h in e r y s e t u p b y t h is b ill,
e a c h y e a r t h e N a t io n a l E c o n o m ic P la n , b o th s h o r t r a n g e a n d lo n g r a n g e , a f t e r
b e in g v o te d on b y t h e C o n g ress n o t m o re t h a n 1 0 5 d a y s a f t e r t h e P r e s id e n t su b ­
m it s it, w o u ld r e ly on c e r ta in p r o c e s se s t o a c h ie v e i t s g o a ls.
F ir s t , t h e r e i s a c o u n te r c y c lic a l e m p lo y m e n t p o licy , to b e su b m itte d b y t h e
P r e s id e n t to C o n g r e ss w ith in 9 0 d a y s o f t h i s b ill’s e n a c tm e n t. I t sh o u ld be c o m ­
p r e h e n s iv e a n d in c lu d e c o u n te r c y c lic a l p u b lic s e r v ic e e m p lo y m e n t, a c c e le r a te d
p u b lic w o rk s, s t a t e a n d lo c a l c o u n te r c y c lic a l g r a n t p ro g ra m s, u n e m p lo y m e n t in ­
su ra n ce , s k ill tr a in in g , y o u th e m p lo y m e n t p ro g ra m s, c o m m u n ity d e v e lo p m e n t
p ro g ra m s, a n d i t sh o u ld a ls o “a u g m e n t a c t io n o f * o th e r e m p lo y m e n t a n d m a n ­
p o w e r p ro g ra m s.
S eco n d , th e r e i s a p e r m a n e n t c o u n te r c y c lic a l g r a n t s p r o g r a m (m e n tio n e d
a b o v e ) to b e s e t u p by th e P r e sid e n t. T h e p r o g r a m i s in te n d e d t o s t a b iliz e
c y c lic a l flu c tu a tio n s in s t a t e a n d lo c a l b u d g ets, w it h a u to m a tic im p le m e n ta tio n
( a “t r ig g e r ” ) t ie d to a sp ec ified u n e m p lo y m e n t r a te .
T h ir d , th e r e i s a c o m p r e h e n siv e r e g io n a l a n d s t r u c t u r a l e m p lo y m e n t p ro g ra m
to b e s e t u p by t h e P r e sid e n t. I t s p u rp o se i s to “r e d u c e t h e c h r o n ic u n d e r u tiliz a ­
tio n o f h u m a n a n d c a p it a l r e so u r c e s in c e r t a in a r e a s o f t h e c o u n tr y a n d in
g r o u p s w it h in t h e la b o r fo r c e .” T h e P r e s id e n t in d e s ig n in g t h is p ro g r a m sh o u ld
“e n c o u r a g e p r iv a t e se c to r p ro d u c tio n a n d e m p lo y m e n t to lo c a t e w it h in d e ­
p r e s se d r e g io n s a n d in n e r c it ie s .” T h e p ro p o sed e m p lo y m e n t p r o g r a m o f th e
P r e s id e n t a ls o sh o u ld in c lu d e “a n in s t it u t io n a l m e a n s ” (p r e su m a b ly a b a n k )
d e sig n e d to e n c o u r a g e p u b lic a n d p r iv a t e in v e s t m e n t in su c h a r e a s a n d to p r o ­
v id e a n a lt e r n a tiv e so u r c e o f c a p ita l f u n d s fo r lo c a l a n d s t a t e g o v e r n m e n ts to
fin a n c e p u b ic f a c ilit ie s , in c lu d in g p r o v isio n fo r lo n g te r m lo a n s a t lo w in te r e s t
r a te s, b on d p u r c h a se by p u b lic a n d p r iv a t e in s t itu t io n s , a n d c r it e r ia f o r p r io r i­
t i e s in a s s is t in g p u b lic a n d p r iv a te a g e n c ie s .
F o u r th , th e r e i s a n e w c o m p r e h e n siv e y o u th e m p lo y m e n t p ro g ra m , to b e s e t
u p b y t h e P r e sid e n t. I t w o u ld c o o r d in a te a l l su c h e x is t in g p ro g ra m s, d e v e lo p a
sm o o th e r t r a n s it io n fr o m sc h o o l to w o rk , e s p e c ia lly h e lp tr a in d is a d v a n ta g e d
y o u th , d e v e lo p “r e a lis t ic ” m e th o d s o f c o m b in in g t r a in in g w ith w o rk , a n d p ro ­
v id e jo b o p p o r tu n itie s fo r y o u th in c o n s e r v a tio n , p u b lic s e r v ic e a c t iv it ie s , in n e r
c it y c lea n u p , a n d “o th e r jo b s o f v a lu e to s ta te s , lo c a l c o m m u n itie s a n d th e
N a tio n .”
F if t h , t h e r e i s a p ro p o sa l to in te g r a te in c o m e m a in te n a n c e an d e m p lo y m e n t
p o lic ie s, t o b e m a d e by th e P r e sid e n t. T h e p r o p o sa l sh o u ld recom m en d “h o w th e
in c o m e m a in te n a n c e an d e m p lo y m e n t p o lic ie s ca n b e in te g r a te d to in s u r e t h a t
e m p lo y m e n t i s s u b s titu te d f o r in c o m e m a in te n a n c e to t h e m a x im u m e x t e n t
f e a s ib le .” I t i s t h e in te n t o f C o n g ress to p r o v id e q u a lity jo b s t h a t im p r o v e th e
w o r k en v ir o n m e n t, str e n g th e n in com e, a n d e lim in a t e su b s ta n d a r d e a r n in g s ;
in te g r a te in c o m e m a in te n a n c e an d e m p lo y m e n t p o lic ie s ; a n d s u b s tit u te w o rk
f o r in c o m e m a in te n a n c e a s m uch a s p o ssib le .




221
S ix th , a n d fin a lly , t h e r e is a p ro p o sa l f o r eco n o m y in g o v ern m en t, to be
m a d e b y t h e P r e s id e n t. T h e p ro p o sa l fo r im p r o v in g t h e efficien cy a n d eco n o m y
o f t h e f e d e r a l g o v e r n m e n t w o u ld in c lu d e a r e v ie w o f “e x is tin g G o v ern m en t
r u le s a n d r e g u la t io n s ” a n d a n a n n u a l e v a lu a tio n o f 2 0 p e r c e n t o f t h e d o lla r
v o lu m e o f e x i s t i n g f e d e r a l p ro g ra m s an d w o u ld r e q u ir e th e P r e s id e n t to su b m it
to C o n g r e s s “a f o r m a l a n a ly s is o f t h e eco n o m ic a n d s o c ia l im p a c t a n d v a lu e o f
e a c h p r o g r a m .” T h e b ill in c lu d e s a fin d in g o f “w id e sp r e a d d u p lic a tio n a n d c o n ­
t r a d ic tio n ’* a m o n g f e d e r a l d e p a r tm e n ts a n d a g e n c ie s.
T h e H u m p h r e y - H a w k in s b ill is su b je c t to t h e ju r is d ic tio n o f t h e S e n a te C om ­
m it t e e o n B a n k in g , H o u sin g , a n d U rb a n A ffa ir s in t h e fo llo w in g s e v e r a l rep e c ts, a t l e a s t :
1. S e c t io n 1 0 3 a m e n d s t h e E m p lo y m e n t A c t o f 1 9 4 6 to r e q u ir e t h e P r e sid e n t
t o s e t f o r th , n u m e r ic a l g o a ls fo r p u r c h a sin g p ow er, a n d a ls o d e a ls w it h c a p ita l
r e s o u r c e s a n d e c o n o m ic g o a ls.
2. S e c tio n 1 0 4 r e q u ir e s lo n g term g o a ls f o r h o u sin g a n d d e fe n s e p ro d u ctio n .
3 . S e c tio n 1 0 6 d ir e c t s t h e P r e sid e n t to e n s u r e t h a t p o lic ie s o f t h e F e d e r a l R e ­
s e r v e B o a r d c o n fo r m t o t h e m a n d a te d n a tio n a l p lan .
4. S e c tio n 1 0 7 m a n d a t e s a c o m p r e h e n siv e se t o f a n ti- in fla tio n p o lic ie s.
5. S e c t io n 2 0 2 r e q u ir e s a c o m m u n ity d e v e lo p m e n t p ro g ra m to p r o v id e
e m p lo y m e n t.
6. S e c t io n 2 0 4 p r o v id e s fo r a n e w fin a n c ia l m e a n s f o r fin a n c in g p u b lic f a c il i ­
tie s , in c lu d in g lo n g -te rm lo a n s a t lo w in te r e s t ra te s.

S. 50 IS A GOVERNMENT POWEB GRAB
T h i s c o m m it t e e h a s a s k e d t h e N a t io n a l C h a m b er t o t e s t if y o n t h e p o litic a l
a n d e c o n o m ic im p lic a t io n s o f S. 5 0. W e su p p o r t t h e a im s o f t h e E m p lo y m e n t
A c t o f 1 9 4 6 — o f b a la n c e d a n d s u s ta in a b le eco n o m ic g r o w th a t h ig h em p lo y m en t
le v e ls , o f e f f e c t iv e la b o r m a rk ets, o f e a s in g t h e b u r d e n s o f jo b le ssn e s s, an d o f
im p r o v in g e d u c a t io n a n d s k ills . W e o p p o se S. 5 0 p r e c is e ly b e c a u se o f it s p o liti­
c a l a n d e c o n o m ic im p lic a tio n s .
S.
5 0 , p o litic a lly , r e p r e s e n t s a m is ta k e n a t te m p t to a r r o g a te to g o v e r n m e n t a
la r g e a m o u n t o f a d d e d p o w e r o v e r A m e r ic a n c o n s u m e r s a n d b u s in e s s e s in th e
n a m e o f p la n n in g f o r f u l l e m p lo y m en t. T h e p r e m is e o f t h a t m is ta k e n a tte m p t i s
t h a t t h e e x i s t i n g m a r k e t eco n o m y , t h e c o m p e tit iv e e n t e r p r is e sy stem , c a n n o t
s u s t a in i t s e l f w it h o u t t h e g u id a n c e o f n u m e r ic a l g o a ls a n d p r io r it ie s fro m
g o v e r n m e n t. T h e b u rd en o f j u s t if y in g s u c h a n a r r o g a tio n o f p o w e r i s o n th o s e
w h o p r o p o s e su c h p la n n in g in t h e f a c e o f e x p e r ie n c e in a u th o r it a r ia n so c ie tie s ,
w h ic h f a i l t o p e r fo r m a t A m e r ic a n s ta n d a r d s e it h e r o f fr e e d o m o r o f w e a lth
c r e a t io n . T h e b u r d e n i s on th o s e w h o p r o p o se p la n n in g in t h e f a c e o f t h e u n im ­
p r e s s iv e re c o r d o f p la n n in g in d e m o c r a tic s o c ie tie s s in c e W o rld W a r I I , su ch a s
t h e U n ite d K in g d o m .
T h e m a jo r p o lit ic a l t h r u s t o f S. 5 0 — to w a r d f e d e r a l g o v e r n m e n t eco n o m ic
p la n n in g w i t h t h e f o r c e o f la w , p lu s, c o n g r e s s io n a lly m a n d a te d p r io r ity fe d e r a l
sp e n d in g p r o g r a m s, p lu s fe d e r a lly d e sig n e d p u b lic jo b c r e a tio n e x p lic itly to
c o v e r e m p lo y m e n t s h o r t f a lls — i s c lea r. T h e m a jo r t h r u s t i s to w a r d m o r e d o m in a ­
t io n o f t h e l i v e s o f A m e r ic a n f a m ilie s a n d b u s in e s s e s fr o m B ig B r o th e r in
W a s h in g to n .
T h e r e a r e o t h e r p o lit ic a l im p lic a tio n s o f S. 5 0 b e s id e s t h a t o f a W a sh in g to n d o m in a t e d p o w e r g ra b . S . 5 0 i s lo n g o n p r o m is e s a n d w is h f u l t h in k in g a n d
e x c e s s iv e ly v a g u e , i f n o t s ile n t, o n h o w t o g e t fr o m g o o d in te n t io n s t o r e a lis tic
p e r fo r m a n c e . C le a r ly , S. 5 0 p r o m ise s a jo b a s a m a tte r o f r ig h t t o aJI A m e r ic a n s
a b le a n d w i l l i n g t o w o rk , a n d s e e k in g w ork , a t f a i r w a g e s . C lea rly , S. 5 0
p le d g e s t o r e d u c e t h e u n e m p lo y m e n t r a t e t o th r e e p e r c e n t f o r a d u lt A m e r ic a n s
w it h in f o u r y e a r s- T h e s e , M r. C h a irm a n , a r e b ig p r o m ise s, in d eed .
B u t S . 5 0 ig n o r e s m a n y im p o r ta n t q u e s tio n s a b o u t h o w to g e t u n e m p lo y m e n t
t o t h r e e p e r c e n t f o r a d u lt A m erica n s. T h e y in c lu d e ( 1 ) w h a t i s a n a d u lt, ( 2 )
t h e P r e s id e n t ’s .m a n d a te d b u t u n d e sig n e d p la n , ( 3 ) i t s e v e n t u a l a p p r o v a l b y
C o n g r e s s, ( 4 ) t h e p o s t u r e o f t h e F e d e r a l R ese r v e , ( 5 ) t h e n a t u r e a n d p e r fo r m ­
a n c e s * p o lic ie s a n d p r o g r a m s n o t y e t d e s ig n e d b y t h e P r e s id e n t
I n s t e a d , o f p r o p o s in g w a y s to d e a l w ith p r o ty le m s o f u n e m p lo y m e n t, t h e b ill
g i v e s u s a la u n d r y l i s t o f p o s s ib le a r e a s of* W d w a y s t o d e a l w it h , u n e m p lo y ­
m e n t . B 50 th e n c a l l s o n t h e P re sid e n t t o c o m e u p w ith a c c e p ta b le s o lu tio n s
*
p r o m p tly u p o n p a s s a g e o f th e b ill. I t c o m e s d o s e t o o r d e r in g t h e P r e s id e n t to
e n d u n e m p lo y m e n t b y e x e c u t iv e o rd er, b y w a v in g a m a g ic w and* In d e e d , S. 5 0




p r o v id e s m e r e e m p ty s h e lls , s o lu t io n s i n n a m e o n ly , u n d e r w h ic h t h e P r e r fd e n t
a n d f u t u r e C ong r e s s e s a r e in s t r u c t e d w i t h t h e f o r c e o f l a w t o s o lv e
u n e m p lo y m e n t
T h e r e a r e s e r io u s p o lit ic a l im p lic a t io n s i n t h e a p p r o a c h o f S . 5 0 , O n e i s t h a t
t h e s y m b o lism o f t h e b ill a t t e m p t s t o p la c e t h o s e w h o o p p o se t h e le g is la t io n a s
b a d l a w i n t h e p o s it io n o f b e in g “a g a in s t f u l l e m p lo y m e n t” i f t h e y d a r e t o
o p p o se S . 5 0 a n d i t s g lo w in g la n g u a g e . T h i s a p p r o a c h , w h ic h i s a f a m ilia r
p o lit ic a l t a c t i c to t h o s e li v i n g in t h e W a s h in g t o n a r e n a d u r in g N e w D e a l, F a ir
D e a l a n d G r e a t S o c ie t y d a y s , m a k e s t h e p o lit ic a l p o w e r g r a b lo o k li k e a c t io n in
t h e p u b lic in te r e s t. M o r e a n d m o r e p e o p le a r e s e e in g th r o u g h su c h t a c tic s .
P e r h a p s t h e w o r s t p o lit ic a l im p lic a t io n o f S . 5 0 Is t o t h e P r e s id e n t h im s e lf
w h o w o u ld b e sa d d le d w i t h t h i s v a g u e , w is h f u l, o v e r - p r o m isin g le g is la t io n w e r e
i t t o p a ss . S . 5 0 p u t s so m e p u t a t iv e C h ie f E x e c u t iv e in t h e im p o s s ib le p o lit ic a l
p o s it io n o f h a v in g t o c o n c e iv e a s w e ll a s a d m in is te r sp e c ific p r o g r a m s. T h e b iU
i s s o f a r r e m o v e d fr o m t h e r e a lis t ic a n d c o m m o n s e n s e w is d o m o f t h e A m e r ic a n
p e o p le a s r e fle c te d in t h e ir p a s t h o p e s a n d a c c o m p lis h m e n ts t h a t p e r h a p s i t s
m o s t a w k w a r d p o lit ic a l im p lic a t io n i s t h a t i t e x is ts *
S. 50 WOULD BE AN ENGINE OF INFLATION

T h e C o m m itte e h a s a s k e d t h e N a t io n a l C h a m b e r t o t e s t i f y o n n o t o n ly t h e
p o lit ic a l b u t a ls o t h e e c o n o m ic im p lic a t io n s o f S . 5 0 .
A b o v e a ll, S. 5 0 w o u ld b e a g ig a n t ic e n g in e o f in fla tio n . T h e n e t e f fe c t o f S. 5 0
i s t o s e t a t h r e e p e r c e n t a d u lt u n e m p lo y m e n t t a r g e t t o b e r e a c h e d a n d s u s ­
t a in e d f o u r y e a r s a f t e r i t s e n a c tm e n t, b u t i t s e t s n o c o m p a r a b le specific o b je c ­
t i v e w it h r e g a r d t o in fla tio n . T h e e c o n o m ic im p lic a t io n o f s u c h a n u n b a la n c e d
t r e a t m e n t o f in fla tio n a n d u n e m p lo y m e n t i s t o c r e a t e a b ia s to w a r d in fla tio n .
A lso , S. 5 0 r e lie s o n c o u n te r c y c lic a l a n d s t r u c t u r a l p r o g r a m s y e t t o b e d e ­
sig n e d t h a t c r e a t e a n in fla t io n a r y b ia s. M u ch e x p e r ie n c e s h o w s t h a t su c h p ro ­
g r a m s a r e ill- tim ed , c o m in g t o o l a t e in r e c e s s io n s a n d c o n t in u in g to o lo n g in
r e c o v e r ie s. S. 5 0 w o u ld n o t e s c a p e su c h d iffic u ltie s b e c a u s e fo r e c a s tin g , a s sh o w n
b y t h e 1 9 7 4 - 7 5 e x p e r ie n c e , i s n o t a r e lia b le g u id e t o tim in g .
T h ir d , t h e b la n k c h e c k S. 5 0 g i v e s t o f e d e r a l g o v e r n m e n t e m p lo y m e n t o f l a s t
r e s o r t t h r o u g h c o u n te r c y c lic a l p r o g r a m s, w it h w a g e s s e t a t p r e v a ilin g r a t e s , h a s
p r o fo u n d in fla tio n a r y c o n se q u e n c e s. T h e b ill r e q u ir e s p a y m e n t o f p r e v a ilin g
w a g e s , d e fin e d w h e r e a p p lic a b le a s t h e h ig h e s t o f e it h e r t h e f e d e r a l m in im u m
w a g e , t h e s t a t e o r lo c a l m in im u m w a g e , t h e p r e v a ilin g w a g e in s t a t e o r lo c a l
g o v e r n m e n t, o r t h e p r e v a ilin g w a g e in c o n s tr u c tio n a s sp e c ifie d b y t h e D a v isB a c o n A ct.
T h e r e a s o n s f o r p r o fo u n d in fla t io n a r y im p lic a t io n s fr o m su c h p r o g r a m s a n d
su c h w a g e s a r e c le a r . F ir s t , t h e p r o g r a m w o u ld r e s u lt in c o st-p u sh p r e s s u r e s
fr o m t ig h t e n in g p r iv a t e la b o r m a r k e ts . B y m a k in g p u b lic jo b s a v a ila b le a t
a t t r a c t iv e w a g e s a s a m a tt e r o f r ig h t, t h e p r o g r a m w o u ld r e s u lt in w o r k e r s in
t h e p r iv a t e s e c to r p r e s s in g f o r h ig h e r w a g e g a in s o r t r a n s f e r r in g in t o g o v e r n ­
m e n t jo b s.
S eco n d , t h e p u b lic s e r v ic e e m p lo y m e n t p r o g r a m w o u ld v e r y lik e ly e v e n t u a te
in p o w e r f u l d em and -p u U p r e s su r e s . F in a n c in g t h e p r o g r a m , g iv e n t h e r e lu c ta n c e
in t h e U .S . t o r a is e t a x e s e n o u g h t o p a y t h e c o s ts , w o u ld v e r y lik e ly c o m e fr o m
in c r e a s e s i n t h e f e d e r a l d e fic it— a n d a t so m e p e r io d s v e r y b ig in c r e a s e s. S. 50,
t o r e p e a t, i s o n t h e o r d e r o f a b la n k c h e c k t o a u th o r iz e u n d e r so m e c ir c u m ­
s t a n c e s m illio n s o f fe d e r a lly - fin a n c e d jo b s a t a t t r a c t iv e w a g e s. T h e p ro g r a m
c o u ld c o s t a n y w h e r e b e tw e e n $ 2 4 b illio n a n d $ 4 8 b illio n a t c u r r e n t a v e r a g e p a y
sc a le s. W e d o n o t k n o w h o w m u c h c o s t o ffs e t m a y r e s u lt fr o m r e d u c e d t r a n s f e r
p a y m e n ts. B e c a u s e o f jo b d is p la c e m e n t o f p r iv a t e w o r k e r s to p u b lic jo b r o lls,
a n d fr o m s u b s tit u tio n o f t h e s e j o b s f o r e x is t i n g p u b lic jo b s p a y in g le s s , w e d o
n o t k n o w , e ith e r , h o w m a n y m illio n s o f j o b s m ig h t b e n e e d e d t o a c h ie v e th e
st a t e d e m p lo y m e n t ta r g e t.
T h e b ig g e s t in fla tio n a r y d a n g e r o f t h e b ill, h o w e v e r , i s t h e s t r a it j a c k e t it
a p p e a r s to p la c e a r o u n d t h e F e d e r a l R e s e r v e a n d t h e e x e r c is e o f b o th m o n e ta r y
a n d fis c a l p o lic y . S. 5 0 a b a n d o n s t h e u s e o f m o n e ta r y a n d fisc a l p o lic y to o ls t o
c o m b a t in fla tio n u n t il t h e u n e m p lo y m e n t r a t e d e s c e n d s t o t h r e e p ercen t. I t t h u s
a b a n d o n s t h e b a s ic t o o ls f o r m a n a g in g n a t io n a l a g g r e g a t e m o n e ta r y d e m a n d
m a n d a te d b y t h e E m p lo y m e n t A c t o f 1 9 4 6 a n d u se d -through ou t t h e w o r ld In
g o v e r n m e n ta l e ffo r ts t o lig h t b o th in fla tio n a n d u n e m p lo y m e n t. I n su b s titu tio n ,




