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9O0TH
CONGRESS }
1st Session
SENATE
SEAEMN.
{NPo.R7
73
1967
JOINT ECONOMIC REPORT
REPORT
OF THE
JOINT ECONOMIC COMMITTEE
CONGRESS OF THE UNITED STATES
ON THE
JANUARY 1967 ECONOMIC REPORT
OF THE PRESIDENT
TOGETHER WITH
STATEMENT OF COMMITTEE AGREEMENT,
MINORITY AND OTHER VIEWS
MARCH 17, 1967.-Filed under authority of the order of the.Senate of
March 16, 1967 and ordered to be printed.
U.S. GOVERNMENT PRINTING OFFICE
76-361 0
WASHINGTON: 1967
For sale by the Superintendent of Documents, U.S. Government Printing Office
Washington, D.C. 20402 -Price 35 cents
JOINT ECONOMIC COMMITTEE
[Created pursuant to sec. 5(a) of Public Law 304, 79th Cong.]
WILLIAM PROXMIRE, Wisconsin, Chairman
WRIGHT PATMAN, Texas, Vice Chairman
SENATE
HOUSE OF REPRESENTATIVES
JOHN SPARKMAN, Alabama
RICHARD BOLLING, Missouri
J. W. FULBRIGHT, Arkansas
HALE BOGGS, Louisiana
HERMAN E. TALMADGE, Georgia
HENRY S. REUSS, Wisconsin
STUART SYMINGTON, Missouri
MARTHA W. GRIFFITHS, Michigan
ABRAHAM RIBICOFF, Connecticut
WILLIAM S. MOORHEAD, Pennsylvania
JACOB K. JAVITS, New York
THOMAS B. CURTIS, Missouri
JACK MILLER, Iowa
WILLIAM B. WIDNALL, New Jersey
LEN B. JORDAN, Idaho
DONALD RUMSFELD, Illinois
CHARLES H. PERCY, Illinois
W. E. BROCK 3D, Tennessee
JOHN R. STARK, Executive Director
JAMES VV. KNOWLES, Directorof Research
EcONOMSmTs
WILLIAM HI. MOORE
JouxN D. HENDERSON
GEORGE R. IDEN
DANIEL J. EDWARDS
DoNIALDA. WEBSTER (Minority)
II
LETTER OF SUBMISSION
(CONG:RESS OF T1E UNITED STATES,
JOINT ECONOrMIC
CoalrMLrrrEE,
Jlarch 17, 1.967.
HonI. FiRANCIS 1. VALE0,
S'ecretary, U.N. 8enate.
I7t-.adhngton, D.C.
])EAR MR. VALEO: Pursuant to the Employment Act of 1946, section
transmitted herewith is the "Report of the Joint Economic
Committee on the January 1967 Economic Report of the Presidentf
together with the statement of committee agreement, minority, and
5(b) (3),
other views.
The statutory date for submission of this report is M<arch 1. This
year the date for filing was extended by Public Law 90-1.
In accordance with the unanimous consent received yesterday, this
report. is being filed today.
Sincerely yours,
AVILIA-3X
PInoxmxiIF:, ('haia
,na.
Jll
CONTENTS
Page
Statement of agreement by majority and minority members of the Joint
Economic Committee-Introduction
Outlook
-Fiscal policy
-Monetary policy
-Growth and unemployment
--Prices, costs, and income
-Maintaining competition
Employment and human resources
Income maintenance ----------------------------International trade and finance
-37
Supplementary views of Representative Wright Patman
Separate views of Representatives Richard Bolling and Henry S. Reuss,
on fiscal policy-Supplementary views of Senator Herman E. Talmadge
-45
Supplementary views of Senator Symington
-Minority views
-97
Committee and subcommittee activities in the past year
-105
Committee and subcommittee plans for the coming year
v
3
5
8
9
13
17
18
25
26
31
31
42
47
51
90TH CONGRESS
1st Session
SENATE
REPORT
No. 73
a
1967 JOINT ECONOMIC REPORT
MARCH 17, 1967.-Filed under authority of the order of the Senate of Mlarch 16,
1967, and ordered to be Lprinted
i\4lr. PROXMIRE, from the Joint Economic Committee, submitted the
following
REPORT
together with
STATEMENT OF COMMITTEE AGREEMENT,
MINORITY AND OTHER VIEWS
[Pursuant to sec. 5(a) of Public Law 304, 79th Cong.]
[NOTE.-Due to pressure of other responsibilities, Senator Fulbright was unable
to participate in the hearings and other committee deliberations pertaining to
this report and reserves judgment on the specific recommendations made therein.]
[NOTE.-Representative Hale Boggs states: "Due to unusually heavy commitments in connection with leadership responsibilities, I have been unable to
participate as much as I would have liked in the formulation of this report. And
while I am in general agreement with some of the recommendations, I do not
feel sufficiently informed to endorse the report at this time."]
[NOTE.-Supplementary views of following members appear immediately after
the report: Representative Wright Patman; Representatives Richard Bolling
and Henry S. Reuss; Senator Herman E. Talmadge; and Senator Stuart
Symington.]
1
STATEMENT OF AGREEMENT BY MAJORITY AND MINORITY
MEMBERS OF THE JOINT ECONOMIC COMMITTEE
Members of the Joint Economic Committee agree generally on
certain conclusions resulting from the recent hearings on and consideration of the President's Economic Report. These are listed
below with the added observation that they are not meant to be
exhaustive and that there are, indeed, many other points of general
accord. All of the issues of general agreement are highlighted in
both the report of the majority members and that of the minority
members which follow this statement.
1. The administration's recommendation for a 6-percent surtax is
based on the expectation of a substantial pickup of the economy in
the second half of the calendar year. At present, economic activity
is leveling out. There is considerable possibility that the optimistic
midyear forecast may not eventuate, in which case a tax increase
would be unwarranted. The Congress should remain flexible.
2. In the present circumstances, with pronounced abatement in
investment and consumption, it is clear that the suspension of the
investment credit is adding to downward influences by postponing
investment decisions until January 1968, when the credit is to be
resumed. It would be desirable for Congress to consider earlier restoration of the investment credit, as recommended by the President.
3. In view of the strictures placed on our money supply growth
during the past year and the current economic outlook, it is important
for the monetary authorities to further ease money and credit. Moreover, we agree as to the desirability of increasing the money supply
at a more stable rate.
4. Because of the great importance of the Federal budget in the
functioning of our economy, the Bureau of the Budget should be
required to file with the Congress quarterly budget reports indicating
major changes in earlier projections. Likewise, in accordance with
the committee's earlier recommendation, longer term budget reports
covering a 5-year period should be included in the annual budget
message.
5. In view of the substantial budget deficit projected for the fiscal
year 1968, there should be reduction of expenditures. In the first
place, there should be greater assertion of priorities in terms of
economic growth and national interest. This is imperative as part
of our efforts to achieve an efficient allocation of resources. We
agree that there is considerable room for reducing lower priority items
or in some cases improving efficiency in government. The prospect of
reduction in expenditures reduces the case for a tax increase even if
the economy's expansion is restored during the second half of the year.
3
4
1967
JOINT ECONOMIC
REPORT
6. In the field of international trade and finance, there is also
general accord on the following conclusions:
Agreement on international monetary reform is a matter of
increasing urgency.
We cannot rely on supplies of new monetary gold being sufficient to assure the growth of international reserves, in keeping
with the rising liquidity requirements of trade.
There are longer run disadvantages to some present balance
of payments policies, for example, the restraint of private capital
flows abroad.
Domestic cost and price stability are of prime importance
to our international position.
It is desirable that we should have international coordination
of interest rate charges.
Future trade negotiations will need to emphasize the reduction
of nontariff barriers.
We see a serious danger that the Common Market may be
turning inward, and in the interest of a growing and healthy
international economy, we hope that this tendency will be
arrested.
7. Wise investment in manpower training and other human resource
programs will prove most beneficial to our economic welfare. Our
present urban problems constitute a massive challenge to economic
policy. We must strive harder to achieve effectiveness and efficiency
in our welfare and poverty programs. Furthermore, poverty constitutes a great drag on our economy, as well as an embarrassment to
our society, and its treatment demands high priority.
REPORT OF THE JOINT ECONOMIC COMMITTEE ON THE
JANUARY 1967 ECONOMIC REPORT OF THE PRESIDENT
INTRODUCTION
During 1966 economic policy-making-both in the public and
private sectors-faced changed circumstances from those that prevailed in the years immediately preceding. In essence, the problem
became that of managing high employment rather than achieving it.
This same challenge will face us in 1967. The fundamental
problem of economic policy is that of managing taxation, public
expenditures, monetary policy, and wage-price movements so as to
fulfill our rising potential. We must learn how to steer the economy
closer to its maximum potential and avoid the recessions that have
frustrated this goal in the past; at the same time our economy must
continue to be dedicated to achieving these goals without encroachment on the fundamental freedoms of choice that now prevail.
For the first time in many years, economic policy had to cope with
the prospect of excessive demand, a situation that was induced in
part, unquestionably, by the Vietnam war. Yet the Nation demonstrated its ability to carry on the war and to achieve substantial
growth at home without infringement of the individual standard of
living. Real disposable income per capita available for private consumption or savings rose 3Y2 percent, or $80 per person, in 1966.
The performance is even more impressive when one considers the
fact that Vietnam expenditures for fiscal 1967 are double the original
budget estimates, thereby injecting a substantial and sudden demand
increase that had not been anticipated in the economic planning of the
Administration or the Congress.
Thus, the United States' economy, combining individual enterprise
and government cooperation in the spirit of the Employment Act of
1946 proved its basic vitality by setting new records of production
and well-being. And this was done in spite of some peculiarly
difficult conditions.
1. The uncertain and escalating war in Vietnam made advance
fiscal planning-the level of taxes and the level of Government
spending-little short of unpredictable, with consequent conflicting
signals and crosscurrents. Given a normally expected multiplier
effect from the spreading waves of economic activity growing out of
government expenditures, the unforeseen step-up in outlays for Vietnam probably is having an impact on the economy in excess of $20
billion in GNP terms.
2. As the year opened, the country had already been committed
by action of the independent Federal Reserve System in December
1965 to a monetary policy of restraint on credit-financed spending,
involving tight money and higher interest rates. The effect of this
action was to narrow greatly the fiscal policy choices which might
5
6
1967
JOINT ECONOMIC REPORT
have been followed for the year lest the combined monetary-fiscal
policy risk economic "overkill."
3. In our report last year (page 9) this committee said:
The Federal Reserve's December [19651 action in raising
the interest rate ceiling on time deposits [at commercial
banks] by 372 percent [from 4 to 5Y2 percent] launched a
major disruptive force into the flow of savings through
financial intermediaries. It is impossible to foresee the
extent of the dislocation and deterioration of credit that
this action may cause.
In retrospect we now know that it set in motion forces which
resulted in a drying up of mortgage money at the customary saving
intermediaries. By fall of the year the Federal Reserve's action had
produced strains and tensions in the credit market as volatile savings
funds were encouraged to play at "musical chairs" among passbook
deposits, certificates of deposit, and money market instruments. (The
circumstance of the ensuing competition for deposits is discussed more
fully below in connection with monetary policy.)
4. Confronted in the past with costly war efforts in World War II
and the Korean involvement, public policy was driven to reliance on
statutory price and wage controls to hold down the upward push on
costs and prices. Statutory controls, of course, never have been
acceptable in the United States except as a last recourse. Public
policy in 1966 was dependent upon voluntary observance by industry,
labor, and the trades of suggested wage and price guidelines. These
served to hold inflation to a relatively mild pace in those industries
where they were applicable. But in other sectors, such as food,
services, and interest rates, where the guideposts were not applicable,
prices rose appreciably. Also, the application of the guideposts to
wages produced unfair results in some cases. And it has become
obvious that in periods of price rise absolute adherence to the 1966
guideposts could bring about an actual decline in real earnings.
Looking ahead, a $47 billion increment in the production of goods
and services is expected in 1967. Of this amount, some $10 billion
will go to support our operations in Vietnam and meet other defense
needs; $10 billion will go to provide public services, largely at the State
and local levels; and more than $27 billion will provide an increase in
consumption and investment in the private sector. But these expectations should give little basis for complacency. The extremely high
interest rates of the past year have had a temporarily dislocative,
disruptive, and uneven effect on the economy. Vigilance is required
to repair the damage already done and to avoid additional hardship.
The upward creep of prices has threatened to ensnare the economy
in a cumulative chain reaction of costs, prices, and profits. It poses
the threat of cost-push price and wage increases at a time when waning
demand requires stability or, in the case of prices, reductions.
The deficit in our international balance of payments continues to
act as a restraint on both international and domestic programs. On
the other hand the eventual prospect of decreasing international
liquidity looms as a threat to necessary expansion in world trade.
Of even graver import is the fact that the Nation continues to be
plagued with substantial preventable poverty. Approximately one
1967 JOINT ECONOMIC
REPORT
7
out of six of our population lives below the minimum standard of
decency, and it is obvious that the continued existence of poverty
exerts a heavy drag on our growth potential. Not only does this
situation rob us of productivity but it contributes great y to social
costs in the form of sickness, social friction, and crime. With the
resources available to this Nation, the only course of action is to
continue investments in human growth and development so as to
reduce preventable poverty and its train of evils. To fail is not only
unsound in terms of economic policy but inhumane.
As the Nation looks ahead, it is clear that the exuberance of the
economy has abated substantially and indeed, at the moment, a process
of leveling off is occurring. At the same time, the continued heavy
involvement in Vietnam adds to the demands on the economy and
imposes limitations on the progress of Federal programs for developing
human resources.
OUTLOOK
The Administration's forecast of a $787 billion GNP for
1967, as well as its emphasis on the accelerated pace in the
second half of the year, is an uncertain basis for policy. It
rests on a number of expectations concerning the trend of
events for the rest of the year. Sustained rise in investment,
and an expansionary deficit in the Federal budget, may indeed
fuel continued and accelerated expansion. But the slowness
reflected in most economic indicators, including investment,
and the possibilities of further reaction this year from the
excessively tight monetary policy of 1966 and the suspension
of the investment credit, point to a much less expansive
course of events. The uncertainty emphasizes the need to
maintain flexibility in policy as long as possible.
The American economy enters its seventh year of uninterrupted
expansion with the rate of advance slowing rapidly. The Administration has projected a gross notional product in current dollars for 196i
of $787 billion and continued unemployment at about the 4 percent
rate or a little under. Of the 6% percent rise in the value of output,
the Administration expects 22 percent to represent rising prices and
4 percent rising real output.
The Administration's economic forecast is based on a number of
optimistic expectations as to the course of events during 1967. It
assumes a sustained increase in investment throughout 1967 although
at a much slower rate than last year. It anticipates rising demand
for housing and other construction as a result of easier money rates;
and it assumes sustained strength in the consumer sector, as well as a
stimulative government sector resulting from Vietnam war needs
superimposed on growing demands for domestic programs. It
assumes that inventory accumulation will be sharply reduced in the
first half of the year, then stabilized later. It also assumes a rise in
consumer demand reflecting the proposed increase in Social Security
benefits. On the basis of these optimistic expectations, the President
has proposed a 6 percent surtax on individual and corporate income
taxes, to become effective at midyear.
But there is contrary evidence. Many of the leading indicators
of economic activity for several months have been pointing toward a
slowdown or even a downturn.
(1) The action of the Federal Reserve System during 1966 severely
restricted bank credit and the money supply. Previously, restrictions
helped cause recessions, a factor that leads many economists to
anticipate further depressive effects this year from our monetary
policy. The flow of funds is usually much more available to housing
in the winter than in the spring and summer, and recent evidence of
strength in this sector could easily turn out to be a false hope.
8
1967 JOINT ECONOMIC REPORT
9
(2) Inventories are high in some industries and should these companies shift to a policy of inventory liquidation, as is often done in a
period of slowdown, it -would have a retarding effect on the economy.
(3) Recent weakness in automobile markets may turn out to be
something other than a mere weather phenomenon or a temporary
condition, and a sustained drop in automobile demand for the year
would make a real dent in output and employment.
(4) Other evidence of consumer demand is not too favorable; for
example, the January level of retail sales was only one percent above
a year earlier while prices were up more than one percent; therefore,
real volume was down somewhat.
(5) Industrial production declined in January by over one-half of
one percent with declines in output concentrated in consumer durable
goods, while production of business equipment and nondurable
materials changed little in the early part of this year.
All in all, a review of the economic situation suggests
that it would be wise to maintain as much flexibility as
possible this year until we see how far the Federal Reserve
System is prepared to go in easing monetary policy; how
strongly the economy responds to the easing of credit conditions; and, finally, what action the Congress takes on
Federal expenditures. Only then will it be possible to determine the probable course of events with enough certainty
to form a basis for a change in the stance in fiscal policy.
FISCAL POLICY l
The calendar year 1967 begins with the Federal budget (national income accounts basis) in a stance of substantial and growing
deficit-probably at least a $5 billion per year rate at the moment.
If no tax increase is enacted, and expenditures turn out about as the
President expects, the N.I.A. deficit under the Administration's
projections would widen further, running at a rate between $7 billion
and $10 billion per year in the latter part of this calendar year, assuming about 4 percent unemployment.
This suggests the first imperative for fiscal policy in 1967.
Federal expenditures that are not absolutely essential to national defense or our economic growth or welfare must be
sharply reduced. Congress must find ways to reduce expenditures for fiscal 1968 by at least $5 billion to $6 billion
per year.
With the Vietnam war expected to absorb about $22 billion out of
our national output, and the deficit in the Federal budget growing, it is
imperative to reduce all Federal expenditures not absolutely essential
to national defense or to economic growth and welfare. In the
I Senator Ribicoff says: "As a member of the Senate Finance Committee, I
will doubtless be required at a later date to pass upon the President's proposal of a
tax increase to be in effect after mid-year. For this reason, I do not desire at
this time to pass upon questions of fiscal policy pending the full hearings and
discussion of the Finance Committee."
Representative Martha W. Griffiths said that as she is a member of the House
Ways and Means Committee, where fiscal policy legislation must originate, she
prefers not to pass upon questions of fiscal policy at this time.
See also, separate views of Representatives Richard Bolling and Henry S. Reuss,
p. 42
10
1967 JOINT ECONOMIC REPORT
present situation, some activities can be temporarily postponed until
the strains on the budget are less demanding. Moreover, it is a sad
commentary on public affairs that agency staffs often tend to outlast
the fulfillment of objectives for which their agencies were originally
established. This committee does not presume to tell the Congress
and the Appropriation Committees precisely where and by how much
to cut expenditures or appropriations, but we do stress that it is
essential to face up to the responsibility for reducing expenditures now.
At the same time, the committee must stress the importance of not
falling into another trap in the process of reducing expenditures,
namely, that of reducing spending on the all too vulnerable human resource programs. These are sound investments with a high pay-off in
increased productivity. They must be maintained, and even prudently expanded, if we are not to pay a high price a few years hence
for false economy today.
The Administration's proposal for a tax increase is fundamentally a proposal now for action in the future to deal with
contingencies that may not be realized.
Congress can meet
these contingencies when and if they arise.
As we have pointed out in our review of the President's assumptions
about the economic outlook, this is a year of great uncertainty as to
investment, inventories, consumer demand, and other factors. Forecasting, a difficult art at best, is even more uncertain this year by
reason of the aforementioned cross currents in the economy. The
President's proposal for a 6 percent surtax on individual and corporate
incomes to take effect July 1 of this year is, in fact, a proposal that
Congress consider now what to do about a future contingency which
may not happen. Changes in monetary policy and in private economic tendencies may completely change the situation by mid-year.
Furthermore, Congress can and should alter prospects by changing
expenditure programs downward. There will be enough time to act
on tax policy when we know the outcome of these other possibilities.
In the case of an across-the-board, temporary increase in income
tax rates, there is no purpose served by consideration of the proposal
long in advance of its need. The real problem is one of information.
It is the decision as to whether the complex of economic activities at
any given time warrants a tax increase that causes delay. Congress
has the ability to act rapidly on tax matters and has demonstrated
this ability on many past occasions. The real problem is that of
adequate information and vigilant survey of economic developments
in order to determine what tax actions are warranted. This responsibility would in 2no way be facilitated by a premature consideration of
the tax proposal.
There are widespread evidences of concern lest the current suspension of the investment tax credit result in an "air pocket" in investment toward the end of the year. It is feared that businessmen will
hold off on orders for investment goods in the last quarter of the year,
waiting for the investment credit to come back into effect on January
1, 1968. In view of other evidences of weakness in the economy we
cannot afford this additional downdraft. Congress, therefore, should
restore the investment credit. We laud the President for his action
2 See Hearings and Report of our Subcommittee on Fiscal Policy, "Tax
Changes for Shortrun Stabilization," March-May 1966.
1967 JOINT ECONOMIC REPORT
11
on March 9 in calling for restoration of this incentive to help stimulate
investment.
In connection with fiscal policy and the proposals for a tax increase,
it is important to avoid unwarranted conclusions regarding the relevance of fiscal and monetary policy to possible price increases during
1967. As was brought out in the committee hearings, price increases
this year are not likely to be the result of a general excess of demand.
Tighter money and higher taxes will not be the answer to price increases brought about Tby cost-push forces or by changes in the prices
of services induced by sharp increase in demand. Such increases are
relatively insulated from fiscal and monetary policy actions. Certainly the Government should be alert to the problems of this kind of
inflation and should do what it can to moderate these forces as discussed later in this report. But the time to have stopped cost-push
inflation in 1967 was when the original excess-demand inflation
started, over a year ago. This committee pointed out then the need
for action. It was not taken. To take action now would be a case of
locking the door after the horse has gone.
Moreover, the circumstances of the increase in expenditures for the
Vietnam war exerted an upward influence on prices. The initial
estimate taken into account in economic policy planning for the
fiscal year 1967 was $10 billion. It was not until late in 1966 that the
Administration clarified the fact that the actual expenditures would
be double that figure, a tremendous increase. This increase, with an
undoubtedly high multiplier effect coming suddenly and unexpectedly
into a high employment economy, inevitably exercised a strong upward
pressure on prices.
The highly disruptive effects of this episode highlight
clearly the urgent need for quarterly reporting to the
Congress of anticipated budget expenditures. With approximately 20 percent of the national income passing through
the Federal sector, there is an obvious need for frequent and
accurate estimates of receipts and expenditures. Otherwise,
the competent management of high employment policy
bears an impossible burden of uncertainty. For this reason
the committee recommends that Congress require quarterly
reporting of budget expenditures by the Administration to
the Congress.
Even if the Executive Branch is not prepared now to go all the way
in the quarterly reporting of revisions in the Budget, as recommended
above, at the very least it should give the Congress quarterly estimates
of the cost of the Vietnam war. Estimates of these expenditures
were grossly wrong for fiscal 1967. They were not corrected until
late November when Congress had gone home.
This committee can recommend sensible economic policy to the
Congress only if spending estimates are reasonably accurate. In the
face of the unpredictable elements of war costs, quarterly estimates
would surely improve the soundness of this government's economic
policy.
In addition, the committee strongly endorses the President's appointment of a Commission to make a thorough
review of the budget document, preliminary to a complete
reform. This should bring the entire budget document much
70-361 o-67--2
12
1967 JOINT ECONOMIC REPORT
closer to the ideal spelled out by this committee and its Subcommittee on Economic Statistics in earlier years, particularly in its report of August 1963.
The present organization and semantics of the Federal Budget
document have created serious problems through, a lack of proper
transmission of information both to the public and the Congress.
Concepts, definitions, organization-all these tend to create more
confusion and misunderstanding than clarification. This committee's
Subcommittee on Economic Statistics presented sweeping proposals
for reform in its report of 1963 entitled "The Federal Budget as an
Economic Document." It is therefore with pleasure that the Joint
Economic Committee endorses the President's action in appointing a
Commission to make a thoroughgoing review of Budget concepts -and
method of presentation. This is long overdue.
In the meantime, we call to the attention of the President
and the Bureau of the Budget another recommendation in
the subcommittee's document of 1963, that the Budget
should be presented each year in the context of ". . . a
broader, longer run set of budgetary projections . . ." and
that there should be regular periodic reviews of budgetary
estimates at least once a quarter and, finally, that budget
estimates should be, to the maximum extent possible,
broken down by calendar quarters rather than being shown
as annual totals.
The Budget Bureau and the President should put this program into
practice immediately. It is particularly necessary at this time in view
of the uncertainties in the Budget arising from the Vietnamese war.
Unquestionably, economic policy would have been better executed
last year had such a program been in operation so that the 100 percent miscalculation in estimating expenditures for that conflict would
have become clear to the Congress sooner than was the case.
A parallel development of recent years, which has started since the
Joint Economic Committee's Subcommittee on Fiscal Policy first
recommended it some years ago, is the extended use of the so-called
Program-Planning-Budgeting System, or PPB-S. We commend the
President and the Budget Bureau for the extension of these techniques
and we look forward to the improvements in this area being reflected
throughout the Federal Budget, including the presentations in the
present document itself. Our experience in asking for information in
connection with the study on "Federal Programs for the Development
of Human Resources" by the Subcommittee on Economic Progress
indicates that there is much yet to be done in putting these PPB-S
techniques into practical operation in the various Departments.
The President should emphasize very strongly to the members of
his Cabinet the need for making progress in the development and
utilization of these techniques.
In addition, it would be very productive for the Executive Branch
to make the results of the PPB-S approach to the 1968 budget
available to the Congress so as to permit the committees of the
Congress better to evaluate some of the alternative methods of achieving public policy goals and, therefore, to achieve a more effective and
economical use of resources.
1967 JOINT ECONOMIC REPORT
13
MONETARY POLICY3
The year 1966 demonstrated anew that tight money can stop an
on-rush of an economy which is exceeding "reasonable speed limits,"
as the President's Economic Advisers put it, but not without serious
dislocation of some sectors. The ones who suffered in the 1966
application of the brakes were the construction and housing industries
and small businesses. The year brought the highest interest rates in
40 years and the lowest level of housing starts in ten years. The
course of events has left experts at the beginning of a new year undecided whether the economy is poised for a downward slide or whether
it can still be steadied into a renewed expansion by monetary ease.
The kind of ease required for the economy's health must
take the form of a positive action by the Federal Reserve
authorities to increase bank credit and the money supply
rather than the misleading form of "ease" brought on by
a decline in the demand for private credit caused by uncertainty and stagnation in the economy.
During most of 1966, the nation's money stock consisting of demand
deposits and currency not only ceased to expand but actually decreased
from last May until November. Meanwhile, a strong demand for
goods and services pushed up the volume of credit extended.
This strong demand for loans, pressing against the limited increase
in reserves supplied to the banking system, was manifested by rising
interest rates-a rise which tended to accelerate after April 1966.
The high interest rates had the inevitable corollary effect of pushing
down the price of bonds and the value of existing capital assets as
investors reappraised the flow of returns from common stocks and
real estate at prevailing rates of interest.
This upward movement of the market rates of interest generally
had left the 4Y percent discount rate considerably out of line. In the
summer of 1966, the directors of several regional Reserve banks
proposed increases in the discount rate-the rate at which Reserve
Banks stand ready to supply additional reserves to member banks.
It is to the credit of the Board of Governors that it rejected these
proposals, since to have approved them would almost certainly have
resulted, as the Board itself foresaw, in "further escalation of interest
rates including those being offered for funds by banks and non-bank
financial institutions." Regrettably, however, the far more important
monetary instrument, namely, open market purchases, continued to
operate restrictively at least until late November. Since then monetary policy has been admittedly less restrictive, with the result that
the money supply has risen at an annual rate of 2.8 percent through
the end of February.
While interest rates have declined somewhat from the peak levels
of last fall, they still remain high relative to mid-1965 when the
recent upward thrust began.
3 See supplementary views of Representative Wright Patman, p. 37.
14
1967 JOINT ECONOMIC REPORT
The following table makes selected comparisons:
June
1965
3-month Treasury bills-3.
4- to 6-month commercial paper
-4
Intermediate term Government bonds
Long-term Government bonds -4.
State and local Government Aaa -3.
Corporate bonds highest grade-4.
80
38
4. 09
14
15
46
Nov. 19,
1966
5. 38
6. 00
5. 47
4 77
3. 81
5. 36
Mar. 4,
1967
4. 47
5. 38
4 70
4. 53
3. 53
5. 11
In spite of some recent increase in the holding of Government securities by the Federal Reserve System, the money supply-the national
stock of demand deposits and currency-has, on balance, shown no
marked increase since last April although the uses and needs to
support a continuously rising volume of trade and Gross National
Product are undisputed. The Federal Reserve authorities have
taken steps, effective just as this report is being issued, to ease the
availability of bank credit by reducing reserve requirements on certain
time deposits, as well as lightening the pressure on bank reserve
positions through open market purchase of Treasury bills. It is too
soon to judge whether the steps taken are more than those necessary
to meet seasonal needs, but it is hoped that the actions are a visible
evidence of the Federal Reserve's intention to move toward greater
ease.
