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THIRTIETH ANNIVERSARY OF THE EMPLOYMENT ACT
OF 1946— A NATIONAL CONFERENCE ON
FULL EMPLOYMENT
HEARINGS
BEFORE TH E
JOINT ECONOMIC COMMITTEE
CONGRESS OF THE UNITED STATES
N IN ETY-FO U BTH CONGRESS
SECOND SESSION
MARCH 18 AND 19, 1976
Printed for the use of the Joint Economic Committee
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U.S. GOVERNMENT PRINTING OFFICE
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WASHINGTON : X976
—by the Superintendent o f Documents, U. S. Government Printing Office
le
Washington, D.C. 20402 - Price $3.15
JOINT ECONOMIC COMMITTEE
(Created pursuant to sec. 5 (a ) of Public Law 304, 79th Cong*)
HUBERT H. HUMPHREY, Minnesota, Chairman
RICHARD BOLLING, Missouri, Vice Chairman
HOUSE OF REPRESEN TATIVES
SENATE
JOHN SPARKMAN, Alabama
WILLIAM PROXMIRB, Wisconsin
ABRAHAM RIBICOFF, Connecticut
LLOYD M. BENTSEN, J r ., Texas
EDWARD M. KENNEDY, Massachusetts
JACOB K. JAVITS, New York
CHARLES H. PERCY, Illinois
ROBERT TAFT, Ja., Ohio
PAUL J. FANNIN, Arizona
J ohn
HENRY S. REUSS, W isconsin
W ILLIAM S. MOORHEAD, Pennsylvania
LEE H. HAMILTON, Indiana
GILLIS W. LONG, Louisiana
OTIS G. PIKE, New York
CLARENCE J. BROWN, Ohio
GARRY BROWN, Michigan
MARGARET M. HECKLER, Massachusetts
JOHN H. ROUSSELOT, C alifornia
R . S t a r k , Executive D irector
S e n io r S t a f f E c o n o m i s t s
W i l l i a m A . Cox
J erry J. J a s in o w s k i
J o h n R . K a r l ik
C ou rten ay M . S la t e r
R i c h a r d F . K a u f m a n , General Counsel
E c o n o m is t s
W il l i a m R . B u e c h n e r
R o b e r t D . H a m r in
R a l p h L . S c h l o s s t e in
S arah J ack so n
G eorge R . T y l e r
L u cy A . F alcon *
L . D ou g las L ee
L a r r y Y u sfjch
M in o r it y
C h a r l e s H. B r a d fo r d (Senior E conom ist)
G bobge D. K r u m b h a a r , Jr. (Counsel)
M . C a t h e r i n e M i l l e r (E conom ist)
(ID
CONTENTS
WITNESSES AND STATEMENTS
T h u r s d a y , M a r c h 18, 1970
Humphrey, Hon. Hubert H., chairman of the Joint Economic Committee:
Opening statement_______________________________________________
Summary of regional hearings___________________ZZ__ZZZZZZZZZZZZZ
Rockefeller, Hon. Nelson A., Vice President of the United States________
Gibson, Hon* Kenneth, mayor of Newark, N.J., and vice president, U.S.
Conference of Mayors______________________________________________
Jordan, Vernon E., Jr., executive director, National Urban League________
Rausch, Bishop James S., general secretary, U.S. Catholic Conference___
Brenner, H. Harvey, professor, Johns Hopkins University, Baltimore,
Md. ---------------------------------------------------------------------------------------------Finney, Leon, president, the Woodlawn Organization__________________
Roy, Gregory, unemployed worker, Boston, Mass_____________________
Faff*
1
4
2
9
12
19
39
42
47
AFTERNOON SESSION
Finley, Murray H., general president, Amalgamated Clothing Workers
of America________________________________________________________
McCracken, Paul W., former Chairman, Council of Economic Advisers__
Jones, Reginald H., chairman and chief executive officer, General Electric
C o .________________________________________________________________
Marshall, Ray, professor of economics, University of Texas_____________
Lekachman, Robert, professor o f economics, Lehman College, City Univer
sity of New York__________________________________________________
Compton, James W., president, Chicago Urban League_________________
Anderson, Bernard, professor of industry, Wharton School of Finance.-----
59
81
87
102
100
108
110
F riday, March 19, 1976
Humphrey, Hon. Hubert H., chairman o f the Joint Economic Committee:
Opening statement________________________________________________ __ 139
Statement ______________________________________________________ __ 154
Albert, Hon. Carl, the Speaker, U.S. House of Representatives-------------- ----140
Burns, Hon. Arthur F., Chairman, Board of Governors, Federal Reserve
System ___________________________________________________________ __ 145
Greenspan, Hon. Alan, Chairman, Council of Economic Advisers----------- ----169
Bolling, Hon. Richard, a U.S. Representative in Congress from the Fifth
Congressional District o f the State of Missouri--------------------------------- ---- 170
Javits, Hon. Jacob K., a U.S. Senator from the State of New York-------------172
Brown, Hon. Clarence JM a U.S. Representative in Congress from the
Seventh Congressional District of Ohio------------------------------------------------177
Johnson, Byron L., professor of economics, University of Colorado-------- ---- 181
Harrington, Michael, Democratic Socialist Organizing Committee---------------- 195
Eisner, Robert, professor of economics, Northwestern University----------- ---- 197
Morris, Frank, president, Boston Federal Reserve Bank------------------------ ----201
AFTERNOON SESSION
Heller, Walter W., regents* professor of economics, University of Min
nesota, and former Chairman, Council o f Economic Advisers------------------ 269
Rivlin, Hon. Alice M., Director, Congressional Budget Office--------------------- 274
Houthakker, Hendrik S., professor of economics, Harvard University----- --- 290
<m)
IV
Page
Ginzberg, Hon. Eli, Chairman, National Commission on Manpower Policy.
Keyserling, Leon H., former Chairman, Council of Economic Advisers_
Frankel, Stanley, vice president, Ogden Corp---------------------------------------Spring, William, professor of economics, Boston University--------------------O’Malley, Hugh, representative, Small Business Service Bureau of Mas
sachusetts -------------------------------------------------------------------------------------Wright, Hon. James C., Jr., a U.S. Representative in Congress from the
12th Congressional District of the State of Texas______________________
202
307
311
315
333
SUBMISSIONS FOR THE RECORD
T h u r s d a y , M a b c h 18, 1976
Jordan, Vernon E., Jr.:
Prepared statement______________________________________________
Rausch, Bishop James S .:
Prepared statement______________________________________________
“The Economy: Human Dimensions/' a statement of the CathoUc
Bishops of the United States, November 20,1975__________________
15
24
28
AFTER WOOPf SESSION
Finley, Murray H .:
Prepared statement---------------------------------------------------------------------Jones, Reginald H .:
Prepared statement______________________________________________
McCracken, Paul W .:
Prepared statement______________________________________________
F r id a y , M a r c h
91
84
19, 1976
Burns, Hon. Arthur F .:
Address entitled “The Real Issues of Inflation and Unemployment” —
Humphrey, Hon. Hubert H .:
Prepared statement---------------------------------------------------------------------Letter from Leonard Woodcock, president, UAW, dated March 18,
1976, expressing his regrets at being unable to attend the Joint Eco
nomic Committee’s National Conference on Full Employment, with
an attached resolution endorsing the Proposed Full Employment
and Balanced Growth Act of 1976_________________________________
Javits, Hon. Jacob K .:
Prepared statement---------------------------------------------------------------------Johnson, Byron L .:
Statements:
“New Directions for America, Under the Employment Act’ --------“To Restore Full Employment Without Inflation” ---------------------“The Truth About Inflation” --------------------------------------------------“Inflation Must Be Stopped __________________________________
Bousselot, Hon. John H .:
Letter from Hon. Arthur F. Bums, Chairman, Board o f Governors,
Federal Reserve System, dated March 11,1976, responding to Repre
sentative Rousselot’s request for information on research studies
dealing with the effects of unemployment insurance on incentives to
work __________________________________________________________
Text of H.R. 10015, a bill to accelerate the formation of investment
capital required to expand both job opportunities and productivity
in the private sector of the economy_____________________________
Speech entitled “ A Free Enterprise Answer to Inflation and Recession," from the Congressional Record. February 5,1976-----------------Article entitled “ Job-Hunters Find Help: Agency Manned by Unemployed” ___________________________________________ _________
Taft, Hon. Robert, Jr.:
Prepared statement_____________ ___________________________________
02
149
159
222
1fU
^
^
1
^
£
„
V
AFTERNOON
SESSION
Ginzberg, Hon. E li:
Prepared statement______________________________________________
Keyserling, Leon H .:
Prepared statement______________________________________________
Rivlin, Hon. Alice M .:
Prepared statement______________________________________________
Pas®
297
304
276
APPENDIX
Letter to Chairman Humphrey from Joseph Friedman, hoard chairman
and chief executive officer, Chromalloy American Corp., dated March 25,
1976, presenting Mr. Friedman’s views as they relate to tax reform with
particular emphasis on the problems of equity financing of the Nation’s
industries_________________________________________________________
“A Solution to Unemployment in Industrialized Nations,” by Wallace D.
Barlow, director, International Institute for Resource Economics, a 500
word summary of a paper for presentation at the Fourth Annual Con
ference of the Atlantic Economic Society, October 14 to 16, 1976, at the
Shoreham Americana Hotel, Washington, D.C-----------------------------------Letter to Senator Sparkman from James A. Hamilton, National Council of
the Churches of Christ, dated March 12, 1976, regarding the extremely
high rate of unemployment, with an enclosed copy of a resolution on full
employment_______________________________________________________
343
354
356
THIRTIETH ANNIVERSARY OF THE EMPLOYMENT ACT
OF 1946— A NATIONAL CONFERENCE ON FULL
EMPLOYMENT
THURSDAY, MARCH 18, 1970
C ongress of t h e U n it e d S tates ,
J o in t E co n o m ic C o m m it t e e ,
Washington, D.C•
The committee met, pursuant to notice, at 10 a.m., in room 318,
Russell Senate Office Building, Hon. Hubert H. Humphrey (chair
man of the committee) presiding.
Present: Senators Humphrey, Javits, and Percy; and Representa
tives #Bolling, Hamilton, Long, Brown of Ohio, and Brown of
Michigan.
Also present: John R. Stark, executive director; Lucy A. Falcone,
Jerry J. Jasinowski, and Larry Yuspeh, professional staff members;
George D. Krumbhaar, Jr., minority counsel; and Michael J. Runde,
administrative assistant.
O p e n in g S t a t e m e n t
of
C h a ir s ia n H
um phrey
Chairman H u m p h re y . It’s my privilege, as chairman of the Joint
Economic Committee, to call to order and convene this conference
on the 80th anniversary of the Employment Act of 1946.
Our fundamental purpose is to assess national economic policies
on the occasion o f the 30th anniversary of the Employment Act of
1946. At the time of its passage it was considered to be the Magna
Carta of the American economy. The Employment Act established
the responsibility o f the Federal Government to maintain and to
adopt economic policies conducive to a healthy economy for all of
citizens. You may recall the charge of the Employment Act,
calling upon the Government to adopt and effectuate such policies
as to assure maximum employment, production, and income.
Now, there have been good years under the act, with benefits to
°ur citizens that none of us should want to minimize. But in recent
y©ars our economic performance by almost any standard has been less
than satisfactory. This national conference will focus on why that
has been the case, and what we, as a Government, as an economy, and
J® a nation can do about it. This national conference is the culmina
tion of an inquiry into these questions that the Joint Economic Combegan many months ago.
Vve have had a series of regional hearings, looking into the diffi
culties and the challenge of our economy. We have traveled to ChiNew York, Atlanta, Los Angeles, Boston, and Fall River, Mass.;
We nave traveled to these areas to listen to the people, and to listen
(l)
2
to the elected representatives of the people. To listen to them about
their economic situation and what the people in these localities felt
could and should be done. Now we want to put these elements to
gether here in the Nation’s capital, in this conference, to see what
can be done to improve our situation—in simple language, to act.
Today, we are especially fortunate to have the Vice President of
the United States, Mr. Nelson A. Rockefeller, with us to open this
national conference. Although it may not be too well known, let me
just state here for the record that our Vice President, among his
many accomplishments, also has a degree in economics from Dart
mouth College. His exceptional record in public service since then
has been one of consistent concern for economic and social progress,
and consistent concern about dealing with the problems that afflict
and affect our Nation.
During his four terms as Governor of New York, he made major
strides in improving the health, welfare, and employment of that
great State.
Vice President Rockefeller has always been a man of crea tiv ity
and innovation; his leadership with the Commission for Critical
Choices is but the most recent example.
I am sure he is going to have an important message for us today*
I am very pleased that he has accepted our invitation to open this
conference, not only because of his enviable public record, not only
because of his many qualifications for speaking to us on matters of
economic policy, but I’m particularly pleased to welcome him and
to introduce him because I consider him a very good friend and a
good American.
I present to you the Vice President. [Applause.]
STATEMENT OF HON. NELSON A. ROCKEFELLER, VICE PRESIDENT
OP THE UNITED STATES
Vice President R o c k e fe lle r . Thank you very much. Senator and
distinguished members of the Joint Economic Committee, I would
first like to say that for me to be in any meeting, or any gathering
with Senator Humphrey, on any occasion, is always a pleasure. He
is <a very generous friend, as you could tell from his overly generous
remarks. I ’m delighted to be with him here, and especially to be with
him today because of his leading role in the program which this
occasion is celebrating. So, for me this is both a personal pleasure,
Senator Humphrey, to be with you and to join others in giving you
important credit for haying been the inspiration back of this pro
gram ; for your leadership during the history of the development of
tms program, and in our confidence, as we look forward, in the role
this joint committee can play in the future policy formulations for
the strength and well-being of our Nation.
. ,am delighted at the opportunity to be here before one of the
most prestigious and influential bodies of the Congress, the Joint
onoimc Committee, on the 30th anniversary of the legislation
wtoch created your committee.
Wavlre PaJs?'g,e the Employment Act of 1946 was an economic land
mark and I particularly want to compliment the key arch itect of
3
that historic measure, Senator Hubert Humphrey. And I compliment
all the other members who serve on this prestigious committee with
him.
There can be no better time than this bicentennial year to review
the objectives of the Employment Act of 1946—to achieve maximum
employment, production, and purchasing power for our Nation.
The American Declaration of Independence, and the Constitution
signified a major economic revolution as well as achieving our poli
tical freedom. They opened the vast heart of this Nation to settle
ment and development by free men and women seeking individual
opportunity for a better life.