223
S. 5 0 p r o p o se s s u b s t it u t e m e a s u r e s su c h a s : a c o m p r e h e n siv e in fo r m a tio n s y s ­
te m t o m o n ito r in fla tio n a r y t r e n d s ; p ro g r a m s t o e n c o u r a g e g r e a te r s u p p lie s o f
g o o d s, se r v ic e s , a n d p r o d u c tio n in p u t s ; e x p o r t lic e n s in g ; s to c k p ile r e s e r v e s o f
fo o d a n d c r it ic a l m a te r ia ls ; e n c o u r a g e m e n t t o m a n a g e m e n t a n d la b o r to r a is e
p r o d u c tiv ity th r o u g h v o lu n ta r y a c t i o n ; a n d p r o p o sa ls to in c r e a s e c o m p e titio n .
T h e s e p ro g ra m s, h o w e v e r m e r ito r io u s , a r e h a r d ly a s u b s tit u te fo r m o n e ta r y a n d
fisc a l p o lic y , la c k in g so m e e f fe c tiv e a lt e r n a tiv e m e a n s o f c o n s tr a in in g in fla tio n
c o n s is te n t w ith a f r e e e n te r p r is e so c ie ty .
S.
5 0 c la im s to e s ta b lis h th e r ig h t o f a ll a d u lt A m e r ic a n s a b le a n d w illin g to
w o rk , a n d s e e k in g w o rk , to o p p o r tu n itie s fo r u s e f u l j o b s a t f a i r w a g e s. T o b e
su re , t h e b ill w o u ld h a v e t h e n e w F u ll E m p lo y m e n t O ffice w it h in t h e L a b o r
D e p a r tm e n t d e v e lo p “r e s e r v o ir s ” o f f e d e r a lly o p e r a te d p u b lic e m p lo y m e n t
p r o j e c t s a n d p r iv a t e n on -p rofit e m p lo y m e n t p r o je c ts. T h e p a y w o u ld b e a t pre*
v a ilin g r a t e s f o r p e r s o n s e m p lo y e d in s im ila r p u b lic o c c u p a tio n s. P e o p le em ­
p lo y e d w o u ld d o w o r k “t h a t w o u ld n o t o t h e r w is e b e done.**
A g a in , t h e b ill ig n o r e s t h e q u e stio n a s to w h a t w o r k i s w o r th d o in g . C r e a tin g
a jo b in A m e r ic a n in d u s tr y r e q u ir e s on t h e a v e r a g e a c a p it a l in v e s tm e n t o f
$ 3 0 ,0 0 0 . T h e a u th o r s o f S. 5 0 d o n o t se e m to u n d e r s ta n d t h a t in t h e U .S ., h ig h
a v e r a g e r e a l in c o m e s d e p a id o n s t e a d ily in c r e a s in g p r o d u c tiv ity — w h ic h in
tu r n , d e p e n d s o n c o n s t a n t ly r e - str u c tu r in g t h e m ix o f j o b s in in d u s tr y b y r is k y
in v e s t m e n ts m a d e a g a in s t c o m p e tit iv e p r e s su r e s . I f a n y th in g i s o b v io u s in m od ­
ern in d u s t r ia l e c o n o m ie s, i t i s t h a t so m e j o b s a r e m o r e p r o d u c tiv e t h a n o th e rs.
T h is b ill s e e m s t o r e fle c t a c u r r e n tly p o p u la r p o litic a l id e a l— lo w e r e x p e c ta ­
tio n s , m a k e -w o rk jo b s, a n d le v e lin g w it h p eo p le. S. 5 0 o ffe r s a g o o d v e h ic le f o r
p h o n y , m a k e - w o rk job s. T h e b ill c le a r ly r e s t s on t h e ju d g m e n t t h a t a lm o s t a n y
jo b i s b e t te r t h a n u n e m p lo y m e n t. U n f o r tu n a t e ly , t h i s ju d g m e n t i s n o t sh a re d
b y a l a r g e n u m b e r o f j o b le s s p e o p le — p e o p le w h o tu r n d o w n jo b s t h a t w o u ld n e t
l e s s t h a n t h e y r e c e iv e in u n e m p lo y m e n t b en efits, o r j o b s t h a t a r e “b e lo w th e ir
d ig n it y / ' o r d ir ty , o r in c o n v e n ie n t to g e t to , a n d s o fo r th . W h ile t h e b ill i s b e in g
d e b a te d , th o u g h , t h e U .S . eco n o m y h a s c r e a te d a n e w h ig h f o r e m p lo y m e n t— 8 7
m illio n jo b s a s o f A p r il 1 9 7 6 . I t h a s c r e a te d 3 .3 m illio n j o b s s in c e M a rch 1 9 7 5 .
D r. S e y m o u r W o lfb e in , fo r m e r ly o f t h e B u r e a u o f L a b o r S ta t is t ic s , to ld
N a t io n ’s B u s in e s s l a s t m o n th t h a t , b e tw e e n t h e a i d o f W o r ld W a r I I a n d 1 9 7 5 ,
so m e 3 0 m illio n n o n -fa rm jo b s w e r e a d d e d t o t h e e c o n o m y — “t h e o v e r w h e lm in g
p r o p o r tio n o f t h e m in t h e p r iv a t e s e c to r d e s p it e t h e g r o w th o f p u b lic
e m p lo y m e n t."
W h e t h e r t h e j o b s S. 5 0 c r e a t e s a r e p h o n y o r n o t, to fin a n c e p r e v a ilin g w a g e s
in g o v e r n m e n t a n d n o n p ro fit p r o j e c t s w ill c o s t a la r g e c h u n k o f ta x e s . A t a n
a v e r a g e o f $ 1 2 ,0 0 0 p e r job, i t w o u ld c o s t $ 1 2 b illio n p e r o n e m illio n job s. T h e
b ill g i v e s u s n o w a y w h a t s o e v e r t o e s t im a t e i t s t o t a l c o s ts , s in c e i t ig n o r e s so
m a n y q u e s t io n s a b o u t t h e p r e v a ilin g w a g e f o r jo b s, n a tio n a l e c o n o m ic p la n s,
r e g io n a l a n d s t r u c t u r a l a n d y o u th e m p lo y m e n t p o lic y , g r a n t s p ro g ra m s, a n d t h e
lik e , n o t t o m e n tio n t h e c o s ts a d d e d by t h e r e s u ltin g in fla tio n . W ill t a x e s b e
r a is e d t o fin a n c e t h e s e jo b s, o r w i l l t h e d e fic it g r o w la r g e r ? S . 5 0 , a lo q u a c io u s
b ill, i s s t r a n g e ly s ile n t o n t h i s q u e stio n .
S p e n d in g f e d e r a l f u n d s to p a y s a la r ie s f o r o n e m illio n p u b lic s e r v ic e jo b s
w i l l n o t n e c e s s a r ily r e s u lt in a n e t in c r e a s e in e m p lo y m e n t o f o n e m illio n . E v e n
p r o p o n e n ts o f p u b lic s e r v ic e jo b s, su c h a s S a r L e v it a n o f G e o r g e W a sh i n g to n
U n iv e r s ity , a d m it t h a t so m e “d isp la cem en t** w i ll t a k e p la c e a s h a rd -p ressed
l o c a l g o v e r n m e n t o ffic ia ls s u b s t it u t e p u b lic s e r v ic e j o b s in t h e ir b u d g e ts fo r
e x i s t i n g a u th o r iz e d s lo ts, t o k e e p d o w n lo c a l g o v e r n m e n t c o s ts . “D isp la ce m en t**
a ls o c o m e s in t o p la y a s p r iv a t e s e c to r e m p lo y e e s m o v e in t o h ig h e r p a y in g p u b lic
s e r v ic e jo b s. S a la r ie s in t h e U .S . g o v e r n m e n t a v e r a g e h ig h e r t h a n in in d c str y
b e c a u s e t h e g o v e r n m e n t jo b m ix in c lu d e s m o r e w h it e c o lla r j o b s a n d f e w e r u n ­
s k ille d jo b s. A r o u n d se v e n m illio n w o r k e r s r e c e iv e l e s s t h a n t h e m in im u m w a g e
in s a la r y o r c o m m is sio n . G o v e r n m e n t jo b s a t t h e p r e v a ilin g g o v e r n m e n t r a t e
w i l l d r a w t h e s e lo w -p a id w o r k e r s fro m t h e p r iv a t e se c to r . F o r t h e s e t w o r e a ­
so n s , t h e r e f o r e , o n e m illio n p u b lic se r v ic e jo b s w il l n o t c a u s e a n e t em p lo y ­
m e n t i n c r e a s e o f o n e m illio n .
W o r k in g t a x p a y e r s in t h e so u th a n d s o u t h w e s t a v e r a g e l e s s p a y t h a n e ls e ­
w h e r e b u t s u ffe r le s s jo b le s s n e s s . A r r a n g in g f o r s o u th e r n a n d so u th w e s te r n
w o r k in g t a x p a y e r s t o p a y fo r g o v ern m en t-c rea te d j o b s a t h ig h e r p a y in o th e r
r e g io n s r e d is tr ib u t e s in c o m e fr o m lo w e r t o h ig h e r p a y re g ion s .




F u r th e r m o r e ^ t h e i n c m a e d t a x e s o r la r g e r d e f ic its t h a t w i l l b e r e g a in e d t o
fin a n c e H u m p h r e y - H a w k in s w iE d im in is h t h e f u n d s a v a ila b le f o r p r iv a t e i n ­
v e s tm e n t, th e r e b y r e d u c in g t h e n u m b e r o f j o b s t h a t w o u ld b e c r e a t e d b y b u si­
n e s s in t h e n o r m a l c o u r s e o f e v e n t s in a h e a lt h y eco n o m y .
T h e m a jo r t h r u s t o f S. 5 0 , t o w a r d n a t io n a l e c o n o m ic p la n n in g , p lu s m a n ­
d a te d p r io r ity f e d e r a l sp e n d in g p r o g r a m s, p lu s p u b lic jo b c r e a t io n e x p li c it l y t o
c o v e r e m p lo y m e n t s h o r t f a lls , r e p r e s e n t s a b a s ic e c o n o m ic m isc o n c e p tio n o f t h e
n a tu r e o f t h e c h r o n ic u n e m p lo y m e n t p r o b le m a n d t h e r e f o r e o f m u c h o f t o d a y ’s
a n d to m o r r o w ’s r e s id u a l u n e m p lo y m e n t. T h e b ill la r g e ly in c o r p o r a te s t h e c o n ­
v e n t io n a l K e y n e s ia n v ie w o f u n e m p lo y m e n t, d e s p it e i t s a u th o rs* c la im s t o t h e
c o n tr a r y , in t h e e n o r m o u s e x p a n s iv e p o t e n t ia l o f i t s m a in th r u s t.
T h a t c o n v e n t io n a l K e y n e s ia n v ie w i s t h a t t h e g r o w t h in t h e d e m a n d f o r
g o o d s a n d s e r v ic e s d o e s n o t k e e p p a c e w it h t h e r is e in o u tp u t p e r w o r k e r . C o m ­
p a n ie s t h e r e f o r e f a i l t o r e h ir e la id - o ff e m p lo y e e s a t a f a s t e n o u g h r a te . T h e
r e s u lt, in t h i s c o n v e n t io n a l v ie w , i s a p o o l o f p o t e n t ia l e m p lo y e e s w h o a r e u n ­
a b le t o fin d jo b s, u n le s s g o v e r n m e n t s p e n d s t o p r o v id e them< A q u ic k r e v ie w o f
f a c t s a b o u t t h e p r e s e n t e c o n o m y s h o w s w h y t h i s v ie w i s w ro n g .
T h e eco n o m ic r e c o v e r y u n d e r w a y f o r a y e a r a n d g a in in g m o m e n tu m i s w id e ly
fo r e c a s t t o g e n e r a t e g r o w th in r e a l G N P t h i s y e a r o f 6 .5 to 7 .0 p e r c e n t b u t to
b e a c c o m p a n ie d b y in fla tio n in c o n su m e r p r ic e s o f 5 .5 to 6 .0 p e r c e n t, m a y b e
m o re. T h e r e c o v e r y i s e x p e c te d t o c o n t in u e th r o u g h 1 9 7 7 a n d n o t t o “r u n o u t o f
s te a m ” in m id - 1 9 7 7 , b e c a u s e t h e r e i s n o w u n d e r w a y a c la s s ic c y c lic a l se q u e n c e
o f r o llin g u p w a r d m o m e n tu m m o v in g fr o m c o n su m e r sp e n d in g t h i s y e a r to
in v e s t m e n t sp e n d in g n e x t y e a r . E v e n so, t h e r e c o v e r y a n d a d v a n c e o f 1 9 7 6 - 7 7 i s
s t i l l lik e ly to l e a v e u s w it h b o th in fla tio n a n d u n e m p lo y m e n t t h a t a r e u n a ccep ta b ly h ig h . A s to in fla tio n , t h e r e i s so m e c o n c e r n o f a n a c c e le r a tio n o f p r ic e r is e s
in 1 9 7 7 .
C h a ir m a n A r th u r F . B u r n s o f t h e F e d e r a l R e s e r v e B o a r d l a s t w e e k e x p r e s s e d
co n cern , s a y in g “W e m a y h a v e t r o u b le o n t h e in fla t io n f r o n t in 1 9 7 7 .” H e a ls o
p o in te d o u t th a t , e x c lu s iv e o f e r r a t ic it e m s su c h a s f o o d s tu ffs a n d f u e l, w h o le ­
s a le a n d c o n su m e r p r ic e s g e n e r a lly h a v e b een r is in g f a ir l y s t e a d ily a t a n a n n u a l
r a t e o f s i x to se v e n p e r c e n t s in c e t h e m id d le o f l a s t y e a r .
T h e so - c a lle d ‘‘b u ilt- in ” in fla tio n in t h e e c o n o m y i s w id e ly e s tim a te d a t a
r a n g e o f fiv e t o se v e n p e r c e n t. S u c h a n in fla tio n r a t e i s to o h ig h . A le a d in g
w o r ld eco n o m y a n d g r e a t p o w e r su c h a s t h e U .S ., t h a t i s a ls o a c it a d e l o f d em o ­
c r a t ic c a p ita lis m in t h e w o rld , c a n n o t t o le r a t e a s n o r m a l a y e a r ly c o m p o u n d ed
s h r in k a g e in t h e p u r c h a s in g p o w e r o f i t s m o n e y o f s ix p e r c e n t f o r v e r y lo n g
w it h o u t tro u b le.
T h e g o o d - tim es u n e m p lo y m e n t r a t e i s lik e w is e u n a c c e p ta b ly h ig h . T o b e su r e ,
f o r e c a s te r s e x p e c t th a t, fr o m M a rch 1 9 7 5 to y ea r-en d o f 1 9 7 6 , t h e e c o n o m y w i l l
c r e a t e fo u r m illio n n e w jo b s, a n d e m p lo y m e n t is e x p e c te d t o g r o w 2 .5 t o 3 m il­
lio n in t h is y e a r a n d a g a in in 1 9 7 7 . S till, t h e u n e m p lo y m e n t r a t e i s e x p e c te d to
d ro p o n ly t o 7 .2 p e r c e n t t h i s y e a r a n d t o 6 .2 p e r c e n t in 1 9 7 7 .
T h e u n e m p lo y m e n t p ro b lem o f t h e p a s t 2 0 y e a r s , a n d m a y b e o f t h e n e x t 2 0
y e a r s u n le s s w e c h a n g e so m e o f o u r in s t itu t io n s , i s t h e h ig h r a t e in su c h g o o d
t im e s a s 1 9 7 7 i s e x p e c te d to be. T h e is s u e i s t o r e d u c e t h e p e r m a n e n t r a t e o f
u n em p lo y m en t, a n d i t c a n n o t b e d o n e b y e x p a n s iv e a g g r e g a t e d e m a n d a p ­
p ro a ch es, su ch a s a r e im p lie d b y t h e m a in t h r u s t o f S. 5 0 , w ith o u t a c c e le r a tin g
in fla tio n in g o o d tim e s.
T h e b a sic m isu n d e r sta n d in g o f S. 5 0 d o e s n o t o c c u r b e c a u se o f la c k o f a v a il ­
a b le e c o n o m ic a n a ly s is . I t m a y o c c u r p a r t ly b e c a u s e i t t a k e s tim e to r e a liz e t h e
n a tu r e o f t h e n e w u n e m p lo y m e n t. C e r ta in ly , t w o s t u d ie s p rep a red f o r a n d p u b ­
lis h e d b y t h e J o in t E c o n o m ic C o m m itte e it s e lf , in 1 9 7 3 a n d 1 9 7 4 , a lo n g w it h
m a n y o th e r su ch s t u d ie s n o w a v a ila b le , r e m a in k e y s t o a go o d u n d e r s ta n d in g o f
to d a y ’s t y p e o f e x c e s s j o b le s s n e s s t h a t o c c u r s e v e n d u r in g good tim e s.
O n e o f t h e s e s tu d ie s, “L o w e r in g t h e P e r m a n e n t R a t e o f U n e m p lo y m e n t,” by
M a rtin S. F e ld s te in a n d p u b lis h e d on S e p te m b e r 18, 1 9 7 3 in a p r in t o f t h e J o in t
E c o n o m ic C o m m itte e, h o ld s t h a t sp e c ific e m p lo y m e n t p o lic ie s — n o t n a tio n a l e c o ­
n o m ic p la n n in g , m a n d a te d p r io r ity f e d e r a l sp en d in g , or p u b lic s e r v ic e e m p lo y ­
m e n t e x p lic itly a im e d t o lo w e r t h e j o b le s s r a te — a r e n e e d e d to r e d u c e t h e p e r ­
m a n e n t u n e m p lo y m e n t ra te.
F e ld s t e in sh o w e d t h a t in 1 9 7 3 , w h e n t h e jo b le s s r a t e o f 4 .9 p e r c e n t w a s r e la ­
t iv e ly h ig h fo r t h e p o s tw a r p erio d , t h e d u r a tio n o f u n e m p lo y m e n t w a s q u ite
sh o rt. M o re th a n h a lf t h e u n e m p lo y e d w e r e o u t o f w o r k le s s th a n fiv e w e e k s