The committee urges that the monetary authorities adopt
the policy of moderate and relatively steady increases in
the money supply, avoiding the disruptive effects of wide
swings in the rate of increase or decrease.
The committee is impressed with the increasing weight that many
economists give to the importance of a steady rise in the money
supply. Such rate of increase should be more or less consistent with
the projected rate of growth-generally within a range of 3-5 percent
per year. Sudden changes in the money supply give rise to instabilities in the economy. We are convinced that restoration of economic
growth and avoidance of a recession demand such increases in the
money supply as recommended above. Failure now to provide the
conditions of monetary ease in whatever amount is needed to stimulate
and move bankers and businessmen to renew the rate of economic
expansion can only serve to throttle the long run forces of economic
growth.
In addition to the lag in the rate of increase in the money
supply, the committee is also troubled by an increasingly
competitive race among banks and financial intermediaries
for new time deposits.
This situation was triggered by the December 6, 1965, action of
the Board of Governors amending Regulation Q, which aimed at
preventing a threatened run-off of maturing large certificates of
deposit at large member banks. The action, increasing the maximum
rate that member banks were permitted to pay on certain types of
1967 JOINT ECONOMIC REPORT
15
longer term deposits, was "intended to enable the banks [i.e., commercial member banks] to attract and retain deposits of businesses and
individuals and thus to make more effective use of savings funds
already available in the economy to finance their loan expansion." I
The Federal Reserve Bank of New York, which would hardly be
suspected of understatement in the circumstances, said in its January
1966 Review, "the Board of Governors' announcement of a rise in
the discount rate and changes in Regulation Q caught the market by
surprise and sharp adjustments followed . . . Considerable uncertainty continued as the market watched the rate adjustments on new
negotiable time certificates of deposit which compete with Treasury
bills for investment funds."
Granted that loan demands at commercial banks were at record
levels, and granted further that existing rate ceilings at member
banks were less than savers and corporate treasurers could earn
elsewhere, there was no place for funds to come from except by
withdrawals from other sectors of the financial system, especially the
institutions specializing in housing finance and the market for Treasury bills and longer term bonds. The change effectively opened
a Pandora's Box since the commercial banks, in bidding for funds
in a period of unusually insistent loan demands, were immediately
prompted to raise the loan rates charged to customers.
Succeeding months brought an upward spiral in interest rates. By
the end of February, large New York City commercial banks increased
the interest rate on non-negotiable savings certificates of deposit of
9 months or longer maturity, having already raised offering rates on
new 3- and 6-month non-negotiable time certificates. Caught up in
the spiral, the Federal Housing Administration on February 7, almost
out of necessity, raised the maximum permissible interest rate chargeable by lenders on insured mortgages from 5$' to 5% percent. During
the month of March, again according to the New York Reserve Bank,
rates on new negotiable time certificates of deposit issued by commercial banks moved higher. On April 11, the Federal Housing
Administration again increased the maximum interest rate permitted
on mortgages it insures, this time from 5% to 5% percent. The
Veterans' Administration made a similar rate change on the mortgages
which it guarantees. By. the end of May banks were paying the
maximum permissible rate of 5% percent on certificates maturing in
3 months, and quite commonly on longer maturities as well.
Offering rates posted by the leading money market banks on time
certificates of deposit continued to increase in June and July when the
ceiling rate of 5Y2 percent was reportedly paid by prime banks on new
certificates maturing in as little as 30 days.
Even so, commercial banks found it increasingly difficult with the
5S percent ceiling to attract and keep time deposits, especially those
obtained through issuance of large negotiable time certificates of
deposit. In mid-August, the prime lending rate charged by large
banks was raised from 5% to 6 percent, the fourth time in nine months
that the rate had been raised.
On October 3, the Federal Housing Administration found it necessary for the third time to raise the maximum rate allowable on insured
mortgages-this time from 5% to 6 percent where it remains today.
I See Federal Reserve Bulletin, December 1965, p. 1667.
16
1967 JOINT ECONOMIC REPORT
By early fall the spiral had worked up to a pitch calling for emergency legislation which President Johnson signed into law on September 21. Acting under the new authority, the Federal Reserve Board,
the Federal Deposit Insurance Corporation, and the Federal Home
Loan Bank Board announced a series of new interest rate ceilings on
time deposits and savings accounts which generally went into effect
on September 26. The maximum rate of interest which both member
banks and insured non-member banks may pay on an individual time
deposit of under $100,000 was reduced from 5Y2 to 5 percent. It is
rather ironic that the relatively small depositor was, in effect, discriminated against, but it was hoped that this type of deposit would,
as a result, be forced back into or at least would be less tempted to
flee the savings institutions normally supporting the mortgage money
for the housing industry. The Federal Home Loan Bank Board, at
the same time, imposed rate ceilings on deposits of member institutions
of the Federal Home Loan Bank Board System, generally-with
certain local exceptions-4 3 4 percent on passbook savings and 5%
percent on certificate accounts carried for at least six months. Along
with other measures-suspension of the investment tax credit and
accelerated depreciation provisions, temporary suspension of further
sales of participation certificates, curtailment of new money borrowing
by government agencies-the supply of mortgage money appears to
have increased in the weeks following, but it is obvious that we have
a long way to go to restore financial balance to the economy.
The committee vigorously rejects the notion that a tax
increase should serve as a "trade-off" for easing money. As
indicated above, the resumption of a policy of steady increase in the money supply is an urgent prerequisite to sustain economic growth.
Several witnesses at our hearings warned the committee against
being misled into thinking that monetary policy is now "easy" because
interest rates have declined somewhat or because free reserves have
risen. And it would be a gross miscalculation were the Fed to take
the view that a tax rise should be the price of badly needed monetary
ease.
This committee has previously criticized this lack of coordination
in the use of the Government's principal stabilization tools and
called for legislation to correct the situation. While we hope that
the Executive Branch has strong grounds for expecting coordination
in the future, experience of the past, such as the precipitous actions of
December 1965, gives rise to uneasiness about the assurance of coordination in the future.
In his Message on the State of the Union, delivered on January 10,
1967, the President said:
Monetary conditions are also easing. Most interest rates
have retreated from their earlier peaks. More money now
seems to be available.
And given the cooperation of the Federal Reserve System,
which I so earnestly seek, I am confident that this movement can continue. And I pledge the American people that I
sxill do everything in a President's power to lower interest
rates and to ease money in this comuntry. * * *
1967 JOINT ECONOMIC REPORT
17
We shall continue on a sensible course of fiscal and budg-
etary policy that wve believe Aill keep our economy growing
without new inflationar~y spirals
* * *
and will press for-
ward toward easier credit and toward lower interest rates.
In his Economic Report, transmitted to the. Congress on January
26, 1967, the President said:
Nowv that the economy's advance is again more moderate,
the burden of tight money is being lifted. Interest rates
are still extremely high-but they are moving down from
their peaks. Credit is still not readily available to all who
can make sound and productive use of it-but it is becoming
easier to get. * * *
The steps we took last year and those I am now proposing,
the steps the Federal Reserve has recently taken and is continuing to take to increase credit availability and lower
interest rates, should have our housing industry moving
smartly forward by the end of 1967, and ready for one of its
best years in 1968. (Page 7.)
Because of the vital importance of monetary policy, the committee
urges the Federal Reserve System to take full cognizance of the role
expected of it.
GROWTH AND UNEMPLOYMENT
One of the most crucial questions facing economic policymakers is
that of the potential growth rate of the economy in 1967. To reduce
unemployment, it is obvious that the growth rate of the economy
must be higher than that projected by the Council.
The Joint Economic Committee, therefore, rejects the
unemployment rate of 4 percent which the Economic Report
presumes for 1967. Fulfillment of the requirements of the
Employment Act necessitates a 1967 interim goal of 31/2
percent unemployment and the longer range goal of 3 percent.
There is no fundamental reason why this objective cannot be
achieved.
Regrettably, the Council takes the position that the economy's
potential will increase by only 4 percent in 1967. It reasons that
productivity in the private sector increased by something over 3 percent a year in the post-war period and about 2Y2 percent less when
account is taken of the public sector." With this rate of productivity
increase and a rise in manhours of 1Y percent, the Council arrives at
an estimated increase in potential output of 4 percent.
It was brought out in the course of testimony that the Council
might have underestimated the degree of demand expansion required
to hold unemployment at existing levels. It was noted in this regard
that the 1966 production advance exceeded the Council's expectations
by one-half of 1%. The Council projected 5% whereas the actual
was 5%%. Even with that brisk rate of increase, however, unemployment failed to decline as much as expected, mainly because
of the unexpectedly high elasticity of labor supply in response to new
job openings. The total labor force grew by 2.3 percent in 1966 as
6 Current methods of measuring productivity increase have no way of taking into
account any rise in the productivity of Government employees.
is
1967 JOINT ECONOMIC REPORT
compared with an average of 1.4 percent for the preceding five years.
It grew by 2.9 percent from December 1965 to December 1966, while
the population of working age increased by only 1.6%.
It seems clear that this experience indicated that the lower participation rates in the early 1960's resulted from the fact that there were
fewer job opportunities. This should not be regarded as genuine
withdrawal from the work force.
There is question as to whether we may expect further gains to
occur in civilian labor force participation if economic expansion continues to be vigorous, particularly if there were an increase in the
Armed Forces; but it is to be noted that the rise in labor force participation accelerated in 1966. It is important to note also that participation rates still have not reached the high points of the mid-1950's.
Another positive factor in the growth picture is the prospect of increased labor productivity resulting from the high rates of investment
in plant and equipment in 1965 and 1966.
These two considerations on the side of productivity and of labor
force increases would add to the likelihood that the economy is capable
of a higher rate of production increase than the Council indicates.
Indeed, the committee believes that complacent acceptance of a 4
percent growth rate would result in a rising rate of unemployment-an
intolerable prospect.
There is, of course, much that government and industry can do
about the matter. As indicated in the section below on human resources, vise investment in education and training can do much to
ease stresses in the labor market, while adequate overall demand is
essential. At the same time, courageous and vigorous wage-price
policy is needed to avoid evaporation of our potential gains in a spiral
of wage-price increases.
PRICES, COSTS, AND INCOME
Achievement of full employment potential depends heavily
on our ability to resolve the problem of maintaining price
stability; otherwise price and wage inflation will frustrate
our efforts to achieve the most effective use of our economic
resources.
Prices rose too rapidly in 1966 and are in danger of doing so again
in 1967. Price stability cannot be restored by a timid growth policy,
but rather by a concerted effort to coordinate public and private
policies to produce full use of our resources.
The Consumer Price Index rose 3.3 percent from December 1965 to
December 1966. The service component rose almost 5 percent and
accounted for one-half of the increase in the total index. The cost of
medical care services rose 8.1 percent. Food prices rose almost 4
percent and accounted for about one-fourth of the rise in the total
index. However, the sharpest advance in food prices occurred in the
first half of the year-3 percent from December 1965 to June 1966while the increase was only 0.7 percent from June to December.
Commodities, other than food, contributed the other quarter of the
rise, although the weight of this group in the index was about 43 percent.
1967 JOINT ECONOMIC REPORT
19
The Wholesale Price Index rose 1.7 percent from December 1965 to
December 1966. The prices of farm products, foods, and feeds rose 1
percent, while prices of other commodities rose 1.8 percent. However,
there is evidence that upward pressures on wholesale prices of food,
farm products, and other raw materials receded during the year.
The rise in industrial products, particularly finished goods, has continued at a steady pace.
The Implicit Price Index, the most general of our available price
indices, rose 3.0 percent from 1965 to 1966; and 3.5 percent from the
4th quarter 1965 to the 4th quarter 1966. The rate of increase has
moderated somewhat, from 3.6 percent and 4.3 percent during the 1st
and 2nd quarters respectively, to slightly more than 3 percent in the
3rd quarter, and to less than 3 percent in the 4th quarter.
The general upswing in prices from mid-1965 through 1966 resulted
in part from a too rapid approach to the potential rate of growth, that
is, from demand pressures. But it was also derived to a considerable
extent from special circumstances in the food and service areas which
cannot be attributed to a general excess of demand.
The committee emphasizes that high priority should be accorded to
research in the area of prices and price indices. For effective public
policy, we need to know how prices of various product groups are
affected by particular types of monetary and fiscal measures: for
example, which prices would tend to increase because of higher interest
rates and-which prices would tend to stabilize; which prices would
be affected if stringent fiscal policies were adopted.
The Subcommittee on Economic Statistics held hearings during
1966 on "Government Price Statistics." One of the major recommendations contained in its report was that research emphasis should
be directed toward the development of selected price indices for
analyzing and predicting inflationary pressures. The report also
emphasized:
The Nation urgently needs better, more adequate price
statistics. Though we have better information on prices
and price changes than any nation in the world, it is not
adequate for the burden of public and private policy formulation that it must carry. Our price data must guide
monetary, fiscal, and employment policies; and they must
measure the standard of living of the American people.6
Beginning in 1961, the gap between the actual GNP and potential
GNP began to close gradually and without inflation. As the economy
neared its potential, in 1965-66, the necessity for a slower approach to
potential became necessary. Instead, the demand for defenserelated goods and for plant and equipment burgeoned beginning in
mid-1965. In critical sectors, the demand for raw materials and for
manpower pressed upon the available supplies. In the manpower
market the forces of adjustment worked well, but not rapidly enough.
Workers were not able to retrain or to switch fast enough to the
areas of critical shortage. In an attempt to hold the workers at their
old jobs, wages in low-paid sectors were bid up far more rapidly
than their long-run rate of increase.
6 "Government Price Statistics," Report of the Subcommittee on Economic
Statistics of the Joint Economic Committee, July 1966, p. 14.
20
1967 JOINT ECONOMIC REPORT
In establishing public policy toward prices, it is essential to
separate, insofar as possible, those prices which are primarily
affected by special circumstances. It would be both wrong
and harmful to deal with all types of price pressures by means
of lowering the target rate of growth by restrictions on
aggregate demand.
Price increases in wholesale food commodities were temporary when
compared to long-term trends. Retail food prices, on the other hand,
will no doubt continue to creep upward as they have in the past due
to consumers' demands for more and more services along with the
food items.
In this connection, it seems an obvious conclusion that the requirements of price stability, considered in conjunction with the world food
balance and rising domestic incomes and population, require a flexible
farm policy.
Prices of consumer services, as in the past, will continue to rise
more rapidly than the overall Consumer Price Tndex. This is due
in part, to the shift in consumer preferences as incomes rise, and the
slower rise in labor productivity in the services sector which has had
less scope for mechanization and automation than the goods producing sectors. In addition, there had been distortions in the wage
structure. Many groups of service workers were paid very low wages
in comparison with other groups who have comparable skills, education, etc. On the other hand, there is a highly paid and highly
trained segment of the service workers; for example, doctors, lawyers,
and university professors. 7 In the case of consumer services, there
must be emphasis on stimulating the supply of skilled services rather
than efforts to directly influence price.
With respect to commodity prices, there is no doubt that when
aggregate demand increases rapidly, particularly when the economy is
operating near its potential, industrial prices are subjected to strong
upward pressures. Some discuss this relationship in terms of a
"tradeoff" between the rate of unemployment and the rate of increase
in the general price level.
This committee does not accept for one moment the notion
that the welfare of the poor and the unemployed must be
sacrificed in order to achieve price stability.
Policies which attempt to bring the economy to full employment do
run the risk of price increases if we approach full employment too
rapidly. We have witnessed one such period from mid-1965 through
1966, when localized scarcities of labor appeared and when industrial
prices were subjected to strong upward pressure. This kind of strain
can be corrected in a relatively short time by adjustments within the
economy.
On the other hand, longer term strains caused by an excess of demand over supply, require positive corrective measures. Left alone,
I Costs of educational and legal services do not enter into the Consumer Price
Index, yet they affect almost every family.
1967 JOINT ECONOMIC REPORT
21
general demand inflation poses a danger of acceleration because the
expectation of price increase is built into price and wage determination,
thus nullifying any attempt at a longer term "trade-off." Recognition of the fallacy of continuous trade-off, however, should not be
allowed to obscure the fact that there is great danger of overreacting
to the more rapid rate of price advance in 1966.
In the industrial sector, where large firms and large unions are
characteristic, wage and pricing decisions have important discretionary elements. Managements may have target rates of return on
sales or on equity capital which they believe should be attained over
the long run. On the other hand, union negotiators have targets for
increases in wages and fringe benefits based on what they believe can
be justified as a result of rising productivity, past increases in the cost
of living, and possibilities for redistribution of income between capital
and labor.
In the past, there has been a dreary inconsistency in some of these
decisions. Rising demand and rapidly increasing productivity have
resulted in rapid increases in total profits and profit margins during the
upswing in the economy. Productivity advances slowly as capacity
is neared, while wage increases tend to accelerate due to large observed
profits and rising consumer prices. Businesses tend to raise prices
in an attempt to maintain or to better the profit margin achieved
in the upswing. This combination of circumstances plus rising interest costs has often choked off the advance, leading to recession in
output and employment while prices continue to rise.
This need not be reenacted with a sense of inevitability. It may
seem to be to the advantage of each participant to seek maximum
short-run advantage and to feel justified by the "laws of supply and
demand." But, this is self-defeating conduct because, in the aggregate, it is inconsistent with long-run equilibrium at full employment
of labor and capital without inflation. The perpetual search for shortrun benefits results in persistent long-run disadvantages for all. The
resulting price increases spread and tend to be built into the structure
of the economy, so that the only way for equilibrium to be restored is
for general wage and price levels to escalate to ever higher plateaus,
with intermittent recessions, carrying wvith them losses of the previous
short-run gains. This situation gave rise to the guideposts.
The farm sector of the economy suffers particularly in
periods of cost-push inflation such as we are in danger of
experiencing in 1967.
In the present expansion, farmers have already begun experiencing
a reversal. The index of prices received by farmers on February 15,
1967, was 7 percent below its level of a year ago. During this same
period, the index of prices paid by farmers for production expenses
has gone up by about 2 percent. A major case in point is agricultural
machinery and equipment prices which have gone up approximately
3% percent in the last year.
22
19067 JOINT ECONOMIC REPORT
Traditionally, agriculture tends to prosper during the early stages
of expansion when farm prices tend to rise sharply. However, the
periods of rising farm prices have been short lived and have been
followed by periods of falling farm prices. In contrast, the rise in
prices paid by farmers tends to accelerate in the late stages of expansion and often continues long after demand pressures have declined.
Why have farmers been chronically plagued by a cost-price squeeze?
The reasons are found in the nature of the industry and in the nature
of the wider economy in which farmers operate. First, farm output
is very responsive to rising prices which tend to occur during periods
of high aggregate demand. However, the response occurs after some
lag because of seasonal and life-cycle production patterns.
The farm sector is highly competitive. The benefits of any cost
savings due to technological change are immediately passed on to consumers. If farm prices do rise temporarily in periods of high demand
the impact is immediately felt in expanded demand for the products
of industries which sell to farmers. The pricing patterns of these industries tend to be prime examples of administered or so-called target
pricing industries, where the very large firms set their prices in relation
to their costs, plus a profit margin which they believe is feasible in the
long run.
Because of the unstable characteristic of farm prices, the lagged
but great response of farm output to temporary price increases, and
the administered pricing policies of industries which buy from and sell
to farmers, public farm policy is needed today as it was needed in
earlier years. It is true that farms of today are larger and more efficient than those of yesterday; but the basic problems of the industry,
which are primarily due to the above factors, are still present.
The essential issue is not whether we need guideposts
to wage and price decisions but rather how public and private policymakers can be induced to follow them. The
guideposts represent an attempt to educate decision makers
so that they understand how to reconcile short-run practices with the requirements of long-run full employment
equilibrium. Any retreat from the basic philosophy of the
guideposts would be a retreat from the objectives of the
Employment Act as well as from the lessons of past experience with cyclical instability and inflation.
As noted earlier, the basic problems in practical day-to-day application of the guideposts arise because monetary instability, or transistory conditions-such as the defense buildup for Vietnam or an
unusual harvest situation-may cause a deviation of money wages and
prices from the standards indicated by long-run real relationships,
such as that between productivity and real wavages. In a completely
competitive and completely flexible economy these short-run problems might iron out without serious repercussion, but in the American
and similar economies, there is a real need for the educational influence
of guideposts because(1) our economy is claracterized by very large and efficient
corporations, capable of establishing and maintaining high prices;
(2) it is also characterized by very large unions capable of
negotiating high wages;
(3) most labor and product markets are a blend of competitive
and monopolistic forces; and
1967 JOINT ECONOMIC REPORT
23
(4) our labor and product markets are highly interdependent
so that wage and price changes cause waves and ripples far from
the original source.
As we survey the experience of our past, wholesale and consumer
prices rose approximately 2% percent annually in the period 1955 to
1958. These clearly unacceptable price increases occurred in spite
of the fact that manufacturing capacity utilization averaged only 84
percent from 1954 to 1958 and the unemployment rate averaged 5.1
percent. This period provided an example of "cost-push" inflation
where demand-pull in only a few sectors produced cost-push throughout the economy-a phenomenon that derives from the market power
of large corporations and labor unions. It provides a good case study
of the aforementioned fact. As indicated earlier in the report, we face
the possibility of a similar situation in 1967. For this reason some
form of guidelines is particularly necessary at the present time.
From the point of view of the large firms themselves and certainly
from the public's standpoint, the guideposts provide a significant reminder that pricing decisions have a wide impact. The guideposts
provide rules of behavior such that the combined decisions of the
major groups will be consistent. Now, more than ever before, is the
time for economic groups to become increasingly conscious of their
roles and their responsibility to the larger community.
It should be recognized that in 1966 some distortion in real incomes
occurred because of the rise in consumer prices. A war had to be
fought; resources were called upon by the price mechanism to shift
rapidly without resort to price controls. Some of the price increases
stemmed from a rise in the incomes of several major groups, whose
incomes in the past have lagged badly-for example, farmers, nurses,
and relatively unskilled, unorganized wage earners. These price increases were a once-over occurrence and do not need to recur. Moreover, as indicated above, a substantial component of the price increase
during the past year was induced by factors other than general demand
pressures; general fiscal and monetary restrictions do not directly
affect such rises except by causing drastic curtailment of economic
activity. In judging the need for fiscal and monetary action in the
management of our high employment economy, it is important to
distinguish between price increases caused by demand and those arising from other factors. Failure to recognize the distinction can result
in gross misapplications of general economic policies.
The committee endorses the principles set forth in the
guideposts. However, it believes that there must be continuous innovation to make the guideposts adaptable and
effective. In this regard, the Council of Economic Advisers
can and should elaborate its 1967 guideposts.
To make the guideposts more effective in influencing the behavior
of market participants, there should be some modification to take
partial account of past changes in the general price level. For example, "target" guideposts should be established which, if followed,
would lead to a slower rise in prices and would, as soon as possible,
lead to general price stability.
The President, with the assistance of the Council of Economic
Advisers, should submit quarterly or semiannually a report on the extent to which the economy is achieving the wage-price goals set forth
24
1967 JOINT ECONOMIC REPORT
in the Employment Act. To the extent that events modify the reasonably expected behavior of the market participants, the public
ought to be currently informed about how this affects the guideposts.
Likewise, pricing policies and cost structures should be studied in industries experiencing rapid advances in productivity to determine the
extent to which the benefits are being passed on to the public.
In addition to a more effective set of standards by the
Council, a high-level unit should be established as a permanent part of the Executive Branch to apply those guideposts to particular important industries, by assembling and
analyzing data from both government and nongovernment
sources on prices, productivity, output, inputs, wages and
incomes at both the aggregate and industry levels. Such a
Price-Productivity-Income Office (PPI Office) could very
appropriately be made part of the new department proposed
by the President to combine the Labor and Commerce Departments. It should operate directly under the Secretary.
In its activities with respect to particular industries, the
PPI Office could be assisted by industry-wide PPI boards
composed of representatives of labor, management, and
consumers. The PPI Office and the PPI boards, with respect
to particular wage and price movements which may endanger
the national economic security, should be authorized to hold
fact-finding hearings and make recommendations concerning
wage-price behavior in the public interest.
Recommendations should be made for stimulating the supply of
services which would help to keep prices stable (medical care, for
example). The construction and transportation industries are vital
to the public interest but are characterized by inadequate data, rising
costs, and disorganization.
The Government should act as catalyst to indirectly prevent or
minimize price increases in critical sectors such as medical care,
transportation, and construction. The catalytic measures on the
supply side might include, for example, additional scholarships for
the training of medical personnel, reform of apprenticeship rules,
and long-term projections of demand and resource requirements.
Government agencies should push rapidly ahead with the development and regular publication of industry data on output, productivity,
prices, capital, labor, and incomes.
Measures to raise market efficiency should receive great emphasis.
The following activities are likely to yield high dividends:
(a) To maintain, improve, and expand manpower training
and development programs;
(b) To push measures to eliminate inequality of economic
opportunity, for example, as related to union membership and
apprenticeship training, hiring and promotion by employers,
and the education of youth in low income neighborhoods; and
(c) To promote international trade and free competition.
The foregoing represents longer-run and more permanent
revisions needed to cope with the wage-price problem in our
dynamic economy. For the short-run, the Government
must assume a more aggressive role within the less-structured framework that now exists. The spotlight of publicity
1967 JOINT ECONOMIC REPORT
25
should seek out excessive wage and price increases promptly.
Furthermore, attention should not be limited to increases.
Failure to decrease prices in many cases can be just as out
of tune with the public interest. And such cases should be
sharply within the focus of an invigorated guideline program.
In certain sectors of the economy strongly influenced by government demand, public expenditures can be tailored to ease stresses
that are revealed. In public policy we need to be better able to
decide priorities of public expenditure to better serve this purpose.
In other circumstances, the government may be able to increase
supply on a short-term basis as in the case perhaps of some categories
of medical technicians. Finally, the Joint Economic Committee is
fully cognizant of the importance of wage-price stability to our
economic welfare and will stand ready to conduct its own inquiry
should circumstances warrant.
MAINTAINING COMPETITION"
However much private enterprises are exhorted to conduct their
affairs in accordance with wage-price precepts, achievement of price
stability in an economy operating at or near capacity is impossible
without effective competition. And without vigorous antitrust enforcement industrial markets wvill not long remain competitive. To
underscore this duality-the vital role of competition and the necessity
of government antitrust enforcement-is only to repeat what this
committee has often said before and, indeed, what, as in its report
this year, the Council itself spoke of in clear unequivocal terms. In
fact, it has become a kind of annual ritual to stress the importance of
preserving competition through antitrust activity.
Antitrust must be assigned a central role in national
economic policy of no less significance than monetary and
fiscal policy.
It is an economic fact of life that many vital industries in the
American economy are now characterized by a high degree of concentration, with a few large firms accounting for most of the output.
Sellers in these oligopolistic industries possess substantial power over
price which they can exercise in a manner inconsistent with the larger
public interest in achieving rapid economic growth with relative overall price stability. By reducing or inhibiting concentration in such
industries and increasing the role of market forces, antitrust can
materially complement other public economic policies. But if antitrust enforcement is to play such a role, greater vigor and more
imagination are required, for, in recent years, far too little significant
action has been taken. While price-fixing, bid rigging, and other
forms of overt, collusion have often been prosecuted by Federal
agencies, too few cases have been brought to stem the merger tide
and virtually nothing of consequence has been done to reduce the
high levels of concentration in oligopolistic industries
With nearly 2,000 mergers taking place annually-and with fewer
than one percent being challenged by the Department of Justice and
the Federal Trade Commission-it is hardly surprising that the economy is steadily becoming more concentrated. Data published late last
year by the Senate Antitrust and Monopoly Subcommittee showed
8 See supplementary views of Representative Patman, p. 40.
26
1967 JOINT ECONOMIC REPORT
that in 1963 a mere 200 companies accounted for 41 percent of valueadded by manufacture-up substantially from 30 percent in 1947.
Even in industries already highly concentrated-autos, to cite just one
example-mergers and other factors continue to reduce the number of
active competitors. Given also the powerful influence of conglomerate
(diversification) mergers, the likelihood-absent strong antitrust intervention-is that concentration will increase and that the number of
firms with substantial discretionary pricing power will rise sharply.
If the public is to be protected under these circumstances, the only
answer-and it is an unappealing one to those of us who are strong
proponents of a free enterprise system-may be some sort of statutory
price-wage surveillance and, perhaps, actual controls.
Against this backdrop, the vital role of antitrust-as a means of
achieving and preserving competition so that principal reliance can
legitimately be placed on the market to keep prices and wages in
rough conformance with changes in productivity-becomes strikingly
apparent. Of course, the maintenance of competition calls for more
than just antitrust enforcement: government regulation must be
shaped to encourage rather than frustrate competition, procurement
practices must not have the effect of promoting monopoly, and other
public policies must be continuously appraised with the overriding
objective of further competition. But in the last analysis antitrust
enforcement must assume the primary role in increasing the competitive tone of the economy.
