The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
LIBRARY COPY
RETURN)
8ffSE
SI
84TH CONGRESS
2d Session
REPORT
{NO. 1606
O F I E.LD
C E NATE
G 133 T ZNEW
G 133 NEW SENATE OFF. BLDG.
C0N0 M IC
N'/bRf
JuO11u~l
$81-$
.gAR
n
REPORT
FEDERALR E P O R T
A1t,
01 ..
JOINT COMMITTEE ON THE ECONOMIC,>..
REPORT
ON THE
JANUARY 1956 ECONOMIC REPORT
OF THE PRESIDENT
WITH
SUPPLEMENTAL AND MINORITY VIEWS
AND THE
ECONOMIC OUTLOOK FOR 1956 PREPARED
BY THE COMMITTEE STAFF
84TH
CONG., 2D SESS.
M-p
i
MARCH 1, 1956.-Ordered to be printed, with illustrations
UNITED STATES
GOVERNMENT PRINTING OFFICE
73739
WASHINGTON: 1956
JOINT COMMITTEE ON THE ECONOMIC REPORT
(Created pursuant to sec. 5 (a) of Public Law 304, 79th Cong.)
PAUL H. DOUGLAS, Illinois, Chairman
WRIGHT PATMAN, Texas, Vice Chairman
'
- RiCHIARD BOLLING, Missouri
JOHN SPARKMAN, Alabama
J. WILLIAM FULBRIGHT, Arkansas
WILBUR D. MILLS, Arkansas
JOSEPH C. O'MAHONEY, Wyoming
AUGUSTINE B. KELLEY, Pennsylvania
JESSE P. WOLCOTT, Michigan
E.
FLANDERS,
Vermont
RALPH
HENRY 0. TALLE, Iowa
ARTHUR V. WATKINS, Utah
THOMAS B. CURTIS, Missouri
BARRY GOLDWATER, Arizona
GRovER W. ENSLEY, EKecutive Director
JoHN W. LEHMAN, Clerk
CONTENTS
rage
Committee report -1-----------------------Introduction-------------------------Findings and recommendations -----------------Committee activities of the past year and plans for the coming year Supplemental views of Senators Douglas, Sparkman, Fuibright, and
0' Mahoney and Representatives Patman, Boiling, Mills, and Kelley-Additional supplemental views of Senators Douglas and 0'Mahoney
and Representatives Patman, Boiling, and Kelley -41-------Supplemental views of Senators Flanders and Goldwater and Representatives Wolcott, Talle, and Curtis------------------Minority views of Senator Watkins------------------The economic outlook for 1956 and other materials prepared for the Joint
Committee on the Economic Report by the committee staff -----The economic outlook for 1956 -----------------Review of the materials on the economic outlook for 1955 -----Appendix A: Recommendations of subcommittees resulting from 1955
studies---------------------------Appendix B: Checklist of publications of the Joint Committee on the
Economic Report-----------------------
1
2
7
14
43
46
77
81
99
103
112
84Til CONGdREss
2d Session
SENATE
-
f
REPOrT
No. 1606
JOINT ECONOMIC COMMITTEE
REPORT ON THE
JANUARY 1956 ECONOMIC REPORT OF THE PRESIDENT
MARCH 1, 1956.-Ordered to be printed, with illustrations
Mr.
(for Mr. DOUGLAS), from the Joint Committee on the
Economic Report, submitted the following
SPARKMAN
REPORT
together with
SUPPLEMENTAL AND MINORITY VIEWS
[Pursuant to sec. 5 (a) of Public Law 304, 79th Cong.]
INTRODUCTION
The 10th anniversary of the Employment Act of 1946 finds the
objectives and machinery of the act firmly established. The act and
its operation demonstrate that a free enterprise system has the determination and ability to maintain a high degree of economic stability
and to achieve a rate of economic growth which is the envy of the world.
The act acknowledges the responsibility of the Federal Government
for using its programs, for coordinating its activities with State and
local governments, and for maintaining an appropriate climate for
private enterprise, all in the interests of maximum employment, production, and purchasing power. Confident in this assurance, public
and private policymakers have gone ahead during the decade since
the act was passed providing the Nation with the dynamic force
which has overcome most problems of postwar adjustment. The
economy has met the heavy demands upon our resources of the
Korean war and a long-run security program. We have overcome
postwar inflation and two recessions. At the same time, there has
been an increase of about one-sixth in per capita real goods and services exclusive of amounts going for defense. Some may have had misgivings with respect either to its implications or its effectiveness
when the act was passed 10 years ago. The record of the decade has
amply dispelled these fears.
In reviewing and analyzing the 1956 Economic Report of the President, looking primarily to the year ahead, as this committee must as
a guide to the legislative committees, we have received testimony
1
2
JOINT ECONOMIC REPORT
from officials in the administration and heard from nongovernmental
experts of varying views. (See hearings on the January 1956 Economic Report of the President, before the Joint Committee on the
Economic Report, 84th Cong., 2d sess.) In preparing this report, we
have drawn heavily upon the work of five subcommittees and their
reports submitted to the Congress early in January 1956. (See
appendix A for a summary of the recommendations of these five
subcommittees, pp. 103-112.)
We recognize the reluctance of the present Chairman of the Council
of Economic Advisers to discuss fully and freely for the record the
implications and assumptions of the Economic Report.- The committee is not ready to pass final judgment on the merits of this position.
But in the interests of consistency, we feel Council members who take
this position should likewise avoid the role of policy spokesmen for the
administration through the press, the air waves, and the spea]ker's
platform.'
In spite of inevitable differences of opinion as to details, timing,
and emphasis, we find important points upon which members of
the committee agree as to the current economic situation and appropriate policy for the future.
FINDINGS AND RECOMMENDATIONS
1. From the standpoint of the overall economy, 1955 was clearly a
good year and in most respects a record one. Expansion brought with
it a 6.1 percent increase in real national output. Goods and services
actually available for private use were some 9 percent higher, since
Government purchases were lower for the year.
2. It seems unlikely that this rate of expansion can be maintained
in 1956. Recent low levels of unemployment and unused industrial
resources tend to limit the pace of further immediate expansion in
real output.
3. The challenge for the coming year is thus one of adjusting to a
more sustainable pattern of balanced growth-of adjusting to a rate
consistent with rising productivity and growth in the labor force,
avoiding the excesses of inflation and rising prices on the one hand, or
renewed recession and rising unemployment on -the other. The
comniittee staff materials suggest that 'if we maintain the recent
degree of utilization of our resources, we should achieve a gross national
product of about $405 billion in 1956 in constant prices. This would
call for continued restraints to prevent further industrial price rises.
Whether a smaller gross national product would warrant stimulative
fiscal and monetary policies can be determined only as events unfold.
4. Events of the past year further substantiate the likelihood that
the struggle against Communist ideology throughout the world is
developing into a long drawn-out test of economic strength. This
emphasizes the'necessity for getting the economy on a sustainable longrun pattern of growth without losing ground even temporarily. It
calls, moreover, for maximum use and development of the Nation's
and'free world's resources-both human and material. ma-
-.
k 5. The Nation continues, as we observed last year, to have the
economic capacity to meet not only the immediate and long-run
I Mr. TALLE. This paragraph should have been deleted from the report. The third sentence points to
differences of opinion held by members of the Joint Economic Committee, and until those differences are
resolved, the attempt to restrict free speech cannot, in my opinion, be justified..
JOINT .ECONOMIC -1REOIPT3
3
national security requirements but, along with them, the needed
programs in the social and economic fields. We agree with the
President's saying:
Provision for schools, highwiays, and medical facilities must be substantially
increased. Action in these vital areas has lagged sadly behind our accumulating
needs. (January 1956 Economic Report of the President, p. 12.)
Differences of opinion as to how rapidly these admitted needs of our
growing economy should be taken care of are less important than
agreement that we must and can move ahead rapidly and simultaneously on varied fronts.
6. A basic guide to Federal fiscal policy in the year ahead should be
the state of the national economy. Tax reduction in the face of a
booming economy, already pressing the limit of immediate resources,
would probably be inflationary. So long, therefore, as the expansionary movement gives promise of continuing, tax policy consistent
with stabilizing the rate of economic growth calls for applying anticipated budget surpluses to reduction of the bank-held Federal debt.
This is but a corollary to a policy which recognizes that we may not be
able to avoid deficits during recessions. The committee, therefore,
endorses the President's recommendation for maintaining corporation
income tax and excise tax revenues at present levels. In arriving at
these views, the committee is strongly persuaded by the findings and
recommendations of its Subcommittee on Tax Policy as set forth in
its recent report (S. Rept. No. 1310, 84th Cong., 2d sess.).
7. The economic outlook may, of course, change rapidly. Should
it become apparent that economic activity is slowing unduly and a
higher rate of increase in total demand is required to provide the
impetus for maintaining the full use of our growing productive
capacity, tax reduction may become warranted. Two additional
observations made by our Subcommittee on Tax Policy should, in
our opinion, be underscored. First, economic growth and stability
should permit reduction in Federal tax rates during the next decade;
and, second, revision of the tax structure in the interest of equity and
balanced growth of the economy is in order now, as always.
8. The committee is alarmed by the continued decline in farm
prices and agricultural income. Because of the highly competitive
nature of agriculture; because of the relatively inelastic demand fox
most agricultural products; and because of the national need for substantial standby productive capacity to meet the needs of increasing
population, and against the hazards of war and crop failure; agriculture as an industry will continue to present unique and difficult
problems. Certainly the solutions thus far brought forward have
not been adequate.
What we as a Nation want is a program which will permit agriculture as an industry, and our farmers as individuals, to have an opportunity to share in the prosperity and growth of the economy without
the cost of wide fluctuations in farm income and the steady accumulation of surpluses above the needs for reasonable reserves. The
problem is not insurmountable, although the record of attempts to
meet it has not been particularly encouraging. Granting that it is
difficult to bring forth panaceas, there is still opportunity for the
administration, the Congress, and others to come forward with sound,
workable plans; there is still the obligation on us all to weigh sympathetically any fresh or different approach to a solution.
4
JOINT ECONOMIC REPORT
We believe, as indicated in our reports of recent years, that neither
contraction of acreage nor rigid high support, nor even flexible price
supports can of themselves in the long run be successful. We believe,
however, that an effective plan for income protection is an essential
element and perhaps offers the best approach to an adequate agricultural program. In the interest of equity and economy, we endorse the
President's proposal for a dollar limit on the size of payments or
support loans to any one individual or farming unit.
In the face of the persistent agricultural decline, we must accept
the expedient contained in the President's Economic Report for a
"soil bank" as a desirable aid in helping avoid further additions to our
already large surpluses. Largely persuaded by the extent of the
recent decline, we feel compelled also to accept, as a temporary expedient, strong price supports.
On the side of consumption, we continue to urge a bold, effective
program for the disposal of present surpluses above prudent reserve
stocks. Programs to expand domestic and foreign consumption, and
intensive research in developing new uses for agricultural products
must be encouraged, although they have thus far proven insufficient.
We ought, in any case, to take the steps which humanity dictates and
use the surpluses for supplementing the diets of those inadequately
fed in this country and abroad. Any method employed to this end,
of course, must be designed to avoid displacement or disturbance to
the normal national and world markets for the products involved.
In addition to efforts to raise farm income and to avoid the accumulation of excessive surpluses, every effort must be made to reduce
farming costs.
In this connection, antitrust policy and the encourage-
ment of small business and farm cooperatives can make important
contributions.
Finally, we would repeat the earlier recommendations of this committee and those of the Subcommittee on Low-Income Families, calling
for comprehensive programs to assist small and low-income farmers by
way of credit facilities, technical assistance, enhanced industrial
opportunities, and otherwise (S. Rept. No. 1311, 84th Cong., 2d sess.).
The President, recognizing this need, made recommendations in this
field last summer and again in the recent farm message.
* 9. The Economic Report of the President assumes rapid technological change. We commend the finding of our Subcommittee on
Economic Stabilization that no broad-gage economic legislation
appears to be called for at this time since we already have the Employment Act of 1946. An active and sincere carrying out of that act,
aimed at the maintenance of a healthy, dynamic, and prosperous
economy, will provide the best help in meeting the problem of automation (S. Rept. No. .1308, 84th Cong., 2d sess.).
10. The President this year lends support to our unanimous
recommendation of last year that a comprehensive program is needed
for dealing with excessive unemployment in economically depressed
industrial areas. This committee's Subcommittee on Low-Income
Families has made important recommendations in this respect, which
we commend to the legislative committees presently considering
these problems.
11. Construction of schools, highways, and hospitals, as the
President observes, must move forward more rapidly during the
immediate years ahead. The evidence submitted to our Subcom-
JOINT ECONOMIC REPORT
5
mittee on Economic Stabilization during its study of automation
clearly pointed out the need and documented the necessity for improved educational facilities and improved teaching. We again commend a program for modernizing the interstate highway system. We
note that the President's current views appear more consistent with
this committee's unanimous position taken in our last report, that
financing should be directly from the Treasury rather than from indirect authorities which circumvent the public debt limit or are supported by special earmarked revenues.
12. The United States should, as recommended by the President,
approve the agreement calling for participation in the Organization for
Trade Cooperation. The United States should, we believe, continue
to champion multilateral trade. As the Foreign Economic Policy
Subcommittee of this committee recently pointed out, the instrumentalities of the General Agreement on Tariffs and Trade and the
proposed Organization for Trade Cooperation offer the best immediate
opportunities for easing free-world trade and speeding progress in
lowering barriers against United States exports. The safeguards
against domestic injury which the subcommittee recommends are
likewise worthy of consideration (S. Rept. No. 1312, 84th Cong.,
2d sess.).2
13. We agree with the President that present conditions do not
call for the use of governmental authority to limit terms of consumer
installment credit. The placing of limits on the economic freedom
of our citizens should be avoided whenever possible. However,
excessive competitive liberalization of credit terms can in the long
run lead to short hours and unemployment. Unless private enterprise exercises self-discipline, if the situation demands, it may be
necessary to reestablish standby Federal authority in order to protect
the overall economy against needless fluctuations in employment.
We agree, accordingly, with the suggestion that power to regulate
terms of consumer installment credit be restudied. We feel, however, that installment credit is such an integral part of the modern
debt structure that it should not be isolated in this study from consideration of government, corporate, and private debt as a whole.
It is appropriate to note that this committee and its subcommittees
have over the years given consideration to the terms and role of consumer credit. We shall continue to give consideration to this problem.
14. In the interests of fostering free competitive enterprise and
preserving and increasing opportunities for small independent business,
we especially commend as a minimum program the President's recommendations for strengthening Federal antitrust policy. This would
include increasing appropriations for law enforcement, extending
antitrust control over proposed mergers, and strengthening administrative procedure under the antitrust laws. Even more vigorous action
is, in our opinion, called for to meet the objectives of the Employment
Act.
15. Views vary as to the internal consistency of the economic
assumptions underlying the President's budget and Economic Report.
These reports seem to some to be ambiguous, although all adminis*Senator FLANDERS. While a persuasive case Is made for OTC, and while I shall support It In committee, it will result in a typical expansion of bureaucracy where there was none before. I shall introduce
a suggestion for a continuing authorization of only a moderate appropriation.
Mr. TAL.LE. I reserve finaijudgment on the merits of United states participation in OTC until hearings
before the House Ways and Means Committee have been completed.
6
JOINT ECONOMIC REPORT
tration witnesses testified as to their consistency. We realize this is a
continuing problem of the executive branch. We had hoped that
creation of the Advisory Board on Economic Growth and Stability in
1953 would provide machinery for the development of internally
consistent economic assumptions upon which to base the Presidents'economic program.
We recommend that more vigorous efforts be made in the future to
assure the coordination of the assumptions underlying the various
parts of the budget, and of the budget with the Economic Report,
wkith a clear statement of their assumptions and their implications
in these state documents.
The inquiries and efforts of the committee staff to reconcile and
appraise the assumptions underlying the budget and Economic Report
have been helpful. We feel, however, that an obligation rests upon'
the Council of Economic Advisers to take the leadership in efforts -to
coordinate the assumptions underlying the Government's entire
economic program and to supply these promptly to the Congress
through the Economic Report. We regret that the Economic Report
again this year was transmitted so late, January 24, thus making it
difficult for the committee to meet its March 1 statutory deadline.
The report should be transmitted at the "beginning of each regular
session," as provided by law.
16. We are pleased to note in the President's budget again this
year the recognition of the importance of additional economic statistics. The statistical programs have been under continuing study by
our Subcommittee on Economic Statistics. Although the Economic
Report made much use of available data, it did not discuss the importance to economic management of improving the various statistical programs as called for in the budget.
e We urge the Congress to give strong support to the proposals in the
current budget for additional funds for improving our sources of
economic intelligence. In the long run, such expenditures to enable
early and correct diagnosis of imbalances will make a greater contribution to our economic stability and growth per dollar spent than
the much larger sums needed to correct difficulties discovered only
after they have grown large and menacing. The response of the
Congress to the President's similar recommendations last year was
gratifying but not sufficient.
17. The committee is substantially in agreement in approving and
urging support for the other recommended programs contained in the
President's Economic Report. They already are being or will be
considered by other congressional committees in connection with
proposals for specific legislation. The committee is, however, of the
opinion that the proposals as a whole represent a minimum program
which in some respects does not go far enough.
|18. The summary of the recommendations in the Economic Report
includes some 50 or 60 specific items. There is, indeed, considerable
diffusion .and multiplicity of recommendations-some major, some
minor-which prompt us to recall the warning of the first detailed
report-of this committee, filed with the 80th Congress, against the
danger that the Economic Report and its consideration "be diverted
to matters which cannot have' an extensive effect on the overall
economy"- (S. Rept. No. 1358, 80th Cong., 2d sess., p. 2).
JOINT ECONOMIC
COMMITTEE
ACTIVITIES
OF
7
REPORT
THE PAST YEAR
COMING YEAR
AND PLANS
FOR THE
The Joint Committee on the Economic Report is directed to report
to the Congress on the main recommendations of the President's
Economic Report and to make a "continuing study" of the economy.
During the period January-March of 1955 the committee held hearings
and prepared its report on the 1955 Economic Report of the President..
Upon completion of this work, the committee directed five subcommittees to study several specific areas. These subcommittees will be
continued in 1956. The work of the committee and its subcommittees during the past year and plans for the coming year are summarized below.
President's 1955 Economic Report
Hearings on the January 1955 Economic Report of the President
were held January 24 through February 16, 1955. Testimony was
received from key officials in the executive departments, and panel
discussions were held with technicians from business, labor, agriculture,
government, universities, and research agencies. These hearings dealt
with fiscal, monetary, foreign economic, antitrust, and agricultural
policies; with problems of regional and industrial unemployment,
public works, and economic statistics; and with an appraisal of the
economic philosophy and facts underlying the President's Economic
Report. The committee's report on the President's Report was transmitted to the Congress on March 14, 1955 (S. Rept. No. 60, 84th
Cong., 1st sess.). It included supplemental views of committee members and materials on the economic outlook for 1955 prepared by the
committee staff. Permission to file the committee's 1955 report later
than the March 1 statutory deadline and up to March 15 was granted
in the House on February 24, 1955, and in the Senate on February
25, 1955.
Subcommittee on Foreign Economic Policy
Tha Subcommittee on Foreign Economic Policy is composed of
Representative Richard Bolling, chairman; Senator Paul H. Douglas,
Senator J. W. Fulbright, Senator Ralph E. Flanders, and Representative Henry 0. Talle.
Work of the past year.-Pursuant to the directive of the full committee (S. Rept. No. 60, 84th Cong., 1st sess.), the subcommittee
undertook an appraisal of the basic principles of foreign trade in
relation to the position of the United States in the world economy.
Public hearings considered a broad range of problems, including international costs and prices, multilateralism in trade, interaction between
foreign and domestic commerce, domestic reactions to trade, international cooperation in trade, regionalism as an alternative to multilateral world trade, East-West trade policy, international investment
and development, and economic policy alternatives.
The subcommittee during 12 sessions in November 1955 heard 40
witnesses drawn from academic, business, labor, farm, financial,
Government, and research agencies. The report of the subcommittee,
filed with the full committee December 30, 1955, was transmitted to
the. Congress January 5, 1956 (S. Rept. No. 1312, 84th Cong., 2d
sess.). The specific recommendations of the subcommittee may be
found in appendix A,.pp. 110-112.
8
JOINT ECONOMIC REPORT
Plans for the coming year.-It is becoming clearer every day that
the struggle against the spread of communism will be a long, drawnout, economic contest. The Joint Committee in recent years has been
alert to the economic trends and economic potentials of the United
States. (See, for example, Potential Economic Growth of the United
States During the Next Decade: Materials prepared for the Joint
Committee on the Economic Report by the committee staff, joint
committee print, 83d Cong., 2d sess.) A year ago it compared rates
of economic growth between western powers and the Soviet bloc in
Trends in Economic Growth (a study prepared for the Joint Committee on the Economic Report by the Legislative Reference Service
of the Library of Congress, joint committee print, 83d Cong., 2d
sess.).
During the past year, much has happened in the race to develop
economic strength in the United States, X'vestern Europe, the Soviet
Union, Red China, and the so-called underdeveloped countries of the
world. The Soviet Union has just announced its sixth 5-year plan.
There is considerable evidence that the Soviet Union has decided to
challenge the United States, not only in developing new and powerful
weapons and in building up heavy industry, but also in assisting those
countries and territories which want to catch up economically.
The subcommittee, therefore, during the coming year will continue
its studies of: (1) Current economic trends behind the Iron and
Bamboo Curtains, in the free world, and in the uncommitted regions
of the world; (2) the nature, extent, and actual performance of Communist efforts in providing economic assistance to underdeveloped
areas; (3) where present trends may be' leading us and the broad
implications for our economic policy, particularly foreign aid and
investment policies; and (4) the possible impact on the economy of
marked reductions in armament expenditures, if such reductions
become possible.
Subcommittee on Economic Stabilization
The Subcommittee on Economic Stabilization is composed of Representative Wright Patman, chairman; Senator Joseph C. O'Mahoney,
Senator Arthur V. Watkins, Representative Augustine B. Kelley, and
Representative Jesse P. Wolcott.
Work of the past year;-In accordance with the request of the full
committee (S. Rept. No. 60, 84th Cong., 1st sess.), the subcommittee
made an intensive study of automation and technological change. The
subcommittee, at hearings covering 15. separate sessions in October
1955, heard over a score of witnesses closely associated with production-both management and labor-together with experts in the field
of technology and economics. The inquiry covered six different industrial situations-metalworking, chemical, electronics, transportation,
communications, and data processing and office work. These indus'tries were selected as illustrative of the kind of problems which may be
faced in the trend toward automation.
The report of the subcommittee, filed with the full committee 'on
November 25, 1955, was transmitted to the Congress on January 5,
1956 (S. Rept. No. 1308, 84th Cong., 2d sess.). The specific recommendations may be found in appendix A, pp. 103-104.
Plansfor the coming year.-The Employment Act of 1946 declares
it to be the continuing policy and responsibility of the Federal Gov-
JOINT ECONOMIC RlEPORT
9
ernment "to coordinate and utilize all its plans, functions, and
resources for the purpose of creating and maintaining" conditions
which will promote maximum employment, production, and purchasing power. It is perhaps hard to evaluate the large variety of
ways in which Government programs affect the operations of the
economy and which, hence, might be useful if thoughtfully applied in
advancing the goals of the Employment Act. There has been, thus
far, however, no adequate, thoroughgoing attempt to list and analyze
this "toolchest" of Government activities which might contribute to
economic stabilization.
The subcommittee, aided by the committee staff, will accordingly.
undertake such a study, calling upon the various governmental
executive agencies to supply information on programs regarded as
potentially useful. Since a great many programs have a direct or
indirect- effect on the size of the labor force, consumption, savings,
investment, and productivity, we think it desirable that the executive
agencies, students of economic affairs, and the committee give thoughtful consideration now to the availability, effectiveness, occasions for,
and desirability of employing these programs when conditions warrant.
Subcommittee on Low-Income Families
The Subcommittee on Low-Income Families is composed of Senator
John Sparkman, chairman; Senator Ralph E. Flanders, and Representative Augustine B. Kelley.
Work of the past year.-The subcommittee renewed an earlier subcommittee's study of ways and means of improving the productive
capacity and levels of living of low-income families (S. Rept. No. 60,
84th Cong., 1st sess.). The subcommittee published materials assembled by the staff, entitled "Characteristics of the Low-Income
Population and Related Federal Programs" (Joint committee print,
84th Cong., 1st sess.). Open hearings were held in Washington during
the period November 18-23, 1955. Testimony was received from
over 60 Government officials, educators, economists, and other qualified witnesses on: (1) The role of the Federal Government in programs
to aid the low-income population; (2) the function and economic value
of income-security measures, public assistance, vocational rehabilitation, and health programs; (3) the role of education and training
programs in improving the earning capacity of the individual, and in
breaking the cycle of self-perpetuation within the low-income group;
and (4) measures designed to reduce the number of rural and industrial
areas with chronic labor surplus and underemployment.
The report of the subcommittee, filed with the full committee on
December 28, 1955, was transmitted to the Congress on January 5,
1956 (S. Rept. No. 1311, 84th Cong., 2d sess.). The specific recommendations may be found in appendix A, pp..108-110.
Plans for the coming year.-During this session of Congress, the
subcommittee is directed by the full committee to follow legislation
related to problems of low income and distressed economic areas. The
subcommittee is authorized to determine a program of further study
later in the session,
Subcommittee on Tax Policy;
* The Subcommittee on Tax Policy is composed of Representative
Wilbur D. Mills, chairman; Senator Paul H. Douglas, Senator Joseph
10
JOINT
ECONOMIC
REPORT-
C. O'Mahoney, Senator Barry Goldwater, and Representative Thomas
B. Curtis.
Work of the past year.-Pursuant to the directive of the full committee (S. Rept. No. 60, 84th Cong.,. 1st sess.), the subcommittee
focused its study on the relationship of tax policy to the attainment
of the Employment Act objectives, with particular emphasis on maintaining a steady and sustainable rate of economic progress. The
subcommittee recognized that other objectives of tax policy cannot
be ignored in examining our revenue system.
A wide range of tax issues was explored in order to: (1) Formulate
acceptable general criteria for evaluating tax policy from the standpoint of the growth and stability objectives of the Employment Act;
and (2) outline a general tax-policy designed to conform to the Nation's
economic requirements for the coming years.
The study benefited from the generous assistance of 81 economists,
accountants, lawyers, and other tax experts, who prepared papers
on various aspects of the inquiry. These were printed for distribution
to subcommittee members, participants, and the general public in
mid-November in a joint committee print, Federal Tax Policy for
Economic Growth and Stability (84th Cong., 1st sess.). At hearings
during December 5-16 these participants and subcommittee members
explored and developed the basic issues embraced by the study. The
staff prepared materials to assist 'the subcommittee, and these were
published in a joint committee print, The Federal Revenue System:
Facts and Problems (84th Cong., 1st sess.).
The report of the subcommittee, filed with the full committee
on December 27, 1955, was transmitted to the Congress on January 5,
1956 (S. Rept. No. 1310, 84th Cong., 2d sess.). The specific recommendations may be found in appendix A, pp. 105-108.
Plansfor the coming year.-The subcommittee will continue its study
of the effect of Federal tax policy on economic stability and growth.
During this session of Congress it will follow developments in this
important policy area. The subcommittee is authorized to undertake
specific studies later as developments suggest. The committee staff
may undertake analyses of the -impact upon the general economy of
certain features of the revenue system in conjunction with work on a
tool chest of economic stabilization devices, to be prepared by the
Subcommittee on Economic Stabilization.
Subcommittee on Economic Statistics
The Subcommittee on Economic Statistics is composed of Representative Richard Bolling, chairman; Senator John Sparkman, and
Representative Henry 0. Talle.
r.. Work of the past year.-The subcommittee, in accordance with
responsibilities assigned to it by the full committee (S. Rept. No. 60,
84th Cong., 1st sess.), worked this year in three major areas. When
the year began, studies on statistics of inventories, savings, consumer
expectations, plant and equipment expectations, and general business
expectations were being conducted by task forces of distinguished
consultants appointed by the Board of Governors of the Federal
Reserve System pursuant to a request which this subcommittee made
in its Progress Report of last year (H. Rept. No. 2628, 83d Cong., 2d
sess.). These consultant committees reported to the subcommittee
at public hearings held July 19 and 26 and October 4 and 5, in order
JOINT ECONOMIC REPORT
7
11
to review their findings and give opportunity for expression of views
by the individual experts.
The subcommittee at hearings held November 7 and 8 also examined
the development and adequacy of current programs in the field of
employment and unemployment statistics with the heads of agencies
charged with collecting and processing such statistics. Recent efforts
to improve the quality of these data, and the need for additional
data or improvements in techniques, were examined in light of the
committee's use of such data.
During the year, the subcommittee, aided by the staff, also continued its review of the monthly publication Economic Indicators
which was undertaken with the cooperation of the Council of Economic Advisers and the Bureau of the Budget. Beginning with the
July 1955 issue, a new arrangement of charts and tables was presented. In cooperation with the Office of Statistical Standards of the
Bureau of the Budget, the 1955 edition of the Historical and Descriptive Supplement to Economic Indicators was completed.
The subcommittee released on August 22 a summary statement,
prepared by the Office of Statistical Standards of the Bureau of the
Budget, on appropriations for the Government's statistical programs
for the fiscal year 1956. This statement was based on the Special
Analysis, Federal Economic Statistical Programs, included in the
President's annual budget at the request of the subcommittee.
The subcommittee reported to the full committee November 30,
1955, and its report was transmitted to the Congress January 5, 1956
(S. Rept. No. 1309, 84th Cong., 2d sess.). The specific recommendations may be found in appendix A, pp. 104-105.
Plans for the coming year.-The subcommittee is directed to assist
in obtaining favorable action on the 1957 budget for economic statistics and to report to the full committee the final actions of Congress on
this budget.
The subcommittee will review (1) the report to be submitted by the
Office of Statistical Standards of the Bureau of the Budget by the end
of this fiscal year dealing with the progress made in implementing the
recommendations of the five Federal Reserve consultant committees;
and (2) the responses of the economic interest and research groups to
the materials on labor force statistics presented to the subcommittee
by the executive agencies last November.
Subcommittee hearings again have revealed that a principal use
of economic data by private and public agencies is in preparing quantitative economic projections as an aid in policymaking. Improved
economic projections can contribute to economic stability, and a survey
of economic projections and methods for making them should be of
great value. During 1956 the subcommittee will make a survey of
methods used by Government agencies; for example: by the Treasury
Department and the Bureau of the Budget in projecting Government
revenues and expenditures; by the Department of Agriculture in
preparing and disseminating outlook materials; by the Departments of
Commerce and Labor in estimating the following year's construction
activity; and by the Council of Economic Advisers in coordinating
the assumptions basic to the formulation of consistent programs by
the President.
12.
JOINT. ECONOMIC REPORT
Otler committee work and plans for the coming year
Committee rules.-During 1955 a special Subcommittee on Rules,
composed of Representative Richard Bolling, chairman, and Representative Thomas B. Curtis, prepared rules to govern committee
procedures'which the full committee reviewed and adopted. A jointV
committee print contains these rules together with the Employment
Act of 1946, as amended, and related laws.
- Committee publications.-During'1955 the Joint Committee on the'
Economic Report and its subcommittees issued 17 publications, after
he'aring some 250 witnesses and panel experts. Over 45,000 single
copies were distributed to fill individual requests. Most of these
publications are also available through the Superintendent of Documents. During the past year, individual sales and quantity orders
of committee publications have exceeded $12,000. A list of the 1955'
publications, together with prior committee reports, hearings, and
studies, is given in appendix B, pp. 112-116'.
Committee and staff participationin meetings with outside groups.Representative Richard Bolling, chairman of the Subcommittees on
Foreign Economic Policy and Economic Statistics, attended the Third'
World Congress on Political Science held by the International Political
Science Association in Stockholm, August 21-27. Several members
of the committee attended the 1955 meetings of the Interparliamentary Union in Helsinki. Representative Talle proposed at these
meetings that the agenda of the Committee on Economic and Financial
Matters of the Interparliamentary Union include an item for discussion
of the need for the examination and improvement of statistics. His
proposal was accepted and became the fourth point on the committee's agenda.
- During the period June 23-July 4 the executive director served as
United States delegate to the 29th Session of the International
Statistical Institute at Rio de Janeiro and read a paper entitled "The
Role of Government in the National Economy with Special Reference
to Its Statistical, Financial, and Economic Implications." Going to
and from Rio, the executive director made a brief survey of economic
trends and problems in six South American countries: Venezuela,
Brazil, Paraguay, Argentina, Chile, and Peru. His report was submitted to the committee August 31, 1955. (See hearings.)
In addition to conducting formal studies and arranging hearings
for the committee, the staff participated in discussions of economic
problems and research techniques with outside groups. This activity
is'illustrated'by the following list of such meetings attended during
1955: Economic workshops and conferences at Stanford University,
Goucher College, and the Universities of Pittsburgh, Tennessee, and
West Virginia; the annual outlook sessions of the Department of Agriculture and the Association of'Tax Administrators; school of banking
conducted by the University of Wisconsin; investment banking
seminar conducted by the University of Pennsylvania; annual sessiofis of the National Tax Association, the National Consumer
Finance Association, the Society of the Plastics Industry, the American Economic Association, the American Statistical Association, and
the Econometric Society; conferences on electronics and automation
by the Stanford Research Institute, the National Industrial Conference Board, the University of Chicago, and the Congress of Indus-
JOINT ECONOMIC REPORT
13
trial Organizations; conferences on consumption and national income
statistics sponsored by the National Bureau of Economic Research;
meetings of the Pittsburgh Chapter of Robert Morris Associates, the
Society of Industrial Packaging and Materials Handling Engineers,
the Bankers Trust Co., the Chicago Chapter of the American Society
of Corporation Secretaries, the Brookings Institution, and the Conference on Economic Growth of the Merrill Center for Economics;
conferences of resources for the future; and other meetings of business
groups, civic organizations, and university classes.
Committee study of prices, wages, and profits.-During coming weeks
the full committee plans to study the relationships among prices,
wages, and profits, seeking to ascertain whether current developments
are making it increasingly difficult to maintain economic stability
and growth.
Under our private enterprise system, market forces, which determine prices, wages, and profits, usually bring about adjustments favorable to stability and growth. Occasionally, however, maladjustments
create instability, thus interfering with economic growth. At the
present time the cost-price squeeze in agriculture, differences between
rates of increases in productivity, wages, and prices, and differences
between profit rates of large and small businesses raise the possibility.
that such maladjustments may be developing. The purpose of the
committee study will be to obtain and analyze information permitting
informed judgment by private and public policymakers. The study,
therefore, will be objective, nonpartisan, and fair to all economic
interests involved.
The staff, with the assistance of the executive agencies, is directed
to prepare factual information for the committee. If preliminary
study suggests that hearings would be fruitful, these will be arranged
for purposes of receiving testimony from Government officials, representatives of the various economic interest and research groups, and
individual professional economists.
Index of committee publications.-The committee staff is directed to
explore the possibilities of preparing a revised index of committee
publications. Since the first index was published January 2, 1953,
some 12,000 pages of testimony and reports have been issued by the
committee. Members of the committee, the staff, and outside users
have commented on the desirability of bringing the index up to date.
Committee budget.-The Senate portion of the legislative budget for
fiscal year 1957 includes a figure of $135,560 for the Joint Committee
on the Economic Report. This amount is approximately $13,000 less
than the sum authorized for the committee by the Employment Act
of 1946, as amended, which is $125,000 plus the amount necessary to
cover automatic pay increases granted legislative employees since the
date of the authorization. This sum is also below anticipated expenditures for fiscal 1956. The extensive subcommittee studies undertaken
during fiscal 1956 required several temporary additions to the committee staff. It is anticipated that the studies planned for fiscal 1957,
however, will not require as much supplemental personnel; hence the
committee is not requesting an appropriation as large as it needed for
fiscal 1956. The figure of $135,560, however, represents a minimum,
and the committee herewith authorizes and instructs the chairman and
.the vice chairman to so advise the Appropriations Committees.
73730 -5-2
SUPPLEMENTAL VIEWS OF SENATORS DOUGLAS, SPARKMAN, FULBRIGHT' AND O'MAHONEY, AND REPRESENTATIVES PATMAN, BOLLING, MILLS, AND KELLEY
These supplemental views are offered to provide additional emphasis on some of the economic issues and challenges the Nation
faces in 1956. Our comments are not intended to detract from the
unanimity expressed in the committee's report.
In appraising the 1955 Economic Report of the President, we noted
with gratification that it represented progress in economic understanding by the administration. Regretfully, we cannot express the
same satisfaction with respect to the 1956 Economic Report. What
might otherwise have been a scholarly and important contribution
to economic understanding has been burdened throughout with strong
political overtones which obscure the basic economic problems with
which the Congress must deal in 1956.