225
a n d f e w e r t h a n e ig h t p e r c e n t w e r e w it h o u t jo b s f o r a s lo n g a s 3 0 w e e k s. S econ d ,
jo b lo s s e s a c c o u n te d f o r le s s th a n h a lf o f t h e t o t a l u n em p lo y m en t, o n ly 3 9 p e r ­
cen t* T h ir d , t h e tu r n o v e r o f j o b s w a s e x tr e m e ly h ig h , m o r e th a n fo u r p e r c e n t o f
t h e la b o r f o r c e p e r m o n th f o r m ore t h a n a d e c a d e th r o u g h 1 9 7 3 . F in a lly , a n d
m o s t im p o r ta n t, m o st la y o f fs w e r e te m p o r a r y an d b rief.
I n o th e r w o rd s, F e ld s t e in sh o w e d t h a t in good t im e s t h e u n e m p lo y m e n t p rob ­
le m i s n o t o n e o f a p o o l o f p o te n t ia l e m p lo y e e s u n a b le t o find jobs. R a th e r , a
m o r e a c c u r a t e p ic t u r e i s o f a n a c t iv e la b o r m a r k e t w ith m u ch tu r n o v e r fro m r e ­
e n t r y a n d jo b - le a v in g a s w e ll a s jo b -lo ss t h a t i s m a in ly tem p o r a r y . F e ld s t e in
a n d o t h e r s t h e r e f o r e c o n c lu d e th a t, to lo w e r t h e p e r m a n e n t u n e m p lo y m e n t ra te ,
sp e c ific p o lic ie s a r e n eed ed . T h e s e sp e c ific p o lic ie s sh o u ld b e a d d r e sse d , first to
y o u n g w o r k e r s w h o h a v e a w e a k la b o r f o r c e a tta c h m e n t, w h o a ls o ta k e tim e to
fin d t h e fir s t jo b o u t o f sc h o o l, a n d w h o e v e n in go o d t im e s d o n o t s ta y w o r k in g
in a v a ila b le jo b s. T h e p o lic ie s sh o u ld b e a d d r e sse d , seco n d , to o u r u n e m p lo y m e n t
c o m p e n s a tio n sy s te m , n o w a so u r c e i t s e l f o f u n n e c e s s a r ily lo n g a v e r a g e d u r a ­
t io n s o f u n e m p lo y m e n t. T h e y sh o u ld b e a d d r e sse d , th ir d , to a d u lt d isc o u r a g e d
w o r k e r s n o t in t h e la b o r fo r c e a n d n o t c o u n te d a s u n em p lo y e d w h o su ffer fr o m
lo w s k i l l s o r a g e d is c r im in a tio n .
A se c o n d s tu d y p u b lis h e d D e c e m b e r 5, 1 9 7 4 b y t h e J o in t E c o n o m ic C o m m it­
t e e c o n c e r n s a f o u r th a s p e c t o f c u r r e n t u n e m p lo y m e n t, t h e r e la t io n o f in co m e
m a in t e n a n c e p o lic y t o jo b le ssn e s s. E n title d , “In c o m e S e c u r ity f o r A m e r ic a n s:
R e c o m m e n d a tio n s o f t h e P u b lic W e lf a r e S tu d y ,” i t i s a r e p o r t o f t h e S u b com ­
m it t e e on F is c a l P o lic y o f t h e J o in t E c o n o m ic C o m m itte e. I t s h o w s th a t, d e s p ite
a r e c e n t r e v o lu t io n in in c o m e m a in te n a n c e , ( in F .Y . 1 9 7 5 su c h sp e n d in g
a m o u n te d to $ 1 4 2 b illio n — m o re th a n t o ta l d e fe n s e e x p e n d it u r e s ) , th e r e is n o
w a y p r o v id e d f o r t h e s e p a y m e n t s to f u n c t io n a s a sy stem * A n d t h is stu d y a lso
s h o w s t h a t t h e c u r r e n t in c o m e s e c u r ity s y s te m r e d u c e s t h e in c e n t iv e o f sig n ifi­
c a n t n u m b e r s o f r e c ip ie n t s to w ork .
T h e r e a r e m a n y p o s s ib le a p p r o a c h e s t o t h e sp e c ific g r o u p s w h o s e u n e m p lo y ­
m e n t e v e n in g o o d t im e s c a u s e s th e p e r m a n e n t u n e m p lo y m e n t r a t e to b e h ig h e r
th a n i s a c c e p ta b le . T h e s e a p p r o a c h e s c o u ld in c lu d e f o r y o u th a tw o -tier m in i­
m u m w a g e , su b s id y v o u c h e r s a n d o th e r te m p o r a r y d e v ic e s to s tim u la t e y o u th
e m p lo y m e n t ; a n e w m a n d a te d sy s te m f o r m o r e p r o m p t p la c e m e n t o f g r a d u a te s
in f ir s t j o b s a n d r e m o v a l o f e x c e s s iv e le g a l b a r r ie r s t o so m e t y p e s o f teen -a g e
e m p lo y m e n t, a ll o f w h ic h m e r it stu d y .
F o r s o m e tim e , p r o p o s a ls h a v e b e e n d is c u s s e d f o r r e fo r m o f t h e u n em p lo y ­
m e n t c o m p e n s a tio n sy s te m , n o t o n ly to r e d u c e i t s d u r a tio n o f b en efits, b u t a ls o
to g i v e b o th e m p lo y e r s a n d e m p lo y e e s g r e a t e r fin a n c ia l in c e n t iv e s to resp o n d
to jo b la y o ffs , lo s s e s , o r tu r n o v e r in a n tic ip a t o r y w a y s .
D is c o u r a g e d w o r k e r s a n d w e lf a r e r e c ip ie n t s c o u ld b o th b e s ig n ific a n tly s tim u ­
l a t e d to t a k e jo b s b y a p p r o a c h e s t h a t a v o id w e lf a r e b e n e fits c lo s e to or g r e a te r
t h a n t a x a b e jo b in co m e, b u t a ls o a v o id m a r g in a l t a x r a te s , in c lu d in g lo s s o f
b e n e fits , o n e a r n e d in c o m e t h a t d is c o u r a g e w o rk . G o v e r n m e n t e m p lo y m e n t o f
l a s t r e s o r t a t l e s s t h a n m in im u m w a g e s c o m b in e d w it h s u p p le m e n ta r y w e lf a r e
b e n e fits h a s b e e n p r o p o se d by A r th u r B u r n s to a s s u r e t h e ir w o r k in g . T h e s e a ls o
w a r r a n t c o n s id e r a tio n .
T h i s i s n o t t h e a p p r o p r ia te o c c a sio n to d e b a te t h e m e r its o f p a r t ic u la r a p ­
p r o a c h e s t o t h e g e n u in e a n d im p o r ta n t e c o n o m ic c o n d itio n o f c h r o n ic a lly a n d
u n a c c e p ta b ly h ig h r a t e s o f u n e m p lo y m e n t in go o d t im e s in t h e U .S . I t h a s b een
a r g u e d w it h c o n s id e r a b le v a lid ity t h a t t h e p r o s p e c ts o f a h ig h p e r m a n e n t r a t e
o f u n e m p lo y m e n t a r e a t h r e a t to o u r e co n o m ic s y s te m se c o n d t o f e w is s u e s f a c ­
in g t h e n a tio n . T h e C h a m b e r ta k e s n o p o s it io n c o n c e r n in g w h e t h e r t h e u n em ­
p lo y m e n t r a t e c a n b e p e r m a n e n tly lo w e r e d t o t h r e e p e r c e n t, b u t t h e C h a m b e r
i s g e n u in e ly a n d v a lid ly co n cern ed a b o u t c h r o n ic a lly h ig h U .S . in fla tio n a n d
j o b le s s r a t e s in g o o d tim e s . T h e C h am b er d o e s n o te t h e v ie w o f N o b e l la u r e a t e
P a u l A . S a m u e ls o n o f M a s s a c h u s e tts I n s t it u t e o f T e c h n o lo g y , w h o in N e w s w e e k
(M a y 1 7 , 1 9 7 6 , p. 8 2 ) c a l ls t h r e e p e r c e n t “u n a tt a in a b le ”.
H o w e v e r , o n m a n y o c c a s io n s b e fo r e t h e C o n g r e ss t h e C h a m b e r h a s p u t f o r th
p o s i t i v e p r o p o s a ls t h a t w o u ld in f a c t im p r o v e t h e q u a lit y o f j o b s ; w o u ld in ­
c r e a s e b o th s a v i n g s a n d in v e s t m e n t to w a r d m o d e r n iz in g U .S . in d u s tr y , im p r o v ­
in g th e r e b y i t s c o m p e tit iv e n e s s a n d i t s o ffer o f jo b q u a lity a n d m o r e j o b s ; w o u ld
i n c r e a s e t h r o u g h c a r e e r e d u c a tio n p r o g r a m s t h e a t ta c h m e n t o f y o u n g w o r k e r s
t o t h e la b o r fo r c e , s t r e n g t h e n t h e t ie s b e tw e e n e d u c a tio n a n d w o r k , a n d r e d u c e
t h e d u r a tio n o f e n t r y - le v e l u n e m p lo y m e n t; w o u ld im p r o v e u n e m p lo y m e n t c o m ­
p e n s a t io n ; a n d w o u ld s tr e n g th e n t h e t r a inin g Id c w b t m o f d is c o u r a g e d w ork -




226
era The Chamber is prepared to offer many specific positive proposals that
could form the basis of realistic and effective productive employment oppor­
tunities legislation. And we hope soon to propose specific and positive reform
of the nation’s income maintenance system.
JUBI8DICTI0NAL ISSUES

We appreciate the legitimate concern of the Senate Banking Committee in
this broad ranging legislation which goes far beyond the purview of the Senate
Labor and Public Welfare Committee. Our concerns about jurisdictional prob­
lems have been expressed in the attached letter to Speaker Carl Albert of the
House of Representatives. In that letter we specify section by section how pro­
visions of the bill fall within the jurisdiction of numerous standing committees
of the House. The same problem exists in the Senate, and deserves full con­
sideration by both the majority and minority leadership, as well as by the
chairman of the affected committees.
RECOMMENDATION

The Chamber strongly supports realistic efforts to achieve a permanent low­
ering of the unemployment rate, consistent with sustainable economic growth
and price stability, and with the current nature of residual unemployment dur­
ing good times. For this reason, the Chamber urges this Committee to table the
ill-conceived, misleading, inflationary, and bureaucracy-creating “Full Employ­
ment and Balanced Growth Act of 1976,** S. 50, and then proceed to deal
realistically with whatever unemployment persists during the current eco­
nomic recovery and expected expansion in 1976 and 1977.

T h e C h a ir m a n . O u r fin a l witness is D r. K eyserling .

STATEMENT OF LEON H. KEYSERLING
M r. K e y s e r lin g . M r. C hairm an and members o f the com m ittee, I
have a statem ent w hich I th in k I have shortened to 10 o r 15 m in ­
utes and I m ay shorten it fu rth e r as I go along.
T h e C h a ir m a n . A ll rig h t, sir. T h e e n tire statem ent w ill be p rin te d
in fu ll in the record. Y o u have some very h e lp fu l charts fo r w hich
we are g ra te fu l.
M r. K e y s e r lin g . I o ffer fo r the record m y prepared testim ony
and w ill sum m arize i t now.
I t deals w ith th e p en etratin g issues raised by C h airm an P ro x m ire
and others. These issues a re: Does in fla tio n increase w ith fu ll em­
ploym ent? Does fu ll em ploym ent accelerate in fla tio n fu rth e r and
thus b rin g on another recession? Is S. 50 defective on the ground
th a t it doesn’t deal adequately w ith in flatio n ?
Perhaps looking a t these issues fro m a d ifferen t perspective m ay
be h e lp fu l and p rovide w id e r areas o f agreem ent.
F irs t o f a ll, i t is desirable to distinguish between end purposes
and means. T h e firs t end purpose o f our economic system is to m ain ­
ta in the fu ll use o f our gro w in g capabilities. T h e costs o f not doing
so, 1953-1975, have been stupendous, (See charts 1 & 2 o f m y p re­
pared testim ony. T h e cost o f n o t doing so in the fu tu re could even
be greater, (see c h a rt 12 m y prepared testim ony.) The second end
purpose o f the system is to m ake sure th a t th e fu ll use o f our re ­
sources pays atten tio n to p rio rity needs. A th ird end purpose is
equity and economic justice.
P rice movements are not end purposes but means tow ard achieving
them . Thus, prices are com parable to wages, profits, investm ent, con­
sumer buying pow er, fiscal and m onetary policy and the en tire range




227
o f p riv a te and pu b lic economic policies, which im pede o r im p a ir
these end purposes.
T h e best em p iric al evidence th a t price movements alone are only
p a rt o f the p ic tu re was the G reat Depression which occurred a fte r
a rem arkable record o f stable level o f prices between 1922 and 1929.
I ’m try in g here to ta lk about how business cycles occurred because I
th in k th a t th is analysis is essential to the curren t b ill. D espite price
s ta b ility , g ro w th in p ro d u ctivity and the increase in our a b ility to
produce grew so much more ra p id ly than u ltim ate dem and th a t the
G re a t C rash occurred, and earlier depressions and the recessions com­
m encing in 1953 and 1957 w ere also preceded by m oderate price
trends. See ch art 4 in m y prepared statem ent. The very slig h t re­
cession o f 1969-70, although preceded by grow ing price in flatio n , was
due to o th er causes as I shall show.
S u b stan tial re a l economic grow th d u rin g 1970-1973 was accom­
p an ied by a sharp decline in prices d u rin g the firs t 2 years and a
sharp advance in the th ird . D u rin g the extrem ely serious recession
o f 1973-1974, the in fla tio n rate averaged only 4 y2 percent in the 2
preceding years, w h ile it rose to 11 percent in the first year o f
the recission and 9.1 in the second. See chart 7 in m y prepared
testim ony.
I f th e g ro w th o f our productive capabilities runs ahead o f u lti­
m ate dem and, we get stagnation and then recession. I f u ltim a te de­
m and exceeds o u r fu ll productive capacity we get classic in flatio n . I t
is m aladjustm ents in resource allocation, not in fla tio n a ry prices re­
s u ltin g fro m m aladjustm ents in income flows because income p ro ­
vides b o th th e means and incentives to such allocation and resource
use, th a t have brought on the recissions and depressions. See, fo r
exam ple, c h art 3 in m y prepared testim ony. Thus, the G overnm ent
m akes its larg est contribution to iro n in g out the business cycle by
.using those o f its policies which influence income flow — and a ll
o f its im p o rta n t income policies do this and n o th in g more— in
w eig h in g w hich contribute o r d etract fro m the e q u ilib riu m o r b a l­
ance o f incomes in the economy a t larg e. T h is is the h eart o f the
p roblem o f iro n in g out the business cycle.
Such policies m ust be guided by a n atio n al incomes policy and I
have to ap p lau d C h airm an P ro xm ire fo r his stress upon a n atio n al
incomes p o licy. T h is goes fa r beyond public price-w age policies p er
se as I shall show. T h e K eynesian economics in recent years, w ith o u t
a n a tio n a l incomes policy has paid little atten tio n to the central
problem o f eq u ilib riu m o r balance, see again m y c h a rt 3. I t has
not o n ly neglected the appropriate stru ctu ral relationships among
allocations o f production, resources, and incomes, b u t also treated
th e problem o f jobs in the aggregate instead o f p ayin g due atten ­
tio n to s tru c tu ra l problem s.
#
v
^
N o w le t me state w h y natio n al incomes policy is th e v e ry h eart o f
S . 50, alth o u g h I have no p rid e in languages and w ould c e rtain ly be
g la d to h elp i f it could be developed m ore fu lly .
Section 104 provides th a t in developing the goals fo r fu ll em ploy­
m en t, p ro d u ctio n , and purchasing power and o th er essential p rio rity
purposes, “th e P resident shall take in to account the level and com­
p o sitio n o f each fa c to r needed to m ain tain economic balance and




228
full resources use and to meet priority needs,” Such a policy also
is called for in the language calling for “equitable distribution of
purchasing power” and also in the section on incomes supports. In
other words, the President would have to make what I call a national
economic budget. I used to call it a national prosperity budget. In
S. 50, it is called a balanced growth plan.
In making the goals, we do not just say we’ve got to get to an
x billion GNP by x years, which is meaningless. We must work
out the structural kinds of balance among investment and consump­
tion and public outlays, and the labor force structure, needed to
reach the goal. Then, we wouldn’t dictate to private industry what
to do, but all the Government policies must be brought together
in bringing about, to the extent that the Government policies can,
correction of the maladjustments that have been brought about by
doing everything piecemeal and at random, and frequently errone­
ously.
In addition, such a national incomes policy directed toward iron­
ing out the business cycle through improved equilibrium or balance
would be the most effective and powerful weapon against hurtful or
inflationary price movements.
Abundant evidence of this is in the facts which reveal that re­
duced idleness of workers and other productive resources has brought
more price inflation, and vice versa. Mr. Chairman, I’m not going
through that evidence. I have done it so many times before. But as
to some economists who come before your committee and cite what
they learned about the theory of inflation by reading the example on
the apple selling and the apple buying in the textbooks written 40
years ago, I have for 20 years asked them to do only one thing, to
look instead of at the clear empirical evidence, instead of attempting
to explain modern inflation in a manner which reminds me of “where
do you com from, baby dear, out of the nowhere into the here?”—
e
where does the idea com from, that 3-percent unemployment means
e
15-percent price inflation? Where does it come from that it means 10percent price inflation ? Where does the whole “trade-off” notion come
from?
I was vice chairman of the Council of Economic Advisers from
1946 forward, and chairman during the Korean War, and we had
price and wage controls during the Korean war, but that is not the
main reason we had the best record from 1947 to date in combining
full employment and unparelleled real economic growth with an
amazing degree of average price stability. The main reason was be­
cause we drew on the great new secret weapon of America, full pro­
duction, full employment, economic balance, selective and structural
m
easures with respect to the shape of the labor force, and structural
and selective measures to combine the increase in som lines of pro­
e
duction with the decrease in effort of others. That’s the name of the
ballgame.
Now I have reviewed some of the other evidence as to the alleged
“trade-off”. The evidence since 1969 doesn’t even need to be repeated.
We all know we have had the greatest inflation since the Civil War,
the greatest unemployment since World War II. But some said this
was due to “unique factors”. You can “x” out those factors. We still



229
had an underlying rate of inflation of percent concomitant with
high and rising unemployment. We still had the rate of inflation
growing as unemployment rose, even before these special factors ap­
peared. If you “x” out the disappearance of those factors in the last
year or so, the improvement in unemployment combined with a
lower rate of inflation is another indication of the upsride-dow
n
nature of the trade-off theory.
I have covered all the other periods in between, in my prepared
testimony. They all show the same thing, and I have two charts on
it and I’m going to skip repetition here. The only period that is
cited to the contrary is the period from 1969 to 1973, when we had a
high rate of growth, som slight further reduction in unemployment,
e
and a high and rising inflation. That wasn’t due to the reduction of
unemployment from 3.8 to 3.5. That was due because, unlike what
we did in the Korean war, nobody had the guts to raise taxes as w
e
should have done when we got into a big war and when the war out­
lays accelerated as much as they did. And taxes could have been
raised without creating unemployment. We raised taxes sky high
during the Korean war, -but since we melded in pro-gram for equili­
s
brium and balance it didn’t interfere getting employment down to
2.9 percent and inflation down to 0.8 percent. So much for the whole
thing on the price unemployment ratio—see charts 4 and 5 in my
prepared testimony.
I don’t mind counting economists’ noses. I respect them. I wish I
had more than one nose, but I’m not going to count anybody’s nose
on what is happening. I’m goin^ to look at the empirical evidence
and see what it says and then I’m going to challenge the noses to
bring in some other evidence.
As to the experience in other countries. Very briefly, they have had
a much lower rate of unemployment than w have had. They have
e
had a much higher rate of economic growth. It is true that som of
e
them had more inflation because they have made a conscious decision
that on balance what you get out of an economy and what you enjoy
is really determined precisely by what you produce and distribute,
so they have decided to make the adjustments in other wavs for the
inflation and get the benefits of the higher growth and higher em­
ployment. But the only thing that’s relevant to the “trade-off” is this,
that every one of those countries, as they fell into the almost uni­
versal dogma of trying to fight inflation by contrived increases in
unemployment, every one of them suffered an acceleration of infla­
tion as they reduced the unemployment to try to stop the inflation,
just as we, and I can provide all the facts on that if the committee
is interested.
I now turn to other respects in which S. 50, quite apart from the
designated anti-inflation section provisions, which I think are strong
and useful but not enough, contains however full specifics to restrain
inflation* S. 50 accents priorities, programs planned on a long-range
basis to overcome shortages in crucial areas in the economy and
short-range policies to break bottlenecks sa d overcome the shortages
n
where they exist; Thev vould becom part of the balanced growth
e
plan. And I can show that one of the very reasons why a slack econ­
omy is more inflationary is that these shortages* through neglect of



290
planning for abandonee in these specific areas, has created more in­
flation than the theoretical pressure of employment upon prices.
Half of the inflation of the last 2 years has come from neglect of
the shortage problem, and the planning under S. 50 would stop that,
I have a lot of other citations, in my prepared testimony, of specific
provisions of the bill which «re anti-inflationary. I will skip over
those here today.
I believe the provisions for consultation with business and man­
agement are extremely important because I do believe we should
reject lines of voluntarism. I have seen how the management and
labor conference have fallen down because they all come and express
their special viewpoints and fight with each other. Not so if they had
before them a full employment and balanced growth plan as a guide­
line, and were thinking in terms of this so we could substitute the
things which hold us together for the things that divide us. Vm sorry
I can’t go over all the examples of that.
I now com to the wage problems that relate to full performance
e
and the problem of inflation itself. The empirical evidence—and I’m
trying to do a little planning here—I’m trying to discuss the general
wage problem before we gSb to the wage problems created by the
segmental programs in this bill, because they have got to be viewed in
relationship to each other to decide on balance how you choose
among various objectives as to wage policy.
The empirical evidence is this: When the economy is moving to­
ward or gets close to full resource use, real wage rate gains lag far
behind productivity gains, and thus tend to produce capital forma­
tion and investment running ahead of ultimate demand, with conse­
quent stagnation and recession. The Wall Street Journal had a big
article on this last year. It is only when recession and stagnation re­
duce productivity gains to zero or below that real wage rate gains
sometimes run in advance of productivity gains. See charts 6 and 10
in my prepared testimony.
One of the biggest problems of the U.S. economy is to bring the
real growth rate in wage rates and other consumer incomes into lines
for requirements for a full economy. All I’m saying here is this:
weighing the competing objectives of trying to achieve equitable pur­
pose of having the wages of two people who are doing the same kind
of work paid the same, no matter whom they work for, and the real
concern that this is in some way inflationary as applied to public
service jobs, we should not be hesitant about increasing wages be­
cause that is good for the American economy in the current and forseeable situation.
Besides, the number of public service jobs can’t possibly have any
appreciable inflationary effects, in that public service iobs would not
be more than iy2 million at most out of a net job addition of 10-12
million by 1980 and total jobs well in excess of 100 million. See
chart 11 in my prepared testimony. There is nothing in experience
to indicate that well designed public employment is less productive
than private employment. Employment is always more productive
than nonemployment, whether private or public. Under S. 50, we
would improve mass transportation, increase energy and housing
supply, health services, nurses, technicians, paraprofessionals, which



231
are more beneficial to the Nation than more cigarette production or
more automobiles or more casinos or luxury hotels entirely regard­
less of which registers the highest productivity gains by conventional
tests. I stress this because one of the things most overlooked in this
bill is that most of the nonconventional private jobs enlarged under
S. 50 would meet the needs we have been talking about for a great
national purpose. That is what most of the Government-aided jobs
under S. 50 would be.
Despite the strong programs in S. 50, the real concern should be
whether we can achieve ftill employment by the end of 1980, rather
than whether employment may become excessive. My goodness, my
great fear is if we do our best, we still may not reach the goal by
1980 and we still may have too much unemployment. That’s the real
problem.
Now I analyze the cost. I arrive at a higher cost figure than CBO,
and 1 1 tell you why. The CBO estimate relates only my cost of 2-3
1
million public jobs, but S. 50 isn’t just nor even mainly for public
jobs. What about the marginal Federal aid for the structural pro­
grams, the countercyclical programs, the Federal aid to States and
local governments, the priority programs? I have taken them all
into account, and I have taken into account all the other programs
that you have to cover in the Federal budget, from national defense
interest payments, all the way across the board. In other words,
I have estimated what the President might do and the Congress
would look at, as part of a full employment and balanced growth
plan. When I do that, I find, first, we’d have about 725 billion more
GNP, measured in fiscal 1977 dollars, than what we would have
under the most optimistic projections of where we would be with
current policies and programs assuming a 4 percent real economic
growth rate, during the 4 years 1977 to 1980 inclusive. At 20 j>erment, that yields about $145 billion more Federal revenues during
the 4 years, or an average of about $36 billion more a year* As
against this, the incremental Federal budget cost as I estimate it—I
say incremental because the budget is going to grow anyway. The
budget isn*t going to be in 1980 where it is now, even without S. 50,
so I project what is called the current policy budget the same way
the CBO does—comes to only about $29 billion in an annual average
1976 to 1980, as against the incremental GNP of about 181 billion a
year and the incremental Federal revenues of about 36 billion a year
under S. 50. Moreover, the difference between incremental Federal
revenue and incremental Federal receipts under S. 50 would rise
to about 13 billion in the fourth year, so S. 50 would bring about
much more fast reduction of the Federal deficit and a much quicker
approximation to a balanced budget, and all of this is conventional
analysis. All of my figures on budget ©
ofits under S. 50 are net, allow­
ing conservatively for savings under S 50 due to lower unemploy­
.^
ment insurance and welfare costs, lower interest rates on the national
debt, etc. See chart 12 in my prepared testimony.