And without a highly competitive
economy, it may be impossible-without distasteful Government
controls-to achieve a rapid rate of economic growth without serious
and unacceptable inflation. This is why we think a more aggressive
and more comprehensive program of antitrust enforcement is not
only needed but is crucially related to the goals of the Employment
Act.
EMPLOYMENT AND HUMAN RESOURCES
Human resources are our Nation's greatest productive asset.
In the years ahead the demand for investment in human
resources will expand rapidly, but ultimately benefits will
greatly outweigh costs. The pace of investment must be as
fast as the availability of resources permits.
Since 1961, great strides have been made in providing a more
favorable environment for the productive expression of our people's
abilities. The data on unemployment and poverty testify to these
developments: The unemployment rate in 1966 was 3.9 percent, its
lowest yearly average since 1953. The number of unemployed persons
has fallen from 4.8 million in 1961 to 3.0 million in 1966, while the
level of employment has increased by more than 10 percent. Moreover, the incidence of poverty has declined from 21 percent of the
population in 1961 to 17 percent in 1965.
But much remains to be done, especially since the advance of a
modern economy leaves the skills of many persons obsolete. The
unemployment rate among nonwhite workers declined to 7.5 percent
for the year 1966. However, the seasonally adjusted unemployment
rate for nonwhite workers was as low as 7.0 percent in January and
February and, if anything, it deteriorated somewhat during the
course of the year, reaching 8.2 percent in August, from which it
declined to 7.6 percent in December.
1967 JOINT ECONOMIC REPORT
27
A second group which continues to be troubled by extremely high
unemployment rates is our young people. The unemployment rate
for workers age 14-19 was 12.0 percent in 1966. This is admittedly
lower than the 15.6 percent of 1963, but it is still far too high. The
unemployment rates among Negro teenagers are very high: 31 percent
in the case of teenage girls and 21 percent among the boys. Enforced
idleness does untold harm to the future happiness and productivity
and self-fulfillment of these young people. Whatever is now being
done is not enough. The benefits from providing useful pursuits for
these young, far outweigh the costs.
The problems tend to be concentrated in urban ghettos and in
isolated rural areas. A Labor Department study of "Poverty Areas
in Our Major Cities" reported that in March 1966 the overall unemployment rate in the poverty areas of standard metropolitan areas
was 732 percent. This was double the rate in nonpoverty portions
of these metropolitan areas. The proportion of family heads who
were not in the labor force also was much higher in the poverty areas.
Poverty is concentrated both by race as well as by location, and to a
certain extent by occupation. In 1965, more than 45 percent of all
nonwhite persons were poor, according to the definition formulated by
the Department of Health, Education, and Welfare. About 27 percent
of all persons living on farms were considered poor.
The basic ingredient. for effectively utilizing our manpower resources and for retraining is to maintain rapid
economic growth. The growth rate in the output of goods
and services must at least equal the percentage increase in
the labor force (adjusted for changes in hours worked per
worker) plus the rate of increase in output per manhour
(labor productivity). For the unemployment rate to fall,
output must rise faster than the increase in productivity
and the increase in hours offered for work.
Moreover, the great majority of worker training and retraining
in this country is done by private industry. When times are prosperous, private industry strives to train inexperienced members of the
labor force and even the so-called "structurally unemployed". Our
experience provides ample testimony to this. During World War II,
the unemployment rate was less than 2 percent for three years; and
during the Korean war period (1951-53) it was approximately 3 percent. This experience strongly indicates that a large part of the present number of unemployed workers and potential workers (not even
in the labor force) can make a useful contribution if there is sufficient
overall demand.
As the output of the economy approaches its potential, it is only
logical that our emphasis should shift from a primary reliance on
measures to further stimulate aggregate demand to measures calculated to raise the employability and productivity of our people,
and to improve the functioning of our resource and product markets.
It should be emphasized that these are dual strategies-maintaining
expanding aggregate demand and structural measures aimed at
training and retraining manpower and at improving market efficiency.
Even though there is now great need for economy in government
because of the Vietnam conflict, this is no time to reduce our efforts
7G-361 O-67-:;
28
1967 JOINT ECONOMIC REPORT
to provide new opportunity for the unemployed and the underemployed. Indeed, we should intensify these efforts.
Our public manpower programs are already providing valuable
assistance. The Manpower Development and Training Program has
had a very significant impact, although the program is modest in relation to the problem. In calendar year 1966, 230,000 persons were
enrolled; and since its inception in 1962 the MDTA program has provided opportunities for 613,000 persons. But the 230,000 persons
affected by the program in 1966 constituted only a small fraction
(about 6 percent) of the total number of unemployed persons (approximately 3 million) plus the estimated one-half to 1 million potential
workers who were not even counted as unemployed. Much more
remains to be done.
Other efforts by the Federal Government to provide training and
retraining opportimities include the Job Corps, Neighborhood Youth
Corps, Work Experience, Adult Work Program, and the Special Impact
Program. These programs, aimed wholly at benefiting the disadvantaged, aided more than 300,000 youths in 1966 through the Neighborhood Youth Corps and more than 60,000 of the most disadvantaged
youth through the Job Corps.
The committee wishes to emphasize that these investments make
sound economic sense. Studies by the Department of Labor indicate that fhinds invested in structurally unemployed workers are
returned in earnings within 2 years; and within 4 years the Government recovers its investment through increased taxes. In other
words, it would actually cost far more not to make the investment
than to make it. In addition, there is the immeasurable human
dividend.
The Joint Economic Committee has just completed a lengthy study
of the economic effects of Federal Government programs which invest
in our human resources. 9 Statements received from the Office of
Economic Opportunity and the Department of Labor give very encouraging results from their initial program studies. The Office of
Economic Opportunity, in an abbreviated cost-benefit analysis of the
Job Corps program, showed that the incremental earnings of program
graduates would equal the cost of the training in about 5 years. This
analysis only indicates the return in increased earnings to the individual.
A study for the Labor Department, focusing on workers retrained in
programs under the Manpower Development and Training Act, found
that benefits accruing to the Government and the economy were
considerably greater than for the individual. Reductions in welfare
benefits and other payments and increases in tax receipts were estimated to yield to the Government almost $8,000 in the first 10 years
after training; and increased production and income were estimated
to benefit the economy by nearly $30,000 in this 10-year period.
It should be stressed that these conclusions are tentative and the
initial studies are subject to many shortcomings. The Joint Economic
Committee study discusses at length some of the problems involved
in making such estimates. However, it is clear that expenditures for
these programs are extremely worthwhile economically, and are in
9 "Federal Programs for the Development of Human Resources," a study pre-
pared for the Subcommittee on Economic Progress of the Joint Economic Committee, 1966.
29
1967 JOINT ECONOMIC REPORT
fact profitable for the Government, let alone the enhancement in
human values that they make possible.
Training needs will expand rapidly in the decade ahead. The
study entitled "U.S. Economic Growth to 1975: Potentials and
Problems," prepared by the staff of the Joint Economic Committee,
indicated that our labor force will expand from a level of about 80
million in 1966, to 86.4 million in 1970 and 93.6 million in 1975. In
this period, the labor force will expand 1.8 percent annually compared
to the actual rate of 1.3 percent from 1948 to 1964.10 The study goes
on to point out that a * * * "future economic choice involves the
Nation's policy reaction to the growing potential productive capacity,
particularly as indicated by the rising labor force age group * * * the
labor force is projected to grow at a much faster rate during the
coming decade than in recent years; the numbers of those in the 18 to
24 age group, whose unemployment rates have been much above
average, are anticipated to increase at double the national average.""1
Besides the expansion in the size of the labor force, there are other
factors that indicate the great magnitude of the training and retraining
job ahead. First, the demand for unskilled and semiskilled labor is
more sensitive to the rate of growth in the economy than to the level
of output. Particularly in the last few years, actual output has been
expanding more rapidly than potential output, with the result that
the rate of growth in demand for unskilled and semiskilled labor has
been far above the long-run rate of increase. In other words, when
firms have a chance, they will tend to phase out the use of some unskilled labor in favor of technologically more advanced methods of
production.
Second, the American worker will need to accept the idea of continuous education throughout his lifetime. Gone are the days when
the production worker may bid farewell to studying at the age of 16.
Moreover, our institutions must also adjust to relatively recent facts
about our industrial life. Mechanisms should be found whereby those
with skills and understanding may impart their know-how to others.
Through organization and planning, it should be possible to enlist
many part-time teachers and practical instructors.
A recent study published by this committee's Subcommittee on
Economic Progress significantly states:
Despite a projected doubling by 1970 of the number of persons to be trained annually under the Manpower Development and Training Act, these programs will provide for
considerably less than 1 percent of the labor force.
*
*
*
*
*
It is unlikely that even a doubling of MDTA training,
as projected for 1970, would be enough to meet these needs
for sustaining our high employment economy. Only if the
private sector increases greatly the volume and diversity of
its training activities, so as to reach many of the long-term
unemployed, the underemployed, and new entrants into the.
work force, as well as present workers with low skills, is
10"U.S. Economic Growth to 1975: Potentials and Problems," a study prepared
for the Subcommittee on Economic Progress of the Joint Economic Committee,
1966, p. 11.
1l Ibid., p. 32.
30
1967 JOINT ECONOMIC REPORT
there any likelihood that increases in the supply of trained
workers will keep pace with the potential demand for
them. A sufficiently rapid increase in private training
probably could be achieved only if we offered substantial
new incentives through the tax system or otherwise.
Whether or not such measures are taken to enlarge private
efforts, a major increase in public training programs appears
2
to be urgently needed.1
In the area of formal education, equality of opportunity is necessary
in order that there may be equal job opportunities. However, such
is not now the case. In March of 1966, only 54 percent of all nonwhite persons age 20-24 had completed 4 years of high school or more,
compared with 78 percent in the case of white persons of the same age.
By whatever means necessary, for example improved curricula and
counseling, the Negro worker is entitled to the opportunity to equip
himself for today's highly demanding economy.
The Nation must assume the difficult task of establishing priorities
in its program of investing in human beings. The study of "Federal
Programs for the Development of Human Resources" by the Subcommittee on Economic Progress states the following:
There are persuasive economic reasons as well as humanitarian reasons, for expanding further-and substantiallyour investment in human capital. As with any other type of
investment, this can be done effectively and efficiently only
on the basis of systematic choices among alternative possibilities. A prudent allocation of limited resources, one that
will yield the greatest potential returns, requires analysis of
many promising objectives and selection of the best * * *
(p. 5).
The main obstacle to increasing emphasis on more investment in
human resources is the shortage of qualified personnel to run the programs, particularly in the occupations of teaching, counseling, and
administration. The committee recommends that there be a careful
study of the present and future availability of such highly qualified
persons, and that priorities be established within the Federal Government so that its various programs will be in accordance with the optimum use of these teaching and administrative resources.
During the past year, the committee's Subcommittee on Economic
Progress conducted hearings and issued a report on "Automation and
Technology in Education." The subcommittee concluded that the
tremendous technical know-how of our society must be directed toward solving problems in this area of great social need. (p. 10.)
The subcommittee felt that one area of education where the application of modern technology seems particularly promising is adult
education. It observed that illiteracy is a major drag on our economic
progress and a heavy expense.
12 "Federal Programs for the Development of Human Resources," op. cit.,
pp. 51-52.
1967 JOINT ECONOMIC REPORT
31
INCOME MAINTENANCE
Income maintenance programs to care for families whose
income is limited by age, infirmity, discrimination, poor education, or other disability are receiving growing recognition
as a public as well as a private responsibility.
Transfers of money from higher income families to lower income
families and from those with current earning power to those whose
earning power is limited through no fault of their own is fast approaching one-tenth of the total of the .Nation's output per year.. These
programs are predominantly public, but there are, in addition, many
private programs, most of which enjoy substantial tax benefits to
assist them.
In recent years, many questions have been raised about this system
of income maintenance, with many contending that the system is
ill coordinated, capricious in its effects, inefficient, costly to administer,
arbitrary in its standards for deciding who is to benefit, and, in general,
interferes with efficient resource allocation and hence reduces the
overall efficiency of our economy.
The committee hopes that the study now in progress by our Subcommittee on Fiscal Policy -will result in a new set of standards or
criteria for judging measures for income maintenance that will be
more equitable, efficient, coordinated and flexible than the present
morass of inadequate and often irrevelant programs. In the meantime, it is altogether too clear that the aged who are under social
security cannot wait for the completion of studies for adequate
pensions.
We wrelcome, therefore, the proposals of the Administration for
substantial increases in benefits under the Social Security programs
and we recommend that the Congress take early action on these
proposals, fully recognizing that further revisions and alterations may
be necessary in the longer run.
INTERNATIONAL TRADE AND FINANCE1
Leadership is the proper role for the United States in
matters of international trade and finance; our need to adjust
to external events is at least matched by the need of others
to pay heed and accommodate to what happens here. Any
weakening of the United States economy is harmful to other
countries.
The United States must reckon on accepting our responsibilities of
leadership implicit in the size of the economy. The incomesensitivitv of U.S. imports has been demonstrated in 1966, rather too
strongly in favor of our industrial trading partners; the hazards of any
weakening of the U.S. economy include the possibility of serious
damage to world trade. which we should do all in our power to avoid.
Furthermore, the increasinglystrong and complexlinks between financial
markets here and abroad require that we should explain our monetary
policies more adequately, to others as well as to our own citizens, and
try to improve their coordination with other countries' policies.
To cite the state of the U.S. balance of payments as the excuse for
restrictive monetary policies that are inappropriate to domestic needs
13See supplementary views of Senator Herman E. Talmadge, p. 45.
See also, supplementary views of Senator Symington, p. 47.
32
1967 JOINT ECONOMIC REPORT
is to misrepresent the cause of our problems and apply a damaging
false cure. Especially as interpreted in terms of interest rate movements, monetary stringency does not exert a direct influence on many
component parts of our international accounts. It is likely to increase
the U.S. trade surplus only to the extent that it deflates the domestic
economy. It has no impact on government transactions. And its
net effect on investment flows is uncertain, for direct investments are
not highly sensitive to interest rate changes. Of course many types
of financial flows are sensitive to interest rates and, in increasing
degree, to interest rate differentials. The monetary policies of the
United States are certainly not completely autonomous. What we
do in monetary affairs elicits a response abroad even if we do not
undertake formal or informal negotiation on the subject.
The fact is that other countries cannot get too far out of step with
us. The argument that lower interest rates in the United States will
provoke an outward rush of "hot money" is somewhat of an exaggeration. There will probably be some such outflow, but it can be
managed if we view it in proper perspective as a temporary adjustment.
For this reason, the Joint Economic Committee, which has on many
other occasions placed on record its opposition to domestic policies
of extreme monetary stringency, commends the initiative of the finance ministers of the United States and several European countries
in seeking progressive reductions of interest rates throughout the
free world.
We must be sure that our policies to improve our balance
of payments position are determined by their expected effect
on the flow of real resources and not in reflex action to the
deficit.
Each one of the President's proposals for improving the U.S. balance of payments in 1967 has individual merit. Collectively, they
demonstrate to the world that the United States is determined to
maintain the international value of the dollar by preventing overrapid accumulation of foreign dollar holdings. But there is no reckoning of the longer-run cost, to us and to world trade. There is a
need to devise a firmer institutional basis for our policies, for example,
with respect to an acceptable rate of private U.S. foreign investment.
While short-run localized retreats from policies of free multilateral
trade and payments may be needed in our present condition, we must
not forget our main objective. Trade liberalization-the main plank
of U.S. commercial policy since the end of World War II-has been a
colossal economic and political success and no firm case has been or
can be made that it is not still in the general national interest of the
United States. We should not give up these policies of multilateral
trade and payments, merely because short-term expedients are helpful
in meeting current problems.
The common characteristic of these programs, such as the
Interest Equalization Tax and the promotion of tourism in
the United States, is their specificity. They are presently
necessary and they are, in future, easily changeable. . But
* they, do rnot say.to the world what needs to be said: that the
international position of the-United States is manageable and
sustainable, that the United States has made its full contribution to the adjustment process and that, barring a huge
1967
JOINT ECONOMIC REPORT
33
extension of the foreign exchange costs for Vietnam, the
United States is able to maintain its adherence to the longer
run aim of free international exchange.
The short-term concern of the United States with attaining a
vaguely defined state called "equilibrium" in international payments
has tended to push U.S. commercial policy into the background. But
the maintenance of growth and of liberal conditions in world trade is
a vital concern of the United States. A successful outcome of the
Kennedy Round negotiations is the immediate challenge in the
pursuit of that policy. Future steps should include negotiations to
reduce nontariff barriers.
The President's recent action, in terminating the escape clause
action on watch movements and the special tariff on imported plate
glass, is a welcome token of our interest in lowering trade barriers.
By demonstrating in this way our good intent in the current negotiations, the United States is presently making the best contribution
to their successful completion. In that event, the way will be open
for the further pursuit of nondiscriminatory policies negotiated within
the existing framework of the General Agreement on Tariffs and Trade.
Moreover, our policies are adaptable, without great change, to
expanding our trading relations with Eastern Europe, as the President
also recommends.
It would be unwise, however, to ignore the significant shift of
bargaining methods implicit in the prearranged joint positions of the
members of the European Common Market. This would be of little
concern if the exercise of collective strength were applied in the
direction of enlarging world trade. There are, however, strains
suggesting the objective of economic self-sufficiency in the Common
Market's policies. The economic allocation of resources does- not
appear to be a significant determinant of their agricultural proposals,
nor even to be a target toward which they are aiming. The existence
of ex-colonial associates even creates discrimination among lessdeveloped countries in supplying the primary imports of the members.
Nationalistic restrictions are threatened in other activities than
commodity trade. It is to be hoped that the United States will be
able, by such measures as the Foreign Investors Tax Act of 1966, to
induce foreign capital toward the U.S. market and persuade other
countries of the merit of equal access to their own markets.
In some degree, restrictions are both the result of inadequate
capacity to adjust to international movements and the cause of future
inability to make adjustment. The argument for restrictionism is
thus both self-justifying and destructive. For example, the U.S.
investment in industries or banks or commercial agencies in other
countries is valuable to the country of domicile. The United States
should try to persuade other countries that crass discriminatory legislation aimed at their elimination is a self-imposed damage, and we
should in no circumstance undertake to retaliate by matching our
partners' folly.
The United States should make plain that its investment abroad is
intended to yield gain to both owner -and user. Furthermore, -the
adjustment process must be developed by some agreed arrangement
whereby movements of long-term capital are either accommodated
within the existing system or controlled in such a fashion as to avoid
a progressively increasing strain on the system.
34
1967 JOINT ECONOMIC REPORT
One additional requirement, whose urgency the Joint
Economic Committee has often stressed in past years, is the
reform of the international monetary system. That urgency
is all the greater now, as the role of gold in international
monetary affairs becomes increasingly grotesque and disturbing, and as the policy of at least one foreign central bank
is directed to the reduction of the aggregate of world monetary reserves. The sustainability of the monetary system
built on Bretton Woods foundations requires that other
countries should not exercise monetary blackmail on reserve
currency countries such as the United States.
The international monetary system is neither in imminent danger of
breakdown, nor is it at present failing to provide the basis for satisfactory settlement. But the symptoms of strain are evident. The
behavior of gold is only one manifestation of nervousness. A more
immediate threat is the widespread adoption of deflationary policies
as countries mistakenly identify the nature of international imbalances
and indulge in emulative policies to lure short-term capital. The
recent informal compact to reduce international interest rates is
gratifying evidence that the danger is recognized. But it is worth
noting that even unusually high rates of return on fiduciary assets
did not succeed last year in cooling the gold fever.
Three things are necessary: (1) that the United States
should further with all its influence the hesitant progress of
the past year toward the institution of a new international
reserve asset; (2) that the United States should recognize
that the monetary role of gold is exclusively international
and official, and should remove the anachronistic encumbrance of a statutory gold reserve against its domestic note
issue; and (3) that the United States should move toward
collaborative arrangements to reduce the long-term influence
of gold in monetary affairs.
As to the first, the Secretary of the Treasury and his negotiators
merit warm appreciation and support for their steadfast efforts to
reach agreement on international monetary reform and for their forthright rejection of diversionary proposals to raise the price of gold. The
cessation of growth of world monetary reserves outside of the IMF in
the past two years has brought even more compellingly to the forefront
the need for outright rather than patchwork reform. Indeed, if
allowance is made for the activation of borrowing rights to meet the
sterling crisis, there was a net reduction over the course of 1966. In
due course the growth of trade will be inevitably hampered by inadequate liquidity, not to mention the restrictionism that will accompany
this condition. Since there is no evidently available alternative to the
dollar in world trade, the function of the dollar as an official reserve
must be either supported or supplemented.
In the meantime, however, the United States must, perforce,
concede an international role to gold. So long as we are able, in an
increasingly nationalistic world, to pursue universality as a key principle in our international negotiating aims, we should make available
for international use the entirety of our gold reserves. Their sole
domestic function is, indeed, the perverse one of lending support to the
1967 JOINT ECONOMIC REPORT
35
illusion that the quality of the credit dollar as money depends on
something other than the quality of the management. For this
purpose, the Joint Economic Committee again counsels the removal
of the gold cover requirement from the note issue.
On the third issue, the future role of gold, the evidence of 1966
ought to convince serious observers that the modern world has got to
come to grips with the reality and necessity of some form of international credit as an eventual substitute. It is bad enough that there
was only a tiny increment of gold to world monetary reserves in 1965,
and none at all in 1966. It is worse that speculative hoarding,
typical of backward and unstable societies, should have extended to
the citizens of advanced industrial countries. It is next to fatal when
even one or two central bankers or government leaders exhibit regressive psychological tendencies, appropriate to the days of commodity money or the days when convertibility of bank-notes into a supercommodity was the sole test of confidence. Everyone knows that the
supply of this golden super-commodity is going to be subject to spasmodic withdrawals and supplements from hoarding, and is going to
be inadequate in relation to expanding world trade and future demand,
even from official sources. It is clear, moreover, that the quality of
any means of payment depends on its maintained power to purchase
goods, not gold.
On these grounds the United States dollar is peerless. It
has been and is the major unit of account in international
settlement. It is today and will probably remain the major
instrument of commercial dealings. By contrast, gold is
performing a role of declining utility in world monetary
arrangements.
The United States and the other industrial countries have the
strongest motivation to reduce the disturbance in international
financial markets originating in persistent gold speculation and
hoarding. For the same reason, the United States and the other industrial countries have an active interest in successful international
monetary reform which would reduce the danger of sudden liquidations
of reserve-currency holdings, and preserve the stability of supply of
international liquidity.
These measures may appear to be the concern mainly of the advanced industrial countries, as a means of ensuring the growth of
their trade with each other. Actually they are of vital importance to
the growing trade of less developed countries. Moreover, the United
States should not hesitate to remind other developed nations of one
source of their current good fortune that had its origin twenty years
ago in the Marshall Plan. It touched the springs of energy that
generated the growth of the receiving countries. We must make sure
that our own economic vision has not shortened with the years and
that others who can help will see in the aspirations of the developing
nations something of the distressful desire for reconstruction that they
themselves experienced after World War II.
Finally, if other industrial nations, specifically in Western Europe,
continue stubbornly to resist the introduction of a new reserve
medium that would stabilize the role of credit in official international
settlements, and to block the trade liberalization that is the aim of
36
1967 JOINT ECONOMIC REPORT
the Kennedy Round, there must be no illusions about the consequences. It would be hard to prevent a retreat from multilateralism
into regionalism. This would do enormous damage to the world
economy, but the United States would suffer less than others. We
should be forced, reluctantly, to protect our interests by joining with
those countries that are willing to operate their currencies on a dollar
reserve basis and forming with them a new bloc of liberalized trade.
SUPPLEMENTARY VIEWS OF REPRESENTATIVE
PATMAN
The committee points out in this Joint Economic Report that the
Federal Reserve committed the Nation to a "monetary policy of
restraint * * * involving tight money and higher interest rates."
The committee also points out that the "extremely high interest rates
of the past year have had a dislocative, disruptive, and inequitable
effect on the economy" and that "vigilance is required to repair the
damage already done and to avoid additional hardship." Finally,
the committee points out that "the action of the Federal Reserve
System during 1966 severely restricted the money supply" and that
"previously, restrictions helped cause recessions, a factor that leads
many economists to anticipate further depressive effects this year
from our monetary policy."
These observations are correct. I agree fully with the analysis
reached by my colleagues on the committee about the activities of the
Federal Reserve Board since December 1965. However, I find that
the corrective action the committee calls for does not go far enough.
The committee concludes in its section on monetary policy that "Because of the vital importance of monetary policy, the committee urges
the Federal Reserve System to take full cognizance of the role expected
of it."
This recommendation implicitly lends credence to the myth being
perpetrated by the Federal Reserve Board and others that the Federal
Reserve Board and System are somehow independent of their creatorthe Congress-as well as the Executive, and the American people. If,
as I agree, the facts set forth and conclusions drawn therefrom are
correct, it would appear that the Joint Economic Committee has a
greater responsibility to the Congress and the people to recommend
something more forceful than merely indicating the hope that the
Federal Reserve Board will somehow or other mend its ways.
It would appear to me that the Congress must enact necessary
institutional reforms if the great harm done by the traditional Federal
Reserve's tight money and high interest rate bias is to be corrected.
There is no doubt whatever that the Congress not only has the
constitutional authority under article I, section 8(5), of the U.S.
Constitution, but also the obligation to do this.
I fully agree with my distinguished colleagues on the Joint Economic Committee who argue in this report that many economic developments during 1966, particularly those policies which led to the
institution of the highest interest rates this country has known in 40
years, are matters of great national concern. I also agree in large
part with the policy recommendations proposed in the report. My
main point of departure is that the report does not fully face up to
the problems caused by serious defects in the institutions of Government necessary to assure realization of the policy goals proposed by
the Executive and the Congress.
37
38
1967 JOINT ECONOMIC REPORT
The Employment Act of 1946 which created the Joint Economic
Committee clearly stated that it was the policy of the Federal Government to "coordinate and utilize all its plans, functions, and resources * * * to promote maximum employment, production and
purchasing power." [Emphasis added.] The responsibility given
the Joint Economic Committee under the Employment Act goes
beyond the point of merely analyzing the current economic situation.
This responsibility requires, as the Joint Economic Committee has
done so well in so many instances in the past, that the committee
advise the Congress and make policy recommendations concerning
the economic affairs of the Federal Government and the Nation.
In this instance, as regards monetary policy in general and the
Federal Reserve Board specificall , I have always maintained, based
on close study of the law and legisative history, that the so-called "independence" of the Federal Reserve System is a legal fiction, and that
their seized independence constitutes no independence at all. Given
the congressional directive, as stated in the Employment Act of 1946the Federal Government shall coordinate all of its activities to "promote maximum employment, production and purchasing power" and
given the obvious fact that at least in its December 1965 action the
Federal Reserve did anything but coordinate its activities with the
rest of the Federal Government-I feel that it is this committee's
duty and responsibility to consider this problem and to recommend
changes and improvements necessary to achieve the great goals of
the Employment Act of 1946.
The matter of Federal Reserve reform has been studied in recent
years by the Domestic Finance Subcommittee of the House Committee
on Banking and Currency, of which I have the honor to be chairman,
by independent research groups such as the Commission on Money
and Credit and by many individual scholars and academicians.
There is general agreement-except of course by those who have a
vested interest in the matter-that certain minimum changes are
necessary in order to assure proper coordination of monetary policy
with other Federal policies in order to provide the best economic
atmosphere in which to achieve the goals of the Employment Act of
1946. These include, among others, the following reforms:
A. To emphasize the public character of the Federal Reserve:
1. Provide for the retirement of the Federal Reserve stock.
2. Vest all power to conduct open market operations in
the Federal Reserve Board.
B. To increase the effectiveness of monetary policy by assuring
the recruitment of an outstanding Federal Reserve Board and an
adequate response to advances in economic knowledge:
1. Remove the present requirement that the President, in
selecting Governors of the Federal Reserve Board "* * * shall
have due regard to a fair representation of the financial,
agricultural, industrial and commercial interests and geographical divisions of the country." Instead require only
that the Governors be men of integrity devoted to the public
interest.
2. Reduce to five the number of Governors of the Federal
Reserve Board.
3. Reduce to 5 years the terms of office of the Governors
and allow for reappointment.
1967 JOINT ECONOMIC REPORT
39
4. Make the term of the Chairman of the Board of
Governors coterminous with that of the President.
5. Raise the salaries of the Governors.
C. To insure public control over the expenditures of public monies:
1. Provide for a public audit by the Comptroller General
of all expenditures by the Federal Reserve Board and the
Reserve banks.