The American enterprise system was by no means a totally private
endeavor. Government has always played not only a significant but
a crucial part in American economic life. Examples include agricul
ture, the railroads, the automobile, and aviation industries. But the
basic concept is to encourage the individual and private or voluntary
enterprise—within a framework of law that sets the basic rules and
seeks to protect the public interest.
Yet, today, there are growing and legitimate claims that a dom
inant central government in Washington is already placing impedi
ments and nonproductive restraints upon individual activity, volun
tary association and economic enterprise. We must ask, therefore, is
there a threat to human liberties because economic freedoms are
being restricted, initiative discouraged and individual creativity
thwarted ?
Human liberties are not possible under the statism that now exists
in most of today’s world. The risk here in America, however, is not
so much that we will take up the worship of the false gods of
totalitarian ideologies, it is more that we may drift into statism as
a reaction to corruption, and by governments progressively legis
lating such overwhelming and detailed responsibilities for the order
ing of society that liberty will be surrendered in the process.
I made the following recommendations to regain our economic
strength and vitality and the unrivalled opportunity which the
American enterprise system offers our people:
1. That Government encourage labor and management to develop
specific productivity programs in industry, encourage upgrading of
skills, and facilitate adoption by labor and management of new and
improved work rules and industrial processes. ^
2. A conscious national commitment to retaining our leadership in
science and technology through education, training, and a greater
capital investment, public and private.
3. That our tax policy be reevaluated and that new legislation be
enacted to lessen the impact of those provisions which deter capital
formation and to provide new incentives for capital formation and
an accelerated rate o f investment.
4. That Government and industry give top priority to plant mod
ernization in their tax and investment policies.
Enactment at this session of Congress of the Energy Independ
ence Authority to get our economy rolling again, by stimulating the
investment needed to assure that this country will have an adequate
and dependable supply of energy.
6. That the Federal Government act to stimulate and protect the
investment of a substantial portion of public and private pension
funds in housing.
.
7. That the executive and legislative branches of Government—
(a) Establish clear objectives and criteria for regulation;
the present regulatory p rocess; and
(e) Determine the effects of regulation, intended and unintended.
8. Change, where necessary, existing laws, rules, and procedures to
assure that they are promoting, not hindering, the attainment of our
overall national objectives.
We have all been through a difficult period—especially in term s of
the political turmoil within the United States, but I am optimistic
about the future.
With the creativity and imagination of our free people, their sci
entific and technological abilities, the managerial skills of the great
American enterprise system, and the abundant resources within our
borders, we can develop the needed new sources of energy, the needed
raw materials or substitutes. And the same is true for food.
The opportunities are unlimited, for cooperation to help other
nations achieve comparable goals, in a world that grows smaller and
more interdependent all the time.
This can well prove to be the most exciting moment, with the
greatest opportunities, in the history of civilized man. Confident of
our heritage, with faith in the future, we can lead this country and
all mankind to new heights of achievement and fulfillment.
Ladies and gentlemen, in conclusion I would like to say that Sena
tor Humphrey, he and his committee in my opinion hold the key to
achieving and realizing these opportunities for our Nation, and that
I am deeply honored and deeply privileged by the invitation and the
opportunity of being here present on this occasion, this historic oc
casion; and that I wish this committee, all who come before it, and
all who participate in these discussions well because I think it is
going to be a- very significant and historic moment in the develop
ment of the kind of long-range planning which is essential to the
realization of opportunities for the peoples of this Nation and the
peoples of the world under the leadership of the greatest free nation
that exists m this world of ours.
^°U l ery m?ck indeed, Senator, and I appreciate the op
portunity you have given me in being here today, it was a pleasure.
C h a^ an Hmn>HREY. Thank you very much. [Applause.]
(&) E xam in e
+v.o«i,*„ + 06
n ’ fchere is no way we can properly express our
° y ° U excePt' to say that your presence has added significant
for
gathering, and we are very honored-^and I speak
“ “ “ “ ittee when I say, thank you.
low am? T»aV\ an a^ n ,a'ina program today that we are going to fol
low, and I ’m happy to tell you that we are on schedule.
S u m m ary o f R e g io n a l H e a r in g s
hearing
to
***
bt
C h a ir m a n H
um phrey
a *ew m^nutes to summarize the regional
XZsloJQfBZpredlcateorbaseforwhatwehope
5
In Washington the condition of the economy is often evaluated
on the basis of changes in key statistics. Members of Congress, the
President refer to shifts in the consumer price index, the wholesale
price index, or the unemployment rate when they debate the fate of
proposed or existing economic policy.
Now, by this statistical standard the U.S. economy has reached
depths of historical proportion in 1975, numbers like 9 percent unemploj^ed, or an inflation rate that reached in 1 month as high as 12
percent, and 9 million jobless. These figures were often quoted to
describe a recession the likes of which Americans have not known
since the Great Depression.
Now, the numbers told a story, to be sure, and its generally the
story which comes out of Washington; but it was just a partial
story. To speak, for example, only of a 9 percent national unemploy*
ment rate, or 7.6 percent unemployment rate, whatever it now may
be, is a sterile and misleading exercise. If an economic policymaker
ignores the human factor in our economy’s condition, he will be
unable to frame policies that are both effective and compassionate.
Policies that are applied to a large sector of the American public
move us uncomfortably close to the 18th century, when economics
was known as the “ dismal science.” In order to go beyond the na
tional statistics and to learn how the American people are coping
with an economy in a difficult and critical condition, the members of
the Joint Economic Committee journeyed, as I have indicated earlier,
to the Nation’s major regions.
We traveled to these areas to take this part of the Government out
to the people, rather than merely asking for the people to come to
Washington. We found that economic conditions in the cities that
we visited were generally worse than the national averages.
Might I say that the economic problems that afflict us today are
very much urban related, and therefore in our discussion in these 2
days, much of what we have to say will be related to, and referred
to the problems that afflict our core cities and our metropolitan areas.
For example, in New York, Mayor Beame told us that, “ New York
City’s 11.9 percent unemployment rate is expected to increase to 16
percent in the next 12 to 18 months.”
In December of 1975 the unemployment rate in Massachusetts was
11.8, well above the national average at that time of 8.3; and the
Boston unemployment rate was even worse, it was at 15 percent,
which underscores what I said earlier, the relationship, the economic
difficulties, and urban problems, or urban centers.
Chicago’s jobless rate was similarly high, 11.9 percent, in Septem
ber of last year.
Now, these data demonstrate that national economic indicators all
too often do not tell us all that we must know.
We also heard from several economic experts, such as Mr. Ray
Marshall in Atlanta, and Mr. Charles Killingsworth in Chicago,
whose guidance we normally do not receive. These people as well as
others convinced me, at least, that the country has many intelligent
people who understand our economic problems, and who have con
structive suggestions as to what to do about them.
We have used such advice to propose changes to the Employment
Act of 1946, through the Full Employment and Balanced Growth
6
Act of 1976, which Congressman Hawkins and I introduced in the
House and the Senate just 2 days ago; and may I add that we have
members of the committee here who are cosponsors. Senator Javits of
New Yory is a cosponsor; Congressman Bolling is a a cosponsor;
I ’m not sure, but I believe Congressman Long is a cosponsor, and
there are others. It is a basic piece of proposed legislation designed
to meet some of the deficiencies of the Employment Act of 1946.
But surely the most moving and most useful testimony we heard
came from the jobless themselves. I and other members of the com
mittee heard firsthand what it means to be out of work for 6 months,
a year, or longer. These were articulate, sensitive and able people
who, despite their skills, have met with a series of rejections in re
sponse to their search for a job. Their words tell a poignant story
and are worthy of being reported here.
Mrs. Annie Pearl Smith, a mother of seven, and an unemployed
auto worker, testified in Atlanta:
I want to work, I don’t want to be unemployed* I ’m on welfare, but I’d rather
been working. I ’m able to work, and I want my children to realize that they
have to work.
Ruth Schaffner, an unemployed worker in Chicago told us:
I’ve been unemployed for 1,240 hours. I’ve been a recipient of only one un
employment compensation check. I want a job, I need a job. I can produce, I am
akUled.
. Now, probably Gregory Roy summed up best the conditions of the
jobless in his testimony m Boston, he said:
No one likes to hear the words, “sorry, we cannot use you” : Government has
to be reeducated to the feet.
He went on to say:
Here we are, folks, we are out here. We have been looking for work for
months and months—we want a job.
I remember this young man very well, he was what yon might call
* white-collar worker, and a capable and trained man, but was re
jected repeatedly.
Now, tnese are not the words of malingerers, one message that per
meated the statements of all the unemployed who testified in the vari
ous regions was—they want jobs.
. ~ have long believed that to accept enormous numbers of jobless
181 °
waste, waste of skill, waste of energy and physi
cal effort. The words of these unemployed workers have reenforced
in me the sense of outrage and shame.
addition to the massive waste that accompanies high unemploy™ .a" ? learned that various kinds of social trauma result from
as well. In each region citizens, the jobless, and
unemployment’
the sooi* 1 costs “ socaated with high
Ha*7®y Brenner— and I believe Mr. Brenner is
studied thp'rel
u ° s Hopkins University, a man who has
S p h S e d ; relatlonshlP hrtween unemployment and social conditions,
c a K a r o a T r o ? ^ tt^ l ^ de,1Ce« that trends “ d MtioBal
lndithe genewl population,
w H a tio f a8 well as °n
**• * * * °*and
***** and physical health of
on aggretoton
other criminal behavior.
7
W e will be hearing from Mr. Brenner more in this conference.
James Q. Wilson of Harvard testified in Boston that:
It is quite likely that there is a relationship between the unemployment rate
of teenagers and young adults on the one hand, and the rate of property crime
committed by persons of this age group on the other hand.
Doris Davis, the mayor of Compton, Calif., told us in Los
Angeles:
No one has dealt with the fact that we have had these levels of hardcore,
continuous unemployment. The family has no models of employment where there
are several generations on welfare and public assistance.
Now, this testimony documented the way that prolonged high un
employment undermines both the spirit of the unemployed and the
society in which we live. This testimony documents the relationship
of unemployment, particularly amongst the young, to alcoholism, to
drug abuse, to mental disorders, to heart disease, to homicide, and
other serious matters.
W e all bear these costs, all of us, whether it be in the form of high
health care expenses, or higher crime rates. And since the number
of jobless is so high, the aggregate impact on society is great.
Business and labor leaders have also talked to us, and they have
expressed their concern over the unemployment situation. Hugh
O’Malley of the Small Business Service Bureau, testifying in Fall
River, Mass.— Congresswoman Heckler brought her subcommittee to
her district— Mr. O’Malley testified:
The high unemployment rates over the last few years are largely responsible
for the high rate of business bankruptcies. A major Federal job program is
essential for the health of the small business community.
A Mr. Jack Spiegel, the director of the Chicago Shoemakers’
Union had a terse but pointed comment, “I f you don’t send us help in
jobs, you had better send us troops.”
State and local government representatives explained how the un
employment situation in their regions was threatening their govern
ments’ abilities to provide public services.
John Crozier, the director of the Massachusetts Division of Em
ployment Security explained:
During the 5 years ending on December 31, 1975, the employer-contributed
balance to the Massachusetts Unemployment Compensation Trust Fund fell
from a $374 miUion surplus to a $119 million deficit. By 1976, we estimate, that
Massachusetts employers will owe the Federal Government $258 million.
Mayor Richard Fulton of Nashville, Tenn., testified in Atlanta on
the need for a national manpower policy. He said to us:
We are helpless to provide the unemployed with a work experience due to
the absence of a national manpower policy, which would take into account emer
gencies such as the present one.
Mayor Maynard Jackson of Atlanta bluntly told the members of
the Joint Economic Committee that, “The crucial economic issue is
jobs.” He said:
I tell you now, my No. 1 frustration as mayor is to see people not begging for
welfare—although they need it; not begging for food—although they are hun
gry ; not begging for money— although they are broke, but begging for a job.
e need the help of Congress in this issue.
The testimony says it clearly, our cities are suffering badly from
high and prolonged unemployment
t
Our journey now ends where it began, this conference is the cul
mination of the Joint Economic Committee hearings across the coun
try. We have found a unique way to retain the able guidance of those
who testified at our regional hearings. On each of our panels during
these 2 days regional witnesses will act as discussants after each panel
member lias presented his views and the committee members have
had an opportunity to ask questions. The four discussants for the
panel will be provided their chance to question either the panelists,
or the committee members.
In this way our full employment debate will gain a new dimension
which is almost always absent in congressional meetings. Also, we
can be assured that because of the participation of these regional
witnesses, this conference will build upon the views that we heard
when we met in the various regions of the United States.
With these regional meetings and this national conference the
Joint Economic Committee has demonstrated how the Federal Gov
ernment can practice human economics. As Lucy Benson, a former
national president of the League of Women Voters said in our Bos
ton hearings, “ I believe it is important to talk directly about people
and their needs, far too often people get lost in numbers.”
I believe that the record of the Joint Economic Committee’s re
gional meetings will serve as a guide to the human side of the key
economic indicators. Now, I have listened to that human side, and it
is a moving story. I do not believe that we can afford to deny it, or
ignore it; m fact, we must accept it and to build on it in terms of
public policy.
Now, at this time, we will have our panel. May I take the privilege
of introducing our panel, and asking our panel to proceed,
Ths first panelist is Kenneth Gibson, mayor of Newark, N.J. Mr,
Mayor, we welcome you, we are very honored to have you. He is
representing the U.S. Conference of Mayors. I believe Mayor Gibson
a
president and will be the incoming president of
the U.S. Conference of Mayors.
The second panelist is the highly respected leader of the Urban
-League, the National Urban League, Vernon Jordon. We surely wel
come you, Mr. Jordon, you have done so much to help us all.
n a n i f 8? n
James Rausch, general secretary of
e U.o. Catholic Conference. Bishop Rausch, we are honored that
you wouM give us of your time to be with us.
mma? n expected to have at this time a fourth member of the
panel, Governor Lucey of Wisconsin. Governor Lucey is not here,
he called me yesterday, because of the death of a veiy close and dear
S
t o “ ake.his apologies. I am sure we all under
stand why he could not be with us.
0i
come, who will occupy this table.
have the discussants also
earlier^fmm^Tn^e^rrreT1? er,TT1? Harrey Brenner whom I mentioned
u s ltw ?
H op1™ 3 University, who has been a witness with
us, 1 believe, in our regional hearings in Atlanta.