Now, the CBO method arrives at an awrop annual net Fedexal
budget cost of only about 17 billion under S. 50. If you take the CBO
figure, it’s a much smaller part of the 36 billion incremental average
annual Federal revenues, and less than one-tenth of average annual




282
incremental GNP. But the CBO net cost figure is too high, if one
accepts their approach. They assume that we would have 5.2 percent
unemployment in 1890 without the public jobs. This is a projection
under current policies and programs. In other words, CBO assum
e©
that the whole job accomplishment under S. 50 be in the public jobs
and that nothing would occur under S. 50 toward the stimulation of
private employment. Secondly, CBO assumes a displacement rate
of 40 to 60 percent, i.e., saying that when they use the offsets of the
taxes collected from the 2-3 million public jobs that it’s only going
to have a 40 to 60 percent value because there will be 40 to 60 per­
cent displacement from private jobs. There never has been in the
past, and there could never be under S. 50. First, the bill states ex­
plicitly that you can’t hire anybody who has a private job or who
refuses to take one. Second, because we thought about this, the bill
states categorically that nobody shall be hired on the public service
job where it involves any displacement of a private job. The Secre­
tary of Labor can’t take anybody on a public job if it involves dis­
placement. It’s in the bill.
Now, as to the direct controls. I ’m not going to argue about the
matter of direct controls, because I have stated that since no evidence
has been presented except out of the baby blue* that moving toward
fuller employment is more inflationary, 1 don’t believe as a tactical
matter that the great purpose of achieving fu ll employment should
be weighted down with direct controls. That would also enable people
against the b ill anyway to say that, see here, we knew you were
just trying to straitjacket the economy. And if the idea was correct,
as is avowed by the proponents of the controls, that you would need
the direct controls not only while you’re getting to fu ll employment
but even more after you are there, we would be committing ourselves
to the direct controls permanently.
I’m against that for every reason related to the nature and struc­
ture of the American economy, I do not believe in the capacities of
the Government to decide everything for business and industry. But
let me say this, if the Congress or this committee in its better judg­
ment wants to go for the direct controls, I will help in any way that
I can in trying to work something out.
My final point has to do with the establishment of a precise quan­
titative goal for consumer prices. Let me say, as to everything that I
say on this particular issue, that Prof. Ken Galbraith, with whom I
talked after his testimony at these hearings, authorized me to state
that he’s completely and absolutely in agreement with me that a
quantitative goal for consumer prices would be in S. 50 would be un­
workable. Here are the reasons why. There’s a fundamental differ­
ence between a quantitative goal for unemploymnt in S. 50 and a
quantitative goal for consumer prices in S. 50 The unemployment
figure relates to human and social values as well as economic, that’s
why I think it should be decided by the Congress as a matter of na­
tional policy and not by Alan Greenspan or Leon Keyserling.
Further, 2 or 3 percent unemployment is always preferable to 4 or 5.
But when you get into the matter of trying to figure out whether the
standard for consumer price inflation should be 2. 3, 4, or 1 percent,
it depends on time and circumstances. A stable price level before the



233
Great Depression, as I have stated, did not prevent the depression.
Even assuming the direct controls, precise and auantitative price
standards involving many interacting processes or a very complex
nature, need to be developed and applied by an administrative
agency. In addition, you can’t control consumer prices without con­
trolling industrial prices. If you have a 2 percent or a 3 percent or
whatever standard legislation on consumer prices, you need it on
industrial prices. You need it on wages. And by the same token, you
ought to have it on the size of the growth of the money supply, the
size of tax reductions or tax increases, the size of increases or de­
creases in the Federal budget, because they are all composite means,
as I said at the beginning, to be brought into balance in the achieve­
ment of your basic purpose of full resource use, equity, and prior­
ities.
So I think when and if direct controls are legislated, and Galbraith
agrees, if and when this is done, then you have to have a controls
program related to prices and wages, permanent, standby, or selec­
tive, and assign to the President through an administrative agency
the problem of handling the whole complex of all kinds of prices.
What are you going to do about farm prices if you have a quantita­
tive legislative lid on consumer prices? They don’t necessarily need
to move the same way as consumer prices, but there’s a relationship
between the two.
So that’s the final point I really want to make and I appreciate
your attention.
[Complete statement follows:]
T estimony

of

L eon H. K eyserling 1

Mr. Chairman and Members of the Committee: To save time and money, I
shall not repeat nor ask to have inserted in the record my extensive testimony
on S. 50 before the Subcommittee o f the Senate Committee on Labor and Pub­
lic Welfare. I am supplying copies o f that testimony to the members and the
staff o f this committee, as amplification and documentation o f what I shall say
much more briefly here.
But what I sail say here is not merely a summary o f that earlier testimony,
t think I can be more helpful by attempting a response to the penetrating ques­
tions which have been raised by Chairman Proxmire and other committee
member*, and also by various witnesses. I submit my prepared statement on
this, with accompanying charts, be inserted in the record. For those among
the committee and staff who do not have the superhuman endurance to study
my earlier testimony and charts, I urge that they look over this new statement and accmpanying charts. These, I submit, contain the guts of the matter.
But today, I shall attempt in my remarks to shorten considerably even this
new prepared statement.
NEED FOB RESTATEMENT OF THE PROBLEM, AND FOB ElCFKBtCAL EVIDENCE

The questions and discussions thus far have converged upon these proposi­
tions: that full employment and price stability are roughly equivalent goals;
that inflation augments as we get closer to full employment, and that this is
an evil itself and also makes it harder for us to achieve full employment; and
that even i f fu n employment is achieved, this causes inflation to accelerate
still more, which is an evil in itself and also carries us from full employment
to another recession. The conclusion derived from these propositions is that
the first and most important step to t e taken toward achieving and maintaining fu ll employment is to restrain inflation, and that thia restraint is a
* Chairman* Council of Economic Advisers under Prertdeat Trm aa. Ff«ildi«t, Confer­
ence on Economic Pro




grem.

234
prime objective o f national economic policy In any event This Is accompanied
by the assertion that S. SO does not contain a satisfactory anti-inflation program and is therefore inflationary.
Instead o f attempting a direct refutation o f these propositions and con­
clusions, which would get me into unpleasant and divisive arguments with
others whom I respect, and which might further prejudice the agreements es­
sential to enactment o f S. 60, I prefer to suggest that a restatement o f the
above propositions may further simplify and clarify the entire discussion, and
that we look more closely at the empirical evidence instead o f focusing upon
theoretical abstractions. This may help to promote some improvements in S,
50 itself. It may thus enlarge the prospects for the enactment o f a measure
well-designed to achieve the unchallengable and huge benefits o f a sustained
full economy and the avoidance o f hurtful price movements. I hope and be­
lieve that this restatement o f the analysis, fortified by empirical evidence,
wiU encourage a larger degree o f sound agreement among the members of
this Committee and my economist friends as well.
ESSENTIAL DISTINCTION BETWEEN ULTIMATE ENDS OB PURPOSES AND MEANS

My first point is that we move in the wrong direction, both analyticaUy and
empirically, i f we start by assuming that a fu ll economy and price movements
are equivalent objectives on the same level. The first basic purpose of our
economic system, under free institutions and flexible policies, is to maintain
the full use o f our growing resources. The real costs o f not doing so, during
more than two decades, have been stupendous. * And looking ahead, the fur­
ther increases in living standards which a majority of our people need and
want, the size of unmet priority needs both private and pubUc, and our inter­
national burdens even at a minimum, are far in excess o f our current per­
formance, and even of our current capabilities. The first objective of economic
poUcy must therefore be, not only to attain and then maintain full use o f our
productive resources, but to expand this from year to year through improve­
ments in technology, science, inventiveness, managerial and labor skills, and
pubUc poUcy. The second prime objective o f our economic system is to make
sure that the full use of our resources pays due attention to the priorities o<
our needs, lest we accent the superfluous at the expense o f the essential. This
remains a basic problem because, great and expandable though our capabili­
ties are, we cannot do everything at once. The third great purpose o f our eco­
nomic system is to combine economic progress with an increasing measure
of equity and economic justice. As I shall show, I do not think that these
two objectives are incompatible because, under the conditions of the Amer­
ican economy, optimum economic progress depends upon improved distribution
of both product and income.
Price movements, unlike the foregoing, are not ultimate objectives in them­
selves. The general direction o f price movements, as well as their relation­
ship, are means toward the ultimate objectives and cannot be evaluated ex­
cept in terms of them. Being means rather than ends, prices in this respect
are not comparable to full use o f our resources, but rather comparable to
other means toward this attainment. This includes not only prices, but also
wages, profits, investments, consumer buying power, government outlays and
taxation, monetary policy, and the entire range o f private and pubUc economic
policies which impede or advance the three basic or ultimate objectives set
forth above. I f we focus upon price objectives as the means and forget or un­
derstress the other means, the result will be both forfeiture o f the end ob­
jectives and failure on the price front itself. Experience demonstrates this.
In addition, when we have full use of our resources, and sound and equit­
able distribution, we are enjoying all that we can for the time being. Such
conditions import that the necessary relationships among prices and other
means are being maintained and, as I shaU demonstrate, this may happen or
not happen under a rising or falling or stable price level. Contrariwise, when
we have huge idleness o f workers and other productive resources o f a given
size the losses are terrific whatever the price trends may be. As Paul Sam­
uelson and others have observed, when we count those who have suffered
so much in recent years, the basic reason is not in price inflation per se, but
•See my Charts 1 and 2.




235
rather that the real production and distribution of goods and services has
fallen so far short.
This does not mean that price trends are not important, and I shall come
to that. But it does mean that proper attention to the price problem must
start with a comprehensive examination of why we have really failed to
achieve, much less to attain, full resource use. To ascribe this entirely to
price trends is clearly defective and misleading.
THE CORE PROBLEM OF ECONOMIC BALANCE OB EQUILIBRIUM :
FAILURE OF THE KEYNESIAN APPROACH

Viewing the empirical evidence, it is my basic finding, with which I believe
most economists would agree when the problem is stated this way, that our
economic shortfalls have resulted from lack of attention, in public policy and
otherwise, to the problem of balance in the economy. If the private invest­
ment which is a prime factor in the growth of our productive capabilities
is maintained in balance with ultimate demand in the form of consumer ex­
penditures plus public outlays, we will achieve and then maintain full re­
source use. I f the growth in our production capabilities runs far ahead of
ultimate demand, we get stagnation and then absolute downturn. I f ultimate
demand exceeds our full production capabilities, we get classic inflation. The
empirical evidence indicates that, during the past two decades or longer, the
stagnations and recessions have come because o f inadequate ultimate de­
mand rather than inadequate capital formation, although o f course the in­
adequate ultimate demand has produced sharp contractions in capital forma­
tion which have aggravated the downturns and impeded the recovery.
These disequilibriums in resource allocations and use have resulted in the
main from inappropriate income distribution. By this, I do not advocate
equalization o f income, which I oppose on many obvious grounds. But I do
mean a distribution o f income better adjusted to the needed equilibrium, and
also better adjusted to the service o f priority needs and equitable considera­
tions. This inappropriate distribution has been abetted not only by private
policies but also by public policies in taxation, public outlays, monetary ac­
tions, and most other national policies affecting the economy, including the
use o f price and wage controls when applied.*
The attempted application of the Keynesian economics in unadulterated
form has paid little or no attention to this central problem of equilibrium
on balance. It has at times poured more money into the economy, largely at
the wrong points, and at other times reduced purchasing power, largely at
the wrong points, both contributing to the disequilibrium in the long-run. It
haa not only neglected the appropriate relationship in the distribution o f
production, resources, and income, but also treated the problem of jobs in
the aggregate instead o f paying due attention to structural policies. In short,
aggregative or general approaches alone have been proved glaringly in­
adequate to achieve or maintain full employment.
Manifestly, price stability alone, or price movements alone no matter
what their direction, cannot be relied upon alone nor even mainly to solve
this equilibrium and distribution problem. The best empirical evidence of
this was the advent o f the Great Depression, which occurred after a remark­
able record o f price stability between 1922 and 1929, except for falling farm
prices. Despite the fact o f price stability, productivity and the increase in
our ability to produce grew so much more rapidly than ultimate demand that
the Great Crash followed. This is demonstrated in great books by Paul H.
Douglas and by Professor Galbraith himself. This was also true o f still earlier
depressions. It is also true that the recessions commencing in 1963 and 1957
were both preceded by only moderate price changes for a number o f years.
"These disequilibriums and lmballances are illustrated on my Chart 3. The chart sihows
how, daring the “boom” or upturn periods, and the imbalances bttw m
ZnS
ultimate demand, supported by imbalances between^ corp ^ te proftts and wa*» and
salaries, led into the periods of stagnation and recession,
latter penoda^oie
adverse tr*n*« In investment and promts hare nsually ^ n t ^ mort extrwae, due to tbrtr
m ater volatility. (But not as to profits as against waves and salaries 4tn Q.
<.
|
1975, and this Is especially forebodinjr.) ^ o u s l y , t ^
more than price trends alone. They stem fromia miiHipliclty of ponog and ptotxmm,
U* .ndmoneUry poth-te*. la fcet, dnrta* 1922-19». ..iw -M . U l . r t y ■ * »
later periods preceding depressions or recessions, as I have discussed, these imbalances
occurred despite unusually stable prices.



236
The very slight recession o f 1969-1970, to be sure, was preceded by substan­
tial and growing price inflation. However, the strong real growth recovery o f
1970-1973 was accompanied by a sharp decrease in price inflation during the
first two years and a sharp advance in the third year. Looking at the extreme­
ly serious recession daring 1973-1974, the inflation rate averaged only 4-%
percent in the two years before that, while it rose to 11 percent in the first
year of the recession and was 9.1 percent in the second year. Thus, the mixed
record makes it incorrect to generalize that inflation is unavoidably asso­
ciated with a good economic performance in terms o f employment and pro­
duction, and vice versa. Insofar as the empirical evidence permits any gen­
eralization, the appropriate one is just the reverse, i.e., that lower idle worker
and other resources work toward greater price stability, and vice versa.4
S.

50

W H IC H

FO CUSES

UPON

E C O N O M IC

BALANCE

OB

E Q U IL IB R IU M

D E P E N D S L A R G E L Y U P O N A N A T I O N A L I N C O M E S P O L IC Y

Returning to the point that dealing satisfactorily with the problem of equi­
librium or balance is the central task, 1 look upon this task as one with the
need to develop a national incomes policy, which Chairman Proxmire has so
properly underscore as vital. An incomes poUcy, for the reasons I have stated,
is far more than a price or price-wage policy alone. Indeed, the empirical
evidence indicates that price-wage policies worked well when derived from
and supplementary to a general incomes poliey, and worked badly and against
equilibrium when erected into an obsession and derived without such an in­
comes policy. Examples are price-wage controls during World War II and
the Korean war, contrasted with Guidelines or controls during various later
periods. I hasten to repeat that the value of this experience does not argue
for controls under conditions immeasurably different from World War II
and the Korean war. I am always perplexed that so gifted an analyst as
Professor Galbraith cites his great contributions to the controls program
during World War II as applicable today or in the foreseeable future. The
part of World War II experience which remains relevant is that many poli­
cies and programs directed toward full resource use and equilibrium or bal­
ance took high precedence over the direct controls, and that the latter were
successful only because they were superimposed upon and secondary to the
former. The same was true during the Korean war, as I have already stated
from direct involvement.
The most significant provisions of S. 50 focus directly upon an incomes
policy, although this has been overlooked in most o f the discussions thus far.
Section 104 provides that, in developing the goals for full employment, pro­
duction, purchasing power, and other essential priority purposes, “ the Presi­
dent shall take into account the level and composition of each factor needed
to maintain economic balance and full resource use and to meet priority
needs.” This in itself mandates the development o f an incomes policy. The
Full Employment and Balanced Growth Plan cannot be formulated without
an incomes policy as I have defined it. The accent upon an incomes policy
is found also in paragraph (c ) o f Section 104, which defines criteria to be
used in developing the goals, and also provides that full purchasing power
shall be “contributory to an equitable distribution of purchasing power.” S. 50
in Section 106 also calls for, and certainly does not overlook, the use o f
fiscal and monetary policies in this balanced or structural context. Benefitting from experience, it calls for a wide range of micro-economic policies
in Title II, including income maintenance policies in Section 207, to take
care of structural problems, relating not only to the structure o f production
but also to the structure o f employment. The priority development portions
of Section 104 o f S. 50, based empirically upon neglect in the past, also re­
lates to the use of national policies to promote that structure of production
and jobs which is conducive not only to full resource use but also to the
priorities of national needs, the avoidance o f acute shortages in critical sec­
tors, and considerations of social equity. And as I shall further develop,
moving closer to these equilibrium conditions will be by far the most power­
ful weapon against inflation itself. These large contributions o f S. 50 refute

4See my Charts 4 and




5.

