The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
F o r r e l e a s e on d e l i v e r y Statement by Arthur F . Burns C h a i r m a n , B o a r d of G o v e r n o r s of the F e d e r a l R e s e r v e S y s t e m b e f o r e the C o m m i t t e e to Investigate a Balanced F e d e r a l Budget of the D e m o c r a t i c R e s e a r c h Organization H o u s e of R e p r e s e n t a t i v e s M a r c h 23, 1976 I a m p l e a s e d to appear b e f o r e the . C o m m i t t e e to Investigate a Balanced F e d e r a l Budget of the D e m o c r a t i c R e s e a r c h Organization, Our country is now c o n f r o n t e d with a s e r i o u s d i l e m m a . O v e r 7 m i l l i o n peopl'e a r e still u n e m p l o y e d , and many of them h a v e been seeking w o r k f o r an extended p e r i o d . More jobs are c l e a r l y n e e d e d - - not only f o r w o r k e r s who a r e now u n e m p l o y e d , but a l s o f o r t h o s e who w i l l s o o n b e entering the l a b o r f o r c e . In the c u r r e n t inflationary e n v i r o n m e n t , h o w e v e r , expan- s i o n i s t p o l i c i e s of the traditional type cannot b e count.ed on to r e s t o r e full e m p l o y m e n t . R e c e n t e x p e r i e n c e in both our own and other industrial countries s u g g e s t s that o n c e inflation has b e c o m e i n g r a i n e d in the thinking of a n a t i o n ' s b u s i n e s s m e n and c o n s u m e r s , highly expansionist m o n e t a r y and f i s c a l p o l i c i e s do not h a v e t h e i r intended e f f e c t . In p a r t i c u l a r , instead of f o s t e r i n g l a r g e r c o n s u m e r spending, they m a y intensify inflationary e x pectations and lead to l a r g e r p r e c a u t i o n a r y savings and s l u g g i s h c o n s u m e r buying. The only sound c o u r s e f o r f i s c a l and m o n e t a r y p o l i c y today is one of prudence and m o d e r a t i o n . One of the urgent tasks facing our Nation is to end the F e d e r a l d e f i c i t s that have been a m a j o r and p e r s i s t e n t s o u r c e o f our inflation. S i n c e I960, the F e d e r a l budget has been in - 2 - d e f i c i t e v e r y y e a r but one. The cumulative d e f i c i t in the unified budget o v e r the past ten y e a r s , including the o f f i c i a l e s t i m a t e f o r the c u r r e n t f i s c a l y e a r , c o m e s to $217 b i l l i o n . If the spending of o f f - b u d g e t a g e n c i e s and g o v e r n m e n t - s p o n s o r e d e n t e r p r i s e s is taken i r t o a c c o u n t , the a g g r e g a t e d e f i c i t f o r the ten y e a r s amounts to a l m o s t $300 b i l l i o n . T h i s s o r r y r e c o r d of d e f i c i t financing m e a n s , o f c o u r s e , that w e as a people have been unwilling to tax o u r s e l v e s s u f f i c i e n t l y to f i n a n c e the r e c e n t sharp i n c r e a s e s of g o v e r n m e n t a l spending. In this b i c e n t e n n i a l a n n i v e r s a r y of our Nation's independence, w e w o u l d do w e l l to r e f l e c t on the fact that it took all of 186 y e a r s f o r the annual total of F e d e r a l expenditures to r e a c h the $100 b i l l i o n m a r k . This o c c u r r e d in f i s c a l y e a r 1962. Only nine y e a r s l a t e r , in f i s c a l 1971, expenditures a l r e a d y e x c e e d e d $200 b i l l i o n . F o u r y e a r s f r o m that date, in f i s c a l 1975, the $300 b i l l i o n m a r k w a s p a s s e d . And unless expenditures a r e h e l d under a v e r y tight r e i n , F e d e r a l spending w i l l easily e x c e e d the $400 b i l l i o n l e v e l in f i s c a l 1977. One a s p e c t of the sharply rising c u r v e of expenditures i s that g o v e r n m e n t has been a s s u m i n g an e v e r l a r g e r r o l e in the e c o n o m i c l i f e of our p e o p l e . In 1929, F e d e r a l expenditures -3- amounted to l e s s than 3 per cent of the d o l l a r value of our total national output, and expenditures