9
Leon Finney of the Woodlawn Organization. Is Mr. Finney here?
Please, Mr. Finney, if you would come forth to the table. Mr. Finney,
we welcome you. Mr. Gregory Roy. Mr. Roy, we welcome you, I
recollect you are from Boston.
Mr. Victor Gotbaum, the executive director of the American Fed
eration of County and Municipal Employees was to be with us, but
there is an emergency situation in his family which denied him that
opportunity.
We have our panelists, three, that represent a city, represent a
great organization, represent a great religious group in our society,
one of the most prominent boards, or organizations in the field of
social concern. We have a member of the university staff here that
has studied the social consequences of unemployment. We have Mr.
Finney, who will speak to us from a community base; and we have
Mr. Roy, who will discuss the problems of the unemployment. He is
someone who has suffered the indignity of unemployment.
With that I shall ask our panel to proceed. I f you don’t mind, I
think we’ll just go alphabetically. Mr. Gibson.
STATEMENT OP HON. KENNETH GIBSON, MAYOR OF NEWARK, N.J.,
AND VICE PRESIDENT, U.S. CONFERENCE OF MAYORS
Mayor G i b s o n . Thank you very much, Mr. Chairman.
Members of the committee, I appreciate the opportunity to appear
here today as mayor of the city of Newark and vice president of the
U.S. Conference of Mayors.
First, I would like to commend the distinguished Senator and the
cosponsors for the reintroduction of S. 50, the Full Employment and
Balanced Growth Act of 1976. We are indeed pleased with the re
draft of this important legislation and are anxious to lend our sup
port to its enactment.
The cities of America are struggling to retain the progress they
have achieved over the past decade in meeting the needs of their
populations. The prolonged era of economic stagnation which now
confronts this Nation threatens to erase their hard-fought gains and
very directly endangers the viability of urban areas. The impact of
joblessness and lost income, human despair, and foregone oppor
tunity has been especially concentrated in cities. The cavalier atti
tudes of the administration officials toward projections of prolonged
recession belies a frightening disregard for the enormous social and
economic costs of their misguided policies.
In order to present constructive alternatives to these policies, the
U.S. Conference of Mayors urges the Congress to develop a positive
program for achieving full employment. We view this as an immedi
ate Federal priority. The growing acceptance of previously intolerable
levels of unemployment by members of the administration clearly sig
nals danger for America. The young, the minorities, the women, the
workers whose jobs have been lost to machines and foreign competition
niust not be cast aside in the vast junkpile to be fed only with food
stamps and supported by welfare.
Jobs are the heart of the issue. Holding on the present course will
not only keep us headed toward the eventual financial collapse of
10
local government, but toward massive upheavals in our social and
economic systems.
.
.
The questions and solutions involved are highly technical and com
plex For this reason, we intend today to merely outline the broad
areas which we, as mayors, see as critical to restoring the economy to
full employment. As policies in this area are refined, we shall con
tinue to trust the critical importance of local, as well ^as, national
economic well being. As a nation, we have been preoccupied too often
with the macroeconomic picture -and have given far too little atten
tion to addressing the problems of local and regional areas which
suffer severely even in the best of times.
The essential elements of our program for restoring economic
vitality include:
1.
COUNTERCYCLICAL ASSISTANCE TO STATE A N D LOCAL GOVERNM ENTS
Such a program is essential to assure that the use of Federal fiscal
policies to stimulate the economy is not negated by tax increases and
expenditure reductions that local governments are mandated to enact
when their revenues decline. Almost one-half of the potential stimu
lus to the economy in the Tax Reduction Act of 1975 was not realized
because of tax hikes, layoffs, and expenditure cutbacks made by
State and local governments.
2 . TAXES
The recently enacted tax-reduction compromise goes only part of
the way towards giving the economy adequate stimulus to sustain a
reasonable recovery. Attempts by the administration to tie tax re
ductions to tax cuts avoid economic rationality, and according to
congressional budget efforts, would serve to actually depress the
economy during 1976.
A restructuring of the tax system to remove the distortions caused
by inflation and promote private capital formation is necessary in
order to restore equity and strengthen the business investment foun
dation of the economy.
The President and the Congress must follow the mandate of the
Employment Act of 1946 and aggressively use the Federal fiscal
process to promote full employment objectives. The time is now for
this country to adopt a national policy of full employment.
3. JOBS
j
prolonged levels of joblessness we face must be immediately
addressed by the creation of 1 million public service jobs and a pro
gram of accelerated public works in depressed areas.
The need for these programs is twofold. First, the tax cuts which
have been enacted will not have sufficient stimulus to adequately re^ceunemployment levels, as I said previously.
becond, large amounts of public investments are needed to provide
tu retf f e ^ S d 1^
'1 the 1<mg neSlected economic infrastruc-
11
As an important part of this effort, it is critical that a complete
reexamination of Federal income transfer programs be conducted.
Too often, we see Federal programs spending billions to subsidize
unemployment when those very same billions could be used to create
productive jobs. Americans want the dignity of meaningful work,
not a fat unemployment insurance check and we, in the cities, have
plently of work that needs to be done. In addition to the antirecession
measures, an ongoing public service employment effort is needed to
combat structural unemployment.
4.
C A PITA L ALLOCATION
Geographic areas of the country and various sectors of the econ
omy that have been hardest hit by previous Federal insensitivity and
current economic disruption are in desperate need of capital resources
to rebuild. Enormous capital investments will be needed over the
next decade in both the private and public sectors to support needed
growth, increased productivity levels, meet the cost of environmental
protection, build and rebuild our transportation system, assure an
adequate supply of quality housing at reasonable costs, and provide
for our energy needs. We must insure that these demands are met
and that urban areas have the tools they need to vigorously compete
for new development.
5 . LO N G -T E R M
POLICY CONSIDERATIONS
In order to achieve and sustain the goal of full employment, Fed
eral policies in a number of critical areas will have to be developed
and coordinated. There is a desperate need for rational economic
planning, capable of establishing priorities and guiding Federal
policies. As capital and natural resources become increasingly scarce
and Federal programs and agencies increasingly numerous, the need
for coordinated action targeted to specific goals becomes essential.
We can no longer afford to have fiscal policies contradicted by mone
tary policies, housing programs undermined by interest rates, and
what little energy policies we have, canceled out by what little trans
portation policies we have.
These anomalies have caused Americans to lose faith and respect
for all levels of Government. As elected officials, we recognize that
the failure of the Federal Government to meet its basic responsibili
ties in protecting the jobs and incomes of Americans and its growing
inability to effectively and efficiently conduct the operations have
severely shaken the confidence in Government in general.
, In conclusion, this great Nation, which has been beset by mount
ing economic problems must vigorously pursue solutions, solutions
to the problems of unemployment at a time when many seek to re
flect on a history of achievements in this, our Bicentennial year.
Thank you very much, Mr. Chairman.
Chairman H u m p h re y . Mayor Gibson, w e are most grateful to y ou .
a ou have been a witness with us before, and we welcome your testi
mony on behalf of the U.S. Conference of Mayors.
Our next witness is Vernon Jordan of the National Urban League.
Welcome, Mr. Jordan.
73 -285— 76------- 2
12
STATEMENT OF VERNON E. JORDAN, JR., EXECUTIVE DIRECTOR,
NATIONAL URBAN LEAGUE
Mr. Jord an . Mr, Chairman, members of the committee, I want to
extend my congratulations to this committee for this creative and
innovative approach to the process of public policymaking, and the
Xational Urban League is pleased to be represented.
I want to apologize in advance, Mr. Chairman and members of the
committee, I have to catch a 12 :lf> plane, and therefore, when I leave
it’s not because the discussion is heated, but because I have to catch
a plane.
Chairman H u m p h rey. We’ll let you get out of here. We’ll get to
you before you leave.
Mr. Jord an . Thank you.
The 30 years since passage of the Employment Act o f 1946 have
seen vast changes in our world, significant alterations in the way in
which economic problems are viewed, and also the partial confirma
tion of the fears of the framers of the Employment Act of 1946.
Many people believe that the coming of peace might mean a re
turn to breadlines, soup kitchens and mass unemployment. Thus, the
impetus for passage of the Employment Act, and for subsequent Fed
eral programs in manpower and in economic development came from
the fear of renewed depression, a fear that ate away at the insides of
policymakers and workers alike.
Now, after 30 years, at least part of that fear has come true. De-
spite the juggling of official figures, the barrage of optimistic forecasts, and the assurances that the downturn is temporary, our Nation
suflered its highest unemployment levels since the Great Depression
last year. And despite some marginal improvement in the first months
fe v e k o f 7 o b l i s S . arS ° ° ndem ned to liv e w ith un conscion ably h ig h
j ° W <ssness i? n ot spread equ ally a m on g o u r p o p u la bv novflt+v r ^
cau E o f t h l
rated ? n
^
86 w^ os® jiv es alread y are con stricted
opportunities are alrea d y u n equ al b e-
nomic mnrmnoiv S ^ raci^ discrimination, and on those whose ecoM" 1 d e e p e n e d b e c “ ” se o f ” ®tio n a l
Ererv wl-fwlr
that this is no passing phenomenon.
Every Dostwnr
i?S f nby higher unemployment.
unaSe to rwwtAT- ??^10n has claimed its permanent victims, people
a^
* ^®nter the Proactive labor force.
employment
*Ur concePts of what constitutes full
^
% Ve^ lonS * 8 ° 3 P^cent unemploythen to ?
^
{t moved UP a notch to 4 percent,
r a S e o f fit ?
T
ever? ^ io a tio n points to acceptance of a
J
1 ^
nt “ t o n a l l y acceptable,
ment are w i t W f ? rationalizations for accepting high unemployand its callous nlstm xd ?n'
administration’s budget proposal
unemployment f c d
T T 68’ while maintaining W
only w S and
sh?IH b? the Congress; that would
tragic chapter in our h i S ^ f s I s a f l S ,°Uld * * Just a temporary
o ry , i n is is a ll th e m ore u rgen t because o f
13
the differential impact economic troubles have on those least able to
shoulder them. Back in 1946, black and white unemployment was
roughly proportionate; today black unemployment is more than
double that of white and has been for the past two decades.
On social grounds, this reflects a dangerous divisiveness in our
society. On economic grounds it reflects a tremendous waste of hu
man resources. On budgetary grounds, it reflects a gross misallocation of national priorities.
For every million unemployed, it costs the Federal Government
some $16 billion in lost taxes and in necessary support payments. Is
it not wiser to spend on job creation and on manpower training that
will bring productive jobs to the unemployed?
The National Urban League, through its labor education advance
ment program has spent $22 million since 1967 on counseling, train
ing and job-finding for minority individuals in the construction
trades. That was all Federal money contracted for by the League.
Some would say that was “ social spending”—Federal tax dollars
diverted to a nonprofit agency for social programs. I say it was not
social spending. It was an investment whose return would be re
garded by envy by anyone on Wall Street.
Just look at what that relatively small amount spread over 9 years
yielded:
About 16,000 people found jobs through the program. Many of
them are now in nontraditional jobs and in construction jobs, once
barred to blacks.
In 1975, those 16,000 persons earned over $131 million in salaries;
since 1967, they earned a cumulative $380 million in salaries.
Since 1967, the Federal Government has received back in taxes on
those earnings over $90 million.
In 1975 alone, taxes on the program’s participants totaled over
$31 million, or $9 million more than the Government’s investment
in the whole program for over 9 years.
All of this is terribly important because the League’s program
and other programs can only deal with a very tiny percentage of
the huge number of people in need of economic security. It is my
contention that the extent of poverty and joblessness in our land is
grossly underestimated and that the Nation must be alerted to the
real dimensions of the problem.
Officially, 7.2 million people are jobless, 1.3 million of them black.
But in addition, there were about 5 million people, 1*4 million of
them black who were no longer counted (as part of the labor force
because they were not actively looking for jobs they knew did not
exist.
Some three million people, 600,000 of them black, were working
part time because they could not find the full time jobs they wanted
and needed. And 2 million workers, 400,000 of them black, worked
full time for wages that amounted to less than the official poverty
level. And two-thirds of those persons were family heads.
So, talk of 7 million jobless is fantasy. There are today some 17
Million people either unemployed or subemployed.
And black people have suffered proportionately greater economic
damage. Of the black unemployed, 35 percent have been out of work
14
for 15 weeks or more, and that represents a rise from 31 percent in
the third quarter of 1975.
Of the black unemployed, 21 percent have been out of work tor 27
weeks or more, and that too represents a rise from 18 percent in the
third quarter of 1975. Black female teenage unemployment too is up,
from 36.7 percent in the third quarter of 1975, to 38.2 percent at
year’s end. These are, of course, figures applicable only to the of
ficially defined unemployment, and we have already demonstrated
how that is an understatement. The overall 12.9 percent unemploy
ment rate for black people in America, Mr. Chairman, translates into
a 24.6 percent unofficial rate, or one in every four black workers out
of work.
,
.
.
Such figures impose social as well as economic costs this Nation
can ill afford. The cold figures on supportive expenditures, loss o f
tax revenues, loss of potential productivity, and other elements of
economic calculation tell only part of the story. There are also hidden
social costs and unbearable personal costs as well.
One such hidden cost is crime. Earlier this week, the New York
Times headlined a page-1 story, “ Crime Rose in Richer Neighbor
hoods.” Now, this does not mean that rich folk have taken to burglar
izing their neighbors; it means that people who are poor, who are
out of work, who see no prospects, will find any means to survive,
even if it means breaking laws.
Another social and economic cost imposed unnecessarily on our
society is the inability of our economy to make places for young
people, especially black youngsters. Our society has thrown millions
of youngsters on the scrap heap. It seems willing to accept crime,
supportive expenses and other economic costs, rather than invest in
increasing productive capacity of individuals in the economy. This
is a bitter situation, one that may find us reaping a harvest of social
discontent and internal class and race divisions that could endanger
our Nation.
What is to be done?
I would hope that this distinguished body will go on record in
support of a national full employment policy that guarantees a de
cent job at a decent wage to all Americans able to work. I envision a
three-pronged program to achieve this goal. It would include:
. A' Incentives to private industry to recruit, train, and hire the
jobless.
2. For the Federal Government to create a, public works program
along the lines of the old WPA that helped sustain millions during
the depression of the 1930?s.
,
Finally, a vastly expanded public service employment program
that would help build the pressing need for public services while
assuring employment opportunities for millions of people.