THE ADMINISTRATION'S
"PROGRAM"
The Economic Report of the President explicitly recognizes that the
demands of modern life impose "a responsibility on the Government
to pursue policies that will help to keep the private economy strong
and growing." 2 The administration, it is claimed, "has sought, in
cooperation with the Congress, to discharge its responsibility through
a series of closely related policies." 2 Ten such policies are then listed.
The Economic Report, the State of the Union message, and the Budget
Message also set forth a wide range of programs proposed by the
administration presumably in discharge of the Government's responsibility to contribute to the strength and growth of the private
economy.
We note with approval and highly commend the policies listed.
They were, in fact, first formulated and put into effect by previous
administrations. We also endorse as at least a minimal approach
many of the programs proposed for the coming years. A mere listing
of programs and policies, while it may indicate recognition of what is
required to promote the Nation's economic strength and development,
offers no evidence of how these policies and programs have been
carried out in the past or how vigorously they are to be pursued in the
future. When we turn to the record, we find that in very large part
the administration has served these policies with words but not with
deeds. Similarly, upon close examination, the programs proposed in
this year's messages offer little promise of real achievement.
We have attempted to determine the extent to which the administration has translated into effective plans the long list of proposals
and programs so glowingly described in the President's messages this
year. The basic test we have applied is whether sound budget proviI Senator FULBRIGHT. I do not endorse all of the comments and recommendations of my colleagues with
respect to the soil bank and depressed areas programs. I wish to withhold judgment on these matters.
2 January 1956 Economic Report of the President, p. 8.
14
JOINT ECONOMIC REPORT
15
sions have been made for putting these programs into effect in the
near future.
The President's budget for the fiscal year 1957 calls for a $1.6
billion increase in expenditures in fiscal 1957 over fiscal 1956. Of this
amount, $1 billion is to be devoted to major national security programs, leaving $600 million to cover all of the other increases in efforts
required to improve the health and strength of the economy. Several
of the programs described in the Economic Report would appear to
require the expenditure of the full amount of this $600 million if
only a good start were to be made in overcoming the economic problems to which they are addressed. We find, however, that certain
prior claims on the $600 million must first be met. The principal
of these is an expected increase of almost $200 million in the amount
of interest to be paid on the public debt. Another $86 million
represents the expected increase in expenditures for various veteran
benefits. We are left, then, with about $300 million to finance the
administration's "new and expanded programs for enhancing opportunities for human well-being and economic growth," I as well as
some modest debt reduction.
We are brought up short, however, by discovering that we cannot
even count on the availability of the $300 million since it presupposes
that the Congress will provide a $350 million increase in postal
revenues through rate increases. If we recognize the possibility that
the Congress will not see fit to provide these increases, we are confronted with a budget deficit, which according to the fiscal principles
stated in the President's Economic Report, rules out any increased
outlays.
A partial resolution of this dilemma apparently is to be found in
anticipated savings in certain current expense items for civil benefits.
In the aggregate these savings are expected to net $345 million, resulting largely from substantial cutbacks in net expenditures by the
Commodity Credit Corporation. These cutbacks reflect in part the
assumption of greatly reduced outlays for direct agricultural price
supports, which in turn depend on immediate and widespread effectiveness of the soil-bank program for reducing agricultural surpluses.
In addition, these cutbacks assume the successful disposal of 2.8
million bales of surplus cotton.
When we turn to the specific recommendations in the President's
Economic Report and attempt to find their counterpart in the Budget
Message, we are closer to the answer to the question of how we are
to finance the programs set forth. We find that many of the programs apparently require no expenditure of funds by the Federal
Government, others are not to go into effect until after the end of
fiscal 1957, while in the case of still others, the amounts to be spent
are very minute. Perhaps the most telling example of the latter is the
budget provision for accelerating work on practical flood-control
projects. In face of the over $1 billion in property losses suffered
in last year's New England floods alone, the administration proposes
to increase outlays for flood control in 1957 by only $48.5 million.
We cannot, therefore, avoid the conclusion that the administration
has failed to make even minimal provision for the many programs set
forth in the President's messages. We strongly urge that the test of
s Budget Message, p. M7.
-16
JOINT ECONOMIC REPORT
these programs is not the elegance of the language with which they
are described but the actual effort that is to be put into their
achievement.
AGRICULTURE
While we agree with the committee's conclusions as to the agricultural situation, as stated'in point 8, we believe that other factors in
the farm problem and proposed solutions should also be considered.
The President's report duly notes that the agricultural sector of the
economy has not participated in the economic recovery since 1954.
The administration claims to have pursued'an attack on the fundamental causes of weakness in the farm situation. '
Chapter 3 of the President's report presents an analysis of the basic
difficulties in the agricultural sector of the economy. It points out
that* * * the imbalance between farm output and its ultimate disposition,* * * is
to be traced largely to the technological revolution in American agriculture,
changing domestic demands for farm products, the expansion of agricultural
production abroad, and the repeated extension of wartime price support levels
long after the end of World War II.'
While recognizing these basic contributing factors, the report fails to
put them in their proper perspective. Instead, it overemphasizes
the alleged stimulus to overproduction afforded by price supports.
This allegation is not supported by the facts presented in the report
itself. In 1955, prices received by farmers fell from an index of 243
in January to 223 in' December, as price supports for all crops except
cotton, tobacco, and peanuts were reduced from 90 percent of parity.
In addition, the transitional parity formula lowers effective price
supports for corn and wheat even further. Despite-or perhaps
because of-the reduced price supports, agricultural production rose
from an index of 109 in 1954 to 112 in 1955, the greatest increase since
1952. We cannot understand how the President can claim in his
Economic Report that price supports were responsible for the worsening of the agricultural situation in the past year, while explicitly
referring to the fact that these supports were cut during the 2 years
1954 and 1955. The deepening difficulties of the farm sector of the
economy in 1955 belie the assertion that the farm price-support
program is a major contributing factor.
The assertion has been made that the problem of falling farm prices
has been aggravated by increases in prices paid by farmers, both for
family living and for production. Thus, the President's Economic
Report claims that farmers have been subjected to a "cost-price
squeeze." We believe that every effort must be made to hold down
the production and living costs of farm families. Actually the index
of prices paid by farmers showed a slight decline in 1955. The
squeeze results from the severe decline in prices received by farmers for
their products. The decrease in the index of prices paid by farmers is,
of course, reflected in the parity index and, therefore, serves to
emphasize the severity of the drop in the parity ratio.
This leaves us, therefore, with the conclusion that the rapid rise
in farm productivity, the changing usage as well as inelastic demand
for farm products, and the expansion of agricultural production
abroad are, in fact, the basic sources of difficulty in the farm economy.
4 January 1950 Economic Report of the President, p. 54.
JOINT ECONOMIC REPORT
17
How successfully has the administration attacked these fundamental
difficulties? The record is clear. In 1955:
Income of the farm population from all sources fell $1 billion,
reaching the lowest level since 1945.5
Gross income of farm operators from farming fell $1.2 billion
billion.6
and net income declined by $1.4
6
Farm wages fell $46 million.
Total income from agricultural sources declined by $1.4
billion.'
Per capita income of the farm population fell from $913 in
1954 to $856 in 1955, the lowest-level since 1950.5
The index of all farm prices received by farmers fell from 249
in 1954 to 237 in 1955; at the end of 1955 the index stood at 223.°
The parity ratio has declined steadily, from 100 in 1952 to
84 in 1955; at the end of 1955, it stood at 80, a 6-point decline
since December 1954.6
7
The index of feed grain prices fell 16 percent.
7
Prices of oil crops declined 17 percent.
Meat prices dropped 21 percent with hog prices falling by 38
percent.!
Farm real-estate debt went up 10 percent.8
Farm real-estate taxes rose by 5 percent. 9
Farm interest payments increased by 8 percent. 9
These data demonstrate that the administration's so-called attack
on fundamental weaknesses in the farm economy has, in fact, operated
against the farmer. The lack of an appropriate concern by top
Cabinet officers for the distressed situation of agriculture is exemplified
by the attitude of Secretary of the Treasury Humphrey. He stated
that he regarded the fall in farm prices as "undesirable" but "not
alarming." 10
The administration has evidently realized that its "program" of
the last 3 years cannot fulfill the political requirements of an election
year. The Nation, therefore, has been offered a "new" program by
the President and the Secretary of Agriculture under the imposing
name of the "soil bank program."
While there are certain commendable features, we must also recognize certain undesirable features of tWe program. Its conservation
features appear to depend on fionuse of resources now committed to
agriculture without adequate provisions for shifting these resources
to more productive and valuable employments over time. Thus,
the program is regarded by some as a program of scarcity, which
another party indignantly condemned in the past. In this respect,
Mr. Murray Lincoln, president of the Cooperative League of the
United States of America, said:
Now we plan not to use our resources. That is what we did when we killed
the little pigs and plowed up cotton and wheat. That is what is now planned
in the soil bank which adds up to not using our acres. To live realistically
with plenty takes an opposite course. *That course would guide us toward plans
under which we would use all our resources intelligently,.with the goal of satisfying
all the real needs and desires of our people-everywhere (Hearings, p. 347).
'Ibid., table D-16, p. 181.
Ibid., table D-39, p. 209.
'Ibid., p. 129.
'Ibid., p. 134.
'Ibid., p. 132.
10Hearings on the January 1956 Economic Report of the President before the Joint Committee on the
Economic Report, 84th Cong., 2d sess., (hereinafter cited "Hearings"), p. 189.
18
JOINT. ECONOMIC
REPORT
We must regard skeptically a program which devolves on the nonuse
of resources, while there are millions within the Nation and many
millions more abroad who live on insufficient diets.
[Representative Patman adds the following: Full utilization
of resources is important, but it should be emphasized that the
resource we are mainly concerned about is people, and we are
looking for ways to have resources effectively used, and not
misused. The most urgent need is for an expansion of industry
and trade, not only to provide attractive jobs for children now
growing up on the farm, but to produce more of the goods and services which are relatively scarce and high-priced. The bottleneck
to better resource use lies in the fact that industrial expansion-.
particularly in the big business industries-has not kept pace
with the profits and profit opportunities in those industries.
There is no clear evidence that farm price supports stimulate
increased farm output; on the contrary, it seems equally clear that
when farm prices are low, farmers are forced to produce and sell
more, in order to make a living. If it is true, however, that price
supports result in increased output, then it will be necessary to
assist farmers with programs for avoiding overproduction. Since
such large segments of industry are able, by private means, to set
prices and restrict production, thereby denying jobs and frustrating adjustments in resource use which more competition would
bring about, then it is only just that farmers be allowed price and
production controls under public auspices, which protect the
interests of all groups.]
We seriously question whether the soil bank program is the whole
answer, and whether its benefit payments will not actually go in great
part to the big farmers. In 1953, about 2 percent of farmers received
25 percent of benefit payments, 7 percent received another 25 percent,
and 91 percent of all American farmers received only 50 percent of
payments." The same may well be true under the soil bank plan.
Developments should be watched carefully. The big farmer has the
acres and the financial resources which will permit him to participate;
the small, hard-pressed farmer must keep producing to make ends
meet.
It seems to us that the soil bank program is not tailored to the needs
of the family farmer. It is true that in his farm message the President
asked Congress to consider placing a limitation on price support payments to any one farm unit (Congressional Record, January 9, 1956,
84th Cong., 2d sess., p. 275); but no recommendation was made as to
the soil bank payments.
SMALL BUSINESS
The President's report explicitly notes the importance of small and
new, businesses in maintaining a dynamic and progressive enterprise
economy. It calls attention to the fact that a high rate of new business
formation and growth opportunities for small- and medium-sized
businesses are essential to healthy economic growth. Moreover, the
report makes several specific recommendations for strengthening the
antitrust laws. We applaud these recommendations, although there
is considerable question whether they are strong enough for the prob1'Hearings, p. 359.
19
JOINT ECONOMIC REPORT
lems with which 'they deal. On the- other hand, the President's
report overstates the economic health of small business, and accordingly fails to come to grips with one of the most disturbing trends in
the current economic scene.
As the population grows, and business activity expands, it is normally expected that there will be an expansion of business opportunity
and a growth in the number of business firms. While noting the
importance of new businesses to a free enterprise economy, the
President's report fails to take note of the fact that the number of
firms in operation has remained remarkably stable in the last several
years. Between June 1954 and June 1955, the number of operating
firms increased from 4,196,700 to 4,225,000, or an increase of only
28,300 from "recession" to "boom." This record may be compared
to -an average annual increase of 55,000 firms in operation between
1948 and 1952.12
The high business failure rate in 1955 canceled a large part of the
increase in business population resulting from new business starts.
Dun & Bradstreet, Inc., reported 10,969 business failures last year, as
compared to 11,086 in the 1954 recession year, and 7,611 in 1952.
While Dun & Bradstreet, Inc., does not report all business failures,
but only failures among firms carried in its listings, its reports indicate
that the rate was 45 percent greater in 1955 than in 1952.
Corporate profits after taxes last year, taking all corporations
together, were second highest only to 1950. As both the Senate and
House Small Business Committees have pointed out, however,
profit ratios of large and small corporations-in the manufacturing
fields at least-were widely divergent.1 3
Comparative profit rates for large and small manufacturing corporations show that in 1952 profit rates-after taxes-were not greatly
different between the largest and smallest size classes. In the first
9 months of 1952, corporations with less than $250,000 of assets had
profits after taxes equal to an annual rate of 11.4 percent of the
stockholders' equity. Similarly, those corporations with more than
$100 million of assets had a profit rate of i 1.1 percent. -By comparison,
in the first 9 months of 1955 the profit rate of the smallest group had
dropped by 39 percent, while the profit rate of the largest group had
increased by 27 percent.
Annual rates of profits after taxes
in the 1st 9 months of1952
Corporations with assets ofUnder $250,000 -11.4
$100 million and over -11.
1955
1
cene
6.4
14. 1
-39
+27
Source: FTC-SEC Quarterly Financial Report for Manufacturing Corporations, Ist, 2d, 3d quarters, 1955.
Small business profits in the third quarter of last year were much
improved over the earlier 6 months of the year and over the coinparable period of 1954. Even in the latest period, however, small
1 cJanuary 1956 Economlc Report of the President, p. 231.
"cf.
Sixth Annual Report of the Senate Select Committee on Small Business and the Chairman 's report
on the Activities of the House Select Committee on Small Business in the 84th Congress, Ist Session, Congressional Record of August 25, 1955.
20
JOINT ECONOMIC REPORT
business recovery' was subftantiaily less -than the gains made by the
larger corporations.
-- - - -.
=,
Aggregate'profits after taxes of corporations in the under $250,000
asset class in the third quarter of 1955 were 24 percent above the
profits of firms in this class in the third quarter of 1954. In contrast,
aggregate profits after taxes of firms with more than $100 million in
assets in the third quarter of 1955 were 38 percent over aggregate
profits of such firms in the third quarter of 1954.
Turning now to sales volumes, for which quarterly data are inherently more reliable than for profits, the smallest manufacturing
corporations reported an increase of only 3 percent between the third
quarter of 1954 and the third quarter of last year, while the corresponding increase for the largest corporations was 19 percent.
The year 1955 also witnessed a sharp rise in business mergers.
The Senate Small Business Committee's Sixth Annual Report observes (p. 12) that-.
Conservative estimates place the probable number of mergers in manufacturing
and mining during 1955 somewhat in excess of 500 * * * the largest total since
1930 * **. In banking, some 240 to 250 mergers and acquisitions shall have
been consummated during 1955 * * * compared with 207 mergers in 1954, 116
in 1953, and 119 in 1952.
More recent data from the Comptroller of the Currency show nearly
300 bank mergers in 1955.
Production for national defense continues to account for a substantial portion of the Nation's total business. The Department of
Defense awarded domestic contracts to private firms last year amounting to $15.6 billion. 14 It is manifest that an uneven distribution of
these contracts will have a serious impact upon the competitive
structure of business. Yet the evidence is indisputable that the
Department of Defense is persistently placing the lion's share of these
contracts with a few giant corporations.
-- According to a recent report of the Senate Armed Services Committee, Department of Defense tabulations show that in the period
June 1950 through June 1953, 63.6 percent of the value of all defense
contracts was awarded to the 100 largest defense contractors."
In more recent periods, this concentration of defense business has
become even more alarming. The same committee report sets out
Department of Defense tabulations which indicate that in the subsequent year and a half-July 1953 through December 1954-68.8
percent of the net value of all the defense contracts was awarded to
the 100 largest defense contractors.
The Senate Small Business Committee reported that-
While the net value of defense spending increased $3 billion from fiscal 1954
to fiscal 1955, the small-business man received only 10 percent of that increase.
The"small
business", total of Department of Defense contracts decreased from 25.1 percent in fiscal 1954 to 21.8 percent in fiscal 1955.17
Small business has a vital stake in the methods used for placing
Government contracts. It has long been national policy, reiterated
in the Armed Services Procurement
Act'of 1947, that Federal'contracts
14Military
prime
ontracts, reports by Assistant Secretary of Defense for Supply and Logistics: February
4, 1955; March
8,
1955.
15.is1956;
October
Second
Report
of the Preparedness Subcommittee of the
Committee on the Armed Services, United
States
Senate, under authority
S. Res.
84th
72, Cong., committee print, 8.p.
1e Sixth Annual Report of the Select
Committee on Small Business, U. S. Senate, S. Rept. 1368, 84th
Cong., 2d ses.,P .25 .
17 Ibid., p. 25.
JOINT ECONOMIC REPORT
21
shall be awarded by advertised competitive bid, although the present
law sets out authority for placing contracts by negotiation in certain
exceptional circumstances. The House Armed Services Committee
has recently reported that in the 22 years ended June 30, 1955, only
6 percent of the value of Department of Defense contracts was placed
in accordance with the affirmative policy of the law, and that 94
percent was negotiated under the exceptions provided in the law. 18
A report of the House Small Business Committee commented on this
matter last year as follows:
Emergency conditions have too long been used as an excuse for denying an
adequate share of Government contracts to small business. Emergency limitations affecting other segments of our economy have been lifted. Small business
could and should now1 be given the green or amber light in Department of Defense
procurement policies.-
We approve the objectives of the bill H. R. 8710 recently passed by
the House, which would amend the Armed Services Procurement Act
of 1947 to limit the authority for negotiating contracts.
The Small Business Administration, which is charged with primary
responsibility for seeing that a "fair proportion" of Government contracts is placed with small business, appears to have accomplished
little in this respect. Its efforts to place military contracts have
consisted largely of a joint determination program, whereby the
SBA representatives and military procurement officers jointly agree
to earmark specific contracts for competition exclusively among firms
with 500 or less employees. The House Small Business Committee
has reported that in the period August 1953 through March 1955 the
contracts so earmarked amounted to 1 percent of the total value of
military contracts awarded in the period; that the contracts awarded
to small business without earmarking in that period amounted to
14 percent of the total; and that firms with less than 500 employees
normally account for about 42 percent of all manufacturing in the
United States.2 0
The handling of contracts for industrial research and development
by the Department of Defense is even more disturbing than the Department's allocation of production contracts. A report of the House
Small Business Committee last year pointed out thatThe military services have handed out billions of dollars for research and development and are currently awarding between 1 and 1.5 billion dollars a year
in research and development contracts. Private firms are using these funds for
developing new products and production processes, and the usual condition of the
contract is that the private firm so engaged may receive patents on the products
and processes invented. Such firms obviously may thus forge ahead in the
technological race, and the distribution of these funds has, therefore, a vital effect
upon competitive relationships. Most of the research and
development contracts
have gone and are going to the big firms of the NTation. 21 .
The Small Business Act (Public Law 163, 83d Cong.) was revised
last August to require the Department of Defense to make reports to
Congress showing the value of research and development contracts
awarded after June 30, 1955, separately from data on other types of
contracts, and showing the value of such contracts placed with small
Is Cf. report to accompany H. R. 8710, Committee on Arnied Services, House of Representatives, 84th
Cone., 2d sess., Rept. 1688, p. 3.
'9 Ci. Report of the Subcommittee on Government Procurement, Disposal, and Loan Activities to the
Select Committee on Small Business, House of Representatives, July 1905,84th Cong., 1st sess., H. Rept.
1041, p. 22.
'° House Select Committee on Small Business, op. cit., p. A6266.
21Ibid., pp. 21-22.
-
22
JOINT ECONOMIC REPORT
business. These reports reveal the remarkable fact that during the
last half of 1955, $862.3 million in research and development contracts
were awarded, of which only 5.1 percent went to firms having 500
employees or less.2
A major problem of small business is financing. As the report of
the House Small Business Committee has pointed outThe type of capital which small firms find most difficult to acquire is long-term
capital for continuing business operations and for expanding fixed assets, not
short-term capital for meeting seasonal or temporary emergencies. The fact
that existing financial institutions have been unable to provide an adequate
flow of such capital to small business is undisputed. This matter
has been a
serious point of discussion and congressional attention for a decade. 23
The RFC long served to meet a substantial portion of small
business requirements for financing services. Justification for a continuation of these services was recognized, moreover, during the 83d
Congress, when the RFC was abolished. The same action which
abolished RFC (Public Law 163, 83d Cong.) retained a Federal loan
service for small business, and transferred this service to the Small
Business Administration. It appears however, that the SBA has
been most niggardly in such services to small business. The House
Small Business Committee points out that by the definitions of
"small business" under which SBA has operated its loan program,
there are at least 332 million business firms "accounting for somewhere between one-third and one-half of the nonagricultural business
done in the Nation." This report further states however, thatOn the basis of SBA's records submitted to this committee, it is estimated that
SBA has received inquiries concerning loans at the rate of about 11,000 per month.
In 21 months of SBA operations, only 5,085 of these inquiries successfully passed
SBA's screening operations and eventuated in formal applications. SBA has
authorized 1,141 of these loan applications. Of some 395 direct loans authorized
-committing $17.5 million of SBA funds-disbursements had been made on only
276, for a total of only $11.9 million. SBA's total disbursements on all business
loans in
21 months was $19.1 million, of which $2.5 million of principal had been
2
repaid. 4
Finally, the relative insignificance of SBA's small-business lending
activity has been summarized as follows:
Compared to the rate at which total business debt increases from year to year,
and to the financing requirements of small firms, SBA's lending has been less than
significant. Compared with growth of industry, 1953 and 1954, SBA's loans over
the past 2 years amounts to about $1 out of every $1,700 of business investment
in new plant and equipment, and amounted to less
than one-half of 1 percent of
the expansion in business debt during these years.2 5
We reiterate the concern of the Senate Small Business Committee
thatthere is an ominous significance in an economic atmosphere which makes
it possible for the Nation's mammoth corporations to reap record profits while the
general run of small enterprises are worse off than they were 3 years ago." 25
" * * *
Few other national economic policies are so important as those which
call for determined and vigorous efforts to improve the position of
small and new businesses and thereby promote the competitive char25 Monthly reports, Secretary of Defense, to Senate and House.
fl Report of the Subcommittee on Government Procurement, Disposal, and Loan Activities to the Select
Committee on Small Business, House of Representatives, 84th Cong., 1st sess., H. Rept. 1045, July 1955,
p. 16.
24Ibid., p. 16.
25Ibid., p. 16.
20Op. cit., Senate Small Business Committee report, p. 25,
JOINT ECONOMIC REPORT
23
acter of our private enterprise system. It is evident that the administration's endeavors in this respect have been inadequate to the
job of effectively carrying out this policy.
THE COLD WAR INTENSIFIED
The committee's report, point 4, properly points out that the cold
war has settled into a "long-drawn-out contest of economic strength."
For the second consecutive year, the President's report fails to give
adequate attention to the implications of international developments
for our domestic economy.- In our 1955 report, the majority of this
committee recommended that more concern be shown in the President's report for the economic implications of the cold war. That
recommendation has been disregarded.
We know that the cold wvar, following the developments at the summit meeting of last July, has been intensified and has entered a- new
phase. Actions of the Soviet leaders show that they are preparing a
long and drawn out economic and political campaign to divide the
free world and to- attract to the Communist sphere the uncommitted
nations of the world. Although we cannot relax our guard against
the possibility of military flareups, we must now recognize that a
greater economic and political emphasis has been added to the military
aspect of the cold war. The implications of this development for our
economic situation should be carefully explored, since it will certainly
become basic to our foreign and domestic policies.
We regret that the Economic Report, as submitted to Congress,
sheds no light on these situations so vital to our economy. It is
devoid of all but the most generalized observations about national
defense. It gives virtually no guidance for any possibleeeventualities.
To ignore these problems and to disregard an international situation
that has become most threatening is not meeting the administration's
responsibility for providing Congress with adequate information with
respect to the economic outlook.
NATIONAL
SECURITY AND CIVILIAN PROGRAMS OF THE FEDERAL.
.GOVERNMENT
We readily coniess our inability to understand the magic by which
we can restrict public expenditures yet build up the Nation's defense
and our stock of basic public assets, as claimed in the President's
Economic Report. We have heard repeatedly in the past months
from those whose judgment has been proved sound that our defense
preparedness is lagging seriously behind that of the Soviet Union.
Perhaps the best current example is the rapid advance of the Soviets
in the development of intercontinental ballistic missiles 'while the
Defense Department refuses to undertake an all-out program for the
development of this type of weapon. -- To a significant extent, our defense preparedness appears to have
been limited by considerations of "economy" and by basing decisions
as to requirements on what we have done so far rather than on what
other nations are now accomplishing. We are not critical of efforts
to obtain the greatest efficiency in our military spending and applaud
efforts to provide greater strength at lower cost. The American
economy, however, can support a substantially greater defense effort
if needed.
24
JOINT
SCHOOLS,
ECONOMIC
HIGHWAYS,
REPORT
MEDICAL FACILITIES
The committee has concluded in point. 5 that the Nation has the
economic capacity to meet the national-security requirements and to
take up those economic and social programs which are needed.
The President's Economic Report explicitly admits that the administration's policy of restricting expenditures for schools, highways, and
medical facilities has involved sacrificing these valuable public assets.
It states thatProvision for schools, highways, and medical facilities must be substantially
increased. Action in these vital areas has lagged sadly behind our accumulating
needs. If economic growth is not to be seriously retarded in the future, we mustthe limits of Federal revenueswith due regard to the need for staying within
27
strive to make up for the neglects of the past.
We find it difficult to follow the reasoning which leads the President
to commend to the Nation a policy of restricting expenditures for
these purposes and simultaneously to admonish that we must increase
these expenditures if economic growth is not to be seriously retarded.
We concur heartily in the latter recommendation. The committee
has properly concluded (point 5) that the important thing is that we
agree to move ahead "rapidly and simultaneously on varied fronts."
This is sound policy.
We do not understand the implications of the President's phrase
"-with due regard to the need for staying within the limits of Federal
revenues-." It seems to us that having determined the level of
expenditures required to "make up for the neglects of the past," we
should not hesitate to make adequate financial provisions to carry
them out with due regard to the need for contributing to the Nation's
economic stability.
With this principle in mind, we are concerned with the programs
that have been proposed by the President to meet the backlog of our
needs. The school construction program, for example, calls for new
spending of $150 million in fiscal 1957 under a general aid program to
States and their subdivisions for the construction of additional classrooms. We do not regard this level of expenditure as adequate to
meet the backlog of school construction needs. Moreover, it will
not free enough local funds to enable local authorities to attract more
and better qualified people into teaching.
We also want to emphasize that recent and continuing technological
changes in industry bring with them the need for significantly higher
levels of educational achievement and alertness to changing educational requirements. This was carefully and extensively explored in
the hearings on automation by the Subcommittee on Economic
Stabilization, conducted by the vice chairman of this committee,
Congressman Wright Patman (S. Rept. 1308, 84th Cong., 2d sess.).
If we are to benefit fully from the increases in productivity and consequent opportunities for leisure, it is important that our cultural
advances keep pace with our material progress.
It is also important to note that the present critical shortage of
scientifically trained personnel is directly traceable to the neglect of
our educational facilities in years past. This shortage is a serious
bottleneck, not only in our industrial advance but also in our military
preparedness programs.
27January
1956 Economic Report of the Prcsident, p. 12.
JOINT ECONOMIC REPORT
25
The President calls attention to the need for a concerted attack on
the clogging of the Nation's highway system. The administration,
however, has refused to take the leadership in proposing a sound plan
for financing highway construction.
In the area of promotion of public health, the President's legislative
program calls for additional expenditures for the fiscal year 1957 of
$44 million. Increased outlays under existing legislation in 1957
would amount to $21 million. While such increases are commendable, these programs should be judged not by reference to what we
have done before, but what is required if we are to raise the Nation's
health standards. The evidence of recent years as to the tremendous
advances that can be made if adequate resources are vigorously applied to major health problems suggests that a very substantial
increase in outlays would represent the soundest type of public
investment.
UNEMPLOYMENT,
OLD AGE, ILLNESS, AND BLIGHTED NEIGHBORHOODS
The President's Economic Report notes that advances have been
made in "tempering the impact of unemployment, old age, illness, and
blighted neighborhoods on people * * *." We are gratified to observe the administration's apparent willingness to carry forward the
-policies in these areas which were developed and put into effect by
previous administrations. The problems in this area are among the
most compelling we face. Not only do they affect the basic social
strength of our free society, they also demand solution if we are to
realize our full economic potential. As stated in point 17 of the committee's findings, most of the proposals offered for consideration of
the Congress represent "a minimum program which in some respects
does not go far enough."
While advances have been made in these areas, a great deal remains
to be done. Most of the limited progress in the last year has come
from the States. The most important measures required to strengthen
our system of unemployment insurance are yet to be taken. Both
the amount and duration of benefits must be increased if the system
is to contribute satisfactorily to meeting human needs of our highly
advanced industrial economy. We regret that the administration
has not strongly recommended these advances, the need for which
was clearly expressed in the bills offered by the chairman of this
committee and others in 1954.
Although our Social Security system has been strengthened, the
need for further improvement transcends the modest recommendations offered by the President in his Economic Report. Extension of
coverage, of course, is a worthwhile objective of policy in this area,
but we should not neglect other important problems yet to be solved,
such as adjustments to reflect major differences in retirement patterns
between men and women in the working force, the need for more
liberal disability provisions, and liberalization of the benefit formula
as applied to farmers.
We regret that we cannot find evidence of progress in dealing with
the personal problems attendant upon serious illnesses. This is one
of the most challenging areas of public policy in view of the magnitude of the needs and the requirement that public policy not reduce
the effectiveness of existing medical-care arrangements.
26
JOINT ECONOMIC
REPORT
The administration's recommendations with respect to public housing are inadequate. The administration does not comprehend the
economic potential in a satisfactory program of public housing and
slum clearance. Such programs reduce the costs of State and local
government police and health protection efforts. They are needed to
restore the eroding tax bases of local communities. The impact of
adequate programs on the private business sector of the economy is
potentially tremendous. One necessary prerequisite to rising living
standards, which in turn provide a basic generating force for expansion of domestic markets, is improvement in housing accommodations.
We need only to review the impact of the growth of private residential
construction on the level of demand for a huge assortment of consumer
durables, and nondurables as well, to appreciate the potential that
lies untapped in a sound public housing program.
The late Senator Robert A. Taft, who helped draft the basic housing
legislation, advocated 135,000 units per year as a reasonable figure.
The administration's current proposal is barely one-quarter of that
number. The program unnecessarily requires a municipal slumclearance program to qualify for Federal funds for public housing. It
has been estimated that this restriction alone would disqualify some
600 cities. Moreover, it reflects a mistaken notion of the course of
events which must be followed if adequate housing is to be afforded
the low-income population and if slums are to be cleared. It is notable
that the most successful private ventures for neighborhood improvement have tackled the problem by first providing improved housing
for inhabitants of the slums it was proposed to clear.
We are happy to note that the President's report recognizes the
problems of employment opportunities for elderly workers. Medical
developments in recent years have shown us unmistakably that older
people can continue to work beyond "normal" retirement ages. Increasing life spans and better health at all ages, in extending the employability of workers, offer us one of the most important potential
increases in productive resources. The challenge is to overcome outmoded prejudices toward older workers and to make use of their productivity, thereby increasing our economic potential. Public policy
should be prepared to move vigorously to meet this challenge.
DEPRESSED AREAS
One year ago this committee pointed out that there existed a considerable number of distressed industries and localities. We urged
then that the administration take prompt and remedial action through
area development programs, public works, and other measures.
Several months later the administration undertook a study of this
problem. On July 28, 1955, the chairman of this committee with
other Senators introduced legislation to establish a rounded program
to assist such areas and their distressed industries.
Hearings on this legislation were begun in a subcommittee of the
Senate Committee on Labor and Public Welfare on January 4, under
the direction of Senator Douglas. Numerous field hearings have
been held. Requests have been received from more than a dozen
States to present evidence relating to economically depressed areas
within their borders.
JOINT ECONOMIC REPORT
27
As noted in the committee's views, point 10, the administration's
recognition of this problem should remove any doubt as to the need
for a comprehensive program to assist such areas. The majority
members of this committee regret that it has taken so long to stir this
administration to any action regarding this pressing economic problem.
On October 15, 1955, this committee's Subcommittee on LowIncome Families also rendered a comprehensive report under the
direction of Senator Sparkman. That report states:
Of the 145 major labor market areas in continental United States, 23 were
classified by the Bureau of Employment Security as having a substantial labor
surplus in September 1955. In addition, 94 smaller areas had a substantial
labor surplus-i. e., 6 percent or more of the total labor force was unemployed
and this level of unemployment was expected to continue over the next 4
months * * *.
A paradox of modern economic society is the continuing existence, during
periods of full employment, of geographic pockets in which chronic unemployment
and underemployment are excessively high. These depressed economic areas,
both urban and rural, contain a significant proportion of the low-income population; moreover, it appears likely that as time passes they will contain relatively
more of the low-income group, unless positive action is taken to restore such
areas to higher levels of economic activity * * *. A comprehensive unified
program.which takes into account all the various types of remedial action necessary in the particular situation is still needed. (Characteristics of the LowIncome Population and Related Federal Programs, Joint Committee Print,
84th Cong., 1st sess., p. 3.)
The administration now proposes an Area Assistance Administration
within the Department of Commerce. It is proposed to establish a
loan: fund of $50 million to assist communities, and to provide an
"adequate appropriation" for technical services. The administration
also advocates that the Federal loan be restricted to 25 percent of the
cost of any project; the State or local community sharing at least
15 percent, and the balance from other sources.
We submit that this is not an adequate program; as the chairman of
this committee said, "It is disastrously inadequate:"
NATURAL RESOURCES
The majority of this committee is deeply concerned with the administration's attitude toward development, utilization, and conservation
of our great resources-human and material.
It is crucial that we make the most of the resources we now have,
as the committee has observed in point 4. We must also develop
those resources which are potentially ours, and expand and accelerate
our development of new resources and substitutes for those we now
use. The development and efficient utilization of our resources is
the key to an expanding economy, to future stability, and to national
strength.
Today, the United States has passed from a "have" to a "have not"
nation in the matter -of raw materials. We are running out of iron
ore, copper, oil, lead, bauxite, and many other vital materials. The
Paley Commission on Natural Resources reported that this Nation
is critically short of 44 strategic and critical materials.
The need for effective flood control and water conservation programs
was dramatically illustrated by the 1955 New England floods and
this year's floods in California and Oregon. Property losses were
more than $1 billion in New England and $100 million in California.
28
JOINT ECONOMIC REPORT
By 1975 the industrial and home demands for water will be. doubled.
Vast areas of California, Texas, the Middle West, and portions of
the East face the limit of their industrial and urban growth unless
new supplies of water are provided. In 15 years the problem will
be acute. China, India, and Soviet Russia have undertaken mammoth flood control, conservation, irrigation, and hydroelectric programs, and are pushing them with all possible speed.
The United States, however, ranks third in per capita development
of electric power, behind Canada and Norway, although it is the
greatest industrial nation in the world.
The United States' daily consumption of crude oil has risen from a
wartime peak of 6.2 million barrels in,1945 to 8.7 million barrels this
year. In 1955 we increased our oil imports 18 percent and as we place
more automobiles and trucks, tractors, and other power equipment
into service in the future the drain on our oil resources will continue to
increase.
The United States has never met its timber requirements on a
sustained yield basis.
In the face of our resource needs, we find:
Our stockpiling of critical and strategic minerals is being
halved.2 8
The Paley Commission report was received, filed, and so far
as we can determine, forgotten.
In spite of the enormous flood damages we have sustained, the
administration proposes to spend only $20 million in New England
next year, and a total of only $157 million for all flood-control
projects in 1957.
The policy in relation to water resources is disastrously inadequate over the long term. Our policy now seems to be to pray
for rain in the drought areas, and to rebuild' the damage and pray
for drought in the flood-devastated regions of the country.
The Benson-McKay-Wilson committee report to the President ort
water-resources policy represents a retreat from Federal responsibility
for the development and conservation of water resources. It would
reverse policies which have been evolved through a series of Federal
laws since 1906. The approach recommended in this report would
split up the various water resource development programs, assign bits
and pieces to a multiplicity of private'groups and public agencies,
and would inevitably result in less flod- control, less navigation, less
power development. It would establish a basis for challenging the
Federal Government's rights with respect to water resources projects.
It would junk completely the river basin development concept which
experts agree is the only sound and economical approach to water
problems.
