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For release on delivery
Sunday, May 6, 1973
1:30 p.m. FDT

Reform of the Federal Budget

Address by
Arthur F. Burns
Chairman, Board of Governors of the Federal Reserve System

at the
Annual Commencement Exercises
School of Government and Business Administration
The George Washington University

Washington, D. C.

May 6, 1973

I deeply appreciate the privilege of addressing this graduating
class, for--despite the difference in our ages--I feel that we have much
in common.

Both you and I have spent some years in the lively

atmosphere of a university.

Both you and I have been concerned with

problems of economics, finance, and administration.

Both you and I,

as residents of this fascinating city, have had the opportunity of
observing at close range the understanding, selflessness,

and com-

passion that government officials usually bring to their daily tasks;
but we have also had the disquieting experience of witnessing some
abuses of governmental power.
As graduates of this School of Government and Business

you are embarking on your careers at a moment

in history that is fortunate in numerous respects.

Our nation is

again at peace, the economy is again prospering, the number of good
jobs is expanding rapidly, industrial strife is at a minimum, and civil
order is returning to our schools and cities.

By every reasonable

so it would seem, you can--and should--look forward with

confidence to the future of our country and its economy.

And yet, if

I read the nation's mood correctly, a spirit of unease and even
frustration is now widespread.

There are numerous causes of the concern and scepticism
with which many Americans, especially young men and women, now
view the contemporary scene.

But I believe that most of these causes

can be captured in two broad generalizations.

First, the American

people have come to feel that their lives, their fortunes, and their
opportunities are increasingly beyond their control, and that they are
in large part being shaped for them by their government.


more and more Americans have also come to feel that their government
lacks either the knowledge or the competence to make good on the
promises that it holds out to the people.
It is this simultaneous dependence on government and
diminishing confidence in government that is at the heart of the
disquiet that so many Americans are experiencing.

I wish I could

say that this mood will pass quickly, but I cannot do so.


confidence in social and political institutions is inevitably a long
process, and it can only be accomplished if thoughtful citizens are
willing to devote their minds and energy to the task.
When I was your age, the problem that particularly concerned
university students was the periodic recurrence of economic depressions
that wiped out business profits, caused widespread bankruptcy, and
brought mass unemployment to wage-earners.

This problem no

longer afflicts our society on anything like its earlier scale; and we
have made even more marvelous advances in conquering disease,
prolonging human life, and reducing the drudgery of physical labor.
We have made progress in these fields by diligent application of
thought and reason — that is, by identifying each problem, diagnosing
its causes, and seeking constructive solutions.

It took the best effort

of many thoughtful and earnest men to solve the problems that stirred
social and political unrest in the past.

And it will likewise require

much thoughtful and earnest effort to regain the confidence in government which is so essential to our own and our country's future.
In my own profession of economics I have seen large
advances in knowledge and also substantial improvements in the
application of this knowledge to public policy.

I can assure you that

those who participated in these developments have found the experience
richly rewarding.

And it is precisely because you graduates may be

able to contribute to the improvement of our political processes
that I want to discuss with you today one of the issues that has
brought us much trouble and agony in recent years - - namely, the
need to achieve rational control over the Federal budget.
Those who administer the affairs of government share a
common problem with business executives:

no private enterprise

and no government can do everything at once.

Both must choose

among many desirable objectives, and the degree to which their
efforts prove successful depends largely on their skill in concentrating
available resources on those objectives that matter most.
the very purpose of budgets.

That is

The fact that the Federal budget has

in recent years gotten out of control should therefore be a matter of
concern to all of us.

Indeed, I believe that budgetary reform has become

essential to the resurgence of our democracy.
Fortunately, political leaders of every persuasion are by
now convinced that Congress must change its procedures if it is to
exercise effective control over the Government's domestic and international policies.

The old debate between free-spending "liberals''

and tight-fisted "conservatives" is dying away.