A national full employment policy along the lines I have outlined
here would make unemployment a thing of the past, turn revenueconsumers into producers, generate tax income to pay for itself, and
remove the curse of ]oblessness from the land.
Mr* (J ia^rman? that the joint committee can help to
pro^sab.^Congress and the administration toward adoption of these
15
Thank you very much.
Chairman H u m p h r e y . We are very grateful to you, Mr. Jordan, not
only for your statement, but for your statistical evidence to support
your contentions.
[The prepared statement of Mr. Jordan follows:]
P repared S t a t e m e n t
op
V ernon
E.
J o r d a n , J r.
The thirty years since passage of the Employment Act of 1946 have seen vast
changes in our world, significant alterations in the way in which economic
problems are viewed, and also the partial confirmation of the fears of the
framers of the Act.
In 1946 our nation was disbanding an immense military machine, sending
miUions of men and women back into civilian life, and at the same time, closing
down war plants and defense factories. Behind all this loomed the spectre of
the Great Depression that was ended by the coming of World War Two.
Many people believed that the coming of peace might mean a return to bread
lines, soup kitchens and mass unemployment. Thus, the impetus for passage of
the Employment Act, and for subsequent federal programs in manpower and in
economic development came from the fear of renewed Depression, a fear that
ate away at the insides of policymakers and workers alike.
Now, after thirty years, at least part of that fear has come true. Despite the
juggling of official figures, the barrage of optimistic forecasts, and *the assur
ances that the downturn is temporary, our nation suffered its highest unemploy
ment levels since the Great Depression last year. And despite some marginal
improvement in the first months of this year, it appears condemned to live
with unconscionably high levels of joblessness.
Further, this joblessness is not spread equally among our population. It is
concentrated on those who lives already are constricted by poverty, on those
whose opportunities are already unequal because of the effects of racial dis
crimination, and on those whose economic marginality is confirmed and
deepened because of national misplaced priorities.
I believe we must understand that this is no passing phenomenon. Every post
war recession has been followed by higher unemployment. Every post-war reces
sion has claimed its permanent victims—people unable to re-enter the produc
tive labor force.
And in the course of time our concepts of what constitutes full employment
have changed. Not very long ago three percent unemployment was the magic
number. Then it moved up a notch to four percent. Then five. Now every indica
tion points to acceptance of a range of 6 to T percent as nationally acceptable.
The rationale for this lies in the myth propounded by the so-called “ Phillips
Curve” that ties inflation rates to employment rates. Recent experience strongly
suggests that this explanation for inflation be scrapped. Economists have made
devastating technical analyses that kick the props out from under this formula
tion, and in the past five years we've suffered both high inflation and high
unemployment.
Another rationale lies in the myth that the federal government has too large
an economic role, and that the federal debt must be restrained, thus discourfederal spending for social and economic programs.
This too is a destructive myth. Back in 1946, when the Employment Act was
Passed, the federal debt actually was larger than the gross national product.
Jhis year it is expected to be only about 30 percent of the GNP.
Federal spending too, is relatively modest in comparison with the GNP.
* rom 1953 to 1974 it held steady at about twenty percent of GNP. The slight
nse since 1973 is directly attributable to recession-related costs of manpower
^r?f^ams» unemployment compensation and welfare.
it is clear then that the rationalizations for accepting high unemployment are
without foundation. The Administration's budget proposals and its callous plans
o cut social services while maintaining high unemployment should not be
snared by the Congress. They would only worsen and make permanent what
should be just a temporary tragic chapter in our history*
.
tbis is all the more urgent because of the differential impact economic
troubles have on those least able to shoulder them. Back in 1946 black and
16
white unemployment was roughly proportional; today black unemployment is
more than double that for whites and has been for the past two decades.
On social ground, this reflects a dangerous divisiveness in our society. On
economic grounds it reflects a tremendous waste of human resources. On budg
etary grounds, it reflects a gross misallocation of national priorities.
The fact is that our nation has poured countless billions into waging war,
arming for defense and in encouraging capital-intensive development that de
mands skills we have not imparted to all of our labor force.
It has been estimated that since 1946 the military has absorbed an amount
equal to almost two-thirds the value o f everything man-made in our nation.
Had just a small portion of that immense sum been diverted to domestic pro
ductive enterprise that creates more jobs per dollar than do military expendi
tures, we would have no need for a Conference such as this.
Military-related expenditures help account for the deterioration of our cities,
as tax dollars are drained from older urban areas of the northeast and diverted
to military installations and plans in the so-called sunbelt states. In 1974, these
sunbelt states collected about $13 billion more from Washington than they paid
in federal taxes while nine northern states had a net loss of $20 billion.
New York City's recent fiscal crisis was brought about by many factors, but
surely one of the most important must be the fact that it paid out billions more
in federal taxes than it received in federal expenditures. At a time when the
City's teachers are being dismissed and its university system dismantled, New
York will pay over $1 billion earmarked for the Pentagon.
This is not an argument against adequate defense spending; rather it is an
argument for keeping our economy on an even keel and not encouraging through
fiscal policies the deterioration of our large urban centers whose populations are
disproportionately black and minority.
Our policy seems to be to spare nothing in military spending and to clamp
down on social investment while spending whatever minimum is necessary to
maintain the economically marginal population. Thus some $40 billion will go
into unemployment compensation programs to provide some help to the victims
of unemployment. Is it not wiser to spend positively to make people productive
rather than such negative spending that only confirms their dependency ?
For every million unemployed it costs the federal government some $16 bil
lion in lost taxes and in necessary support payments. Is it not wiser to spend
on job-creation and on manpower training that will bring productive jobs to
the unemployed?
Part of the problem is the stigma social programs have as “ spending” pro
grams. They should more accurately be seen as investment programs in our
nation's future and in the futures of the individuals that make up our work
force.
The National Urban League, through its Labor Education Advancement Pro
gram has spent $22 million since 1967 on counseling, training and job-finding for
minority individuals in the construction trades. That was all federal money
contracted for by the League. Some would say that was “ social spending” —
federal tax dollars diverted to a non-profit agency for social programs. It was
*** investment whose return would be regarded with envy by anyone
on Wall Street
yielded 3°°^
what that relatively small amount spread over nine years
About 16,000 people found jobs through the program, many of them are now
in non-traditionai jobs and in construction jobs once barred to blacks.
in 1975 those persons earned over $131 million in salaries; since 1967 they
earned a cumulative $380 million.
'
19^ thf„?ederal government has received back in taxes on those earnmgs, over $90 million.
for^rer^nlne ^eara
p o S ^ J l
4Le program’s Participants totalled over $31 million,
government’s investment in the whole program
Si tuation for lfc teaches 08 a number of imsocia1 spending actually is investment that
I f recouped. Second, that people dismissed as being unemployable are
tiv^
th®.training and the skills to enable them to hold produc
tive skilled craft jobs. Finally, it teaches us that our national priorities have-
17
been distorted; that if so small an investment could yield so large a human and
financial return, then a large investment would yield proportionately greater
results.
All of this is terribly important because the Urban League’s LEAP Program
and other of our programs can only deal with a very tiny percentage of the
huge number of people in need o f economic security. It is my contention that
the extent of poverty and joblessness in our land is grossly underestimated and
that the nation must be alerted to the real dimensions of the problem.
Bad as seven percent unemployment is, it is understated. Bad as seven mil
lion jobless are, the figure is again, grossly understated. The official figures are
misleading in that they do not include discouraged workers, people working
part-time because they can’t find full-time work, and full-time workers who are
earning less than poverty-level income.
The poverty level itself is misleading, for while it has been increased over the
years, those small increases have not matched the rise in the cost of living.
Thus we are under the impression that some 24 million people live in poverty,
when a more realistic poverty level would show some 40 million fellow-Americans who are poor.
The National Urban League has examined the unreleased official statistics on
employment, and we have discovered the situation to be far worse than publicly
acknowledged.
Officially, 7.2 million people are jobless, 1.3 million of them black. But in
addition, there were about five million people, one-and-a-quarter million of them
black, who were no longer counted as part of the labor force because they were
not actively looking for jobs they knew did not exist.
Some three million people, 600,000 of them black, were working part-time
because they could not find the full-time jobs they wanted and needed. And
two million workers, 400,000 of them black, worked full-time for wages that
amounted to less than official poverty level. And two-thirds of those person?!
were family heads.
So talk of seven million jobless is fantasy. There are today some 17 million
people either unemployed or sub-employed.
And black people have suffered proportionately greater economic damage. Of
the black unemployed, 35 percent have been out of work for 15 weeks or more,
and that represents a rise from 31 percent in the third quarter of 1975.
Of the black unemployed, 21 percent have been out of work for 27 weeks or
more, and that too, represents a rise from 18 percent in the third quarter of
1975. Black female teenage unemployment too is up, from 36.7 percent in the
3rd quarter of 1975, to 38.2 percent at year’s end. These are, of course, figures
applicable only to the officially defined unemployed, and we have already dem
onstrated how that is an understatement The overall 12.9 percent unemploy
ment rate for blacks translates into a 24.6 percent unofficial rate, or one in
every four black workers.
.
Such figures impose social as well as economic costs this nation can ill afford.
The cold figures on supportive expenditures, loss of tax revenues, loss of poten
tial productivity, and other elements of economic calculation tell only part o f
the story. There are also hidden social costs and unbearable personal costs as
well.
One such hidden cost is crime. Earlier this week, the New York Times head
lined a page-one story, “ Crime Rose in Richer Neighborhoods.” Now this does
not mean that rich folk have taken to burglarizing their neighbors; it means
that people who are poor, who are out of work, who see no prospects, will find
any means to survive, even if it means breaking laws. I f you do not offer a man
Productive employment and self-respect and the opportunity to earn his way,
he will seize whatever means are available to him, regardless of legality. Thereis a direct correlation between joblessness, especially teenage unemployment,
Poverty, and other forms o f economic deprivation, and the rising crime rate.
Another social and economic cost imposed unnecessarily on our society is the
inability of our economy to make places for young people, especially black
youngsters. In many o f our cities two-thirds of black teenagers are jobless, and
that situation has been with us since before the 1973-76 recession. Thus, there
very real danger that an entire generation will come to adulthood without
h id in g a job, without ever learning the skills that will make possible a
P oductive future. In effect our society has thrown millions of youngsters on the*
18
scrap heap. It seems willing to accept crime, supportive expenses, and other
economic costs rather than invest in increasing productive capacity of indi
viduals and the economy.
Beyond this, our society will have to deal with a cynicism, distrust and bitter
ness engendered by its broken promises. Black people have seen their economic
gains in both income and employment rolled back to levels of a decade ago.
White people have played the game, entered the consumer society, mortgaged
their futures, and then been tossed out of their jobs because Washington fears
inflation or higher federal spending.
This is a bitter situation, one that may find us reaping a harvest of social
discontent and internal class and race divisions that could endanger our nation.
What is to be done?
I would hope that this distinguished body will go on record in support of a
national full employment policy that guarantees a decent job at a decent wage
to all Americans able to work. I envision a three-pronged program to achieve
this goal. It would include:
Incentives to private industry to recruit, train and hire the jobless. The
private sector can’t do the job alone, but public policies that make it less attrative for a business to hire more workers compounds the difficulty. Federal
regulations, subsidies and tax incentives should all be directed at increasing
the private sector’s ability to create jobs.
A second step would be for the federal government to create a public works
program along the lines of the old WPA that helped sustain millions during
the Depression of the 1930s. Those public works projects lined our country with
roads, with bridges, with schoolhouses and other public facilities still in use
today. A similar program in the ’70s would not only create jobs, but it would
provide a new generation of vitally-needed houses, transportation facilities and
other public works our nation needs.
Finally, a vastly expanded public service employment program would help
fill the pressing needs for public services while assuring employment opportuni
ties for millions of people. Some years ago a Presidential commission deter
mined that public sector manpower needs in conservation, safety, education and
health could accommodate some five million new jobs, offering an opportunity
to sharply improve necessary public services.
A national full employment policy along the lines I have outlined here would
make unemployment a thing of the past, turn revenue-consumers into producers,
generate tax income to pay for itself, and remove the curse of joblessness from
the land.
Such a policy would not, by itself, end poverty, for there would remain those
who are unable to work, who are incapable of working and thus in need of
assistance that would enable them to maintain a decent living standard. The
welfare system is supposed to do this, but its faults are too numerous to detail
here. Everyone agrees that the welfare system is a mess, that it discourages
work, penalizes the poor, and encourages dependency. It is an inconsistent
patchwork of bureaucratic interference in people’s lives, wildly varying benefit
scales, and costly administrative charges.
But its worst fault is that it doesn’t work. The welfare system for the poor
is not nearly as efficient as the welfare system composed of tax loopholes and
subsidies for the wealthy. That’s why there is growing support fo r a welfare
reform program that assures a liveable minimum income while relieving state
and local governments of the increasing burden o f providing fo r the needs of
the pootr.
I believe the most efficient reform would be a universal refundable credit
income tax that would extend a basic annual grant, or tax credit, to all. That
grant would be taxable income, so that the poor would keep all o f it, the nearpoor would keep some of it, and middle and upper income families would
return it all in taxes.
This system would be financed by removal of most o f today’s tax deductions
and loopholes and the imposition of a flat tax rate on all income. Such a system
would limit subsidies to those in need, and not, as at present, to the better-off*
It would supplement the incomes o f working families who cannot make ends
meet. And because the tax credit would be automatic and universal, it would
bring big savings in administrative costs and reduce abuses so prevalent in the
present system.
19
In fact, we have the beginnings of such a system today. Families whose in
comes are below $4,000 now get $400 cash payment from the IRS. Those be
tween $4,000 and $8,000 get lesser amounts.
The tax credit route to welfare reform has attracted increasing support in
cluding key elements within the Administration. Support for federal take-over
of welfare has also mounted, with several governors urging such action. It is
clear that some such reform will come sooner or later, and the national nature
of the problem, the continuing economic crisis confronting low-income citizens
and the growing disenchantment with the present malfunctioning system all
argue for sweeping reforms as soon as possible.
My proposals for a national full employment policy and for a universal re
fundable credit income tax are pro-work, pro-human dignity proposals. They
would increase national productivity, stimulate the economy, end unemployment
and lessen poverty. And they would go a long way toward removing the eco
nomic causes of racial antagonism.
It is my hope that the Joint Committee can help to move the Congress and
the Administration toward adoption of these proposals. I fully understand the
political realities of our time, although I cannot understand why the white poor
and the white jobless have not yet joined with black people to support the
reforms that would benefit both groups. I know it is difficult to achieve such
widespread structural reforms, but I have faith that it can be done. I have
faith that our people can act in their own enlightened self-interest to finally
end unemployment's curse. I have faith that our recent history of economic
drift and hardship will engender changes along the lines I have outlined.