287
the contention o f those who state that it does not really do much nor Add
much to what we have already done, nor to the tools we already have.
6. 5 0 F O C U S E S A L S O U P O N R E S T R A I N T O F I N F L A T I O N

I now turn directly to other specific respects in which S. 50 focuses upon
restraint of inflation, in addition to the incomes policy and other policies
already discussed, because none of what I have said implies that inflationary
movements cannot be of a nature to militate against or disregard economic
equilibrium or balance and full resources use. I should add that those who
have looked only at the designated anti-inflationary Section 107 of S. 50,
which I believe are in themselves strong and useful, overlook (in addition to
the incomes policy in S. 50) other provisions which declare that the restraint
o f inflation is a cardinal goal. This is set forth in a general way in the
Preamble of S. 50, in Section 2, Section 101, Section 105 dealing with eco­
nomy in Government, and Section 106 relating to Federal tax policy. I shall
subsequently discuss other specific anti-inflationary provisions in S. 50, espe­
cially the priority and other provisions directed against critical shortages
in particular fields.
But perhaps the main respect in which S. 50 would restrain undesirable
price movements is that it relies upon the abundant empirical evidence to
the effect that lower idleness of workers and other productive resources have
usually reduced price inflation and at times have brought us very close
to price stability, while increased idleness of workers and other productive
resources has usually aggravated price inflation. Although a number of wit­
nesses before this committee have taken a contrary position, it is highly
significant that they have hardly attempted to introduce any facts or* em­
pirical evidence in this direction. For more than 20 years, I have challenged
them and some other economists to do this, but they have not. Chairman
Proxmire raised this empirical question at one stage in the hearings, but
it was not pursued far enough because no one attempted to answer it. This
matter is of such vital importance that I feel bound to review the empirical
record, and I again challenge anyone effectively to contradict it.
L O W E R U N E M P L O Y M E N T U S U A L L Y R E D U C E S P R IC E I N F L A T I O N ,
A N D V IC E V E R S A : T H E E M P IR IC A L E V ID E N C E

It is freely admitted that the “ trade-off” theory (that more unemployment
reduces inflation, and vice versa), is not supported by recent experience. The
highest inflation since the Civil War was accompanied by the highest unem­
ployment since the Great Depression. Since then, substantial reduction in un­
employment has been accompanied by substantial reduction in inflation. The
“ trade-off” theorists insist, however, that this experience does not refute the
“ trade-off,” because the appearance of special factors and then disappearance
'such as the Arab oil actions and the crop failures. But that is otoly a very
limited arid unsatisfactory analysis. For putting these two special factors aside,
inflation commenced to rise, with rising unemployment, before these two fac­
tors appeared. And excluding these two factors, we had for several years an
entirely intolerable inflation rate o f about 6 percent, concomitant with ex­
tremely high unemployment. Similarly, excluding these factors, a substantial re­
duction o f inflation has occurred most recently with falling unemployment
and rising real production. In addition, if there had been in effect during the
past five-ten years the balanced growth provision o f S. 50, for example those
related to energy and food supply, which I regard as among the most important
anti-inflationary aspects o f S. 50, the Arab oil actions and the crop failures
would not have wrought the havoc they did.
The “ trade-off” theorists then say that, while the most recent years have
been atypical in their view, we should not forget earlier years where exper­
ience has supported the “trade-off” theory. But curiously, they do not support
this with empirical evidence, and I turn now toward that evidence. The im­
portance o f the issue requires that I be rather detailed as to the facts, as well
as analytical*
During my years on the Council o f Economic Advisers from 1947 to 1958,
the average unemployment rate was 4.0 percent, and declined from &9 perm it
in the first year to 2.9 percent in the la st Meanwhile, the average annual rate




238
o f iniuttnn was only 3.0 percent, and declined from 7,8 percent in the first
year to 0.8 percent in the last* The 7.8 percent inflation in the first year had
nothing to do with fall employment; it was due to the method o f financing
World War II, the huge release o f wartime savings thereafter, and the pre­
mature abandonment o f controls. Nor is it true that this excellent price re­
cord was due primarily to the direct controls during the Korean war, neces­
sary through these were under these circumstances. On this I can speak from
intimate knowledge and participation.
At the breakout o f that war, President Truman was subjected to two dia­
metrically opposed types of economic advice. There were those who insisted
that everything should be frozen at once to restrain inflation, that production
should not be increased much because that would lead to idle capacity after
the war, and that there was no use for Government policies to concentrate
upon balancing production and demand at the highest feasible levels of pro­
duction and employment. To the contrary, I urged the expansion o f the pro­
ductive base as the main weapon for fighting inflation, urged minimum un­
employment for the same reason, and urged use o f special or micro-economic
measures including tax concessions at selected points to overcome selective
shortages. At the same time, I urged that increased taxes in general, under
conditions of large-scale war (not relevant now) could, if developed in bal­
anced fashion, be an aid both to economic expansion and inflation restraint. I
urged a monetary policy, including selective or structural aspects, in support
o f full resource use. I urged that the direct controls be subordinated and made
supplementary to these more fundamental approaches, combining full resource
use with low inflation. Fortunately, President Truman and the Congress
adopted the approach which I advocated. And I can testify with absolute cer­
tainty that it was the emphasis upon full production and full employment, and
the micro-economic measures to overcome shortages, that had far more to do
with holding down inflation that the price and wage controls.
This does not import that the price controls were not needed during the Ko­
rean war, but that situation was not analogous to now or the foreseeable
future. Be that as it may, what happened after the Korean war refutes the
theory of those who argue, not only that wage and price controls are needed
to restain inflation when employment is full, but also those who argue that it
is never desirable to have full employment because price and wage controls
should not be used forever, and that suppressed inflation bursts forth in­
escapably when the controls are taken off. The controls were practically
abandoned by 1952, and entirely by 1953. But during 1953-1961, inflation did
burst forth. The average annual rate o f inflation during this period was only
1.4 percent, and only 1.2 percent in the last year. To be sure, unemployment
rose from 2.9 percent in the first year to 6.7 percent in the last. But the only
thing this had to do with inflation was that it was two and a half times as
fast in the last year as in the first, again refuting the “ trade-off” theory.
The next period of years, appropriate for classification, ran from 1961 to
1966. The rate of unemployment was reduced from 6,7 percent in the first year
to 3.8 percent in the la st The average annual rate o f inflation was only 1.5
percent, and was less than 2.9 percent even in the last year. This combination
of a drastic reduction of unemployment with a very good record of price per­
formance was accomplished without direct controls, although there were
voluntary guidelines.
During the shorter period 1966 to 1969, however, unemployment did go down
slightly further to 3.5 percent, and the inflation rate went up seriously, al­
though only to 5.4 percent in the last year. Looking at the 23 years since 1953,
it is substantially upon this very short period that the “ trade-off” theorists
rely in insisting that less unemployment means more inflation. But they fall
to take account of the fact that the rising inflation was caused, not by a slight
further reduction in unemployment, but rather by the vast acceleration of the
Vietnam war and the spending for it, without recognizing the necessity to in­
crease taxes and use appropriate controls. The lesson that should have been
learned from the handling of the Korean war was entirely forgotten. Even
the part of it relating to the expansion of production was forgotten. For the
real economic growth rate, as inflation rose, was 6.5 percent in 1965-1966, only
2.6 percent during 1966-1967, only 4.7 percent during 1967-1968, and only 2.7
percent during 1968-1969.




239
O f course, the complete empirical repudiation of the “trade-off** theory came
from 1969 forward. During 1969-1975, unemployment averaged 5.6 percent,
rising from 3.5 percent in the first year to 8.5 percent in the last Inflation
averaged 6.6 percent, and rose from 5.9 percent in the first year to 9.1 percent
in the last. Further, as we all know, inflation was 11 percent from first quar­
ter 1974 to first quarter 1975, and unemployment rose from 5.0 percent to 8.1
percent And, as we all know, from first quarter 1975 to first quarter 1976,
with the inflation rate reduced to 6.4 percent, unemployment dropped from
7.5 percent by March 1976.®
One witness before your Committee cited the World War II experience,
when unemployment was reduced to about one percent by 1944, as another ex­
ample o f the proposition that full employment causes inflationary pressures
so extreme as to necessitate controls. But S. 50 does not contemplate reducing
unemployment to anything like one percent Far more important, the infla­
tionary pressures during World War II were not caused because unemploy*
ment was reduced. They occurred because the domestic spending power gene­
rated was equal to G.N.P., while almost half of the G.N.P. was burned up in
fighting the war, with only about half the war financed by taxation. In con­
sequence, the fantastic excess of spending power available for purchasing
civilian goods generated immense inflationary pressures, and necessitated the
direct controls. No such condition is now present nor foreseeable.
The experience in other countries, referred to by Chairman Proxmire dur­
ing these hearings, adds further evidence against the “trade-off” theory that
higher unemployment causes less inflation. Taking long enough years to be
significant, the records in West Germany, France, England, the Scandinavian
countries, Japan, and others, show a very much lower rate o f unemployment
and a much higher rate of real economic growth than the United States. And
these records also show that, when these countries endeavored to restrain in­
flation by slowing real economic growth and increasing unemployment, the
consequence has been an acceleration of inflation.
A few words about the forecasts o f inflation under S. 50, which in my view
have served as a “ frightening** device, having no relationship to the evidence.
Some people have said that S. 50 would bring double-digit Inflation; there
is no evidence whatever in support o f this. Some have attempted to quantify
just how much additional inflation S. 50 would bring. But these quantifications
have been based upon the results o f computers or models. Such results have
been predetermined by assumptions as to the relationship between unemploy­
ment and inflation which are not supported by empirical evidence. Models and
computers are of no use when predilections are fed into them.
One o f the frankest expressions before this Committee was by Alice Rivlin,
the Congressional Budget Office Director, who said that modem inflation has
become so puzzling and complex that no economist should have the hardihood
to predict it. This is certainly correct, in view o f the wideness from the mark
o f most forecasts about inflation in recent years. For example, what econ­
omist a few years ago, or at the Summit Conferences, would have predicted
double-digit inflation when unemployment rose above 9 percent? I must add
that, in view of Dr. Rivlin*s modesty on this subject, it seems rather contra­
dictory that, in her testimony before this Committee, she indicated that 3 per­
cent unemployment would add about 2 percent to the inflation rate. And at
another time recently, as quoted in my earlier testimony before Senator Nel­
son’s Subcommittee, she stated that the Humphrey-Hawkins Bill, with the
aid o f its micro-economic measures, might result in a noninflationary employ­
ment rate at even less than 3 percent unemployment.
In view o f the certain and immense benefits o f a full economy, I am sur­
prised that any economist would use such hazardous guesses about future
inflation to raise doubts about the value o f S. 50.
A REVISED THEORY OF INFLATION FOB THS MODERN U.S. ECONOMY

Having reviewed the empirical evidence, I shall now state why it happens this
way, basing theory upon facts instead o f regurgitating old theories rather than
reshaping them in terms o f the new conditions o f the modern U.S. economy.
A recessionary economy witnesses the reduction o f productivity gains to very

•Tor the empirical evidence in detail, see again my Charts 4 and 6.



240
low rates, and sometimes below sera This increases per unit costa* and that
in itself pashes prices upward in the administered sectors. This in turn causes
wages to rise, especially when administered in part through collective bargain­
ing. Even i f the wage increases precede the price increases, they are followed
by larger price increases when productivity is low or negative.* The low volume
of sales relative to sales levels at full resource use leads to administered price
increases to reach pre-established profit targets, and also to cover increased
per unit costs. In the case of wages administered in part through collective
bargaining, high unemployment induces fears that unemployment will spread
further, which leads employed wage earners to try to protect themselves by
making hay before the sun sinks even further. Recessions reduce vital sup­
plies in some sectors o f the economy even below the recessionary level o f de­
mand, which is inflationary, and even more importantly these shortages lead
to expansionary efforts to catch up when recovery starts, which may be highly
inflationary. The overall national policy o f contrived scarcity, which reduces
production and employment in the name o f fighting inflation, carries over into
selective areas and therefore augments inflation. Other efforts to restrain in­
flation by contrived shortages in housing, energy, power and fuel, medical sup­
plies and services, etc., actually augment the inflation. The policy of exorbi­
tantly high interest rates, effective in increasing unemployment and idle plant
in the name o f fighting inflation, is inflationary per se, and also inflationary
because stagnations and recessions add to inflationary pressures.7
OTHEB PROVISIONS IN S. 50 TO BESTBAIN INFLATION
I now refer to the specific provisions of S. 50, in addition to the incomes
poUcies and the other policies which I have already mentioned, which would
help to restrain inflation. First and foremost, as I have already stated, would
be the movement toward a strong and healthy economy in terms o f its ultimate
purposes, which is anti-inflationary rather than inflationary. Second, as I have
already stated, S. 50 accents priority programs, planned on a long-range basis
to overcome shortages in crucial areas„of the economy, and short-range policies
to break bottlenecks and overcome shortages where they exist. The empirical
evidence, which I have reviewed, indicates clearly that the emergence of these
shortages has had far more to do with inflation than full employment, and
indeed that these shortages have emerged in grievious degree when we have
had very high idleness of manpower and other productive resources. Third, S. 50
not only recognizes that the productivity gains which result automatically
from fuller use o f resources are a great weapon against inflation, but also con­
tains a specific provision in Section 107 whereby the President would encour­
age the joint efforts o f industry and labor to enlarge productivity gains. S. 50
also accents in Section 107(5) the principle that real wage rate gains should
be related to productivity gains. It also provides in Section 107 (6) for .strength­
ening the antitrust laws and their enforcement, to increase competition to work
against excessive administered price increases. In addition, in Section 107(c) it
instructs the President to recommend legislative action to promote price sta­
bility “if situations develop that seriously threaten national price stability/'
This obviously is broad enough to cover a recommendation for direct price and
wage controls.
S.

50

AN D VOLUNTARY

COOPERATION

TO REDUCE INFLATIO N

AND TO H ELP ACH IEVE ITS OTHER PURPOSES

There are also other important respects in which S. 50 would encourage noninfiationary trends in the private sector, and to help achieve its other purposes.
The private sector really knows that fuller use of resources improves the eco­
nomic climate, reduces competitive efforts to get a larger share o f a smaller
pie, and reduces per unit costs by enlarging productivity gains. The empirical
record shows that administered prices have been lifted the fastest when an
inadequate volume of business incites price increases to cover higher per unit
costs and to meet pre-established profit targets. At least the housing industry
and the utilities industry, and some others, know that shortages induced in
many ways by poor economic performance are highly inflationary.
•See my Chart 6.
7 See my Chart 7.



241
S. 50 PROVIDES ALSO FOR VOLUNTARY COOPERATION, TO ADVANCE ITS
A N T l-I NFL ATI ON ARY AND FULL EMPLOYMENT PURPOSES

I also attach great importance to the provisions o f Section 109 and 804 of
S. 50 which provide for more effective consultation among Government, busi­
ness, labor, and other groups. I have long experienced and participated in the
futility of so-called labor-management conferences under the aegis of the Gov­
ernment. But they have failed because they have had no purposeful orienta­
tion. Management and labor have used them as forums for indicting each
other, and for articulating their particular grievances and perspectives. The
orientation of S. 50 would provide a unique opportunity for the Government to
put before these groups at such conferences the Full Employment and Balanced
Growth Plan. This would prompt useful voluntary cooperation, by enlarging
information and understanding, placing the united interests of all above the
professed interests of some, and by accenting the things which unite us above
those which divide.
AN TI-INFLATIO NARY AND FULL RESOURCE USE OBJECTIVES
THROUGH IMPROVED N ATIO N AL POLICIES

Most important of all, nothing is more conducive to the business cycle and
to inflation itself than ineffective and wasteful Government policies. These in­
escapably result when policies are developed hit and miss, are improvised, are
only short-range after the fact instead of long-range as well, and frequently at
cross-purposes and conflicting. S. 50, both on the Executive side and the Con­
gressional side, would bring a new opportunity to put the parts together. In
this sense, S. 50 provides for planning instead of flying blind in what the Gov­
ernment itself does. Section 105 on economy in Government is also highly rel­
evant.
But S. 50 provides no national plan, and no intrusion by the Government in
the planning o f private groups, which they certainly indulge in and should, as
the Chairman of this Committee has stressed. S. 50 does not really enlarge the
scope of Government, in that it brings no new category o f policy-making into
Washington. Fiscal and monetary policies, tax and spending policies, social
security and housing and farm policies, and others too numerous to mention,
are already in Washington, and they will stay here. S. 50 merely provides a
new and better manner of handling these policies.
S.

50

AND TH E

FEDERAL RESERVE

This brings me to a short treatment o f Section 106 of S. 50 dealing with the
Federal Reserve Board. S. 50 does not give the President any “ power” over
the Federal Reserve Board, except an expression of interest and persuasive­
ness which he could use without S. 50. It does not force upon the Federal Re­
serve Board any particular policies. It merely requires in general, not even that
the Federal Reserve support the full economic objectives o f S. 50, but merely
that it state its reason for not doing so if it does not do so. In that event, it
merely requires that the President indicate his views on monetary policy to
the Congress, so that the Congress itself can better exercise that degree of re­
sponsibility over the “ Fed” which nobody denies is proper in theory but which
has not happened recently in fact. As Arthur Burns has properly stated (to
the Congress, the President, and the public) his views on every aspect of na­
tional economic policy on the ground that monetary policy alone is not enough,
I can find no rational basis whatsoever that it would interfere with the proper
“ independence” of the Federal Reserve for the President to state his views
on monetary policy to the Congress. Personally, I agree with Professor Gal­
braith and others that we should go much further toward making the “ Fed”
responsible to the elected representatives of the people/ but I applaud the
moderation of S. 50 on this subject for practical reasons. •
W AG E POLICY UNDER S.

5 0 , AND TH E PROBLEM OF PRIVATE CAPITAL REQUIREMENT

I come now to the wage problem as it relate® to full economic performance
and to the problem of inflation itself. It frankly amanes me that some econo*
•As to the emjflriealwvidenee of the hurtful poUcte* of the Federal Bwerva, serajaIn
my Chart 7, and aee my Charts 8 and 9.



m
mists look at wages only as a business cost* and not as a factor In consump­
tion. In contrast, they do not look at profits as a charge against the consumer
but only as a factor in business incentives and capital formation. It is even
more surprising that some economists accent wage>push inflation, with total
failure to examine the empirical evidence. The empirical evidence (when one
does not overemphasize a few exceptions which distort evaluation) is to this
effect: When the economy is moving toward or gets close to full resource use,
real wage rate gains lag far behind productivity gains, and thus tend to pro­
duce capital formation and investment running ahead o f ultimate demand, with
consequent stagnation and recession. It is only when recession and stagnation
reduce productivity gains to zero or below that real wage rate gains sometimes
run in advance o f productivity gains. I f this is inflationary, it is merely addi­
tional evidence that a sick economy in terms o f production and employment
augments inflation. To use deliberate national policies to reduce real wage
rate gains to the level o f productivity gains under such circumstances would
clearly aggravate the sick performance, and even President Hoover recognized
this although he did not persuade the business community. One o f the biggest
problems o f the U.S. economy, for empirical reasons I have already stated, is
to bring the real growth rate in wage rates and other consumer incomes into
line with the requirements for a full economy.•
This task is closely associated with the problem o f capital requirements. A
reasonably full economy always provides enough business volume to provide
full adequacy o f capital availability and investment, and frequently leads to
to excesses in this direction. “ And if there is private capital unavailability in
a stricken economy (allegedly because of a huge Federal deficit resulting from
this very fact, and Congressional efforts to bring fiscal policy into line with
expansionary needs), this merely means that the Federal Reserve Board is
failing to provide a monetary policy which meets both the legitimate needs o f
business and of Government. In other words, the monetary policy is then fight­
ing the fiscal policy, and that has happened too frequently in the past with dire
results. S. 50 would provide the means for rationalizing both fiscal and mone­
tary policy, and bringing them into accord rather than competition toward the
prime end-purpose of full resource use.
What I have said about the wage problem in general has great bearing upon
the wage policies in S. 50 relating to public service jobs. I am again surprised
that those economists who have scored the inflationary import of the wage
policies in S. 50 relating to public service jobs have forgotten entirely about
the larger aspects of national wage policies as a factor in balanced growth in
consumer demand which is more than 00 percent of G.N.P. More than that,
these economists have completely distorted the role of public service jobs in
S. 50, both as to magnitude and nature.
An examination of S, 50 itself and of the voluminous testimony and studies
relating to it, plus consideration o f the compulsions which would bear upon
the President and the Congress in implementing S. 50, make it clear that S. 50
is primarily a private employment proposition. My own estimates, which no
one has challenged, are that two-thirds to three-fourths o f the additional 10-12
million jobs which S. 50 would help provide in four years would be conven­
tional private jobs; that most of the other additional jobs would be private
jobs o f a priority nature, such as mass transportation, energy and food devel­
opment, housing, and some others, with only some marginal Federal assistance:
that the same is true in the main of the micro-economic programs in S. 50;
and that only 1-1.5 million at most of the additional jobs would be public
service jobs, which would be phased in gradually.1 The House Committee Re­
1
port indicates the policy that this program would not start until two years
after enactment In view o f the very small number o f these jobs, whatever
wages are paid on them cannot affect inflation generally in an employed labor
force in the neighborhood o f one hundred million. Also, a policy o f paying
good rather than substandard wages on these jobs would contribute more to
the towering problem of adequate wages and consumption in general than to
any problem of inflation.
• See m y Chart 10, and see again m y Chart 3.
See again my Chart 3.
** See my Chart 11, which is somewhat different from my current estimates because it
was developed earlier, based upon p rojections from 1975 instead o f the end o f 1076, and
based upon reaching fu ll employment by end o f 1&78 instead o f end o f 1980.