at all l e v e l s of g o v e r n m e n t - - F e d e r a l , state, and l o c a l - - amounted to about 10 p e r cent of the national product. Last y e a r , F e d e r a l expenditures a l o n e w e r e about 25 per cent of the d o l l a r value of our national output, and the c o m b i n e d expenditures of all g o v e r n m e n t a l units r e a c h e d a l m o s t 40 per cent. M u c h of this i n c r e a s e in the r o l e of g o v e r n m e n t in our e c o n o m y w a s m a d e n e c e s s a r y by the r a p i d growth of population in r e c e n t d e c a d e s , the i n c r e a s i n g c o m p l e x i t y of m o d e r n urban l i f e , the e x p l o s i o n of m i l i t a r y t e c h n o l o g y , and the e n l a r g e d r e s p o n s i b i l i t i e s of the United States in w o r l d a f f a i r s . However, the t r e n d of F e d e r a l spending has a l s o b e e n significantly i n f l u e n c e d by strong intellectual c u r r e n t s , both in our country and e l s e w h e r e , that k e e p nourishing the b e l i e f that p r a c t i c a l l y all e c o n o m i c and s o c i a l p r o b l e m s can be s o l v e d through the expenditure of public funds. W h e r e the line can b e s t be drawn between g o v e r n m e n t a l and p r i v a t e u s e of r e s o u r c e s i s , in the final a n a l y s i s , a m a t t e r of s o c i a l o r p h i l o s o p h i c values and of p o l i t i c a l j u d g m e n t . But r e g a r d l e s s of how this question is r e s o l v e d , it should be c l e a r to e v e r y o n e that F e d e r a l spending, whatever its l e v e l , m u s t b e -4- soundly f i n a n c e d . The l a r g e budgetary d e f i c i t s that have p e r s i s t e d s i n c e the m i d - s i x t i e s - - and in good y e a r s as w e l l as bad y e a r s -- added little to our capacity to p r o d u c e , but they added substantially to a g g r e g a t e m o n e t a r y demand f o r g o o d s and s e r v i c e s . They w e r e thus l a r g e l y r e s p o n s i b l e f o r the t e n - y e a r s t r e t c h of a c c e l e r a t i n g inflation that culminated in the deep r e c e s s i o n f r o m which w e a r e now e m e r g i n g . T h e P r e s i d e n t ' s budgetary p r o g r a m f o r the coming f i s c a l y e a r , taken on an o v e r a l l b a s i s , would go far toward breaking the s p i r a l of F e d e r a l spending and bringing o r d e r to our f i s c a l a f f a i r s . The p r o p o s e d budget would limit the r i s e of spending in f i s c a l 1977 to 5 - 1 / 2 per cent, c o m p a r e d with an a v e r a g e y e a r l y i n c r e a s e of 12 per cent o v e r the previous five years. The F e d e r a l d e f i c i t is p r o j e c t e d to d e c l i n e f r o m $76 b i l l i o n in the c u r r e n t f i s c a l year to $43 billion in the next, with a b a l a n c e d budget finally in view by f i s c a l 1979. S o m e w e l l - m e a n i n g citizens a r e now urging the C o n g r e s s to p r o v i d e added f i s c a l stimulus in the i n t e r e s t of speeding the r e t u r n to full e m p l o y m e n t . I would w a r n this group that still l a r g e r F e d e r a l expenditures and a b i g g e r d e f i c i t m a y fail of their p u r p o s e . A d e e p e r d e f i c i t would r e q u i r e the T r e a s u r y -5- to r e l y m o r e heavily on c r e d i t m a r k e t s , thus drawing on funds badly needed f o r homebuilding and f o r b u s i n e s s capital f o r m a t i o n . W o r s e still, a significantly l a r g e r d e f i c i t would r e v i v e f e a r s of a c c e l e r a t i n g inflation, and weaken the c o n f i d e n c e of b u s i n e s s m e n and c o n s u m e r s that i s essential to the r e t u r n of g e n e r a l p r o s p e r i t y . M o d e r a t i o n in m o n e t a r y p o l i c y is a l s o n e e d e d to b o l s t e r c o n f i d e n c e in the e c o n o m i c future. That is why the F e d e r a l R e s e r v e has been so diligently seeking to f o s