There is no program to meet the need for a rapidly expanding supply
of water for industrial and residential uses.
Reclamation projects have been sorely restricted, the Tennessee
Valley Authority given the "shock treatment," and great public
reclamation projects reduced or'consigned to private interests.
In regard to synthetic fuels' to' supplement our dwindling supply
of petroleum, the administration closed out the Louisiana, Mo.,
plant experiment for production of oil from coal, and the Rifle, Colo.,
28Budget
Message of the President, p. M30.
-JOINT ECONOMIC REPORT
29
plant experiment for production of oil'from shale. Both of these
experiments offered.great promise, and in the case of shale production
the .cost of producing a gallon of oil had been brought to within a
.fraction of the cost of producing regular petroleum.
Secretary McKay stated that added demands are being created
for the development and use of public lands and their resources.
He said:
Individuals and corporations want to use and acquire public lands for grazing,
logging, mining, farming, industry, commerce, residence, recreation, and other
purposes. 29
Other congressional committees have concerned themselves with the
'rapacious scalping of our timberlands under mineral leases granted by
this administration. We regard such acts as indefensible. We have
hitherto suggested that the Government could give impetus to its
soil-bank program by withdrawing these lands from exploitation.
There is no apparent concert of programs between the Departments of
Agriculture and Interior for land and timber use. The present policy
is apparently to turn over vast resources of timber for private logging
operations.
The majority members of this committee have supported foreignaid programs. We believe this is a sound investment in national
security. We approve the building of the Aswan Dam on the Nile
in-Egypt at a cost of $1.3 billion, and the proposed TVA development
of the River'Jordan. We wish the administration would show equal
concern for domestic projects for water conservation, flood control,
and' power development. It seems to us utterly illogical to undermine our domestic programs while promoting such projects abroad.
Sound policy calls for progress in both fields.
The Economic Report states that:
-Today, we believe as strongly in economic progress through free and competitive enterprise as our fathers did, and we resent as they did any unnecessary
intrusion of Government into private affairs.30
Secretary McKay also stressed the Government's "partnership
policy" in the development and use of resources. We believe in free
and-competitive enterprise as strongly as the administration. But we
fear that the first statement is something of a platform of inaction;
.the second a springboard for the parceling out of great resources to
unbridled exploitation without regard to the national interest. We do
not believe that development or conservation of our national resources
would constitute "intrusion of Government into private affairs." It
was not so regarded in the time of Theodore Roosevelt, Gifford
Pinchot, Charles McNary, George Norris, and other distinguished
Republicans. It is apparent that this administration has undertaken,
under a variety of slogans, a negation of the historical and continuing
resources policy that began with Alexander Hamilton.
PRICE MOVEMENTS
The President's Economic Report makes repeated reference to stability in the general price level during 1955. This stability is noted as a
major achievement by the administration. We concur in regarding
29Hearings, p. 544.
3January 1956 Economic Report of the President, p. 10.
'30
JOINT ECONOMIC REPORT
general price stability as an important objective of public policy. The
economy has experienced general price stability since March 1951.
Turning to the statistical record, however, we find that the stability
of consumer prices in 1955 does not reflect the widely divergent and
alarming price movements at the wholesale level and in major components of the consumer price index. Tables D-36 and D-37 in the
President's Economic Report show that while the index of farm and
farm-related products and processed foods declined markedly, the index
of "all other commodities" rose just as noticeably. Moreover, the
increase in many basic industrial product prices, particularly metals
and metal products, machinery and motive products, rubber, pulp and
paper, and allied products, was exceedingly rapid. It is apparent that
had agricultural prices remained somewhat firmer during 1955, we
would have experienced a considerable inflation during the year.
The importance of this sharp rise in industrial prices is evidently not
appreciated by the President's economic advisers. The committee
staff has, however pointed out that we may expect these increases at
the wholesale level soon to appear in retail prices. It has also called
attention to the danger that such price increases may induce excessive
inventory accumulations.
While industrial prices have been advancing, farm prices, as we have
already noted, have been falling at an alarming rate. Accordingly,
the "general price stability" in which the administration takes so much
pride, is properly viewed as the result of a serious dislocation in the
economy's overall price structure. Price stability at the expense of the
deepening distress of the agricultural sector of the economy is hardly
an accomplishment to be proud of.
FISCAL POLICY
The President's Economic Report claims that among the policies
the administration has sought to pursue are those of* * * lightening the burden of taxes imposed on individuals and businesses * * *
extending the automatic workings of our fiscal system that tend to offset or cushion
changes in income arising from changes in economic activity * * * and * * *
acting promptly and resolutely when either
recessionary or inflationary influences
in the general economy became evident.3L
Since the administration took office, tax reductions have amounted
to about $7.4 billion. Of this total, the administration can claim credit
only for $1.4 billion. The major tax reductions which have occurred
were: (1) A reduction of about $3 billion in individual income taxes
on January 1, 1954. This reduction was automatic, having been provided for by the Revenue Act of 1951 which effected a temporary
increase in tax rates as a means of financing in a noninflationary
manner increased Federal expenditures occasioned by the Korean war.
(2) The automatic expiration of the excess-profits tax as of December
31, 1953, with a consequent reduction of corporation tax liabilities of
about $2 billion. This tax was scheduled to expire, under the Excess
Profits Tax Act of 1950, on June 30, 1953, but at the administration's
request was extended for 6 months. (3) The Excise Tax Reduction
Act of 1954, effective April 1, 1954, resulting-in a revenue reduction
of $1 billion. The administration opposed this reduction. (4) The
Revenue Act of 1954, incorporating the administration's proposals for
a1Ibid., p. 8.
JOINT ECONOMIC REPORT
31
revision of the Internal Revenue Code. This act resulted in revenue
reduction of $1.4 billion, of which over 75 percent was for the benefit
of corporations and high-income individuals.
The record shows, therefore, that the administration can claim
credit only for the last tax reduction listed above. It is notable that
the tax action contributed by the administration was heavily loaded
in favor of the well-to-do and corporations and provided no general
tax reduction for most taxpayers in the lowest and middle-income
brackets.
Contrary to its claims, the administration did not promptly employ
fiscal policy to counteract the recession of 1953-54. None of the tax
reductions occurring in 1954 were directed to this purpose. The Revenue Act of 1954, the administration's only tax proposal of the year,
was intended to provide long-run structural reform rather than antirecessionary stimulus. Prompt action against recessionary influences
would have called for tax reduction in the fall of 1953, before the
recessionary influences had gathered full force.
The administration's claim that it extended the automatic countercyclical workings of the fiscal system is grossly exaggerated. It is
true that some improvements were made in the various State unemployment insurance systems. These are welcome. But the major
needed improvements-increasing the amount and duration of weekly
benefits-have not been energetically promoted by the administration.
The Revenue Act of 1954 made only one improvement in the
countercyclical flexibility of the revenue structure. This was the
extension of the carryback of net operating losses from 1 to 2 years.
Since assuming office, however, the present administration has made
no major proposal for increasing the built-in flexibility of our tax
system. As the report of this committee's Subcommittee on Tax
Policy, headed by Representative Wilbur D. Mills, pointed out, the
primary requirement in this connection is restoration of the eroded
individual and corporate income-tax bases and greater effective progression in the individual income tax. The administration has offered
no constructive proposals in these areas.
On the question of the broad outlines of fiscal policy required to
rVomnote stability in the economy,- the administration's statements
this year are also inadequate. The President's Economic Report
states as a fundamental principle to be observed in managing the
Nation's fiscal affairs that "* * * sufficient revenues should be raised
to meet the Government's outlays, if not every individual year, then
surely over a term of very few years." 3 2 The report also observes that
"Once a budgetary surplus comes definitely into sight and economic
to be favorable, we should begin reducing our
conditions continue
huge public debt." 33 We are happy to note the President's echoing
the position expressed in the report of this committee's Subcommittee
on Tax Policy.
While we commend the administration's statements about the
desirability of applying budget surpluses to debt reduction when the
economy is booming, we fail to find evidence of plans for achieving
this laudable purpose. Making up for the deficit in recent years will
be a formidable undertaking. Between the end of fiscal 1952 and
fiscal 1955, the public debt increased by $15.3 billion, $8.3 billion
U2January
1056 Economic Report of the President, p. 73.
* Ibid., p. 76.
32
JOINT ECONOMIC REPORT
of which represents the increase in the last 2 fiscal years. This increase
is the greatest in any 2 consecutive peacetime years in our Nation's
history.
We cannot discern in any of the. President's messages this year how
the administration proposes to recapture the $8.3 billion of debt
increase incurred during its first 2 full years in office. True, the
budget message hopefully refers to modest debt reduction in fiscal
1956 and 1957, aggregating in the neighborhood of $600 million, less
than one-tenth of the debt increase in the 2 preceding fiscal years.
More to -the point, however, is that the debt reduction in fiscal 1957
presumably is to be financed out of a $350 million increase in postal
rates and the assumption that the cost of the soil-bank program will
be financed in part from the sale of 2.8 million bales of surplus cotton.
Even this very modest debt reduction, therefore, appears to be
exceedingly speculative.
Debt reduction when the economy is booming is highly desirable.
It should not be financed, however, by sacrifice of public services
required for continued economic growth. Fiscal integrity calls for a
clear statement of the impact of increasing Government outlays on
the Government's budgetary situation and a straightforward facing
of the resulting facts. It is not served by gratuitous assertions of
"principles" which mislead the public into expecting developments
which may not be forthcoming.
On the question of tax reduction, the President's report observes
that the present economic circumstances do not warrant such action
and calls for extension of existing corporation income tax and excise
rates.
The committee has agreed, point 6; that this is good policy for the
present state of the economy. We note, however, that the President's report is silent with respect to what is the proper occasion for
general tax reduction. The fiscal principles enumerated in the report
are grossly misleading if not coupled with an equally strong recommendation that if economic conditions become unfavorable-a possibility explicitly noted in the President's report-we should not hesitate
to reduce taxes, thus moving temporarily in the direction of a budget
deficit. This is the necessary corollary of overbalancing the budget
and providing debt reduction when the economy is booming. Fiscal
integrity, if it is not to be a hollow phrase, calls for using the Federal
Government's fiscal powers deliberately in such a way as to minimize
economic fluctuations from the path of steady growth.
The Secretary of the Treasury apparently does not now accept this
generally held principle of fiscal policy. In the past he has justified
tax reductions which resulted in increasing budget deficits. Now-he
states that general tax cuts should be provided only when the Federal
Government's budget shows a surplus, ignoring the fact that tax reductions under those circumstances may well be inflationary. He has
imposed the weight of his authority on the.President's Budget Message
to demonstrate that we cannot now consider- tax reduction, since the
estimated administrative budget surpluses for the fiscal years 1956
and 1957 will be very modest indeed.
It is instructive, however, to go behind these estimates of budget
receipts to the income estimates of personal and corporate income upon
which the Secretary. avers they are based. We find that Secretary
Humphrey estimates that personal] income in 1956 will be $312.5
billion and corporate profits will be $43 billion. The Secretary stands
JOINT ECONOMIC REPORT
33
firmly on these figures, even when shown that they were exceeded by
the end of 1955 and therefore necessarily imply a leveling off in economic activity in 1956. During the hearings the Secretary decried
this implication by asserting that the official estimates for the end of
1955, presented by the Council of Economic Advisers and the Department of Commerce, are wrong, and that his estimates are consistent
with continued economic growth in 1956 as repeatedly predicted in
the budget message."
On the basis of these facts and the Secretary's adamant position, we
want to raise the question: Could it be that the Secretary has deliberately understated his assumptions and the resulting Government revenues in order to be in a position later in the year to announce a greater
surplus than was anticipated in the budget message, and, therefore,
to recommend tax reduction at a time when such a recommendation
would, presumably, be of greatest political value?
We wish to -assert in the clearest possible terms that we should not
reduce taxes if a greater surplus does in fact emerge as a result of a
continuing boom in the economy. To do so would be to contribute
to inflationary pressures. On the contrary, we should consider reducing taxes only if the Secretary's estimate of personal income and
corporate profits proves correct, since this might well indicate the
need for expansionary fiscal action to maintain full employment.
OVERTONES OF THE 1920'S
Although the following comparisons are not necessarily indicative
of the possible course of the economy, we note certain overtones of
the 1920's in our current economic situation. To disregard these
overtones would be irresponsible. In the late 1920's we were lulled
into a false sense of security by slogans of "permanent prosperity."
We have already noted the depressed conditions of agriculture and
the wave of business mergers, the prevalence of pockets of industrial
distress, and the dislocation of the price structure. We find the
counterpart of these developments in the 1920's. The rapid rise in
stock prices since mid-1953. and the weakening of residential construction activity also bear a striking resemblance to major
development in the 1920's.
Because of the built-in stabilizers provided by Democratic administrations the effect of these developments is less likely to result in as
widely fluctuating economic conditions as prevailed prior to their
enactment. The expansion of the Federal progressive income tax,
the establishment of unemployment compensation, the social security
laws, the farm programs, the minimum wage, bank deposit insurance,
and other progressive and generally accepted legislation all help to
cushion and offset economic declines.
With the built-in stabilizers and the apparent willingness of most
to use fiscal and monetary policy to offset economic fluctuations,
there is no reason why -our society must repeat the errors of the
past.
Farm policy
RECOMMENDATIONS
: Agricultural programs mu'st insure that the farmer has a fair share
of the national income. We endorse the committee's views in sup34
Hearings, pp. 210,215.
34
JOINT ECONOMIC REPORT
port of the soil bank and its observation that this program does not
provide an ultimate solution to the problems in the farm economy.
[Senator Fulbright: I do not endorse all of the comments and
recommendations of my colleagues with respect to the soil bank
and depressed areas programs. I wish to withhold judgment on
these matters.]
The basic problem underlying agricultural surpluses is a deficiency
of total demand for farm products relative to agricultural productive
capacity. The committee has stressed the need for programs to
expand domestic and foreign consumption and for intensive research
to develop new uses for agricultural products.
We recommend, as an immediate measure to reduce current surplus
stocks, that these stocks be used more extensively to supplement the
diets of those inadequately fed, both at home and abroad.
School-lunch usage of surpluses should be expanded.
We should barter more of our surplus stocks with friendly nations
for supplies of critical and strategic materials.
Surpluses should be used more generously to improve family diets
in the industrially depressed areas.
The Government should direct the soil-bank program so as to concentrate on the retirement of marginal lands rather than strive for a
patchwork banking of more productive acreage.
The Government should do its part in the soil-bank program by
retiring a portion of the 1.4 million .acres it now has leased for production of crops, and of the 245 million acres on lease for livestock
grazing.
To assure minimal adequacy of the soil-bank program, the incentive
payments must be set at a level high enough to make up for the loss in
income (deducting operating costs) occasioned by a shift to non-cash
crops. Farmers will not readily retire land from production and accept as payments a greatly diminished amount per acre than they might
realize in net income by continuing to plant and harvest. The payments must be realistic and not entail a further great loss of net income
to the farmer.
The program must not be made primarily dependent upon the sale of
domestic surpluses for its financing.. That simply subjects the farmer
to more hazards. We look with disfavor on any proposal to make the
farm programs in great part dependent on our ability to dispose of
the currently existing surpluses.
We believe our foreign trade policy, particularly with regard to farm
products, requires a thorough review and extensive revisions to move
more products to undernourished nations.
Congress should limit the payments to a single farm unit, in order
to prevent low-cost factory farms from profiting unduly from programs
undertaken to assist the family-sized farm.
Small business
The Federal Government must proceed with a real determination to
develop a vigorous policy and effective machinery to aid small business.
It must develop more effective tools with which to combat giantism,
the trend to business concentration. Antitrust procedures should be
strengthened, and appropriations for adequate enforcement must
Small-business tax policy needs revision.
be provided.
[Representative Patman, vice chairman of -the committee, has
introduced a bill which would reduce the normal tax rate from
JOINT ECONOMIC REPORT
35
30 to 22 percent, increase the surtax exemption to the first
$100,000 of taxable income, and substitute for the present flat
surtax rate a moderately graduated rate, rising to a maximum' of
53 percent on that part of a corporation's income which is in
excess of $1 billion. This bill would reduce tax liabilities of
corporations with less than $36 million of taxable income and
raise the tax on those with greater incomes. This proposal contemplates no reduction in Federal revenues. Mr. Patman urges
that serious consideration be given to this proposal.]
[Senator Fulbright has introduced two bills to afford tax relief
to small corporations. The first of these would reverse the
present corporation income-tax-rate structure and provide a 22percent.normal tax, applicable to the full amount of the corporation's taxable income, and a 30-percent surtax, applicable to
taxable income in excess of $25,000. The second bill, which
would provide a 22-percent normal tax and a 31-percent surtax,
is offered if it should be necessary to prevent any net revenue loss
from this type of revision. Senator Fulbright urges the consideration of these proposals in connection with legislation to
extend corporation income and excise tax rates.]
We approve the program to strengthen antitrust procedures
(January 1956 Economic Report of the President, p. 101) and we
hope that the administration will actively press for enactment of this
-program. .We particularly favor the proposals for prior notice to antitrust agencies of proposed mergers, the regulation of banking mergers, making Federal Trade Commission orders final unless appealed
to the courts, and authority for the Department of Justice to require
production of records without resort to grand jury proceedings.
[Representative Patman does not agree that a bill merely
requiring prior notice will correct the procedural deficiencies, in
the present law which render the law largely. ineffective, and
recommends a bill which he introduced, H. R. 6748, to correct
these deficiencies.]
In addition we recommend enactment of S. 11 and Il. R. 11, identical
bills, to strengthen the Robinson-Patman Act and afford small business a greater degree of protection from abuse of power through unjustified price discriminations.
[Senator O'Mahoney states: Each year it becomes increasingly
clear that existing financial institutions and established investment channels do not provide the facilities or methods by which
little, local independent businesses can get funds for. expansion
and growth. As a partial aid, it has been necessary to provide
governmental institutions and governmental funds to meet this
need. What is really needed is a new private system to fill the
gap. Authorization and Federal encouragement should be given
to the establishment of a regional system of capital banks or
investment companies organized specifically to meet the needs of
small and new businesses which now lack venture capital and
loans patterned to their needs. I have offered in the Congress
plans for such regional banks on previous occasions and feel that
such a plan should be enacted into law as soon as possible.]
We are concerned about the impact of recent price increases of
certain basic industrial products, particularly metals. These increases significantly exceeded increases in production costs. In one
36
JOINT. ECONOMIC -REPORT
case, they were justified as necessary to finance future capital outlays.
The price increases are evidence of the lack of effective competition
in these industries. The power of companies in these industries to
administer their prices may well have adverse consequences both
for general economic stability and for the efficiency with which
productive resources are used. We urge that antitrust policy be
focused on these problems, as well as on explicit developments in business concentration.
We recommend that the Small Business Administration proceed
more resolutely to intervene in behalf of the allocation of defense contracts and subcontracts to small business. At least three statutes,35
require that a "fair proportion" of Government contracts for supplies
and services shall be placed with small-business concerns. One of the
duties assigned to the Small Business Administration by Public Law
163, 83d Congress, is to plan ways and means for seeing that the "fair
proportion" mandate is carried out, and to make such recommendations to Federal procurement agencies. As the Senate Committee on
Small Business has pointed out, SBA is not now using the authority
which it possesses to assist smaller concerns with allocation of defense
contracts. (S. Rept. 1368, 84th Cong., 2d sess., p. 23.) Unless SBA
proceeds more vigorously in this field, we recommend that Congress
consider mandatory legislation to aid small concerns.
Public Law 163, 83d Congress, confers upon the Small Business
Administration the authority and the duty to make realistic industryby-industry definitions of "small business" for Federal procurement
purposes. These definitions have not yet been made. In his report
of November 9, 1955, the Attorney General reviewed this matter
and pointed out that the present single standard of 500 employees or
less, without respect to industry or line of commerce, is "inadequate."
In order to assure that the national small-business policy established
by the Congress in Public Law 163 is effectively carried out, we recommend that the Congress write into the law a suitable definition of
"small business" as a directive to be followed by the executive departments in their procurement activities.
In an era of rapid technological change such as the present, the
participation of small and independent businesses in scientific research
and development is essential if they are to maintain their competitive
position. The Federal Government can make an effective contribution toward strengthening the position of such firms by adopting a
policy of more widespread distribution of its research and development
contracts. Congress should consider legislation directing that a larger
percentage of future Federal expenditures for research and development be allocated to small business.
Natural resources
We recommend that the appropriate committees of Congress
institute a thorough review of the administration's natural-resources
policies and programs.
We reaffirm our support of the proven policy'of multipurpose basin
development and conservation of water resources.
The synthetic-fuels program should be revived.
ssec. 2 (b), Public Law 413, 80tb Cong.; see. 302 (b), Public Law 152, 81st Cong.; title 2, see. 203, Public
Law 163, 83d Cong.
JOINT ECONOMIC REPORT
37
'We must develop a national timber policy to assure a sustained
yield of timber products for the future.
We reiterate our recommendation that our agricultural surpluses
be used more extensively to acquire critical and strategic materials.
Depressed areas
We regard the administration's bill for aid to depressed areas
(S. 2892) as unrealistic and inadequate. It fixes the Federal participation in projects at a minimum or token level. It places self-defeating
requirements upon the prostrate local communities which need help.
Its $50 million fund is a token assistance. It provides an unwieldy
system of administration divided between the Departments of.
Commerce and Labor. It makes no provision for grants for public
works. And it makes no provision for extended unemployment
compensation while unemployed workers are trained in new skills
which will enable them to secure employment.
*We recommend that Congress enact legislation such as S. 2663 in
lieu of the administration's program. S. 2663 meets the problem
with $100 million for loans, $100 million for public works, a single
administration of the program, and provision for retraining of workers.
S. 2663 is adequate; S. 2892, the administration's bill, does not
begin to meet the problem of distressed areas.
Underemployment and low incomes, as we have pointed out on a
number of occasions, are not confined to industrial and urban areas.
Rural farmers also suffer from depressed conditions in time of plenty.3 "
In 1954 more than 1.4 million rural farm families had incomes of less
than $1,000
per year, and 1 million of. these were concentrated in the
South. 37 Positive measures should be taken for raising the economic
status of farm families. We believe that sound economic growth
dictates that better. programs be devised and put into practice, in
accordance with legislation now pending before the Agriculture
Committees of the Congress.
Fiscal policy
We want to emphasize our support of the committee's fiscal policy
recommendations (points 6 and 7). If the general level of economic
activity continues to rise at the rate prevailing at the end of 1955, we
should avoid any overall tax reduction. The resulting budget surplus,
which under these circumstances would exceed that shown in the
President's budget message, should be applied to reducing the bankheld Federal debt. On the other hand, if it becomes apparent in the
weeks and months ahead that.a more rapid growth in total demand is
required to assure full use of our productive capacity and full employment, the Congress should be prepared to act promptly in providing
general revenue reductions. In this event, top priority should be
given to reducing income taxes on low- and middle-income individuals.
In any event, the Congress should give careful attention to improving our revenue system in the light of the standards set forth in the
Tax Policy Subcommittee's report. We should seek to promote
greater equity in our tax laws by eliminating preferential provisions
which erode the tax base and which distort the allocation of resources.
Efforts should be made to improve the built-in flexibility of the tax
asJoint Committee on the Economic Report, Underemployment of Rural Families, 1951.
r3 Joint Committee on the Economic Report, Characteristics of the Low-Income Population and Related
Federal Programs, 1955.
.38
JOINT ECONOMIC
REPORT
system and to provide a greater degree of uniformity in the application of the income-tax laws. Efforts should also be made to modify
any provisions in the tax laws which provide a major impetus toward
business concentration and to improve the tax climate for small and
new businesses.
Housing and automobiles
The committee has agreed in its findings (point 2) that it is unlikely
that the 1955 rate of expansion can be maintained this year. We want
to supplement this statement by pointing out two areas of economic
activity in which slack is now developing.
1. First is the decline in new housing starts. The President's report states that "such indicators as we have of proposed home construction are also pointing downward," and that "it seems unlikely
that the exceptionally high volume of the past year will be attained"
in 1956.38
A decline in housing will affect many other industries, including
glass, paint, manufacturing, household appliances and equipment,
electrical manufacturing, lumber, steel, and fabricated products. The
administration apparently expects that a part of the slack will be
taken up by business investment which has been rising vigorously in
recent months. This is certainly to be hoped. It is regretable that
the administration refuses to propose more than a token program, and
suggests only meager liberalization of Federal Housing Administration mortgage insurance.
2. Automobile production in 1955 reached record heights. There
were produced 7.9 million passenger cars, and 1.2 million trucks.
About 7.4 million automobiles were sold. At the end of the year,
however, dealers still had about 857,000 automobiles in stock, unsold.
Dealers were forced to lengthen the maturities of their credit terms
and lower the prepayments on automobile purchases. The major
portion of the $5.4 billion increase in consumer installment debt in 1955
is attributable to purchase of automobiles. Automobile paper increased from $10.4 billion at the end of December 1954 to $14.3 billion
at the end of December 1955. The President's report expresses the
hope that "if it is unlikely that consumers will buy automobiles in
1956 at last year's extraordinary rate, they may spend more freely on
home improvements, home furnishings, and nondurables." 3 9 This
cannot be taken for granted.
We urge that the administration watch with extreme care the developments in housing construction, automobile production, and employment in these industries over the next several months; and that
it be prepared to act courageously and vigorously with credit and
other instruments if action is required.
Foreigrn Trade
We regret that in the 1955 enactment of the reciprocal trade program
the administration saw fit to accept restrictions and cutbacks to
mollify the high protectionist elements of the Republican Party. A
vigorous and straightforward stand in favor of- full development of
-international trade at that time would have saved highly desirable
a!Tanuary 1956 Economic Report of the President, pp. 44, 46.
StIbid., p. 49.
JOINT ECONOMIC REPORT
39
features of the act. This was not forthcoming. In addition we have
seen the high principles announced by the administration negated by
specific administration actions on such items as bicycles, watches, soil
pipe, and foreign bids on machinery contracts.
We favor United States membership in the Organization for Trade
Cooperation, and simplification of the customs valuation procedures.
[Senator O'Mahoney states: I reserve'final judgment on the
merits of United States participation in OTC until hearings
before the Senate Finance Committee'have been completed.]
We favor extension of the Export-Import Bank.
We believe that the administration's proposal for a 14-point tax
reduction on foreign income should be rejected as an inappropriate
means of stimulating private foreign investment.
Monetary policy
The committee has agreed, point 13, that present conditions do not
call for the use of Government authority to limit terms of consumer
installment credit. It has been suggested that consumer installment
credit be examined in. coniunction with a study of the entire debt
structure, private and public.
We endorse this suggestion and strongly urge that any such study
give due regard to the question of the impact of consumer credit
controls among the various income groups in the economy. We
also urge that the study seek to bring out any differential impact
which selective credit controls might involve as compared with
general monetary action. Considerations of equity should play as
large a part in determining the type of monetary controls adopted as
they do. in tax policy.
In addition, the study should deal at length with the impact of
consumer credit controls on. the effectiveness with which resources
are allocated. The committee has noted that such controls necessarily limit the economic freedom of individuals. A basic question
is whether these limitations may not distort consumer choices and
therefore have a differential impact on prices, employment, and
,profits in the affected industries as compared with the impact of
general monetary and fiscal measures to promote economic stability.
Requirements of the Employment Act
Since first taking office, this administration has consistently ignored
the explicit directive in the Employment Act to set forth the levels
of employment, production, and purchasing power needed to carry
out the objectives of the act. By failing to meet this obligation, the
administration has in effect asked this committee and the Congress
to accept on faith the recommendations set forth in the President's
Economic Report, the Budget Message, and the State of the Union
Message. The committee has therefore, called upon its staff to
interpret the hints and clues offered in an assortment of statements
by' heads of various executive departments and agencies. Although
the staff's efforts have been admirable and their results amazingly
accurate, we do not feel that it should have to undertake a responsibility specifically delegated by the act to the President and his Council
of Economic Advisers.
40
JOINT ECONOMIC REPORT
In lieu of the advice to the Congress which the President is required
by law to provide, the 1956 Economic Report offers the following
statement with respect to the current economic outlook:
Under current conditions, the economic growth of our Nation is limited by
industrial capacity and accretions to the labor force. When the economy has
reached so high a level its near-term course is inevitably surrounded by a margin
of uncertainty, and minor movements can occur without involving a change in
general trend. Taking recent developments all together, it is reasonable to expect
that high levels of production, employment, and income will be broadly sustained
during the coming year, and that underlying conditions will remain favorable to
further economic growth (p. 49).
We are at a loss to interpret this statement. On the one hand, it
suggests that economic growth will continue this year at the most
rapid rate made possible by increases in industrial capacity, productivity, and additions to the labor force. On the other hand, it seems to
say that we might very well experience a recession or for that matter
inflation. Finally, it implies that, all things considered, production,
employment, and income may not fluctuate too much and the economy
will retain basic growth-generating forces. This statement offers
little guidance to the Congress in evaluating the President's proposals
to achieve the Employment Act objectives.
Not only has the administration ignored the Employment Act
directive, but it has also delayed submission of its report until late
January. The Act provides that the report be submitted at "the
beginning" of each session. We urge again, as we did in our 1955
report, and as the chairman urged in a letter to the President early
last September, that these delays be avoided. The Act requires the
Committee to make its report to Congress "not later than March 1
each year." This affords little time for hearings, for eliciting the
views of non-Government experts, and for considered judgments by
the committee. It may prove advisable, as suggested in our 1955
report, to fix a deadline for submission of the President's report.
PAUL H. DOUGLAS.
JOHN SPARKMAN.
J. WILLIAM FULBRIGHT.
JOSEPH C. O'MAHONEY.
WRIGHT PATMAN.
RICHARD BOLLING.
WILBUR D. MILLS.
AUGUSTINE
B.
KELLEY.
ADDITIONAL SUPPLEMENTAL VIEWS OF SENATORS
DOUGLAS AND O'MAHONEY AND REPRESENTATIVES
PATMAN, BOLLING, AND KELLEY
RELATIONSHIP OF THE COUNCIL OF ECONOMIC ADVISERS TO THE JOINT
ECONOMIC COMMITTEE
We have noted and approve the committee's observation with
respect to the reluctance of the Chairman of the Council of Economic
Advisers to discuss with the committee the implications and assumptions in the Economic Report. The committee takes the position
that the Chairman and other Council members should, in the interests of consistency, be equally reluctant to avoid the role of policy
spokesmen for the administration through various public media. We
agree that this consistency is the very least that we may properly
expect of the Council. We believe, however, that the basic issue is
not so easily resolved.
In order properly to discharge its functions of reporting its findings
and recommendations with respect to each of the recommendations
in the President's Economic Report, the Joint Committee on the
Economic Report must be in a position to appraise the economic
assumptions upon which the President's recommendations are based.
In the absence of a clear understanding of such assumptions and their
implications, the committee cannot intelligently appraise the appropriateness of the program and policies which the President proposes
as a means of fulfilling the objectives of the Employment Act.
It is clear, therefore, that the most important testimony which the
committee should receive in its hearings on the President's report is
that concerning general economic conditions and major economic
trends which may bear on maintaining steady economic growth.
While we respect the position of the Chairman of the Council of
Economic Advisers as adviser to the President, we do not see any
attributes of this position which call for treating his and the Council's
evaluation of the Nation's economic situation as classified material.
Accordingly, we believe that the Chairman of the Council should
testify fully not only with respect to the matter explicitly dealt with
in the President's report, but also with respect to whatever basic
assumptions about the economic outlook may underlie the President's
recommendations. Only the Council of Economic Advisers is in a
position to furnish the committee with this type of information.
It is difficult at best to speak or write clearly for public consumption
on economic matters. This difficulty is reflected in the Economic
Reports of the President and underlies the necessity for elaboration
of the materials in the report in the committee's hearings. Therefore, when the Chairman of the Council of Economic Advisers refuses
to testify frankly and openly in explanation of the meaning of the contents of the President's report and its assumptions, one can scarcely
avoid the feeling that there is an unwillingness to share with the public
and the Congress knowledge of the facts and reasons which went into
41
42
JOINT ECONOMIC
REPORT
the formulation of the outlook and recommendations contained in the
report. The onlv other explanation of this insistence on off-therecord and unreported testimony is the existence of a fear that it might
disclose differences of opinion between the President and his advisers.
If there are such differences of opinion, the Congress and the public
should know.
The Council's attitude is strongly divergent-from the express purpose
of the President contained in his message of June 1, 1953, accompanying Reorganization Plan No. 9 of 1953, the purpose of which was to
improve the machinery of the Employment Act of 1946.
* * * I expect to impress upon the Council of Economic Advisers the importance which I attach to the fullest cooperation of the Council with the joint committee to assist the joint committee in its important tasks.
Should the Council members, and particularly the Chairman, persist in insisting on an off-the-record appearance before the committee,
we strongly recommend that the Employment Act be amended to.
authorize and require the Chairman of the Council of Economic
Advisers to appear in an open session of the committee to discuss the
matters set forth in section 3 (a) of the act.
PAUL H. DOUGLAS.
JOSEPH C. O'MAHONEY.
WRIGHT PATMAN.
RICHARD BOLLING.
AUGUSTINE B. KELLEY.
SUPPLEMENTAL VIEWS OF SENATORS FLANDERS AND
GOLDWATER
AND REPRESENTATIVES
WOLCOTT,
TALLE, AND CURTIS
Essentially we concur in the report of the committee. There are
certain overtones in the report resulting from literary style perhaps,
but nonetheless serious in their implications, which we feel must be
clarified so that our concurrence in the report will not be misunderstood. Furthermore, there is, in our judgment, a completely inadequate treatment of the farm problem from the standpoint of economics.
The preamble of the report carries with it an assumption that the
Employment Act has been accepted and its worth established.
However, there still remains a basic disagreement as to just what
the purposes of the Employment Act were and are. This involves
the very philosophy of government. There are those who feel that
the role of the Federal Government in maintaining "maximum"
employment in our economy should be a more active one; there are
those who do not believe that the Federal Governmenti or any political
government over a long period can maintain an actve role without
thereby damaging the economy and "maximum" employment; there
are those who take intermediate positions. The Employment Act
does not attempt to resolve these differences and remains, as we see it,
merely a means of establishing machinery whereby both the executive
and the legislative branches of Government may make studies and
consider economic advice along certain broad lines.
The President's Economic Report both this year and last year
stresses throughout the importance of maintaining a proper balance
between private enterprise, the Federal Government and the State
and local governments. The President's Economic Reports clearly
state that the primary emphasis must be placed upon private enterprise-and that the Federal Government must be essentially in an
ancillary role. There are those who disagree in varying degrees in
both directions. This matter should be brought out clearly in the
committee's report, and sidestepping of this basic issue should cease.
We of the Joint Economic Committee have an obligation to clarify
what appears to us to be the apparent intent of Congress in these
respects. We believe the history and facts incident-to the enactment
of the Employment Act of 1946 clearly emphasize the conclusions
reached by the President-that -the primary emphasis must be placed
upon private enterprise, and that the obligation of the Federal Government should be to constantly strive to create economic atmospheres in
which private enterprise can accomplish the full purposes of the act.
The committee report, on several occasions, refers to the President's
Economic Report and the President's budget as if they were together
the basis of this committee's study. The point is raised that some
felt the budget and the Economic Report were not consistent. The
fact that the two Presidential documents are prepared to do two
43
4.4
JOINT ECONOMIC REPORT
entirely different things is not mentioned, although that fact was
clearly pointed up when the question of consistency was first raised.
Naturally, the budget has relation to the Economic Report, but if
this committee is maintaining that there is a hard and fast relationship between the two, we think it is incumbent upon this committee
to make a thorough study of such a thesis instead, of trying to dispose
of the matter by presumption. This is an area worthy of study and
we hope the committee will undertake it, along with a study of
another presumption inserted into the report, to wit:
. . . an obligation rests upon the Council of Economic Advisers to take the
leadership in efforts to coordinate the assumptions underlying the Government's
entire economic program, etc.
Frankly, we don't know how the committee arrived at such a "feeling"; it was never examined or discussed in either public or executive
hearings.
We want to call attention to an example of verbiage which carries
overtones that may convey meanings beyond what the sentences were
intended to convey. Recommendation 3 starts:
The challenge of the coming year is thus one of adjusting to a more sustainable
pattern of balanced growth. * * *
Perhaps the pattern of balanced growth is not sustainable, but this is
a matter to be openly posed rather than',presented as something
already concluded and agreed upon as the insertion of the adverb
''more" accomplishes.
THE FARM ECONOMY
More words are expended in recommendation 8 on the farm economy than on any other recommendation. Yet the basic economic
factors involved in the farm industry are not even posed, let alone
discussed. We list a few which certainly must be considered in an
analysis of the farm problem.
1. The ratio of farm income to national income has been declining
since the establishment of our Republic in 1789, as our society has
continued to industrialize. Looking ahead to the future, we may
assume that this ratio will continue to decline if our country continues
to industrialize.
2. The ratio of farm population to national population has continued
to decline also as the Nation has industrialized. It may be assumed
that this ratio will continue to decline, if our country continues to
industrialize.