2. Provide for paying into the Treasury as miscellaneous
receipts all capita gains and interest received by the Federal
Reserve from U.S. Government securities.
3. Authorize appropriations by the Congress for the expenses of the Federal Reserve banks and the Federal Reserve
Board.
D. To provide statutory guidelinesfor monetary policy and assure
coordination of all of the Government's economic policies in achieving the goals of the Employment Act of 1946.
1. Require that the President set forth in his periodic
economic reports, in conjunction with his recommendations
on fiscal and debt management policy, guidelines concerning
monetary policy, domestic, and foreign-including the growth
of the money supply, as defined by him-necessary to attain
the goals of maximum employment, production, and purchasing power of the Employment Act of 1946.
2. Express the sense of Congress that the Federal Reserve
operate in the open market so as to facilitate the achievement of the President's monetary policy-and require that
the Federal Reserve, if its monetary views and actions diverge from those recommended by the President, file with
the President and the Congress a statement of reasons for
its divergence, in a form like the President's Economic Report.
E. To allow for greater specialization in performing the monetary control function:
Permit the Federal Reserve Board to concentrate on
monetary policy by transferring its present bank supervisory
functions to the Comptroller of the Currency, the FDIC, or,
alternatively, to a newly created Federal Banking authority.
The above recommendations were unanimously adopted by the
Democratic members of the Domestic Finance Subcommittee of the
88th Congress. They wvere arrived at after detailed hearings cond ucted by this subcommittee in conjunction with the fiftieth anniversary of the Federal Reserve System. These recommendations
were valid then and they are today. They are included in H.R. 11.
I would hope that the members of the Joint Economic Committee
would consider and support this very necessary legislation.
Current monetary policy of the Federal Reserve Board gives clear
evidence to the fact that the Board committed a horrible error in
December 1965 and they now are in the process of attempting to
correct the situation. On February 28, 1967, the Federal Reserve
announced a reduction in reserve requirements from 4 percent to 3
percent against savings deposits. This move is most welcome because
it should have the positive effect of reducing some of the inequities
and hardships which the December 1965 action created by providing
additional bank reserves and loan funds. However, even in this
instance the Federal Reserve Board is to be criticized because it
40
1967 JOINT ECONOMIC REPORT
could have accomplished the same goal by purchase of securities
through the Federal Open Market Committee and by so doing, at an
assumed 4-percent rate, saved the taxpayers $34 million a year in
interest costs on the public debt.
I concur with the analysis of the Joint Economic Committee in its
section on monetary policy. Experience with the Federal Reserve
Board since the chairmanship of Mr. Martin clearly indicates, however, that the Board has not coordinated its activities with the rest
of the Federal Government and that in our modern and complex
economy this situation cannot be. tolerated. Again, I trust that at
the next opportunity the Joint Economic Committee will not, as in
this instance, stop short of the goal but will recommend to the Congress
appropriate changes in the way in which the Federal Reserve Board
and System operate, so that as regards monetary policy there will no
longer be violations of the national policies as set forth in the
Employment Act of 1946.
It is of the utmost importance to this Nation's welfare that monetary
policy be brought into line with the needs of our economy. The
tight money policy of the Federal Reserve has brought serious
problems to our economy. The housing industry is in a weakened
condition, still starved for funds. Small business has been hurt and
we are already seeing a worrisome drop-off in the general level of the
economy. Clearly this is the harvest of tight money. Unless the
Federal Reserve changes its policy promptly and sharply so as to
increase the availability of funds and lower the interest rates substantially, this nation, will suffer from increased unemployment and
insufficient economic growth. In this period of history, with so much
depending on the welfare of the United States, it will be tragic.
With respect to the antitrust policy statement contained in the
majority report, I am in full agreement with its conclusions, However, there is great need, in my opinion, for more emphasis on the fact
that the pace and intensity of corporate mergers gives cause for
serious concern. While the number of corporate mergers is, in itself,
disturbing because of the significant increase of economic concentration that it represents, still more disturbing is the fact that in 1966, for
the fourth consecutive year, the number of large firms disappearing
through corporate mergers increased. In 1966, 98 firms with assets
of $10 million or more disappeared through acquisition. The combined assets of all of these firms were in excess of $4 billion. It should
be noted that this data, compiled and recently released by the Federal
Trade Commission, does not include mergers among firms subject to
regulation by other Federal agencies, such as banks, railroads,
airline and steamship companies, radio and television broadcasting
companies, public utilities and others. While final statistics are not
yet available for 1966, the 1965 report of the Federal Deposit Insurance Corporation indicates that the resources of all banks acquired
during calendar year 1965 were well in excess of $2 billion.
Therefore, my primary concern is not merely in the fact of the
number of mergers taking place but lies rather in the fact that substantial and significant competitors are being eliminated. In large
measure, the responsibility for these developments and for the unchecked and rising tide of substantial mergers must be laid at the
feet of those responsible for the enforcement of our antitrust laws.
In the recent opinion of the Supreme Court in the El Paso Natural
1967 JOINT ECONOMIC REPORT
41
Gas Company case, decided February 27, 1967, Justice Douglas, speaking for the C6urt, criticized the Department of Justice for attempting
to settle the case in a manner not consistent with the Court's order
of divestiture. In a previous decision on the same case, the Supreme
Court had ordered that the District Court provide for "divestiture
without delay." The Department of Justice, contrary to this order
of the Supreme Court, had agreed to a settlement in the case that did
not provide for such divestiture. In another but somewhat comparable instance, the Federal Trade Commission recently challenged a
significant corporate merger on the grounds that-the corporate acquisitions involved effected a "major structural change" in the industries
allegedly adversely affected by the merger. However, the Commission settled the case without obtaining divestiture or otherwise restoring the competitive structure of the industry prior to the challenged
merger. In my viewv, these cases are indicative of laxity in the enforcement of our antitrust laws. While I have been heartened by
the recent statements of Attorney General Clark with regard to antitrust enforcement activities of the Department of Justice, I believe
that we have responsibilities as members of Congress to insure that
the antitrust laws are being vigorously enforced. For this reason, I
hope that the 90th Congress will devote increased attention to this
vital matter.
WRIGHT PATIuAN.
SEPARATE VIEWS OF REPRESENTATIVES BOLLING
AND REUSS ON FISCAL POLICY
We find much in the Report that is to be commended, particularly
its stress on the importance of human resource programs, the problems
of income maintenance, the improvement of Social Security benefits,
and the ways of dealing with the relationship of costs to prices in a
full employment economy.
But we cannot agree with its central thesis: the economy is so weak,
and the possibility of a downturn so great, that we cannot afford to
raise taxes; but at the same time we should cut expenditures by about
the same amount as the Administration proposes to raise taxes.
Admittedly, the portents are clouded. If one examines the leading
indicators, he will find that, despite their fascinating aspects as an
intellectual exercise, they are not a safe basis for public and private
policy. The indicators have frequently proved wrong-two notable
times are the 1951-52 period and the second half of 1962. In the
earlier instance, the readers of leading economic indicators proclaimed
we were in a recession a year or two before the recession actually
appeared in 1953-54, for the wrong reasons, and during one of the
most rapid expansions in postwar years. Similarly in 1962, despite
the earlier lesson, the pundits of the indicator cult had us facing a
recession although the Nation immediately set off on one of its faster
expansions.
It is well to remember that the indicators of coming economic
events always turn bearish as full employment is approached, whether
the economy is going to turn down into a new recession or is going to
continue at full employment indefinitely. A slowdown from a fast
recovery to the long time full-employment rate of growth causes this
phenomenon. It has nothing to do, necessarily, with whether we wvill
continue full employment or head into a recession.
Prudence, therefore, dictates that Congress take action against the
very real possibility that the Administration will turn out to be
right; that is, that the second half of the year will be strongly expansionary.. This is not an unreasonable expectation despite the present
bearishness. The budget is in substantial deficit even with unemployment under 4 percent, and expenditures are rising at one of the most
rapid paces of recent decades. Despite some doubts about monetary
poicy, it is still true that it is moving in a much easier direction.
With monetary and fiscal policy both driving toward economic expansion, it seems the height of folly to assume that these will have no
effect on the economy as a whole.
We therefore recommend that the Ways and Means Committee in
the House and the Finance Committee in the Senate proceed at once
to consider, and report to the respective Houses for enactment,
legislation providing for a tax increase along the lines recommended
by the Administration. But to satisfy those alarmed by recent
bearish economic reports, it should follow the path recommended last
year by our Subcommittee on Fiscal Policy, that the tax increase
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1967 JOINT ECONOMIC REPORT
43
should go into effect only after a congressional joint resolution is
passed. Alternatively, the legislation could follow earlier recommendations that power be delegated to the President to activate the
tax should it, in his judgment, become necessary.
Even if we accept the bearish view of the outlook as spelled out in
the report, we could not accept its policy conclusions. If the bearish
view is accepted, this is a reasonable basis for opposing the enactment
this year of the proposed 6 percent surtax. But if the economy is
this soft, then this is a very strong reason for not cutting expenditures
as the committee report recommends. Certainly we should have
learned by this time that a reduction of expenditures has the same
economic consequences as an increase in taxation, though experts
may debate the relative efficacy of each device. Of course, every
year is a good year to cut out waste and foolishness, to eliminate
obsolete programs, and to search out instances of overlapping functions.
But none of these tasks has ever produced anything like a $5 billion
or $6 billion reduction in a single year. In fact, in nine out of the
last 13 years, actual expenditures turned out to be as high as or
higher than the President's initial estimates; and in the other four
years the maximum reduction was only about $1.5 billion-hardly
the magnitude that the report suggests is needed.
Furthermore, we cannot think that any such large reductions in
expenditures from the President's budget could be achieved without
an attack on the parts of the budget which are most socially desirable,
and where it would be tragic to make reductions. The war on poverty, the campaign for improving education, the battle against air
and water pollution, the attack on the low level of medical care,
particularly for the poor and the aged, are simply not the kind of
programs where it is desirable to achieve reductions in current expenditures, for it will only increase expenditures later by a more than
proportionate amount.
There are those who believe that the investment tax credit suspension
this year threatens to create what is called an "air pocket" in the
last half of this year, as business firms wait for January 1, 1968, for
the reinstitution of the tax credit for investments. We are not at
all sure that this is a valid argument, but to resolve the question cnce
and for all it would seemr practical for Congress to either (1) p rmanently repeal now the investment tax credit, thus eliminatir g all
expectations for the future, or (2) reinstitute it as soon as practicable,
perhe p on July 1, accompanied by an increase in the corporate
income tax sufficient to compensate for the revenue loss resulting
from the investment tax credit.
In any case, we reiterate the high priority that should be given
to this committee's repeated recommendations to reform our national
tax structure and to plug the loopholes that allow so many, particularly
in the middle and upper income brackets, to escape their due share
of the national tax burden. Such a reform would yield billions, with
the advantage that it would increase the equity of our tax structure
and in the long run make better economics than repeated resort to
the tax surcharge, which perpetuates the present inequities in the
tax structure. Most of the funds that would be tapped by plugging
the loopholes in the law would come from income flows where
there is now over-saving, and not from consumption, and hence
7U-3G1 O-O7--4
44
1967 JOINT ECONOMIC REPORT
would bring about a better balance between incomes, savings, and
investment at full employment. Even more likely, some of the
increased revenue would come out of income flows that have been
going abroad, thereby contributing to the deficit in the balance of
payments. Some of the candidates for inclusion in this program of
tax reform are mentioned in the President's Economic Report. We
will not comment on particular ones at this point. We only ask for
an early message to the Congress from the President, specifying a
program for this year, together with immediate and effective action
by the tax-writing committees of the Congress.
We commend the majority report for its emphasis on aiming for a
rate of unemployment below 4 percent, and a rate of growth exceeding
the 4 percent with which the Administration seems content.
We believe that the program of the Joint Economic Committee, if
amended in the way suggested in these separate views, would go far
toward insuring achievement of the improved economic goals which
the committee recommends.
The economic programs, as amended in these separate views, would
bring the budget into balance or surplus at around 4 percent unemployment, contribute to an easier credit policy, bring better balance
between consumption, savings, and investment, and provide a distribution of income more consistent with continuous full employment
of our productive resources.
MICH1ARD BOLLIN(C.
ITENRIY S. REUSS.
*
SUPPLEMENTARY VIEWS OF SENATOR TALMADGE
While I am in complete agreement with the imperative laid doxvn by
the Joint Economic Committee with regard to United States fiscal
policy in 1967, it is my feeling that this statement should be carried
one very important step further.
Said the committee:
With the Vietnam war expected to absorb about $22
billion out of our national output, and the deficit in the
Federal Budget growing, it is imperative to reduce all Federal
expenditures not absolutely essential to national defense or to
economic growth and welfare.
I would add to that in language to this effect, that with. worsening
balance of payments deficits and the critical drain upon United States
gold reserves, it becomes especially imperative to make every effort
to reduce the flow of American dollars abroad which come back to us
in the form of demands for gold. In short, the strain upon the
American economy has become such that we must curtail to some
degree our efforts to be policeman, banker and Santa Claus for scores
of nations scattered all over the globe.
In this connection, I must dissent from the committee view that the
25 percent
minimum gold cover against issued Federal currency is an
"en umbrance" and out of step with times. To remove the gold cover
would, in my opinion, destroy a very effective instrument for maintaining some semblence of fiscal responsibility in Federal spending.
The gold cover is a major safeguard against recklessly permitting
Government expenditures, particularly those which channel American
dollars into foreign treasuries, from climbing to even more dangerous
heights than they already have.
Consider the history of the past 17 years. At the end of 1949, tle
United States had $24.6 billion in gold stock. Now we have only
slightly over $13 billion. Seventeen years ago, the United States
owed $7.6 billion abroad. Today, there are foreign obligations, redeemable in gold and held abroad, in the staggering amount of $30.4
billion. The United States has less than $4 billion in free gold with
which to meet this obligation.
What has been happening? In sixteen of the past seventeen years,
we have had a serious dollar deficit. We have been far out of balance
internationally, totalling more than $16 billion in just the past six
years. The world has been acquiring more dollars than it cared to
keep, and the principal source of these dollars has been the United
States Government itself.
United States foreign economic aid, which in far too many instances
is tantamount to a giveaway, and our military spending abroad, which
has not always been devoted to the best of American interests, are
principally responsible for the recurring dollar deficit and resultant
gold drain. This spending was responsible for such a loss of gold
45
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1967
JOINT ECONOMIC REPORT
two years ago that we were told we had to remove the gold cover from
Federal Reserve deposits so as to allow us time to get our affairs in
order. That action was supposed to be merely a temporary expedient.
We were buying time. Now, however, it appears that we have not
managed our affairs and the expedient is neither temporary nor, in
itself, sufficient.
In rescinding the gold cover requirements against deposit liabilities,
we went part of the way. Now we are asked to go all the way and
remove the gold cover safeguard completely.
The proper course is not to remove the gold cover, not to fail to
heed the warnings that our continued gold losses give us, and not to
relax our guard against spending ourselves into inflation.
We cannot halt the drain upon United States gold by refusing to
meet our monetary obligations abroad. The way to stop the gold
drain is by reducing the size and extent of our foreign obligations in
the first instance. We must stop excessive foreign spending.
We should bring some of our troops home from Europe, perhaps
about half of the six divisions presently there, the maintenance of
which costs about $2.5 billion annually.
We should reassess the entire United States foreign aid program
and reduce it to a more manageable and efficient form. It should be
limited to meeting the humanitarian needs of our developing allies
in the free world, and the aid should be administered on the basis of
100 per cent compulsory acceptance of American goods.
The prime purpose must be to alleviate the dollar deficit and stop
the outflow of United States gold. This will never be accomplished if
we eliminate the gold cover for, as I have stated, this is the one assured
instrument for restraining irresponsible Federal spending, and even
it is not doing an adequate job. But removed, it would do no job
at all.
HEIRIAN-
E.
M1.ADGVXE.
SUPPLEMENTARY VIEWS OF SENATOR SYMINGTON
Although I agree with the majority views of the Joint Economic
Committee that the objective of monetary and fiscal policy should be
sustained economic growth at home and expanding international trade,
I do not believe that the report (section on International Trade and
Finance) emphasizes sufficiently the importance of maintaining stability in the value of the dollar, and the controlling of our international
deficits.
The dollar has two functions, both at home and abroad: a repository
of value and a medium of exchange. Continued depreciation of its
purchasing power through inflation at home vitiates the first function.
Continued deficits in international payments erodes the second. If
these tendencies, now prevalent, continue much longer, the growing
lack of confidence in the dollar could become a serious matter indeed.
This section of the report does not contain a realistic appraisal of
this growing lack of confidence; nor are there any specific recommendations as to how to deal with it.
In the domestic economy, depreciation in the purchasing power of
the dollar is an unfair form of taxation, especially punitive to the
lower income groups: workers, those with fixed incomes, the aged
who depend heavily upon fixed retirement benefits, holders of savings
accounts and insurance policies.
I do not believe this matter has yet been probed in sufficient depth
to place us in a position to choose among the various contending
theories as to how the economy should be "managed." In any case, it
is certain that we have not yet found the right mix between budgetary,
monetary and tax policy so as to give sustained economic growth at
the same time the purchasing power of the dollar is maintained.
The improvements in the balance of payments that were registered
in 1965 and 1966 came principally in the private capital accounts.
In 1965 there was a withdrawal of United States private credits
abroad resulting from the voluntary restraint programs; and in 1966
there was an inflow of foreign capital as a result of higher interest
rates. But the basic accounts of the United States in foreign aid,
military expenditures, and tourism were unfavorable during this
period; and our favorable balance of trade was heavily reduced.
Without the temporary and nonrecurrent movements of private
capital, plus some public capital-repayment of debts, advance payments on military contracts, etc.-the balance of payments deficit of
the United States would still be in the neighborhood of $3 billion a
year; and along with the mounting expenditures in Vietnam, closer to
$4 billion a year.
It is a shocking fact that the United States, prosperous and strong
though it is, nevertheless finances its foreign aid and military operations abroad on borrowed money; not only money borrowed at home
in order to pay for these expenses, but money borrowed abroad in
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1967 JOINT ECONOMIC REPORT
order to obtain the foreign exchange with which to discharge our
resulting obligations overseas.
If these borrowings continue, they can only lead to a further lack
of acceptability of the dollar in foreign countries; therefore I am convinced there is need for an action program so as to get at the roots of
the continuing disequilibrium in our international payments.
The recommendation that we should dispense with the gold reserve
requirement for currency in circulation would seem constructive;
but it is not a corrective measure. Without the taking of further
positive action, it would merely postpone the day of reckoning. In
addition it is fair to predict, as was true in 1965 when the gold backing
of Federal Reserve deposits was eliminated, that this additional action
will probably cause an accelerated withdrawal of gold.
The suggestion by a majority of the committee that a new reserve
unit be created to supplement, even displace, the dollar-now the
center of the international monetary system-would seem unrealistic
at this time.
If other nations are no longer willing to lend money to the United
States, or to hold the dollars they earn, why should they do so in indirect fashion; i.e., through the creation of a new reserve currency.
There would appear to be an element of self deception in hoping that
such a creation would remove the need for the United States to adjust
its international accounts. This was substantiated at the most
recent meeting of the Group of Ten, when it became evident that
those countries were in no hurry to reach agreement on a new reserve
currency plan, at least until the United States had corrected its
balance of payments deficit.
No government, any more than an individual, can continue to
improve its standard of living through borrowing any longer than it is
trusted by its lenders.
Concern is expressed about the outcome of the Kennedy Round
negotiations; and there is recognition of the difficulties which have
arisen during the bargaining incident to those negotiations. But I
do not believe proper emphasis has been placed on the importance of
achieving reciprocity in agriculture as well as industry.
Agricultural trade constitutes the largest part of our trade surplus
with Europe. To acquiesce in European protectionism in the agricultural field, but at the same time agree to a reduction in industrial
barriers to trade, is not true reciprocity.
I believe future trade policies should emphasize reciprocity in all
trade negotiations, rather than contain an unconditional "most
favored nations" entry into our markets. We should bargain in
realistic fashion, not only with the six Common Market countries, but
also with the seven countries of EFTA, and with Japan and the
Eastern European countries. Again, this bargaining should be conducted on the basis of reciprocal trade concessions.
If the United States is to get its financial house in order, the type of
dollar outflow expenditures which must be curtailed include such outof-pocket expenses as the unnecessary military expenditures now
characteristic of our policies in Europe and other countries. In addition, we should face up to the fact that our massive dollar program
loans to scores of countries, soft loans on a 40 to 50 year repayment
basis, are actually grants, with relatively little prospect of repayment.
1967 JOINT ECONOMIC REPORT
49
As to the control of private investments, there is factual information, with which the Council of Economic Advisers agrees, that
private investments have been earning income and encouraging
exports. In any event, these investments do create income bearing
assets.
Attention should again be drawn to the continuation of discriminatory foreign transportation rates that militate against United States
exports. This discrimination was brought to the attention of the
country over three years ago. Little has been done about it since.
In summary, I believe that the time has come to replace theoretical
economic speculation with practical and specific objectives; objectives
which approach our financial problems in recognition of past history
and on a realistic basis.
STUART SYMING.TON.
MINORITY VIEWS
on the
1967 ANNUAL ECONOMIC REPORT OF
THE PRESIDENT
CONTENTS
Page
Summary of recommendations
-Introduction
-57
A failure of economic stewardship
-57
Domestic policy recommendations for 1967 and beyond
The balance of payments and international monetary reform International economic relations and U.S. foreign trade policy -74
Guaranteeing opportunity to the disadvantaged
-78
Strengthening agriculture
-Meeting America's urban crisisNational emergency strikes
Revitalizing State and local governments
-93
Conclusion -.---------------------------------52
53
59
61
85
90
92
94
SUMMARY OF RECOMMENDATIONS
I. Domestic Policy Recommendations
A. Policy for 1967: (1) Recommend that the Federal Reserve increase the money supply at annual rate of 2 to 4 percent; (2) oppose
6-percent tax surcharge in light of the current economic outlook;
(3) urge elimination or reduction of Federal expenditures not serving
high priority national objectives; (4) support the proposal for earlier
restoration of the investment tax credit and studies on whether
it should be made permanent; (5) recommend lifting of the 45-percent
ceiling on Government bonds; (6) urge that participation sales be
counted as an increase in the public debt rather than as a reduction
in spending; (7) urge study of the effects of Federal credit programs
on monetary and debt management policy; (8) reject proposals for
establishment of a wage-price-productivity board.
B. Maximum employment without inflation: (1) Endorse Human
Investment Act to spur job training by the private sector; (2) support
legislation to make permanent the unemployed parent and community
work and training programs associated with aid to families with
dependent children; (3) urge better coordination of all Government
manpower training programs; (4) encourage improvement in the
Federal-State employment services; (5) tie retraining for the long-term
unemployed to the provision of unemployment insurance; (6) eliminate
tax impediments to job mobility and new skill development; (7) urge
study of a two-step minimum wage with a Government subsidy to
encourage employment of teenagers and other low-skill individuals;
(8) study the draft in relation to manpower programs and policies.
C. Longrun policy considerations: (1) Improve economic statistics
and develop new and more reliable measures of economic activity, including (a) quarterly revisions in the original GNP forecast; (b) improved Federal budget information system, including quarterly estimates of budgetary receipts and expenditures and longrun budgetary
estimates; (c) faster progress in developing a statistical series on job
vacancies; (d) a statistical series which measures wealth in the economy; (e) improved regional and State economic accotunting; (f) measure and forecast productive capacity in major industries and economy
as a whole; (g) publish estimates of margins of error in economic statistics; (2) sharp or large changes in fiscal and monetary policies
should ordinarily not be made at high employment; (3) tax changes
should be reserved for longrun growth objectives; (4) positive use
should be made of expenditure policy to realize economic objectives.
D. Other domestic policy recommendations: (1) Recommend consideration of means to encourage profit sharing; (2) broaden Employment Act to state explicitly all of the major goals of economic policy;
(3) recommend study by the Joint Economic Committee of the extent
to which the activities of the Federal regulatory agencies are or should
be guided by the Employment Act.
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1967 JOINT ECONOMIC
REPORT
1I. Balance of Payments and International Monetary Reform
A. Eliminating balance-of-payments deficit: (1) Restore cost and
price stability in the economy; (2) Federal Reserve should maintain
short-term interest rates at high levels while reducing long-term rates;
(3) approve efforts of administration to gain cooperation with
Europeans in establishing coordinated monetary policy; (4) urge
negotiation with NATO members of a "multilateral defense payments
system"; (5) consider reorienting foreign aid program from loans to a
real resource basis; (6) place greater emphasis on strengthening
competitive position of American agriculture and increasing dollar
sales under Public Law 480.
B. Preventing a run on gold: (1) Recommend immediate contingency planning against possibility of a devaluation of sterling; (2) urge
negotiations on cooperative means to restrain the convertibility of
existing dollar balances into gold.
C. Longrun strengthening of internationalmonetary system: (1) Urge
administration to press toward agreement on a contingency plan for
the creation of new reserve assets; (2) urge implementation of the
recommendations of the report of the Working Party III of the
Organization for Economic Cooperation and Development regarding
the strengthening of the adjustment system; (3) urge consideration of
proposals to provide greater flexibility in exchange rates.
III. U.S. Foreign Trade Policy
A. The Kennedy Round: (1) Decisions on trade negotiations should
be made now but the U.S. should not weaken its insistence on reciprocity in bargaining; (2) maintain the commitment of the U.S. to the
idea that there cannot be industrial bargaining without agriculture
bargains; (3) urge development of an international code to harmonize
antidumping laws and procedures.
B. After the Kennedy Round: (1) Formulate new trade legislation
to deal with: (a) freeing up of agricultural trade; (b) nontariff barriers
to trade; (c) authority for the President to negotiate international
agreements to trade within industrial sectors; (d) trade problems of
the developing countries; (e) review of most-favored-nation principle;
(f) consideration of alternatives should Britain fail in bid to enter the
Common Market; (2) recommend that the Joint Economic Committee
hold hearings on international trade this spring; (3) urge that the
responsibility of the Special Representative for Trade Negotiations
be broadened to coordinate all U.S. trade policy; (4) reexamine the
work of the General Agreement on Tariffs and Trade; (5) press for
convocation of GATT members this year to assess the future of the
organization; (6) urge hearings on East-West trade by Congress.
IV. Guaranteeing Opportunity to the Disadvantaged
(1) Favor abolishing all categories of public assistance and providing aid on the basis of demonstrated and specific need; (2) reduce
public assistance benefits by substantially less than the added income
from wages or training allowances in order to provide incentive to
work or train; (3) favor training allowances and access to daycare
facilities for mothers on aid to dependent children; (4) consider a
plan to provide interim jobs with private firms under contract to the
Government for the unskilled and poorly trained presently on welfare; (5) urge new emphasis on technical training schools; (6) improve
1967 JOINT ECONOMIC REPORT
55
quality of schools in poverty neighborhoods; (7) update schoolgrant formulas in State equalization laws to account for the cost of
education in low-tax base school districts; (8) uree counties to develop
equalization laws; (9) provide birth control information to public
assistance recipients; (10) urge consideration of a pilot plan of subsidization by private businesses to working-age young people who are
neither in school nor in a job; (11) support continued development
and expansion of preschool education programs.
V. Strengthening the Farm Sector
(1) Reorient Government price-support programs toward a strong
market economy; (2) establish sound inventory and reserve levels
for all price-supported commodities, with no disposal of Government stocks which would disrupt normal markets; (3) reorient research
activities of the Department of Agriculture to give greater emphasis
to the development of new agricultural products; (4) encourage
greater economic development in rural areas with declining population; (5) urge U.S. negotiators in the Kennedy round to insist that
our concessions on industrial products be contingent on concessions
with respect to U.S. agricultural exports.
VI. Meeting America's Urban Crisis
(1) Urge consideration of the proposed Economic Opportunity
Corporation, a federally chartered enterprise which would provide
technical assistance and investment capital to encourage increased
involvement by the private sector; (2) urge consideration of the plan
for the establishment of the National Home Ownership Foundation
to make homeownership available for low-income families; (3) urge
formation of the National Commission on Urban Living to serve as
a coordinating body working with Government and nongovernmental
agencies.
VII. National Emergency Strikes
(1) Support legislation giving the President new powers to protect
public interest in labor disputes of national character; (2) endorse
the bipartisan joint resolution to require the Secretary of Labor to
give Congress his recommendations for improving existing emergency
strike laws.
VIII. Revitalizing State and Local Governments
(1) Urge strengthening of State and local governments by restraining the trend toward fiscal centralization.
IX. Conclusion: New Directions in Economic Policy
(1) Utilize our resources more effectively and efficiently; (2) harness
the energy and creativity of the private sector in solving public problems; (3) promote a faster increase of the economy's growth potential
as the first priority among our economic goals.