For the most part,

liberals as well as conservatives realize that the level of Federal
spending, and whether it is financed by taxes or by borrowing, have
a powerful effect on jobs, prices, and interest rates.
In the Employment Act of 1946 Congress declared it to be
the responsibility of the Federal Government to "promote maximum
employment, production, and purchasing power. " The authors of
this legislation were well aware that a stimulative fiscal policy can

be useful in taking up slack in the economy, and that a restrictive
fiscal policy can help to cool an economy that is overheating.


despite the prosperity that our nation has generally experienced
since the enactment of that statute, budget deficits have greatly
outnumbered surpluses.

Experience has thus demonstrated that

failure to attend properly to governmental priorities leads to
excessive fiscal stimulus, and that this in turn is more apt to produce
inflation than jobs.
Recognizing this fact, the Congress is now seeking a way to
determine an overall limit on Federal outlays that will be rationally
related both to expected revenues and to economic conditions.


is essential not only to achieve overall stabilization objectives, but
also to enable Congress to play its expected role in determining
national priorities.

Early in this session of Congress, Senator

Mansfield disclosed that all of the newly elected Senators had written
to him and to Senator Scott urging reform of the budgetary process
because "Congress has the obligation to set priorities .


present procedures do not in fact achieve that aim. " Their unanimous
conclusion was that the "first step toward establishing priorities has
to be setting a ceiling on appropriations and expenditures;11 and that
unless this is done at an early stage of each session, the Congress
is "not really budgeting at all. "

The budget that the President recommends to Congress at
the beginning of each session is the product of a systematic process
aiming to establish an overall limit on outlays and to determine
priorities within that limit.
counterpart in the Congress.

This process, however, has no
Instead, Congressional decisions

that determine the ultimate shape of the budget are taken by acting
separately--or at times by taking no action--on a hundred or more
entirely independent measures.

It is only after separate votes have

been taken on housing, education, defense, welfare, and whatnot that
we can put the pieces together and discover what kind of a budget has
Thus, members of Congress now vote for or against cleaner
air, for or against better schools, and for or against a host of other
good things that Government can help to provide.

But they have no

opportunity to vote on what total outlays should be, or whether an
appropriation for a particular purpose is needed badly enough to
raise taxes or to make offsetting reductions in other appropriations.
Yet choices of this type are far more important to the electorate as
a whole than the single proposals on which Congressional voting takes
This fragmented consideration of the elements that make up
the budget is largely responsible for an almost uninterrupted succession

of deficits.

Since I960, we have had a deficit in every year except

Some of these deficits have occurred because of efforts to

use the Federal budget as a means of stimulating a lagging economy,
but for the most part we have allowed deficits to happen without plan
or purpose.
Both the Legislative and Executive Branches of the
Government have from time to time recognized the need for reform.
In 1946, for example, Congress included provisions for better budget
control in the Legislative Reorganization Act, but the experiment was
abandoned after a brief trial.

Expenditure ceilings enacted for fiscal

years 1969 and 1970 again proved ineffective since they could be
readily adjusted to accommodate increases in spending.


rubbery ceilings did, however, help to prepare the ground for more
meaningful reform.

When the President called for a rigid limit of

$250 billion on outlays for fiscal 1973, both the House and the Senate
accepted the expenditure ceiling.

But they were unable to agree on

a method for reducing the previously enacted spending authority so
that the $250 billion limit could in fact be realized.
Actions subsequently taken by the President to hold outlays
for fiscal 1973 to $250 billion have been criticized on the ground that,
impounding of funds enables the Administration to substitute its

-8priorities for those established by the Congress.

Concern over

possible usurpation of Congressional prerogatives is entirely understandable.

However, this controversy should not divert our attention

from the broad political consensus that has already emerged on the
need to limit outlays.