And I have a faith in my country that should not be out of place in this
Bicentennial year. It is a faith I would like to share with you in the words of
my predecessor at the Urban League, Whitney Young:
“I do have faith in America—not so much in a sudden upsurge of morality
nor in a new surge toward a greater patriotism—but I believe in the intrinsic
intelligence of Americans. I do not believe that we forever need to be con
fronted by tragedy or crises in order to act. I believe that the evidence is clear.
I believe that we as a people will not wait to be embarrassed or pushed by
events, into a posture o f decency. I believe that America has the strength to
do what is right because it is right. I am convinced that given a kind of col
lective wisdom and sensitivity, Americans today can be persuaded to act cre
atively and imaginatively to make democracy work. This is my hope, this is my
dream, this is my faith.”
Chairman H u m p h re y . Bishop Rausch, we are looking forward
your testimony.
to
STATEMENT 0E BISHOP JAMES S. RATISCH, GENERAL SECRETARY,
U.S. CATHOLIC CONFERENCE
Bishop R a u s c h . Mr. Chairman, members of the committee, dis
tinguished panelists, and guests.
I am Bishop James S. Rausch, general secretary of the U.S.
Catholic Conference, the chief administrative officer of the national level action agency of the Roman Catholic Bishops of the United
States.
I am pleased and honored to have the opportunity to participate in
this historic and innovative conference on full employment.
I intend this morning to only summarize the prepared statement
that has been prepared for the committee, that I ask to be placed
in the record.
Chairman H u m p h re y . W e w ill include all portions of statements
were not read, or presented as part of the original testimony.
Thank you.
Bishop R a u s c h . My brief reflections this morning are based on
a major policy statement on economic issues passed unanimously by
20
the C ath olic bishops o f th is country in N ovem ber. I h ave m ade copies
o f th is statem ent as w ell, and I presum e those w ill also ap p ear in the
record.
Chairman
H u m p h rey.
They will be printed
a lo n g
with
you r
t0 B^hop R a u sc h .
My comments today will not focus on the technical
workings of the economy, or detailed remedies for relief of economic
distress. Rather, I wish to discuss the human, social, and even moral
dimensions of economic life; what economic forces mean for fam
ilies and individuals. We cannot forget that the economic interaction
of labor, industry, and Government has concrete implications far
beyond the market place, the board room, the halls of G ov ern m en t
and the stock exchange. Behind the jumble of statistics and the rise
and fall of economic indicators lie human lives and individual
tragedies.
Speaking from my own particular religious perspective, I am re
lying on a long tradition of teaching and concern for economic jus
tice and human dignity. We believe that economic policy must re
flect broad values of social justice and human rights.
In our November statement, the bishops drew on traditional Cath
olic social teaching and laid out several principles of economic life.
I wish to share several of them with you.
1. Economic activity should be governed by justice and be carried
out within the limits of morality. It must serve people’s needs.
2. The right to have a share of earthly goods sufficient for oneself
and one’s family belongs to everyone.
3. Economic prosperity is to be assessed not so much from the sum
total of goods and wealth possessed by the Nation as from the dis
tribution of goods among the people according to norms of justice.
4. Opportunities to work must be provided for those who are able
and willing to work. Every person has the right to useful employ
ment, to just wages, and to adequate assistance in cases of real need.
5. Economic development must not be left to the sole judgment of
a few persons or groups possessing excessive economic power, or to
the political community alone. On the contrary, at every level the
largest possible number of people should have an active share in
directing that development.
6. A just and equitable system of taxation requires assessment ac
cording to ability to pay.
A related and controversial matter is the appropriate role of Goveconomic life of its citizens. In their recent statement
the bishop said: ‘Government must play a role in the economic actm ty of its#citizens. Indeed, it should promote in a suitable manner
ihe production of a sufficient supply of material goods. Moreover, it
should safeguard the rights of all citizens, and help them find oppor
tunities for employment.”
Government has the responsibility of coordinating, regulating and
complementing our free market system. It should operate in those
aims where private enterprise is unable or unwilling to do so, or
"where the nature of the problems require public participation.
Onainnan H u m p h re y . Bishop, can I interrupt you for just a
moment. Senator Javits and I will have to go down and oast a vote.
21
it takes us about 5 minutes. But we want you to proceed, and Con
gressman Bolling will chair the hearing while I ’m away.
You have to forgive the interruption, the work of the Senate goes
on. We will be back with you immediately.
Bishop R a u s c h . In addition, Government policies should promote
full employment, production and purchasing power.
As these comments make clear, it is our view that the formulation
and implementation of economic policy cannot be left solely to tech
nicians, interest groups or market forces. Our economic life is gov
erned by its own laws and realities, yet it must be the aim of private
economic activity and public policy to so direct and manage economic
forces so that the public welfare will be served.
Our economic policy must fundamentally serve the public interest,
the common good and the needs of people. That is why broad public
debate and dialog over economic policy is essential and why this con
ference and the hearings that preceded it are so important.
Despite recent gains in employment, official measures of joblessness
indicate that some form of unemployment presently afflicts more than
11 million Americans. In 1975, almost one-third of the American
people were touched by the reality of joblessness within their own
family.
While we pray that the recovery will grow in strength and in
tensity, the recent improvement in unemployment levels represents
only relative progress. The fact that more than 10 million Americans
are unemployed, far from being an encouraging sign, is only a fur
ther indication of the depth and damage of the worst recession since
the 1930’s. It cannot be cause for rejoicing, nor an excuse for inaction.
I wish now to discuss the tremendous human and social costs of
long-term unemployment. The experience of prolonged joblessness
dramatically affects a person’s perception of self and his or her hopes
for the future. It cannot fail to influence personal attitudes and be
havior toward society.
Although we do not believe that a person’s worth and value is de
termined by his or her economic productivity, in our culture, persons
without employment lose a critical measure of their place in society
and a source of individual fulfillment. They perceive that society has
no productive role for them, or that there is no contribution they can
make. As a result, alienation and loss of confidence intensifies and
oftentimes leads to increased anxiety and antisocial behavior.
Mr. Harvey Brenner, who is one of our discussants here today,
has thoroughly documented the direct and startling relationship be
tween economic distress and increased mental illness, cardiovascular
disease, and prenatal deaths. We also know that high levels of unem
ployment frequently leads to greater alcoholism, drug abuse, child
abuse and crime.
High unemployment also contributes to rising social and racial
tensions. In a situation of job scarcity, one individual or group can
obtain and keep employment only at the expense of another. Threat
ened by loss of a livelihood, workers too often look for scapegoats
^nd may blame minorities, aliens, women or young people, with
senous consequences for intergroup relationships.
22
Of special concern to us is the n egative impact of the loss of income*
and employment on personal and family relationships. It can destroy
hopes and dreams, it can erode family life, interfere with the healthy
rearing of children and greatly increase feelings of insecurity and
inadequacy. It can result in the loss of the home itself. It places in
tense strains on family and community life.
In short, long-term unemployment threatens basic human dignity
and lowers the quality of life for all those affected. There is also a
spiritual aspect to this issue. What happens to a nation that begins
to accept the notion that it cannot use the talents and labor of all
its people ? What happens to us as a pople as we watch families which
have made the slow and painful climb up the economic ladder, only
to be pushed down once again into poverty and dependence by the
loss of a job?
As a society, can we accept the notion that some will have jobs and
income while others will be told to wait a few years and to subsist
on welfare in the interim? What does it mean when our leaders say
there is no way in the foreseeable future to harness the idleness of
so many for work on vital social needs such as housing and transpor
tation? It seems to me that those questions pose profound issues of
national purpose and identity.
It is our position that the current levels of unemployment are
unacceptable and these human, social and spiritual costs are intoler
able. As the Catholic Bishops declared last November: “ Fundamen
tally, our Nation must provide jobs for those who can and should
work and a decent income for those who cannot. An effective national
commitment to full employment is needed to protect the basic human
right to useful employment for all Americans. It ought to guarantee,
through appropriate mechanisms, that no one seeking work be denied
an opportunity to earn a livelihood. Full employment is the founda
tion of a just economic policy; it should not be sacrificed for other
political and economic gains.
Just 4 days ago, we testified in basic support for H.R. 50, the Full
Ji-mployment and Balanced Growth Act of 1976, and we expressed
the view that it provides the most comprehensive and useful approach
W Te^ P yrn?nt n?w
the Congress.
\Ve believe this legislation, as it continues to be refined and im
proved, will provide through its comprehensive planning process
an job creation programs, a workable and practical way to achieve
^ rr'P*°.ynient. By stimulating the private sector and providing
^ <Ta job reservoirs. it will insure that no one will be denied
an opportunity to earn a livelihood.
*_• eJLup,port Public service jobs for persons who are unable to obwithin the private sector. We specifically reject
l•
«. ? 'vor W1thin the public sector is necessarily less produccannot
use£^ t^®n employment in private industry. We
a nuMif c*,Jrr
no,
*hat a nurses aide in a general hospital or
how W
rehabilitating homes in our cities is sometor who Jot r>!^1Ve* ° r ^Htobutes less than those in the private seco 7 o u r ^ l^ iV
i*r iW0^ \ n a fact°ry. Clearly, the vast majority
the maTor^vMio1 /
u. ^e employed in the private sector, and
major focus of economic policy ought to be efforts to stimulate
23
and increase private employment. However, we should not exclude
the essential role of public employment at times of major joblessness.
We believe it is far better to spend funds to create and maintain em
ployment than to require families to subsist on unemployment com
pensation and other forms of assistance with the economic and human
consequences we have described.
We are encouraged by the recent decline in the rate of inflation.
This trend is welcome, although additional strong measures against
inflation must be taken.
We urge that policymakers seriously consider a voluntary program
of wage and price guidelines, involving the articulation of specific
wage and price targets and vigorous action to achieve voluntary
compliance on the part of business and labor. In addition, greater
efforts to increase real competition and oppose monopolistic practices
ought to be undertaken to strengthen the competitive forces in our
economy.
The American Bishops oppose efforts to control inflation through
high idleness of workers. They said in their recent statement:
There are those who insist that we must tolerate high levels of unemployment
for some, in order to avoid ruinous inflation for all. Although we are deeply con
cerned about inflation, we reject such a policy as not grounded in justice. PoUcymakers should seek and use measures to combat inflation which do not rely
upon high rates of joblessness. For many o f our fellow citizens, the major pro
tection against inflation is a decent job at decent wages.
This is an important moment in the economic and political history
of our land. As we emerge from the deepest recession since the De
pression of the thirties, we face a basic choice concerning national
economic and social policy. We can harness the concern and experi
ence of our people to enact fundamental reforms in our economic
life or we can return to old policies and programs which offer little
hope of achieving greater social and economic justice. I do not be
lieve we can continue to neglect the realities of poverty, poor distri
bution of financial resources and economic power, inequitable taxa
tion, and high levels of unemployment and subemployment.
We call on our national leadership to act boldly, to enact an effec
tive and workable national commitment to full employment. To
establish a compassionate and fair system which will guarantee an
adequate income to those who are unable to work. In the words of
our statement of last November:
We ask the private and public sectors to join together to plan and provide
better for our future, to promote fairness in taxation, to halt the destructive
impact o f inflation, and to distribute more evenly the burdens and opportuni
ties of our society.
A central question before the Nation in this bicentennial year is
the economy—massive unemployment, continuing inflation and wide
spread poverty. We believe that this Nation has the compassion, wis
dom and resources to meet the basic needs of its people and to harness
their talents and energy. Our economy is the richest and strongestAin
the world. The task before us is to harness that strength and affluence
so that all our people will be served more effectively.
Thank you.
24
Representative B o llin g [presiding]. Thank you very much, Bishop.
Rausch, and thank you for your excellent statement on behalf of
the U .S. Catholic Conference.
[The prepared statement of Bishop Rausch and a statement of the'
Catholic Bishops of the United States follow:]
P repared St a t e m e n t
of
B is h o p J a m e s
S.
R
au sch
INTRODUCTION
Mr. Chairman, Members of the Joint Economic Committe, Distinguished
Panelists and Guests.
I am Bishop James S. Rausch, General Secretary of the United States Cath
olic Conference, the chief administrative officer of the national-level action,
agency of the Roman Catholic Bishops of the United States.
I am pleased and honored to have the opportunity to participate in this his
toric and innovative Conference on Full Employment. In Chicago and Atlanta,
the U.S. CathoUc Conference was represented through the testimony of Bishop
McNicholas and Archbishop Donnellan, at your regional hearings which have
led to this important meeting on the 30th Anniversary of the passage of the
Employment Act of 1946.
My brief reflections this morning are based on a major policy statement on
economic issues passed unanimously by the Catholic Bishops of this country. I
have made copies of this statement available to the committee and I ask that
the text of the statement appear in the record.
In addition, my testimony today is based in part on several detailed studies
of unemployment, inflation and related issues prepared for our use by six dis
tinguished economists.
They include: Dr. Paul Samuelson, Dr. Leon Keyserling, Dr. Robert Eisner,
Dr. Lester Thorow, Dr. Daniel Larkins, and Dr. Helen Ginsberg.
The National Conference of CathoUc Bishops also conducted a three-day
hearing on economic issues last faU as part of our preparation of a five year
plan of action on social justice.
My comments today will not focus on the technical workings of the economy
or detailed remedies for relief of economic distress. Rather, I wish to discuss
the human, social and even moral dimensions of economic life ; what economic
forces mean for families and individuals. We cannot forget that the economic
interaction of labor, industry and government has concrete implications far
beyond the market place, the board room, the haUs of government and the stock
exchanges. Behind the jumble of statistics and the rise and fall of economic
indicators lie human lives and individual tragedies.
In these remarks, I wish: 1) to outline a few general principles that we be
lieve ought to guide economic life; 2 ) to discuss some o f the dehumanizing
aspects of unemployment; 3) to express our position on full employment legis
lation ; and 4) to consider very briefly the impact of inflation in our economy.
ECONOMIC PURPOSE AND PUBLIC POLICY
Speaking from my own particular religious perspective, I am relying on a
long tradition of teaching and concern for economic justice and human dignity.
We beUeye that economic policy must reflect broad values of social justice and
human rights. The search for economic justice is an essential extension o f the
long and continuing struggles for basic civil rights and human dignity. Already
we are seeing some o f the progress of the last decade washed away In the wake
of recession and massive unemployment.