INTRODUCTION
Great opportunities lie ahead for America-and for the American
economy-if only -we are willing to seize them.
The goals we have set for ourselves in the coming decade are ambitious goals worthy of a great nation. Abroad, we have costly social
and defense commitments to meet. At home, we aspire to nothing
less than enriching the quality of American life-every American's life.
We seek to revitalize our cities and to reverse the pr cess of urban
decay.
We seek to break the vicious cycle of poverty, inadequate education,
low occupational skill, low income, and renewed poverty.
We seek to provide job opportunities for all those able and willing
to work.
We seek to abolish discrimination in h)using, education, employment and medical care.
We seek to rid our environment of everything that pollutes the air
and water, everything that mars the American scene.
We seek to enlist the energy and creativity of private enterprise to
participate in the solution of these and other great national problems.
But if we are to meet these high goals, the nation will require new
directions in its economic policies. For the present policies clearly are
inadequate to the task.
A FAILURE OF ECONOMIC STEWARDSHIP
Iast year witnessed a sharp deterioration in the basic health and
stability of the American economy.
At home, the deeply serious demand inflation of 1966 is giving way
to a wage-price spiral in 1967. At the same time, the economy is
vulnerable to a sharp slowdown in growth- possibly even a recessionalong with a higher rate of unemployment.
Abroad, European monetary authorities are beginning to question
the dollar, largely because of inflationary U.S. domestic economic
policies. A decade of unbroken payments deficits and gold losses
has finally brought a reversal in the accumulation of dollars by foreign
monetary authorities. The long-contained world monetary crisis is
not inevitable, but it has become a live possibility.
At the same time, the administration is moving towards a new
isolationism in international economic affairs. It has asked for
another extension of the "temporary" interest equalization tax, while
the restraints on direct investment and bank lending abroad have
been continued and broadened.
Why? What has happened to spoil the promise of high rates of
growth, stable prices, low unemployment and an international
economic order free of restrictions and controls on trade, investment
and travel?
The answer is that the administration has failed to properly manage
economic policy, and it threatens a repeat performance in 1967.
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1967 JOINT ECONOMIC REPORT
Failed To Apply the Brakes
The advocates of forced draft economic expansion failed the test
when it came to applying the fiscal brakes. Ironically, the most
vocal proponents of easy money-who slightly. more than a year
before were conducting a war of nerves on the Federal Reserve for
increasing the discount rate-have become the handmaidens for the
highest interest rates in 40 years.
The depression in the homebuilding industry was no accident.
Neither was the near financial panic last summer nor the hardships
imposed on small business, State and local governments, and other
borrowers. They resulted directly from the administration's failure
to take adequate measures-either by expenditure control or the tax
route-to promote a better "mix" between fiscal and monetary policy.
Throughout 1966 the administration was less than candid with the
American people, the Congress, and with itself. It produced a budget
for 1967 which will go down as a. model of fiscal deception. Even
the experts had trouble piercing the budgetary thicket to determine
whether it delivered the promised fiscal restraint. Events proved
that it did not.
Long after it became evident to many in the country, the administration still refused to admit that the Vietnam war would impose
heavy new strains on the economy and the budget. An early and
candid reestimate of defense expenditures would have strengthened
the case for a politically unpopular increase in taxes, a reduction in
domestic spending or some combination of both. It was not until
September-with the massive defense buildup becoming undeniable
and the inflationary pressures intolerable-that the administration
took further fiscal action.
Took the Wrong Action
When it finally acted, it took the wrong action. It broke its word
to American business and asked for suspension of the investment
credit, a device which business had accepted only after receiving
assurances that it would be a permanent part of the tax system.
By that action alone the administration may have set the stage for a
capital goods recession in the second half of this year. From the
administration's point of view, however, the suspension had numerous
advantages over an across-the-board tax increase or a reduction -in
spending, but they had little to do with economics.
We could cite other examples of the administration's failures of
economic stewardship:
The denial last January that inflation in 1966 would be any
worse than in 1965, when actually it became twice as severe.
The prediction that the balance of payments would be in equilibrium in 1966.
The budgetary assumption that the Vietnam war would be
over by June 1967.
The self-praise over employment gains in a wartime economy
in which a half million men have been added to the Armed Forces
in the past year, perhaps a million more have found jobs related
to the defense buildup, and 168,000 persons have been added to
the Federal civilian payroll.
1967 JOINT ECONOMIC REPORT
59
The sharp and destabilizing increase of 25 percent in nondefense cash outlays between fiscal 1965 and 1967.
And even now, the hotly delivered assertion of some officials
that policy was near perfect last year.
Is it any wonder that the American people have lost confidence in
the integrity of the economic policies and actions of the administration
and the Democratic Congress? The evasions, the sharp shifts in
policy, and the failure to take appropriate actions when needed have
made Government the chief source of uncertainty and instability in
our economy. If the economy is shot through with imbalances and
distortions-and it is-the fault lies squarely at the Administration's
and the Democratic Congress' door.
DOMESTIC POLICY RECOMMENDATIONS FOR 1967 AND
BEYOND
Policy for 1967
The administration bases its policy for 1967 on the assumption that
growth will be sluggish in the first half of the year and resume its
strong uptrend in the second half. The testimony of nearly all private
witnesses who appeared before the committee was less optimistic.
The consensus among private economists is that growth for the year
as a whole is likely to be less than the 4 percent in real terms predicted
by the administration. There was little support for the view that the
second half will see a strong upturn. Obviously some reduction from
the breakneck pace of recent years was to be expected. But we are
concerned that the risks of recession are mounting.
The leading indicators bear out this vie-v. Of the 12 key ind c:, to: s,
nine are clearly pointing downward, while only three point to-icds
continuing business growth. A year ago, nine of these indicators
pointed towards continuing strong growth.
One of the most threatening problems is the overhang of inventories
resulting from the massive buildup of stocks late last year. A reduction in the rate of accumulation-possibly even some liquidationis a certainty thisyear. What is unknown is when and how fast the
reduction will tatke place. Past experience indicates that the inventory adjustment will not be completed by midyear, as the admniiristration expects.
Another trouble spot is corporate profits. Althought the administration foresees an increase in profits this year, many economists
believe profits will fall, possibly by as much as 5 percent. At the
same time, unit labor costs will rise sharply and the rate of increase
in productivity will drop, leading to a profits squeeze. Together
with suspension of the investment credit, this will tend to depress
business spending and restrain the level of economic activity throughout the year and possibly into next year as well.
Events could change this outlook dramatically. Federal spending,
for example, could be sharply higher than now predicted. Administrative budget spending in fiscal 1967 will be $20 billion over 1966,
more than $14 billion higher than the original estimate. Spending
in fiscal 1968 is estimated by the President to increase by $8 billion;
but if the costs of the Vietnam war have again been underestimated,
the increase will be more.
76-361 0-67-5
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1967 JOINT ECONOMIC REPORT
Barring the unexpected, we doubt the administration's optimistic
assumptions. It now appears that growth will be slow throughout
the year and that unemployment will increase. Prices will rise by
at least the 22 percent predicted by the administration. Softness in
the economy will inhibit business from raising prices to fully offset
higher labor and other costs, but some cost increases will be reflected
in higher prices. The rest will show up in narrower profit margins.
A. Monetary policy
Monetary policy played a major role in powering the recent expansion of the U.S. economy. Actually monetary policy was too expansive prior to last spring and helped to bring on the inflationary
overheating of the economy.
In April 1966, however, monetary policy shifted to a sharply restrictive stance. Although the absence of adequate fiscal restraint made
a tight monetary policy necessary to keep prices from going through
the roof, an easing of money and credit is now required by current
softness in the economy.*
Since the spring of 1966, the conventionally defined money supply
has actually declined, after rising by a highly expansionary 6.1 percent from April 1965 to April 1966 compared to an annual rate of
3 percent in the previous 5 years. Several private witnesses warned
that. a recession would occur sometime this year unless the recent
downward trend in the money supply was reversed.
We therefore recommend that the Federal Reserve increase the
money supply in 1967 at an annual rate of 2 to 4 percent. Monetary
growth should vary between the upper or lower end of this range, as
economic conditions indicate, but we urge the Federal Reserve to
avoid the extremes of 1965 and 1966. Along with our other recommendations for 1967, we believe this would provide a better policy
"mix" than was followed in 1966.
B. Tax policy
In light of the economic outlook, we do not believe that the administration has made a convincing case for the 6-percent tax surcharge. Support for a tax increase could be justified only if a new
demand-induced inflation threatens and then only if the administration
and the Democratic Congress have first substantially reduced domestic
spending. This is not the case today.
A renewal of excess demand pressures is not out of the question.
The Federal Government this year will have the most stimulative
fiscal impact in modern economic history. On the high-employment
budget (NIA basis)-the administration's preferred measure of fiscal
impact-the deficit will be $4 billion for calendar 1967, even assurming the administration's spending and revenue estimates, which include
the tax increase, prove valid. This high-employmnent budget ran
about $8 billion average surplus from 1961-65. In the event of a
recession or a sharp slowing in growth, the Federal deficit probably
would be in excess of $20 billion on an NIA basis.
If a substantial rise in private GNP is superimposed on the sharp
expansion of demand arising from the Federal sector, a renewal of
*Senator Miller points out that fiscal restraint needed to enable such easing
to take place without inflation should be exercised by the administration and its
controlled Congress.
1967 JOINT ECONOMIC REPORT
61
demand pressures is certain to occur. Fiscal restraint would then be
a clear requirement of economic policy.
In any event, the Congress is under no compulsion to make this
decision before the July 1 effective date requested by the administration. Action should be taken when, and only when, the outlook
clears sufficiently to make a rational judgment possible, which might
not be until later in the year.
Wage-price inflation is not sufficient justification by itself for the
tax surcharge. An increase in taxes acts only indirectly on cost inflation. Indeed, a tax increase could aggravate cost pressures. A raise
in taxes is both an increase in costs for business and an inducement
for labor to seek wage gains which maintain disposable income.
C. Expenditure Policy
Expenditure policy should be designed at all times to serve high
priority national objectives.
The share of the Nation's total resources which the public is willing
to devote to the Federal sector is limited. Against these limited
resources, there exists a multitude of competing claims.
Reducing the rate of increase in Federal outlays makes more resources available to meet the needs of State and local governments,
individual consumers, and business. Actual reductions or a slowing
of the rate of increase in some Federal programs could also make additional resources available for higher priority programs.
Ample room exists for reductions in spending. Professor Arthur
Burns told the Joint Economic Committee that spending on the NIA
budget will rise by an average of $17 billion a year between fiscal 1965
and 1968, compared to average increases of $5.4 billion from 1960 to
1965, and $4.8 billion from 1955 to 1960.
Even eliminating Vietnam expenditures, annual increases between
fiscal 1965 and 1968 will average $10 billion, or 2Y2 times the annual
rate of increase in total spending in the preceeding years from 1962
to 1965.
Professor Paul McCracken pointed out that if $5 to $52 billion of
fiscal restraint were applied to 1968 nondefense expenditures, these
outlays could still rise at an annual rate of 7 percent, compared to the
11 percent requested by the administration.
We believe the economy would benefit by a substantial reduction
in planned Federal outlays in fiscal 1968 based upon a careful evaluation of national priorities. Many programs themselves would profit
from a slower rate of advance in spending. We believe that the
recommendation of the majority of this Committee represents a
feasible and desirable goal.
Unlike the majority, however, we would put greater emphasis on
reducing defense activities unrelated to the current military effort in
southeast Asia. A lean defense budget need not mean a weaker
military establishment. Even during World War II, the Congress,
notably the Truman Investigating Committee, diligently sought out
and eliminated waste in the military establishment. We think the
times call for a similar effort by the Congress today.
A reduction in the rate of increase in spending would not have an
adverse impact on the level of economic activity. It would have the
positive advantage of avoiding the adverse effects of a tax increase, or
as large an increase as might otherwise be required to stop inflation,
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1967 JOINT ECONOMIC REPORT
including the impact on costs, incentives, and the increase in the fiscal
drag of the Federal revenue system.
A reduction in expenditures would reduce the borrowing requirements of the Federal Government and thus ease pressures bn the
money and capital markets. More funds would thus be available to
other borrowers and at lower interest rates. A reduction in Federal
financing requirements reinforces monetary ease and acts as an
offset to the overall economic impact of the reduction in spending.
D. Investment Tax Credit
We oppose the use of the investment credit for economic stabilization purposes. Business investment planning involves long leadtime.
The effects of a suspension of the credit are likely to be felt when the
need for restraint has passed.
Indeed, it appears that suspension of the credit in 1966 will have
its impact in the second half of 1967, when the need for restraint
may have passed. In light of the current outlook, it is becoming
clear that the credit should be restored, and we are gratified that the
administration has recognized the need.
Once the credit is restored, we think that studies should be undertaken to determine whether the tax credit device should be a permanent part of the system or whether another approach, such as emphasizing modernization of depreciation allowances, might be better
adapted to reaching the same goals.*
E. Debt Management
Treasury action in managing the public debt has an important
influence on total spending for goods and services. Sound debt
management can promote economic stability, but if the debt is
poorly managed, the effects of fiscal and monetary policies may be
argely offset.
The impact of debt management is often believed to depend on
the characteristics of different types of Treasury securities. Shortterm obligations possesses many of the characteristics of money.
Long-term Government securities, on the other hand, are primarily
purchased by investors and are usually held for long periods. It is
generally believed that too much reliance on short-term financing
may lead to an inflationary increase in liquidity in the economy.
According to this theory, changes in the composition of the debt
in the past two years have tended to be stimulative because newly
issued debt has been relatively short term. The legal interest rate
limit on long term Government bonds is no longer competitive and
forces the Government to borrow in the form of "near money" securities. This is inappropriate in a period of high employment and
continuing strong inflationary pressures and would be unnecessary if
the administration and the Democratic Congress had not deliberately
pursued a course of multi-billion-dollar deficit spending.
*Senator Percy supports the investment tax credit becoming a permanent
part of our tax structure at.the earliest possible date. He believes this is important
in order to provide every encouragement to industry for the modernization and
improvement of plant and equipment necessary to insure the lowest possible
consumer prices, the highest possible wages and the competitive position of
American products in world markets.
1967 JOINT ECONOMIC REPORT
63
Imbalance in the Maturity Structure
One of the results has been an apparent imbalance in the maturity
structure of marketable interest-bearing public debt. As recently
as June 1965, the average length of this debt was 5 years and 4 months.
In December 1966, it was down to 4 years and 7 months. In the
same period, securities outstanding with maturity under 1 year
increased by $18 billion. Those in the 1 to 5 year range increased
by $3 billion, while the amount outstanding in longer maturity classes
declined.
We urge again that the administration recommend immediate lifting of the 4Y%-percent-ceiling on Government bonds. Removal of the
ceiling would facilitate noninflationary long-term Government financing and at lower interest costs than are-now possible through
financing at shorter term, provided the Federal Government itself
follows noninflationary policies. This position received considerable support from testimony heard by the committee this year.
We also urge that the Joint Economic Committee study the
problems of debt management, including the proper criteria to
determine when debt financing is inflationary and noninflationary.
The use of participation sales by the administration also has a
major impact on financial markets. Last year, they intensified the
financial squeeze and were a major factor in pushing up interest rates.
In addition, participation sales represent an end run around the
statutory debt ceiling and lead to confusion about the true level of
Federal spending, since tie administration shows receipts of such
sales as a reduction in expenditures.
We urge that participation sales, if they are to be continued, be
included in the budget as part of the public debt, rather than as a
reduction in spending.
In this counection, we welcome the statement of the Secretary of
the Treasury that the administration will study certificate sales
and other Government contingent liabilities and look forward to
receiving its report when the debt limit is before the Congress later
this year.
Study Credit Programs
Finally, we are impressed with the observations of Federal Reserve
Board member, Sherman B. Maisel, relating to the operation of Federal credit programs. Currently, more than 75 different programis
scattered among a variety of governmental departments and agencies
either do their owin borrowing, lend money borrowed from the Treasury, or lend Government funds which are then recouped through resale
operations; $125 billion of direct or guaranteed loans are now
outstanding.
n
The present procedures appear haphazard, costly, and lacking in
rationality. Governor Maisel argues that the system creates unnecessary interest and administrative costs and raises problems for the
President and the Congress in exercising control over major governmental programs. As was evident last year, serious disturbances may
be created in money and credit markets.
Coordination of debt management and monetary policy is made far
more difficult by the proliferation of debt instruments and debt
managers. While we are not yet ready to endorse Governor Maisel's
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1967
JOINT ECONOMIC
REPORT
proposals, we believe there may be merit in the establishment of a
central Federal Credit Management Corporation, or in a more direct
move to permit the Treasury to assume the same duties and responsibilities which the agencies now perform. Either approach might
help give the Government a unified approach as a borrower to the
money and debt markets and help show in a single sector of the budget
the form of the commitments being assumed by the Government, as
well as present and potential costs. We urge the appropriate committees of Congress to give Governor Maisel's suggestion early and
thorough consideration.
F. Guideposts
In past years, we have been highly critical of the administration's
attempt to apply a specific numerical yardstick to the guideposts.
We have also criticized their uneven application and the use of
coercive pressures and threats of reprisal to bring "violators" into line.
We therefore applaud the administration's abandonment of a fixed
yardstick and its continuing emphasis on the principles behind the
guideposts. We have always supported the educational value of the
guidepost concept, which in essence is only a statement of what a
free market should do in the absence of market imperfections and the
business cycle. Real economic gains depend upon relating changes
in wages and prices to productivity, and we believe the point merits
repetition.
Our pleasure over abandonment of the fixed yardstick is tempered
by the administration's apparent intention to continue interference
in individual price and wage decisions. The Council admitted that
last year it became involved in price decisions in 50 different industries and has stated that its efforts will continue and increase.
Some industries apparently are contacting the Council in advance of
making price changes. Aside from the fact that such activity can
impair the Council's primary function as an advisory body to the
President, we think such actions by the Federal Government, particularly without express authorization of Congress, pose serious
risks. - We would hope that future actions of this kind do not follow
the pattern of the steel and aluminum episodes of recent years or
of the action taken against the oil industry just last month.
We reject proposals for the establishment of a public Wage-PriceProductivity Board which would review key price and wage decisions
in the private economy. The establishment of such a board would
be a first step toward control of private economic decisionmaking
that could impair the important economic function that changes in
wages and prices have in allocating resources to their most productive
use.
Equity demands that wage settlements take account of increases
in the cost of living. It is quite another matter for the Government
itself to establish a floor on such settlements by announcing a new
5- or 6-percent guidepost, as some are recommending.
The best way to avoid inflation is by Government itself to follow
sound fiscal and monetary policies. The avoidance of demand inflation will prevent increases in the cost of living, which are often
at the root of cost-push inflation. Where market power exists, we
believe the Government can best serve the public interest by pursuing
sound regulatory and foreign economic policies and by taking other
1967
JOINT ECONOMIC
REPORT
65
actions which strengthen and improve the operations of the marketplace.
Toward maximum employment without inflation
In a high employment economy, the achievement of further employment gains without inflation depends upon specific measures to overcome specific barriers to employment.
At least 1 million of the 2.8 million persons now jobless comprise
the hard-core unemployed. Most of these are teenagers, women, and
Negroes.
An increase in aggregate demand opens up new jobs but not
necessarily ones the hard-core unemployed can fill. A study last
year by the Manpower Research Council indicated that at that time
there were about 3 million vacant jobs in the economy, about the
same as the number of jobless.
The hard-core unemployed need better education and training in
job skills and a reduction in discriminatory barriers to their employment. We therefore recommend the following:
Human Investment Act
(a) We endorse the Human Investment Act, which has been introduced in the House by 112 Republican Congressmen, led by Representative Curtis, and by 25 Senate cosponsors under the leadership of
Senator Prouty.
This legislation would spur job training by the private sector by
providing a tax credit to employers amounting to 10 percent of certain
expenses of job training, including apprenticeship training, on-the-job
training programs under the Manpower Development and Training
Act, cooperative work-study programs, tuition refund programs, and
expenses of organized group and classroom instruction.
The act is premised on the fact that the most effective job trainer
in the Nation has always been the free enterprise economy. Business
and labor, working together, have consistently been able to conceive
and develop sound training programs superior in quality and minus
the inefficiency often inherent in Government operated programs.
The bill would remove an impediment to an employer who wants to
expand his training program and initiate new programs for his
employees. As those presently employed move up to better jobs
through more training, those now unemployed because of insufficient
skills can be hired to take their places. The Human Investment Act
also offers new hope to workers whose jobs are threatened by automation or by shifting defense contracts.
We also believe that management techniques should be improved
in order to design jobs to better fit available manpower resources.
(b) We support legislation to make permanent the unemployed
parent and community work and training programs associated with
aid to families with dependent children as a means to provide training
to public assistance recipients so that they may ultimately become
self-supporting.
(c) Better coordination is needed of training and retraining efforts
carried on under the vocational education program, the military
services, Manpower Development and Training Act, apprenticeship
programs, the poverty program, and the Economic Development
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1967 JOINT ECONOMIC REPORT
Administration. The administration has promised to make progress
in this area, and we shall follow its efforts with great interest.
(d) The effectiveness of the Federal-State employment service
should be improved, including closer coordination of its work with
private employers to encourage voluntary listing of job vacancies and
advance notice of mass layoffs; development of its capability to provide
occupational guidance and testing; and conducting more research on
manpower problems. At the same time, the critically important
private employment services should be strengthened and encouraged
in those areas where they are doing a good job.
(e) There is an urgent need for improvement in our economic
security programs, particularly an effective linkage between manpower
training for the long-term unemployed and the provision of unemployment compensation.
(J) Efforts are needed to increase the mobility of the labor force
by encouraging the transferability of pensions and other rights and by
eliminating tax impediments to job changes along the lines of legislation introduced by Congressman Curtis.
(g) There should be a complete congressional review and study of
the effects of the draft on the nation's manpower programs and policies,
including measures which could be taken to emphasize the voluntary
aspect of military service and means of increasing options now open
to the draft-age young men. Efforts should also be increased to
transfer as many jobs as possible in the armed services from military
to civilian personnel, particularly women. *
(h) Individuals should be given greater encouragement to upgrade
their skills by eliminating tax obstacles in the path of new skill
development.
(i) We should study the proposal to encourage employment of
teenagers and other low-skill individuals and some handicapped
persons through enactment of a two-step minimum wage, with the
Government subsidizing the employee for the difference between
the actual wage paid and the minimum wage.
(j) Continuing efforts are needed to break down discriminatory
barriers to employment based upon race, age, and sex. The relatively heavy concentration of unemployment among our young
and older workers makes it important for both labor unions and businesses to eliminate bias against any person because of his age when no
distinction is warranted by the reasonable demands of the job.
In the case of labor unions, progress should be made particularly
in opening up the opportunities for union membership, and especially
for apprenticeship training, to young people. The Congress should
consider the desirability of legislation to prevent businesses engaged
in interstate commerce from practicing age discrimination, as proposed
in legislation introduced by Senator Javits.
Longrun policy considerations
The committee's hearings on the President's Economic Report
produced testimony by several eminent private witnesses which raises
grave doubts about the ability of Government to "finely tune" its
policies to the needs of the economy. The point was made that both
*Senator Miller does not believe that the Joint Economic Committee should
get involved in questions of voluntary or involuntary military service or optional
government service in lieu of military service.
1967 JOINT ECONOMIC REPORT
67
monetary and fiscal policies in the postwar period, and particularly
within the past year and a half, have tended to destabilize the economy. Weaknesses in economic analysis and policy execution appear
to be the chief limiting factors on the Government's ability to shape
appropriate policies, particularly at high employment.
Given the present state of economic knowledge and our institutional
framework, fiscal and monetary policies are unable to operate with precision at all times. The problems include the limitations of economic
statistics and forecasting, the time required to execute a policy change,
the interval before which policy has its impact, and uncertainty about
what the impact will be. Taken together, they severely limit the
kind of "push button" economic policy which the Council of Economic
Advisers appears to advocate.
The limitations of economic policy are most evident in a period of
high employment. As one witness made clear, economic policy between 1960 and 1965 appeared to operate with a high degree of precision and success only because there was a considerable margin for
error. Unemployment was high, and there was a large amount of
unused industrial capacity. Today, with near full utilization of
resources, there is little or no margin for policy error. Frequent
changes in the degree of stimulus or restraint in such a period becomes
particularly dangerous.
Policy Guides
These observations suggest that(1) A greater effort must be made to improve existing economic
statistics and develop new and more reliable measures of economic
activity. We recommend that the statistical agencies of the Government undertake or accelerate efforts to(a) Provide quarterly revisions in the original GNP forecast
for the year made by the Council of Economic Advisers;
(b) Improve the Federal budget information system, including
quarterly estimates of budgetary receipts and expenditures and
the presentation of the budget each year in the context of a longrun set of budgetary projections, covering at least a 5-year period.
We strongly support the President's proposal for a thorough
review of budgetary concepts and practices.
(c) Make faster progress in developing a statistical series on
job vacancies. Had the administration seen the vital need for
such a series, it could have long ago induced the Democratic
Congress to appropriate the modest sums required to launch such
an effort. To the extent such statistics pinpoint unfilled job
openings by occupation and geographic area they would be invaluiable in shaping effective manpower training and guidance programs. Information on the relationship between the number of
persons unemployed and the number of job vacancies also would
help policymakers determine with greater certainty whether
aggregate demand at any particular time was deficient and, if so,
aid the development of policies to deal with it. In this connection, the Dictionary of Occupational Titles must be constantly
kept up-to-date in a period of rapid technological change, preferably by putting it into loose-leaf form.
(d) Develop a statistical series which measures wealth in the
economy, as recommended by the Subcommittee on Economic
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1967 JOINT ECONOMIC REPORT
Statistics, in order to supplement the gross national product.
series, which measures economic activity but which gives an
imperfect picture of true economic growth. One step towards
this goal would be the development of a capital budget for the
Federal government.
(e) Develop improved regional and State economic accounting.
(f) Measure and forecast productive capacity both in major
industries and in the economy as a whole.
(g) Determine to the greatest degree possible the margins of
error in our economic statistics and prominently publish these
estimates along with the figures themselves.
Tax Changes for Longrun Growth
(2) Sharp or large changes in fiscal or monetary policies should
ordinarily not be made at high employment. In order to avoid undesirable and unforeseen impacts, policy changes at high employment
should be made gradually and smoothly. The only exception to this
guide would be an unexpected change in some external influence, such
as a sharp spurt in defense spending.
Ordinarily, tax changes should be reserved for longrun growth objectives. We are particularly impressed by Prof. Arthur Burns' case
for small annual tax reductions as a means of reducing impediments
to economic growth once the defense emergency has passed. If regular
tax reductions promote a strong and rapidly, growing economic base,
Federal revenues will actually be greater than at higher rates which
act as a drag on economic activity.
(3) With fiscal and monetary policies at high employment confined
to a somewhat passive and accommodating role, more positive use
should be made of expenditure policy to realize economic objectives.
For example, we believe that at high employment, public expenditures
on training and retraining, education, counseling, and placement can
greatly assist in reducing hard core unemployment without inflation.
Expenditures should be made on their own merits within the framework of a broad set of national priorities. The many goals of public
policy are capable of imposing infinite demands on the Federal
budget. It is essential at all times that spending for ineffective,
duplicative, or low priority programs be eliminated or at least reduced,
thus permitting tested and high priority programs to go forward at an
orderly and productive pace.
There should be no quarrel over basic objectives. It is clear to
everyone that the share of the Nation's resources that can be claimed
by the Federal sector is limited. To meet legitimate needs within
the limits of resources which the public is willing to allocate to the
Federal Government requires the establishment of priorities. It also
requires judging programs on a strict cost-benefit basis and determining whether our goals might better be achieved by reducing or eliminating some programs, expanding others, or by providing incentives to
the private sector.
Other domestic policy recommendations
(1) We recommend consideration of means to encourage profit
sharing by employees, including restricted stock options, stockpurchasing plans, and other methods of stockholding, as part of or in
lieu of increases in wages and salaries.
1967 JOINT ECONOMIC
69
REPORT
(2) We believe that the Employment Act should be broadened to
state explicitly all of the major goals of economic policy.
We recommend that the act be amended to give explicit recognition
to stability of the price level, maximum efficiency in the use of resources, both public and private, and equilibrium in the balance of
payments.
Public awareness of the tasks and complexities of economic policy
would be increased vastly by an explicit statement of these policy goals.
Policymakers themselves would be likely to give greater respect and
attention to all major goals if they were explicitly stated in the Employment Act. The tendency in Government too often has been to
minimize problems relating to inflation, efficiency, and the balance of
payments with the result that efforts to expand employment have
themselves suffered.