243
Moreover, the proposition that the pay for public service jobs under 8. 60
would compete with private employment is in my view erroneous. Previous ex­
perience provides no substantiation of this. The stringent criteria in 8 50
with regard to public service jobs, would work against this. Private wages in
general are far above the minimum wage, and the minimum wage now is too
low. In addition, the provisions in S. 50 relating to the prevailing wage on
public service jobs is limited to wages paid by the same employer and not to
wages paid by others. Apart from all else, it would be demeaning that a per­
son publicly employed by a given employer should be paid less than a person
doing the same type o f work privately employed by the same employer. And
it would be demeaning and economically unsound, for reasons already stated,
that a person employed at any level o f Government be paid lees than what is
paid for the same type of work in the private economy. Even if hypothetically
higher pay to the public employee were to result hypothetically in elevating
wages elsewhere it is true (and not hypothetically) that lower wages paid to
the public employee for the same work would depress private wages with the
certainty that the river finds the sea. Nowhere does S. 50 provide fior higher
pay than accepted standards for the same work. It only provides for equal
pay fo r equal work, except that, in accord with established Congressional
policies, it would not prevent substandard other wages from dragging down­
ward the pay on Federally-assisted jobs. As for Bacon-Davis, 3. 50 applies it
only to construction workers. Most important o f all, the criteria in Section
206(e) o f S. 50 provide that no one can get a public service job who leaves or
refuses to accept a private job under appropriate labor standards.
Beyond all this, there is nothing in experience or reason to indicate that
w ell-deigned public employment is less productive than private employment.
Employment, mostly private, under the priority programs in S. 50, which would
be fa r more numerous and far more important than public service employment,
may well be more productive than many conventional private employment jobs.
And whatever may be the source o f employment, it is high time for economists
to examine productivity in terms o f real benefits to the nation. Employment is
always more productive than nonemployment. Production, whether private or
public, in improved mass transportation, or increasing energy, or housing sup­
ply, or heajth services such as nurses or technicians, or para-professionals in
schools, or park service or forestry, is more beneficial to the nation than more
cigarette production or more automobiles or more casinos and luxury hotels,
entirely regardless of which register higher productivity gains by conventional
tests. W e need an entirely new benefit-cost analysis, in order to do what is
right either economically or socially. And this S. 50 provides.
We should not be concerned that S. 50 would draw too many people into
the civilian labor force, and therefore enlarge excessively the task o f provid­
ing additional jobs. In the first place, my estimate o f 10-32 million additional
new jobs from the end o f 1076 to the end o f 1080 is predicated upon only a
reasonable projection o f the growth in the rise of the civilian labor force, al­
lowing for population growth, needed reduction o f unemployment, some normal
reduction in working hours, and reasonable growth in the civilian labor force
in a fuller employment environment in contrast with the repressed growth o f
the civilian labor force under conditions o f high unemployment, drop-outs,
etc “ In the second place, despite the strong programs in S. 50, the real con­
cern should be whether we can achieve full employment by the end o f 1080
rather than whether employment may become excessive. In the third place,
the number o f public service jobs which would result from S. 50 would be too
small to give rise to this problem o f “overemployment.” And in the fourth
place I feel strongly that we should abandon the notion that employment for
anybody able, willing, and seeking to work is a liability. It is an economic so­
cial, moral, and personal asset to the nation and the individual. We have
genuine unmet needs for goods and services, fa r exceeding our full capabilities.
The concept o f abundance, justly shared, is at the heart o f S. 50.
t b s cost txicdee

s. 50

On the matter of costs, I am trulydlstressedthatso Httlehas bew ii-Id
bj
and others on the subject of beneflt-cost analysis. Obrlouriy,
« gee again my Chart 11.




244
doing anything coats more in dollars than doing nothing. Employing a person
for ten thousand dollars tarns oat 30 to 40 thousand dollars production, while
paying somebody 8-4 thousand in unemployment benefits or welfare turns out
nothing. Yet none can doubt which really costs more or yields more benefits.
The same applies throughout
On the basis of scores of years o f continuous study, I have developed a costbenefit analysis related to S. 50. It does not portray actuality under S. 50, be­
cause that depends upon unfolding economic developments, and actual de­
cisions by the President and the Congress. But even adjusting my results by
10 or 20 percent, it remains highly indicative and satisfactory for current pur­
poses.
1 estimate conservatively that S. 50 would yield over a period of four years,
about 725 billion dollars more o f total national product, or an average o f about
181 billion a year more, measured in fiscal 1977 dollars, than a very optimistic
projection of current policies and programs. Studies by the Joint Economic
Committee and the Congressional Budget Office, and many others, are roughly
in accord with this.
This would in itself yield Federal revenues at existing tax rates again meas­
ured in fiscal 1977 dollars about 145 billion dollars higher over the four years
or an annual average of about 36 billion dollars higher, than reasonable pro­
jections o f current national policies and programs.
My estimates o f increased Federal Budget expenditures under S. 50, com­
pared with projection of current policies and programs, are generous but realis­
tic, because I factor in not only programs in consequence of S. 50, but a total
Budget designed to help reach full employment by the end of 1980, and to ful­
fill the other responsibilities of Federal Government both domestic and inter­
national. Even so, I arrive at an incremental annual average Budget cost un­
der S. 50 of only about 29 billion dollars, or very far short of the incremental
Budget revenues o f 36 billion annually, and less than one-sixth o f the incre­
mental G.N.P. benefits o f 181 billion annually. The import of this is that S, 50
would reduce the Federal deficit much faster, and bring a Budget balance or
surplus much faster, than the alternative course. This, too, would be antiinflationary, among other things.1
*
The Congressional Budget Office has made its own estimates o f Budget esti­
mates, in the testimony o f Alice Rivlin before this Committee and in a study
presented to the Joint Economic Committee. The central points o f those esti­
mates are much lower than mine. That is because these estimates take account
only o f the cost o f public employment under S. 50, and not of the other Budget
Items which I have stated, related to a full U.S. economy. But calculated as
they are, the C.B.O. estimates are much too high. They assume more public
employment than would result under S. 50. Indeed, they proceed as if S. 50
were not in existence, and that public service jobs would be needed to cover the
difference in 1980 between 5.2 percent unemployment and 3 percent unemploy­
ment The 5.2 percent projection is in accord with current policies and pro­
grams in the absence of S. 50. It is unthinkable that S. 50 would not increase
additions to conventional private jobs and priority private jobs apart from pub­
lic service jobs. The C.B.O. estimates of net Budget costs after allowing for
offsetting savings through tax collections are egregiously too high, because they
are based upon the assumption that the total number of public jobs created
would result in a 40-60 percent displacement o f private jobs. This is utterly
unwarranted. It has no support whatsoever in previous experience. And it could
not happen in accord with the explicit intent and purpose of S. 50, and espe­
cially in view of the very restrictive criteria which it attaches to public serv­
ice jobs. In addition to all this, the C.B.O. estimates limit the compensating
tax returns to the Federal Government to the taxes paid by those on public
service jobs who were previously unemployed. Inexplicably, the C.B.O. takes no
meaningful nor quantitative account of total incremental tax revenues from
incremental benefits in total national production under S. 50, as I have esti­
mated these above. The midpoint o f the C.B.O. net Budget cost estimates (study
11 See my Chart 12. The annual incremental Budget cost figure might w ell be much
lower than 29 billion, because I have been able to quantify only some o f the offsetting
savings (e.g, unemployment insurance and w elfa re), and have been unable to quantify
other very large Budget savings (e.g. low er Interest rates, reductions in crime and im ­
proved health, etc.)




246
for J.E.C., coverage aged 18 and over), which are too high in terms o f the
factors considered, is about 24 billion for the Initial year (1980), about 15 bil­
ion in the next year, and about 12 billion in the third year, or an annual aveab°ut 1? billion. These incremental Budget costs as estimated by the
C.B.O. average less than half of the average incremental Budget revenues, and
less than one tenth o f the incremental G.N.P., as estimated above. When the
tax revenue offsets which the C.B.O. allows in reducing its gross cost esti­
mates to net cost estimates are adjusted to allow for the difference between
the tax revenue offsets allowed by the C.B.O. and appropriate tax revenue off­
sets as I have set them forth above, it appears that the net Budget costs of
S. 50 as estimated by the C.B.O* would be a large negative figure.
THE ISSUE OF THE DISECT CONTROLS

For all o f the reasons stated above, I do not fovor the insertion o f direct
controls, total, stand-by, or selective, in 3. 50 at this time. Some of the most
ardent warners against inflation admit that controls would not be needed un­
der S. 50 until two years after enactment at least; and at that time or at any
other time (even earlier) the President can propose and the Congress can
enact, or the Congress can enact whether the President proposes them or not,
such controls if and when needed (see Section 1 0 7 (7 )). Insertion of such con­
trols in S. 50 at this time would, in my view, inject divisive, controversial, and
unnecessary issues which would lessen the chances of passage of this vital
legislation. It would provide additional excuses for those who are against the
legislation anyway, and who might say that it proves that the inevitable con­
sequences o f the legislation would be to straitjacket the whole economy and to
intrude the Government into every decision of organized business and labor. I
do not believe that, except under conditions of large-scale war. There is a fur­
ther logical difficulty. I f full use of our resources permanently necessarily lets
loose inflationary pressures which require direct controls then we would need
direct controls forever, if we are to maintain full or nearly full use of our re­
sources enduringly. I cannot accept this proposition, and I do not believe that
the Congress will.
Coming back to the core problem o f Imbalances in the economy, I submit
that improved use o f traditional Government policies—fiscal, monetary and
others—can remedy or come close to remedying these Imbalances without the
direct controls, including the implication of their permanence. Even if some
o f the imbalances were to be caused by undesirable price movements (which
for reasons I have stated are far less likely under fuller resource use), I sub­
mit that curing these by public policies to adjust purchasing power to inflation
(taxation, monetary policy, social security policy, housing policy, medical care,
etc.) would be fa r more desirable than the Government getting into the fixing
o f wages and prices. And as to wages, the usual lag of real wage rate gains
behind productivity gains certainly is not remedied by wage controls, which
are least since World War II and the Korean war have aggravated these im­
balances. Even during these two wars, direct controls served to repress real
wage rate gains, but that was desirable in view of the growing ratio of military
outlays to G.N.P. The price-wage controllers from World War II now ignore
this vital distinction.1
4
But if the Congress in its superior judgment should decide otherwise with
respect to the direct controls, above all I object to the idea that a 3 percent
quantitative goal for unemployment should be accompanied by a quantitative
goal for consumer price inflation. They are entirely different matters, for rea­
sons I have already stated. Minimal unemployment is always sound economics,
because people employed are more economical than idle people. Far more imA much more plausible argument can be made (although I would not
that regardless of hich or low unemployment, boom or recession, an administered economy V 3 u n « p e c U lnte™aUonal or iatlonal e™nt». lead to sporodte
bursts of inflation, and that in consequence we need selecttre

a8^ t f n g f S ” emPlS?menfwUhd* S n
employment, through legislation or otherwiae.




m M i t doub* difficult to achiere fufi

m
portent, the level oC unemployment U a profound social and m o itl considera*
tion which should be decided by the Congress and not by any President or any
Chairman o f the Council o f Economic A dvises, whether Leon Keyserling or
Alan Greenspan. But the appropriate figure fo r consumer price trends is not
fixed nor definitive in this sense. It varies with time and circumstance. Zero
price inflation is not necessarily more desirable, taking all consequences into
effect, than 2 percent price inflation. And 2 percent price inflation is not neces­
sarily more desirable than 4 percent or 1 percent These things vary in relation
to a host o f other considerations. There is no way for the Congress to arrive
at an appropriate quantitative figure. The appropriate figure from time to time
should be determined by administrative action, assuming that the Congress re­
quires the direct controls.
Moreover, consumer prices have industrial price trends underlying them,
and farm prices also. I f the Congress were to set a quantitative goal for con­
tainer prices, it should likewise do so for all types o f prices, including indus­
trial and farm, and the figures should not all be the same because the rela­
tionships are just as important as the absolutes. And if it were desirable for
the Congress to set a quantitative goal fo r prices, then likewise fo r wages,
taxes, public outlays, money supply, and all o f the other policies which enter
into an incomes policy and into efforts to optimise the performance o f the
economy at large. I think that this statement o f the problem in itself provides
the correct answer without further elaboration. As to the high inadvisability of
a quantitative standard fo r consumer price increases in the legislation, I am
authorised by Professor Galbraith to state that he is entirely in agreement
with me on this subject (although he favors controls now and I do not). I think
that most of the economists would take the same view, upon full consideration.
S. 50 Aim THE BUSINESS CTCLE
In conclusion, S. 60 is not a proposal to repeal the business cycle. That may
be impossible; It is only a proposal to reduce its ravages/* The Employment
Act o f 1946 did not attempt to repeal the business cycle. But Chairman Prox­
mire, and countless others, have pointed out that it helped vastly to improve
our economic performance. But the Employment Act had some defects which
have cost us dearly. Learning from experience, we are now endowed, and I
hope willing, to do very much better under the legislation now proposed.
I shall be glad, if requested, to provide additional information or analysis
and to suggest language for amendments to clarify S. 50, particularly with
respect to an incomes policy and related matters.
* As to the rtTtfM and coats, 1953-1975, see again my Charts 1 and 2. As to the
estimated costs of repeating in future where we have been going to date, see again my
Chart 12. The estimated difference of 725 blUlon dollars in G.N.P. equates with an esti­
mated difference of about 12 million man- and woman-years of employment.







248

COSTS OF DEFICIENT ECONOMIC GROWTH
US.ECONOMY, 1953-1975
C AT 2
HR
( Dollar H s inbillions of 1975 dollars, except overage fam income)
em
ily
Totol National
Production
(GNP)

I953H975* $3,354.7
I969H975:
979.6
1975:
326£

Private Business
Investm
ent
(IncL N Foreign)
et

19534975*-$ 911.5
19694975: 331.4
1975: 127.9

Man-years of
Employment^

Govl Outlay for
Personal Consum
ption
Expenditures
Goods and Services

1953-1975-61.0 M io
tU n
1969*1975:22.8 M
illion
1975: &9 M
illion

1953-1975 :$1,523l
I
1969-1975: 372.2
1975: 137.7

1953-1975 **$9201
1969-1975: 2760
1975: 61.0

Average Fam Income
ily
(4975 Dollars}

W
ages ond Salaries

Residential and
Commercial Construction

1953-1975: $2*470
I969H9751 5,890
1975- 2,500

I953H975- $1,865.0
1969-1975:
3748
1975=
159.2

I9S3H975: $369.6

J/Dtfidts (953-1975 ars calculated from a 1953 bow,in tfiot growth rates tine* then hove averaged for too tow Deficits
.
1969-1975 ond 1975 an projected from o 1968 base, writing off the cumulative deficit* 1953-1968.
1975 figure* ore estimated. Residential ond com erciol construction deficits are calculated only from ol953 base.
m
In terms of w w
hat ould hove been needod.40 !975,to restore full production os of then,the estimated deficit
wos 250-300 billion dollars,ot on annuol rote.
2/Based upontrue level of unem
ploym
enUncluding full-time unem
ploym
ent,full-tim equivalent of parHime unemployment/**
e
oonoeoled unen^toyment(nonportidpotior incivilian labor force) due to scarcity of job opportunity.




249

C O M P A R A T IV E G R O W T H R A T E S , 1 9 6 1 -1 9 7 5
( Average Annuel Rote* of Change, in Uniform Dollar*)

CHART 3

3 Investment in Plant ond Equipment
| Ultimate Demand:Total Private Consumption Expenditures Plu* Total Public Outlay* For Good*
and Services___________

_______

1st Half ‘61tst Half '66
"Boom"

1st Half '664 th Qtr. *70
“ Mixed Period
Including
Recession”

"r
lli’ik; r
4th Otr. '7 0 4th Otr. ‘ 73
'inadequate Upturn
and Stagnation*

|
4th Otr. *73_ 4th Otr. *75
*Recess»on ond
Inadequate Upturn"

Up

3.2%
'

I

U
P

U
p
2 9%
P H

i
up

| i

1.1«

m

______ I Corporate Profits {ond IVA)
Wages and Salaries

c o w m ir;»wi=
1st Half ‘61Ist Half '66
"Boom"

1st Half '6 6 4th Otr.'70
"Mixed Period
Including
Recession"

4th Qtr. '7 0 4th Qtr. '73
'inadequate Upturn
and Stagnation"

4th Otr. '7 3 4th Otr.'75
"Recession and
Inadequate Upturn"

Up

13.5%

Up

1V
0 A
U
p
5.7%i/

I ii

D n
ow

H
.6%

D n
ow
8 .7 %

-i/Estimated.
Bowc Data Dapt of Commarc*




250

RELATIVE TRENDS IN ECONOMIC GROWTH
UNEMPLOYMENT, & PRICES. 1952-1976
C ATk
HR
Total N
ational ProductioninC
onstant D
ollars.Average A
nnual Rates of Change
Industrial Production.Average A
nnual Rates of Change
U ploym as Percent of C
nem
ent
ivilian Labor Force, Annual Averages*

8%
3

i
Consum Prices
er

!W
holesale Prices

2 X 25
5 .*

1952-1955

1955-1958

1958-1966

1966-1969

1969-1975

10*74-10*75

10*75-10*76

Averoge Annual Rates of Change

^ These annual averaget(as differentiated from the annual roies of change) ore based on full-time officially
reported unem
ploym meotured ogainst the officially reported Civilian Labor Force.
ent

S
ource: D t, of L bor, D of C m 8 F
ep
a
ept om erce, ederal R
eserve S
ystem




U.S. E C O N O M I C P E R I -O ^ .I A N C E .U iM D L I R V A I . I O 'J S H A T I O . ’ A L A D M I N I S T R A T I O N S
WITH VARIOUS APPROACHES T O N A T I O N A L E C O N O M IC : P O L I C Y ^
Real AveAnn
Ecoa Growth Rote

Truman
1947-1953^

E
isenhow
er

Ave Annual
Unemployment
(full-time)

4.9%

Unemployment
First Y Lo»tYr.
r.

4.0%

24%

Ave Annjol
Inflation

Inflation Roto

Ave. Ann Surplus
or D
eficit
Fed Burt; "t
(Fiscal Yeors.Bi Ilions)

F YL i
irst r o*tY
(C
PI)
7.8%

S 2S

2 9%

2.9%

m m

3.0'«

♦$2.4

| 08%

6 7%

51%

14%

R "'W

^

0.5%

1-fc|

-$23

Kennedy-Johnson
1961-1969

48%

67%

4.7%
31

1

"

35%
r ~ . n ______
85%

Nixon-Ford
1969-1975

,6*
—ETZgFifl.

5.6%

3.5%
m

5.4%

26%

1.1%

9.1%

66%

5.9% r ^ i

n

•l^To allow for momentum t fft c tt of policxt, •*<• firtt yoor of on« Administration it alto trooltd at th« lott y«or of th« prtcttding Administration AM
itctpi Ftdtrol Budg*t,«ttimot«d

S o u r c e t c o - j m i c R r p o r t t o f t h e P r < * id e n t ,a n d f c o n o m ic In d ic a t o r s




L - __
-$64

... !__

17 figur«»,
95
1

-$15.3

CHART

2 1 4 -1 4 not included because greatly offected by Irantition from World War Q
^ 96 97

]

r iv i

252

IM P A C T O F E C O N O M IC G R O W T H

CnARI 6

UPON! P R O D U C T IV IT Y G R O W T H

o »%

4 3%

4.7%

PiEUP

I
s till

:

I b

m

1947-1953

0.2%
1953-1960

1960-1966

1966-1970

1970-1972 1972-1975

1st Otc 1975IstOtc 1976

js sg a a r. ■ • • - • w t m ?
*
[ -iV ^ - •
U in
•
•
- i' A '-i'ts '
ltfe t!!*
5.2%

— —— ——

4.1%
3.6%

3.7%

2.6%
;i:n(
■
1.5%

!

!
0.1%

1947-1953

1953-1960 1960-1966

S o u r c e : Dept, o f L a b o r, D e p l o f C o m m e r c e




1966-1970

1970-1972

1972-1975

Ist0trl975Ist Otc 1976

253

C O M P A R A T I V E T R E N D S IN N O N - F E D E R A L L Y H E L D
M O N E Y S U P P L Y . G .N .R , A N D P R I C E S , 1 9 5 5 - 1 9 7 5 ^
CHART 7

Up
4.0%

Up
37%

Up

up
4 J%

Up
,7 X

Up
Up
4 6% < 9 %

IOX

U
p
I.3X

EL

|

Q

| I960

1
955* I955- I------ I I957- I958- *— I I960- I96I- 1962- 1963- 1964- 1965- 1966- 1967- 1948- 1969- 1970- 1971- 1972
I975 1956 Oo»» 1958 1959
1961 1962 1963 1964 1965 1966 1967 1968 >969 1970 1971 1972 1971

an.

19731974

1974*
1975

ANNUAUgRENDflftftff
Up

10
1%
m

1975

1956

1957

1958

1959

I960

1961

1962

1963

1964

1965

M 1975
Data: 0«pt oI Comnwc*, 0«pt of Labor, Federal R«s*rv* System




1966

1967

(968

1969

1970

I97i

1972

I9 7 J

1974

1975

254

I N C R E A S E S ft* & V I R & 3 E I N T E R E S T R A T E S , A N D
E X C E S S S M T E R E 37 C O S T S D J E T O T H E S E IN C R E A S E S ,
CHART 6

•

£

"<^r:

‘»V'V

Up

185.5%

r ^ i
Up

155.4%

tv

federal Public Dejt?/

State and Local Debt

Private Debt 5/

Total Public and
Private Debt

$960.2

$103.7
$ 2 3 .7

.>

JL

Federal Public Debt?/

m State and Local Debt

Private Debt3/

Totol Public and
Private Debt

^ 1974-1975 estimated.
•2/ Includes net foreign interest
Com
putedas a residual by subtracting F
ederal Publicanastateandlocal debt fromtotal public and private debt.

S rce:O of C m E
ou
ept om erce; conom R ort of th P en
ic ep
e resid t




255

E X C E S S I N T E R E S T C O S T S IN T H E F E D E R A L
B U D G E T 1 3 3 5 - 1 9 7 5 C O N T R A S T E D W IT H O T H E R
COSTS F 0 3 SELECTED EUDGET PROGRAM S^
CHART 9
Millions of Dollars

EXCESSC/TEREST
COSTS/;/ T E
H
FE E A B D ET
DRL U G

D D E O TLA
U G T U YS
FO E U A IO
R DCT N

j

DDE O TAS
UGT ULY
F RH A T S R IC S
O ELH E V E

$17,073

$7,386
$5,127

j
w m m
A n n u a A ve ro g *

I 9 £ i-I 9 7 5

1976 &

1966-1975

Annual Av«roga

1976^

1966-1975

B D E O TLAYS
UGT U
\ B DE O TAS
UGT ULY
FO H U IN AN
R OS G D
!
FO
R
C M U IT D V L P E T P B ICA S A C
O M N Y EEOMN
U L S IST N E
AJ W L A E
jD E F R

B D E O TLAYS
UGT U
FOR’ ANROVER
J
PORU
RGAS

A

$4.5<2

$2,376

1966-1975
-J

cocti.catondar yaara, budgat outlay*, tmcatynr*.Sfrt>iMtim» com and*75 budget ottflay* mi*

•2/Propoaod m fiocai l»7» Budgot.