3. Farm production has continued to rise. This is largely the result
of mechanization, use of fertilizer, botanical research, etc. It appears
that this, too, is a continuing trend.
4. Factories have moved into rural areas. The distributive industries have expanded as the demands of the people for service, packaging treatment, etc., have increased. All this has opened up part-time
employment to the farm family. Today about one-third of the
farm family's income comes from nonagricultural pursuits. What
about this trend? Will it continue? What is its significance in the
farm economy?
5. World War II brought unusual demands upon American agricultural production. The American farmer met those demands by
increasing his acreage and acquiring the necessary machinery and
JOINT ECONOMIC R.EPORtT
45
increasing other overhead to utiliz3 this increased acreage. The
increased demand of World War II disappeared as the rest of the
world went back to agricultural production. The American farm
production was not geared to this lowered demand. Consequently
surpluses developed.
6. Increased efficiency in manufacture brings with it lower unit
cost, which, in. turn, if the laws of economics are operating, will be
reflected in some lower cost per unit to the consumer. The same
law operates in some degree in regard to efficiency in farm production
resulting from mechanization. This situation is accentuated, if supply
is already well ahead of demand.
7. Although the per capita farm income (the standard of living of
the farmer) has been decreasing since 1951 the great rises experienced
during World War II have still left the percentage increase in per
capita income 'of the farmer in 1955 (from 1934 the date figures are
first available) considerably above the national per capita income
increases.
-
8. Mechanization and increased overhead place a premium on larger
operations at the expense of smaller operations.
9. The prices of farmlands (the basic investment of the farmer) are
the highest in history.
10. Farm foreclosures are about the lowest in history.
Now, we do have a farm problem, but it is hardly in the area that
most recent political discussion has been placing it. It must be within
the confines of the economic factors we have set out, plus some others.
We believe this committee would serve the farmers much better by
taking the farm problem out of politics and placing it back into economics; at least until agreement is reached upon the economic factors.
Then it can be referred back to the political area with some possibilities of solution; certainly with greater assurance that it won't be made
worse by failing to pay attention to the few reliable economic facts
we do have.
RALPH E. FLANDERS.
BARRY GOLDWATER.
JESSE P. WOLCOTT.
HENRY 0. TALLE.
THOMAS B. CURTIS.
73739 -d6
-
MINORITY VIEWS OF SENATOR WATKINS
It is with some regret that I find myself unable to join in a majority
report. This decision is made both upon the partisan nature of the
1956 hearings on the January 1956 Economic Report of the President,
and of the findings of the majority report, which are couched for the most
part in verbiage obviously written to minimize the economy's progress
in 1955 and to cast doubt upon the ability of the economy to achieve,
with reasonable success, the objectives of the Employment Act in
1956. This and the further fact that the majority report is largely
unsupported by economic evidence produced at the hearings or in the
staff report on the 1956 outlook make it imperative that I register a
strong dissent.
First, let me state that the committee's decision this year to depart
from the procedure, relied upon in the past, of calling before it a
selected group of economists for their comments and appraisals smacked
of sheer partisan politics.
No better evidence of this fact is needed than to note the absence of
any comment in the majority report with respect to "natural resources
policy," although that topic was selected by the Democrat members of
the committee as one of the five topics for the committee hearings,
which pitted, on successive days, the present Secretary of the Interior,
Douglas McKay, against the former Secretary of the Interior, Oscar
L. Chapman. If it was such an important topic that the committee
had to devote a major portion of its hearings to its consideration, then
certainly it should have been worthy of some comment in the majority
report.
The new procedure which replaced the testimony of competent
economists-some 80 witnesses were heard in 1955-with a group of
political and administration antagonists, except in a case or two, was
approved by a straight party vote-the Democrats for it; the Republicans opposed. Such a decision by' the Democrats in an election year
has served, in my opinion, to retard the professional approach to the
east, had
eat
objective study of the ecsomeme-m
believed was being gradually achieved by the committee. The only
reason the testimony of the "politician witnesses" failed to produce the
expected denunciation of the President's Economic Report was be-'
cause the year 1955 was plainly a record year, which saw the achievement of the objectives of the Employment Act-maximum employment, production, and purchasing power.
In my opinion, the usefulness of the committee's work and report,
as a result, have been compromised both to the detriment of the
committee's future work and to a better understanding on the part
of the public as to the functioning of the economy.
Second, the statement in the majority report concerning the
reluctance of the Chairman of the Council of Economic Advisers to
"discuss fully and freelv for the record the implications and assiimptions of the Econdmic Report," and which also suggests that "in the
46
JOINT ECONOMIC REPORT
47
interests of consistency," the "Council members should in the future
likewise avoid the role of policy spokesmen for the administration
through the press, the air waves, and the speaker's platform," (p. 2)
makes it very clear that, quite to the contrary, as suggested by the
opening sentence of the majority report, the 10th anniversary of the
Employment Act of 1946 does notfind "the * * * machinery of the
act firmly established" (p. 1).
For example, the question raised by some Democrat members of
the committee in their supplemental views to the 1955 committee
report with respect to this matter remains unresolved. Namely:
Does the Council of Economic Advisers act solely as anonymous professional
advisers, or does it represent the President's overall economic analyses and policies
before the Congress and the publio just as Cabinet members represent separate
segments of his program? (p. 15)
First, section 4 (c) of the Employment Act of 1946, as amended, says:
It shall be the duty and function of the Council(1) To assist and advise the President in the preparation of the Economio
Report.
(2) To gather timely and authoritative information concerning economic
developments and economic trends * * *, and submit to the President
studies relating to such developments and trends.
(3) To appraise the various programs and activities of the Federal Government in the light of the policy declared in section 2 * * *, and to make
recommendations to the President with respect thereto.
(4) To develop and recommend to the President national economic
policies to foster and promote free competitive enterprise * * *, and
(5) To make and furnish such studies, reports thereon, and recommendations with respect to matters of Federal economic policy and legislation as the
President may request.
This language clearly establishes the Council, as students of public
administration would term it, a "staff agency" to the President.
Reorganization Plan No. 9 of 1953 transferredso much of the functions vested in the Council by section 4 (c) of that act as
consists of reporting to the President with respect to any function of the Council
under * * * section 4 (c) * * * to the Chairman of the Council of Economic
Advisers.
The chairmanship, therefore, by the language of section 4 (c) and this
reorganization plan is clearly established as a staff adviser to the
President. A staff agency or official is an organ advisory to a line
or operating official but without operating responsibilities of its, or
his, own. The "staff function" involves the study of problems, the
proposing of alternative courses of action, and an analysis of their
probable effects to a tine or operating official, such as the President
in this case, who has responsibility for carrying out the activities of
his particular organization, which in this case, is the executive branch
of the Government.
If any of the recommendations of a staff officer are put into effect,
they are done so upon the decision of the responsible operating official
to whom the staff agency is responsible-not upon the order of the
staff unit itself. In this respect, the Employment Act, although
requiring congressional confirmation of the Council members and its
Chairman, does not establish any formal relationship between these
staff positions or the Joint Committee on the Economic Report.
Students of public administration are also in agreement, on the
other hand, that if staff personnel are to be effective, they should
48
JOINT ECONOMIC REPORT
serve exclusively in a staff capacity. As I.noted in my supplemental
views to the 1955 committee reportIt is upon this basis that the Council must demonstrate the utility of its services.
Members of the Council are of course political appointees, but this does not
imply nor require in this respect that they be something more than economists
(p. 48).
With respect to this matter, therefore, I agree with the viewpoint
of the majority report thatCouncil members * * * should likewise avoid the role of policy spokesmen
for the administration through the press, the air waves, and the speaker's platform
(p. 2).
As I also stated in my supplemental views of last year:
It is to be regretted that on occasion, since the passage of the Employment Act,
Council members have been employed in the role of policy spokesmen for the
administration in power. To the degree that this is done, the Council will not
only lose that objectiveness which is so essential to a staff agency, but the President's Economic Report itself will also be discredited as a factual and reliable
document (p. 48).
Certainly, someone should speak for the President, and should
defend his Economic Report in public, before this committee, and the
Congress, but it should not be the Chairman of'the Council of Ecohomic Advisers. The Constitution under the separation-of-power
principle, invests the "executive power" in the President, and it has
been established for many years as constitutional principle that the
President cannot be required to appear before a congressional committee.
Who then should speak for the President with respect to the administration's economic policy? Advisedly the heads of the executive
departments who not only are responsible to the President for administering his program, but who also are publicly responsible for
defending those parts of the President's program they execute in
public and before the other committees of the Congress. During the
1956 hearings, this committee heard three of these Cabinet officialsSecretaries of the Treasury, Interior, and Agriculture. Had it so
desired, it could have received testimony on -remaining parts of
the President's Economic Report from the other members of the Cabinet. That it neglected to do so is'clearly its own fault, resulting
from the nature of the hearings the Democrat members of the committee decided upon.
In one other respect, I believe it should be noted that on the 10th
anniversary of the Employment Act of 1946, the machinery of the
act has not been firmly established and perfected. This relates to the
continuing disagreement among committee members as to whether
or not the Economic Report of the President should, as the committee
report phrased it last yearinclude a clear statement on the goals [maximum employment, production, and
purchasing power] needed to meet the objectives of the Employment, Act as prescribed by section 3 (a) of that act (p. 4).
I do not agree with the majority report that an obligation rests upon
the Council of Economic Advisers, from what I have just said nor by
the President for that matter'
to take the leadership. in efforts to, coordinate the assumptions underlying the
Government's entire economic program and to supply these promptly to the
Congress through the Economic Report (p. 6).
JOINT- ECONOMIC REPORT
49
As I stated in my supplemental views last year:
Interpretation must be left to the President as a matter of practical necessity,
and the President, and the Council of Economic Advisers, have reached the
following conclusion concerning * * * section 3 (a) of the Employment Act:
"The phrase can be interpreted as calling for a numerical specification of
economic goals, or it can be interpreted as calling for as good a specification of
objectives, whether in terms of numbers or otherwise, as can be made. In the
former case, one would assert that 'to carry out the policy declared in section 2,'
employment must be X, production must be Y, etc. In the latter case, one
might assert that 'to carry out the policy declared in section 2,' employment
must be a little higher, or substantially higher, etc., the drop in employment and
production, if any, during the recent past, after allowing for an increment of
growth, would suggest the general order of the magnitudes that.are involved
(hearings, p. 44)."
It should be recognized by all concerned that the President is a political
officer and, as such, he must necessarily be permitted to interpret such legislation
in a manner which will lend consistency to and facilitate his- leadership role.
Not to allow such leeway is to cast. the purposes of the Employment Act into
narrow partisan politics.
To require by law, or by an interpretation of law, that the President should
execute his responsibilities in this area in a definitive and narrowly construed
manner is inconsistent with the basic nature of that office and our political system.
Dissatisfaction with his administration of the act should be reflected through our
political processes utilizing the two-party system, and his position, be he a
Republican or Democrat, should not be compromised by the narrow interpretation
the committee report places upon the meaning of section 3 (a) of the Employment
Act (pp. 47-48).
In this respect, I should like to point out that the committee staff's
projections of the level of gross national product required in 1955 to
meet the objectives of the Employment Act were $1.2 billion on the
low side, in terms of constant prices. I also feel, however, as the staff
indicated in its report, The Economic Outlook for 1956, which is
contained in this document, that the difference for the year of only
$1.2 billion cannot be an error of any material significance. But just
let the President, regardless of political party, include such projected
levels in his Economic Report which may be $1.2 billion below the
actual realized gross national product in constant prices, and the
politicians, especially in an election year, would cry recession if not
depression, when actually, as in 1955, the economy did, without any
.doubt, achieve the objectives of the Employment Act.
Therefore, I want to repeat the observations I made in my supplemental views a year ago that:
I cannot agree that the President's report would have been more useful had it
included estimates covering more detailed parts of the economy or that their
inclusion necessarily would render easier the economy's task of reducing present
levels of unemployment.
The Chairman of the Council of Economic Advisers, although recognizing that
such projections form the basis of the Council's work as a staff agency of the
President, told the committee at great length why it was undesirable for these
projections to be included in the President's report:
"It is important to recognize the limitations of economic knowledge, and how
difficult it is to make useful economic predictions or projections. Serious uncertainties surround even historical descriptions. * * *
"Economists who are familiar with statistical vagaries such -as this, and who
know how difficult it is to measure with tolerable accuracy even experiences of
the past, will hesitate to specify numerical goals for the Nation's economy over
the next 6 months or. year or 2. They know that in setting goals some arbitrary
assumptions * * * which often are no less reasonable than the particular ones
selected, can lead to such a wide range of results, that the calculated goals cannot
have great value for policy decisions (hearings, p. 44)" (p. 49).
50
JOINT ECONOMIC REPORT
This same cautiousness was expressed by Dr. Ralph. J. Watkins in
his presidential address to the 115th Annual Meeting of the American
Statistical Association in December 1955:.'
* * * we are not unmindful of the limitations of our statistical measurements.
These measurements of the condition of the economy can be only approximations,
for that economy is too massive and too complex to afford any basis for claims to
perfection or certainty in our economic measures. The estimates and indexes
that are carefully prepared to measure the state of the economy, in terms of such
concepts as gross national product, national income, industrial production, employment and unemployment, represent at any given time the best approximations the technicians can arrive at, on the basis of the information available to
them at the time and on the basis of the extent of the analysis that time and
funds permitted. These measures are not perfect, they cannot represent certainty; and the best we can claim is that they are reasonable approximations at
the time and under the given circumstances.
Also, as I stated in my supplemental views of a year ago:
Certainly, it is necessary to know something about the potential of the economy,
but it is just as essential that we.recognize the limitations of projections which
form, or would form, the basis of public policy. Long-range projections such as
those made by the staff committee are very useful to the Congress, and the
committee staff and its director are to be commended for their contribution, but
it must be realized that their projections suffer the same limitations as those of
other professional economists. Given our political system, it is one thing for the
Congress to require the President to provide specific projections of production and
employment and quite another for a committee of the Congress, through its
professional staff, to make such forecasts.
Dr. Paul J. Strayer, professor of economics, Princeton University, in an article
published in the American Economic Review for December 1954, entitled "Full
Employment-1954 Model," recognizes that the President had valid reasons not
to include projections in the Economic Report:
"There is reason to have some sympathy with the Council and the Executive
in what must have been a conscious decision to abandon the projections of the
Nation's economic budget type * * *. Model projections also invite reaction
when not realized 'and may have a tendency to lead to overcompensation .that
will result in an inflationary bias. The failure of the forecasts following the
Second World War can also be cited in defense of the Council (p. 885)."
Dr. Strayer further concludes:
"To act effectively to stabilize the economy we must either have an accurate
diagnosis of the problem, including a forecast of the outlook for a substantial
period in advance, or a degree of flexibility in Government programs that will
permit us to act boldly to offset known variations from the path of stability with
confidence that policies can be reversed as required by further intelligence' * * *.
"In most of the reports and testimony (1954 hearings) it is agreed that we cannot have much confidence in our ability to forecast the economic future (Martin
Gainsbrugh dissenting) in the short run although there is greater agreement that
long-range projections of the future potential may be more accurate. Even if our
ability to predict the course of events in the short run should increase, the current
state of the world leaves so many external forces free to upset any calculations as
to discourage reliance upon a policy geared to projections of even so long as a
year" (pp. 51-52).
In summary, the President's 1950' Economic Report does contain
an appraisal of the economic outlook for 1956 as it did in.1955. But
it is in the nature of an appraisal, as it was in 1955, which recognizes
the limitations of forecasting. As the President put it in his. 1955
Economic Report-'
it is well * * *, to keep in mind the sobering fact that there is no way of lifting
more than a corner of the veil that separates the present from the future (p. 24).
THE ECONOMY IN 1955
Since the Democrat members of the committee have made such a
point of criticizing the President's Economic Report for not containing
JOINT ECONOMIC REPORT
51
numerical levels of employment, production and purchasing power
needed to achieve the objectives of the Employment Act-of 1946, it
seems rather inconsistent for the majority report not to contain an
analysis of the achievements of the economy in such terms. Rather
the majority report merely states thatFrom the standpoint of the overall economy, 1955 was clearly a good year and in
most respects a record one (p. 2).
The vital determination for this committee to make is not whether
1955 was "a good year" since the "man in the street" knows that to
be a fact, but whether the economy.met the objectives of the Employment Act in promoting "maximum employment, production
and purchasing power." Failure of the majority report to unequivocally point out that-based upon the committee staff's projections
made a year ago-these objectives were attained, is inexcusable and
a major reason for my dissent. Politics a agaears a stronger
atrc
orrt
e es mimee
i
an a
objective appraisal and statemen o its findings with respect to the
functioning of the economy.
For example, we need only to compare the staff's conclusions of a
year ago with that expressed in the supplemental views of the Democrat members of the committee-with respect to the projected needed
year-end rate of a gross national product of $385 billion to meet the
objective of the Employment Act-to substantiate this point. The
committee staff, composed of competent, trained economists, con-cluded thatIf realized, this expansion would be a substantial accomplishment. It would
call for a continuance in succeeding quarters of a rate of advance in economic
activity close to that prevailing since the third quarter of 1954. The consensus of
views of the witnesses appearing before this committee a month ago was that this
rate of acceleration might not be maintained (1955 committee report, p. 83).
In contrast, the Democrat members of the committee concluded:
If the Employment Act objectives of maximum employment and production
are met, a cautious estimate requires a rate of production at the end of this year
of about $385 billion (1955 committee report, pp. 10-11).
The conclusion of the committee staff and "the consensus of views"
of 80 witnesses who appeared before the committee last year were
that such a rate would -be a "substantial accomplishment"; the views
of the Democrat members of the committee in contrast were that such
a rate was in effect unspectacular. Under these circumstances, it
appears rather odd for the majority report to express as a second
finding this year that:
It seems unlikely that this rate of expansion can be maintained in 1956. Recent
low levels of unemployment and unused industrial resources tend to limit the nace
of further immediate expansion in real output.
Since the majority report fails to analyze the success the economy
had in achieving the objectives of maximum production, employment, and purchasing power in 1955, I feel obligated as a member of
the committee to perform this function, although it belongs to the
committee as a whole.
52
JOINT ECONOMIC REPORT
Production.
In his 1955 Economic Report, President Eisenhower stated:
With economic activity continuing to expand, it is reasonable to expect that
the Nation's output within the coming year will approximate the goals of "maximum employment, production, and purchasing power" envisaged by the Employment Act (p. 24).
The committee staff a year ago concluded that the assumptions
underlying this forecast would require a gross national product which
seemed to-
* * * imply an estimate of demand by Government,'business, and consumers
for goods and services totaling about $375 billion for 1955. * * *
andSince the year started at an annual rate of about $365 billion, or less than the
"maximum" employment and production level, this demand for 1955 as a whole
implies a rise to an annual rate of about $385 billion by the end of the year. * * *
(1955 committee report, p. 83).
That the economy in 1955 not only achieved but exceeded this rate
of production is made clear by the 1956 staff report contained in this
document:
The staff analysis reached the conclusion that the Economic Report and the
budget [1955] probably implied a demand for a gross national product in 1955 of
$375 billion, rising from about $365 billion at the beginning of the year to about
$385 billion by the end of the year.
' The assumed average for 1955 must be adjusted by adding about $5.6 billion to
allow for price rises in 1955, and by -another $3.4 billion because of revisions in
July 1955 of the 1954 benchmark data from which the projections were made.
* * * Therefore, the revised annual estimate would be $384 billion. * * *
The staff believes the * * * understatement for the year of only $3.2 billion
* * *, is within limits of acceptability and can be'easily explained (pp. 101-102).
In ascertaining whether gross national production achieves the
objectives of the Employment Act of 1946 or not, it is important
that not only the level attained be considered but also that the
trend or direction of movement be considered. In 1955, the economy
began at a yearly rate in the production of goods and services at a
market value of $365 billion-some $10 billion less than the average
for the year of $375 billion assumed necessary to meet the three
major goals of the economy (employment, production, and purchasing
power)-and ended at a rate of $397.3 billion, with an average for the
year of $387.2. It also is obvious, therefore, that our, economic
expansion for the year not only was substantial but rather in fact
was phenomenal. This rate of expansion resulted in a 6.1 percent
increase in real output-some 3 percent in excess of the long-term
rate for periods not marked by wars or recessions.
Simply phrased, as President Eisenhower expressed it in his 1956
Economic Report, the year 1955 brought us to:
* * * the threshold of a $400 billion economy, and the recent advance has been
accomplished without the specious aid of price inflation. * * *, whether we observe economic activity at the stage of production, or employment,' or income disbursement, or consumer spending we find evidence of progress and prosperity.
Employment and wages are at record levels.' Profits are satisfactory in -most
industries. Both investment and consumer spending are going forward at a good
pace (pp. 1 and 6).
This is not to say as we enter 1956 that;some negative or adverse
cumulative movements involving some industries and some of our
people do not exist. They do exist, and the Congress, as it develops
JOINT ECONOMIC REPORT
53
legislative programs, needs to keep the President's thought in mind
thatIf economic growth is not to be seriously retarded in the future, we must-with
due regard to the needs for staying within the limits of Federal incomes-strive
to make up for the neglects of the past (1956 Economic Report, p. 12).
However, we should note that in a free enterprise economy, all of
the millions of decisions made by businessmen, employees, and
Government cannot be right. Some will overestimate their markets,
some will not invest enough; others will produce too much of some
products which the consuming public will not buy. To a large extent
it is the cumulative effect of such decisions in a free enterprise economy
which results in cumulative movements, up and down, within our
industries. He who would not conclude that the wisdom of these free
choices resulted in a greater good for a greater number of people
during 1955 than the harm done by the bad decisions is indeed a bold
soul. As long as people have freedom to make their basic economic
decisions, we shall always have successes and failures, production of
too much in some areas and too'little in others. Yet, in the aggregate,
it is true that only such a free enterprise economy as ours could have
produced such an abundance of goods and services as the American
economy did in 1955.
Employment
Once again I am dismayed to find not one single word in the majority
report devoted to an analysis of whether the economy in 1955 achieved
the objective of the Employment Act of 1946 of promoting maximum
employment. Yet, during 1955 total civilian employment during 2
months of the year-August and October-stood at 65,489,000 and
65,161,000, respectively. These were employment levels neter before
attained in the history of this country. For the year, employment rose
by'approximately 2 million and unemployment declined by 576,000,
in spite of the fact that 1,379,000 people were added to the civilian
labor force, although the staff economists anticipated an addition of
only 1 million.
The remarkable gains made by the economy in 1955 were well
expressed in President Eisenhower's 1956 Economic Report as follows:
Total employment rose by over 3 million and unemployment declined by
M
million between the last 3 months of 1954 and the corresponding months of 195
as the civilian labor force increased by over 2% million. The average workweek
also increased, and there was considerable overtime work, particularly during the
latter part of 1955. The longer hours, combined with a continued rise in average
hourly earnings, brought weekly earnings to record levels in most industries
(p. 114).
In comparison, the Democrat members of the committee observed
a year ago that* * * it is a cause of deep concern that unemployment in February 1955 was only
about 300,000 below February 1954, a reduction of about 8:percent. The situation
looks a little better if we use the seasonally adjusted unemployment index (1947-49
equals 100) of the Bureau of the Census. This index was 110.in February 1955
compared to 114 in January 1955 and a high of 142 in May of last year. This
is a reduction of about 23 percent. Even on this basis, however, the reduction in
unemployment is not commensurate with the recovery in production. These
circumstances were reflected in the warnings at our hearings of possible chronic
unemployment at high levels of production (1955 committee report, p. 11).
Odd, is it not, to find these same Democrats a year later in a majority
report, warning that "Recent low levels of unemployment and unused
54
JOINT ECONOMIC REPORT
industrial resources tend to limit the pace of further immediate expansion in real output" (p. 2). I can only presume from this statement that .they are acknowledging indirectly that the objective of
promoting maximum employment was achieved in 1955.
Additional evidence of phenomenal progress in this area is provided
by an analysis of unemployment during 1955. Concerning this
matter, the 1956 Economic Report observed that:
The decline in unemployment over the past 12 months took place while the
labor force was increasing sharply. At the end of 1954, with about 63j million
people in the civilian labor force, unemployment had fallen to a little under 3
million. During the spring and summer of 1955, the expansion of job opportunities
drew many people into the labor market and the civilian labor force rose by
about 4 million. Meanwhile, after a seasonal rise early in the year, unemployment declined to a little over 2 million by the end of the summer. At the year-end,
after declining somewhat less than seasonally since summer, the civilian labor
force totaled about 66q million people, and there were about 2.4 million people
unemployed * * * (p. 117).
The committee staff economists assume for purposes of their
projections that unemployment in years not marked by war or severe
recession should not be more than 4 percent of the civilian labor force,
although other competent economists place the rate near 4.5 to 5
percent. Even though the percentage of the civilian labor force
unemployed averaged 4 percent during 1955, as their staff projection
reveals, the record level of total employment set in 1955 is all the more
remarkable since instead of only an addition of 1 million to the civilian
labor force, as the staff projected on the basis of average trends as
calculated by the Bureau of Labor Statistics, the actual addition
was 1,379,000, which represented an underestimate.of one-fourth in
-the total number of people actually added to the labor force during
the year.
This would tend to suggest, for years not marked by wars or recessions, that perhaps 4.5 to 5 percent of unemployment of the civilian
labor force is more realistic a figure. Especially since, as noted in the
President's 1956 Economic Report, the staff report and the majority
report, the prevailing low levels of unemployment will tend to limit
the rate of economic expansion in 1956.
Also, in ascertaining whether the economy fulfills the employment
objective of the act in any year, it is important to consider the trend
or "direction of movement" as well as the numerical levels attained.
.As the staff report points out:
For example, some year which began with 2 percent unemployed and ended with
6 percent, may not represent achievement of the "maximum" employment goals
even though the average unemployment was only 4 percent (p. 83).
Even by using 4 percent as the standard, as does the committee staff,
the employment objective was achieved by the economy in 1955, since
by quarters the percentage of the civilian labor force unemployed was
5.2, 4.1, 3.4, and 3.5. The magnitude of the upward employment
'trend during the -latter part of 1955 is also revealed by the fact that
even during December 1955, a month which experiences seasonal
cutbacks in some industries such as farming and construction, a record
new employment level of 64.2 million was established. This was 2.5
million more people than had ever been employed before during, the
.
7
.
month of December.
JOINT ECONOMIC- REPORT
'55
Thjis, although 2:4 million were unemployed during December 1955,
it should be remembered that these people were largely new entrants
into the labor force, those in the process of changing jobs, and those
shifting to new industries or occupations because of technological
changes and developments. This is borne out by the President's
1956 Economic Report, which noted with respect to the composition
of unemployment that:
On the average, roughly half of those unemployed in any given month were no
longer in that status in the following month * * * Unemployment declined the
most among those unemployed the longest. * * *. The rate of unemployment
among married men living with their families declined sharply, from about 3
percent at the end of 1954 to about 2 percent at the end of 1955 (p. 117).
But, as the President also called attention to in his 1956 Economic
Report, "'structural' or 'spot' unemployment may remain even when
the Nation's economy practically reaches full employment" (p. 61).
In this respect, I am pleased to see the majority report give recognition
to the President's recommendation for a comprehensive program to
more satisfactorily deal with "excessive unemployment in economically
depressed industrial areas" (p. 4). However, the economy made
extensive gains even in this area, as indicated in the Area Classification
Summary released in January 1956 by the Bureau of Employment
Security of the Department of Labor:
- A year ago, at the beginning of 1955, the Bureau of Employment Security
listed 44 major areas and 100 smaller centers as having relatively substantial
unemployment * * *. By the beginning of 1956, however, only 19 major
areas-the lowest number since autumn of 1953-remained on the surplus listing,
while the number of smaller surplus areas had been reduced to 64 * * *.
With only three exceptions (Biddeford, and Sanford, Maine; Long Branch,
N. J.; and Ponce, P. R.), all of the major and smaller areas still classified as
labor surplus reported some cutbacks in unemployment over the past year.
Declines totaled an impressive 25 percent or more in 49 of the 83 large and small
areas remaining on the surplus list; in 15 of these, jobless totals have dropped to
less than half the year-ago level.
In summary, however, it must be concluded as the Executive
Director, Dr. Grover W. Ensley, observed in his address to the 33d
Annual Agricultural Outlook Conferenceunemployment and unused industrial capacity are today near an irreducible
minimum * * *
The economy in 1955 not only met but substantially exceeded
the employment objective outlined in the Employment Act of 1946.
The majority report should have made this fact plain; that it did not
do so is regrettable.
Purchasingpower
As the Employment Act of 1946 suggests, one. of the best indicators
of economic activity is the aggregate income paid to people by industry,
agriculture, and government. Of most significance from the standpoint of purchases of goods and services is "disposable personal
income," which is that income people actually receive and can either
spend or save. Concerning this indicator, the President's 1956
Economic Report observed that:
Disposable personal income rose * * * by 14.4 billion dollars, to 269.2 billion
dollars ** *,. despite higher. Federal tax payments associated with rising earaings and despite somewhat larger payments for State and local taxes. The income
gains from 1954 to 1955 raised the per capita disposable income in constant prices
by more than 4 percent * * * (pp. 107-108).
56
JOINT ECONOMIC
REPORT
It should be noted that this $269.2 billion of disposable personal
income which workers, farmers, professional and self-employed
people, and proprietors received, was some $1.5 billion in excess of
that which the committee staff projected as possible of attainment in
1955, if the objective of promoting maximum employment and production were to be achieved.
This record receipt of disposable personal income gave rise to personal consumption expenditures which also reached record proportions in 1955. In 1955, personal consumption expenditures rose by $16
billion to $252.4 billion. In this connection, the President's 1956
Economic Report noted that:
The rise in consumer spending was not, however, a passive accompaniment of
rising incomes. On the contrary, it was a highly dynamic factor in the process
of economic expansion. Consumers were of a mind to buy better things and increase their spending. This pervasive attitude, combined with the willingness
of women and young people to take on jobs so that their families might better
approximate the plane of living they wished to attain has been an outstanding
feature of recent experience * * *. The confidence in the economic future so
dramatically displayed by them was likewise felt and displayed by businessmen
and investors (pp. 23 and 25).
Although this rate of personal consumption expenditures, in relation to disposable income and personal savings, was in part made
possible by a rapid expansion of consumer credit, it did not result in
inflationary developments, since consumption of goods and services
increased almost 6% percent in real terms due to fairly stable consumer prices. This was the largest gain in real terms or constant
prices, since 1946. The 1956 Economic Report noted in this respect
that:
The vigorous expansion of economic activity during 1955 was accompanied by
little change in the average level of wholesale or consumer prices. To be sure,
the substantial stability of the price level reflected in some degree the opposite
movements of industrial and farm prices in wholesale markets. However, the
increase even in the average level of industrial prices was not large for a period of
high prosperity. Because the overall change in' prices was small, speculative
accumulation of business inventories, such as has often led to economic recession
in the past, was largely avoided last year (p. 41).
It was just a year ago in their supplemental views that the Democrat members of this committee, concluded: that theThe President and the administrators of his economic programs seem unable to
conquer their inflationary fears and to exhibit the kind of mature economic statesmanship on monetary policy which they advocate in the Economic Report
(pp. 24-25).
s
mec
the American
Quite to the contrary of this "political"
people in no small part owe the gains they enjoyed last year in real
terms-a 6Y2 percent increase and the largest such basic gain in
economic well-being since 1946-to the "economic statesmanship"
the President and his subordinates have exhibited since assuming
office. For their decisions to ease credit restrictions in 1954 and to
place restraints on borrowing in 1955, we can be grateful. However,
prudent restraint and concern for the facts suggest, as the President
called our attention to in the 1956 Economic Report, thatFinai e'vidence of the effectiveness of recent governmental policies must * * *
be sought in the economic annals that are yet to come as well as those for 1955
(pp. 40-41) -
Installment credit, which was used principally in the buying of
consumer durables, did increase $5.5 billion in 1955. Of this amount,
JOINT ECONOMIC
REPORT
57
the Survey of Current Business, -for January 1956, indicates that
nearly $4 billion of the total increase was due to "the rise in automobile paper" (p. 2). However, although the total credit outstanding is currently higher relative to income than in previous years, all
of this gain, as the Survey reveals, isattributable to the installment credit segment, and more particularly to automotive paper * * *, and even in the case of nonautomotive installment debt, the
ratio to income is only moderately above prewar (p. 3).
Such an extension of private debt to be paid out of future income has
always been associated with the purchase of such durable goods which
provide service over an extended period of time.
Although "monthly payments on the loans proceeded on schedule,
and delinquencies were not only very low but even lower than in past
years," as the 1956 Economic Report indicates (p. 26), prudence requires that further increase in the rate of consumer credit expansion
be watched carefully. I find myself in agreement with the President's
recommendation concurred in by the majority report, thatAlthough present conditions do not call for the use of * * * authority to regulate
the terms of installment credit, this is a good time for the Congress and the executive branch to study the problem (1956 Economic Report, p. 94).
I believe, therefore, that although the majority report fails to note
it, that a reasonably objective person would conclude that the economy
in 1955 most certainly did achieve the objectives of the Employment
Act of 1946 in achieving maximum production, employment, and purchasing power. As the President phrased it: "Full employment,
rising incomes, and a stable dollar have been cherished goals of our
society. The practical attainment of these ideals during 1955 was
the year's greatest economic achievement." (1956 Economic Report,
p. 13).
THE OUTLOOK FOR 1956
It is evident from what I have said that the gigantic rate of expansion which the economy made in 1955 cannot continue indefinitely.
As the President indicated in the 1956 Economic Report:
Under current conditions, the economic growth of our Nation is limited by
industrial capacity and accretions to the labor force. When the economy has
reached so high a level its near-term course is inevitably surrounded by a margin
of uncertainty, and minor movements can occur without involving a change in
general trend (p. 49).
This implies a decrease in the rate of expansion not in continued
economic growth. It means a period of relative stability in economic
expansion, and, as was the case in 1954-a good year, a lessened rate
of expansion does not imply stagnation; rather a mixture of cumulative
movements up and down as required by the needs of individual
industries.
In this respect, I believe the remarks of Dr. Ralph J. Watkins in his
presidential address to the 115th annual meeting of the American
Statistical Association last December are worth noting:
The conviction that catastrophic depressions can be avoided does not at all
imply a belief that economic recessions are a thing of the past. Indeed we can
see that modern economic fluctations are part of the price of freedom. They are
inherent in a free economy; inherent basically in that precious hallmark of a free
society-freedom of choice; freedom to buy or not to buy; freedom as to what to
buy; freedom of occupation and freedom of entry into business; and freedom in
58
JOINT ECONOMIC
REPORT
the management of our farflung business system, composed of more than 4 million
separate business concerns.
The business cycle is still with us and will continue with us so long as we
remain a free economy and a free society, though we may properly continue our
efforts at lessening the amplitude of economic fluctations and may well hope to
achieve more and more progress as we learn more about the behavior of the
economy and as our management skills are sharpened by experience.
It has become the vogue these days for certain economists to speak
of adjusting the rate of economic growth downward "to a more sustainable pattern of balanced growth" and "of adjusting to a rate
consistent with rising productivity and growth in the labor force,
avoiding the excesses of inflation and rising prices on the one hand, or
renewed recession and rising unemployment on the other," as does the
majority report (p. 2). But it must be realized, as the President
so emphatically told the American people in the 1956 Economic
Report:
No
* * * the economic life of a dynamic people is full of cross-currents.
matter how rapidly the economy as a whole may be advancing, there are always
Progress of
some industries and areas that are standing still or even declining.
technology is by its nature uneven; new products and new firms continually disrupt
economic routine; shifts of demand keep occurring and recurring; foreign developments have widely divergent effects on domestic industry; and the weather itself
is sometimes the arbiter over the lives and fortunes of people. These factors and
If our economy is to
many others like them diversify the economic life of a nation.
continue growing, it will have to remain fluid and resilient, and broadly responsive
to market forces (p. 51).
The American people can expect in 1956 a continuation of the mature economic statesmanship on the part of President Eisenhower and
his responsible associates by using the extensive powers of the Federal
Government in such a manner as to accomplish the objectives of the
Employment Act by promoting.maximum employment, production
and purchasing power. As the President's 1956 Economic Report
indicates:
The continuance of general prosperity cannot be taken for granted. In a highlevel economy like ours, neither the threat of inflation nor the threat of recession
can ever be very distant * * * If our economy is to advance firmly on the narrow
road that separates recession from inflation, the Federal Government must pursue
We
monetary, fiscal, and housekeeping policies with skill and circumspection.
must be alert to changes in economic conditions and be ready to adapt our policies
promptly to them (pp. 11-12).
I should like to point out that in an election year the expedient but
generally unwise thing to do is to follow the course of least resistance.
This the Eisenhower'administration did not do in 1955.. As the President in his 1956 Economic Report observed:
Prompt and resolute governmental action to contain undue expansion requires
courage and a willingness to focus on the less apparent and the longer-term interests of the economy (p. 43).