In onr November statement, the Bishops drew on traditional Catholic social'
teaching and laid out several basic principles o f economic Hfe. I wish to share
several o f them with you :
“ (a) Economic activity should be governed by justice and be carried out
within the limits o f morality. It must serve people’s needs.
“ ( 6 ) The right to have a share of earthly good sufficient for oneself and
one's family belongs to everyone.
u(c) Economic prosperity is to be assessed not so much from the sum total
of goods and wealth possessed by the nation as from the distribution o f goods among the people according to norms of justice.
25
u{&) Opportunities to work must be provided for those who are able and
willing to work. Every person has the right to useful employment, to just
wages, and to adequate assistance in cases of real need.
“ (e) Economic development must not be left to the sole judgment of a few
persons or groups possessing excessive economic power, or to the political com
munity alone. On the contrary, at every level the largest possible number of
people should have an active share in directing that development
“ (/ ) A just and equitable system of taxation requires assessment according
to ability to pay.”
A related and controversial matter is the appropriate role of government in
the economic life of its citizens. In their recent statement the Bishops said:
“Government must play a role in the economic activity of its citizens. Indeed,
it should promote in a suitable manner the production of a sufficient supply of
material goods. Moreover, it should safeguard the rights of all citizens, and
help them find opportunities for employment.”
Government has the responsibility of coordinating, regulating and comple
menting our free market system. It should operate in ttiose areas where pri
vate enterprise is unable or unwilling to do so or where the nature of the
problems require public participation. In addition, government policies should pro
mote full employment, production and purchasing power.
As these comments make clear, it is our view that the formulation and im
plementation of economic policy cannot be left solely to technicians, interest
groups or market forces. Our economic life is governed by its own laws and
realities, yet it must be the aim of private economic activity and public policy
to so direct and manage economic forces to serve the public welfare. Our system
of private incentive and freedom is strong, yet continued neglect of the basic
issues of poverty, fairness o f taxation and inequitable distribution of wealth
and economic power threaten to weaken our economic and political system.
Economic policy must fundamentally serve the public interest, the common
good and the needs of people. That is why broad public debate and dialogue
over economic policy is essential and why this conference and the hearings
that preceded it are so important. The joint Economic Committee has done a
commendable job in stimulating this kind of broad public discussion through
its many activities.
u nem ploym ent:
cubrent
s it u a t io n
Despite recent gains in employment, official measures of joblessness indicate
that seven million Americans are presently unemployed. In addition, 3 million
persons have part-time jobs although they desire full-time work and almost one
million additional persons have dropped out of the labor force in frustration.
This means some form of unemployment presently afflicts more than 11 million
Americans. In 1075, almost one-third of the American people were touched
by the reality of joblessness within their own family.
These overall figures mask the seriously inequitable distribution o f unem
ployment. Racial and ethnic minorities, blue collar workers, women, and young
people experience far higher levels o f joblessness than the rest of our society.
Unemployment actually increased in February for minority teenagers, and
minorities generally, and one out of five young people of all races are still
w*thout employment.
. 4
While we pray that the recovery will grow in strength and Intensity, the
Jecent improvement in unemployment levels represents only relative progress.
The fact that more than 10 million Americans are unemployed, far from being
an encouraging sign, is only a further indication o f the depth and damage of
the worst recession since the 1930’s. It cannot be cause for rejoicing, nor an
excuse for inaction.
„
,
„
_
The reality is that we have had a serious unemployment problem for decades,
exacerbated by recurrent recession. The implementation of the Employment Act
of 1946, whose 30th anniversary we commemorate in these hearings, has not
fulfilled the law’s broad social and economic purposes nor has it peen an ef
fective remedy for joblessness. We are presently falling far short of the max
imum employment, production and purchasing power” it sought to promote. We
nave alternated between boom and bust cycles. This instability Pjace? a
cmt strain on families, individuals- and our society. Businesses and individuals
cannot make reasonable plans for the future. Even in good times, we are often
nhappy f or
of wkat may lie ahead.
26
H U M A N COSTS OF UNEMPLOYMENT
Other witnesses will dicuss in detail the substantial economic costs of high
unemployment in the form of lost production, lost revenues and greatly in
creased costs for unemployment compensation and other forms o f assistance.
I wish to discuss the tremendous human and social costs of long-term unem
ployment. The experience of prolonged joblessness dramatically affects a per
son’s perception of self and his or her hopes for the future. It cannot fail to
influence personal attitudes and behavior toward society.
Although we do not believe that a person’s worth and value is determined by
his or her economic productivity, in our culture, persons without employment
lose a critical measure of their place in society and a source of individual ful
fillment. They perceive that society has no productive role for them or that
there is no contribution they can make. As a result, alienation and loss of con
fidence intensifies and lends to increased anxiety and anti-social behavior.
Dr. Harvey Brenner, who is one of our discussants today, has thoroughly
documented the direct and startling relationship between economic distress and
increased mental illness, cardiovascular disease, and pre-natal deaths. We also
know that high levels of unemployment frequently leads to greater alcoholism,
drug abuse, child abuse and crime.
High unemployment also contributes to rising social and racial tensions. In
a situation of job scarcity, one individual or group can obtain and keep em
ployment only at the expense of another. Threatened by loss of a livelihood,
workers too often look for scapegoats and may blame minorities, aliens, women
or young people, with serious consequences for intergroup relationships.
Of special concern to us is the negative impact o f the loss of income and
employment on personal and family relationships. It can destroy hopes and
dreams, erode family life, interfere with the healthy rearing of children and
greatly increase feelings of insecurity and inadequacy. It can result in the
loss of the home itself. It places intense strains on family and community life.
In short, long-term unemployment threatens basic human dignity and lowers
the quality of life for many Americans. In the years to come we will be pay
ing a great economic and social price for our continuing tolerance o f high levels
of joblessness.
There is also a spiritual aspect to this issue. What happens to a nation that
begins to accept the notion that it cannot use the talents and labor of all its
people? What happens to us as a people as we watch families which have made
the slow and painful climb up the economic ladder, only to be pushed down
once again into poverty and dependence by the loss of a job? As a society, can
we accept the notion that some will have jobs and income while others will be
told to wait a few years and to subsist on welfare in the interim? What does it
mean when our leaders say there is no way in the foreseeable future to harness
the idleness of so many for work on vital social needs such as housing and
transportation? These questions pose profound issues of national purpose and
identity.
These social, human and spiritual dimensions of unemployment deserve equal
consideration in deUberation on future economic policy.
NATIONAL COMMITMENT TO FULL EMH0 TMEKT
It is our position that the current levels of unemployment are unacceptable
and these human, social and spiritual costs are intolerable. As the CathoUc
Bishops declared last November: “Fundamentally, our nation must provide
jobs for those who can and should work and a decent income for those who
cannot. An effective national commitment to full employment is needed to pro
tect the basic human right to useful employment for all Americans. It ought
to guarantee, through appropriate mechanisms, that no one seeking work would
be denied an opportunity to earn a livelihood. Full employment is the foundation of a Just economic policy; it should not be sacrificed for other political
and economic goals.”
Just four days ago Bishop Eugene Marino, representing the U.S. Catholic
Conference, testified before a subcommittee of the United States House of Rep
resentative? in "basic support for H.R. 50, the Foil Employment and Balanced
Growth Act of 1076, and expressed the view that It provides the most camp**
hensive and useful approach to foil employment now before Congress/*
27
We believe this legislation, as it continues to be refined and improved, will
provide through its comprehensive planning process and job creation programs,
a workable and practical way to achieve full employment. By stimulating the
private sector and providing for federal job reservoirs it will ensure that no
one will be denied an opportunity to earn a livelihood.
As we testified on Monday, we support public service jobs for persons who
are unable to obtain employment within the private sector. We specifically re
ject claims that work within the public sector is necessarily less productive,
efficient or useful than employment in private industry. The kinds of jobs out
lined in H.R. 50 would help to meet the vital needs of our people in housing,
transportation, education, recreation and health care. We cannot accept the
notion that a nurses aide in a general hospital or a public service employee
rehabilitating homes in our cities is somehow less productive or contributes less
than those in the private sector who sell products or work in a factory. Clearly,
the vast majority of our people will and should be employed in the private
sector and the major focus of economic policy ought to be efforts to stimulate
and increase private employment. However, we should not exclude the essen
tial role of public employment at times of major joblessness. We believe it is
far better to spend funds to create and maintain employment than to require
families to subsist on unemployment compensation and other forms of assist
ance with the economic and human consequences we have described.
INFLATION
A second major economic problem facing our people is inflation which weak
ens our economic stability and erodes the economic security of our citizens. The
impact of inflation is most severe on the very poor and those who live on fixed
incomes, particularly on the elderly. In 1973 and 1974, most American families
experienced an actual decline in real income as a result of the combined im
pact of recession and high rates of inflation.
We are encouraged by the recent decline in the rate of inflation. In 1975 con
sumer prices rose 7% compared to 12.2% in 1974. Most projections for the com
ing year indicate an additional slight decline in inflation. This trend is welcome
although additional strong measures against inflation must be taken.
We urge that policy-makers seriously consider a voluntary program of wage
and price guidelines, involving the articulation of specific wages and price tar
gets and vigorous action to achieve voluntary compliance on the part of busi
ness and labor. In addition, greater efforts to increase real competition and
oppose monopolistic practices ought to be undertaken to strengthen the com
petitive forces in our economy.
.
. .
Some insist there is a direct relationship between unacceptable ™jes
flation and full employment W e are not supporters of this view. There are
multiple causes of our recent inflation, including supply shortages, lack or real
competition and huge increases in costs of energy. In fact the lower produc
tion and high unemployment o f the recent recession has probably contriDutea
to inflation leading to shortages in housing and other goods as^wellas lower
productivity. The simultaneous experience of high inflation and high joi^essness of the last two years would seem to demonstrate the inadequacy o
___
so-called “ trade-off” between inflation and unemployment.
In their November statement the American Bishops clearly^ oppose e o, ^
to control inflation through high idleness o f workers. They said: *^rhere are
those who insist that we must tolerate high levels of unemployment for some,
in order to avoid ruinous inflation for all. Although we^are deep y
p
_
about inflation, we reject such a policy as not grounded in justice. . . .
makers should seek and use measures to combat inflation which do
py
upon high rates o f joblessness. For many of our fellowcitizens, the major pro
tection against inflation is a decent job at decent wages.
CONCLUSION
This is an important moment in the economic and political
land. As we emerge from the deepest recession since the
ties, we face a basic choice concerning national economic
can harness the concern and experience o f our people to e:na
forms in our economic life or we can return to old policies a d p
73-285— 76------- 3
We
_
s WhiCh
gra
28
offer little hope of achieving greater social and economic justice. I do not be
lieve we can continue to neglect the realities of poverty, poor distribution of
financial resources and economic power, inequitable taxation, and high levels
of unemployment and subemployment.
,„
_
^
^
We call on our national leadership to act boldly. To enact an effective and
workable national commitment to full employment. To establish a compassion
ate and fair system which will guarantee an adequate income to those who
are unable to wirk. In the words of our statement of last November: “We ask
the private the public sectors to join ogether to plan and provide better for our
future, to promote fairness in taxation, to halt the destructive impact of infla
tion and to distribute more evenly, the burdens and opportunities of our society.”
A central question before the nation in this Bicentennial year is the economymassive unemployment, continuing inflation and widespread poverty. We be
lieve that this nation has the compassion, wisdom and resources to meet the
basic needs of its people and to harness their talents and energy. Our economy
is the richest and strongest in the world. The task before us is to harness that
strength and affluence so that all our people will be more effectively served.
T h e E c o n o m y : H u m a n D i m e n s io n s — A S t a t e m e n t o p t h e C a t h o l i c B is h o p s
o f t h e U n ite d S t a t e s , N o v em ber 2 0 ,1 9 7 5
“This unemployment returning again to plague us after so many repetitions
during the century past is a sign of deep failure in our country. Unemployment
is the great peacetime physical tragedy of the nineteenth and twentieth cen
turies, and both in its cause and in the imprint it leaves upon those who inflict
it, those who permit it, and those who are its victims, it is one of the great
moral tragedies of our ime.”—The Bishops of the United States. Unemploy
ment, 1980.
1. This was the judgment of our predecessors as they responded to the eco
nomic crisis of 1930. As pastors, teachers and leaders, we recall and emphasize
their words as our country faces important economic, social and moral deci
sions in the midst of the highest unemployment since the 1930s.
I. THE CHUBCH’ S CONCEBN
2. Despite recent hopeful signs, the economy is only slowly and painfully
recovering from the recent recession, the worst since World War II. We are
deeply concerned that this recovery may lack the strength or duration to allevi
ate the suffering of many of the victims of the recession, especially the unem
ployed. It is the moral, human and social consequences of our troubled economy
which concensus and their impact on families, the elderly and children. We
hope in these limited reflections to give voice to some of the concerns of the
poor and working people of our land.
3. We are keenly aware of the world-wide dimensions o f the problem and
the complexity of these issues o f economic policy. Our concern, however, is
not with technical fiscal matters, particular eponomic theories or political pro
grams, but rather the moral aspects o f economic policy and the impact of these
policies on people. Our economic life must reflect broad values of social justice
and human righta
n . t h e c h u b c h 's t e a c h in g
« i Our own rich heritage of Catholic teaching offers important direction and
"J0®*' Importantly, we are guided by the concern for the poor and
own by Jesn8’ who cam* to “bring good news to the poor, to proclaim
sigllt t0 tM Mind, and to set the downtrodden free”
(litike 4 :18). in addition, the social encyclicals of the Popes and documents of
°^cond Vatican Council and the Synod of Bishops defend the basic human
J ^ 5 n . emp ?ylnent’ J®8* waK®s and decent working conditions as well
as tnerlgnt of workers to organize and bargain collectively. They condemn
n maldistribution of resources and other forms of economic in. ,the cr“ tton of useful work experiences and new forms of
mSdSSi™
workers to share in decision-making, Increased
production, and even ownership. Again and again they point out the interrela*
29
tion of economics and ethics, using that economic activity be guided by social
morality.
5. Catholic teaching on economic issues flows from the Church's commitment
to human rights and human dignity. This living tradition articulates a number
of principles which are useful in evaluating our current economic situation.
Without attempting to set down an all-inclusive list, we draw the following
principles from the social teachings of the Church and ask that policy-makers
and citizens ponder their implications.