_______________ _______

256

T H E L A G iK W A G E S A N D S A L A R I E S
B E H I N D P R O D U C T I V I T Y G A ii v iS , I S S O - 1 9 7 5
(Average Annual increases. Constant Dollors)

4.9%

W!'

w
mam
mm

2.1%
p is w r
^ ijj^ j

I960-1975

1960-1966

1966-1975

•960-1975

.960-1966
33%
; 26%

1966-1975

2.1% i ,---------2.0%

t

2.6%

401974-401975

4Q 1974-4Q1975
39%

i/\/M
1.3%

1.6%

.2%

I

i !
Output

CHART 10

Wc^cs
ana
Salaries

PER MAN-HOUR

Output

Wages
and
Salaries

PER MAN-HOUR

Output

Wages
ana
Salaries

PER MAN-HOUR

Output

Wages
and
Solaries

1

PER MAN-HOUR

m M C - :*#• • • tfftfor:,-;
;
1960-1975

1960-1966

1966-1975

40 1974-4Q 1975 :

38%

32%

2.8%
1.7%

1.5%

1.3%

1.6%

2.0%

S_L__L
Output

Wages
and
Salaries

PER MAN-HOUR

Output

Wages
and
Salaries

PER MAN-HOUR

B D ta: D t, of C m
asic a ep
om erce, D t, of L b
ep
a or




Output

Wages
and
Salaries

PER MAN-HOUR

Output

Wages
ond
Salaries

PER MAN-HOUR

:
j

j

257

D IS T R IB U T IO N O F E M P L O Y M E N T , 1 9 7 5
A N D P R O J E C T E D .171 9 7 8 A N D 1 9 8 0
CHART 11

(Millions)

-jEM
PLOYM
ENT \
□

Private nonagricultural civilian employment
Federal employment

ljj§| §| State a local employment

tv v l
AA

M

AA

!

789

76.3

69 5

AA

I
25

23

n
WM
1980

1978

1975

PERCEN
TAGE DISTRIBUTION [
Private nonagricultural civilian employment
Federal employment
State 8 local employment

W'-P AA >' .'
>
■
:
•
.

8 5 .4

y.y.
..
\

841
_
........

**> ..*>• i ■

im

835
-v
r
.<

**y" •»«*«w**•
,:
i
-1

1975

1978

■^Proj«ct*d in occord w welting full *mpk>ym«nt by tht end of 1978.
ith




1980

258

" C O S T S '^ A N D

S IN E F IT S ^ O F

A C H IE V IN G

FULL E M P L O Y M E N T S END OF CALENDAR 1930
CH
ART 12
( Budget,*iscol yeors. G.N.P, calendar years; billions of fiscal 1977 dollars)

________________
PRO
JECTED FEDERAL BU G O TLAYS
D ET U
I
TO H ACH
ELP
IEVE FULL EM YM T G A
PLO EN O L3'

I

(*•*• DifferwH $«•«•)

|

432

ESiXV

45 8
jm;

Sj

1977

, .....

r~
f.

1

479
r ...........

1978

1979

495

1

,

: . '< !
1980

1976 BU
DGET O TLAYS
U
PROJECTED AT 1969-1977 AN U GROW RATE5/
N AL
TH
(NMOIffmrtScpI*!

430

417

1977

458

* 44 4

1978

1979

1980

tOSTSTrAVERAGE AN U DIFFEREN BETW
N AL
CE
EEN TH TW BU
E O DGETS,29
IIW M N M S u lil

1977

1979

.973

1980

G .P PROJECTED INACCO
.N
RD
W ACH
ITH
IEVEM T OF FULL EM
EN
PLOYM
ENT GOAL^
C

Otffvrw* Scata)

1.957

2J04

2.241

2.353

1977

1978

1979

1980

G .P PROJECTED INA CO
.N
C RD
W C N U TIO O CURRENT NATIONAL POLICIES2'
ITH O TIN A N F

BEN
EFITS:AVERAG AN U D
E N AL IFFE E C BETW
RNE
EENTH TW GN s.I8I
E O l .P
(M O m cM
D rn ilS )
252

i__________ 1977___________ 1978___________ 1979___________ [980___________ |
■i/tosts"ore difference betweenFederal Budget outlaysneededto Mp achieve full em
ploym goal and 1976
ent
Budget outlays projected w reasonably estimated adaptations of current policies and program
ith
s.

& Benefits are difference betweenGJiPinaccord w full employment goal and G.N.P protected inaccord with reasonably
ith
estimated adaptations of current nationol policies and program
s.
•1/3 percent unemployment.^The Full Employment 8 Balanced Growth Plan in H.R.50 ft S 50 would use other policies
besides those in the Federal Budget to help achieve the full employment gool.The averageamialreol grow rateinBudget
th
outlaysused for thesep
rojections is5 2 percent^rajectedfromfiscal 1976,w alow
ith
ance torchangeinthefacalyear.^The low Budget
er
projectionisat the 3.2 percent real average annual grow rate inthe Budget fromfiscal 1969 tothe President's originol Budget
th
for fiscal 1977 S'The real overage annual grow rate used for these protections is 70 percent,projected fromcalendar1976 base.
th
-Z/ Based uponreal average annual growth rate of 40percent,projected fromcalendar 1976 base. The average woeonly
3.0 percent during I953-I975,and only 1.8 percent during 1969-1975.




259
The Chairman. Thank you, all of you gentlemen. It’s a shame
that you had to com on with these fine statements so late and I
e
apologize.
Let me just ask a few questions because it’s almost 1 o’clock.
First, may I ask, Dr. Madden, I was very impressed by your elo­
quent statement, but I must say on page 5 of your prepared statement
you say S. 50 is a Government power grab, you say:
We support the aims of the Employment Act o f 1946—of balanced and sus­
tainable economic growth at high employment levels, o f effective labor mar­
kets, of easing the burdens of joblessness, and o f improving education and
skilla

What was the position of the Chamber of Commerce on the Em­
ployment Act when it was brought up for consideration by the
Congress in 1946?
Mr. Madden. I believe the position of the Chamber of Commerce
on the Employment Act of 1946 was to support it.
The Chairman. I’m surprised because I just asked the staff direc­
tor of the Joint Economic Committee and he tells me the business
community generally opposed the act very vigorously and he thinks—
he doesn’t have the record at the moment—the Chamber of Commerce
was actively in opposition.
Mr. Madden. He doesn’t know, either therefore, I would refer him
to a book called “Congress Makes a Law” by Steven Kemp Bailley.
This book describes how the Chamber of Commerce and the National
Association of Manufacturers both vigorously opposed the Mur­
ray Full Employment Act which I thmk was 1945, and how the
economist of tne chamber, Dr. Emerson P. Schmidt and how George
Terborgh, the then economist for the Machinery and Allied Products
Institute, were influential along with the chamber’s membership and
staff in reducing the scope of the Murray Full Employment Act
which was a central planning bill. They urged the Congress to
change the highly technical language of the Murray bill, that was
filled with GNPs and the like, into a broad statement of purpose.
And they reduced the wording of the act to something like 1,500
words. And I do believe that, as in so many cases that have happened
in the last 30 years— d I have been with the chamber 13 years and
^an
I have seen this tactic over and over and over again—a bill is put
in the hopper, as I said in my statement, which is poorly drafted and
which is wrong in many regards, and the testimony of the business
community is sought on the bill very early in the legislative history
so it can be well established that the business community was op­
posed to the bill in that form, and then some of the suggestions of
the business community are taken in later drafts and the political
myth can be preserved that the business community was against the
bill in a general way.
Now the Chamber of Commerce throughout the post-World War II
period has supported the goal of high employment and the Chamber
of Commerce has fought for legislation which would nmke for the
creation of productive jobs. I agree that the Chamber of Commerce
came late to the question of countercyclical fiscal policy, but not so
terribly late at that, about 12 years ago, I guess*




260
The C h a ir m a n . H o w about answering then Senator Humphrey’s
challenge? He said these people who oppose the bill, what do they
want? What would they do about it? You agree that unemployment
is a serious moral and economic and social problem. We ought to do
something about it. It’s easier for all of us to criticize tangible, con­
crete proposals, but what would you suggest as an alternative, if
anything ?
Mr. M a d d e n . Well, with respect to planning, I don’t think you
would find a business community opposed to a reasonable form of
foresight on the part of the Congress and a reasonable form of fore­
sight on the part of the Federal Government. As a matter of fact,
the Chamber of Commerce for years has advocated and promoted
community planning in the communities around the country.
The C h a ir m a n . I ’m not asking you specifically about planning,
although I think that’s very helpful. But what would you propose
to do about the high level of unemployment we have suffered, still
suffer, have suffered for the last 20 years, higher than elsewhere,
higher than all of us agree it should be ?
Mr. M a d d en . Well, in the first place, we have proposed for a long
time and continued to propose a split level minimum wage for young
people and we understand the political obstacles to getting that idea
across, but we persist. We supported zero-based budgeting and it
was very encouraging to us that Senator Muskie is in support of
that idea.
The C h a ir m a n . I think almost everybody supports that. Howard
Schuman, my administrative assistant, has been working for that for
almost 20 years and I agree it’s a good aim, but I don’t think it’s
centrally connected with reducing unemployment.
M r. M a d d en . You mean you don’t think that a split level minimum
wage-----The C h a ir m a n . No, the zero-based budget.
M r, M a d d en . I was using zero-based budgeting as an illustration
of an unpopular idea which liberals finally came to endorse after
they thought about it long enough, and' I think some might come to
endorse the idea of a split level minimum wage if we keep pound­
ing away on it. We have been pounding on it 30 years and the un­
employment rate for youth has been going up all that time during
prosperous times.
Now we have Nobel laureates in economics in their textbooks
agreeing, as Paul Samuelson does, that the minimum wage for
youth creates youth unemployment. Maybe the word will get to Con­
gress in another 10 years. We don’t know, but we keep plugging away
because we think this is a key source of the difficulty in young people
in getting jobs.
Second, we have supported all kinds of career education for 30
years and we are acutely aware of the deficiencies in the educational
system that cause young people to take an unduly long time to get
their first job and also causes them to resign from and quit jobs and
therefore have a high unemployment.
The C h a ir m a n . I agree with both of those.
Mr. M a d d en . We have some more.




261
The C h a ir m a n . Good. Both the first two you mentioned, it’s hard
for me to understand how that would provide for a greater amount
of employment. If a person is willing or able to work for a lower
wage I can understand how that might provide a job for a young
person out of work, but why wouldn’t that displace another person
who otherwise would be doing the work or something close to it ? It
might conceivably have a marginal effect on the number of unem­
ployed. I can’t see how it would have a substantial change. It might
reduce the unemployment from 7.5 to 7.4.
Mr. M a d d e n . We’re talking about unemployment in good times
when there’s adequate aggregate money demand in the economy.
The C h a ir m a n . We’re talking about unemployment all the time.
Mr. M a d d e n . I ’m talking about unemployment in good times as a
central problem that ought to be addressed. I don’t know how you
can address the question of unemployment during business cycles
which have resulted from excesses in the economy that developed
in-----The C h a ir m a n . That’s what the bill tries to do. That’s exactly
what the bill tries to do.
Mr. M a d d e n . That’s why we oppose it. We don’t think that’s going
to be effective without creating inflation at the same time.
With respect to what we consider to be the key problem of unem­
ployment, namely the high level of unemployment in good times,
which was the basis of your earlier question, I advanced to you the
split level minimum wage, a closer connection between school and
work which is a serious and important question, and I also suggest
to you that we don’t know how many jobs there are available and
that’s one of the reasons we misread the unemployment statistics.
The C h a ir m a n . Dr. Madden, I think all o f us are aware of the
fact, that the 1946 bill came not just by accident in 1946. It came
after the experience of the Great Depression and we had enormous
unemployment aaid the experience of the war and we reduced that
unemployment. There you had a situation where you took people
with no training, no skill, in World War IT and put them to work
and they were able to learn the job and develop the skill in a matter
of weeks and months. It wasn’t a matter of having them go to voca­
tional school. The fact was that once, you have an employer who
wants to hire people he will find a way to train those people. The
important thing is to provide him some way o f increasing the aggre­
gate demand so that you can put people to work who otherwise are
not going to be working and you can train people. We’re getting now
to a point where we have Ph. D.’s who can’t find jobs, hundreds of
them.
Mr. M a d d e n . I realize that. However, I would go back to the point
that you certainly wouldn’t cite World War II as a great example
o f a balance between inflation and employment.
The C h a irm a n * Well, Dr. Keyserling has done exactly that and I
think he’s got a good point. I think certainly that was an unusual
period end there were many things working that enabled us to have

that*
.
„
Mr. Madden. If we were willing to toleratean inflation rate of 15
or 20 percent, I would agree with Dr. Keyserling and others tnat we



would have no structural unemployment problem, but I don’t know
of any American citizen who would favor a 15- or 20-peroent infla­
tion rate, a reduction in the purchasing power o f his currency at a
rate o f 15 to 20 percent a year, in order to mop up the unemployment
that exists in good times. I refer you to Dr. Feldstein’s study. He
shows in 1973, when the unemployment rate averages 4.9 percent for
1 year, a minority of the unemployment was the consequence of job
losses, 39 percent, if my memory serves me, and that a significant
proportion o f the unemployment was a consequence o f what he
summed up as a weak attachment to the labor force; that is to say,
people swapping jobs, switching jobs and being temporarily unem­
ployed. I believe at the same time, in 1973, only 8 percent of the un­
employed had been unemployed for over 30 weeks. So the problem of
youth employment and the problem o f an active labor force is a
problem of short-term unemployment and it’s not necessarily hard­
ship unemployment.
I don’t agree with Dr. Keyserling that some job is better than no
job. It doesn’t follow that gome job is better than no job for a 2month period while a person is looking around for an appropriate
career and there have been thousands, if not millions of young people
who have experienced that kind o f unemployment, which is not, in
my opinion, justification for pumping up the economy to the level
suggested, nor is it justification for an elaborate process by which
the committees of Congress lose some o f their jurisdiction, as this
committee would do, as a result of the national economic plan, and
whereby the Joint Economic Committee is made into some sort o f
a central planning committee, whereby the President’s economic ad­
visory council is made into an economic planning czar.
As you have done, Mr. Chairman, we have watched the errors of
both academic, governmental, and business economists in forecasting
the recent recession. You are surely skeptical of our ability to fore­
cast in a national economic plan ail these broad needs and resources
of the United States for the next 5 years.
In the Initiative Committee document whose publication pre­
ceded the introduction of this Humphrey-Hawkins bill, the authors—
I don’t know who the authors were, but the chairman of the com­
mittee I recall was Wassily Leontief o f Harvard and Leonard Wood­
cock o f the UAW —had the temerity to say—and I think I can quote
the statement—that “ we should forecast 5 years ahead the number
of shoes, the number of cars, the number of refrigerators, and”—of
all things—<the quantity of frozen food needed by the American
c
people.” Now how ridiculous can you be? We can’t even forecast 6
months ahead in terms of individual industries and neither can the
industries themselves. So the notion that we can plan the whole econ­
omy in terms of forecasts of economic developments and economic
needs and that we indeed would be better off in resolving the energy
problem which splits the country in 14 different ways, as a result of
having a national plan rather than not, doesn’t appeal to me.
So as for the contribution of this bill to the question that I ’m ad­
dressing of specific areas of unemployment and something -specific to
be done to deal with them, I see nothing in the bill and I therefore
am a critic of it.



268
The C h a ir m a n . I ’m going to c a ll on Dr. Keyserling to answer.
Mr. K eyserling. Well, I can’t answer it all because it’s a variety
of a lot of different things. Let’s start with World War II, and I
want to say exactly what I mean when I ask what are we going to
learn from World War II ? The first thing we can learn is this: I was
in the government before World War II, when we had 8 million un­
employed, and many people said exactly what they’re saying now:
“ They’re too old, too young, too black, too unmotivated. They’d
rather be on unemployment insurance. They would rather be on re­
lief. They don’t they look at the newspaper ads which show there
are more jobs than unemployed.
But when World War i f , these people marched into the factories
and performed well for two reasons: first, because the Government
realized that for the purposes at hand—and we have other purposes
at hand now—people employed are of more worth to the Nation and
to themselves, and you don’t disprove this by a few exceptions. Sec­
ond, as to planning, I think there’s one thing about planning during
World War II—and may I say during the Korean war—that S. 50
calls for and would provide: the budgeting of resources against
needs, the integration of policies, the establishment of quantifications,
and the weighting of relative values, and I never believed that if you
learn in a war how to cure something through better use of medical
methods, you don’t use it when there isn’t a war.
Now what some people confuse is this: They say that, because dur­
ing World War II you had raging inflationary potentials while getting unemployment down to 1 percent, this required a wide range of
numerous controls. And from this they jump to the truly ridiculous
conclusion that getting, unemployment down to 3 percent by 1980
would cause 6 or 10 or 15 percent inflation without direct controls.
But the tremendous inflationary potentials didn’t occur during
World War I I because you got down to unemployment o f 1 percent,
the inflation after the war. That’s the reason why you needed everyone
in fighting the war and paying everybody who produced for the
full product. So purchasiing power was twice available civilian sup­
plies. In addition to that, we financed half of the war out of tax­
ation, when we should have financed it all out o f taxation, because
selling bonds to finance a war is not true savings, and that increased
the inflation after the war. That’s the reason why vou needed the
controls during World War II and for a few years thereafter.
So I think we’ve got to separate out what we can learn from World
War II experience, and what we learned during the Korean war,
when after all we did combine full employment and high economic
growth with very low inflation, and not mostly due to price controls.
I can prove that because I was there and I know the debates that
went on, and I know the order in which we did it, and I know the
relative merits of different things. Price controls worked only be­
cause they were superimposed upon an equilibrium model, because
they were used to supplement other programs, and because they
were needed in view of the increasing national take for war purpose.
The situation is not analogous today. Th^.8 w^at I would say about
the war experience. But we should profit through S. 50 by the parts




264

of wartime experience which remain highly relevant—goals, inte­
grated policies, macro and microeconomic measures, et cetera.
Now finally, as to forecasts. S. 50 is not a forecasting implement.
The bane of economics today is, every time I go to a meeting people,
come up to me and say what do you forecast? When the economist
makes forecasts, many of the forecasts are wrong. None of them fore­
saw 9 percent unemployment and double digit inflation. But I say
that forecasting is for the banana seller on the street who has no con­
trol on how many people are coming by, and forecasting is even for
a big industry because it lives in a bigger environment than its own
policies relate to, but forecasting is not national economic policy.
Roosevelt never forecasted whether we would win the war. Truman
never had me forecast how much unemployment there would be 4
years later. He said, where is it now and where do we want it to go
and what do we do ? That’s what policy is. This bill is policy, to get
goals and try to reach them. It has nothing to do with the imperfec­
tions o f forecasting and Alan Greenspan, in my view, was just as
mixed up in that as you could possibly be. This is not a forecasting
bill. This is a policy bill.
The Chairman. I ’d like to ask Mr. Oswald, and you can respond
to this other question too if you would like to, but I ’m very con­
cerned and I have talked to other members o f this committee who
are concerned about what this does to the Federal Reserve Board
and to the control of the Federal Reserve Board.
As you know the Constitution is very clear. It gives the money
power to the Congress exclusively, and for that reason I think we
have a responsibility to abide by the Constitution. In addition, I
think we have given much too much power to the President as com­
pared to the Congress.
Now this bill provides on pages 15,16 and 17 the following: it says
the President’s budget and economic report shall set forth each year
a monetary policy designed to assure such rate of growth in" the
nation’s money supply and so forth. It goes on to say the Board of
Governors shall transmit to the President and the Congress within
15 days after transmission of the report what they intend to do. I f
the President determines that the Board’s policies are inconsistent
with the achievements of the goal and policies, the President shall
make recommendations to the Board and Congress to assure closer
conformity to the purposes of this act.
It seems to me that’s clearly in contradiction to the Constitution.
It takes away from the Congress and from the Federal Reserve
Board the power we have had, the monetary power we have had, and
gives it to the President, and it seems to me, as chairman of this com­
mittee which has the principal monetary responsibility for the Senate,
this is a surrender that I don’t think we should ioin in.
Now I don’t see why this is essential to this bill. As a matter of
fact, it seems to me the Congress can exercise this kind of discipline,
but this gives the President, according to this language I have read
you, this kind of responsibility, authority and power.
Mr. Oswald. I’d like Mr. Schechter to answer that.
Mr. Schechter. Mr. Chairman, I believe this gives the President
the power to make recommendations to the Board and to the Con­
gress. One of the objectives of the bill is to coordinate the economic



265
policymaking which the Congress has and in which the Fed un­
doubtedly plays a role and to bring in the executive branch too. So
that I think that section you referred to is a means of trying to get
a coordinated policy.
The C h a ir m a n . I understand the means and I understand the
President is simply asked to make recommendations, but the way
this is done—the President, after all, is the President of the United
States. He appoints every member of that Board of Governors. He
might reappoint some, too and he comes forward and he’s asked in
this legislation by the Congress to come forward with his own mone­
tary proposals. That’s what it says. The monetary policy designed
to assure such rates and so forth. That’s in the President’s recom­
mendation. Then, after the Federal Reserve Board acts and indicates
their response to this, then the President is invited to make recom­
mendations critical of what the Board has done. I think we are set
ting up a framework in terms of realism, of what’s going to happen
which is, as Dr. Burns said, some guy sitting in the basement of the
White House—maybe his name is Ehrlichman or Haldeman or some­
thing else—is going to be the fellow who’s calling the signals on
monetary policy.
Mr. S c h e c h t e r . But, Senator, these recommendations would be
made to the Congress, too. The President does send many bills up to
the Congress and I ’m sure the Congress doesn’t accept everything
that is sent up. It would create a dialogue instead of the Fed simply
making monetary policy on its own with certain objectives and then
coming up here to report what they have done after the fact. We
have suffered from that procedure, particularly since the Fed by
tradition, or what have you, have insisted on using the one tool of
general monetary policy.
Another part on page 16 talks policies of credit reform allocation
and international capital flows. Now Dr. Madden referred to some
of the other countries with which American industry has to compete
who are very smart, I believe was the term he used, the Germans and
the French, the Swedes and the Japanese—they have all used policies
of overall economic planning.
The C h a ir m a n . The Germans, the French, the Swedes and the
Japanese have a different form of government than we have. They
have parliamentary forms of government in which the legislative
and the executive ‘are pretty much identical. The legislative elects
their executive. We have a democratic form of government and—
we separate the authority and the power the President has and the
authority and the power the Congress has and most members of Con­
gress have complained and complained about how the President has
taken over so much power. Now in this bill we give him a clear
constitutional power of congress.
Mr. S c h e c h t e r . B u t we were trying to focus on the power of the
Federal Reserve. Certainly the Congress has the authority over the
Federal Reserve. The Federal Reserve is a creature of the Congress.
The C h a ir m a n . That’s right.
Mr. S c h e c h t e r . And these recommendations would go to Con­
gress.