(3) The recent investigation of ocean freight rate disparities by the
Joint Economic Committee raised questions about the extent to
which the activities of the Federal regulatory agencies were in conformity with the mandate of the Employment Act of 1946. In furtherance of its functions under the act, we recommend that the Joint
Economic Committee study the extent to which the activities of the
Federal regulatory agencies are or should be guided by the Employment Act of 1946.
THE BALANCE OF PAYMENTS AND INTERNATIONAL
MONETARY REFORM
The administration's concern over the balance-of-payments deficit
and gold outflow appears to be giving way to a sense of complacency
and resignation. It is becoming clearer every day that administration
officials are coming to believe that we will have to live with the deficit
at least as long as the Vietnam war continues.
This attitude is dangerous and unwarranted. The administration's
failure to give the attainment of balance-of-payments equilibrium the
highest priority is likely to weaken confidence in the dollar, lead to
larger gold outflows and delay reform of the international monetary
system.
Time is quickly running out on the United States. Our continuing
deficit and loss of reserves is raising serious doubts in Europe about the
state of the American economy and the continued ability of the dollar
to serve as the keystone of the world monetary system.
Reserve Assets Decline
Last year's balance-of-payments figures mask a deterioration in
our fundamental position. In spite of a surplus on the official settlements basis, there was a drain on our gold stock of nearly $600 million
and a further decline in our total reserve position.
Under Secretary
of Treasury Frederick L. Deming has admitted, "This is a feature that
causes concern and represents a destabilizing element in the international monetary system. Any balance or surplus-however defined- which is accompanied by continued large reserve losses cannot
be regarded as satisfactory."
Against a grand total of $31 billion in short-term dollar liabilities
to foreigners-$12.6 billion of them immediately convertible to gold by
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1967 JOINT ECONOMIC
REPORT
official institutions-the United States now has a gold stock of slightly
more than $13 billion. About $10 billion of this is now required as
backing for Federal Reserve notes, leaving slightly more than $3
billion in "free" gold to meet our international commitments.
But the Administration has said that it has no plans at this time to
ask for removal of the gold cover behind Federal Reserve notes. In
view of the steadily diminishing supply of "free" gold, what action
does it intend to take to protect the dollar?
The deficit on a liquidity basis was held to $1.4 billion last year
largely because of a variety of special transactions which cannot be
counted upon again this year. These included sizable foreign debt
prepayments to the United States and, much more importantly, a
large inflow of foreign capital attracted by tight money and high
interest rates into U.S. financial assets with a nominal original maturity of more than 1 year. Some estimates indicate that the deficit
on the liquidity basis would have been double the actual figure in the
absence of these special circumstances.
The sharp deterioration of- $1.1 billion in our trade surplus last
year was particularly disappointing. The merchandise trade balance
declined to $3.7 billion, continuing its steady fall from the $6.7
billion surplus of 1964.
Little Hope for Improvement
The administration believes that the balance of payments will move
toward equilibrium this year. The outlook offers little support for
this hope. The expectation of a substantial increase in the trade
surplus may well be unreasonable in the face of continued increases in
costs and prices in the United States, and the prospects for slower
growth in some of our major markets overseas.
The administration also hopes that the program of "voluntary"
restraints on foreign investment and lending will make a further
contribution to the balance of payments this year. We think any
substantial contribution from this source is unlikely, particularly
during a period of easier money.
There is a distinct possibility that capital outflows will be larger
and capital inflows smaller this year than they were in 1966. Any
significant easing of extremely tight money and high interest rates
will sharply worsen the capital account in the absence of a similar
easing of money in Europe.
We agree with the estimate of the National Foreign Trade Council
that 1967 will see a worsening in the overall balance-of-payments
deficit. We also agree with the former Under Secretary of the Treasury, Robert V. Roosa, that 1967 could be "a crucial year for the dollar, and even for the standing and leadership of the United States in
world affairs," unless solving the balance-of-payments problem assumes the highest priority in administration economic policy.
Turning Point Reached
Why has a turning point been reached in the international economic
position of the United States?
First, the dollar holdings of the monetary authorities of the free
nations began to decline in 1965 after increasing by some $13 billion
1967 JOINT ECONOMIC REPORT
71
in the previous 15 years. According to Prof. Fritz Machlup of
Princeton University, the decline in 1965 and 1966 was nearly $2
billion. Professor Machlup has said that this development "marked
the end of an era" and that its significance for the world monetary
system "can hardly be exaggerated."
Foreign monetary authorities no longer wish to hold additional
dollars as reserves. This loss of confidence in the dollar's reserve
function makes a run on gold more likely should a variety of possible
economic and political shocks occur. These might include an acceleration of domestic inflation, sharp step-up of the war in southeast
Asia, or devaluation of the British pound.
Second, since the end of 1964, world reserves have been growing
very slowly. By the middle of last year, the foreign exchange
component of world reserves was lower than at the end of 1964, and the
amount of gold held as reserves was virtually unchanged. Reserve
increases have come basically from increases in members' reserve
positions in the International Monetary Fund. Deficits in reserve
centers no longer add automatically to the supply of liquidity. With
gold increasingly going into private hoards, further increments to
reserves from that source cannot be counted upon.
This slow growth in reserves makes an international agreement on
reform of the world monetary system all the more urgent. Failure to
reach agreement will mean an acceleration of the drift-already evident-toward destructive economic nationalism. The steady loss of
reserves by the United States has already led to the adoption by our
own Government of damaging policies, such as the foreign lending and
investment restraints, which represent steps towards multiple exchange rates. Ironically, in order to avert a crisis, the administration
has adopted policies which have the same result as the protectionist
and restrictive policies which would follow should a crisis actually
occur.
The Administration originally urged enactment of the interest
equalization tax and imposed the other controls on capital outflows
and bank lending to "buy time" to solve the basic balance of payments
problem. Having failed to solve that problem, these destructive
devices are now becoming a permanent part of our foreign economic
policy. The Administration is now asking for the second extension
of the interest equalization tax and for additional authority for the
President to raise or lower the rates from zero to two percent. Looking back on our experience with this tax and other controls, we are
convinced more than ever that the proper remedy for the balance of
payments problem lies in other directions, which we discuss later in
this section.
In the light of a 1964 Brookings Institution study which covered
the balance of payments effects of capital controls, we also feel that
there should be another review at this time of the costs involved in the
tax and other capital controls, including the effects on the financial
leadership of the United States, on our export trade, on future earnings from investment income and on the fringe benefits to our balance
of payments arising from our position as the world's foremost capital
market.
Third, our continuing balance-of-payments deficit and gold loss is
making it increasingly difficult for the United States to pursue its
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1967 JOINT ECONOMIC REPORT
foreign policy objectives. Continuing deficits expose the United
States to financial blackmail by those who disagree with our policies
and lead to friction and misunderstanding with our friends, notably
in the dispute with Germany over military offset purchases. Elimination of the balance-of-payments deficit is thus essential to restore
freedom of maneuver in U.S. foreign policies.
There is no easy or painless solution to the dollar dilemma. But
action along several lines is urgently necessary to eliminate the deficit
at the earliest possible time, protect the dollar against a run on gold,
and provide for long-range reform of the international monetary
system. These proposed actions are as follows:
A. Eliminating the Balance-of-Payments Deficit
1. It is crucial to our trade surplus and to foreign confidence in
the dollar that the administration use all of its fiscal and monetary
resources to restore cost and price stability in the American economy.
We have discussed elsewhere in these views our recommendations
on how to ahieve this vital objective.
2. We look with favor upon the suggestion of. former Under Secretary Roosa that the Federal Reserve attempt to maintain short-term
interest rates at high levels, while facilitating a reduction in long-term
rates.
3. We applaud the efforts of Secretary Foxvler to gain cooperation
of Europ3an officials in establishing coordinated monetary policy.
While we believe that there are limits to the coor. eration we can expect
to receive, we urge that the administration continue along this route
as one way to help prevent a sharp outflow of volatile investment funds
as domestic interest rates decline.
4. We urge the administration to pursue negotiations on a proposal
offered by the Committee for Economic Development to establish a
"multilateral defense payments system" under which no NATO
member suffers or profits in balance-of-payments terms from any
expenditures made through NATO for the common defense.
5. We also believe that consideration should be given to moving
the foreign aid program to a real resource basis, as suggested by the
International Economic Policy Association. Reorientating the
program from loans to providing only U.S. goods and services would
reduce the dollar outflow arising from the aid program.
6. As pointed out in the agriculture section of this report, greater
emphasis must be put on strengthening the competitive position of
American agriculture. One of the best ways to solve our balance-ofpayments problem is through expansion of our commercial agricultural
exports.
We also believe that more attention should be given to increasing
dollar sales under the Public Law 480 program, possibly by amending
title I to require at least partial payments in hard currency, except in
those cases where a waiver would be clearly in the national interest.
B. Preventing a Run on Gold
1. Immediate contingency planning is necessary against the possibility-however unlikely it may appear at the moment-of a devaluation of sterling. If sterling falls, the dollar will be in serious jeopardy.
1967 JOINT ECONOMIC REPORT
73
Such steps might include further strengthening of the credit facilities available to Britain in case of a renewed crisis or a funding of
official sterling liabilities, possibly in the IMF. Both approaches present problems, but they are far less difficult than those which could
follow a sterling devaluation.
2. Negotiations should be begun on cooperative means to restrain
the convertibility of existing dollar balances into gold. Proposals to
this effect have been made by a number of prominent economists,
notably Prof. Robert Triffin of Yale. We urge the administration to
give immediate consideration to the alternative plans that have been
offered and to propose a broadening of current international monetary
discussions to include this subject.*
C. Longrun Strengthening of the International Monetary System
1. We urge the administration to press on toward agreement with
the other members of the Group of Ten and the International Monetary Fund on a contingency plan for the creation of new reserve
assets.
2. We commend to the administration the report on the international adjustment process produced last year by Working Party
III of the Organization of Economic Cooperation and Development.
A strengthening of the adjustment system reduces the need for reserve
assets and helps prevent a proliferation of damaging restrictions and
controls on trade and payments. We urge the administration to
follow through within the OECD on the implementation of the major
recommendations of that report.
3. We also urge that the administration give serious consideration
to proposals which have been advanced that would provide greater
flexibility in exchange rates. While we believe that freely floating
exchange rates would be highly unsettling to international traders
and investors, we do feel that some modification in the system of
fixed exchange rates could have desirable consequences by giving
market forces a larger role to play in adjusting payments imbalances.
One of the most promising approaches appears to be a widening in
the band of permissible exchange rate variations around parity. We
see no justification for an outright rejection of the approach simply
because it represents a modest departure from the Bretton Woods
tradition. We hope that the administration will give this idea openminded and thorough consideration in its explorations of new approaches to improving the international monetary system.
*See discussion of these plans in "Contingency Planning for U.S. International
Monetary Policy," published by the Joint Economic Committee in December
1966.
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1967 JOINT ECONOMIC REPORT
INTERNATIONAL ECONOMIC RELATIONS AND U.S. FOREIGN
TRADE POLICY
A. The Kennedy Round *
Since 1962 the focus of U.S. international trade policy has been the
sixth round of trade negotiations under the General Agreement on
Tariffs and Trade (GATT), the so-called Kennedy Round. In terms
of the tradition of such negotiations, the Kennedy Round was very
different. It promised to simplify the process of negotiation by
introducing new concepts of negotiation across the board with few
exceptions according to agreed percentages.
The new round of negotiations was an equally bold political conception. The ideas that by reducing the common external tariff of
the European Economic Community (EEC or Common Market),
significantly modifying its nascent common agriculture policy, and
at the same time drawing Europe ever more tightly into a comprehensive Atlantic community, were the significant motivations of the
Kennedy Round.
In terms of its original economic and political goals, the most one
can hope from the Kennedy Round is a modest success, which is
regrettable since freer trade promotes consumer choice and a more
stable price level. In spite of the fact that it has been the forum for
valuable new efforts in fields such as agriculture and nontariff barriers,
it has run aground on the shoals of increasing European economic
independence, of a new spirit of national awareness, and of waning
momentum of the drive toward political community through economic
cooperation.
B. Should the Trade Expansion Act be Renewed?
The President's authority to reduce U.S. tariffs by 50 percent
through trade negotiations will expire on June 30, 1967. After 4
years of negotiations under the authority of the Trade Expansion
Act, it has proven very difficult to make Europeans share the sense
of urgency that this time limit imposes.
The June 30 deadline is a real one for very logical reasons. When
the Trade Expansion Act was enacted by Congress in 1962, it was
considered on the basis of principle. Now, almost 5 years later,
the meaning of these principles has become very specific and immediate. American industries and labor know about U.S. offers for
negotiation and of the offers and exceptions of other participating
nations. Some industries and unions have forcefully expressed their
opposition to negotiations which they believe will either harm their
commerical interests, or at best have a neutral effect by increasing
some of their exports and increasing some imports.
These are the reasons why the Trade Expansion Act would not
emerge intact from the legislative process-renewal of the Trade
Expansion Act as we know it today is an impossibility. Even were it
possible to renew the act, we believe that it would not be desirable
to do so. The trade negotiations have dragged on for 4 years. There
is no point prolonging them when all that is required is a political
*See also Agriculture in the Kennedy Round of negotiations under "Strengthening Agriculture."
1967 JOINT ECONOMIC REPORT
75
decision to complete bargains. These decisions can be taken now, and
we urge our trading partners to come forward willing to make trade
agreements that are meaningful in trade terms.
C. Reciprocity
The pressure to conclude a satisfactory Kennedy Round, the almost inevitable tendency to want to produce a success in the full
sense of the high hopes surrounding passage of the Trade Expansion
Act, should not be allowed to lure the United States to weaken its
insistence that the bargaining be conducted on the basis of strict
reciprocity-the balancing of concessions between countries on the
basis of their trade value.
In the trade negotiating rounds since the Second World War, the
United States, in the interest of European economic recovery and
Atlantic cooperation, gave more than it got. It is a mark of the new
organization for conducting U.S. foreign trade policy-the Office of
the Special Representative for Trade Negotiations-established under
the direction of Governor Christian A. Herter-that reciprocity was
firmly established as a guiding principle. Though the Trade Expansion Act itself requires only "mutual benefit" from the trade negotiations, this term has been interpreted to mean reciprocity, and this
interpretation should be sustained in an age when industrial nations
around the world are able to compete successfully in U.S. markets
in terms of price, technology, and quality.
D. Imports and the American Economy
The United States has relied heavily on surpluses in the merchandise
trade account to reduce the U.S. payments deficit. In 1964 the trade
surplus rose to over $6 billion, a record achievement made possible
partly because of European economies' tendency toward inflation.
But by 1966, the trade surplus had fallen to $3.7 billion with imports
valued on a free-on-board basis and exports valued on a cost, insurance
and freight basis. For the year, U.S. exports increased by $3 billion
or 11 percent over 1965 to total $29.2 billion. U.S. imports increased
by $4 billion or 19 percent over 1965 to total $25.5 billion.
In spite of the continuing increase in total U.S. exports and high
levels of domestic demand, some ii dustries have claimed damage
from imports. A moderation of strains in th-3 domestic economy
would temper the volume of imports in such industries as textiles
and steel.
The strong competition from foreig:n-made goods has brought home
the need for continuing emphasis on reciprociuy in trade negotiations
and particularly for balance-of-payments reasons. But it has also
brought home the need for concentration on eliminating from international competition certain unfair elements, such as export subsidization, cartelized selling, unfair taxes on imports such as the
European "road tax" which discriminates against U.S. automobiles.
These problems wvill require a new emphasis in U.S. trade policy and
negotiation, and measures to rectify such inequalities should be a
major part of any new trade legislation.
Among the efforts in the nontariff area which should receive special
attention by the President's Special Representative for Trade Negotiations, we urge the development of an international code to harmonize antidumping laws and procedures of trading nations. In the
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1967
JOINT ECONOMIC REPORT
past we have called on the U.S. Government to negotiate an international agreement that would harmonize the operation of the antidumping laws and regulations of major trading nations. We urge a
continuation of efforts to seek agreement on such a code. The goal
of an international antidumping agreement is a realistic one, and
through it a nontariff trade problem common to all major nations
will be solved.
E. What Trade Policy "After" the Kennedy Round?
Administration thinking about the nature of future trade policy
has been largely held in abeyance. Effort has been concentrated on
the completion of the negotiations at hand. This is understandable,
but it cannot excuse a lack of concern for future policy. Some have
suggested that a new trade law and policy should await a new presidential term-that is, that any new initiative should be put aside, in
favor of a "holding operation."
We believe that the administration should move immediately
toward the formulation of a new trade policy that would be embodied
in new legislation giving the Executive policy directives and enough
authority to deal constructively with contemporary and future trade
problems.
We believe such constructive legislation is needed for at least two
reasons. First, the United States cannot allow itself to take a relaxed and passive posture on international economic and commercial
relation in a period of rapid and continuing change. Second, new
legislation would give a coherence and purpose to U.S. international
economic policy, making it possible to prevent attempts to enact
special economic measures for individual economic groups.
F. Elements of New Trade Legislation
New trade legislation should provide policy direction and authority
to deal with at least the following: (a) there should be continuing
emphasis on agriculture directed toward creating actual conditions of
competition in a sector of trade that is highly controlled by all governments; (b) a new emphasis on nontariff barriers to trade. Congress
should define new priority areas for negotiation and give authority to
the President to negotiate within prescribed guidelines; (c) there
should be some authority to negotiate international agreements totrade within industrial sectors; for example, the steel sector, where true
international competition is impaired by cartel selling, special national
measures for coal and steel producers, and export subsidization; (d)
there should be a major emphasis on the trade problems of the developing countries, an area of tremendous importance; (e) the adjustment
assistance provisions of the Trade Expansion Act should be made
effective.
In developing new trade legislation, attention should be given to a
review of the most-favord-nation principle and its continued application in the light of new regional arrangements and the problems of less
developed countries.
Trade legislation should also be framed to leave open the door for a
new trade policy should Britain fail in its current attempt to enter the
European Common Market.
G. CongressionalRole in Trade Policy Formulation
During the past year and a half many private groups have concerned
themselves with debating the direction and nature of new U.S. trade
1967 JOINT ECONOMIC REPORT
77
policy. This public discussion and concern has produced useful
recommendations, but it needs focus. We strongly recommend that
the Joint Economic Committee hold hearings on international trade
this spring. As a point of departure, these hearings should be focused
on the President's trade report and need not concentrate, except tangentially, on the Kennedy round, thus avoiding excessive public
probing of what are increasingly delicate negotiations.
H. Better Administration of Trade Policy
U.S. trade policy is only nominally centered in the Office of the
Special Representative for Trade Negotiations. Many other departments and agencies have foreign trade responsibilities and concerns. As an interim but very important objective, the scope of
competence of the special representative, who is appointed under
authority of the Trade Expansion Act, should be broadened to enable
him with a small but high level staff to coordinate all aspects of U.S.
trade policy so as to impose coherence where none now exists.
Christian A. Herter, former Republican Member of Congress,
Governor of Massachusetts, and Secretary of State, as first special
representative for trade negotiations, devoted the energies of his
last years to establishing the Office of the President's Special Representative for Trade Negotiations upon a solid foundation of integritg
and sound procedure. He represented at its best enlightened,
responsible Republican internationalism. His careful use of the
substantial powers delegated to him, his steady guidance and statesmanship, are severely missed.
I. A New Role for GATT
The United States should reexamine the work of the General
Agreement on Tariffs and Trade (GATT). GATT was established
20 years ago in Geneva as part of the effort to insure that the postwar
world could not again devolve into the economic chaos that characterized the prewar world. Thus the GATT was initially intended to
take its place among international organizations such as the International Monetary Fund and the International Bank for Reconstruction and Development, institutions which over 20 years have
demonstrated their utility beyond doubt. But GATT has remained
merely a document with a small but able secretariat to arrange
meetings nations call under its articles.
But GATT.has a very real, very immediate role in world trade. As
a document, it established rules of fair competition in international
trade that benefit everyone. Now more important than ever, it is
perhaps the one international organization that has an immediate
chance to correct the trade problems of the developing countries.
But the United States has steadfastly refused to face this issue
squarely by asking for a budget item to pay for the U.S. contribution
to the dues of the GATT. Instead, the payment has been hidden
in a contingency item of the State Department appropriation. The
result was that last year the United States almost alone opposed a
modest increase of the GATT expenditures when the poorest developing countries were willing to raise their own contributions.
J. A World Conference on Trade
In 1967, the 20th anniversary of the General Agreement on Tariffs
and Trade, the United States should press for an international convocation of GATT members, including parliamentary representatives,
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1967 JOINT ECONOMIC REPORT
and observers from non-GATT nations, to reexamine the role of the
GATT in today's world. The ideal occasion would be the annual
meeting of the contracting parties of GATT, a meeting that will
be held in the fall of 1967. The 20th anniversary convocation of
GATT is needed for a number of reasons: It would present an opportunity to assess the future of the organization and of its rules
after the extremely trying episode of the Kennedy round. It would
be an ideal time to face squarely at ministerial level the problems of
developing country trade. It would serve again perhaps to reemphasize the principles of open trading on which GATT is based and
which we believe continue to be important.
K. East-West trade
There has been great interest among many groups in the broadening
of trade contacts with Eastern European countries. In order to
develop a sound national policy on this matter we believe it important
that competent committees of Congress hold thorough and objective
hearings on this subject.
GUARANTEEING OPPORTUNITY TO THE DISADVANTAGED
The idea of guaranteeing a minimum annual income to all Americans
has received considerable attention in recent years. In his 1967
economic message, President Johnson indicated that he would appoint
a commission to examine the wide variety of proposals which have
been made.
We welcome the coming appointment of this commission. If its
studies are scholarly and objective, it can make a major contribution
toward resolving what is certain to become an important issue of
public policy. While we do not at this time take a position either for
or against the guaranteed minimum income, * we want to state some
basic questions which we hope the commission will consider.
At the same time, we want to offer some proposals on guaranteeing
opportunity for all Americans. Whatever the outcome of the debate
on the guaranteed annual income, there must be continuing progress
towards opening the doors to opportunity in order that all citizens
have an equal chance to become self-supporting and self-respecting.
Questions on Guaranteed Income
First, to what extent will common agreement be possible in the
sup ort and implementation of a guaranteed income? Assuming
both the economic and political feasibility of some plan of guaranteed
income, would this assure sufficient and broad enough support to
avoid disruptive conflict and social disorganization?
Specifically, can a right to income without work be adopted without
creating deep cleavages and conflicts in our society? Is it possible
to have a dual set of values and norms; one predicated on income for
work and one on income without work? Isn't it possible that the
existing gulf between the middle-class culture and the subculture of
poverty will be deepened and problems of national cohesiveness and
accommodation be aggravated?
* Senator Miller is opposed, and the questions posed in this section of the
report reveal some of the reasons for his position.
1967 JOINT ECONOMIC REPORT
79
.Any social system is composed of many interrelated units and
functions. Any drastic change in one part of the social system will
affect the total in many unforeseen and unpredictable ways. We
have never been able to predict the total impact of change. Increasingly and frequently we have learned that the treatment of a social
problem may produce additional problems and, in the final analysis,
the treatment may be worse than the disease.
Might PerpetuatePoverty
Second, is it possible that such a plan might help to perpetuate
welfare as a way of life by sacrificing social services designed to
eliminate the causes of need for an income guarantee? Proponents
of guaranteed income plans sometimes fail to distinguish between
those families and individuals who could and would make, good use
of an interim guaranteed income grant and those who would not.
They also fail to distinguish between those in poverty and those who
lead decent lives, although having no margin for waste or luxury.
Should we create a costly program that would spread our resources
over both groups without regard to social priorities or the likelihood
of productive use of those resources?
The provision of this "social conscience money" could lull us into
a sense of complacency about the poverty problem and divert our
attention from the critical need to provide remedial services to the
hard-core poor.
Slow the Rate of Growth
Third, would the guaranteed annual income slow down the rate of
economic growth by reducing incentives to work and save? Automatically providing an adequate minimum standard of living to any
citizen might be sufficient to eliminate incentives to work for most of
those unemployed or those earning less than the minimum standard
level. Those who earn only slightly more than the minimum might
also decide not to work at all. Admittedly, the adverse incentive
effect differs among plans, but in every instance there is at least some
negative incentive effect. The result could be a lower gross national
product and a lower rate of economic growth than would otherwise
exist.
Economic growth also might suffer to the extent that a guaranteed
annual income weakened incentives to save. With an annual income
assured, the future for many individuals would become more certain.
Families might be less likely on the whole to save for emergencies,
retirement, death, and disability. The pressure on business to make
substantial contributions to employee pension funds would also be
less urgent, and this source of capital accumulation could decline
sharply as well. The result might be a higher rate of current consumption, less saving, and a slowdown in the modernization and
expansion of plant and equipment.
Might this pose a direct threat to employment opportunities for all
those able and willing to work? Such opportunities directly depend
upon a high level of investment in the future. The creation of new
jobs for our rapidly growing labor force requires substantial growth
of investment spending. Moreover, increasing technological progress
raises the amount of capital equipment per worker and thus the
80
1967 JOINT ECONOMIC REPORT
investment costs of keeping a worker employed and providing the
new jobs.
Fourth, are the programs administratively feasible? Specifically,
how would the problems of defining income, fluctuating income and
definition of the filing unit be handled? What weight would be given
to wealth or assets in determining entitlement to a Federal payment?
The problem of defining income would not be feasible by merely
referring to the Internal Revenue Code. For example, if "economic
income" is the test, a person would have to compute adjusted gross
income for regular income tax purposes and then add back items
excluded or deducted in computing adjusted gross income. The 50
percent of long-term capital gains excluded from adjusted gross income and tax-exempt interest are examples. The deduction for
charitable contributions would have to be added back-otherwise
these would, in effect, be paid by general taxpayers. Similarly, a
deduction for real property taxes on a home would have to be added
back to prevent discrimination in favor of the homeowner over one
who merely rents a home or apartment.
How To Guarantee Opportunity
Progress in helping America's disadvantaged citizens must not be
delayed while debate continues on the desirability of some form of
guaranteed minimum income. Our emphasis is therefore on how to
guarantee opportunity.
One of our first jobs is to make certain that we are spending health,
education, and welfare funds with the greatest efficiency possible.
Much of our antipoverty effort today is wasteful, redundant, and
ineffective. Before even considering vast new outlays on programs
such as the guaranteed annual income, we should be certain that we
are making the best possible use of the funds now being spent.
In this connection, it is essential to review existing policies and
programs to determine the extent to which they actually impede the
war on poverty. For example, our urban renewal programs have
primarily benefited the middle third of the Nation, while many of
the poor made homeless by these programs have been pressed into
other slum areas or areas about to becoime slums. Our farm programs
have poured out hundreds of millions of dollars, but rural poverty
persists, and there is evidence to indicate that the distribution of
income has actually been worsened under the administration of our
agricultural programs. Certainly they have done little or nothing to
improve the quality of education or to update the skills of our rural
citizens who are particularly handicapped in the urban environment.
The Effects of Present Programs
We also ought to determine whether the application of our child
labor laws may contribute to the unemployment of young people.
At the same time, we need to know more about how the minimum
wage laws contribute to unemployment among less skilled workers
and how our tax laws impede geographical mobility. Another field
for study is the tax treatment of individual educational expenses and
its impact on upward job mobility. Our unemployment compensation program also could be improved to assist in the reduction of
1967 JOINT ECONOMIC REPORT
81
poverty. For example, under the encouragement of the Manpower
Training Act of 1962, all States now permit an individual to take
training without loss of unemployment benefits. However, we still
do not relate improvement of the unemployment insurance system to
improvement of our training, rehabilitation and retirement programs
and correlate these programs.
We already know the poverty-creating effect of the present income
limitations applied to those aged persons receiving social security
retirement or survivor's payments. We should now determine how
much the income-limitation should be increased. We need to know
more about whether the aid to dependent children program actually
encourages illegitimacy by discouraging remarriage of an AFDC mother, and whether the so-called "man in the house" rule, in effect, contributes to the break up of families and the perpetuation of poverty.
We also need to review the extent to which public assistance programs
create an incentive for beneficiaries to withdraw from the labor force
because of the deduction of earnings from benefits received.
The Role of Economic Policy
In addition to taking a hard look at present programs and policies,
we must remember that economic policy has an important contribution
to make toward eliminating poverty. This means that we must
strive to maximize economic growth which results in increased
wealth both to provide jobs for our rapidly increasing labor force
and to have resources available for the fight against poverty.
It also means that we must avoid inflation. The constant erosion
of the purchasing power of the dollar since the end of World War II
has pushed millions of individuals living on fixed incomes below the
poverty level and made life even more difficult for those already impoverished. Because of inflation, the purchasing power of social
security benefits, even after several increases, has barely kept pace with
the rising cost of living.