A continuation of. this statesmanshiplike use by the President of
governmental powers can be expected by the American people in 1956.
What then seems to. be the outlook in 1956 for achieving the
Employment Act objectives of maximum employment, production
and purchasing power? The 1956 Economic Report concludes:
Taking recent developments all together, it is reasonable to expect that high
levels of production, employment and income will be broadly sustained during
the coming year, and that underlying conditions will remain favorable to further
economic growth (p. 49).
The committee. staff's report indicates that the assumptions underlying the President's Economic Report and the budget imply a gross
JOINT ECONOMIC REPORT
'59
national product of about $400 billion for 1956. This reinforces the
President's observation that economic expansion in 1955 brought us
to "the threshold of a $400 billion economy" (1956 Economic Report,
p. III).
Measured in terms of constant fourth quarter prices, this would
represent a 2.8 percent increase in the production of goods and
services over 1955. It also is significant to remember that whereas a
year ago, the economy began at a level below the long term average,
it began in 1956 at a higher rate than the long term average.
A $400 billion gross national product may involve a somewhat lower
rate of production and utilization of available resources in 1956 than
prevailed in the record fourth quarter of 1955. ' But this projected
economic growth in 1956 is consistent with the long-term trend of a 3
percent increase in the production of goods and services and the
maintenance of an unemployment level of 4.5 to 5.0 percent of the
civilian labor force which many economists believe is normal for the
economy in years not marked by wars or recessions.
In a few words, if a $400 billion economy is achieved in 1956, the
objectives of maximum employment, production, and purchasing
power would without much doubt be achieved. It also is regrettable
that the majority report does not make this fact plain; but in an
election year, especially in light of the nature of the committee hearings that the Democrat members decided to hold this year, such an
omission is understandable even if it is not justifiable.
AGRICULTURAL SITUATION
The one major segment of the economy in 1956 which did not enjoy
economic prosperity as a whole was agriculture. The net cumulative
movement represented by the industry was negative, and as the
President observed in his Economic Report this year* * * the position of farmers in our dynamic economy has aroused deep concern
(p. 53).
Although the majority report findings and recommendations contain much merit, they ignore certain fundamental problems in agriculture which require extremely different solutions and types of public
assistance than those recommended for agriculture as a whole. As
long as the Congress continues to ignore these cleavages within agriculture, involving great extremes in the size and types of farms, it will
continue to legislate inappropriate policies which merely treat the
effects rather than the causes of these diverse income and production
problems.
I do agree in general with the majority report's observation thatBecause of the highly competitive nature of agriculture; because of the relatively
inelastic demand for most agricultural products; and because of the national need
for substantial standby productive capacity to meet the needs of increasing population and against the hazards of war and crop failure; agriculture as an industry
will continue to present unique and difficult problems (p. 3).
However, if the Congress will enact realistic legislation tailored to
meet the separate needs of the owners and operators according to the
1954 Agricultural Census, of our(1) 2 million larger commercial farms, mostly family-type
farms who can benefit from price support programs, since they
produce about 85 percent of the annual marketable crop value
and receive about 80 percent of net farm income; and
60
JOINT ECONOMIC REPORT
(2) 2.7 million smaller family-type commerical farms, residential and part-time farms, as defined by the Census Bureau,
who benefit but very little from price support .programs, since
they produce only about 15 percent of the annual marketable
crop value, and receive about 20 percent of the net farm incomeI have no doubt but what in a comparatively short period of time,
solutions can be found to "the unique and difficult problems" of these
distinct groups of rural people.
Need for income data by economic class offarm
Our first step in formulating legislation which can treat the causes of
these problems is to obtain meaningful annual farm income data by
economic class of farm. It should be obvious that average and per
capita farm income figures, derived by dividing the number of farms
and farm people into a net income figure, are of questionable utility
for policy determination. These figures represent the composite of:
(1) the incomes of 2 million farms which comprise 80 percent of the
net farm income, and (2) the incomes of 2.7 million farms, comprising
only 20 percent of net farm income. This distorts all out of semblance
to reality the farm income picture used for the purpose of shaping
farm policies.
As the National Planning Association pointed out in its publication,
Underemployment in Agriculture:
Simple arithmetic will show what happens. . Add the incomes of a group of
"Medical science workers": $20,000 for a doctor; $8,000 for a laboratory technician; $4,000 for a nurse; $2,000 for a janitor. The average income for these
"Medical service workers" is $8,500. Now by using this average, the facts are
distorted in. two ways:
(a) The doctor's salary appears to be much lower than it really is; and
(b) The low income at the bottom of the group is glossed over.
Thus, when national averages involving all farmers are used, the commercial
farmers are made out to have much lower incomes than they actually have, and
the real poverty of the low-income group is technically covered up. Yet this system of averages has been the common.practice (p. 5).
The Census Bureau defines a farm as 3 acres or more of land if the
value of the products raised on that land amounts to $150 or more;
or if it comprises less than 3 acres but the value of the products sold
amount to $150. On the basis of this definition, the Agricultural
Census of 1950 provided for thefirst and only time complete information on farm income by economic and other classes of farms as follows:
CLASSES OF FARMS-1950 AGRICULTURAL CENSUS
Commercialfarms (8,706,412)
Class I. Those farms which sold produce valued at $25,000 or
more (103,231).
Class II. Those farms which sold produce valued at between
$10,000 and $24,999 (381,151).
ClassIII. Those farms which sold produce valued at between
$5,000 and $9,999 (721,211).
Class IV. Those farms which sold produce valued -at between
$2,500- and $4,999 (882,302).
Class V. Those farms which sold produce valued-.at between
$1,200 and $2,499 (901,316). Class VI. Those farms which sold produce valued at between
$250 and $1,199 (717,201).
JOINT ECONOMIC REPORT
61
Otherfarms (1,668,622)
Part-time, 639,230.
Residential, 1,029,392.
Total farms, 5,375,034.
Analysis of this data by economic class of commercial farm indicates
that:
1. 1.2 million of the then existing 3.7 million commercial farms,
mostly family type, comprising the first 3 economic classes of such
farms, and containing 209.1. million acres of harvested cropland, produced farm products sold for $5,000 or more. Expressed another way,
22 percent of the total number of farms produced 74 percent of the
total value of all farm products sold, utilizing 60.5 percent of the total
harvested cropland.
.The average.family income,, including both money and nonmoney
income, of the 5 million persons living on these 1.2 million farms was
$5,143. By comparison, the average family income of all farm families on farms that same year was only $2,650.
The average per capita income, including both money and nonmoney income, was $1,229, nearly twice that of all people on farms,
which was only $651.
2. The other 2.5 million farms in the last 3 economic classes of
commercial farms, containing 118.8 million acres of harvested cropland, produced crops sold for $4,999 or less. Expressed another way,
47 percent of the total number of farms produced only 24 percent of
the total value of all farm products sold, utilizing 34.5 percent of the
total harvested cropland.
The average family income including both money and nonmoney
income, of the 10.3 million persons living on these 2.5 million commercial family-type farms was only $1,741-$3,352 less than the
average of those families operating farms in the first 3 economic classes
of farms and $859 less than the average family income of all farm
- The average per capita income, including both money and nonmoney income, was only $430-$.799 less than the average per capita
income of persons living on farms in the first 3 economic classes of
farms-and $221 less than that of all people living on farms, which
was $651.
3. In addition, there were 1.6 million part-time and residential
farms. These farms, representing 31 percent of the total number of
farms, pioduced only 2 percent of the total value of all farm products
sold.
It is 'eVident from this analysis that income data hi agriculture by
economic class of farm are essential in evaluating the extent to which
price-support programs aid farmers and raise prices and, therefore,
incomes of the owners of farms in these different classifications.
Obviously; two-thirds of our family-type farms produce so very little
for sale that they cannot materially benefit from price support programs regardless of the level-75, 90, or 100 percent-of-price support.
No wonder average per capita farm income is-but one-half that of nionfarm per-capita income. Two-thirds of our farms contribute very little
to total farm income, so the result is that their inclusion for purposes of
farm income, analysis niakes" average farm family and per capita
income figures compare unfavorably with nonfarm income figures.
73739'-56-5
62
JOINT ECONOMIC REPORT
On the other hand, it is obvious that the owners and operators of
one-third of our farms, mostly family-type, who produce 85 percent of
the annual marketable crop value are the people who benefit through
the price support programs administered by the United States Department* of Agriculture. Yet we have had many honest and sincere
people advocating a 90 percent of parity price support program in the
mistaken belief that it will raise net farm income and narrow the gap
between per capita farm and nonfarm incomes.
How can such a program do this when, in the first place, it relates to
only the so-called basic commodities, which provide farmers only 26
percent of net farm income? Furthermore, in order to get price support, a farmer must have something to sell, but two-thirds of our
family-type farms simply do not produce for commercial sale in any
significant amount.
If such price support legislative "mistakes" are to be avoided in
the future, the Congress. must have more accurate and meaningful
income data. Lacking such data, the majority report understandably
expresses alarm at.the continued decline in farm prices and agricultural income-
and concludes thatcertainly the solutions thus far brought forward have not been adequate (p. 3).
Yet the authors of the majority report concluded ostensibly on such
inadequate data that they werelargely persuaded by the extent of the recent decline * * *, [to] feel compelled
* * * to accept * * * strong price supports (p. 4).
The lack of adequate farm income data prompted me to introduce,
earlier this session, S. 3145, which would require the Bureau of the
Census, in conducting its current population surveys, to include and
publish annually money and nonmoney income data, relating to per
capita and family farm income by economic class of farm. It is my
hope that the Subcommittee on Economic Statistics of the Committee
will, during the coming year, give attention to improving the compilation of agricultural income data along this line, and that the
authors of the majority report will in their own words "weigh sympathetically" this "difference approach to a solution" of our farm
income problems.
The stakes are too high and the welfare of too many people is
involved for theCongress to enact or reenact laws such as the rigid
90 percent price support program on basic commodities, which instead
of removing the causes only treat the effects produced by our two
major problems in agriculture: First, the need for effective price
support legislation for our commercial farms; second, economic aid
programs of quite a different nature to assist the great bulk of our
farm people who, because of the lack of adequate-sized farms, financial
means, or technical knowledge, do not produce enough farm products
for commercial consumption to derive any substantial assistance from
price-support programs.
Agriculture is basically sound
In light of the current election-year discussion, about declining
parity ratios, prices and farm income, it is very important that the
American people view these matters in proper perspective. Although
the cumulative movement of agriculture has beenldown, agriculture,
as Secretary Benson has said many times, "is not on the rocks."
JOINT ECONOMIC REPORT
63
Commonsense and respect for the following basic facts concerning the
soundness of agriculture, ought to guide the Congress in enacting farm
legislation.
The prices received index did fall from 243 in January 1955, to 226
in January 1956-a drop of 16 points. But during the same period,
prices paid by farmers for production and family living items, declined
7 and 1 points respectively, causing the parity index also to decline 2
points. Thus the parity ratio during the year fell 6 points from 86 to
80. Two significant facts emerge from these data. First, farmers as
a whole did benefit from the price stability which prevailed during
1955, although the owners of one-third of our farms, mostly familytype which produce'85 percent of our annual marketable crop value
benefited to a lesser extent, since, to a considerable degree, price
stability was the result of the low prices they received. Second,
commercial farms (in particular those in the first three economic
classes of farms) as the 1956 economic report points out* * * have been producing and are geared to produce more than could be commercially disposed of at supported prices (p. 54).
We should take notice of the fact that whereas the total value of
all farm assets is some $163 billion, total farm debt is only $18 billionsome 11 percent of farmers' assets. Only 3 out of 10 farmers have
mortgage debts and over. 80 percent of all farms mortgaged are
mortgaged for less than 50 percent of their market value-over
one-half are mortgaged for less than 30 percent of their market value.
However, the demands for credit have been increasing, especially
among young farmers and those who operate smaller farms.
Seemingly, the best indicator'for determining the basic soundness
'of any segment of the economy is the trend in the number of bankruptcy cases filed by diffe'rent types of businesses. Cases involving
farmers have accounted for exactly six-tenths of 1 percent of the
total number of such cases for the past 5 years: In 1955, only
386 out of 59;404 bankruptcy cases involved farmers. This is all .the
more important when it is remembered that according to the Agricultural census of 1954 we had some 4.6 million farm operators.
Although the income positions of the owners of the one-third of
our farms which produce 85 percent of our marketable crop value
declined during 1955, those of the owners of the other two-thirds
of our farms were virtually unaffected by the decline in farm prices
because they produce so very little for sale-about 15 percent of our
marketable crop value. However, evidence that the net-income
picture of the owners of our largest commercial farms, mostly familytype, which produce the bulk of our farm products, is good and that
in general they have shared in the prosperity enjoyed during 1955 is
found in the majority report recommendation that-endorsesthe President's proposal for a dollar limit on the size of payments or support loans
to any one individual or farming unit (p. 4).
For example, the 1950 Census of Agriculture revealed that:
1. 484,000 of the farms, mostly family-type, in the first 2 economic
classes of farms-those producing crops sold for $10,000 or
more-produced 51 percent of the total value of all farm products
sold and received 23 percent of the total net farm income.
The average family income provided by these farms was
$6,585, nearly 23 times that of all farm families. The average
61
JOINT ECONOMIC
REPORT
per capita income of people on these farms was $1,594; also about
2X times that of all people living on farms.
2. At the other extreme, about 16 percent or 717,201 farms in
the sixth and last class of family-type commercial farms-those
producing crops sold for more than $250 but less than $1,200produced only 2.3 percent of the total value of all farm products
sold and received 5 percent of the total net farm income.
Average family and per capita incomes were only $975 and
$254 respectively; these also were $5,610 and $1,340 respectively
below those- enjoyed by people living on farms in the first 2
economic classes of farms.
The owners or operators of these 484,000 farms, mostly family-type
referred to in point 1, are, and have been, receiving the largest subsidies under the price-support program. One private research organization recently reported that 1.9 percent of our farmers received 25
percent of the price support subsidy in 1953.
The largest loans made under the price support program, however,
are those made to corporation, not family-type farms. For example,
in 1953 the largest wheat loans were made to:
1. The Harrigan Farms of Prosser, Wash., which placed
152,840 bushels under loan, in the amount of $354,339.
2. The United States Wheat Corporation of Hardin, Mont.,
which placed 184,516 bushels under loan, in the amount of
$348,646.
I should also like to point out that 1,468 loans over $25,000, with a
total loan value of $63,437,759, were made on the 1953 wheat crop.
The average loan value was $43,214.
At the other end of the price-support ladder, 554-,058 loans under
$5,000, but totaling $713,517,921, with an average loan value of
$1,288, were made by the Commodity Credit Corporation.
With respect to corn, the largest loans on the 1953 crop went to:
1. Adams Bros. & Co. of Odebolt, Iowa, which placed 124,800
bushels of corn under loan at a face value of $190,944.
2. Emil Sovich, of Rensselaer, Ind., who placed 102,648.
bushels under loan in the amount of $166,289.76.
On this corn crop, the Commodity Credit Corporation made 104
loans over $25,000, with a total loan value of $3,575,440. The average value of these 104 loans was $34,379.
At the other end of the subsidy ladder, 283,605 loans under $5,000
in value, but totaling $503,449,500, were made. These loans average
$1,775.
The magnitude of the subsidy program to large operators is revealed
by table 3 of the USDA's January 1956 publication, Summary of
Sample Survey of Size of Major 1953 Crop-grain Loans.
65
JOINT ECONOMIC REPORT
TABLE
3.-Number of loans, total loan value and average loan value, 7 major 1958
grain crops
Grain crop
Wheat:
Number of loans--------------Total loan value-$713,
Average loan value -$1,288
Corn:
Number of loans Total loan value -$503,449,500
Average loan value-$1,775
Oats:
Number ofloans--------------h
Total loan value -limitAverage loan value-8---------------------
Under
$5,000
554,058
517, 921
$10,000
$5,000-
$10,000$25,000
26,184
$171, 245, 681
$6,540
9,496
$130,731.4007
$13,76
1, 468
$63 437, 759
$43, 214
Over
$25,000
283,005
10, 842
$09, 913,395
$8, 448
57
$12, 357,165
$12,912
104
$3, 575 440
$34, 379
42,845
$32,307,931
408
$2,763,a937
$,a774
59
$014,488
$13,f805
10
$271. 884
$27,a198
754
t Imber of loans --------------------------Total loan valuey-type,----y$29,817,683
ch-in-1949
farms,---Average loan value$0
Sorghum:
ch--f-which-produce30,753
and--Numberof loans-910,c506
Total loan value-$38,
$1,205
Average loan value-----------------Soybeans:
59, 717
Number of loans--------------------------Total loan value---------------$71,089,804
$1, 190
Average loan value-------------Flaxreed:
56,007
Number of loans---------------------------$52, 781,584
Total loan value --------------$920
------------------valueAverage loan
06
183
518 a33,185
$6,34,144
$2,772,f665
$3,559,516
$15,e153t $9 424
$ 872 d
25
$1,002,805
$40. 115
1,643
$11,863,572
$7,221
401
$5,783,510
$14,423
746
$5, 108,484
$6,548
56
$070,800
$17,444
5
$189, 582
$37,880
562
$3,502,395
$5, 9
50
$762,966
$13,024
18
$520, 361
$2s,809
The lack of a limit upon the amount of price support assistance a
farmer can receive gives, in my opimion, unnecessary financial assistance
to a great many owners of the larger commercial farms, although
mostly family-type, and especially the 103,231 farms in the first
economic class of farms, whichmin 1949 produced 26 percent of all
farm products 'sold and each of which produced products valued at
$25,000 or more. I introduced, therefore, S. 3126, which provides
that price support is not to be made available during any calendar year
with respect to the products of any one farm of a total value, determined on the basis of the support price, in excess of $50,000.
While it is clear that during certain periods even these farms may
need some price support assistance, it is equally clear that many of
these farms simply do not need unlimited price support assistance.
Many of these farms, year in and year out, will return to their oWners,
net incomes much higher than 90 percent of our people ever hope to
receive. This they would do even if they never received a dime in
price support subsidy.
This can be done by those who operate the more profitable farms and
who know how to apply to their lands just the right amount of labor
and machinery and to produce the largest possible volume at the lowest possible cost per unit of output. This type of farming, of course,
results in the highest gross income possible of achievement with their
particular size of farms.
Price support policy
The decline in the prices received index from 302 in 1951 to 223 in
December 1955, primarily has resulted from several factors which
have 'enabled our larger commercial farms (mostly family-type)some 1.2 million-to produce more than consumers could remove from
66
JOINT ECONOMIC REPORT
the market at fair prices. One of these factors has been the maintenance of a rigid 90 percent price support program on the basic commodities-wheat, corn, cotton, rice, peanuts, and tobacco. Application of high rigid price supports in conjunction with the acreage
allotment and marketing quota production control programs, in effect
on these crops, has utterly failed to bring the supply of those commodities into line with effective demand, and, to-raise, thereby, farm
prices and incomes.
* The 1956 Economic Report calls attention to the fact that:
Government restrictions on acreage of several crops, notably wheat and cotton,
have insufficiently curtailed production of these crops and have led to expansion
of others. Huge carryovers have piled up, far beyond liberal estimates of desirable reserves. Government holdings acquired under price-support programs
have kept rising, in spite of intensive and effective efforts to dispose of
surpluses * * *.
The production-control programs that have been operated for basic commodities, which account for [only] about one-fourth of the total income from farm
marketings, have indirectly contributed to lower incomes for the producers of
other important commodities. Farmers with acreagc diverted from basic crops
have deemed it more profitable to produce feed grains or other crops, even at
lowered support prices * * *. Many have expanded their hog and beef cattle
numbers to use the additional feed thus produced, adding further to the expansion
induced by relatively favorable livestock prices in earlier years * * *. These
factors have been largely responsible for lower prices of beef cattle and sharply
lower prices of hogs in 1955, and a continued increase in production of dairy
products.
Unrealistic supports have * * * overstimulated production of several basic
products in this country * * * (pp. 54, 56, and 57).
How large are these surpluses of basic commodities? As of December 31, 1955, the Commodity Credit Corporation had the following quantities of these commodities valued at $5,302,338,317 in its
inventories:
Wheat, 888,542,189 bushels, valued at ______- ___-_-____$2,
Cotton, upland, 7,920,833 bales, valued at-___ 7 __- ______-1,
Corn, 757,612,049 bushels, valued at___-_-__- __1,
Rice, 15,387,444 hundredweight, valued at -_-___-_-_______
Total_--------------------------------------------
399,
437,
300,
175,
042,
071,
322,
902,
201
012
952
152
5, 302, 338, 317
Other commodities whose outputs were increased by production
on lands diverted from basic commodities, under the allotment and
marketing quota programs, accounted for CCC inventories as follows:
Commodity
Inventory
amount
Cheese -
Butter-------------------------------
Grain sorghum
Barley Oats :
Dried milk -pounds..
Rye _____
Other _- -_ - - - - -Total-- _-9
-hundredweight..
- - _-
- ---
Value
pounds..
333, 001, 929
$131, 260, 285
bushels..
do
26, 452, 382
31, 261,403
31, 218,232
161,713, 43
3,305, 906
77, 378, 838
43, 966, 463
29,987,699
28,216, 338
5, 390, 331
182,455,434
do....
bushels..
_-----
166, 398, 824
--__-_-__
100, 684, 683
699,320,971
36 9-----------
What have been the costs of programs conducted by the Department
of Agriculture primarily for the stabilization of farm prices and incomes
.on basic commodities? For the fiscal years 1932-55, the total realized
net cost was $5,632,700,000, although these commodities were sup-
67
JOINT ECONOMIC REPORT
ported at 90 percent of parity only during the years 1942-54.
commodity they were as follows:
Corn -_
_-------1,
Cotton Peanuts Rice -------------------Tobacco -____
Wheat -__--_------Total -__
---------
-2,412,
By
$1, 319, 300, 000
602, 900, 000
166, 500, 000
29,300,000
101, 80C, 000
900, 000
5,632, 700, 000
In light of these facts, it would seem highly imprudent to reenact a.
90 percent price support program on basic commodities. High
rigid supports have not facilitated adjustment of production to effective market demand; and being applicable to only the basic commodities which provide commercial farmers with only 26 percent of their
income, they cannot materially.raise farm prices or total net farm
income.
But by the same token, a flexible price support system cannot
demonstrate the degree of ability it may have to help commercial
farmers adjust production any better, as on as these large surpluses
overhang the market. Whether the flexible price support program
will be as successful as anticipated or not, depends'upon removal of
these surpluses and a fair trial. A partial year's test under present
supply and inventory conditions in no way approximates such a
trial, and this should be clearly understood by the American people.
In light of this fact, I concur in the finding expressed in the majority
report, thatwe must accept the expedient contained in the President's Economic Report
for a soil bank as a desirable aid in helping avoid further additions to our already
large surpluses (p. 4).
However, if the soil bank proposal is to be effective in reducing
surpluses by facilitating production adjustment downward, it seems
essential that certain changes be made in the conditions of eligibility
for assistance under the price support program and the agricultural
conservation program.
It appears to me that the Secretary of Agriculture should be given
permissive authority to require that farmers participate in the acreage
reserve program in order to be eligible for price support.' The acreage
reserve program certainly will fail to produce the desired results
unless participation by the commercial farmer in the cotton, corn,
wheat, rice, and tobacco producing areas is very substantial. At a
time when we have almost unprecedented Commodity Credit Corporation inventories of these commodities, it appears essential that the
Secretary should have a sanction at hand to induce substantial
participation in the event the rates of payment are not high enough
to accomplish this basic objective. Unless the, commercial farmers,
who benefit from the price support programs, participate, the program will fail to materially reduce surpluses-the objective of the
acreage reserve program.
Likewise, if the owners of large commercial farms are going to continue to get payments for carrying out conservation practices under the
agricultural conservation program, which result in increased yields
and a greater total output of cotton, corn, wheat, rice, and tobacco,
they ought to be required to participate in the acreage reserve program.
68
JOINT ECONOMIC- REPORT
It is sheer.nonsense and a waste of public funds, 'on the one hand,
to pay out money to increase production and then not to require
participation in an acreage reserve program which has, as its objective,
the reduction of cotton, corn, wheat, rice, and tobacco production.
For the same reason, any farmer who -knowingly -harvests any
acreage of a basic commodity-wheat, cotton, corn, rice, tobacco,
and peanuts (all of which, except peanuts, are eligible for the acreage
reserve program)-in excess of his acreage allotment should not be
eligible to receive payments under the -agricultural conservation program. The only exceptions to such a provision should be in those
cases in which:
-1. A farmer has an acreage allotment of less than 15 acres,
since under the marketing quota provisions of the Agricultural
Act of 1938, as amended, a farmer with a wheat acreage allotment of less than 15 acres of wheat without penalty.
2. A farmer grows corn for ensilage, since it is consumed on
the farm.
3. A farmer grows peanuts for seed to be planted to peanuts
to be grazed by hogs on the farm.
4. Farmers have rejected marketing quotas in a referendum,
since adequate penalty in the loss of maximum price support
assistance is provided in the law.
The basic reason for requiring that commercial farmers (mostly
family-type) must comply with acreage allotments in order to receive
assistance under the agricultural conservation program is to provide
an added sanction to induce compliance with production -controls
so that production can more nearly be brought into line with demand.
Although production controls at best are not too effective in'bringing
and keeping supply in line with demand, it is important in light of the
big surpluses on hand of basic commodities that they be reinforced by
such a sanction. This is especially true with respect to the commercial
farms owned. by' one-third of our farmers who produce 85 percent of
our marketable crop value and who receive 80 percent of our net
farm income.
However, I do agree that such a sanction should not apply to our
small family-type farms-especially those having wheat and corn
acreage. allotments of less than 15 acres. But I cannot agree that'it'
should not be made applicable to the large commercial farms (also'
mostly family-type). though fewer in number but which produce the
bulk of our food and forage crops. Specifically, my reasons for this
are:
1. If public funds are to be used to increase the productive capacity
of these commercial farms as is the case with respect to the agricultural conservation program, while at the same time the Government
is obliged to support the prices of the crops in question, then the public
interest certainly requires that adequate sanctions be imposed which
will work toward the goal of keeping supply in line with demand.
That the bulk of payments now made under the agricultural conservation program are for. practices which primarily increase output
rather'than build the soil, as do more permanent type practices, is
revealed by table 5 of the Summary of the Agricultural Conservation
Program for 1953 published by the 'USDA. In 1953, 42 percent of the'
$185 million farmers received was spent for fertilizer and inorganic
materials-limestone, phosphate, and potash. Another 14 percent
was used for protective manure crops.
JOINT ECONOMIC REPORT
69
2. If we want to really advance soil conservation on lands devoted to
the growing of soil depleting crops, then commercial farmers, familytype or not, if they are to be eligible for such financial assistance on
such crops-and they are the crops in question here-should be required to observe acreage allotments. In this respect, it should be
noted that from 1936 to 1944 the USDA paid farmers $1,666,300,000
under the agricultural conservation program to withdraw soil-depleting crops, including those here in question, from production. Farmers
were given an acreage allotment, and if they kept within that allotment, they received an agricultural conservation program payment.
That such a practice was more of a permanent soil conserving nature
than most of those for which farmers are compensated today under the
agricultural conservation program, cannot be disputed. As Rainer
Schickele, former Chairman of the Agricultural Economics Department of North Dakota Agricultural College, has so ably stated in his
recent book, Agricultural Policy:
* * * the public interest is concerned primarily with erosion control, with
keeping the topsoil in place, because it constitutes the nonrenewable fund resource
of the soil. Fertility maintenance, better farm use of water, and maintaining
forages are essential only insofar as they are needed to control erosion. The AC P
objective fails to make this important distinction. Consequently, a certain
proportion of the available funds is used to pay for practices on land which would
not have been permanently damaged if these practices had not been
performed * * *.
There can be no question that a considerablepart of the ACP payments are being
made for practices on land where those practices are not necessary for the public
interest in soil conservation.
** * If the funds now disbursed on lands not subject to erosion could be
shifted over to unprotected erosible lands, the effectiveness of the program could
be substantially increased. We, as a nation, would get more real soil conservation
pei tax dollar spent than we are getting now (p. 104).
Contrary to the opinion of some people with respect to this matter,
it is evident that not to require compliance with acreage allotments on
soil depleting crops as a condition for receiving ACP payments on
farms having an allotment of over 15 acres would result in less conservation worthy of the name, than would otherwise be the case.
Experience also indicates that the Secretary of Agriculture should be
required to obtain certifications from processors that the producers of
agricultural commodities, for which any price support or surplus
removal operation is carred out through purchases from, or loans or
payments to processors, have been paid-for their product:
1. Not less than the support price therefor; or
2. In the case of commodities for which no support price has
been established, such price, but not less than 75 per centum of
the parity price, as the Secretary finds necessary to provide a
reasonable return to such producers.
In the latter case, it is necessary to require that 75 percent of the
parity price to be paid producers in the case of commodities for which
no support price has been established, because title III of the Agricultural Act of 1949, as amended, provides that for commodities other
than the basics (wheat, cotton, corn, rice, peanuts, and tobacco) and
the designated nonbasics (wool, including mohair, tung nuts; honey;
milk, butterfat, and the products of milk and butterfat) that the
level of support, depending upon supply conditions, shall not be less
than 75 percent of parity.
70
JOINT ECONOMIC REPORT
It does a farmer very little good to have the Department of Agriculture through expenditure of Commodity' Credit Corporation funds,
or section 32 funds, purchase commodities through surplus removal
operations unless1. A support level as a percentage of the parity price of the
commodity is set by the Secretary of Agriculture.
2. And processors are required to certify that producers have
been paid that price.
It would seem much wiser not to institute such purchase programs
unless it is evident that producers, for whose benefit they are initiated
in the first place, will actually benefit pricewise. The Department
of Agriculture has realized a net cost of $1,804,100,000 in carrying
our surplus removal programs since 1932, and such programs are
the major method the Department of Agriculture relies upon to support perishable commodities. To spend millions of dollars in surplus
removal operations, without a support level being announced and
which does not result in the improvement of market prices, can only
lead to bitterness of feelings on the part of producers toward both the
processors and their government.
Expanded researchprograms
The President requested an increase of 25 percent in research funds
so that for the 1957 fiscal year $103 million will be available not only
to carry out the usual research activities of the Department but to
expand research relating to the development of new uses, new markets,
and new crops.
During the fiscal years 1948-55, the Department of Agriculture
spent $47.0 million in marketing and related economic research, and
State agencies spent some $9.8 million under the Research Marketing
Act during the same period. Now I am in complete agreement that
wemust further improve our marketing mechanism * * * so that the benefits of our
abundance may be still more widely distributed-
as the President stated in his special agricultural message. But I am
also convinced that mere improvement of the marketing mechanisma real boon and subsidy to the processing, transportation,'wholesale
and retail food industries-does not necessarily mean that (1) resulting
lower marketing costs are passed on to the farmer in the form of higher
prices or lower handling costs (quite to the contrary, I suspect that
most of this "saving" finds its way into the profits account) and (2)
the total demand is increased for the commodity in question whose
marketing costs are lowered.
As much is implied by the President's statement in his special
agricultural message thatMarketing margins have continued to increase, even while farm prices have been
declining. Thus the farmer's share of the retail food dollar has shrunk appreciably.
Retail prices have changed little, thereby impeding desired increases in consumption. We must find ways to lower costs of food distribution.
Now it may be that lower marketing costs resulting from marketing
research carried out by the Department of Agriculture at a cost of
$56.8 million during the past 8 fiscal years have been swallowed up
by increased labor and transportation costs. But, as I have watched
the press releases from the Department over the past few years,
JOINT ECONOMIC REPORT
71
announcing the results of many of these "marketing research projects,"
it is difficult for me to see how some of these findings could result in
(1) any material increased demand for the commodity in question, or
(2) higher returns to farmers.
Research undoubtedly is an effective way to help attain the goal of
lower costs of food distribution, but it should not be carried out by the
Department of Agriculture if it will not help farmers sell more for a
higher return. I, therefore, urge the committee during the coming
weeks as part of its proposed inquiry into the "cost-price squeeze in
agriculture," to study the effect the results which specific marketing
research projects have had upon the total demand for the commodity
in question and prices paid farmers as a result.
During the 1930's, chemurgy seemed to hold out much hope for the
diversion of substantial quantities of food and fiber products into
industrial and other nonfood uses. A program of vigorous basic and
applied research may turn up heretofore undiscovered nonfood industrial uses, but based upon our experience over the past 15 years, the
prospects seem not too bright. The following seem to be the major
obstacles to date:
1. Food and feed crops are relatively more expensive sources of
raw materials than other available materials.
2. Not infrequently their use in manufactured products involves greater costs than use of competing materials.
For example, surplus wheat is our number one commodity problem
as measured by the bushel quantity and dollar value of Commodity
Credit Corporation inventories: 888,542,189 bushels valued at
$2,399,042,201. Yet its use for the manufacture of industrial alcohol,
its principal nonfood and feed use, 'has not- been very extensive.
Before 1940, little or no wheat was used for this purpose. But by
1943, even when it was difficult to get natural raw materials due to
wartime shortages, only 107 million bushels out of a production of
1,060 million bushels that year were used in the manufacture of industrial alcohol. Each year since then, the quantity of wheat diverted
to this use has progressively. declined in spite of cheaper wheat prices.
In 1954, industrial alcohol production utilized an insignificant 62,000
bushels of wheat.
At the moment, new crops development research seems to be the
front which offers the greatest promise for more efficient utilization
of resources in agriculture now being used to produce quantities of
some crops greatly in excess of demand. Dr. Byron T. Shaw, Administrator of the Agricultural Research Service of the Department of
Agriculture, recently said in a talk entitled "New Crops Research":
Americans have been on the lookout for new crops since the beginning of our
history * * *, advances in every one of our major crops have come as a result
of this continuous search for plants of the same or related species for use in
improving varieties * * *. Some of our greatest opportunities, both for stabilizing farm production and opening up new markets in industry, will be found
through research on crops we're now growing.
In this respect, as President Eisenhower said in his special agricultural message:
We must find new crops offering such new opportunities and benefits as are
exemplified by soybeans and sorghums.
New crops should mean the diversion in some areas of acreage out of
the production of crops now in surplus, resulting in more economic and
72
JOINT ECONOMIC REPORT
profitable use of capital and labor. However, much of the development of new and improved crop plants depends upon plant breeders
having at their disposal adequate stocks of many different kinds of
plants, both foreign and domestic, both wild and cultivated. Although these plants in themselves may not have much agricultural
value, they often contain valuable genetic characteristics that plant
scientists can use in developing commercial varieties.
- Such improvements require the blending into new plants of superior
genes: New genes or germ plasm cannot be created-the breeder must
work with those that occur in those plants he has on hand. This expanded research leading, we hope, to new crops, which the Department of Agriculture is undertaking, in cooperation with State colleges
and private institutions, will without doubt require a vastly expanded
bank of germ plasm. To have such parent plants or seeds when they
are needed, they must be preserved in quality and quantity in needed
-geographical areas which are suited to storage and readily accessible
to plant breeders. Although present Federal and State experiment
stations are doing the best they can to preserve'these plant and seed
stocks that can be used in the foreseeable future, they have neither
the space nor facilities for holding seeds over a long period.
Because of this fact, I recently introduced S. 3095 which, if enacted
into law, would direct the Secretary of Agriculture to establish and
operate a "national seed storage facility." The purpose being to
collect, store, and preserve seed and plant stocks for future needs. - It
would serve to facilitate cooperation between the Department of Agriculture and other public and private agencies, organizations, institutions and persons in new crop research. An authorization for needed
appropriations is also included in the bill.
More recently in this connection, the Grain Research and Marketing
Facility Committee of the Department of Agriculture at the conclusion of its annual meeting observed:
Agriculture needs a national seed storage facility to extend the years of vitality
of reserve seed stocks.
I hope the committee as it pursues its work this year will give consideration to new crop research and the need for such an expanded seed
storage facility in connection therewith.
Small farms and low-income areas
Although the majority report calls forcomprehensive programs to assist small and low-income farmers by way of credit
facilities,' 'technical assistance, enhanced industrial opportunities, and otherwise * * * (p. 4)it by and large seems to assume that 'low prices" explain farm
poverty, since undue emphasis is placed upon the decline in farm
income. This simply is not the case. Although farm prices have
declined, and with them net farni income, this has hadlittle effect upon
the financial position of the "low income" farmer. By the same
token, "strong price: supports," rigid 90-percent price supports, or' a
75-to-90 flexible price-support system, will not materially improve his
income position. As the National Planning Association's publication,
Underemployment in- American Agiiculture, so vividly points out:
* * * raising prices won't eliminate poverty, on a farm which doesn't produce
enough of anything to sell. If a farmer raises a hog and has to eat it to live, it
makes no-difference whether he could have sold it for $10-or $40. Price supports
do not produce hogs" (pp. 16-17).