t e r a financial c l i m a t e c o n d u c i v e to a s a t i s f a c t o r y r e c o v e r y , but at the s a m e t i m e to m i n i m i z e the chances of rekindling inflationary f i r e s . S i n c e last s p r i n g , growth r a t e s of the m a j o r m o n e t a r y a g g r e g a t e s w h i l e varying w i d e l y f r o m month to month - - have g e n e r a l l y b e e n within the r a n g e s s p e c i f i e d by the F e d e r a l R e s e r v e in its p e r i o d i c r e p o r t s to the Banking C o m m i t t e e s of the C o n g r e s s . T h e r e c e n t m o d e r a t e i n c r e a s e s in the m o n e t a r y a g g r e g a t e s h a v e been a c c o m p a n i e d , as w e e x p e c t e d , b y a s h a r p r i s e in the t u r n o v e r of m o n e y b a l a n c e s . The r i s i n g v e l o c i t y of m o n e y has not, h o w e v e r , b e e n a s s o c i a t e d with higher r a t e s of i n t e r e s t o r developing s h o r t a g e s of c r e d i t - - a s s o m e c r i t i c s of F e d e r a l R e s e r v e p o l i c y had p r e d i c t e d . On the c o n t r a r y , conditions in f i n a n c i a l m a r k e t s have e a s e d m a t e r i a l l y . They a r e m o r e c o m - f o r t a b l e now than at any time in the past two y e a r s , and thus -- -6- r e m a i n f a v o r a b l e to continued e c o n o m i c expansion. B e f o r e c l o s i n g , I f e e l bound to say that f i s c a l and m o n e t a r y p o l i c i e s alone cannot be e x p e c t e d to a c h i e v e our e c o n o m i c g o a l s in the c u r r e n t e c o n o m i c and financial e n v i r o n ment. It is not enough to ask what further f i s c a l stimulation, if any, o r what further m o n e t a r y stimulation, our e c o n o m y requires. N o r is this even the b a s i c q u e s t i o n . We should rather be asking what g o v e r n m e n t a l p o l i c i e s , c o v e r i n g as they might an e n o r m o u s r a n g e of actions and even inactions, a r e m o s t likely to strengthen the hope and c o n f i d e n c e *of our people. L e t m e b r i e f l y c o m m e n t on s o m e p o l i c i e s outside the m o n e t a r y and f i s c a l a r e a that, in m y judgment, can m a k e a s i g n i f i c a n t contribution to the r e s t o r a t i o n of full e m p l o y m e n t and a l s o to c o r r e c t i n g the l o n g - r u n inflationary bias in our economy. F i r s t , g o v e r n m e n t a l e f f o r t s a r e long o v e r d u e to e n c o u r a g e i m p r o v e m e n t s in productivity through l a r g e r investment in m o d e r n plant and equipment. S e c o n d , w e should f a c e up to the fact that environmental and safety r e g u l a t i o n s have in r e c e n t y e a r s run up c o s t s and p r i c e s and have held up industrial c o n s t r u c t i o n a c r o s s our land. T h i r d , a v i g o r o u s s e a r c h should be m a d e f o r w a y s to enhance p r i c e c o m p e t i t i o n among our b u s i n e s s e n t e r p r i s e s . F o u r t h , g o v e r n m e n t a l p o l i c i e s that a f f e c t labor m a r k e t s c r y out f o r r e v i e w . F i n a l l y , w e ne< d to think through the a p p r o p r i a t e r o l e of a l i m i t e d i n c o m e s p o l i c y in the p r e s e n t environment. Under c u r r e n t conditions, the r e t u r n to full e m p l o y m e n t w i l l have to depend rather heavily on s t r u c t u r a l p o l i c i e s that s e r v e to r e i n v i g o r a t e of our p e o p l e . :ompetition and r e l e a s e the g r e a t e n e r g i e s Such p o l i c i e s a r e not, h o w e v e r , a substitute f o r r e s p o n s i b l e f i s c a l and m o n e t a r y a c t i o n s . In o r d e r to strengthen the c o n f i d e n c e of people in their own future and the future of our c o u n t r y , w e in g o v e r n m e n t w i l l need to w o r k c o n s t r u c t i v e l y on a l l t h r e e p o l i c y f r o n t s - - f i s c a l , m o n e t a r y , and s t r u c t u r a l .
@FedFRASER