Economic policy also can make a contribution to the elimination
of poverty by promoting occupational and geographical mobility. In
an age of rapid technological change and adjustment, it is important
that Government and private business policies help to promote the
maximum of flexible response to changing conditions among our labor
force.
There is another precondition to the success of specific and selective
antipoverty measures. That is, the abolition of all unjustifiable discrimination in employment and education based upon race, creed,
age, sex, physically handicapped, or whatever.
In this connection, it is vital for labor unions to open their doors to
equal membership opportunities to all persons, particularly to members of minority groups. In many places and in many jobs, union
membership is a condition of apprenticeship or employment from a
practical if not a legal standpoint. Where this is true, business efforts
to find job opportunities for minority Americans can be successful only
to the extent that labor unions, with the cooperation of management,
not its behind the scenes condonation or encouragement which frequently exists, abolish discriminatory practices in their own membership and training programs. Today the values which occur from
passing skills from father to son, as it were, must be realized within a
82
1967 JOINT ECONOMIC REPORT
structure which does not exclude others from learning and following
these occupations.
Specific Antipoverty Remedies
Aside from these general considerations, specific policies to combat
poverty must emphasize alleviation, rehabilitation, and prevention.
Alleviating poverty means that every person in need, which means
a person facing a basic economic problem the solution of which is
beyond his own or his family's capabilities, should have relief from
the community as a whole.
One of the shortcomings of our present public assistance programs is
that benefits are unrelated to specific needs and so are frequently too
low to meet even minimum needs established by the States themselves.
In other instances, States continue payments after the specific needs
have actually disappeared or are within the ability of the individual to
make them disappear. Rehabilitative social services are the essence
of good welfare programs. The purpose of welfare is to provide income
during the period a person is getting onto his own feet again, or getting
onto his feet in the first instance.
Our public assistance programs also bypass many of the poor. The
Federal Government today shares the cost of aid to the blind, aged,
permanently disabled, and families with dependent children. Persons
not fitting neatly into one of these categories are dependent on State
and local general assistance. In 1964, such general assistance provided an average of $7 a week in support for about 800,000 persons.
There is no justification either for providing assistance by categories
or for the Federal Government participating in one group and not
another. The problems of determining eligibility for a particular
category of assistance is costly in terms of funds and precious professional time which could be better spent in improving social services.
We would favor abolishing all categories of assistance and providing
aid on the basis of demonstrated and specific need to the unemployed
or underemployed poor whose income falls below minimum standards,
geared to programs designed wherever possible to getting them onto
their own feet.
RehabilitationNecessary
Rehabilitation-our second goal-involves making an all-out effort
to make productive and self-sustaining citizens out of all those unable
to find or keep a job. This means that everyone of labor force age
who is on public welfare-a money income to which our laws give
them a right-should have a responsibility under these same laws in
return for this right. This responsibility is to take any necessary
training or basic education needed to equip themselves to be selfsupporting. In order to provide a positive incentive to train or work,
we would reduce public assistance benefits substantially less than the
added income arising from wages or the training allowance.
The importance of education is illustrated with respect to the aid to
dependent children program. The higher the educational attainment
of the mother, the less the period of dependence on public assistance.
This points to another area wohere rehabilitative services could be
critical in getting families off the relief rolls and into the ranks of
jobholders.
Mothers on aid to dependent children should be encouraged to take
basic education and training in job skills. This requires that they
1967 JOINT ECONOMIC REPORT
83
recive training allowances and access to day-care facilities for the
children. Not only would such centers free the mothers for education and training, but they could provide a creative and enriching
experience for the children themselves.
The gloomy predictions about the job-destroying effects of cybernation are unjustifiable. Much of the work of society is not being
done today. Our rehabilitative programs should strive to get these jobs
done through working with the job-creation process of private enterprise, even to the extent of providing incentives if this proves to be
necessary.
Jobs Which Need Doing
Reforestation, stream clearance, urban beautification, slum cleanups, various educational work-study jobs and even simple maintenance jobs in public buildings are examples of the kind of interim
work that could be usefully done by the unskilled and poorly trained.
These tasks could be undertaken by private firms under contract to
the Government with a guarantee that at least the minimum wage
would be paid. Not only would this get needed work done, but it
would give the former welfare recipient personal satisfaction plus
skills and work attitudes that would stand him in good stead in his
future employment.
We should also remember the physically handicapped. They pose
special problems but in most cases rehabilitation is possible and, in
some ways, simpler than for those who suffer serious cultural and educational handicaps. Indeed, by studying the techniques that have
proved successful in rehabilitating and habilitating the physically
handicapped, we can learn a great deal in properly structuring the
programs for the culturally or educationally handicapped.
Obviously, this covers only a part of the rehabilitative action that is
needed. A aside range of social services is needed, and to a large degree
is presently available, to advise the poor on legal problems, family
budgeting, simple health care, and the like.
Prevent New Poverty
Our final goal is the prevention of new poverty. Here the focus
should be on all children, not just those of the poor, with the objective
of minimizing school dropouts who later become the unemployable
adults. It has been said many times before, but it bears repeating,
that the key is high-quality education and training, all along the rungs
of the ladder of skills.
Technical training is just as socially important and accordingly
should be as socially dignified as liberal arts training. In many
important educational and social circles there has been an unfortunate
downgrading of vocational and technical training which has been a
deterrent to getting both the number and quality of persons needed
into these fields.
The schools for both urban and rural disadvantaged children should
be among the best in the country. Who needs good schools more
than the children of the poor? Although the situation is improving
today, schools in poverty neighborhoods are very often among the
worst the country has to offer.
A clean, attractive, well-equipped and well-staffed school in a deteriorating neighborhood could serve as an example and an inspiration
84
1967 JOINT ECONOMIC REPORT
for many of our disadvantaged children. Both public and private
educational groups should direct their attention to improving the
quality of schools in poverty neighborhoods.
The States should update the school-grant formulas in their equalization laws which take into account the costs involved in educating
children in school districts with low-tax bases. Many counties in
the United States need to develop equalization laws because within
counties just as within municipalities or States there are school
districts of low wealth and districts of high wealth. The differentials
in these tax bases need to be equalized.
Preschool training
Breaking the poverty cycle often requires preschool training.
The accomplishments of the local and private Headstart program,
which the Federal program properly emphasized, indicates that the
States are correct in developing these remedial preschool programs
on a large scale in poverty areas. Our goal should be preschool education, first for the culturally deprived but ultimately for all American
children.
Perhaps the highest priority for the prevention of poverty should
be given to providing birth control information to public assistance
recipients on a voluntary basis. A broad program to make available
birth-control information would encourage family planning and reduce
the incidence of unsupportable children among the poor. We believe
that helping the poor control the size of their families offers a key
opportunity for halting the growth of poverty.
We should also do something for young people who are of working
age but who are neither in school nor in a job, those for whom the
educational and welfare reforms have come too late. We should
consider a pilot plan which might mean some subsidization to their
employment by private business based upon a comprehensive study
of what is already being done in this area. This could involve a
program under which business would provide work at less than minimum wages for young people who would not otherwise be employed.
The actual wage could be based on an estimate of their productivity
and their value to the firm in relation to other employees. In addition, a direct Government supplement would be paid to such employees
in order to bring them up, if necessary, to a minimum wage. Obviously such a plan would involve administrative problems, but we
think it is worth considering. It might well speed the movement of
people needed in occupations paying low wages and thus increase the
demand for labor in such areas.
These, then, are some of the possible approaches to guaranteeing
opportunity. Obviously there are many others. One thing is clear.
The magnitude of the task is immense and requires a continuing effort
by the private sector and understanding by all levels of government
so that their programs work in conformity with and not against the
operation of the private sector.
Guaranteeing opportunity has many advantages. It is positive
and assumes that every individual should, and will if the climate is
right, make a contribution of his own. It challenges our ingenuity
to find ways and means for maximum utilization of our human resources. It 's consistent Keith our value system and what we think
1967 JOINT ECONOMIC REPORT
85
we know about human behavior. It would be supported with great
public consensus. And it would tend to protect the balanced mechanism of freedom with responsibility.
STRENGTHENING AGRICULTURE
The only thing said by the President about agriculture in his
Economic Report for 1967 was that "net income per farm rose more
than 10 percent" and "we will continue to manage farm programs to
assure adequate sup plies as well as equitable returns." Such superficial treatment of the serious problems of the agricultural sector of
the economy compels comment, especially in light of the February 20,
1967, admission by the President at a Washington meeting of farm
leaders, that: "I know that farmers have been caught in a bind between
high implement prices, high interest rates, and stable or lowering
prices for farm commodities."
Net income per farm appeared to rise 10 percent, but, measured in
real dollars, the rise was under 7 percent. Moreover, the number of
farms sharing the net income declined by 122,000 during 1966. At
the same time the farm population declined by 900,000, and Federal
programs to help bring industrial development to rural areas suffering
population declines continued to prove inadequate.
Farm Debt Increase Greater Than Increased Net Income
What is especially alarming is the increase which occurred in farm
debt. According to table B-79 on page 305 of the President's Economic Report, combined real estate and other debt of farmers increased $4.2 billion during 1966 (from $41.6 to $45.8 billion). This
works out to an average of $1,220 increased indebtedness per farm;
whereas the real dollar increase in net income per farm, according to
table B-74 on page 299, amounted to only $323.
Naturally some farmers would be willing to endure additional indebtedness when incurred under a program of investment calculated
to improve future net income from expanded or more efficient farm
operations. However, the record over the past six years does not
reveal improvement in net income commensurate witll increased indebtedness. According to Table B-74, the accumulated net income
per farm improvement over 1960 for the past six years amounted to
$5,290. At the same time, net indebtedness per farm increased $4,540,
leaving a net income excess of only $750 for the six-year period.
It is recognized that while farm debt has been going up, farm
equity has been going up even more. But most of this increased
equity represents inflated farm land values. Although these may
offer a source of comfort to farm land owners, the fact remains that
the farmer must still pay off his indebtedness. Without adequate
net inccme to do so, he is left with no choice except to liquidate some
of his equity or go out of business.
Looking at the farm economy as a whole, net farm income (in terms
of inflated dollars rather than real dollars) increased by $900 million.
At the same time, total farm debt increased by $4.2 billion. And
almost all ($820 million) of the $900 million increase came from
increased Federal Government payments to farmers-not from
improvement in the market prices of their products.
86
1967 JOINT ECONOMIC REPORT
Continued Cost-Price Squeeze
Under the administration's inflationary policies, costs of farm
production increased $2.5 billion during 1966; farm land prices went
up an average of 8 percent; and farmers found credit tighter and
bearing the highest interest rates in over 40 years.
The fact of depressed prices of farm commodities is revealed in the
parity ratio, which averaged 78 for 1966 as a whole and was down
to 75 by the end of last year. Indications are that this is falling even
lower. The administration and the Democratic Congress must bear
the responsibility for these depressed prices. During the first 3 months
of 1966, the Commodity Credit Corporation unloaded over 327 million
bushels of corn on the market-well over twice~the amount for the same
period in 1964. Other price-depressing actions of the administration
included action of the Department of Commerce placing export quotas
on hides and action of the Department of Defense (on recommendation from the Secretary of Agriculture) reducing servings of pork
products to servicemen by 50 percent and procuring pork and beef
for our commissaries in Europe from European rather than the usual
U.S. sources. Meat imports (including canned, cured, and cooked
items, which were exempted from the import quota law due to administration pressure) increased by 263 million pounds, and there is
every indication of a further increase in 1967. This will have a
further depressing impact on the domestic livestock market. ImDorts of dairy products rose from 918 million pounds (milk equivalent) in 1965 to 2.7 billion pounds, and, with more dairymen selling
their herds because of the worsening cost-price squeeze, our domestic
milk production fell by 4 percent.
Administration's Apparent Cheap Food Policy Harmful to Farmers
It is becoming increasingly obvious to farmers that the administration has been following a policy of farm price depressing actions. It has
sought to partially offset lower market prices received by farmers by
Federal Government payments to farmers, taxing consumers to
enable the Federal Government to make these payments. Obviously
such a policy is inconsistent with the capitalistic economic system,
which depends on the functioning of a reasonably free market. Moreover, the consumer's food bill is really increased by higher taxes.
We recognize that the vicissitudes of weather and other conditions
may, in some segments of the agricultural industry, require taxsupported programs which will provide farmers with a minimum
level of price supports. But the programs should be so managed as
to provide a floor, rather than a ceiling, for the prices farmers can hope
to receive for their produce. Unless this is done, agriculture is bound
to continue to receive less than its fair share of the national net
income-especially during a period of inflation-and the long-range
effect on our Nation's food production will be serious.
The Export-Import Picture
Under bipartisan legislative action, promotion of agricultural
exports resulted in an increase from $6.6 billion in 1965 to $6.9 billion
in 1966. Agricultural imports also rose-from $4 billion in 1965 to
1967
87
JOINT ECONOMIC REPORT
nearly $4.5 billion in 1966. However, this $2.4 billion favorable
balance was the one bright spot in our overall trade balance, which
fell from $4.8 billion in 1965 to $3.7 billion in 1966.
We recognize that foreign trade is not a one-way street. We are
concerned, however, when imports of agricultural commodities take
over an unfair share of the increase in our domestic market; and this
is especially true in the case of commodities which are being produced
efficiently by U.S. farmers. Thus, for example, imports of meat have
risen from 735.4 million pounds in 1960 to nearly 1.3 billion pounds in
1966. Dairy imports have risen from 604 million pounds (milk
equivalent) in 1960 to 2.7 billion pounds in 1966.
TABLE
I.-Agricultural imports
[In millions of dollars]
1964
Supplementary:
Animals live
-56
Dairy products-62
Meat and meat products-483
All seeds and products-158
Sugar, cane-458
Tobacco, unmanufactured
Wool, apparel ----------------------------Other-675
117
73
525
177
441
130
157
627
118
93
713
190
502
127
157
728
2,247
2,628
1,207
131
1,064
139
182
71
384
1,080
140
177
72
394
1,986
1,840
1,863
4,082
4,087
4,492
89
115
Total -2,096
Complementar:
Coffee
Cocoa beans Rubber, crude natural-201
Wool, carpet -90
Other-357
Total
-------------------------------------------
Grand total-
1966
1965
TABLE II.-Agricultural exports
[In millions of dollars]
1964
Cotton, excluding linters-682
Dairy products -265
Feed grains, excluding products-856
Fruits and preparations -279
Soybeans-567
Tobacco, unmanufactured -413
Vegetables and preparationsWheat and flour -1,532
Other -1,
Total-6,347
1965
156
597
1966
486
196
1,134
313
650
383
155
1,183
1,729
432
126
1,339
315
760
482
176
1, 535
1, 720
6,229
6,885
88
1967 JOINT ECONOMIC REPORT
TABLE III.-Share of U.S. agricultural production exported,
June S0
Percent
Commodity
1964
Wheat, including flour equivalents -75
Rice -64
Nonfat dry milk -62
Dried edible peas -49
Tallow ----------------------------SoybeansHops -41
Rye
Cotton -32
Dried prunes ----------------Lard --------------------------------------------Dried whole milk
Tobacco ---------------------------Cottonseed
--------------------------------------------------Raisins-21
Dried edible beans -20
Grain sorghum --------------------------Barley ------------------------------------------Flaxseed -11
Corn -------------------------------Hides --- ------------ ----------------------Lemons and limes ------------------------Variety meats -9
years ending
fiscal
1965
44
41
34
30
28
28
26
23
17
17
11
45
9
1966
55
56
44
60
40
48
43
6
30
27
18
17
25
32
25
17
24
15
27
15
47
10
10
65
55
37
68
3
42
42
11
21
36
9
22
28
19
23
17
37
18
15
16
47
10
10
Agriculture in the Kennedy Round of Negotiations
In our minority views in the 1965 Joint Economic Report, we
warned of "the most critical uncertainties" facing American agriculture in the outcome of the GATT negotiations for the reduction of
trade barriers. "If American farm exports are not to suffer a sharp
decline," we said, "it is essential that the United States receive
significant concessions on agriculture from the EEC."
These views remain unchanged 2 years later. We have been encouraged by the official position of the President's special representative for these negotiations, steadfastly maintained by the late Christian
Herter and more recently reaffirmed by his successor Ambassador
William A. Roth, that any trade agreement would have to include
"meaningful concessions by the European Community with respect
to their agricultural trade barriers." However, the time for negotiating agreements under the Trade Expansion Act of 1962 will expire
June 30, 1967, and there is concern being expressed in agricultural
circles that there may be a relaxation of the above policy in order to
arrive at some agreement, rather than to await the outcome of congressional action extending the Trade Expansion Act.
A policy of "balancing the interests of agriculture and industry in
these negotiations" is, of course, perfectly proper. But it will only be
in the specific application of this policy, along with the requirement of
"meaningful concessions by the European Economic Community with
respect to their agricultural trade barriers," that the future of our
agricultural exports will be assured. In this connection, it should be
pointed out that the negotiation of an international grains agreement
would not serve as a substitute for the "meaningful concessions by the
European Economic Community." The stated purpose of our participation with major grain importing and exporting countries in
trying to negotiate an international grains agreement is "to obtain
improved access to major grain importing markets and stabilization
of international wheat prices within a reasonable range." Under the
proposals being discussed, base periods and fixed percentages would
1967
89
JOINT ECONOMIC REPORT
be provided, and these would have no relationship to reciproca
lowering of trade barriers with respect to industrial products.
IV.-U.S.
TABLE
imports, 1964, 1966, and 1966
[In millions of dollars]
Total
imports
1964 -$18,
1965--_----------------------------------------1961-63 average
1964-66 average
600
21,282
19M
--- -------- ----------- -- --- -- --- -- --- --
From the European Economic Community:
1964----------------------------1965-3,316
1966---------------------------
$4, 082
4, 088
25,408
-------
--
------
Agricultural
imports
4,492
-
25
22
19
18
24
2
2,831
258
270
306
4,098
1961-63 average -10
Agricultural
imports as
percent of
total
imports
9
8
7
1964-66 averageFrom United Kngdom:
8
1964-1,132
1965-:1966
1961-63 average
1964-66 average
-
19641965 -
2
2
2
2
2
40
37
2
2
- -------------------
3
176
4
1,403
1,761
-
-
-
From Japan:
23
24
30
-
-
:1,763
----
-----
1966 ---------------------------1961-63 average
1964-66 average---
-
-
--
2,401
2,948
----
From Canada:
37
1964 -4,227
1965----------------------------1966--
4,813
234
240
6,106
1961-63 average -.
1964-66 average
-
V.-U.S.
TABLE
-
5
4
-
4
exports, 1964, 1965, and 1966
[In millions of dollars]
Total
exports
Agricultural
exports
1964--------------------$,06
1965 -27,603
1966-63
1961-63 average-
-
-
-
-
-
-
-
29,912
-
-
To European Economic Community:
1964 ----------------------------
4,481
4,904
1965 --
1966---------------------------1961-63 average
1964-66 averae
5 264
2 1
- 1-
64 ,
- -31
To United sing om:
1965- ---------- ------------19616
-------------------------3
1961-63 average
-------------
---------
-----------------
$6,347
24
6,229
6,885
23
23
26
1,416
32
1,476
1,561
-
1964-
-
440
308
1,645
-
30
30
32
1,445
1,537
-
Agricultural
exports as
percent of
total exports
471
-
-
30
26
29
38
To Japan:--2
1964 -----------------1965
19661961-63 average
1964-6 average-
----------------- ------------
1,894
2, 042
2,312
-
--
-
--
To Canada:
1964 ---------------------------4,653
1965 ------------------ ----------------- --------5,486
1966 ------------------ ----------------- -----------6,487
1961-63 average ----------------------------14
1964-66 average
---------Includes $160,000,000 in transit shipments.
2Includes $176,000,000 in transit shipments.
' Includes $140,000,000 in transit shipments.
720
876
942
38
43
41
35
1615
' 620
'626
13
11
10
-41
11
90
1967 JOINT ECONOMIC REPORT
We have not yet made full use of our research resources in finding
industrial uses for agricultural commodities. However, only a small
part of the USDA budget for agricultural research service continues
to be devoted to utilization; whereas the overwhelming portion relates
to what might be called "production" research activities. We believe
the emphasis should be better balanced.
Policy Recommendations
1. We renew our oft-repeated recommendation that the whole
network of Government price-support programs be reoriented toward
a strong market economy for agriculture: also, toward this end, the
administration's doctrine of "supply management" should be abolished, since, as presently administered, this has amounted to an apparent "cheap food" policy to the detriment of the agricultural sector of
our economy.
2. Establish sound inventory and reserve levels for all pricesupported commodities, with disposal of Government stocks not to
be permitted in a manner which disrupts normal markets.
3. Reorient the research activities of the Department of Agriculture
to give greater emphasis to the development of new and increased
uses for agricultural products.
4. Take action to encourage greater industrial and economic
development in rural areas suffering a decline in population.
5. We repeat our call for the administration to follow fiscal policies
which will stop inflation and, in turn, the continued rise in costs of
farm production.
6. We repeat our urging that U.S. negotiators in the Kennedy
Round of trade negotiations in Geneva continue to insist that U.S.
concessions on industrial products be contingent on meaningful
concessions with respect to our agricultural exports.
MEETING AMERICA'S URBAN CRISIS
No domestic task is more urgent than mounting an effective attack
on the problems of America's cities. What we call the "crisis of our
cities" is more than a single problem. It involves poor housing, air
pollution, traffic congestion, crime, crumbling commercial centers, and
discrimination against minority citizens.
The most hopeful sign of progress is that we are learning from our
past mistakes. Above all, there now exists a widespread understanding that Government alone cannot solve our urban ills.
In the past, Government action may actually have impeded efforts
to improve the urban environment. Federal aid has sometimes
worked against local efforts-private and governmental. For years
slum removal and public housing have been the primary focus of the
Federal Government's activities. To get Federal aid, local officials
often have been forced to direct their efforts toward these projectsno matter what the priority needs of the locality might have been.
Under the leadership of Congressman Widnall, Republicans have
successfully contributed to a redirection of Federal efforts towards
such improvements as a higher priority for low and moderate income
1967 JOINT ECONOMIC REPORT
91
housing, code enforcement and rehabilitation in the urban renewal
field, and the use of existing private housing vacancies on a voluntary
leased basis for public housing.
An effective attack on the problems of urban America now requires a
joint effort by Government and the private sector. The talents and
creative energy of private enterprise must be mobilized before soluvions will be found to the many dimensions of the urban problem.
Imaginative proposals to enlist business in this effort have already
been made.
Economic Opportunity Corporation
Five Republican Senators led by Senator Javits have proposed
legislation to organize an Economic Opportunity Corporation, a
Federally-chartered enterprise which would provide technical assistance
and investment capital to encourage increased private sector involvement in activities designed to ameliorate urban and ghetto problems.
The Corporation, which would have three Presidentially-appointed
Directors on its 15-man board, would be profit-making and would be
financed by private corporate and individual investors through the
purchase of stock.
The organization would be chartered to enter a variety of fields,
emphasizing the industrial and commercial development of ghetto
and near-ghetto areas and manpower training. It would earn a
profit by selling its technical and management assistance to city
governments and private groups in order, for example, to enable them
to start a shopping center in a ghetto area, pool their manpower
training needs in a situation where a number of employers are unable
to mount their own training programs, or by franchising businesses in
ghetto areas which can provide residents with goods and services at
reduced rates. The Corporation would, in appropriate cases, derive
profit from equity investments of its own in such projects.
Percy Home Ownership Plan
Senator Percy has proposed the creation of a private, nonprofit
National Home Ownership Foundation to enlist business, labor, the
professions, and neighborhood and civic groups in a program to help
make lower income families the owners of their own homes or apartments.
Fundamental to Senator Percy's approach is its reliance on nongovernmental initiative and action; its emphasis on making the
advantages of homeownership available to those for whom it is now
beyond reach; and its recognition of the need for involving low-income
people themselves in carrying out self-help programs to improve their
own communities.
The Foundation would have three essential functions:
First, it would make loans to local nonprofit associations for the
rehabilitation of homes and their sale to residents;
Second, it would make available the technical and managerial
assistance needed to enable the local associations to conduct sound
and well-managed programs;
Third, it would assist local associations in obtaining the public and
private resources needed for conducting or making available support76-361 0-67-7
92
1967 JOINT ECONOMIC REPORT
ing programs of education, job training, home ownership counseling,
and the like, without which home ownership cannot be made a
realistic possibility for lower income families.
The role of government would be primarily one of reinforcement and
guarantee, rather than execution and control. Provision is made for
eventual recovery of the modest government subsidy involved.
The Javits and Percy plans offer constructive approaches to the
problems of the cities, and we urge that the Congress give them careful
consideration.
We also support the establishment of the National Commission on
Urban Living. Such a Commission could serve as a high-level bipartisan coordinating body working in cooperation with Government
officials on the local, State, and National levels as well as with representatives of nongovernmental agencies involved in attacking America's urban problems.
NATIONAL EMERGENCY STRIKES
Recent labor disputes in key industries have demonstrated the
lack of adequate Government powers to assert the public interest
in disputes which affect the health and safety of the Nation or a
substantial part of it.
A crisis of national proportions in the railroad industry was narrowly
avoided in 1963, but may threaten again. Last year's airline
strike paralyzed an important segment of the Nation's transportation
system for many weeks. And other recent labor crises-particularly
the New York subway strike-will not soon be forgotten.
If we learn nothing else from these unhappy experiences, it should
be that the whole Nation or individual communities can be immobilized by key labor disputes and that Government is virtually
powerless to do anything about it.
The airline and railroad disputes provided glimpses of another
danger arising from lack of adequate machinery to protect the national
interest when threatened by a labor dispute. In the rail work rules
dispute, the Congress and the President together intervened to impose
ad hoc arbitration, while in the airlines dispute, the President attempted to impose his view of a "fair settlement" on the partieswithout much success. The dangers of such interference with private
decisionmaking are obvious. Settlements dictated by third parties
cannot solve the underlying causes of labor-management disputes, and
often the intervention by a third party-other than a true impartial
mediator-tends to delay rather than speed up the processes of permanent settlement. Certainly that was the case in last year's airlines
strike. For lack of better machinery, moreover, we are edging close
to a system of compulsory arbitration which is inconsistent with free
collective bargaining and which is sought by neither labor nor management.
Legislation Needed
Legislation is needed to give the President new and critically
necessary powers to protect the.public interest in labor disputes of a
national character, without in any way depriving the parties of the
power to write their own collective bargaining agreements. A bill
(S. 2797 in the 89th Congress) introduced by Senator Javits would
establish machinery to accomplish this goal.
1967
JOINT ECONOMIC REPORT
93
The bill would authorize the President to appoint a board of
inquiry to make public recommendations for a settlement based on
factfinding in cases where a labor dispute materially affects the
national health or safet .
The President woul also be authorized to order a 30-day freeze
during which the parties would be required to bargain upon the
recommendations. However, neither party would be required as a
matter of law to accept the recommendations.
Finally, the President could seek appointment by a Federal court
of a special receiver to operate the struck facility to the extent
necessary to protect the national health and safety.
This bill would extend coverage of the emergency labor disputes
provisions of the Taft-Hartley Act to. controversies which, though
they may not affect an entire industry nor imperil the health of the
Nation as a whole, do affect interstate commerce and imperil the health
or safety of a substantial part of the population or territory of the
Nation.
The plan is a constructive proposal for providing maximum protection of the public interest with a minimum of Government interference with the collective bargaining process. Under the procedures
of the bill, labor and management could bargain rationally and produce a settlement beneficial to both. At the same time, the public
would be protected against harmful disruptions in key industries
affecting the national health and safety.
In addition, a bipartisan group of 18 Senators has introduced a
joint resolution (S.J. Res. 9) to require the Secretary of Labor to give
the Congress his recommendations for improving existing emergency
strike laws-recommendations which the President promised to deliver
in the 1966 State of the Union message, but which have never been
forthcoming.
In the absence of administration recommendations, we believe the
appropriate congressional committees, or a joint committee, should
undertake a careful study of emergency labor dispute problems
and a careful evaluation and consideration of the proposals of Senator
Javits and others, to improve the Taft-Hartley Act and the Railway
Labor Act in order to give the public better protection, without
damaging labor's traditional rights or undermining our fundamental collective bargaining institutions.
REVITALIZING STATE AND LOCAL GOVERNMENTS
During the past several years the problem of growing Federal
control over decisionmaking at the State and local levels, particularly
through the use of conditional Federal grants-in-aid, has received
considerable thought and attention among Republicans.
Although Federal grants-in-aid have enabled the lower levels of
government to expand functions that the Federal Government has
designated vital, these governments have little influence on which
projects are considered critical and often are required to direct a
portion of their own revenues toward federally chosen projects,
aggravating the shortage of funds available for activities in which the
States and localities are vitally interested. For example, about 45
percent of the increase in Federal aid to the States over the last 10
years has been earmarked for highways and another 25 percent restricted to public welfare.