JOINT ECONOMIC REPORT
73
Direct observation will also disprove the low price theory of farm
poverty. In this connection it should be noted, according to the 1950
Agricultural Census that 1.6 million commercial family-type farms in
the fifth and sixth economic classes of farms (selling between $250 and
$2,500 worth of produce) produced in 1949 only 9.7 percent of all farm
products sold. By comparison the 103,231 commercial farms in the
first economic class of farms (mostly family-type and selling $25,000
worth or more) produced 26 percent of all farm products sold. These
103,231 most efficient and productive commercial farms provided average family incomes of $10,200; by comparison again, 1.6 million poorest and smallest commercial family-type of farms in the fifth and
sixth economic classes provided average family incomes of only $1,900
and $975.
It should be evident, as I pointed out in my supplemental views to
the 1955 committee report, that* * * the problems associated with lifting the levels of living of about two-thirds
of our farm people who live on farms which, for one reason or another, are uneconomic units, have not been and can never be solved through price-suppcrt
programs (p. 65).
It is, in my opinion, plain demagoguery for politicians to tell the
owners of small-sized farms working "tired" lands that. high price
supports will solve their income problems. It simply is not so.
Very plainly we have two major categories of farms in the United
States; each with different problems which require for solution different types of public policies. Farm prices and the need for price
support are of major concern to only the owners of the larger commercial farms, as a commercial farm (mostly family-type) is defined by
the Census Bureau. Public agricultural policy simply has not given
adequate recognition to the fact that the problems confronting the
owners of the smaller and less productive family-type commercial
farms, as well as many part-time farms, are totally different, and require different solutions.
For most of these People living'on small rural farms a noncommercial family-type farmers' program, as a new aspect of public agricul-
tural policy, is urgently needed.
The rural development program
initiated by Secretary Benson last year, if given adequate congressional support, which has not been' forthcoming to date, has all the
earmarks of developing into just such a program. In any event, the
solutions to the problems of the low-income farmer require different
approaches or combinations of approaches.
Many owners and operators of fifth and sixth class commercial
family-type farms in particular can benefit from more liberal long-term
credit policies coupled with intensive assistance along technical farming lines from the Federal and State Extension Services and other
Federal and State agencies.
More easily attainable credit would enable many such farmers to
expand their farms to a size which could return to them and their
families a decent level of living. For a great many other farms, lack
of opportunity to acquire adjoining farmland, rather than lack of
capital to purchase such lands, constitutes the "size of farm" problem.
For others the need is for credit on liberal long-time terms to be used
for the purchase of equipment, buildings, livestock, and so forth.
It was because of a firm conviction that the financial position of
many farmers actually prevents their being able to become more pro-
74
JOINT ECONOMIC
REPORT
ductive farmers that I introduced recently two bills, S. 3184 and S.
3185 which would authorize the Secretary of Agriculture, through the
Farmers' Home Administration, to extend credit on more liberal terms
to worthy farmers who cannot obtain it from private sources and who
have the potential to repay such loans. Similar legislation was introduced by Senator Carlson.
S. 3184 would permit the Farmers' Home Administration to:
1. Make or insure loans for the purpose of refinancing, consolidating, renewing, or extending all, or part, of the existing
debts of the applicant for farm operating and subsistence expenses, whether secured or unsecured by real or personal property.
2. Such loans are to be made to farmers operating family-type
farms who are unable to repay their existing indebtedness in
accordance with present repayment schedules and who cannot
secure refinancing through private or cooperative sources on
terms that they could be expected to meet under present circumstances.
3. Such loans are to be repaid when it appears that the borrower
can obtain a loan from cooperatives or private sources, including
the local loan associations and production credit associations
under the terms borrowers can meet.
4. Such loans are to carry such interest rates and conditions
of repayment as the Secretary of Agriculture deems advisable
under the circumstances, provided, however, 'that the total
principal indebtedness of a borrower 'shall. not exceed the fair
value based on earning capacity or the normal market value of
the farm.
S. 3185 would extend the term for repayment of any such loan from
the present maximum of 7 to 11 years.
Others will find the solution to their economic problems through a
combination of part-time farming and nonfarm employment, as many
have done in increasing numbers during the past few years, even if
the latter provides most of their income. Evidence of this is found
in the fact that the number of part-time farmers increased by 32,008
during the past 5 years, as disclosed by a comparison of. the 1950 and
1954 Agricultural Censuses.
I .
Whereas in 1940, only $2.7 billion of farm income from all sources.
was derived from nonfarm sources, $6.1 billion was derived in 1955.
In 1946, our first postwar year, 20.5 percent of farm income from all
sources was derived from nonfarm sources; by 1955 this had increased
to 32.2 percent.
We have witnessed, as far as this problem is concerned at least,
growing industrialization in the Southern States, where 6 of our 9
major low-income farm areas are located. Other things being equal,
the South undoubtedly will continue its industrial advancement,
since one of the area's most attractive features is the existence of
considerable manpower which is now underemployed on small-sized
and unproductive farms.
Mr. Don G. Mitchell, chairman and president of Sylvania Electric
Products; Inc., was one witness at the automation hearing held last
October by the Subcommittee on Economic Stabilization, who
expressed the opinion that part-time farming' combined with nonfarm
employment offered real opportunities for underemployed farmers.
In response to the questions as to whether the future held growing
JOINT ECONOMIC REPORT
75
opportunities of this nature; and whether many farmers had gradually
been absorbed in plants such as Sylvania's in the Midwest and South,
Mr. Mitchell replied, "Yes, sir" to the first, and answered the second
by saying:
We employ a lot of them. Some of them are part-time truck gardeners when
they go home at night, but they don't consider themselves farmers any more.
They consider themselves industrial workers and would be so classified * * *,
We give local plants their local choice as to what hours they would like to
work. We open many of our plants in farm areas at 7 o'clock in the morning, so
they can get through at 3 in the afternoon, and then they go home'and farm after
that * * *.
It is not possible in very many instances to run your plant only during those
months when he cannot farm. We have to run our plants through the year.
We do these other things of starting at 7 o'clock and getting through at 3. He
probably cannot be a full-time farmer from 3 to until 8. (Automation and
Technological Change, hearings, pp. 194-196).
What effect has such off-the-farm employment had upon the incomes
of part-time farmers? The 1950 Agricultural Census provides the
answer:
1. The average family income and per capita income of the
2.5 million people living on 639,230 "part-time" farms were $2,400
and $600, respectively. Their average family incomes were only
$250 less than the average family incomes of all families living on
farms, and their average per capita incomes only $51 less than
the average of all persons living on farms;
2. Their average family incomes were $500 more than those of
the 3.8 million persons living on 901,316 "full-time" family-type
farms in the fifth economic class of commercial farms; and $1,425
more than those of the 2.7 million persons living on 717,201 "fulltime" family-type farms in the sixth economic class of commercial
farms;
3. Their per capita incomes were $146 and $346 more, respectively, than persons on family-type commercial farms in the fifth
and sixth economic classes;
4. Their family and per capita. average incomes were only
$100 less; and
5. In the case of average family incomes, theirs were onlv
$100 less than those enjoyed by the 3.8 million persons living on
the 882,302 "full-time" family-type farms in the fourth economic
class of commercial farms, but their average per capita incomes
were actually $1 higher.
Still other people will derive better incomes only by leaving agriculture entirely. This voluntary exodus from agriculture will attract
many younger people, who because of the lack of adequate capital
required to begin a successful farming operation, must look elsewhere
for their livelihood. For these, 4-H Club and other educational
programs provided by State extension services and other agencies for
rural youth need to stress vocational training which can lead to gainful
nonfarm employment.
Older people living on marginal farms will not want to leave, in
spite of the low level of living such farms provide them. Here an
extension of rural social services may materially contribute to a better
level of living for these people.
And we must not lose sight of the fact that others would rather go
on living the kind of lives they are, than trade them for any other, not
because they are disturbed by lack of material goods and services-
76
JOINT ECONOMIC REPORT
larger incomes if you please-but because they like their lives as they
now are. This, they too, should be free to do; "man is that he might
have joy."
Summary
We are making progress in this agricultural area; it has been slow
but the future for these people, if a real noncommercial family-type
farmers' program is developed and maintained, will be much brighter.
However, from what I have said, it is evident, that for the purpose
of price support policy and for realistic comparisons of farm and nonfarm income, the incomes of the so-called low-income farmer should
not be included. Their inclusion not only has, but will continue to
distort the facts and produce public agricultural policies which will
continue to provide some farmers unnecessary financial assistance and
which will provide little or none to those in greatest need.
And I want to conclude by emphatically stating that whether people
leave agriculture or not, they should do so of their own free choice.
At the same time, it should be understood that public price-support
programs do not drive people from agriculture, although high rigid
90 percent price supports may cause some family-type farmers on the
margin to linger on longer than their best interests would seem to
dictate.
OTHER MAJORITY REPORT FINDINGS
At this time, I must also reserve, as Congressman Tale put it in a
footnote to the 12th recommendation of the majority report, "final
judgment.on the merits of United States participation" in the Organization for Trade Cooperation. I must also express the view, that
the safeguards against domestic injury which the Subcommittee on
Foreign Economic Policy recommended in its report (S. Rept. No.
1312, 84th Cong., 2d sess.) with respect to the escape-clauses are
entirely inadequate and if adopted would serve to-further render that
device ineffective.
The majority report's findings on tax policy mirror the President's
recommendations and, therefore, I find myself in substantial agreement. [Again this year, I want to express publicly my appreciation to
the executive director and the other members of the committee staff
for their-expert and kind assistance.]
ARTHUR V. WATKINS.
THE ECONOMIC OUTLOOK FOR 1956
AND OTHER MATERIALS
Prepared for the
Joint Committee on the Economic Report
by the
- Committee Staff
77
73739-56----6
LETTER OF TRANSMITTAL
FEBRUARY
Hon.
PAUL
H.
16, 1956.
DOUGLAS,
United States Senate, Washington, D. C.
DEAR SENATOR DOUGLAS:
Transmitted herewith are committee
staff materials on the economic outlook for 1956. These materials,
as in previous years, attempt to quantify the "foreseeable trends" of
economic activity for 1956 which the committee staff believes are
consistent with the outlook assumptions of the President's Economic
Report and budget.
Also transmitted is a staff review of materials on the economic
outlook for 1955 submitted a year ago and attached to the committee's annual report to the Congress (S. Rept. No. 60, 84th Cong.,
1st sess.).
While it is necessary to use detailed and precise figures in preparing
economic projections which are internally consistent, it must be
emphasized that the purpose of such projections is to show the generalorder of magnitude and direction of possible major economic developments on the basis of stated assumptions.
Sincerely yours,
GROVER W.
ENSLEY,
Executive Director.
79
THE ECONOMIC OUTLOOK FOR 1956
SUMMARY
As in previous years, the committee staff has attempted to quantify
"current and foreseeable trends in the levels of employment, production, and purchasing power," consistent with the assumptions of the
President's Economic Report and budget, and such levels needed to
carry out the objectives of the Employment Act. The key statement
in the Economic Report concerning prospects for achieving the
Employment Act goals in 1956 appears to be the following:
Under current conditions, the economic growth of our Nation is limited by
industrial capacity and accretions to the labor force. When the economy has
reached so high a level its near-term course is inevitably surrounded by a margin
of uncertainty, and minor movements can occur without involving a change in
general trend. Taking recent developments all together, it is reasonable to
expect that high levels of production, employment, and income will be broadly
sustained during the coming year, and that underlying conditions wil remain
favorable to further economic growth.'
This could be interpreted to imply any one of a number of different
assumptions as to the trend of the economy in 1956. The committee
staff's own judgment, reinforced by consultation with other technicians, is that only the two extreme alternatives of a substantial
inflationary expansion or a severe contraction are ruled out by this
statement.
The range of interpretations of the Economic Report can be narrowed
by making two assumptions. The staff assumes that the President's
budget and other statements of the executive branch are consistent
with the Economic Report, even though testimony as to such consistency was somewhat conflicting during the hearings. 2 It further
IEconomic Report of the President, January 24 1956 (hereinafter cited " Economic Report"), p. 49.
See Report to the President on the Activities of the Councilof Economic Advisers During 1955, appendix C
of the Economic Report. In discussing the activities during the year of the Advisory Board on Economic
Growth and Stability, under the chairmanship of the Chairman of the Council of Economic Advisers, the
report states on p. 159: "The Advisory Board, which meets weekly, hag been immensely helpful in coordinating the economic policies and actions of the various departments and agencies of the Government." Conflicting-testimony was received at the hearings as to whether the Economic Report and the budget rested on
the same economic assumptions, and even as to whether the revenue and expenditures sides of the budget
reflected similar economic assumptions. For example, Robert Nathan said: "If we appraise the outlook
for 1956 on the basis of the implications in the Economic Report, we see rising production rising personal
income, and rising profits. But if we appraise the outlook for 1956 on the basis of the implicit assumption
in the budget message, we see no rise in production, no rise in personal income, a slight drop in profits, and
rising unemployment." Hearings on the January 1956 Economic Report of the President, before the
Joint Committee on the Economic Report, 84th Cong., 2d sess. (hereinafter
"hearing"), p. 8.
However, Arthur F. Burns, Chairman of the Council of Economic Advisers, in a cited
letter February 14, 1956.
authorized the use of the following colloquy with Grover W. Ensley, the committee's executive director,
which took place at the executive session on January 30, 1956:
"Mr. ENSLEY. In your judgment, Mr. Buns, is the budget that was submitted, and the Economic
Report, and the various parts and components that made them up, internally consistent with respect to
assumptions as to economic developments during the coming year with respect, first, to personal income,
corpate profits, national income, and price? Vere the parts based upon a consistent set of asumptions?
r. BURNS. I wish your question were clearer to me than It is, Mr. Enasley. Taking your question s I
Interpret It, my answer is in the affirmative" (hearings p. 535).
AUladministration witnesses testified that the Preslient's Economic Report and budget are consistent.
According to most authorities, this consistency is required because the budget Is the
plan for
carrying out administration policies. It has been argued, on the other hand, that this operating
is not
necessarily required. According to this point of view, the Economic Report can heconsistency
bold in looking
toward the future and in advocating policies required in the Interest of maximum employment, production, and purchasing power; but the budget, which covers a specific time period, should rest on conservative assumptions, particularly as to anticipated revenues.
81
82
JOINT ECONOMIC REPORT
assumes that the above statement quoted from the Economic Report
is consistent with the statement of Secretary of the Treasury George
M. Humphrey at the hearings, as follows:
I expect that the economy over the year will continue to rise, perhaps not as
much as it has in the past. I think we had quite an important rise in the past
year.3
Taking all executive branch statements together, the staff interprets
the Economic Report to imply a continued rise in economic activity
during 1956 but at a rate significantly lower than that experienced
during 1955.
Real output expanded 6.1 percent between 1954 and 1955 (9 percent from the low point in the second quarter of 1954 to the fourth
quarter of 1955).
This expansion brought the Nation to
"* * *
the
threshold of a $400 billion economy." 4
Today unemployment and unused capacity are low in contrast to
the idle resources of a year ago. This raises the question for the
coming year: Will the economy adjust from the recent high rate of
expansion to a lower, more sustainable rate of long-term growth
related primarily to increases during the year in capacity, in labor
force, and in productivity? What are the prospects for making this
adjustment without difficulty? The Economic Report, witnesses at
the recent committee hearings, and many private analyses have
discussed factors which could affect the economy during this period.
Among the supporting factors are indications that business plans
to spend substantially more on plant and equipment in 1956 than in
1955; the Federal Government will purchase slightly more goods and
services in 1956; and State and local governments again will increase
their purchases.
On the'other hand, consumers may not increase their spending in
1956 much from recent levels and, indeed, may spend less on -consumer durables. Expenditures for nonfarm residential construction
are expected to be lower in 1956 than in: 1955. ' With'total production
rising faster than final demand, business inventories have been growing. If rising industrial prices hold back purchases by both business
and consumers for industrial products, a further imbalance between
demand, production, and inventories could result. Production and
employment then would be reduced in order to bring inventories into
line with sales. Both the wholesale and consumer price indexes have
been generally stable over the last year, but this has' been largely the
result of falling farm prices offsetting rising nonfarm prices. Farm
income continues to fall, in the aggregate, on a per capita basis; and
among the one-third of the farm operators who produce nearly 85 percent of marketed farm products. This is an important area of weakness tending to hold down the rate of economic growth for the Nation
as a whole.
At the beginning of 1956, therefore, the economic outlook indicates
substantial strength and momentum but some mixed trends. The
assumptions underlying the President's Economic Report and the
budget seem to' the committee staff to imply a gross national output
of about $400 billion for 1956 (measured in constant fourth quarter
1955 prices), an increase of about 2.8 percent over 1955. This is,
however, less than 1 percent over the preliminary estimate of the
a Hew'nsp 215.
epr, p
cnomc
I
JOINT ECONOMIC REPORT
83
annual rate in the fourth quarter of 1955.5 Since labor force and
productivity may be expected to increase, this $400 billion output
would involve a somewhat lower rate of utilization of available
resources for the year as a whole than prevailed in the third and
fourth quarters of 1955. Because of the high level of activity at the
start of 1956, however, it would mean that activity for the year as
a whole should compare well with the trend based on the average of
past years not marked by war or severe recession. It would represent
achievement of the Employment Act objectives for the year as a
whole, if these objectives are consistent with an unemployment rate
averaging about 4 percent of the civilian labor force. In judging,
however, whether economic activity fulfills the objectives of the
Employment Act in any year, the direction of movement as well
as the level must be taken into account. For example, some year
which began with 2 percent unemployed and ended with 6 percent,
may not represent achievement of the "maximum" employment goals,
even though the average unemployment was only 4 percent. This
would depend upon the nature and persistence of economic forces
responsible for this movement.
Expansionary forces may push the economy upward from the
$397 billion of the fourth quarter 1955, at the long-term growth rate.
Output (measured in constant fourth quarter 1955 prices) could grow
as fast as increasing productivity, labor force, and physical facilities
permit, averaging about $405 billion for 1956, and attaining an annual
rate of about $410 billion by the fourth quarter. If final demand were
high enough to take up this output and speculative forces become more
widespread, the recent rise in nonfarm prices would be carried further,
thus raising the value of output in current prices even* higher. This
pattern of events would call for restrictive credit and fiscal policies,
including the application to debt reduction of the resulting Federal
budget surplus which would exceed that indicated in the President's
budget message. If the third and fourth quarter 1955 rate of resource
utilization is regarded as necessary to fulfill the objectives of the
Employment Act, then an average of $405 billion for 1956, if attained
without general price increase, would indicate achievement of these
objectives.
If, on the other hand, the factors working toward reduced rates of
activity should become dominant, then sometime during the year
output would fall below levels consistent with the objectives of the
Employment Act. Should such a downturn appear to be more than a
transitory one affecting only a few overextended industries, credit
policy would need to be liberalized and general tax reductions provided to stimulate economic growth.
At the same time, the hazard must be faced that too persistent
and too strong an effort to avoid even temporary departures from a
desirable long-run rate of growth may make the economy so rigid,
may build in such an inflationary tendency, that the danger of spiraling prices may quickly become the paramount problem. The sharp
rise in industrial prices in the latter half of 1955, when unemployment
dropped below 4 percent, seasonally adjusted, and output rose above
I This seems consistent with testimony of Secretary Humphrey. See quotation above, p. 82, and Its
.complete context in hearings, pp. 207-210, 214-216. In his letter of January 18, 1956, to Senator Paul H.
Douglas, chairman of the Joint Committee on the Economic Report, Mr. Humphrey said: "We assume no
change in prices during this period." See hearings, p. 82.
84
JOINT
ECONOMIC REPORT
the staff-computed long-term trend, suggests the danger to be kept in
mind.
A middle course apparently underlying the President's reports calls
for no change in fiscal and monetary policy in the interest of economic
stabilization. The emphasis on elements of uncertainty at this time8
serves to underscore the importance of flexibility in economic policy.
Before Congress adjourns, it should be possible on the basis of actual
developments to determine whether considerations of economic stability require a change in tax policy this year.
The accompanying chart illustrates the "potential" production trend
estimated by the committee staff, past fluctuations in gross product
above and below this trend, and the possible patterns of change in
1956 outlined above.
'Economic Report, pp. 49-50 and 76-70.
POTENTIAL GROSS NATIONAL PRODUCT COMPARED TO ACTUAL,.
1952-1955, AND "ASSUMED" RISE IN 1956
As Implied in the Budget and Economic Report
( In constant 4th quarter 1955 prices ) - Seasonally adjusted
Billions of Dollars
410 r
Ratio Scale
Billions of Dollars,
410
400
400
390
390
380
380
I
0
0
x0
0
370
370,
360
3§0
350
350
0
1952
1953
Soure: Deporlm.nt of Comm--et. Council of EconomicAdoiseos,cnd Slotff
JointCommitte. on the EconomicReport..
1954
1955
1956
0
00
VI
86
JOINT ECONOMIC REPORT
The following staff materials provide:
(1) A calculation of potential output of the economy in 1956 in
constant prices consistent with long-term trends of years not marked
by war or severe recession;
(2) The assembly of estimates of demand for this output consistent
-with the staff's interpretation of executive branch statements, especially the President's Economic Report and the budget;
(3) The combination of these demand estimates into a Nation's
economic budget for 1956, together with interpretation of the-policy
implications of the supply and demand estimates; and
(4) A review of the staff materials on the economic outlook for 1955,
transmitted to the committee a year ago.
"POTENTIAL"
EMPLOYMENT AND PRODUCTION DURING
1956
Levels of employment and production during calendar 1956 conforming with the objectives of the Employment Act are estimated on a
basis consistent with the long-run projections in the staff's report,
Potential Economic Growth of the United States During the Next
Decade.' The 1956 potentials were computed in a manner consistent
with the trends and assumptions underlying the long-run projections,
converted to the fourth quarter 1955 price level, and adjusted for
revisions in basic data reported by the various Government agencies
since the long-run study was made in 1954. The assumptions underlying the long-run potentials are:
(1) International developments will not cause any marked change
in presently contemplated Federal Government demand for goods and
services, nor in the planned size of the Armed Forces.
(2) Unemployment is assumed to average about 4 percent of the
civi'lian labor force each year.8
(3) The potential total labor force and the civilian Jabor force will
increase about 700,000 from 1955 to 1956.9
(4) Agricultural employment will slowly decline while private
nonagricultural employment and total civilian Government employment rise.
(5) Average annual hours of work will decline slightly less than 1
percent per year.
(6) Output per man-hour is assumed to increase about 3 percent
per year in agriculture, and about 2.5 percent in private nonagricultural industries.io
'Joint committee print, materials prepared for the Jolnt Committee on the Economic Report by the
committee staff, 83d Cong., 2d sess., pp. 4-9.
8These assumed unemployed persons would be largely new entrants into the labor force, the frictional unemployed (I. e., those in process of changing Jobs), and those shifting to new industries or occupations because
of technological advances. The use of this assumption does not imply that the committee staff necessarily
believes that this level of unemployment is" the level" consistent with the goals of the Employment Act.
Such a determination would be a value judgment beyond the scope of staff responsibilities. However,
such data as are available suggest that unemployment in years not marked by war or severe recession has
averaged close to 4 percent of the civilian labor force.
See letter from Ewan Clague, Commissioner of Labor Statistics to Senator Douglas, Hearings, pp.
116-119. The actual total labor force in 1955 was 42 000 above the trend or 68 896 000 compared to 68,854,000.
The estimated total labor force for 1956, as given in Commissioner Ciague's letter, is 69,660,000 compared
to a trend estimate of 69,58,000. Thus, the actual increase in the labor force between 1955and 1956 may be
perhaps 750,000, compared to a trend increase of about 700,000. Most of this increase has already occurred,
so that almost a plateau is assumed for the rest of the year, except for seasonal movements.
*'These are rates of change which correspond to the long-term trend assumed for the current decade.
They are above the average rates over the past century but are moderately below the rates of the past decade.
Actual changes in any particular year-to-year comparison may be somewhat greater or smaller, depending
upon a variety of factors reflecting the way in which our flexible economy adapts itself to changing demands.
In the case of agriculture partilarly, the change for any individual year may difer from the assumed
3 percent because of temporary departures of growing conditions from average or Government restrictions
on crop acreage. Studies by the Bureau of Labor Statsties on trends In output per man-hour In manufacturing appear to be roughly consistent with the estimates of output per man-hour in private nonagricultural industries developed in committee staff studies, See report of the Bureau of Labor Statistics in
Hearings on Automation and Technological Change Before the Subcommittee on Economic Stabilization
of the Joint committee on the Economic Report, 84th cong., 1st Bess., pp. 301-34
JOINT ECONOMIC REPORT
87
The above assumptions imply that the "potential" supply of gross
national product, consistent with the long-run trend, would rise from
about $319 billion (in 1947 prices) in 1955 to about $327 billion (in
1947 prices) in 1956. (See table 1.) Stated in terms of prices prevailing in the fourth quarter of 1955, the potential gross national
product for 1956 would be $399 billion compared to $388 billion in
1955. This is a projection of "potential" output that may be considered consistent with employment and production objectives, over
the long run. It is not a forecast of the actual production and
demand which will develop in the coming year.
TABLE
1.-Actual and "potential" gross national product in constant 1947 prices, calendar years 1952-55; estimated "potential," 1956
1952
1953
1954
1955
X
1956
Item
Actual
Popuilation (in millions):
Total
14 years of age and over
.--
..
Total labor force (in millions)
Potential
157.0
115.4
Actual
I
I
Potentlal
Actual
Potential
162 4-117.7--
159. 6
116. 6
165. 2
118.8
I-168.3
2'68.9
' 69.6
3.5
63.8
'3.0
64.4
3.3
64.5
'3.0
65.1
3.0
65.8
'3.0
65.9
33.0
66.6
Unemployment
Percent of civilian labor force
Employed, total
Private
Agriculture
Nonagriculture ------------------------------Government-civilian '
1.7
2.6
61.7
15. 7
7.2
48.5
6.0
2.5
'4.0
61.2
55. 2
6.6
48.6
'6.0
1.6
2.5
62.2
66. 1
6.6
49.6
6.1
2.6
'4.0
61.8
55.7
6.5
49.2
'6.1
3.2
5.0
61.2
55. 1
6.5
48.6
6.2
2.6
'4.0
62.5
56.3
6.4
49.9
'6.2
2.7
4.0
63.2
57.0
'6.7
50.2
76.2
2.6
'4.0
63.2
56.9
6.3
50.6
'6.3
2.7
'4.0
63.9
57.1
6.3
51.2
'6.4
2,460
2,059
2,485
2,055
2,492
2,052
2 465
2,040
2,443
2,012
2, 445
2,025
2,392
2,023
2,425
2,010
2,405
1,995
$1. 300
2.459
$1.369
2.483
$1.437
2.540
$1. 410
2.545
$1. 561
2.575
$1.452
2.609
$1. 578
2.635
$1. 496
2.674
$1. 541
2.741
$268. 5
$270.2
$281.9
$278. 2
$276. 4
$286. 5
$295.1
$294.9
$303.4
269.8
271.9
280.2
-----------------
Output per man-hour: '
Agriculture
-----------------
Nonagriculture
Gross national product (billions of 1947 dollars):
Private (total)
Agriculture "°
Nonagriculture
Government (total) "
Total
---------------------------------------
'68. 1
68.9
-120.1
'3.0
63.7
Private:
Average ennual hours: '
Agriculture
Nonagriculture
67.8
Potential
Potential~~~~~~I
3.6
63.4
'66.7
'67.4
Potential
---------------------------------------------------
Armed Forces
Civilian
'67.0
67.4
Prelimiary
eq
0
0
0
0
. 0S
.0':z
Q
.
22.9
245.6
24.8
293.3
22.4
247.8
22.8
293.0 1
23.5
22.6
255.6
258.4.
24.6
306.5
23.0
I
301.2 1
24.8
251.6
22.8
263.7
24.0
23. 2
300.5
309.7
23.8
318.8 1
23.2
23.8
24.0
318.7
327.4
0
XThe actual labor force estimates for 1952, shown here, differ from published figures of
the Bureau of the Census as a result of using revised population estimates consistent with
later years.
2 The potential labor force data are trend estimates which assume the 1920-50 trends
in age-sex labor force participation rates with an adjustment in the rates for adult women
based on accelerated increases observed in the postwar years 1947-50 (see letter of Ewan
Claeue, Commissioner of Labor Statistics, to Senator Douglas, hearings, pp. 116-119).
8 The estimates of potential Government employment, civilian and military, are based
on long-term trends which smooth out year-to-year fluctuations. For the Armed Forces,
the potential assumes 3,000,000 each year, while for civilian government employment
the trend increases about 100,000 per year to take care of the long-term growth, principally
at the State and local level, in such occupations as schoolteaching, police, fire, etc., where
employment is related to population growth.
4 These assumed unemployed persons would be largely new entrants into the labor
force, the frictional unemployed (I. e., those in process of changing jobs), and those shifting
to now industries or occupations because of technological advances. This rate of unem.
Dloymnent is not necessarily the only one consistent with "maximum" employment.
However, data suggest unemployment has averaged close to 4 percent of the civilian labor
force in years not marked by war or severe recession.
J The increase In agricultural employment of 0.2 million over 1954 shown by the Bureau
of the Census data isa reversal of the trend of the past decade and does not agree with the
0.2 million decline between 1954 and 1955 shown by the farm employment estimates of
the Agricultural Marketing Service.
e Estimates of civilian government employment were taken from the estimates of the
National Income Division, Office of Business Economics, Department of Commerce,
In order to be consistent with their estimates of Government gross product. The figures
include all Federal, State, and local civilian employees except employees in Government
commercial-type enterprises.
p
7 Estimate
o
9 See assumptions, p. 86.
I See assum tions, p. 86.
15"Potential" agricultural gross national product differs from, and Is generally lower
than, the actual in each of these years because of: (a) year-to-year fluctuations in yields
due to weather and other growing conditions; and (b) the "potential" reflects long-terns
trends roughly consistent with a balance between agricultural output and demand, while
in many recent years actual agricultural output has exceeded demand.
11Government gross product represents compensation of general Government employees-civilian and military. The potential is based on the assumed trends in Government employment specified in footnote 3 above.
NOTE.-Detail will not necessarily add to totals because of rounding.
Sources: Population, labor force, and average annual hours: Bureau of the Census,
Department of Commerce, except as noted.
Gross national product: 1952-54 actuals, and 1955 preliminary, Office of Business
Economics Department of Commerce.
C4
P1
0
ze
0
0
C)
A,
i0
52
90
JOINT ECONOMIC REPORT
ASSUMED DEMAND FOR NATIONAL PRODUCTION DURING
1956
Estimates of demand for goods and services during calendar 1956
reflect outlook. assumptions in executive branch statements or, where
these are not clear or explicit, the committee staff's interpretation of
what specific assumptions would be consistent with them. These were
supplemented by explicit incorporation of results of surveys of business
investment plans for 1956.
Government demand for goods and services
(1) Federal Government purchases of goods and services are assumed to amount to $46.2 billion in calendar 1956, slightly higher.than
in 1955."
(2) State and local government purchases are expected to increase
at the rate of recent years, or up $2.3 billion over the calendar 1955
level. This assumption may prove to be too low if State and local
government purchases are stimulated in calendar 1956 by proposed
new Federal grants-in-aid programs in such fields as highways and
schools.
[Bllions of dollars]
Demand for gross national product
~~~~Preliminary'
1955
product
Estimated
1956
78.6
Government -75.9
--------------------------------------------
Federal --
45.8
46. 2
5.0
41.1
5.1
30.1
32.4
National security -40.8
OtherState and .cal-
"'This estimate was derived from the statement of the Department of Commerce, hearings, pp. 115-116.
On a fiscal year basis, as distinct from the calendar year basis used in these staff materials, the Department
of Commerce summarized official budget estimates as follows:
FEDERAL GOVERNMENT RECEIPTS AND ExPENDrTunEs,
FISCAL YEARS 1955-57
LBillions of dollars]
Fiscal years
Estimated
Basis
Actual, 1955
1957
1956
Administrative budget;
-------------------------------Receipts
Expenditures -64.6
Surplus or deficit (-) -Cash budget:
-------------------------------------Receipts
Expenditures -70.5
Surplus or deficit (-) -National income and product account:
Receipts --------------------------Expenditures I-67.5
Surplus or deficit (-)
-
-
66.3
65.9
60.4
64 5
64.3
4. 2
.2
67.8
73.5
71.0
2.7
2.4
24
66.6
73.4
70.0
74.8
71. 5
3.3
33
.4
75.4
72.9
' In addition to purchases of goods and services this item Includes transfer payments, net interest,
subsidies, and current surplus of Government enterprises.
NOTE.-Detail will not necessarily add to totals because of rounding.
Source: Administrative and cash budgets from The Budget of the United States Government for
the fiscal year ending June 30,1957; national income and product account data from U. S. Department
of Commerce, Office of Business Economics; statistics for 1956 and 1967 based on estimates In ti
budget for fiscal year 1957.
91
JOINT ECONOMIC REPORT
Business demand
(1) Residential nonfarm construction expenditures in calendar 1956
are assumed to average $16.2 billion, or slightly below 1955, as a
result of a lower number of housing starts but somewhat higher costs
per house."2
(2) Expenditures on other private construction are assumed to
increase a billion dollars over the 1955 level.' 3
(3) Business spending on producers' durable equipment in calendar
1956 is assumed to increase $3.1 billion over the 1955 level of such
outlays.'4
(4) Business inventories in calendar 1956 are assumed to increase
by $3.5 billion compared to about $3.2 billion in 1955. The Economic
Report and the testimony at the hearings give little basis for choosing
any specific figure. Since the 1955 inventory accumulation included
a buildup in automobile stocks which the industry does not expect to
repeat in 1956, the assumed inventory increase for 1956 may imrly a
rate.of additions to stock by business which could not be sustained.
The figure, of course, includes some allowance for higher prices prevailing at the end of the year 1955 than the average prices of the year
which are reflected in the annual inventory change. A more sustainable rate for 1956 would probably be of the rough magnitude of $2
billion per year.
(5) Net foreign investment is assumed to be zero in 1956, the same
as in the second half of 1955.
[Billions of dollars]
Demand for gross national product
Business
--
Residential nonfarm construction-16.6
Other private construction Producers' durable equipment -23.
Net change in business inventoriesNet foreign investment -
Preliminary,
--- -------
Estimated,
9.0
63.4
15.8
8
3.2
16.2
16. 8
26. 9
3. 5
-. 4
0
Internal funds available to business for investment are assumed to
increase about $3.8 billion as a net result of(a) Assumed corporate profits before taxes of $43.0 billion in
calendar 1956, about the same as the preliminary estimate -for
1955, but, an assumed increase in corporate profits and inventory
valuation adjustment from a preliminary estimate of $41.4 billion
in 1955 to $43.0 billion in.1956-reflecting the assumption of stable
prices in 1956 in contrast to rising prices in 1955:15
(b) Retention.in 1956 of present tax rates on corporate profits;
(c) Continuation of trends of recent years toward retention of
a lower percentage and payment of a slightly higher percentage
of profits after taxes in dividends; and
(d) A further rise in capital consumption allowances of about
$2.2 billion per year.
15See estimates of construction expenditures In calendar 1956, prepared jointly by the Departments of
Labor and Commerce, released Nov. 9, 1955.
.1:,Ibid.
14Based on results of: Preliminary Survey of Business Men's Plans for New Plant and Equipment,
McGraw-Hill Publishing Co., Nov. 11, 1955; Plant and Equipment Expenditures of United States Business, 1955-56, Securities and Exchange Commission and the Department of Commerce, Dec. 8, 1955; and
assumptions as to probable expenditures on private construction other than residential nonfarm which are
included in Item (2).
as Assumptlons underlying revenue estimates In the President's budget of January 1956. See letter of
Secretary Humphrey, hearings, p. 82.
92
JOINT ECONOMIC REPORT
Consumer demand
(1) Disposable personal income is calculated to increase from $269.4
billion in calendar 1955 to about $275.3 billion in 1956. This rise is
based on(a) Personal income of $312.5 billion in 1956, approximately
the rate -of the fourth quarter 1955, and $9.2 billion above the
average for the whole year 1955;'5 and
(b) Present tax rates.
(2) The rate of personal savings in calendar 1956 is assumed to be
6.3 percent of disposable personal income, the same as estimated for
1955.17
(3) On the basis of these assumptions, consumer expenditures are
calculated to increase from $252.3 billion in 1955 to about $258 billion
in 1956, which is $0.8 billion above the rate of $257.2 billion reached
in the fourth quarter of 1955.'7
[Billions of dollars]
Demand for gross national product
Consumer: Disposable personal income
--
Pre1imin5ry
Estimated1
269.4
275.3
17.1-
Savings: Amount Percent of disposable personal income
:-
6.3
17.3.
6.3
:----:---------
252. 3
259. 0
--------------------------------------------Durable goods
:----:-:= -. :-:-:Nondurable goods------Services ----
35.3
125.9
91.22
33. 0
130.0
95.0
9-5---.---------
Expenditures -------------
THE
NATION'S
ECONOMIC BUDGET FOR.1956
These estimates of demand for goods and- services have been combined into a Nation's economic budget for 1956, the policy implications of which are interpreted in the context of the "potential" supply
estimates (see table 1, p. 88, and accompanying text explanation).For comparison,, consolidated accounts for 1952-55 are also shown.