(a) Economic activity should be governed by justice and be carried out
within the limits of morality. It must serve people’s needa1
(&) The right to have a share of earthly goods sufficient for oneself and one’s
family belongs to everyone .1
(c) Economic prosperity is to be assessed not so much from the sum total
of goods and wealth possessed as from the distribution of goods according to
norms of justice.*
(d) Opportunities to work must be provided for those who are able and will
ing to work. Every person has the right to useful employment, to just wages,
and to adequate assistance in case of real need.*
(e) Economic development must not be left to the sole judgment o f a few
persons or groups possessing excessive economic power, or to the political com
munity alone. On the contrary, at every level the largest possible number of
people should have an active share in directing that development*
(/) A just and equitable system of taxation requires assessment according to
ability to pay.®
iff) Government must play a role in the economic activity of its citizens. In
deed, it should promote in a suitable manner the production of a sufficient
supply of material goods. Moreover, it should safeguard the rights of all citi
zens, and help them find opportunities for employment.7
6 . These are not new principles. They are drawn directly from the teachings
of the Church, but they have critical relevance at this time of economic dis
tress. Under current conditions, many of these principles are being consistely
violated.
m . DIMENSIONS OF THE ECONOMIC SITUATION
7. In these reflections we wish to examine briefly the dimensions of our eco
nomic problems in three areas: unemployment, inflation and distribution of
wealth and income.
A. Unemployment
8 . In October, government figures show eight million persons were unem
ployed, representing 8 .6 % of the work force.® Millions of other persons have
given up seeking work out o f discouragement or are in part-time jobs although
they desire full-time work. Taking this into account, the actual level of unem
ployment in our country is over 12 %. It is estimated that 20 million people will
be jobless at some time this year, and that one-third of all Americans will
suffer the traumatic experience of unemployment within their families.
9. The Official unemployment rate does more than underestimate the true ex
tent of joblessness. It also masks the inequitable distribution of unemployment.
The figures for October indicate that minorities, blue collar workers, young
People and women bear a disproportionate share of the burdens of joblessneess.
10. These realities clearly indicate that the nation’s commitment to genuine
full employment has been seriously eroded, if not abandoned. Since World War
II, unemployment has been substantial, persistent and drifting upward. In fact,
when joblessness rose dramatically during the latest recession, it took the form
of an acute and visible crisis, snnprimoosed on a long-term unemployment proD-
^"employment frequently leads to higher rates 01 crime, um6 «««■.«»*> —
See footnotes on p. 81.
30
alcoholism. It is reflected in higher rates of mental illness as well as rising
social tensions. The idleness, fear and financial insecurity resulting from un
employment can undermine confidence, erode family relationships, dull the
spirit and destroy dreams and hopes. One can hardly bear to contemplate the
disappointment of a family which has made the slow and painful climb up the
economic ladder and has been pushed down once again into poverty and de
pendence by the loss of a job.
13. The current levels of unemployment are unacceptable and their tremen
dous human costs are intolerable. Unemployment represents a vast and tragic
waste of our human and material resources. We are disturbed not only by the
present levels of joblessness, but also by official government projections of mas
sive unemployment for the rest of this decade. We sincerely hope that these
figures do not represent resignation to the human and economic waste implied
in these rates of unemployment As a society, we cannot accept the notion
that some will have jobs and income while others will be told to wait a few
years and to subsist on welfare in the interim. For work is more than a way
to earn a living. It represents a deep human need, desired not only for income
but also for the sense of worth which it provides the individual.
B. Inflation
14. There are those who insist that we must tolerate high levels of unemploy
ment for some, in order to avoid ruinous inflation for all. Although we are
deeply concerned about inflation, we reject such a policy as not grounded in
justice. In recent years, our country has experienced very high levels of infla
tion. During this past year, there has been some reduction in inflation, but
there are already signs of its renewal, spurred by large increases in food and
fuel prices.
15. Inflation weakens the economic stability of our society and erodes the
economic security of our citizens. Its impact is most severe on those who live
on fixed incomes and the very poor. The double distress of inflation and reces
sion has led to a painful decline in real income for large numbers of people
in recent years. Clearly, steps must be taken to limit inflation and its impact.
16. However, low unemployment and high inflation are not inevitable part
ners, as history and the experience of other industrialized countries bear out.
Policy-makers should seek and use measures to combat inflation which do not
rely upon high rates of joblessness. For many of our fellow citizens, the major
protection against inflation is a decent job at decent wages.
C. Distribution of income and wealth
17. Within our country, vast disparities of income and wealth remain. The
richest 20 % of our people receive more income than the bottom 60% combined.
In the area o f ownership, the disparities are even more apparent. The top
one-fifth of all families own more than three-fourths o f all the privately held
wealth in the United States while over one-half o f our families control less
than 7% of the wealth.
18. The distribution o f income and wealth are important since they influence
and even determine our society’s distribution of economic power. Catholic so
cial teaching has condemned gross inequality in the distribution o f material
goods. Our policy cannot continue to ignore this important measure o f economic
justice.
it . policy mbectioics
19. Fundamentally, our nation must provide jobs for those who can and
should work and a decent income for those who cannot. An effective national
commitment to full employment is needed to protect the basic human right to
useful employment for all Americans. It ought to guarantee, through appropri
ate mechanisms, that no one seeking work would be denied an opportunity to
earn a livelihood. Full employment is the foundation of a just econom ic policy;
it should not be sacrificed for other political and economic goals. We would
support sound and creative programs of public service employment to relieve
joblessness and to meet the vital social needs of our people (housing, transportal ° « atli >n, bealth
recreation, etc.).
n
*>ur™ 1
hardship of these difficult times must not fall most heav
ily on the most vulnerable: the poor, the elderly, the unemployed, young people
ff8
mo<Jest inc°me. We support efforts to improve our u n e m p l o y m e n t
? rovlde adequate assistance to the victims of the
recession. Efforts to eliminate or curtail needed services and help must be
strongly opposed.
31
21. We continue to support a decent income policy for those who are unable
to work because of sickness, age, disability or other good reason. Our present
welfare system should be reformed to serve our country and those In need more
effectively.
22. Renewed efforts are required to reform our economic life. We ask the
private and public sectors to join together to plan and provide better for our
future, to promote fairness in taxation, to halt the destructive impact of infla
tion and to distribute more evenly the burdens and opportunities of our society.
We also ask that consideration be given to a more efficacious use of the land,
the nation’s primary resource in order to provide gainful employment for more
people. We should also explore the impact of technology and endeavor to pre
serve the small family farm and other approaches to economic life which pro
vide substantial and productive employment for people. It is not enough to
point up the issues in our economy and to propose solutions to our national
problems while accepting uncritically the presupposition of an economic sys
tem based in large part upon unlimitel and unrestrained profit.
23. We pledge our best efforts in support of these goals. We call on local
parishes, dioceses, Catholic institutions and organizations to undertake educa
tion and action programs on issues of economic justice. We renew our commit
ment to assist the needy and victims of economic turmoil through programs of
financial assistance and active participation in the dialogue over the formu
lation and implementation of just economic policies. We call on our people to
pray for our country in this time of need and to participate in the difficult de
cisions which can still fulfill the promise of our land.
24. Working together with renewed vision and commitment, our country has
the productive capacity and human and material resources to provide ade
quately for the needs of our people. We take this opportunity to renew the
challenge of our fellow Bishops of 45 years a go: “ Our country needs, now and
permanently, such a change of heart as will, intelligently and with determina
tion, so organize and distribute our work and wealth that no one need lack
for any long time the security of being able to earn an adequate living for him
self and for those dependent upon him.”—The Bishops of the United States,
Unemployment, 1930.
APPENDIX
In adopting this resolution, the Bishops sought to link this effort to a major
statement issued in 1919 on similar matters. Entitled, "The Bishops’ Program
For Social Reconstruction,” the statement called for: minimium wage legisla
tion; unemployment insurance and protection against sickness and old age:
minimum age limit for working children; legal enforcement of the right of
labor to organize; a national employment service; public housing; and a long
term program of increasing wages.
^
It also urged: prevention of excessive profits and incomes through regulation
of public utilities and progressive taxes on inheritance, income, ana excess
profits; participation of labor in management: a wider distribution of owner
ship through cooperative enterprises and worker ownership in the stock or cor
porations; and effective control of monopolies even by the method of govern
ment competition if that should prove necessary.
,
Most o f these proposals have been enacted. Partial progress
toward others. The 1919 statement provides a historical f r a m e w o r k for the cur
rent resolution and evidences a long-standing concern for economic justice on
the part of the Catholic community in this country.
FOOTNOTES
'yatictm
uo-."9.
I I , T he Church In The M odem W orld,
64; John X X III, M ater et Magtstra,
8 y a£icni1 H . T he Church Tn T he M odem W orld, 69.
*
£ ? IIT’ M ater e t M w is tra 73.
^
7 4 . John X X I I I , Pawm Tn
T * 2 iTls X I * 0 n T he R econstru ction o f The So<*al Order, ^<4, m >an a a i .
Terris,
18 . y a tiCan I I , T he Church In The M odem W orld, 6 7 , Paul v i , a
Amon, 6.
J Vatican IT, T he Church Tn The M odem W orld, 65.
0; v .« » n
n , r » . Otmrtk In T te M 0«ern W orn ,
.• T h e Em ploym ent S itu a tio n : October 19 7 5 ; U.S. Department o f Labor, Bureau o f
•M S S ? W
^ O e t o b *
1975 I n d i e * t : One out o f flv , t
Jobless; over 1 1 % o f all blue collar workers were ont o f work 14.2% ot
P
32
Representative B o l l in g . The program I have to administer now
that members of the committee will each have 5 minutes for
statements or questions before we turn to the discussants. We will
proceed under a strict 5-minute rule. Congressman Brown of Michigan.
Representative B row n of ^Michigan. Thank you, Congressman
Bolling.
.
I think that we all have the same basic goal and objective. I don’t
think that any of those who basically criticize this administration’s
policies feel that it is inhumane, or that it is insensitive to the prob
lems of unemployment. I think that the means are criticized.
In a general sense, we have many statistics with regard to unem
ployment. Should we be concerned with the percentage of the popula
tion employed, or the percentage of the work force as we now use it,
how should we relate those figures, since I think all of your testimony
has been that every person that would like to be employed should
have an opportunity to be employed.
Bishop R a u sch . If I may speak to that-----Representative B row n o f Michigan. Surely.
Bishop R a u sch [continuing]. From a moral perspective for a
moment. We believe that man is created in the image of God, and he
manifests that most when he has the opportunity to be creative. If
the system deprives him of the opportunity to be creative, through
productive work—that is the way we are most creative—then there
is something wrong with the system, and it needs to be corrected.
I think people who want to work must be able to work, and that
is not true in our society today.
Representative B ro w n of Michigan. Therefore, you are saying
that really the portion of our people that are employed is not signifi
cant, or not as significant as those who are now classified as in the
work force.
Bishop R a u sch . That’s right.
Representative B row n of Michigan. Because I think that is an im
portant thing to point out. If we go back to the good times, the socalled good times insofar as statistics are concerned, when unemploy
ment was down, we find that a lesser portion of the population was
actually employed because our work force has changed; there is no
doubt about that.
Mr. J ordan . Congressman Brown, it seems to me that the real
answer to your question ought not to be asked maybe of us, but of that
portion of the work force that is not in fact working. That is where
theproblem is. Thefellow who is not working, his concern is not
tnat the work force is PTpmtAr -nnntr
Vmf fhn
says
K«i?v-Wi A theirxTorij» th«y a®6 better, and they do better, they are
aithier, they eat better, and consequently the whole society benefits.
*
* think, whatever the intentions o f the administration
are, mere has to
dp,
a.
______
i*
j . i ____ a
_____ *
Ant
33
Representative B r o w n of Michigan. Well, your question about
policies that make that impossible, I think, leads to another interesting
issue. Teenagers constitute about 20 percent of our unemployment
today. Yet, probably teenagers and marginal workers are more im
pacted by, for instance, minimum wage laws.
It seems to me that minimum wage laws have always been aimed
at providing receipt of a decent wage—not necessarily payment of
a decent wage. It seems that the industries that are labor intensive,
activities that are labor intensive have been particularly disadvan
taged by those kinds of laws.
Therefore, it seems that in our wisdom we should be able to, from
a governmental standpoint, be able to in some way come up with an
evaluation o f the contribution of that worker, and see that he receives
through general contribution of the Government, through general
social consciousness, the difference between his contribution to his
activity, and what we consider to be a decent wage, so that he does
receive it.
When we have labor-intensive activities, whatever they may be,
and governmental floors on wages, and so forth, make it impossible
to function in this country. Industries move out, or they become
mechanized, and in doing so that very group that is the least pro
tected and has the most critical employment problem is the group
that is most adversely affected.
Mr. J o rd a n . I have two problems with that, Congressman Brown.
My first is, I don’t understand the difference between receipt and
payment.
Representative B r o w n o f Michigan. Yes, you do.
Mr. J o rd a n . I really don’t. Second, my problem is that I think
you have to have a minimum wage law. I think what you are im
plicitly suggesting is that we should probably work teenagers at a
lesser wage than their fathers. My fear about that is that the em
ployees of this country would not have their fathers at a higher rate,
but would instead opt to have the children have it, instead. It seems
to me that is the basic reason for the destandardization as it relates
to instances like the minimum wage law.
The difference between the receipt and payment, I don’t quite
understand that. I think when you work, whether you receive it, or
you get paid, you are in fact getting wages, and that is what the
game is all about.
.
. Representative B r o w n of Michigan. Well, the difference basically
ls? you would have a supplementation of that which the employer
w°uld be required to pay, and the individual would receive a decent
^age. But the law presently applies to who pays it, and that it h^s
to be paid.
Mr. J o rd a n . But it’s paid based on the work that is done, I think
that is probably the basic issue.
.
.
,
R epresentative B r o w n o f M ich ig a n . My tim e is u p , b u t m view o r
Jhe fa ct th at I h ave in trodu ced a job s b ill w hich w ould p u t people
. w°r k rig h t n ow , and th ere is som e question about its efficacy, I
]ust w ant to read a le tte r in to th e record v ery quickly*
34
This is from the Boston Redevelopment Authority:
Dbab C o n g r e s s m a n Bboww : On behalf of the Boston Redevelopment Authority,
I want to express my support for legislation which would accelerate community
development bloc grant spending in areas of high unemployment (H.R. 11860
and S. 2986).