94
1967
JOINT ECONOMIC REPORT
There are presently over a hundred different specific Federal grant
programs, each with many conditions attached. Aside from increasing the complexity of State and local budgetary problems, this
situation unavoidably leads to overlapping and waste, confusion of
objectives, and inefficient administration at the Federal level.
The strengthening of State and local control over their own spending
is essential in our Federal system of government. A level of government without effective control over directing its expenditures has
essentially lost its identity and justification as a separate political
entity. Those levels of government closest to the people are most
responsive to their wishes and best equipped to most efficiently administer programs for the health, education, and welfare of their
citizens.
In order to strengthen these governments to meet their increasingly
heavy responsibilities, the trend toward fiscal centralization must be
restrained.
CONCLUSION
NEW DIRECTIONS
IN ECONOMIC
POLICY IN THE COMING
DECADE
To meet our public and private goals in the coming decade will
require new directions in economic policy.
Consider the tasks before us. As a nation we have committed our
will and our resources to the defense of freedom and an increase in
individual opportunity around the world. We do this because it is
right and because it is in the interests of our own national security
and well-being.
At home we aspire to nothing less than an enrichment in the quality
of life for all Americans. We seek to revitalize our cities, provide
job opportunities for all those able and willing to work, root out
poverty and discrimination and rid our environment of the pollution
and ugliness that is often a part of the American scene.
These are worthy and proper goals. All Americans will share in
them. But to aspire is not to achieve. To aspire is to take the first
step. The question now is, where do we go from here?
One fact is clear. Recent experience raises serious doubts about our
ability-under present policies-to meet our national goals quickly
or all at the same time. Our Nation is wealthy, but even the wealthiest
nation will overtax its productive ability if it asks too much of itself
or fails to use its resources wisely and well. It is for this reason that
we look with favor on Senator Javit's proposal for a National Commission on Economic Goals and a thorough review of the Employment
Act of 1946 and the economic policy machinery established by it.
The rapid increase in prices which began in late 1965 was the direct
result of excessive demand pressures created by over-expansionary
Government policies, including the planned deficits of the administration and the Democratic Congress. Now the administration admits that we are in the beginning stages of a new wage-price spiral
and that no early end to the problem is in sight.
What does this mean in practical terms? To millions of Americans,
especially the poor, it means sharply higher living costs and a lower
standard of living. It could also mean a slowdown'in our economic
growth, with fewer new jobs for our rapidly growing labor force. It
could even mean a recession and higher unemployment as a reaction to
imbalances in the economy caused by past Government policies.
1967 JOINT ECONOMIC REPORT
95
Inflation a Threat
Looking to the future, our recent experience carries a sobering
lesson. Inflation poses a continuing threat to the achievement of our
national goals. If the administration or the private sector pushes too
hard against available resources, prices rise, and the day of reckoning
inevitably comes. We then must pull in the reins and frustrate the
hopes of millions of our fellow citizens who have been promised a
creative and continuing commitment to a better America.
Some might say that the only way out of our dilemma is to lower
our sights, to settle for less. Personally, we think there is a better
way. What does it involve?
First, it means cutting loose from the answers and attitudes which
have largely shaped Government policy since the days of the great
depression. Those who look to the past for the solutions to the
problems of the next decade are doomed to disappointment and
defeat. Our public housing program is just one example of the waste
caused by attachment to worn-out dogma. It had taken nearly 30
years for public housing advocates to admit that wholesale destruction
of substandard neighborhoods and construction of high-rise urban
compounds perpetuates the poverty and slum conditions the program
was designed to correct. We can no longer afford the luxury of stubborn resistance to change.
Second, it means that we must make more effective and efficient use
of exisiting resources. Current programs must be examined carefully
to make certain that they provide the maximum return for resources
invested. Programs of marginal value must be trimmed back, and
new programs adopted only after careful research and pilot studies
show that they hold promise of producing solid results.
Too often the politically motivated desire for quick and dramatic
results has meant wasteful experimentation on programs of dubious
or marginal value. Promises that have exceeded performance have
led to dashed hopes, disillusionment and even riots. Consider the
poverty program. The war on poverty was launched before anyone
knew how to fight it or before a well-prepared, experienced administrative staff could be recruited. The lack of understanding, preparation, and planning is now evident in the disillusionment of many of
the poor and the inexcusable waste of scarce resources that might
have been used more constructively.
Role of Private Sector
Third, the energy and creativity of the private sector must play a
key role in meeting public problems in the coming decade. The
imagination and capacity of private effort is already being demonstrated in the rehabilitation of slum dwellings in several of our large
cities and in the training of the hard-core unemployed through the
Opportunities Industrialization Center in Philadelphia. Such efforts
must be expanded many times over. Government should act as a
catalyst which stimulates and energizes the private sector to attack
the Nation's social problems.
Fourth, increasing the growth potential of the economy must take
first priority among our economic goals. Today the administration
tells us that for the near future we must be content with a 4-percent
1967 JOINT ECONOMIC REPORT
annual increase in our capacity to produce. In effect, the administration has passively accepted a ceiling on growth.
The fact is that we cannot afford to stand pat if we want a higher
rate of growth without inflation. Unless we do better than the 4
percent accepted by the administration, the resources required to
meet compelling public and private needs will not be available when
we want them.
To raise our productive potential we must-above all-actively
promote policies to increase productivity. This means promoting
better business management techniques, a continuing high level of
investment in efficient and modern plant and equipment, more
intensive research and development to spur new technological breakthroughs and more rapid application of space and military technology
to civilian uses. Equally important, it requires more active public
and private manpower policies to upgrade the skills, education and
training of our work force.
This, then, is what we mean by new directions in economic policy
in the coming decade: more efficient use of our resources, more direct
participation by the private sector in solving public problems and a
new and urgent emphasis on raising our productive potential and
then making certain that we are making full use of that capacity.
Nothing less will do if we are serious about meeting the goals we have
set for ourselves as individuals and as a nation.
Representatives
THOMAS B. CURTIS
WILLIAM B. WIDNALL
DONALD RUMSFELD
BROCK 3D
W. E.
Senators
JACOB K.
JAVITS
JACK MILLER
LEN B. JORDAN
CHARLES H. PERCY
COMMITTEE AND SUBCOMMITTEE ACTIVITIES IN THE
PAST YEAR
The Joint Economic Committee is directed by the law creating it
(Public Law 304, 79th Cong.) to report to the Congress on the main
recommendations of the President's Economic Report and to make a
"continuing study" of the economy.
The work of the full committee and the subcommittees for the period
February 1966 through February 1967 is summarized below:
FULL COMMITTEE
January 1966 Economic Report of the President
In February the committee held 7 days of hearings on the 1966
Economic Report of the President, receiving testimony from the Council of Economic Advisers, the Director of the Bureau of the Budget, the
Secretary of the Treasury, the Secretary of Labor, the Commissioner of
the Bureau of Labor Statistics, academic experts, and representatives
of industry, agriculture, and labor. The printed record of the hearings, in four parts, contains in the final volume invited comments from
organizations representing bankers, business, labor, agriculture, and
economic research groups.
The 1966 Joint Economic Report
The annual economic report of the committee was filed with the
Congress on March 17, the March 1 deadline having been extended by
unanimous consent of both Houses of the Congress. This report also
contains minority and supplementary views. (H. Rept. No. 1334,
89th Cong., 2d sess.)
Twentieth Anniversary of the Employment Act of 1946: An Economic
Symposium
On February 23 the committee observed the 20th anniversary of the
Employment Act with a day-long symposium which brought together
many of the Nation's leading economists. This symposium sought to
reassess the objectives of the Act and the uses of public policy instruments to obtain its goals. The symposium produced a valuable,
objective evaluation of the Act and its administration over the years,
and indicated wherein performance had fallen short, as well as what
might be done in the future to improve it.
In conjunction with the symposium, the committee reprinted the
"Employment Act of 1946, as Amended, With Related Laws and
Rules of the Joint Economic Committee." This 20th anniversary
edition contains a chronological listing of members who have served
on the Committee since its inception and a bibliography entitled
"The Employment Act of 1946 and Its Administration."
97
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1967 JOINT ECONOMIC REPORT
Twentieth Anniversary of the Employment Act of 1946: An Economic
Symposium-Supplement to Hearing
The committee also solicited the views of a large number of experts
who could not have been present to testify within the limitations of
the one-day symposium in Washington, requesting additional comments focused particularly upon the future-"as to the direction
which ought to be taken in administering and living with the act
in the future." The committee received comments from 42 individuals
and 3 organizations.
SUBCOMMITTEE ON ECQNOMIC PROGRESS
Technology in Education
On June 6, 10, and 13 the subcommittee held hearings on "Technology in Education," receiving testimony from 11 witnesses. In
addition to the oral testimony, the printed record contains various
articles and statements on the subject of educational technology, together with a number of tables which were printed in the 1965 edition
of a publication of the Department of Health, Education, and Welfare
entitled "Projection of Educational Statistics to 1974-75."
Automation and Technology in Education
As an outgrowth of the hearings held in June, the subcommittee
issued a report on "Automation and Technology in Education" as
part of its broad study of investment in human resources. This report
was designed to point up recent developments in this dynamic sector
and delineate some of the current issues in the field.
State and Local Public FacilityNeeds and Financing
In January 1967 the subcommittee released a two-volume study of
"State and Local Public Facility Needs and Financing" over the
next ten years. Volume 1 projects estimated capital requirements
over the next decade for essential public facilities; volume 2 analyzes
the prospective sources of credit funds to finance construction of these
facilities. This study was prepared for the subcommittee by experts
from Government agencies, private industry, and trade associations
and provides extensive material upon which informed judgments can
be made.
U.S. Economic Growth to 1975: Potentials and Problems
This staff study contains an analysis by the committee staff of the
potentials and problems of economic growth of the United States to
1975. It is one of a series of publications analyzing trends in the
economy and the possible issues which the committee and other
organizations, public and private, may have to face in the years ahead.
Federal Programsfor the Development of Human Resources
In response to the subcommittee's questionnaire on human resource
activities submitted to various Federal agencies, the subcommittee
on March 12, 1967, released a three-volume study on "Federal.
Programs for the Development of Human Resources." This study
provides a description of program objectives, history, level of opera-
1967 JOINT ECONOMIC REPORT
99
tions, administrative operation and coordination, and expectations
for 1970, as well as economic aspects and impacts of the program.
Members of the Subcommittee on Economic Progress were
Representative Wright Patman (Chairman), Representatives
Henry S. Reuss, Martha W. Griffiths, and William B. Widnall,
and Senators William Proxmire, Herman E. Talmadge, Jacob K.
Javits, and Len B. Jordan.
SUBCOMMITTEE ON FEDERAL PROCUREMENT AND REGULATION
Economic Impact of Federal Procurement
In March the subcommittee issued a staff study entitled "Background Material on Economic Impact of Federal Procurement-1 966."
The materials contained in this report provide information on the scope
and complexities of Federal procurement and related activities, particularly the military, and their impact on the economy. This study
served as background material for the subcommittee hearings held on
March 23 and 24. Witnesses were the Assistant Secretary of the
Department of Defense, the Director of the Defense Supply Agency,
the Administrator of the General Services Administration, the Comptroller General of the United States, and the Director of the Bureau
of the Budget. Earlier, on January 24, the subcommittee heard the
Secretary of Defense. Also included in the printed record of the
hearings are extended answers to questions submitted by Senator
Douglas after the close of the oral testimony and seven appendixes of
pertinent materials.
In June the subcommittee issued a progress report entitled "Economic Impact of Federal Procurement-1966." This report was a
followup to the recommendations made in the subcommittee reports
since 1960, and emphasized the need for better management and
utilization of the billions of dollars worth of supplies in Government
warehouses.
DiscriminatoryOcean Freight Rates and the Balance of Payments
The subcommittee continued its study of discriminatory ocean
freight rates with hearings on May 6, and May 19. The subcommitted heard testimony from representatives of the Federal Maritime
Commission, the Department of Defense, the Department of Commerce, the U.S. Maritime Administration, and the Department of the
Navy.
In August the subcommittee issued its report on "Discriminatory
Ocean Freight Rates and the Balance of Payments." This report
was an outgrowth of the hearings held during the preceding 15 months,
including those mentioned above, and is based on the testimony of
Government officials and experts, steamship operators, labor umon
officials, and other interested parties. It reviews briefly the previous
findings and recommendations of the subcommittee, examines the
progress that has been made, and sets forth recommendations for the
further improvements that are needed.
Members of the Subcommittee on Federal Procurement and
Regulation were Senator Paul H. Douglas (Chairman), Senators
John Sparkman, William Proxmire, and Len B. Jordan, and
Representatives Wright Patman, Martha W. Griffiths, Thomas
B. Curtis, and William B. Widnall.
100
1967 JOINT ECONOMIC REPORT
SUBCOMMITTEE ON INTER-AMERICAN ECONOMIC RELATIONSHIPS
Latin American Development and Hemisphere Trade
In March the subcommittee issued its report on "Latin American
Development and Hemisphere Trade." The report was based upon
prior hearings at which the subcommittee had heard from representatives of the State Department and distinguished observers of
Latin American affairs.
Members of the Subcommittee on Inter-American Economic
Relationships were Senator John Sparkman (Chairman), Senators
Jacob K. Javits, and Len B. Jordan, and Representatives Richard
Bolling, Hale Boggs, Henry S. Reuss, Martha W. Griffiths, and
Thomas B. Curtis.
SUBCOMMITTEE ON FOREIGN ECONOMIC POLICY
New Directions in the Soviet Economy
The subcommittee's study of the Soviet Union was released on July
31, 1966. This five-volume work entitled "New Directions in the
Soviet Economy" provides recent factual material and authoritative
interpretative comment on all major phases of the Soviet Union's
economic performance.
The subcommittee also maintained its continuing review of foreign
economic policy issues, looking forward to possible hearings in 1967
after completion of the Kennedy Round of trade negotiations.
Members of the subcommittee on Foreign Economic Policy
were Representative Hale Boggs (chairman), Representatives
Henry S. Reuss, and Robert F. Ellsworth, and Senators John
Sparkman, J. W. Fulbright, Herman E. Talmadge, Jacob K.
Javits, and Jack Miller.
SUBCOMMITTEE ON INTERNATIONAL EXCHANGE AND PAYMENTS
New Approach to Unitod States InternationalEconomic Policy
On September 9, the subcommittee heard testimony from 4 experts
in the field of international economic policy on the general question:
"Where does the free world go from here in its problems of international balance of payments and monetary reform in particular, and
its international economic problems in general?"
Twenty Years After: An Appeal for the Renewal of International
Economic Cooperation on a Grand Scale
Following the hearing held in September, the subcommittee issued
its unanimous report which stated that it had "reached the conclusion
that a dramatic new approach is necessary in order to infuse new life
into negotiations to dispose of the unresolved issues on the international economic agenda." The report contains the subcommittee's
recommendations calling for dramatic action to get the free world off
dead center in five areas of economic negotiation and olicy and to
restore the strong spirit of international cooperation of the immediate
postwar years.
Contingency Planningfor U.S. International Monetary Policy
The subcommittee released a compendium of 17 statements from
distinguished international economists on "Contingency Planning
1967 JOINT ECONOMIC REPORT
101
for U.S. International Monetary Policy." The contributors were
invited to give their assessment of the course that U.S. policy should
pursue in the event that agreement on international monetary reform
should not be reached in 1967, or should be delayed indefinitely.
Members of the Subcommittee on International Exchange
and Payments were Representative Henry S. Reuss (chairman), Representatives Richard Bolling, Hale Boggs, William
B. Widnall, and Robert F. Ellsworth, and Senators Paul H.
Douglas, William Proxmire, and Jack Miller.
SUBCOMMITTEE ON ECONOMIC STATISTICS
Government Price Statistics
In May the subcommittee held three days of hearings on "Government Price Statistics." These hearings were held to take stock
of the progress which has been made in recent years by the statistical
producing agencies, the uses being made and the reliability of the
statistics guiding policy decisions today, tomorrow, and over the
years to come. Witnesses were the Assistant Director for Statistical
Standards of the Bureau of the Budget, the Commissioner of the
Bureau of Labor Statistics of the Department of Labor, the Director
of Agricultural Economics of the Department of Agriculture, and
representatives of labor and private research institutions who have
been engaged in the analysis of prices and price indexes.
In July the subcommittee issued its report which summarizes
its findings and recommendations.
Inflation and the Price Indexes
In connection with its study of price indexes and the measurement
of inflation, the subcommittee took advantage of the offer by the
National Industrial Conference Board making available a privately
supported study by Dr. Jules Backman, research professor of economics at New York University, and Martin Gainsbrugh, senior vice
president of the Conference Board. The materials printed for the
use of the Joint Economic Committee were subsequently republished
by the National Industrial Conference Board.
Job Vacancy Statistics
On May 17 and 18, the subcommittee held hearings on "Job
Vacancy Statistics." Witnesses were the Director of the U.S.
Employment Service, the Commissioner of the Bureau of Labor Statistics, the Director of the Office of Manpower Analysis and Utilization of the U.S. Employment Service, and non-government individuals
who have been making studies of the practicality of uses of such
statistics. The printed record contains articles on job vacancy surveys conducted in Indiana and in Portland, Oregon, together with
additional materials obtained from the Manpower Administration.
In June the subcommittee issued its report entitled "Job Vacancy
Statistics," which contains a summary of the subcommittee's findings
together with its recommendations.
Members of the Subcommittee on Economic Statistics were
Senator William Proxmire (Chairman), Senators Paul H. Douglas,
J. W. Fulbright, Herman E. Talmadge, and Jack Miller, and
Representatives Richard Bolling, Thomas B. Curtis, and Robert
F. Ellsworth.
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1967 JOINT ECONOMIC REPORT
SUBCOMMITTEE ON FISCAL POLICY
Tax Changesfor Shortrun Stabilization
In March the subcommittee held five days of hearings on "Tax
Changes for Shortrun Stabilization." Witnesses included the Assistant Secretary of the Treasury, individual economists, and representatives of labor, business groups, and private research organizations.
These hearings focused on the need for and design of temporary tax
changes which could be enacted promptly in response to a recognized
need for stimulating or restraining the economy.
In May the subcommittee issued its report on "Tax Changes for
Shortrun Stabilization," together with supplementary and dissenting
views. The report summarizes the subcommittee's conclusions based
on the hearings held in March on the use of prompt tax changes for
countering inflation and unemployment.
Private Pension Plans
The subcommittee held 8 days of hearings in April and May on
"Private Pension Plans," receiving testimony from Federal and State
government officials, and representatives of business and labor. These
hearings provided information on the role of private pension plans in
an overa program of income protection for the aged.
Old Age Income Assurance: An Outline of Issues and Alternatives
In November the subcommittee released a staff document entitled
"Old Age Income Assurance: An Outline of Issues and Alternatives."
This study undertook to examine each of the special programs for the
aged against the background of the old-age income assurance pattern
that now exists. The subcommittee subsequently requested papers
from a number of recognized scholars on various aspects of the system
and plans to publish these in a compendium later this year.
Members of the Subcommittee on Fiscal Policy were Representative Martha W. Griffiths (chairman), Representatives Hale
Boggs and William B. Widnall, and Senators Paul H. Douglas,
William Proxmire, Herman E. Talmadge, Jacob K. Javits, and
Jack Miller.
OTHER COMMITTEE STUDIES COMPLETED SINCE MARCH 1966
In carrying out its duty to make a "continuing study" of the
economy, the Joint Economic Committee from time to time releases
for public information pertinent materials prepared for the committee
under the direction of the staff.
Economic Policies and Practices
As a part of its continuing study in the interest of increased understanding of international economic policies within the framework of
the enterprise and free market "rules of the game" as practiced by
the leading industrial nations, the committee published Study Paper
No. 9 entitled "Foreign Banking in the United States."
An Economic Profile of Mainland China
The committee's study of the economy of Communist China was
released on March 5, 1967. This study explores such matters as
economic policy, natural resources, capital formation, population,
manpower resources, the structure of agriculture, industry, and
1967 JOINT ECONOMIC REPORT
103
other economic sectors. "An Economic Profile of Mainland China"
parallels the several studies issued by the committee on the economy
of the Soviet Union.
STAFF PARTICIPATION IN MEETINGS WITH OUTSIDE GROUPS
In addition to conducting formal studies and arranging hearings
for the committee and subcommittees, the staff participated in discussions of economic problems and research techniques with outside
groups. The following list of meetings illustrates the nature of these
activities in which the staff took part in 1966:
American Bankers Association-Symposium on Business-.
Government Relations.
American Economic Association-Annual Meeting.
American Statistical Association-Annual Meeting.
Brookings Institution-Seminar for Business Executives on
Federal-Government Policy
Civil Service Commission-Executive Development Seminars.
Department of State-Escort Interpreter Training Program.
Federal Statistics Users' Conference.
McGraw-Hill Informal Conference on Business Outlook.
National Bureau of Economic Research-Conference on
Research in Income and Wealth.
National Industrial Conference Board-Economic Forum.
U.S. Department of Agriculture-Outlook Conference.
Upjohn Institute-Manpower Conference.
The executive director and other professional staff members made
addresses or presented papers to the following groups:
American Society of Business Press Editors- National Meeting.
Business Equipment Manufacturers.
Financial Analysts Federation Conference-National Meeting.
Financial Analysts Federation, Nashville Chapter.
Forecasters' Club.
Insurance Investment Officers.
National Association of Home Builders-National Meeting.
National Association of Manufacturers-Civic Affairs Study
Group.
National Association of Tax Administrators-Annual Conference on Revenue Estimating.
National Paint, Varnish, and Lacquer Association-Outlook
Session.
National Taxpayers' Conference.
U.S. Department of Agriculture-Economic Development
Division Seminar.
U.S. Department of Labor-Seminar on New Economics.
Conferences were held with high government officials or groups
of foreign visitors seeking information on the activities of the Joint
Economic Committee, representing the following nations:
Sweden
Japan
The Netherlands
Canada
Germany
Union of South Africa
Iran
U.S.S.R.
France
104
1967 JOINT ECONOMIC REPORT
Conferences were also held with Korean and Thailand students,
as well as with student groups from the following colleges in the
United States:
Amherst College
Bucknell University
Columbia University-School of International Affairs
George Washington Law Center
Stanford University-Stanford-Sloan Program
James W. Knowles was elected a fellow of the American Statistical
Association and Donald A. Webster was appointed a member of the
Council on Trends and Perspective of the U.S. Chamber of Commerce.
Student Interns
As usual, the committee participated in the student intern program
by having college students working in the committee offices during
the year.
CHANGES IN THE COMMITTEE STAFF
On January 25, 1967, John R. Stark was appointed executive
director of the staff of the Joint Economic Committee and James W.
Knowles was appointed director of research. Nelson D. McClung,
economist for the Fiscal Policy Subcommittee, resigned to take a
position with the Treasury Department. John B. Henderson and
Daniel J. Edwards joined the staff as economists in the fields of
international economics and fiscal and monetary policy, respectively.
Mrs. Marian Tracy retired as financial clerk and Mrs. Esther S.
Hickey was appointed to this position.
CHANGES IN COMMITTEE MEMBERSHIP
Senator Stuart Symington of Missouri and Representative Donald
Rumsfeld of Illinois were appointed to fill the two existing vacancies
on the committee.
EXPANDING THE MEMBERSHIP OF THE COMMITTEE
The appointments of Senators Abraham Ribicoff of Connecticut and
Charles Percy of Illinois, and Representatives William S. Moorhead
of Pennsylvania and W. E. Brock 3d of Tennessee filled the vacancies
created by Public Law 90-2 expanding the membership of the Joint
-Economic Committee from 16 to 20 members. The majority party
is now represented by 12 members and the minority party by 8
members.
DISTRIBUTION OF COMMITTEE PUBLICATIONS
During the past year the Joint Economic Committee and its subcommittees issued 42 publications. Approximately 235,000 copies of
current and previous committee publications were distributed during
the year to fill individual requests. Committee publications are also
on sale by the Superintendent of Documents. In the past year,
individual and quantity orders of committee publications, current and
past, were over 60,000, and 1,000 additional copies for business,
research institutes, etc. This figure does not include the approximately 9,000 subscriptions to the committee's monthly publication,
Economic Indicators, sold by the Superintendent of Documents.
COMMITTEE AND SUBCOMMITTEE PLANS FOR THE
COMING YEAR
FULL COMMITTEE
Hearings on Economy of Mainland China.
Hearings on effect of Vietnam War on the U.S. economy.
A review of debt management policy.
Review of the Employment Act of 1946 and operation of full
employment policy.
SUBCOMMITTEES
ECONOMY IN GOVERNMENT
SENATORS
REPRESENTATIVES
William Proxmire, Chairman
Wright Patman
John Sparkman
Martha W. Griffiths
Stuart Symington
William S. Moorhead
Len B. Jordan
Thomas B. Curtis
Charles H. Percy
Donald Rumsfeld
Federal procurement practices-continuation of subcommittee's
previous work.
The Program-Planning-Budgeting System (PPB-S) in the executive
branch.
The application of performance budgeting in the Department of
Defense.
Effectiveness and relative priority of Government expenditure
programs.
ECONOMIC PROGRESS
REPRESENTATIVES
SENATORS
Wright Patman, Chairman
William Proxmire
Martha W. Griffiths
J. W. Fulbright
William S. Moorhead
Herman E. Talmadge
Thomas B. Curtis
Len B. Jordan
W. E. Brock 3d
Charles H. Percy
Financing municipal facilities-problems of the next decade
(followup on 1966 studies).
Economic education-a review of the teaching of economics in
the United States pursuant to Senate Resolution 316 of the 89th
Congress.
Continue with study of human resources investment. The first
phase-preparation of a complete compilation of Federal programshas been completed. It is proposed to develop informed opinion
through experts, and if time permits, to supplement it with hearingspreferably in the field of health or education.
105
106
19667 JOINT ECONOMIC REPORT
FOREIGN ECONOMIC POLICY
REPRESENTATIVES
SENATORS
Hale Boggs, Chairman
Henry S. Reuss
William S. Moorhead
William B. Widnall
Donald Rumsfeld
W. E. Brock 3d
John Sparkman
J. W. Fulbright
Herman E. Talmadge
Stuart Symington
Abraham Ribicoff
Jacob K. Javits
Jack Miller
Status of trade agreements-new directions in international trade
negotiations.
INTERNATIONAL
EXCHANGE AND PAYMENTS
REPRESENTATIVES
SENATORS
Henry S. Reuss, Chairman
William Proxmire
Richard Bolling
Stuart Symington
Hale Boggs
Jacob K. Javits
William S. Moorhead
Charles H. Percy
William B. Widnall
W. E. Brock 3d
Hearings on contingency planning and the general status of negotiations on monetary reform.
INTER-AMERICAN ECONOMIC RELATIONSHIPS
SENATORS
REPRESENTATIVES
John Sparkman, Chairman
Richard Bolling
J. W. Fulbright
Hale Boggs
Abraham Ribicoff
Henry S. Reuss
Jacob K. Javits
Thomas B. Curtis
Len B. Jordan
Donald Rumsfeld
A study of the domestic financial institutions and channels for
savings within the developing countries of Latin America, as well as
the obstacles to private domestic capital accumulation.
The subcommittee will continue to watch with interest the common
market and trade developments in Latin America.
FISCAL POLICY
REPRESENTATIVES
Martha W. Griffiths, Chairman
Hale Boggs
William S. Moorhead
William B. Widnall
Donald Rumsfeld
SENATORS
William Proxmire
Herman E. Talmadge
Stuart Symington
Jacob K. Javits
Jack Miller
Charles H. Percy
Continuation of the pension study.
Analysis of the various proposals for revenue sharing with States
and localities, including the so-called Heller plan, bloc grant proposals,
and others.
i
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1967 JOINT ECONOMIC REPORT
107
Analysis of negative income tax, guaranteed annual income, and
other proposals for income maintenance.
Current tax reform issues.
URBAN AFFAIRS
REPRESENTATIVES
SENATORS
Richard Bolling, Chairman
Abraham Ribicoff
Henry S. Reuss
William Proxmire
Martha W. Griffiths
Jacob K. Javits
William S. Moorhead
.
Charles H. Percy
William B. Widnall
W. E. Brock 3d
A broad study of basic economic problems of urban areas.
first step, a compilation of expert opinions will be prepared.
As a
ECONOMIC STATISTICS
SENATORS
REPRESENTATIVES
Herman E. Talmadge, Chairman Richard Bolling
J. W. Fulbright
Martha W. Griffiths
Jack Miller
Thomas B. Curtis
Donald Rumsfeld
The subcommittee hopes to look into the possibilities of a truly
integrated system providing genuinely comparable statistics consistent with and meshed into an overall system of economic statistics
including the Federal, State, and local governments.
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