1"Assumptions underlying revenue estimates In the President's budget of January 1956 . See letter of.
Secretary Humphrey, hearings, p. 82.
This assumption was emphatically reaffirmed by Seeretary Humphrey, in testimony before the committee on February 3. He stated:" I I that the average on the individual, the 1955 income, assuming
as high a figure or even a higher figure for the fourth quarter than is here estimated, the average will be
about 302 [billion dollars] for the whole year of 1955, and we are estimating about 31271 [billion dollars] for
the whole year of 1956. In other words, we are estimating about a 3-percent increase from. I year to the
next year in personal income. That Iswhat our personal income tax figure Isbased on;" Hearings,,p. 208.
Subsequently, when pressed further as to the assumptions for calendar 1956 In light of more recent but
preliminary estimates for the fourth quarter of 1955, the Secretary stated: "I place more reliance on my 1956
If
" Hearings, p. 210.
estimates than I do on any others and I think that mine have been better I
nonfarm prices and wages should rise this year, as many expect (see p. 97 below), personal income might
average higher than the $312.5 billion assumed by Secretary Humphrey. It is the staff's judgment that,
due to the difficulties encountered in going from an assumed personal income to an estimate of tax receipts,
the estimates of revenue from personal Income taxes contained in the President's budget might well be
consistent with a personal income higher than the $312.5 billion. Thus, If personal income actualy turns
out to be moderately higher in 1956 than the $312.5 billion estimated by the Treasury, personal tax collections
may not exceed the budget estimates.
'7 The language of the Economic Report Is not explicit enough to enable the staff to be certain what
assumptions were made concerning personal savings and consumer expenditures. The report does say:
"Thus the trend of aggregate consumer spending continues to be upward, despite the recent decline of
expenditures on durables. If it is inlikely that consumers will buy automobiles ii 1956 at last year's extraordinary rate, they may spend more freely on home improvements, home furnishings, and nondurables.
The urge to maintain and improve living standards is so strong nowadays that continuation of a high level
of consumer spending can be reasonably anticipated." (P. 49.) This could Imply a rate of personal savings
close to the 1955 average, combined with a decline in spending-on consumer durables, and rises in nondurables and services. On the other hand,,the lower levels of residential nonfarm construction and automobile
buying expected in the Economic Report would seem to imply a higher savings rate in 1956. (See p. 96-97
below.) This higher savings rate, however, does not seem consistent with the economic assumptions
underlying the budget.
93
JOINT ECONOMIC REPORT
The accounts show income, expenditures, and savings or dissavings for
the consumer, business, and Government sectors. The concepts are
those of the national income accounts of the Department of Commerce.. The information thus presented in table 2 for the Nation is
similar to a projected operating budget of a private business.
TABLE 2.-Summary of the Nation's economic budget, actual calendar years 1952-54;
preliminary, 1955; and estimated, 1956
[Billions of dollarsj
Item
Actual,
1952
Personal:
Income: Total disposable
$236.7
Expenditures:
Durable goodsNondurable goods -------Services.
Total expenditures
:-----------------
Savings (+) -
Actual,
1953
$250. 4-
Actual,
1054
Prelilnary,
1955
$254.8
$269.4
$275.3
maEstimated,1956 1
26.6
116.0
75. 7
29.8
118.9
81.8
29.3
120.9
86.4
35.3
125.9
91.2
33.0
130.0
95.0
218.3
230.6
236.5
262.3
258.0
18.4
19.8
18.3
17.1
17. 3
7.1
25.5
1.0
7.7
27.8
-1.1
7.0
30.0
-.2
10.4
32.3
-2.0
10.0
34. 5
0
33.7
34.4
36.8
40.7
44.5
11.1
12.6
23.1
2.8
-.2
11.9
13.8
24.4
1.2
-2.0
13.5
14.3
22.3
-2.9
-.3
16.6
15.8
23.8
3.2
-.4
16.2
16.8
26.9
3.5
0
Business:
Income:
Undistributed corporate profits
Capital consumption allowances
Inventory valuation adjustment
Total income
Expenditures:
Residential nonfarm construction
Other construction
Producers' durable equipment
Changes in business inventories
Net foreign investment
Total expenditures
-------
49.4
49.4
47.0
59.0
63.4
-------------------------
-15. 7
-15.0
-10. 2
-18.3
-18.9
34.4
47.9
8.6
16.8
35.8
51.4
8.7
17.5
32.8
47.3
9.6
20.1
33.9
53.7
11.0
21.5
37.2
54. 5
12.0
23.5
74. 1
78.4
69. 7
77.1
80. 2
54.3
59.5
49. 2
45.8
46. 2
48.8
5.5
51.4
8.1
43. 2
6.0
40.8
5.0
41. 1
5. 1
23.2
25.0
27.8
30.1
32.4
77.5
84.5
77.0
75.9
78.6
-3.4
-6.0
-7.2
+1.2
+1.6
Statistical discrepancy (+) or (-)
+.7
+1.3
-.8
-.1
0
Total gross national product
345.2
364.5
360.5
387. 2
400. 0
Dissavings (-)
--
Government:
Income:
Personal tax and nontax payments
Business tax and nontax payments
Contributions for social insurance
Less: Transfer payments 3_..................
Total income
------
Expenditures:
Federal
National security
Other
-----------------State and local
Total expenditures
--
Dissavings (-) or savings (+)
-------------
I Estimates for 1956 reflect assumptions contained in the executive branch statements or, where assumptions are not clear or explicit, the committee staff's interpretation of levels consistent with the President's
budget and Economic Report. The estimates assume that prices in 1956 will be about the same as in the
4th quarter of 1955.
Personal savings In 1956 are estimated at 6.3 percent of disposable personal income the same as in 1955.
2 In addition to Government transfer payments as defined by the Department of Commerce, this item
includes net interest and subsidies, minus current surplus of Government enterprises.
4 Other Federal purchases of goods and services less Government sales.
NoTE.-Detail will not necessarily add to totals because of rounding.
Sources: Actuals and preliminary, 1952-55, Department of Commerce; estimates for 1956, staff, Joint
Committee on the Economic Report.
73730 D-5G--7
94
JOINT ECONOMIC REPORT
If gross national production in 1956 approximates the $400 billion,
which the committee staff estimates to be implied in the President's
Economic Report and budget, it would represent an increase over the
year 1955 of about 3.3 percent in current prices, or about 2.8 percent
in real terms after allowance for the higher level of prices at the
beginning of 1956.18 This level of activity would probably result in
an increase of nearly 3 percent between 1955 and 1956 in national income and in personal income. (See table 3.) Since population is
expected to continue to increase, both disposable personal income and
consumption of goods and serviceson a per capita basis would increase
less than one-half of 1 percent from the 1955 average, and, in fact,
would be about 1 percent below the annual rate attained in the
fourth quarter of 1955.
If attained, these rates of output and employment would be consistent with the long-run average trend of output in past years not
marked by war or severe recession but would imply both (1) a lower
degree of resource use than achieved in the second half of 1955, and
(2) economic growth at a rate substantially below the long-run average. Therefore, some tendencies could develop during the year
toward increases in unemployment and shortening of hours of work
below recent high levels as output failed to rise sufficiently to absorb
all the increases in the.labor force.
1I The $400 billion estimate of gross national product In 1956, which Implies continued growth at a modest
Output can
rate, is consistent with the budget assumption of a personal Income of $312.5 billion for 1956.
rise at this modest rate from the level of the fourth quarter of 1955, even though the average personal income
in the
for 1956 is only fractionally above the fourth quarter of 1955, because of assumptions of mixed trends
economy (summarized in tables 2 and 3). First, dividend payments to individuals are likely to average
less in 1956, under the Treasury assumptions as to corporate profits, than the annual rate in the fourth
in addition to
quarter of 1955. Furthermore, in that quarter, large year-end extra dividends were paid
the Departregular dividends. Second, the Treasury assumptions for personal Income, if consistent withincome
which
ment of Agriculture estimates, would imply some further decline in calendar 1956in farm
Third, if
1955.
of
quarter
fourth
the
in
attained
rate
the
from
would also tend to lower personal income
income of unincorporate business is assumed to follow a pattern similar to the Treasury's assumption
for corporate profits, such income would average slightly lower in 1956 than in the fourth quarter of 1955.
The lower levels of these three factors taken together could allow a margin for rising labor and other
in productivity and
increases in real output. Furthermore, increases
Incomes corresponding to moderateoffset
by reductions in hours of work from the relatively high levels of
in the labor force might be partly
the latter part of 1955. Personal income in the first quarter of 1956 could be somewhat below the assumed
average of $312.5 billion and could rise slightly during the year to a figure moderately above the average
by the fourth quarter. On the other hand, as pointed out in the text above, the modest growth implied
by the estimated $400 billion gross national product for 1956 (and corresponding personal income of $312.5
toward an increase in unemployment during the year. At
billion) probably would means some tendency
a rough estimate, this could imply an increase in unemployment from the fourth quarter of 1955 to the
fourth quarter of 1956 by as much as a million or more to a level between 3 and 4 million, depending on
how hours of work and productivity change. This large an increase in unemployment probably would
be Inconsistent with the budget estimates of State withdrawals from the unemployment trust funds. At
the hearings Gerhard Colm stated: "There are also rather optimistic assumptions implied in the estimated
State withdrawals from the unemployment trust funds. The figures for 1956 are somewhere between
those for [fiscall 1955 and those for [fiscal] 1056, and would allow for an increase in unemployment, I think
of something like 200,000. These assumptions would not appear to be on the same basis as the estimates
for the revenue side." (Hearings, p. 134.)
JOINT ECONOMIC
95
REPORT
3.-Relation of gross national product, net national product, national income
and personal income, calendar years 1952-54, preliminary 1955, estimated, 1956
TABLE
[Billions of dollars]
$360. I
eliminary,
1955
$387.2
$345. 2
$364. 5
$360. 5
$387.2
$400. 0
319. 7
336. 7
330.4
354.9
365. 5
28.1
1.2
.7
30.2
1.2
1.3
30.3
1.2
-.8
31.9
1.2
-.1
Actual,
192
Item
Actual,
153
2
$341.
$394.3
Gross national productLess: Capital consumption allowances-
25. 5
Equals: Net national product
Less:
Indirect business tax and nontax liability
Business transfer paymentsStatistical discrepancy.
Plus: Subsidies less eurrent surplus of Government
enterprises-
27.8
15
30. 0
32.3
Etl
Estimate,!
1956 1
$400.0~~~~~~~
34. 5
33.0
1.2
0
-.1
-.4
-.1
.5
289. 5
303.6
299.7
322.3
36.9
8.6
-.03
37.2
8.7
-.1
33.8
9.6
0
41.4
11.0
0
12.0
4.9
9.0
1.2
12.8
5.0
9.3
1.2
15.0
5.2
10.0
1.2
16.0
5.0
11.2
1.2
271.1
286.2
287. 6
303.3
34.4
31.2
3.2
35.8
32.4
3.4
32.8
29.1
3.7
33.9
30.0
3.9
37.2
33.1
4.1
236. 7
250.4
254.8
269. 4
275.3
218.3
230. 6
236. 5
252.3
258. 0
18.4
19.8
18.3
17.1
'17.3
36.9
37.2
33.8
41.4
43.0
1.0
35.9
-1.1
38.3
-.2
34.0
-2.0
43.4
0
43.0
.
19.8
16.1
21.3
17.0
17.1
17.0
21.8
21.6
DividendsUndistributed corporate income
9.0
7.1
10. 0
7.0
11.2
10.4
21.5
21.5
11.5
Equals: National income
Less:
Corporate profits and inventory valuation adjustmentContributions for social insurance
Excess of wage accruals over disbursements
Plus:
Government transfer payments
.
Net interest paid by Government
Dividends -
Business transfer payments-
---
Equals: Personal incomeLess:
Personal tax and nontax paymentsFederalState and local
Equals: Disposable personal income.
I ess: Personal consumption expendituresEquals: Personal savingAddendum:
Corporate profits and inventory valuation adjustment
-- -----------------------------------------Inventory valuation adjustment
Corporate profits before tax
Corporate profits tax liability
Corporate profits after tax
9.3
7. 7
.6
331.8
'43.0
12.0
0
17.8
5.2
11.5
1.2
2312. 5
10. 0
Estimates for 1956 reflect assumptions contained in the executive branch statements or, where assumptions are not clear or explicit, the committee staff's interpretation of lovels consistent with the President's
Budget and Economic Report. The estimates assume that prices in 1956 will be about the same as in the
4th quarter of 1931.
' Assumptions on which the revenue estimates in the President's Budget are based. See letter of Secretary
Humphrey, hearines, p. $2.
3Personai savings in 1956 are estimated at 6.3 percent of disposable personal income, the same as in 1955.
NOTE.-Detail will not necessarily add to totals because of rounding.
Sources: Actuals and preliminary 1952-55, Department of Commerce; estimates for 1956, staff, Joint Committee on the Economic Report.
At the beginning of 1955, national production was somewhat below
the potential. By the third quarter, output rose moderately above
the potential. For the year actual gross national product averaged
slightly above the potential. Unemployment averaged about 4 percent of the civilian labor force, beginning the year above this rate and
declining during the year. If a $400 billion output is an accurate
estimate of prospects for 1956, then the economy would be growing
96
JOINT ECONOMIC* REPORT,
during the year, but, starting from the fourth-quarter 1955 level, the
rate of growth would be less than the long-term average. The rate of
increase, in constant'prices, from the'average of 1955 to the average of
1956 would approximate the long-run average.
If this growth were at a uniform rate from the $397.3 billion of
the fourth quarter of 1955, by the fourth quarter of 1956 output
would be somewhat below the long-term trend rather than moderately
above as in the fourth quarter of 1955. This would imply shorter
hours of work, more unemployment, lower output per man-hour (the
result of reduced rate of operations and change in product mix), or
some combination of the three. If all of the increased slack in the
economy took the form of unemployment, then by the fourth quarter
of this year the seasonally adjusted rate of unemployment might be
as high as 6 percent of the civilian labor force, or about 4 million in
round numbers.
On the other hand, a $400 billion average output for the year
might imply a "saucer effect," with no significant change for the
first half of this year followed by a sharp rise in the second half.
This might. imply a rise in the seasonably adjusted rate of unemployment during the first half of the year followed by a fall in the
second half. However, the figures seem to imply that, unless hours
of work are shortened, or output per man-hour slows its rate of rise
significantly, unemployment would still be higher at the end of
1956 than at the end of 1955. If the increase in the labor force
turns out to be greater than indicated by long-term trends, the rise
in unemployment would be larger.
If the economy were to continue to grow in line with long-run
average increases in the labor force, in productivity, and in industrial
capacity, but at the rate of utilization of resources prevailing in the
third and fourth quarters of 1955, the economy could produce a
gross national product of about $405 billion in 1956 (valued at prices
prevailing in the fourth quarter of 1955).
Thus, the question in 1956 is whether, and how, the economy can
make the transition from the 1954-55 rate of growth in real terms of
over 6 percent per year to the long-term rate about half as rapid.
In 1956, a $405 billion economy would be consistent with simply
slowing up to the long-run rate of growth, while a $400 billion economy
would imply a temporary period of growth slower than the long-run
rate.
Factors favorable to economic growth in 1956 have been incorporated into the preceding estimates of demand, shown in table 2 (p. 93).
These factors may prove strong enough to generate more than a $400
billion demand. On the other hand, there are several unfavorable
factors which might change the course of events during the year.
Some of these were stated in the Economic Report, in testimony of
witnesses during committee hearings, and in analyses of the economic
outlook from both Government and outside sources.
First, in 1955, consumers saved only 6.3 percent of their disposable
personal income compared to rates between 7 and 8 percent in recent
years. This lower savings rate was accompanied by a rise in outstanding installment and- real estate mortgage debt of nearly $18 billion
compared with an increase of about $9 billion in 1954. In 1956, consumers will be repaying outstanding debts at a higher rate as a result
JOINT ECONOMIC REPORT.
97
of the debt increase in 1955. New debts may be contracted at a rate
no higher than in 1955, or probably somewhat lower. For example,
even with sales of 7 million new automobiles this year (higher than the
industry seems to expect), outstanding installment credit might rise
by as little as $1.5 billion compared to $5.4 billion in 1955. This
would mean a tendency toward a higher ratio of personal savings to
disposable personal income rather than the assumed stable rate of 6.3
percent. It may be significant that the rate rose to 7 percent in the
fourth quarter of 1955, a period during which automobile sales were
below levels prevailing earlier when the personal savings rate was
about 6 percent.
Second, prices of goods and services other than food and farm products have been rising in the past year. The stability of the wholesale
and consumer price indexes is largely due to declines in farm products
and foods which have offset other increases. In the second half of
1955 prices were particularly strong. Thus, at the wholesale level,
prices of crude materials for further processing, other than food and
feed, advanced about 6 percent, or at an annual rate of about 12 percent. Intermediate or partly finished products advanced about 3
percent in the same 6 months, or about 6 percent per year. Wholesale
prices of finished consumer durables advanced about 3 percent and
prices of finished producers' goods advanced about 4 percent in the
last 6 months of the year. Construction costs have also been rising
at a rate of over 3 percent a year. Many of these increases at the
wholesale level had not found their way through to the retail level.
Further steel price increases are rumored. Most analysts expect
wages to continue to increase in 1956, including wages in some
industries and areas affected by the new minimum wage law. Some
wage increases in 1956 are already embodied in existing labormanagement contracts. In instances where these wage increases
cannot be offset by rising output per man-hour, prices may rise.
Taking all factors into account, including the working through to
the retail level of price increases already in effect at the wholesale level,
some experts now expect a further moderate rise in the general level
of prices into at least the first half of this year.
Price rises usually are expected to perform two functions: to hold
down or reduce purchases, and to encourage business to increase
production and capacity. Such a combination of responses to price
rises now could result in an involuntary buildup of inventories in
excess of levels warranted by sales. This would accentuate the inventory problem discussed below.
Third, production already is rising faster than final demand.
Inventory accumulation is now estimated to have exceeded $5 billion
at an annual rate in the fourth quarter of 1955, the largest rate of
accumulation since early 1953. A large part of this resulted from..
increased stocks of automobile dealers. The current low ratio of
inventories to sales is not necessarily a good indication that excesses
are not developing. This ratio is often lowest while future excess
inventory positions are being created by a more rapid buildup of
orders for future delivery than sales will later justify. If in the next
few m6nths business should have to reduce orders to correct an
excessive rate of inventory buildup, then production, employment,
and incomes could be reduced significantly.
98
JOINT ECONOMIC REPORT
Fourth, if farm prices and incomes continue to decline as now
expected, business firms selling to farmers may experience falling
sales. This would adversely affect many small communities as well
as suppliers of farm machinery and other products.
These factors could cause the economy to depart from the slower
but desirable growth which analyses indicate is possible. The staff's
analysis of the judgments and projections of numerous economic
experts, both in private business and in the Government, indicates
considerable diversity of views as to what course economic activity
might take during this year as a result of these forces. Some believe
the economy may simply level out for a while, with some growth in
unemployment as labor force and productivity rise. Others believe
that output will fall moderately between the first quarter and the
third quarter, with a renewed rise in the fourth quarter sparked by
increases in residential building and in automobile sales when new
1957 models are introduced.
REVIEW OF THE MATERIALS ON THE ECONOMIC OUTLOOK
FOR 1955
Economic policy decisions are forward looking. They rest on
assumptions about future developments formulated in the light of
present knowledge and observable trends. They should include provision against surprise if events work out differently. Progress in
developing better economic policies can be achieved by constant
reexamination of experience so as (1) to improve our knowledge
of how to select the best assumptions for particular purposes, and
(2) to improve techniques for estimating as precisely as possible the
outcome to be expected from any assumption or combination of assumptions used as a basis for policy decisions. Such improvements in
economic projections can contribute to economic stability.
The only way that economists and policymakers can review adequately previous economic analyses is to insist upon clear, exact
statements of the analyses and assumptions, including quantitative
estimates for those factors for which historical measurements are
available in our economic statistics. The staff, therefore, believes
the committee will find valuable the following summary of its annual
review of the projections of 1955 in the light of actual developments.' 9
The materials on the economic outlook prepared each year for committee use by the staff are assembled in three steps: (a) A calculation
of the potential output of the economy in the coming year on the basis
of long-run trends of years not marked by war or severe recession;
(b) a summary of assumptions as to demand during the coming year
implicit in executive branch statements and the testimony of witnesses before the committee; and (c) a summation of these projections
and assumptions into a Nation's economic budget with an analysis of
implications. In its materials on the economic outlook for 1955 a
year ago, the staff made five points:
(1) If unemployment averaged about 4 percent of the civilian
labor force in 1955, then long-run trends would indicate the economy
could produce a gross national product of $380 billion, rising to an
annual rate of about $385 billion by the end of the year. 20
(2) "The assumptions of the Economic Report and the budget
[transmitted in January 19551 seem to imply an estimate of demand by
Government, business, and consumers for goods and services totaling
about $375 billion for 1955. Since the year started at an annual
rate of about $365 billion, or less than the 'maximum' employment
1' Joint Economic Report, Report of the Joint Committee on the Economic Report on the January 1955
Economic Report of the President, S. Rept. 60, 84th cong., 1st sess., pp. 79-93. In preparing this review
of the 1999 projections, the staff has been handicapped by imperfections in the price deflators for gross
national product, and especially by the lack of official quarterly deflators. The adjustments for price
change, therefore, are only indicative of the rough order of magnitude.
2" Ibid., pp. 84-96.
g9
100
JOINT ECONOMIC
REPORT
and production level, this demand for 1955 as a whole implies a rise
to an annual rate of about $385 billion by the end of the year." 21
(3) "Such a year-end rate, in the staff's judgment, would, perhaps,
approximate that needed to satisfy the employment and production
goals of the Employment Act." 21
(4) "If realized, this expansion would be a substantial accomplishment. It would call for a continuance in succeeding quarters of a
rate of advance in economic activity close to that prevailing since the
third quarter of 1954. The consensus of views of the witnesses
appearing before this committee a month ago was that this rate of
acceleration might not be maintained." 22 The committee staff
did not present a forecast of its own.
(5) All estimates were "* * * stated in 1954 prices in order to show
changes in real terms." 23
HOW
CLOSE WAS ACTUAL OUTPUT IN 1955 TO THE STAFF ESTIMATE
OF POTENTIAL OUTPUT?
U'nemployment in 1955 averaged about 4 percent of the civilian
labor force, the same as assumed in computing the potential. The
preliminary estimate of gross national product in 1955 is $387.2 billion
in 1955 prices.24 Since the staff estimates were stated in constant
1954 prices, it is necessary to revalue the annual figure of $380 billion
into 1955 prices, resulting in a level of $386 billion. Thus, for 1955,
the preliminary estimate in the January 1956 Economic Report is
$1.2 billion or 0.3 percent above the potential calculated a year earlier.
The difference between the preliminary estimate in the Economic
Report for each of the last 6 years and the later official figures from
the Department of Commerce has averaged about $2 to $3 billion,
or only slightly less than 1 percent.
Output early in 1955 was below the computed potential, later
rose above it and averaged close to, or fractionally above it for the
year. We expect temporary departures of actual economic activity
from projected potential long-term trends. Such departures are not
to be interpreted as errors in the projections of the potentials. If
achievement of the Employment Act objectives are stated in terms
of "Full employment, rising incomes, and a stable dollar * * *"
then, the President states in the Economic Report, "The practical
attainment of these ideals during 1955 was the year's great economic
achievement."
22
[Billions of dollars]
1955
Gross national product: Preliminary estimate January 1056
Adjustment due to difference in unemployment --Adjusted actual gross national product -Potential gross national product: January 1955 projection
Adjustments: Revision upwards due to price rise -Adjusted potential gross national product
Understatement:
In billions of dollars -------------------------------------Percent
---21Ibid.,
p. 83.
"2Ibid., p. 83.
23Ibid., p. 84.
24 Economic Report, tablt 1-1, p. 115.
24 Ibid., p. in.
----
-5$387.2
-
----
-
-+.
-
$37. 2
0
$380.0
0
$38. 0
1.2
3
101
JOINT ECONOMIC REPORT
How GOOD A BASIS FOR-POLICY WERE THE -DEMAND ASSUMPTIODNS
IMPLICIT IN THE ECONOMIC REPORT AND THE BUDGET?
The January 1955 Economic Report of the President stated:
With economic activity continuing to expand, it is reasonable to expect that the
Nation's output within the coming year will approximate the goals of "maximum
employment, production, and purchasing power" envisaged by the Employment
Act (p. 24).
In answer to a letter from Senator Douglas, Marion B. Folsom,
former Under Secretary of the Treasury, stated the economic assumptions underlying the estimates of receipts in the January 1955 budget.
These assumed continued economic growth: personal income was
assumed to rise $12 billion, or.4.2 percent, from $286.5 billion in 1954
to $298.5 billion in 1955; and corporate profits before taxes were
assumed to rise $2.5 billion, or 6.9 percent, from $36 billion in 1954
to $38.5 billion in 1955. 2
The staff analysis reached the conclusion that the Economic
Report and the budget probably implied a demand for a gross national
product in 1955 of $375 billion, rising from about $365 billion at the
beginning of the year to about $385 billion by the end of the year.
The assumed average for 1955 must be adjusted by adding about
$5.6 billion to allow for price rises in 1955, and by another $3.4 billion
because of revisions in July 1955 of the 1954 benchmark data from
which the projections were made. The price adjustment for the
fourth quarter of 1955 would be about $7.7 billion on the basis of
preliminary data. Therefore, the revised annual estimate would be
$384 billion, and, the fourth quarter rate about $394.8 billion.
[Billions of dollars]
1955
Year
-$387.
Gross national product: Preliminary estimate January 1956
Gross national product: Assumed in January 1955-.Adjustments:
Revision upward due to revision of 1954 benchmark
Revision upward due to price rise--------------------$384.
Adjusted gross national product as assumedUnderstatement:
-In billions of dollars
-0.8
Percent
I 4th quarter
2
$375. 0
$397. 3
$383. 7
+3. 4
+$5. 5
0
.+$3. 4
+S7. 7
$3. 2
$2. 5
0. 6
$394.8
Corresponds to the year-end rate of $385billion stated in the Staff Materials a year ago.
The staff believes the understatement for the year of only $3.2
billion, and for the fourth quarter of only $2.5 billion (annual rate) are
within limits of acceptability and can be easily explained.
First, the Economic Report transmitted in January 1955 did not
give explicit figures corresponding to its qualitative statement, nor did
the Council supply them in answer to committee questions. Although
the staff tried to make its estimates of the output implied in the
Economic Report as fair as possible, the estimates really implied in
the Economic Report may have been even closer to later events than
* here estimated.
"5Hearings on the January 1955 Economic Report of the President before the Joint Committee on the
Economic Report, 84th Cong., Ist sess., pp. 1146-1147.
73739°-56-8
102
JOINT ECONOMIC REPORT
Second, the Economic Report specifically warned against the possibility of speculative excesses in such areas as housing or installment
credit, the ones which probably account for much, if not all, of the
observed excess for the year 1955 over what the staff believed were
implied in the Economic Report.
The projections underlying the Economic Report and the budget
of January 1955 provided as good a basis for policy as could be formulated at the time. In reviewing such projections it is important
to keep in mind the point made by the Executive Director in his
letter of transmittal a year ago,'27 and again this year as follows:
While it is necessary to use detailed and precise figures in preparing economic
projections which are internally consistent, it must be emphasized that the purpose of such projections is to show the general order of magnitude and direction
of possible major economic developments on the basis of stated assumptions.
(See p..79 above.)
27 Joint Economic Report, Report of the Joint Committee on the Economic Report on the January 1955
Economic Report of the President, S. Rept. 60, 84th Cong., 1st sess., p. 82.
APPENDIXES
APPENDIX
A
RECOMMENDATIONS OF SUBCOMMITTEES RESULTING FROM 1955 STUDIES
During the past year, five subcommittees of the Joint Economic
Committee submitted reports to the committee. These reports were
transmitted to the Congress on January 5, 1956. The recommendations contained in these reports are summarized in this appendix.
Subcommittee on Economic Stabilization
The subcommittee's report, Automation and Technological Change
(S. Rept. No. 1308, 84th Cong., 2d sess., pp. 13-14), recommends:
1. The best and by far the most important single recommendation which the
subcommittee can give is that the private and public sectors of the Nation do
everything possible to assure the maintenance of a good, healthy, dynamic, and
prospering economy, so that those who lose out at one place as a consequence of
progressive technology will have no difficulty in finding a demand for their services
elsewhere in the economy.
2. At this stage of the investigation, no specific broad-gage economic legislation
appears to be called for, and the very good reason for this is that we already have
on our statute books the Employment Act of 1946. The subcommittee can only
recommend that the spirit and objectives of that act continue to be given active
instrumentation and support by the executive agencies, the Congress, and the
people as a whole.
3. The subcommittee recommends and strongly urges that the Federal executive
agencies, the appropriate committees of the Congress, the State and local governments, and all others involved take every seriously to heart the need for a specific
and broad program to promote secondary and higher education, to the largest
extent possible.
4. The subcommittee similarly recommends that the Federal executive agencies,
the Congress, and especially the local areas themselves develop comprehensive and
concrete programs to ease the problems and eliminate local pockets of chronic or
short-run unemployment, whatever the cause or causes of distress may be.
5. While Government presents a special situation it too must be alert to secure
the benefits of advancing technology and increasing productivity. At the same
time, in the interests of making the Government a model employer, the subcommittee suggests that the executive departments and agencies and the respective
committees of the Senate and House dealing with civil-service administration
would do well to keep especial watch over the problems of personnel administration
involved in the displacement of employees by machines and improved techniques.
6. In the interests of labor mobility and facilitating the shifts involved in
automation, the subcommittee recommends that consideration be given by the
executive departments and, if need be, by the Congress to measures which will
make for greater effectiveness and increased usefulness of the United States
Employment Service, especially in dealing with the problem of the middle-aged
worker and the placement of those of higher skills and degree of specialization.
7. From its own experience with such data, this subcommittee joins in what is
certain to be a primary interest of the Statistics Subcommittee of the Joint
Economic Committee; namely, the improvement of economic statistics, especially
those relating to productivity and occupational shifts, and an increased alertness
on the part of the executive agencies to the responsibility of providing statistics
for policymaking in business as well as in Government.
8. The subcommittee recommends that industry, and management for its
part, must be prepared to accept the human costs of displacement and retraining
103
104
JOINT ECONOMIC REPORT
as charges against the savings from the introduction of automation. In saying
this, the subcommittee is not unmindful of-and was, indeed, gratified by-the
extent to which enlightened management is already aware of and accepting
responsibility in this respect. Nevertheless, by careful planning and scheduling
the adjustments of workers and the stoppage of employment can be minimized
and due recognition should be given to the timing of investment and technological
changes with an eye on the state of general business and the needs for increased
employment.
9. Organized labor should continue to recognize that an improved level of
living for all cannot be achieved by a blind defense of the status quo. The
education of its members, of management, community leaders, and Government
officials, such as has been provided by these hearings, is an important function
of union responsibility.
10. Throughout these hearings many witnesses have presented thoughtful and
thought-provoking recommendations upon which the subcommittee has not had
an opportunity to formulate definitive conclusions. In addition to the above
recommendations, we commend to industry, labor, Government agencies, and
State legislatures alike the study of this record and these individual suggestions,
in order that the benefits of automation may be maximized and its hardships
minimized.
11. Finally, the subcommittee's investigation convinced it that the problems
of automation are by no means negligible nor settled. -This prompts the subcommittee to the view and the urgent recommendation that all interested parties
should make this a subject of continuing or recurrent study. The Subcommittee
on Economic Stabilization considers it to be its responsibility and intends to
review regularly the progress of technological change and the statistical evidence
of occupational shifts. This is being done for the purpose of keeping informed
and of being in a position to recommend further legislation if it should be needed.
Subcommittee on Economics Statistics
The subcommittee's report, 1955 Report on Economic Statistics
(S. Rept. No. 1309, 84th Cong., 2d sess., pp. 5-9), recommends:
1. The monthly Industry Survey of the Office of Business Economics, covering
manufacturers' inventories, shipments, and orders should be strengthened, as for
example, through introduction of a new sample.design, adequate to. reduce errors
to reduce present overlapping between industries, to provide finer detail, and to
secure market groupings as well as present industry groups.
2. The Census Bureau's monthly series on retail and Wholesale sales and inventories should be enlarged and improved, so as to obtain broad coverage.and
provide inventory data by market categories corresponding to those for, manufacturers.
3. The Federal Reserve statistics on department stores should be expanded
to include outstanding orders for major departments and seasonally adjusted
data by major departments should be published..
4. A new monthly series on new orders, shipments, and unfilled orders for
capital equipment should be developed to complement data secured in the
monthly Industry Survey.
5. The basic data on current construction activity should be improved with
immediate action concentrated on the areas revealed in our hearings of July
1954 and incorporated in the President's budget of January 1955. (These are
largely the same areas noted in the consultant committee report. This is a
minimum program and would still leave room for additional improvements to
bring data in this area up to fully adequate standards of reliability.)
6. The sample coverage of the SEC-Commerce data on anticipated plant and
equipment expenditures should be expanded to fill the more significant gaps,
and to take care of the constant sample bias by sampling new firms at regular
intervals.
7. The responsibility for developing programs in the field of savings statistics
and their sponsorship should be lodged in one place within the Federal Government but the actual compilation should be continued. on the present decentralized
basis.
8. Savings data, as well as other important statistical series, should be improved through extension of the FTC-SEC quarterly Financial Reports, now
limited to manufacturing, to cover trade and other types of corporations, and
through institution of financial reports for a sample of unincorporated businesses.
9. Studies should be undertaken of (a) means for estimating the proportion of
inventories and associated data that are defense related; (b) needs for, and costs
JOINT ECONOMIC REPORT
105
of, current statistics.on inventories other than in manufacturing and trade;
(c)- means of meeting needs for measures of physical volume of inventories both
in aggregate and in selected detail.
* 10. In the field of savings, effort should be directed at (a) segregating incomes,
expenditures and savings for at least four main groups-nonfarm households,
farmers, unincorporated business firms, and private nonprofit institutions-all
now included in the aggregate figures for the so-called personal sector; (b) developing current data on the gross as well as net savings by type; and (c) developing
a sources-and-uses-of-funds statement on a quarterly basis, at least for the
corporate sector.
11. The National Science Foundation should investigate the possibilities of a
program of research grants for studies recommended by the five task forces as
particularly promising.
12. The need for promptly available facts on the related aspects of consumer
behavior being great, the Budget Bureau should review the various federally
sponsored programs in the field. to see specifically how data on consumer stocks,
expenditures, finances, and anticipations might be collected most efficiently and
made more adequate for present uses.
13. The possibilities for developing new and earlier anticipatory statistics on
business spending should be explored by the appropriate agencies.
14. We specifically recommend the following program to private groups, for
their consideration and action:
(a) Increased support for and coordination of work on the measurement
of business expectations,.perhaps through a single body backed not only by
those working in the field, such as Duni & Bradstreet and McGraw-Hill,
but also by users groups from business, industry, financial institutions,
labor unions, etc.
(b) Increased support for surveys of consumer expectations.
(c) Efforts to develop ways to more fully utilize and coordinate statistical
work of trade associations, to provide data of general usefulness without
undue burden to the associations and possibly at some saving to the public.
(d) Research projects by doctoral candidates and others, assisted where
necessary by foundation grants, along lines suggested in these task force
reports.
(e) Organization of a continuing private group interested in all aspects of
the measurement and interpretation of business and consumer expectations
to act as a clearinghouse for information and as sponsor of conferences of
experts where methods can be appraised and research results reviewed.
15. Our recent hearings have revealed again that a principal use of economic
data by private users as well as public agencies is in preparing quantitative
economic projections as an rid in policymaking. Some of these projections are
more in the nature of unconditional forecasts, while others are statements of the
probable outlook on the basis of stated assumptions. The need for quantification
of projections has been emphasized on many occasions. Only by such efforts can
economists and policymakers adequately review previous economic analyses in a
scientific way. Improved economic projections can contribute to economic
stability, and a survey of economic projections and methods for making them
should be of great value. As a first step, we recommend that duting 1956 a survey
be made by the subcommittee of procedures and methods used by Government
agencies, for example, in projecting Government revenues and expenditures by
the Treasury Department and the Bureau of the Budget, in preparing and disseminating outlook materials by the Department of Agriculture, in estimating
the following year's construction activity by the Departments of Commerce and
Labor, and in coordinating such work by the Council of Economic Advisers.
Hearings conducted this fall by four other subcommittees of the Joint Economic Committee have revealed areas of deficiencies in our statistics which the
subcommittee will wish to consider further-with a. view to incorporating additional recommendations for study or action in the committee's next annual report.