If the Congress does the job itself, there will

be no occasion in the future for the Administration to cut billions out
of authorized outlays in order to achieve the overall level of spending
that Congress agrees is appropriate.
Although last year's efforts to impose a legislative budget
ceiling proved disappointing, they did prompt the Congress to ponder
closely the need for budgetary reform and to create a Joint Study
Committee on Budget Control.
This Committee has made excellent use of the brief time
it has been in existence.

In a recently released report, it recommends

specific and practical procedures by which Congress could control
the level of Federal outlays, the priorities among programs, and the
size of any deficit or surplus.

Bills to carry out these recommendations

have now been introduced in both the House and Senate, with support
from all members of the Joint Committee, as well as

others in the

It would seem, therefore, that prospects for meaningful
budget reform are now very good, perhaps better than at any time

since the Budget and Accounting Act of 1921. I find the Joint Study
Committee's recommendations most encouraging, but I also think
that they need to be supplemented with systematic and frequent
review of the effectiveness of Federal programs.
Traditionally, officials in charge of an established program
have not been required to make a case for their entire appropriation
request each year.

Instead, they have had to justify only the increase

they seek above last year's level.

Substantial savings could undoubtedly

be realized by zero-base budgeting, that is, by treating each appropriation
request as if it were for a new program.

Such budgeting will be difficult

to achieve, not only because of opposition from those who fear that
it would mean loss of benefits they now enjoy, but also because it
would add heavily to the burdens of budget-making.

It may be, therefore,'

that Congress will rely initially on procedures that ensure reappraisal
of each program only every tv/o or three years.

But whatever form it

takes, a method must be found for screening out programs whose
costs clearly exceed their benefits, while assuring a satisfactory level
of performance for programs that contribute significantly to the
general welfare.
The day is past--if indeed, it ever really existed—when only
the well-to-do need concern themselves with economy in government.


Perhaps there was a time when those who benefited from the status
quo could block social reform by inveighing against governmental

But today Big Government is no longer a slogan for

appealing to some and frightening others.
it has become part of our lives.

For better or worse,

And those who would use government

as an instrument of reform have perhaps a larger stake in eliminating
wasteful programs than those who resist change.
We have passed the point where new programs can be added
to old ones and paid for by heavier borrowing.

With the economy

expanding vigorously, with inflation persisting stubbornly, with our
balance of payments in serious trouble, with two devaluations of the
dollar just behind us, we clearly cannot afford to continue large
budget deficits.

It is sobering to reflect that in spite of the President's

determined efforts to hold down Federal spending, the budget he
originally presented for this fiscal year called for outlays that
exceeded estimated receipts by about $25 billion.
In principle, taxes can always be raised to pay for more
public services, but the resistance to heavier taxation has become

If we count outlays by all governments, State and local

as well as Federal, we find an increasingly large fraction of the
wealth our citizens produce being devoted to the support of government.


In 1929, total government spending came to about 10 per cent of the
dollar value of our national output.

Since then the figure has risen

to 20 per cent in 1940, 30 per cent in 1965, and 35 per cent in 1972.
I believe that most citizens feel that one-third of our national output
is quite enough for the tax collector, particularly since the expansion
in government outlays has not produced the kind of benefits they have
a right to expect.
The key to rebuilding confidence in government is improved
performance by government, and budgetary reform can move us
powerfully toward this goal.

Rational control of the budget by the

Congress should improve our economic stabilization policies.


should facilitate judicious choice among governmental activities.
It should improve evaluation of governmental performance.

It should

help us avoid abuses of power--whether they arise in the world of
business, or labor, or government itself.

And it should restore to

the Congress some of the prestige that it has lost as a result of many
years of neglect.
I trust that the members of this graduating class will join
other citizens throughout the country to see to it that budgetary reform
is carried out with the promptness and on the scale that this nation's
interests require.

Let us always remember that budgets are a means


for promoting national objectives.

For those of you who enter public

service, better budgeting can offer more meaningful and rewarding

For all Americans, it can mean a rejuvenation of spirit

as government becomes more responsive to our aspirations and more
effective in fulfilling them.