266
I want to make one other point about these other countries. They
do have central banks. They also have in many oases, like France, a
national credit committee. The Swedes have what they call a labor
market committee which has a voice in the type o f credit regulation
that is to be adopted. So that these other countries which have progressed so well, and in certain ways have shown greater strength
than our economy in recent years, have used these modifications o f
what I would call straightforward monetary policy.
The Chairman. I have no objection in having the President—of
course, it wouldn’t do any good if I did have—speak out any time
he wants to on monetary policy and any President can choose to do
that. I don’t want to formalize it and say Congress is saying the
President is the one that takes the initiative, as he does on so many
other things, to say what the monetary policy will be and then have
another double whammy so when they come up with their recom­
mendation he is required by law to say where the real monetary
policy is wrong and where he wants to change it. There are very few
boards that will stand up to that. It will be a President determined
policy.
Mr. Schechter. Senator, as you know, the Credit Act of 1969, the
President is also authorized to authorize, not to order, the Federal
Reserve Board to regulate credit pretty much in any way it wants,
very broad powers in order to fight inflation. So that, in a sense, the
President already has powers to-----The Chairman. But I sure don’t want to underline it. You may
well be right, but I think we ought to repeal that part of the law,
but I don’t feel we ought to give him more power.
Now, Mr, Oswald, in your statement—you didn’t read the full
statement—you quote the anti-inflationary measures used in Ger­
many in 1974-1975, the German authorities imposed a temporary
moratorium on foreign bond issues in the German market and also
prohibited Germany financial institutions from underwriting Euro­
bond issues that were to be repaid in German marks.
Are you suggesting that either o f these would be appropriate now
for the United States ?
Mr. Oswald. Well, not exactly at this moment in time, but they
might be appropriate during periods of tight monetary policy as
means o f allocation and getting credit into the areas where it’s re­
quired.
The C hairman. That’s in private capital expenditures.
Mr. Oswald. Yes. Part of it is also to build up some sort of a re­
serve for periods when you have slack in the economy so that you
would have in essence an incentive then for investment during
periods of high unemployment and use part of the taxing policy as
a means o f allocation.
The Chairman. The AFL-CIO has been very strongly against
wage and price controls I understand. President Meany has indi­
cated if it applies to everybody across the board comprehensively
maybe, but even that he’s somewhat reluctant about, as I understand




267
it. Yet you propose as a supplement to general monetary policy selec­
tive credit controls. Isn’t that inconsistent? If you’re not going to
have wage and price controls, why single out credit for a selective
control ?
Mr. Schechter. In the use of selective credit controls it isn’t neces­
sary to monitor the entire economy. What we have in mind is some
of the forms of selective Federal regulation that have been used by
the Western European countries. That is, during tight money periods
they may cause certain types of uses of credit to be deferred. For ex­
ample, the development of recreational land sites might be deferred
for a year and there are other uses and, on the other hand, the prior­
ity uses have been favored, such as housing construction. The ex­
amples cited in the testimony of precluding some foreign bonds issue
flotations in Germany is another example where the entire economy
is by no means regulated, but just by chipping away at some of the
edges of credit demand on a lower social priority item it’s possible
to have less demand for the credit, keep interest rates low, so that
the expansion of the economy, that can be taking place without in­
flation, can take place without the rise in interest rates which then
sends us into a quite a deep recessionary decline.
The Chairman. Well, gentlemen, it’s 1:30. We have been in ses­
sion since 9:30 this morning and I want to thank you very, very
much for excellent presentations. By my questions, I didn’t mean to
be critical. I did mean to raise points of concern. Thank you very
much for your presentation.
The committee will stand in recess.
[Whereupon, at 1 :30 p.m., the hearing was adjourned.]

73-365
 O - 7* - 18





APPENDIX 1
The Committee, under signature of William Proxmire, Chairman,
and John Tower, Ranking Minority Member, sent letters similar to
the following to selected, well-known economists throughout the
country. The replies received prior to printing this volume follow as
appendix 1.
U.S. S e n a t e ,
C o m m it t e e on B a n k i n g , H o u s in g a n d U r b a n A f f a i r s ,
Washington, D.C., May 3, 1976.
The Committee on Banking, Housing and Urban A f­
fairs of the U. S. Senate is expected to begin consideration of S. 50, the Full
Employment and Balanced Growth Act of 1976 on May 19. This legislation was
introduced in the Senate on March 16 by Senator Humphrey and in the House
by Congressman Hawkins
The Full Employment and Balanced Growth Act is a far-reaching piece of
legislation that would, among other things, require the estabUshment of na­
tional economic goals and mandate the achievement of specific employment
targets. A copy of this legislation (in the form of an amendment to S. 50) is
enclosed. Also enclosed is a section-by*section analysis of the Bill.
In order for the Committee to be fully informed on this important matter,
we are soliciting your views and those of other well-known and respected econo­
mists. We would like to know your opinion regarding: (1) the structure and
thrust of this legislation; (2) the possible impact of this legislation on the
nation's economy; and (3) any alternatives or changes which may be useful
for the Committee to consider. Any other comments that you care to make
regarding this bill would be greatly appreciated. Your comments would be of
greatest use to the Committee if they are received prior to our hearings on
May 19. Unless you have some objection, your comments will be included in the
Committee’s published hearing record.
Thank you in advance for sharing with the Committee your views on this
important matter.
Sincerely yours,
[De a r D octor ------------ ;

W i l l i a m P r o x m ir e ,

Chairman.
John Tower,
Ranking Minority Member.
D

epartm ent

E c o n o m ic s ,
D u k e U n iv e r s ity ,

of

Durham, W.C., May 7, 1976.
Hon. John T ower,
U.S. Senate,
Washington, D.C.
D e a r S e n a t o r T o w e r : Thank you for your request of May 3, as Ranking
Minority Member of the Committee on Banking, and Urban Affairs, for my
views on S. 50, the Full Employment and Balanced Growth Bill, as amended
ozi March 16
The March amendments appear to me to substitute for the relatively straight­
forward Humphrey-Hawkins employment-gnarantee proposal a somewhat indi­
gestible mish-mash o f this proposal with the more ambitious Humphrey-Javits
National Planning Bill.
^.
. ..
I see little but confusion to be gained by commingling these two proposals,
which have little in common beyond the identities o f their principal sponsors




(2 69)

270
I have accordingly answered your request of May 3 with a brief summary of
my suggestions for the original Humphrey-Hawkins Bill prior to the extraneous
Humphrey-Javits material.
My concerns with the Humphrey-Javits Bill are both more important and
quite different. They pertain primarily to implementation—to enforcement, if
you wilL Suppose that any major industry, or union, or agricultural co-op re­
fuses to co-operate with the plan, or that a rank and file membership repudiates
its own leadership’s adherence to the plan. What happens then? As I see it,
either the plan becomes a pretentious and expensive dead letter, “ form al plan­
ning divorced from action,” or else we take major steps in the direction o f im­
perative planning along Stalinist, Maoist, or Hitlerite lines. In other words,
the whole scheme is a tremendous gamble on a degree of agreement that we
have never yet been able to get, or else a first unconscious step in the direction
of an economic police state.
But these latter objections are not covered at all in the attachments to this
letter. I f you, or the Committee, are interested in them, please let me know,
and I can outline them for you in approximately the same detail as I attempt
to indicate here my reservations about S. 50 in its original form.
•With best wishes, I remain
Sincerely yours,
M A B T IN B

b ONFENBBENNEB,

Kenan Professor of Economics.
Enclosure*
A m e n d m e n ts t o F u l l E m p lo y m e n t a n d B a la n c e d G r o w t h B i l l
C o n g r e s s ) S u ggested b t M a b t in B b o n f e n b b e n n e b ( K e n a n P
E c o n o m i c s , D u k e U w i v e b s i t y , D u r h a m , N.C.)

(S. 50,

9 4 th

bofessob

of

I find myself opposed to the Humphrey-Hawkins Full Employment Bill ( S. 50,
94th Congress) unless that bill is amended drastically. The provisions o f the
bill are not, in my view, directly inflationary in and of themselves. Nevertheless,
the bill's implied guarantee of high employment (regardless o f wage rates)
encourages unions to seek inflationary wage increases. Less directly, it also
encourages business firms not only to grant such wage increases but also to
seek inflationary increases in profit margins over and above their costs.
At the same time, I accept two major arguments o f Senator Humphrey, Con­
gressman Hawkins, and other supporters of the Humphrey-Hawkins Bill.
The bill proposes to put people to work at low net cost. It involves decreased
welfare and transfer expenditures, which can be charged against increased
payrolls in estimating the cost of the bill and of the useful work its beneficiaries
may perform.
The bill relieves the unemployed of the psychic costs of their uselessness to
society and of their losses o f skill. This is particularly important for blacks and
other minorities, against whom substantial prejudice persists in many employ­
ments, and who are concentrated in ghettos inconvenient to desirable jobs. (I
understand that Congressman Hawkins’ own constituency is such an area, the
Watts section of Los Angeles.)
The inflationary consequences I anticipate from the bill’s guaranteed-employment feature can, I believe, be mitigated by a number of amendments. These
relate primarily to the wages and working conditions on the public and private
employment made available to the bill’s beneficiaries. (The figures below, how­
ever, are offered only for illustrative purposes. I also relate these proposals
only to public employment, but I agree that they should apply to private employ­
ment as well.)
Public employment financed by the provisions of the bill should pay minimum
wages (plus transportation from the beneficiary’s residence to his place o f em­
ployment), or 20 per cent above the beneficiary’s relief entitlement, whichever
is greater.
Public or semi-public agencies employing beneficiaries of this bill should not
reduce the payrolls of their regular employees below the amounts paid at some
base date before the bill goes into effect. They should also be permitted to
increase their regular payrolls only pari passu with reductions in their employ­
ment of this bill’s beneficiaries, (The purpose o f this last provision is to dis­




271
courage permanent reliance on an underclass of sub-employees provided by the
Full Employment Bill but not absorbed into the regular work force.)
Beneficiaries of this bill should be subject to the same job discipline as regular
employees of the agencies hiring them. In particular, they should be liable to
fine, suspension, or dismissal for absenteeism, indiscipline, theft, insubordina­
tion, etc., on the same basis as regular employees. They should be permitted to
form or join unions, to present grievances, and to quit their jobs at any time.
They should not, however, have the right to strike. If a man stops work in
connection with a grievance or other dispute, he need not be taken back.
I should also see the bill amended in two “ research” connections, with a view
to giving legislators and students clearer ideas of the dimensions of the real
unemployment problem facing the country.
If I am informed correctly, we know less than we should about the long­
term unemployed unemployed for 180 days or more) who should be the princi­
pal objects of our concern.
We do not know, for example, what proportion of these persons is unemployed
voluntarily, what proportion is search-unemployed, and what proportion is ac­
tually unemployed involuntarily. The distinctions between these categories are
not completely clear, and economic statisticians may never be able to ascertain
them with reasonable accuracy even on a small-sample basis. But we should at
least make the attempt, especially if we can agree that only the involuntarily
unemployed constitute the genuine unemployment problem.
The qualitative distinction between these categories of unemployed is ap­
proximately the following:
One is voluntarily unemployed if he (or she) believes he knows the range
of jobs available in his geographical area for which he is qualified, and likewise
the wages he may expect to earn if employed. Given this information, he re­
fuses to accept any of these jobs. He may not withdraw from the labor force
entirely, but waits and probes for some job to become available which pays
better, is more “ meaningful,” or offers better prospects o f training or advance­
ment
One is search-unemployed if he (or she) does not know with any accuracy
the range o f jobs in his area of which he is qualified, or the wages being paid
on those jobs. He is rejecting offers on the reasonable belief that they are sub­
standard, and that better ones are in fact presently available.
One is involuntarily unemployed if he (or she) is willing to accept work
in his area at going wage rates for jobs for which there is no reasonable doubt
of his qualification, but cannot find any vacancies for such jobs.
It is my considered belief (which may of course be proved wrong) that the
great bulk of our long-term unemployed fail in the first or second of the above
categories. I also believe that the third category is the principal one which
public policy should worry about, and that the pub-listed statistical and other
data on unemployment imply that nearly all the unemployment is long-term
unemployment of the involuntary sort.
I accordingly suggest that S.50 be amended to provide for a survey (on a
small-sample basis at starting) to clarify the magnitude of the unemployment
problem, with special reference to long-term involuntary unemployment.
At the same time, and also on a sample basis, the long-term unemployed
should be surveyed on quite different lines. We should try to determine what
proportion are indeed employable at current real wages. It is again my personal
belief that a substantial minority of the long-term involuntary unemployed, if
not indeed of all the long-term unemployed, are suffering from some sort of
bodily, mental, or psychological handicap which renders them unemployable
even in the best of times by private industry at American wages on anything
other than charitable grounds. The handicaps involved may range from blind­
ness to cerebral palsy to low I.Q., from illiteracy to poor English to periodic
alcoholism, from schizophrenia to ungovernable temper to a criminal record. We
should also know, in clarifying the magnitude of the unemployment problem,
how much o f it U merely a consequence of problems like those just mentioned,
on levels insufficiently acute to warrant confinement to institutions, but com­
pounded (under American conditions) by a high level o f minimum wages.
Once again, I suggest respectfully that S. 50 be amended to include provisions
for fSet-finding on a small-sample basis along these lines as well as the lines
mentioned above.




272
HABVABD U NIVBBSITY,
Department o f Economics,
Cambridge Mass. May 18, 1976.
Senator W illiam P roxmire,
Chairman,
Senator J ohn T ower,
U.S. Senate,
Washington, D.C.
D ear Senators P boxmire and T o web : This is in reply to your request fo r
comment on S. 50, the FuU Employment and Balanced Growth Act o f 1976. I
appreciate your invitation to send my reaction.
The Full Employment and Balanced Growth Act is a response to the central
inadequacy of the current approach to economic policy of the Administration:
the proposed act seeks out ways to reduce the inflationary bias o f the economy.
The present approach relies almost exclusively on sustaining a high rate o f
unemployment until the fires of inflation have been banked. High unemployment
rates take a heavy social toll, particularly on those potential workers most
disadvantaged in the competition for jobs. S. 50 asserts, that there are ways by
which we can improve the unemployment-inflation tradeoff, that there is nothing
inevitable about continued high unemployment.
The specific measures recommended in S. 50 address themselves to many of
the long-recognized structural problems. The emphasis on new means to reduce
youth unemployment and other policies to focus on particular groups among
the unemployed is certainly well placed. The national unemployment rate can­
not be lowered to desirable levels until the particular problems o f higb-unemployment groups are solved. The bill is also wise in not attempting to legislate
specific programs, but leaving that function to the traditional departments and
committees.
A central feature of the bill is the setting of a fuU-emplopment goal calling
for an unemployment rate not in excess of 3% o f adult Americans in the
civilian labor force wiithin four years of enactment. This goal is only attain­
able if women have equal job opportunities with men and have an equally firm
attachment to the labor force. I assume that the definition of adult worker
means 20 years and over. The goal will also require that the unemployment
rates for nonwhites approximate the rate for whites. These are very ambitious
social targets. It is easy to reduce the unemployment rate for adult white males
to 3%, indeed, this rate averaged near 2% for four years in the 1960's during
the Vietnam War, But it will take bold action and much progress to achieve
equal job results for females and non whites.
The bill also calls for reports and plans to assure that various departments
of government are working to achieve the full employment goals. Some o f the
deadlines are too early to make it possible to present meaningful plans, and
there probably should also be a better balance between plans and evaluations.
It would be a grave mistake to raise the hopes of the public beyond what the
actions of government are actually likely to be or what accomplishments will
actually be realized.
There are various other issues in the bill. Nothing much is said about wage
and price policies, while some of the more restrictive labor requirements are
to be applied more broadly. The language on anti-trust policies is quite vague
and should be strengthened. The proposals for export controls on food fly in the
face of some rather poor experiences in our recent past with that particular
instrument of policy. I endorse the coordination of fiscal and monetary plans
that the bill requires so long as the projected rate of increase of the money
supply is not considered an inflexible requirement. I also believe that it is
appropriate, in a democracy, to have the head of the central bank serve a
period coterminous with the Presidency.
Sincerely yours,

O tto E c k s te in ,

Professor of Economics,
Statement by R obebt E isner, Northwestern U niversity
I heartily support the basic objectives and principle of the Full Employment
and Balanced Growth Act of 1976,




273
It is past time that we establish “the right of all adult Americans able, will­
ing, and seeking work to opportunities for useful paid employment at fair rates
of compensation.”
The losses from unemployment are far more than the suffering of those with­
out jobs. With unemployment of labor goes a squandering of our nation’s
physical and human resources.
Unemployment directly affects vast numbers of individuals. In the last year,
which has seen unemployment close to nine percent and now at 7.6 percent, still
larger than the average of our post-war recession lows, more than 20 million
Americans have been unemployed. The associate loss of output has been in the
neighborhood of $200 billion, more in a single year than all of our expenditures
in the long, tragic years of war in Southeast Asia. This loss of output goes far
beyond the loss of incomes to the unemployed and their families. It means
lower real incomes for masses of fully employed, o f self employed and of those
living on the income of their investments. Significant unemployment, such as
we have recently experienced, is a national catastrophe.
The Full Employment and Balanced Growth Act of 1976 is fundamentally
sound in finally declaring it national policy to achieve and maintain full em­
ployment. It is wise in mandating the President and Congress to implement
that policy. It is bold and correct in setting a goal of three percent “ adult”
unemployment, corresponding to minimal frictional and search unemployment,
as the full employment target. It is right in setting forth a variety of imple­
ments for achieving the full empolyment goal: general fiscal and monetary
policy, programs directed at regional and structural unemployment, youth un­
employment and particular cyclical difficulties and coordination with state and
local government and private sectors in our economic activity.
A key issue to be faced is the attainability of unemployment as low as three
percent without inflation. While unemployment that low has been reported in
many other economies the United States has experienced that low a total un­
employment rate only during World War II and then we had a full set of
government regulations, including wage and price controls.
It may further be argued that even the four percent unemployment widely
recognized as a full employment target in the sixties and actually attained by
1965, is no longer reasonable in view of the changing composition of the labor
force. It is maintained that increasing proportions of teenagers, of women and
of minorities difficult to assimilate into urban employment all contribute to an
ineviably higher minimum rate of unemployment.
I do not accept this argument. First, unemployment has always been con­
centrated among relatively marginal numbers of the labor force. At one time
it was white, European immigrants and “ Okies” or displaced farmers. Now it
may be Puerto Ricans or Blacks or youths or women. In no case can we condone
failure of the economic system to provide employment to those who seek it. In
large part it is inadequate aggregate demand that causes unemployment, cer­
tainly a major component of the difference between three percent and nine per­
cent or 7.6 percent. Improved monetary and fiscal policies will go a long way
to bridging this major gap between goals and recent and current reality.
It is likely, however, that part of the path to three percent unemployment
must involve programs targeted specifically at the employment of new entrants
into the labor force, of women, of minorities, of youth and of those suffering
from lack o f training, experience or mobility. Adequate efforts aimed at those
in relatively high unemployment categories will facilitate the major role of
fiscal and monetary policy in providing sufficient aggregate demand for full
employment without inflation.
Policv-makers must,