Subcommittee on Tax Policy
The subcommittee's report, Federal Tax Policy for Economic Growth
and Stability (S. Rept. No. 1310, 84th Cong., 2d sess., pp. 2-11),
recommends:
The needs of the American economy for increasing capacity to provide higher
living standards for all the population must be reflected in all the economic policies
of the Federal Government. To be of greatest effectiveness in this respect, Federal tax policy in the future should follow these policies:
106
JOINT ECONOMIC REPORT
1. Federal tax policy should be related to levels of Government expenditures
by the need for full utilization of growing productive resources and stability in
the general price level. This would tend to result in Federal surpluses and debt
retirement during prosperous and boom periods and deficits during recessions and
depressions.
It is generally agreed that the currently emerging Federal cash budget surplus
is the result of the significant expansion of economic activity since the last quarter
of 1954. As such, this surplus represents a check on the place of this economic
advance. Were it not for this increase in tax receipts relative to expenditures,
we should probably now be witnessing a more rapid increase in the general price
leVel. Prices of industrial products have been rising in recent months; only the
continuing decline in farm prices prevents an overall rise in the wholesale price
index. So long, therefore, as the present expansionary movement continues with
upward pressure on prices of nonagricultural commodities, using the developing
cash budget surplus as the occasion for tax reduction would be to forego utilizing
a force for maintaining a stable rate of economic growth. A tax rate reduction
next year in the face of a booming economy might well be inflationary. Rather,
tax policy aimed at stabilizing the Nation's economy would call for applying the
surplus to reducing the bank-held Federal debt. Only in highly prosperous timhes
such as the present are we likely to find it economically possible to reduce the
level of the Federal debt. We should reduce the Federal debt during periods of
boom to offset the deficits resulting during periods of recession and depression.
Of course, it must be recognized that the economic outlook may change rapidly
in the coming months. It may become apparent that expansion of economic
activity is slowing, and that a higher rate of increase in total demand is required
.to make full use of our growing productive capacity and to provide the impetus
for further growth. In this event, we would be in a position to reduce taxes more
advisedly than by taking the action prior to evidence of economic need. In any
event, improvements in the revenue structure are always timely; the revenue
effects of such revisions, of course, should be carefully weighed in the light of
prevailing economic conditions.
If we succeed in moderating short-run fluctuations in economic activity, we
can count on a steady growth over the next decade which will make possible
within that decade substantial reductions in effective Federal tax rates-perhaps
by as much as one-third. Indeed, barring increases in Government spending
programs, general reductions of tax rates will probably be necessary to assist in
providing a level of total demand adequate for full utilization of all our resources.
2. Federal tax policy should enhance the built-in stabilizing capacity of the
Federal tax system by strengthening the individual and corporation income taxes.
Enhancing the built-in flexibility of the revenue system requires strengthening
the individual and corporate income taxes.
. The stabilizing capacity of income taxes depends primarily on (a) the size of
the tax base relative to the actual income of individual and corporate taxpayers,
(b) the responsiveness of the items of income which comprise the tax bases to
changes in levels of economic activity, and (c) the degree of effective progression
in the rate structure applied to the tax base. If we are to produce more built-in
flexibility, proposals for amendment of our income taxes should be weighed in
the light of their impact on these factors. For the future, the cost of any proposed
revision of the income taxes in terms of possible loss of responsiveness to changes
in the level of economic activity should be carefully weighed.
Strengthening the countercyclical sensitivity of these taxes involves no necessary implications with respect to the level of rates. The basic area in which this
must be sought, rather, is in increasing the responsiveness of the tax bases to
changes in levels of economic activity. In general, this may be accomplished by
directing tax policy toward broadening the bases of the income taxes relative to
the economic concepts of personal and corporate income. We call particular
attention to those income items which are highly responsive to changes in levels
of economic activity and which now escape ordinary income-tax treatment.
Similarly, we call attention to deductions which do not contribute to accurate
measurement of net income but which serve to offset fluctuations in income. At
the very least, proposals which would result in further constriction of the tax
base should be avoided whenever possible.
Adjustments of the tax-rate schedules to increase the responsiveness of the
income taxes should also be sought. An increase in the spread between the
bottom and top combined rates would contribute at least modestly to greater
sensitivity of the corporate income tax.
A substantial improvement in the built-in flexibility of the individual income
tax might be afforded by providing additional marginal rate graduation at the
JOINT ECONOMIC REPORT
107
bottom of the taxable income scale. Built-in flexibility would also be greatly
enhanced by narrowing the taxable income brackets applicable to joint returns
of married persons.
3. -Federal tax policy should encourage the balanced growth of the economy
and most efficient use of our economic resources-by maintaining a careful balance
between those elements of the tax system which rest most heavily on consumption
and on investment and by seeking greater neutrality among taxpayers.
Slackening in the rate of growth of the economy associated with lagging consumer demand and idle plant and equipment, for example, would suggest the
need for a reduction in taxes bearing on consumption relative to other major
elements of the revenue system. By the same token, should rising levels df
consumption prove inadequate to induce the desired rate of growth in productive
capacity, easing the relative burden of taxes falling primarily on capital accumulation would be called for,
Moreover, balanced economic growth as an objective of Federal tax policy
requires that the burden of taxes fall as neutrally as possible among all taxpayers
Since it is commonly assumed that the operation of the price system in free
markets will result in the best direction of our resources, tax provisions which
interfere with such allocations must necessarily involve a cost in terms of a lower
total real value for the product of the economy. This cost is reflected in restriction
of the growth in productive capacity which might be attained with minimum
sacrifice-of- current living standards.
: It should be recognized that use of the Federal tax system as a means of stimulating the growth of any particular industry, necessarily means willingness to
deter the growth of others not equally favored, The more preferential the tax
treatmient afforded industry A to stimulate its growth, the less can be afforded
industries B through Z. Possibly some, if not all, of the latter may even have to
assume greater tax burdens than formerly' and therefore may encounter more
substantial barriers to their growth.
If preferential tax treatment is afforded any group in the economy, it necessarily
implies a value judgment with respect to the type of economic activity most
essential to the process of economic growth. We must be keenly sensitive to the
weight of responsibility we assume if such decisions, which traditionally we are
inclined to leave to the mechanism of.the price system in the market, are made.
Adjustments in the revenue system to conform with growth considerations
should take the form of general revisions rather than special provisions of narrow
applicability. General revisions hold far greater promise for removing the
deterrents to balanced economic growth than those which attempt to obtain
neutrality in the impact of taxes by providing equally preferential treatment
for one narrow group of taxpayers after another.
A prime objective of Federal tax policy should be to strive for neutrality in
the application of our revenue laws. This neutrality in impact will be closely
approximated by providing uniform tax treatment for all taxpayers with equal
taxpaying ability, without reference to the particular circumstances out of which
the taxpaying ability arises.
Elimination of growth-distorting features from the tax system would entail a
thoroughgoing revision of the Internal Revenue Code. While the magnitude of
such an undertaking is recognized as formidable, the rewards in terms of a more
dynamic and better balanced economy warrant that a start be made. Although
all of the principal components of the Federal revenue system contain such
distortions, attention should be focused at the outset on the individual and
corporate income taxes and on excises, since these account for all but a small
fraction of total Federal revenue.
4. Federal tax policy should protect the competitive position of small and new
businesses by providing adequate tax offsets to business risks and by gearing the
structure of tax rates to any differential batriers to acquiring the financial resources
required for their growth and development.
It is obvious at the outset that every effort should be made to write simpler
tax laws. The more complex the tax code, the greater the burden on small
business relative to the position of larger businesses.
The principal requirement is to avoid imposing tax disadvantages on the
relatively high degree of risk and venturesomeness which characterize new enterprise in particular. The criterion should be regarded as generally applicable,
suggesting the need for adequate provision for risks in the tax laws without
preferentially offsetting such risks on the basis of type of business activity.
This criterion aiso suggests the need for gearing the tax burdens of small and new
businesses to any problems peculiar to such businesses in obtaining the financial
resources required for their survival and growth.
108
JOINT :ECONOMIC _REPORT
This criterion calls for careful examination of tax proposals in the light of
their real impact on the relative position of new and small businesses in the
national economy. We should be sure that such businesses can participate
equally with large, established firms in the benefits of proposed tax adjustments.
Similarly, it should be recognized that, whatever its merits may be, a proposal
which weakens the competitive position of small and new businesses may involve
a significant cost in the effectiveness with which other public policies can achieve
-the free competition and atmosphere of economic challenge so essential in our
economy.
The tax laws should be carefully examined and appraised in terms of their
impact on the ability of small- and medium-size companies to resist inducement
for absorption into larger business units.
A greater differential in effective rates applicable to small and large corporate
taxpayers should be-given careful consideration.
5. Finally, in light of the experience and benefits derived by.this subcommittee
through use of statistics in the course of its study, we commend to the committees of the Congress the desirability of obtaining additional data and other
information bearing on the economic effects of existing tax provisions and other
factors influencing balanced economic growth and stability.
Subcommittee on Low-Income Families
The subcommittee's report, A Program for the Low-Income Population at Substandard Levels of Living (S. Rept. No. 1311, 84th Cong.,
2d sess., pp. 5-14), recommends:
1. The Congress should consider legislation to establish social-insurance programs covering the risks of temporary and permanent total disability.'
2. The appropriate congressional committees should study the desirability and
feasibility of dovetailing such programs, if established, with the workmen's compensation acts of the various States; such study will necessarily entail a review
and evaluation of the adequacy of the existing workmen's compensation programs.
3. The Federal Government, in cooperation with the States and private groups,
should develop a comprehensive health program covering the following:
(a) Stimulation of means whereby families in rural areas may secure
adequate health care;
(b) Provision of additional funds to provide for adequate recruiting and
training of professional workers in the field of health care;
(c) Reduction in the cost to the individual of comprehensive health protection. This may necessitate contributing part or all of the cost of approved
insurance programs for low-income families. The Congress may wish to
consider whether it may be necessary, in order that voluntary health plans
reach all of the population, to provide Federal financial aid to those in the
low-income groups who are unable to purchase such protection; additional
funds alone, however, would be useless to millions of our people in rural
areas where there is a lack of doctors, nurses, and hospital beds;
(d) Extension of the school-lunch and milk prbgrams, and the distribution
of surplus commodities to needy families; and
(e) Expansion of 1 ederal participation in public-assistance payments for
medical care.
4. The following changes should be considered in the Federal grant-in-aid
program of public assistance:
(a) Establishing a single, unified system of Federal grants for general
public assistance in place of the current and separate programs which, according to evidence presented to the subcommittee, tend to restrict unnecessarily
the types of need for which Federal funds are available;
(b) Basing Federal grants-in-aid for general public assistance on an equalization formula which takes into account the relative financial needs of the
various States and State differences in per capita income,
(c) Lowering the maximum residence requirements which the States can
impose on public-assistance applicants; and
(d) Making the Federal grants for child-welfare services available to all
areas rather than limited as they now are to specially designated areas.
5. Provision for services designed to encourage individuals' to attain selfsupport and self-care and to preserve and strengthen family life should be included
in the federally aided public-assistance programs.I Senator Ralph E .Flanders: This undertaking must be approached with great caution. Many insurance
companies have had to discontinue disability benefits owing to- the difficulty in defining "disability,'.
whether temporary or permanent, in any given case.
JOINT ECONOMIC REPORT
109
6: The Federal Government should consider providing additional grants-in-aid
to the States for the purpose of increasing the supply of trained professional
workers needed to carry out the recommendations we present in this report.
7. Direct Federal grants-in-aid to the States should be provided initially for
construction of school plant and equipment, based on an equalization formula
which takes account of the relative economic need among the States.
8. The Federal Government, through grant-in-aid programs should assist the
States to expand guidance services and vocational counseling provided within
the school systems.
. 9. A national scholarship fund to aid those who could profit from additional
education but who- lack the necessary financial resources should be established.
10. Adult education programs should be expanded through Federal financial
assistance extended to such institutions as the recognized and accredited colleges
and universities; and, encouragement of vocational training and retraining programs should be sponsored by nongovernmental groups in our economy.
11. The credit programs now available to farmers should be expanded, with
increased emphasis on loans extended to low-income farmers.
* 12. In combination with expansion of credit programs for low-income farmers,
there should be a corresponding increase in the provision of technical assistance
to the individual farm families receiving loans, such assistance to include development of an appropriate farm plan for the individual family and extending the
technical guidance and leadership required to help the family carry out the plan
proposed.
13. Consideration should be given to the development of farm extension services to meet the needs of low-income farm families in particular, and to greater
utilization of trained workers to assist the family improve all aspects of its family
life. As a first step toward a better life, it should be possible to help the family
get improved subsistence from the land on which they are now living.
It is apparent that a threefold approach is required to meet other aspects of
the problem of chronic labor underemployment in low-income farm areas: (1) Encouragement of off-farm employment by development of new industrial location
within the area; (2) assistance of farm families willing to migrate to other areas
and who possess definite job opportunities in the new location; (3) provision for
greater opportunity for rural people to obtain training for nonfarm occupations.
14. The following program designed to meet these particular needs should be
considered:
(a) By means of technical assistance and Federal loan guaranties, aid
recognized and approved local groups engaged in attracting new industry
into the area, and develop other ways of providing off-farm employment.
These programs (which also are recommended for extension to depressed
industrial areas) should provide maximum stimulus to private investment
in areas now depressed but which possess advantages of location or resources
that, in combination with such investment, make economic growth practical
and feasible;
(b) Assist in the development of a program for financing approved cases
of out-migration of individual families
(c) Expand vocational counseling and job placement services in depressed
agricultural areas; and
(d) Expand in rural areas the federally aided nonfarm vocational training
programs.
15. There should be substantial expansion of existing programs of technical
assistance to depressed industrial areas and to small producers within the area.
16. Credit aids should be extended, when such assistance is economically
desirable, to existing local industries, and to approved local groups engaged in
planning and constructing "ever-available" plants for the purpose of attracting
diversified and expanding industries. Credit aid may possibly take the form of
loan guaranties designed to promote maximum stimulus to private investment.
17. The Federal Government should share in planning and conducting appro.
priate economic surveys to determine the scope of current and potential local
resources.
18. The small-business program, with particular emphasis on aid to depressed
areas, and coordinated with a strengthened program of decentralization of defense
contracts, should be expanded.
19. Vocational counseling, job information, and placement services of the
Federal-State employment services should be extended so that workers in depressed areas will be aware of job opportunities in other communities. In addition, these agencies should expand their function of alerting employers outside
110
JOINT ECONOMIC REPORT
of depressed areas, as well as within, to the types of skills currently available in
depressed areas.
20. Financial assistance should be provided to unemployed workers willing to
undertake the approved retraining programs, and to those willing to migrate to
areas of labor shortage.21. There should be established in the executive branch of the Federal Government a central group charged with the responsibility of preparing a coordinated,
comprehensive program aiding currently depressed industrial and rural areas
and so designed as not to affect adversely other areas. Such a program must
assist in maintaining the economic climate necessary to promote maximum
economic growth of the economy as a whole.
22. Research along the following lines should be increased:
(a) A continuing program of study is needed to analyze regional and
technological shifts so that trouble spots can be detected early enough to make
for practical preventive action, such as encouragement of new enterprises in an
expanding industry in areas where a major enterprise in a declining industry is
expected to close down;
(b) An inventory of labor skills and economic assets should be compiled for
each area now marked by concentrations of low incomes and chronic unemployment, to make it possible for public and private groups to match the
available local resources with the needs of expanding industries so that new
enterprises could be attracted to these depressed areas;
(c) For each distressed area, improved and more detailed reports on unemployment, labor force, percent unemployed, and number of new jobs to be
created;
(d) Regular reporting of work stoppages by areas with some suitable
measure of its relative importance in each area; and
(e) More information on differences in costs of living and in wage rates
between areas and communities.
23. Intensive studies should be made to identify the population at substandard
levels of living and the causes of their low economic status.
24. The Federal-State employment services should place greater emphasis on
job-placement services for the older worker.
25. In all ways possible, government-Federal, State, and local-should encourage industry to employ older workers willing and able to work and to make
more jobs available to this group by redesigning work to fit their capacity.
26. A report on the current status and size of the low-income population and
the progress made in the alleviation of poverty and elimination of its causes should
be prepared by the appropriate departments and agencies of the executive branch,
such report to be submitted to the Joint Economic Committee during the 85th
Congress, and periodically thereafter.
Subcommittee on Foreign Economic Policy
. The subcommittee's report, Foreign Economic Policy (S. Rept. No.
1312, 84th Cong., 2d sess., pp. 30-32), recommends:
1. The President must continue to coordinate the diverse interests represented
in the executive branch, and bear responsibility for foreign economic policy
within that arm of Government. In the nature of our constitutional practices,
there is not the same opportunity in the Congress for centralized coordination of
all foreign economic policy, viewed in the broad sense. This puts a special
responsibility upon individual members, the party leadership, and the standing
committees of the Congress to consider the impact of their legislative proposals
and their speeches on both home opinion and foreign behavior.
2. We should keep in mind in greater degree the psychological impact, as well
as the purely economic, of domestic decisions which affect our foreign economic
relations. We should keep in mind that our day-to-day actions often speak much
louder than do pronouncements of overall good intentions, with consequent effect
on the attitudes and behavior of friendly nations with whom we must cooperate
in our own interest.
k 3. The United States should continue to champion multilateral trade on a
most-favored-nation basis, insisting on reciprocal reductions in tariffs as well as
the removal of other trade controls even without special concessions. Our
reductions of trade barriers should be the occasion for hard bargaining with other
countries to ease trade throughout the free world. The instrumentalities of the
General Agreement on Tariffs and Trade, the Organization for Trade Cooperation,
the International Monetary Fund, and the International Bank for Reconstruc-
JOINT ECONOMIC REPORT
111
tion and Development offer the best immediate opportunities for multilateral
negotiation.to make the greatest progress possible.
4. The United States should approve the agreement calling for its membership
and participation in the Organization for Trade Cooperation.
5. The United States should continue to press for the earliest resumption of
currency convertibility consistent with finding stable and maintainable rates.
Our interest in such convertibility is to minimize trade discrimination and to
spur international investment: It would be our hope that in particular the
countries of Western Europe and the sterling area could meet the necessary conditions for de jure convertibility before too long. Although such convertibility
should not be forced prematurely, neither should it be consigned to the indefinite
future.
6. Tariff and trade policy of the United States should be dictated by the national
interest, rather than in terms of specific industries or products. Where individual
industries cannot meet foreign competition, other solutions than new trade barriers should be sought.
7. Further cuts in United States tariffs are in the national interest. The disruptive effect of such reductions can be minimized by making these cuts gradual,
selective, reciprocal, and timed to fit the condition of business. Resort to quotas
should be allowed only.under extreme emergency conditions when other solutions
are not available. Further simplification of the customs laws and relatedaadministrative matters should be carried out at the earliest possible date to streamline their
operation and minimize arbitrary elements.
8. If aid is to be given to distressed areas or industries to meet the problems
caused by new imports, such policies should be part of a broader program to meet
similar problems of any source, not those of foreign trade alone. Such aid should
not be aimed at blanket coverage, but to meet the'specific hardships of people
actually in distress. Aid should be viewed as temporary, and should be designed
to contribute to the permanent correction of the distress so that aid can be terminated. It should not delay the solution of uneconomic arrangements which would
continue to drag down the rest of the econoniy indefinitely.
9. No basic change in our controls on trade with the Communist countries is
required at the present time. Trade in strategic goods would not be in the interest of the free world. But peaceful trade is not excluded from the realm of possibility any time that it is in the interest of the free world. Because East-West
rade policy requires the cooperation of all countries of the free world, our policies
must be.coordinated with theirs. If we would limit trade important to our allies
with the Communist countries, this policy carries iaresponsibility to provide alternate markets for their trade.
10. International investment and technical aid, both public and private, need
further encouragement. Each case requires individual study and the solutions
should be tailored to fit the circumstances. It should be kept in mind that this
aid and investment is more than purely economic in character, and this will influence the choices made. Although broader considerations are involved, such
aid, whether loans or grants, represents the positive and long-term equivalent of
the negative and short-term restrictions bn trade with the Communist bloc. This
is a time when the Communists are using our own aid devices to further their ends,
and we must be prepared to meet this challenge with a coordinated program which
combines all the aspects of countering the problems created by the Communists.
Only thus will the free world hold its margin of strength over the Sino-Soviet bloc.
11. Further study of domestic agricultural policy should take' into account in
greater degree the foreign economic policy aspects of these domestic measures.
12. Further study is required of the whole concept of defense essentiality if it is
not to dominate over other necessary factors in trade policy. Not only should
impartial criteria be discovered, but the whole concept of the mobilization base in
the light of evolving military strategy should be reviewed.
13. New criteria should be developed to restrict application of the escape clause
and peril points to industries where failure to apply these provisions would result
in real hardship to individuals, whether workers or businessmen.
14. The problem of interpretation of antidumping penalties is a complicated one
which deserves careful study rather than precipitate action; the need for change
is recognized as its interpretation threatens to negate our foreign economic policy:
goals, but the remedies must be sought only with thorough investigation. At the
very least, the President should be given authority to override Tariff Commission
decisions when the national interest requires this.
15. We should give added encouragement to the preparation of international
statistics, with attention both to the breadth of coverage and the quality of the
information; data on national income and its distribution are particularly needed.
112
JOINT ECONOMIC REPORT
16. We need more study of what makes for economic growth both at home and
abroad, if we are to choose policies which promote this development in the interests
of attaining our national goals.
17, The work of this subcommittee should be continued for at least another year
to explore more thoroughly some of the problems raised this year which were only
partially answered. This study should include more specific analyses of individual
situations than was possible within the general frame of reference of the current
study.
APPENDIX B
CHECKLIST OF PUBLICATIONS
OF THE JOINT COMMITTEE ON THE EcoNoMIc
REPORT 1
January 1947-March 1956
Declaring a National Policy on Employment, Production, and Purchasing Power
(Report of the Joint Committee on the Economic Report), Senate Report
No. 11: January 1947.
Food Prices. Production, and Consumption (Report of the Joint Committee on
the Economic Report), Senate Document 113: April 1948.
Hearings on Current Price Developments and the Problem of Economic Stabilization (June 24, 25, 26, July 2, 8, 9, 10, 14, 15, 16, and 17, 1947): July 1947.
Interim Report on the President's Program to Deal with the Problems of Inflation
(Report of the Joint Committee on the Economic Report), Senate Report
809: December 1947.
Hearings on Antiinflation Program as Recommended in the President's Message
of November 17, 1947 (November 21, 24, 25, 26, 28, December 2, 3, 4, 5, and 10,
1947): December 1947.
Allocation and Inventory Control of Grain for the Production of Ethyl Alcohol
(Report of the Joint Committee on the Economic Report), Senate Report
888: February 1948.
Hearings on Allocation of Grain for Production of Ethyl Alcohol (February 5
and 6, 1948): February 1948.
High Prices of Consumer Goods (Report of the Joint Committee on the Economic
Report), Senate Report 1565: June 1948.
Hearings on Increases in Steel Prices (March 2, 1948).
Joint Economic Report (Report on the January 1948 Economic Report of the
President), Senate Report 1358: May 1948.
Hearings on Credit Policies (April 13 and 16, May 12, 13, 27, 1948): July 1948.
Statistical Gaps, Current Gaps in Our Statistical Knowledge (materials assembled
bv the staff of the Joint Committee on the Economic Report), committee print:
July 1948.
Consumers' Price Index (materials assembled by the staff of the Joint Committee
on the Economic Report), committee print: December 1948.
Hearings on Profits (December 6, 7, 8, 9, 10, 15, 16, 17,'20, 21, 1948): December
1948.
Profits (Report of a Subcommittee of the Joint Committee on the Economic
Report on Profits Hearings), committee print: February 1949.
Hearings, January 1949 Economic Report of the President (February 8, 9, 10, 11,
14, 15, 16, 17, 18, 1949): March 1919.
Joint Economic Report (Report of the Joint Committee on the Economic Report
on the January 1949 Economic Report of the President), Senate Report 88:
March 1949.
Joint Economic Report (minority views of the Joint Committee on the Economic
Report on the January 1949 Economic Report of the President), part II of
Report 88: April 1949.
Employment and Unemployment (initial report of the Subcommittee on Unemployment), committee print: July 1949.
Economy of the South (the impact of Federal policies on the economy of the South),
committee print: July 1949.
I Publications marked with an asterisk () are on sale at the Superintendent of Documents, Government
Printing Office, Washington 25, D. C. It is the general practice of the Joint Economic Committee to make
available a limited supply of single copies of its publications for free distribution and to arrange for the sale
of its studies through the Superintendent of Documents to take care of quantity orders.
Printed reports of hearings are available only on special request for each hearing, and are distributed to
depository libraries throughout the country.
JOINT ECONOMIC REPORT
113
*Factors Affecting the Volume and Stability of Private Investment (materials on the
investment problem assembled by the staff of the Subcommittee on Investment) Senate Document 232 (sale price, 60 cents): September 1950; reprinted
from committee print of October 1949.
Hearings on Federal Expenditure and Revenue Policies, September 23, 1949,
containing National Planning Association reports prepared by Conference of
University Economists: October 1949.
Selected Government Programs Which Aid the Unemployed and Low-Income
Families (materials assembled by the staffs of the Subcommittee on Unemployment and the Subcommittee on Low-Income Families), committee print:
November 1949.
*Low-Income Families and Economic Stability (materials on the problem of lowincome families assembled by the staff of the Subcommittee on Low-Income
Families), Senate Document 231 (sale price, 35 cents): September 1950;
reprinted from committee print of November 1949.
*Compendium of Materials on Monetary, Credit, and Fiscal Policies (a collection
of statements submitted to the Subcommittee on- Monetary, Credit, and Fiscal
Policies by Government officials, bankers, economists, and others), Senate
Document 132 (sale price, $1): January 1950; reprinted from committee print
of November 1949.
Hearings, Subcommittee on Investment (September 27, 28, 29, 1949): November
1949.
Basic Data Relating to Steel Prices (materials assembled by the staff of the Joint
Committee on the Economic Report for use in steel hearings), committee print:
January 1950.
*Highways and the N6ation's Economy (materials assembled by the staff of the
Joint Committee on the Economic Report), Senate Document 145 (sale price,
20 cents): January 1950.
Hearings on Monetary, Credit, and Fiscal Policies (September 23, November 16,
17, 18, 22, 23, and December 1, 2, 3, 5, 7, 1949): January 1950.
*Monetary, Credit, and Fiscal Policies (Report of the Subcommittee on Monetary,
Credit, and Fiscal Policies), Senate Document 129 (sale price, 15 cents):
January 1950.
*Employment and Unemployment (Report of the Subcommittee on Unemployment), Senate Document 140 (sale price, 30 cents): February 1950.
Hearings, Subcommittee on Investment (December 6, 7, 8, 9, 12, 13, 14, 15, 17,
1949): February 1950.
Hearings, Subcommittee on Low Income (December 12, 13, 14, 15, 16, 17, 19, 20,
21, 22): March 1950.
Hearings, January 1950 Economic Report of the President (January 17, 18, 19,
20): February 1950.
Hearings, December 1949 Steel Price Increases (January 24, 25, 26, 27): March
1950.
*Low-Income Families and Economic Stability (final report of the Subcommittee
on Low-Income Families), Senate Document 146 (sale price, 15 cents): March
1950.
*Volume and Stability of Private Investment (final report of the Subcommittee on
Investment), Senate Document 149 (sale price, 15 cents): March 1950.
*December 1949 Steel Price Increases (Report of the Joint Committee on the Economic Report), Senate Report 1373 (sale price 20 cents): March 1950.
*Handbook of Regional Statistics (material assembled by the staff of the Joint
Committee on the Economic Report), committee print (sale price $1): April
1950.
*Joint Economic Report (Report of the Joint Committee on the Economic Report
on the January 1950 Economic Report of the President), Senate Report 1843
(sale price 35 cents): June 1950.
*General Credit Control, Debt Management, and Economic Mobilization (materials
prepared by the staff of the Joint Committee on the Economic Report), committee print (sale price 25 cents): January 1951.
*Underemployment of Rural Families (materials prepared by the staff of the Joint
Committee on the Economic Report), committee print (sale price 20 cents):
February 1951.
*The Economic and Political Hazards of an Inflationary Defense Economy (materials prepared by the staff of the Joint Committee on the Economic Report),
committee print (sale price 30 cents): February 1951
Hearings, January 1951 Economic Report of the President (January 22, 24, 25,
26, 29, 31, February 2): March 1951.
114
JOINT ECONOMIC
REPORT
*Joint Economic Report (Report of the Joint Committee on the Economic Report
on the January 1951 Report. of the President), Senate Report 210 (sale price
30 cents): April 2, 1951.
*Making Ends Meet on Less Than $2,000 a Year, Case Studies of 100 Low-income
Families (communication to the Joint Committee on the Economic Report from
the Conference Group of Nine National Voluntary Organizations Convened
by the National Social Welfare Assembly), committee print (sale price 35
cents): July 1951.
Prevalence of Price Cutting of Merchandise Marketed Under Price-Maintenance
Agreements, May 28 through June 25, 1951 (study prepared for the Joint Committee on the Economic Report and Select Committee on Small Business),
committee print: July 1951.
*The Need for Industrial Dispersal (materials prepared for the Joint Committee
on the Economic Report by the committee staff), Senate Document 55 (sale
price 30 cents): August 1951.
National Defense and the Economic Outlook (materials prepared for the Joint Committee on the Economic Report by the committee staff), committee print:
August 1951.
*Inflation Still a Danger (report of the Joint Committee on the Economic Report
together with materials on national defense and the economic outlook included
in committee print mentioned above), Senate Report 644 (sale price 15 cents):
August 1951.
*Questions on General Credit Control and Debt Management (prepared by staff of
the Subcommittee on General Credit Control and Debt Management of the
Joint Committee on the Economic Report), committee print (sale price 15
cents): October 1951.
*Monetary Policy and the Management of the Public Debt. Their Role in Achieving
Price Stability and High-Level Employment (replies to questions and other
material for the use of the Subcommittee on General Credit Control and Debt
Management) (sale price: Part I, $1.75; Part II, $2.50): February 1952.
*Hearings, January 1952 Economic Report of the President (January 23, 24, 25,
26, 28, 30, 31. February 1) (sale price $1.25): February 1952.
*ConstitutionalLimitation on FederalIncome, Estate, and Gift Tax Rates (materials
assembled for the Joint Committee on the Economic Report and the Select
Committee on Small Business of the House of Representatives), committee
print (sale price 15 cents): February 1952.
*Joint Economic Report (Report of the Joint Committee on the January 1952
Report of the President together with National Defense and the Economic
Outlook for the Fiscal Year 1953, materials prepared for the Joint Committee
on the Economic Report by the Committee staff), Senate Report No. 1295
(sale price, 35 cents): March 1952.
*The Taxation of Corporate Surplus Accumulations, The Application and Effect,
Real and Feared, of Section 102 of the Internal Revenue Code dealing with
Unreasonable Accumulation of Corporate Profits (study prepared for the Joint
Committee on the Economic Report by Dr. J. K. Hall), committee print (sale
price 55 cents): May 1952.
*Hearings, Subcommittee on General Credit Control and Debt Management
(March 10, 11, 12, 13, 14, 17, 18, 19, 20, 21, 24, 25, 26, 27, 28, and 31, 1952)
(sale price $2.25): May 1952.
*Monetary Policy and the Management of the Public Debt (Report of the Subcommittee on General Credit Control and Debt Management) Senate Document
No. 163 (sale price 25 cents): July 1952.
Federal Tax Changes and Estimated Revenue Losses under Present Law (Materials
prepared for the Joint Committee on the Economic Report by the Committee
Staff), committee print: November 1952.
*Sustaining Economic Forces Ahead (Materials prepared for the Joint Committee
on the Economic Report by the Committee Staff), committee print (sale price
20 cents): December 1952.
*Pensions in the United States (A Study prepared for the Joint Committee on the
Economic Report by the National Planning Association), committee print
(sale price 30 cents): December 1952.
*Index of Joint Economic Publications: January 1947 through. December 1952.
Committee print (sale price 55 cents): January 1953.
*Historicaland Descriptive Supplement to Economic Indicators (sale price 30 cents):
December 1953.
*Hearings, January 1954 Economic Report of the President (February 1, 2, 3, 4,
5, 8, 9, 10, 11, 15, 16, 17, 18): March 1954.
JOINT ECONOMIC REPORT
115
Joint Economic Report (Report of the Joint Committee on the Economic Report
on the 1954 Economic Report of the President), House Report No. 1256 (sale
price 30 cents): February 1954.
*Hearings, Subcommittee on Economic Statistics of the Joint Committee on the
Economic Report (July 12 and 13, 1954) (sale price $1.50): August 1954.
Economic Statistics (Progress Report prepared by the Subcommittee on Economic
Statistics). House Report No. 2628: August 1954.
Congressional Action on Major Economic Recommendations of the President, 1954
(Materials prepared by the Joint Committee on the Economic Report by the
Committee Staff), committee print: September 1954.
*Potential Economic Growth of the bnited States During the Next Decade (Materials
prepared for the Joint Committee on the Economic Report by the Committee
Staff), committee print (sale price 15 cents): October 1954.
*Hearings, Subcommittee on Economic Stabilization (December 6 and 7, 1954)
(sale price $1.25): December 1954.
*Trends in Economic Growth, A Comparison of the Western Powers and the Soviet
Bloc (Mateiials prepared for the Joint Committee on the Economic Report by
the Legislative Reference Service of the Library of Congress), committee print
(sale price $1): January 1955.
*Hearings, January 1955 Economic Report of the President (January 24, 26, 27,
28, 31, February 1, 2, 3, 8, 9, 10, and 16, 1955) (sale price $3.50): February 1955.
*Joint Economic Report (Report of the Joint Committee on the Economic Report
on the 1955 Economic Report of the President), Senate Report No. 60, (sale
price 30 cents): March 1955.
*Historicaland Descriptive Supplement to Economic Indicators(sale price 40 cents):
November 1955.
Employment Act of 1946, as Amended, and Related Laws, and Rules of the Joint
Committee on the Economic Report (prepared by staff of the Joint Committee on
the Economic Report), committee print: December 1955.
*Hearings, Subcommittee on Economic Stabilization, Automation and Technological Change (October 14, 15, 17, 18, 24, 25, 26, 27, and 28, 1955) (sale
price $2.00): November 1955.
*Automation and Technological Change (Report of the Subcommittee on Economic
Stabilization) committee print, November 1955 (sale price 10 cents): became
Senate Report No. 1308, January 1956.
*Hearings, Subcommittee on Economic Statistics, Reports of Federal Reserve
Consultant Committees on Economic Statistics, (July 19 and 26, October 4 and 5,
1955) (sale price $2.25): November 1955.
*Hearings, Subcommittee on Economic Statistics, Employment and Unemployment Statistics, (November 7 and 8, 1955) (sale price 45 cents): November 1955.
*1955 Report on Economic Statistics (Report of the Subcommittee on Economic
Statistics) committee print, November 1955 (sale price 15 cents): became
Senate Report No. 1309, January 1956.
*Federal Tax Policy for Economic Growth and Stability (Papers submitted by
panelists appearing before the Subcommittee on Tax Policy), committee print
(sale price $2.50): November 1955.
*Hearings, Subcommittee on Tax Policy, Federal Tax Policy for Economic Growth
and Stability (December 5, 6, 7, 8, 9, 12, 13, 14, 15, and 16, 1955) (sale price
$2.00): January 1956.
*Federal Tax Policy for Economic Growth and Stability (Report of the Subcommittee on Tax Policy) committee print, December 1955 (sale price 10 cents):
became Senate Report No. 1310, January 1956.
*The Federal Revenue System: Facts and Problems (Materials assembled for the
Subcommittee on Tax Policy by the Committee Staff), committee print (sale
price 55 cents): January 1956.
*Characteristics of the Low-Income Population and Related Programs (Materials
prepared by the staff of the Subcommittee on Low-Income Families), committee
print (sale price 60 cents): October 1955.
*Hearings, Subcommittee on Low-Income Families (November 18, 19, 21, 22, and
23, 1955) (sale price $2.00): December 1955.
*A Programfor the Low-Income Population at SubstandardLevels of Living (Report
of the Subcommittee on Low-Income Families), committee print, December
1955 (sale price 10 cents); became Senate Report No. 1311, January 1956.
*Hearings, Subcommittee on Foreign Economic Policy, (November 9, 10, 14, 15,
16, and 17, 1955) (sale price $1.75): December 1955.
*Foreign Economic Policy (Report of the Subcommittee on Foreign Economic
Policy), committee print, December 1955 (sale price 15 cents); became-Senate
Report No. 1312, January 1956.
116
JOINT ECONOMIC REPORT
*Hearings January 1956 Economic Report of the President (January 31, February
1, 2, 3,6, 7, 8 9 14, 15, 17, and 28, 1956); March 1956;
*Joint Economic leport (Report of the Joint Committee on the Economic Report
on the 1956 Economic Report of the President); March 1956.
*Economic Indicators (a monthly publication of the Congress under Public Law
120, 81st Cong., 1st sess.) (sale price 20 cents a copy, $2.00 a year): Issued
monthly.
0
@FedFRASER