Boston is one of those cities which has suffered a severe cutback m Federal
funding as a result of the change from categorical grant programs to the bloc
grant system. Boston is a city which is also suffering from an unemployment
rate of over 15 percent
However, Boston, because it has an extensive urban renewal program under
way, has the ready need and capability for using extra community develop*
ment funds and using them in such a way that jobs would be immediately
created. In fact, in anticipation of public works legislation, this agency has
already drawn up a work program for using supplemental funds from the Fed
eral Government.
The Community Development conduit is in place in Boston and extra funds
available to us under your legislation would have an immediate impact both in
terms of the improvements we have planned, but also in terms of jobs, par
ticularly in the building trades. Enactment of a program which can ease the
plight of unemployed workers in this city would constitute a wise and humane
move made by the Congress and we applaud your efforts in this matter.
I would applaud the Senate if it would do that which Senator
Proxmire said it would do, vote the bill up or down.
Thank you.
Chairman H u m p h rey [presiding]. Congressman, you can rest as
sured that the distinguished body of the United States Senate, that
august body will act, and will act affirmatively.
I appreciate your letter and we thank you; it is included, of course,
in the testimony.
Congressman Hamilton.
Representative H a m ilto n . Mr. Chairman, I don’t have a statement
to make except to express my appreciation to you as the chairman
of the committee for putting on this 30th anniversary conference.
A particular word of appreciation to our three panelists. These
have been very powerful statements that we have heard this morn^ j«st want them to know that they have certainly lifted my
sights; they have widened my perspective on this whole question of
unemployment. I want them also to know that it is certainly my re*
solve, as one Member of Congress, to do something about it. Your
statements had quite an impact, and I ’m deeply appreciative of them.
I am anxious to hear our
Mr
fn mm nnr
Chairman H um phrey. Congressman Long.
Representative Long. Thank you, Mr. Chairman.
t
• v t >n^reSSmiin Hamilton, I don’t have a prepared statement,
l might make one comment. I associate myself with Congressman
.Hamilton s remarks. I was most impressed by the statements all three
o you gentlemen made. They were, as he said, most powerful and
strong statements.
from my travels over the country to some degree, and my
18 rict m particular, that our fruitful ability— both yours and ours—
liaH m 'Tw
.m,es®a8® th® rank and file of the seriousness of the sit•fiil T
exv ! *5
United States today has not been very fruit
ful. 1 just can t find amongst what ought to be the leadership of the
35
country, at that tier, the concern for the problem that I think should
exist and is evidenced by the statements you made here today.
I think this is a job for us, it is a job for you, it is a job for all of
us. It’s one of these things that’s creeping up to a degree that doesn’t
attract the media to the extent as something catastrophic does; but
it’s creeping again to a degree that it’s nearly eating us alive, and if we
are not particularly careful, it’s very likely to, in a relatively short
period of time. I f we look at the degree and the severity of the re
cessions that we have had since the Great Depression in the 1930’s,
every time they have increased in severity, they have increased in
the period of time that they lasted. This seems partly true in refer
ence to one of the statements that one of you gentlemen made when you
made the point that we had that 3 percent unemployment and started
living with that; and then it went to 4 and we started living with
that; then it went to 5, and we started living with that; it went to
6 and )we started living with that; it went to 7 and we started living
with that, and now we are looking at an administartion’s program
that projects an unemployment for 1977 in excess of 7 percent as
something that we have to live with in order to resolve the other
problems.
This is something to which I can’t subscribe, and I don’t think
any of you can subscribe. But I do think it points put the danger of
the growth as it continues; that is a very serious situation.
Congressman Bolling in the House in the last day or two put out
something that I thought was very interesting, that made particu
larly the point that Bishop Rausch has made and perhaps is worthy
of your consideration.
He pointed out that the social security fund that has had the great
publicity recently, and everyone is very worried and with some rea
son, that, should we have unemployment not in excess of 5 percent
during the period from 1975, the beginning of this year, to 1981, then
the Social Security Trust Fund would receive during this period an
additional $4.2 billion instead of being depleted by an estimated $16.2
billion in that same period. We can see what the effect is going to be.
The financial effect of it is obvious; the effect in the social cost I
think all of you would be as concerned about as I am; the psycho
logical effect that the chairman spoke of is certainly something to be
considered, the mental illness that results from this, and the stress
and the strain that comes from it ; and certainly the moral effect and
the decaying of the work ethic that has made this country what it
is, which all of us have alluded to, but none has specifically put his
hnger on.
I compliment all three of you on your statements and say that I
think our problem is now—the psychiatrists say half of it is recogniz
ing what the problem is, and the other half is doing something about it.
1 think it’s down now to where we, as the leadership of the country
^cognize what the problem is, and our problem is to get the rest of
the people to recognize what it is and to do something about it, My
co5&ratulations to you.
Thank you, Mr. Chairman.
Chairman H u m p h re y . Senator Javits.
36
Senator Jaytts. I, too, would like to say that I think this testimony
has been very admirable, and I ’ll comment on it in a moment.
Before I do, I would like to associate myself with the statement
made this morning by the Vice President. One, as it related to his
congratulations to Chairman Humphrey, who I think has given this
committee distinguished and able leadership as its chairman; and
two, for his original authorship in connection with the Employment
Act of 1946, which came even before I was in the Congress I came to
the House in 1947.
Also, I would like to associate myself with the extraordinarily fine
and succinct statement of recommendations which the Vice President
made, which I think can really be a charter for anyone who thinks
as I do, and as the witnesses think, obviously, from their testimony.
Finally, Mr. Chairman, as to the statements, I find myself in agree
ment with the statements which, in the words of Mayor Gibson, have
coupled an effort to chart something of the future of America, for
planning—and you may remember that Senator Humphrey and I
nave proposed in the national planning bill, which in my judgment
should run parallel with the Full Employment Act offered by him
and Congressman Hawkins, of which I am a cosponsor.
I thank you very much, Mayor, for pointing out the fact that these
two go together. No corporation would dream of doing what
we do, running a planless society. So, the first prerequisite for full
employment is some kind of a; national effort to determine what will
be our priorities, and what we need to do in order to meet those prior
ities in terms of resources.
Second, I think you have all emphasized what our strength is, as
compared with totalitarian societies. In an economic sense we have
the^ power of conferring ownership and credit, which totalitarian
societies do not, and that these are the most important incentives in
vented by man to encourage work and adjust an orderly society in
economic terms.
And finally, and very importantly, you have expressed some great
caution. I would like first to start with Mayor Gibson because he
was the first to testify, and I call attention, Mr. Chairman, to his
statement:
.
yonJf’ the minorities, the women, the workers whose jobs have been
to machines and foreign competition must not be cast aside.
Its critically important to labor that we understand that we are
not going back to middle 19th century England and destroying the
machines. The machines have made us free. Our job is to see that the
labor power which is thereby saved is employed in accordance with
^ e dictates of conscience and of God, and not according to the denciencies and faults of man.
u Id °^ \ k n °w , mayor, whether you, yourself, realize exactly how
interpreted, but I interpret it that way, and I think it’s
a splendid approach.
^
like to draw on Mr. Jordan for his three ideas
ntives for private business, public works programs,
and expanded public service. That is exactly the policy which Senator
Williams and I an* trying to pursue in the Senate Labor and Public
37
Welfare Committee of which he is the chairman and I am the rank
ing member.
And lastly— as my time is up— I would like to make the bishops
statement a part of the record, Mr. Chairman,
Chairman H u m p h re y . Y es; it w ill be.
Senator J a v i t s . The question of the distribution of wealth in this
country is critically important. The fact is that we are beginning to
get there, we are truly an equalitarian society in which there is enough
ownership to guarantee freedom. I look at it optimistically, not pessi
mistically. Sure, there are disparities, but compared to the rest of
the world it’s an extraordinarily successful beginning of a truly just
society. I thank you very much for bringing it so sharply to our
attention.
Mr. J o rd a n . Mr. Chairman, I beg to leave in the interest of my
own job security. [Laughter.] I have a 12:15 plane that I must oatch.
Chairman H u m p h re y . Mr. Jordan, we cannot afford to have more
unemployment. In no way do I want to jeopardize your job security,
but I must say, despite the problems of employment, I doubt that
you would ever have any difficulty getting a job.
Mr. J o rd a n . I just want to be sure about that. Thank you very
much.
Chairman H u m p h re y . W e are very grateful to you, thank you
very much.
Now, gentlemen, you have heard the commentary of Senator
Javits, do any of you wish to respond?
Bishop R a u s c h . I agree with what he said.
Chairman H u m p h re y . All right, thank you. Congressman Bolling.
Representative B o llin g . I join the other members of the committee
in congratulating you on your statement. I think that we are com
ing this week— and I think it’s a happy coincidence, not entirely a
coincidence— to a crucial change in the question of legislation on full
employment.
Your testimony gives me great hope and optimism that we will be
able to accomplish the kind of legislation that we must if we are to
have a society where everybody has an opportunity to have a job. I
happen to believe that unless we are able to master that problem, that
we will in fact lose our freedom. The history of other countries that
have collapsed would indicate that dissatisfaction of a substantial
segment of the society led to a variety of extremist approaches, and
then ultimately led to the destruction of democratic governments.
, I believe that full employment, what you have been talking about,
is an absolute essential if this society is to progress in the future as
J* has in the past. I believe that the beginning that has been made
m the second draft of the Humphrey-Hawkins bill combines a flat
commitment to full employment with a method of _beginning the
planning necessary to achieve it in the Nation, is the right beginning,
.think what we are now in the process of is moving m to the begmI think what we are now in the process of is moving in to the
beginning of the legislative fight because, while government cannot
?° the job, it has to take the lead in encouraging all other elements
18 the society to coordinate and help do the job.
38
It will take everything we’ve got, business, labor, all the brains
we’ve got, all the abilities we’ve got to move this economy from
where it is now, with much too high a rate of unemployment, to a
point where it does not have a rate of unemployment.
My goal of unem ploym en t is frictional, that is that only the people
who" are between jobs are unemployed.
I would like to point out that many countries do much better than
the United States in terms of unemployment. Most of the developed
countries today do better in terms of the level of unemployment, and
I think we can learn from some of the other countries what needs to
be done. You cited a variety of proposals that need to be taken into
account; most of them are done in one country or another.
I happen to believe that it won’t be possible for this society to
continue to function if we have the tragedy of unemployment as it
is today. And I welcome your testimony because it seems to me that
it adds to the beginning, which started at the beginning of this week,
before the Hawkins subcommittee in the House of Representatives,
which adds to the efforts made by the Senator and other Senators
in introducing the new version of the Hawkins-Humphrey bill, we
are beginning the legislative fight, and that is the important phase.
We are moving from conversation to action, and I think your testi
mony gives us a great boost.
Chairman H u m p h rey. I want to quickly add, not only does your
testimony give us a great boost in the movement of development of
a national full employment policy, and the process to achieve this,
but we will need your active participation before the committees of
the Congress, and your insistence that there be action in the Congress,
one way or another. People have a right to know what Congress is
going to do on these matters.
^I would like to point out also that what we have presented in these
bills, H.R. 50 and S. 50, the full employment and balanced growth
bills, is above all a procedure, a methodology for achieveing the goal
of not more than 3 percent adult unemployment. We put it within a
time frame that is realistic, it’s no cpie in the sky,” it’s no theoretical
exercise; it is a very practical, achievable objective. We are going to
need the Conference of Catholic Bishops, we are going to need the
Protestant churches, we are going to need the members of the Jewish
faith, we are going to need the labor movements, the Conference of
Mayors, we are going to need business people, all of them to give us
a helping hand. This legislation won’t move without it.
aFe
to need the same coalition that accomplished what
we did in the comprehensive Civil Rights Act of 1964. I might say,
civil rights are very meaningless if people are poverty ridden, if
they are jobless; if they are the victims of violence and victims of
crime; if they become drug addicts; if they are lost in the ghetto
and m the areas of ^poverty and economic trouble—civil rights van
ish, that’s a theoretical exercise.
Now, having given you my point of view, and I have expressed it
before, may I turn to our discussants, those who have participated
m our regional hearings.
St*1* out now with Mr. Brenner, and move right on down
with Mr. Finney and Mr. Roy. What I would like to have here, if I
39
may suggest, you may have statements that you might like to make.
You might also want to pose questions to Mayor Gibson or Bishop
Rausch. And may I suggest that Mayor Gibson and Bishop Rausch,
you might want to toss a question to our discussants on this panel. In
other words, a little interaction here, if we can get it.
I might say to my colleagues, if you feel like you want to burst in
after a while, why, just go ahead and do it. One of the problems of
these committee meetings, they are so structured, they get dead. Let’s
liven it up, don’t be ashamed to be a bit impolite on occasion.
OK, go ahead, Mr. Brenner.
STATEMENT
OP M. HARVEY BRENNER, PROFESSOR,
HOPKINS UNIVERSITY, BALTIMORE, MD.
JOHNS
Mr. B r e n n e r . Thank you, Senator Humphrey.
Its become, I ’m afraid, quite difficult for me personally to con
tinue to make the kinds of detailed statements that I have done in the
past, largely of a statistical nature, on the relationships of changes in
the economy, particularly employment and unemployment, to health
and to aggression, largely because the evidence is becoming stronger
all the time as our technology in this field becomes more and more
nearly scientifically credible.
As more material enters the scientific domain, the material comes
to be accepted as a matter of fact, which is the way we usually have
ascertaining the accuracy of factual materials.
It is difficult to look at this material, however, on an unemotional
basis. We are finding, and have been finding over a period of years
that the fundamental statistics gathered by major agencies of the U.S.
Government hand the individual State governments and cities, now
unequivocally demonstrate that admissions to mental hospitals, both
on State and National levels, are strongly influenced by changes in
employment; they rise very sharply as a result of periods of unem
ployment; that the actual mortality rate due to suicide is very closely
correlated with economic fluctuations and is particularly sensitive to
fluctuations in employment. These are studies in part supported by
the National Institute o f Mental Health, the U.S. Department of
Labor, Manpower Administration.
It has been found that the actual mortality rate—not simply the
rate of morbidity—but the actual mortality rate due to each of the
major causes of cardiovascular-renal disease, this includes heart di~
sease, cerebravascular disease or stroke, or renal disease, kidney
disease, the mortality rates are sharply responsive to fluctuations in
the economy, nearly as sharply responsive as in suicide and our data
on mental hospital admissions.
It has been found earlier that infant, fetal, and even maternity
mortality, as has existed in the United States certainly since the early
1900’s, is sharply responsive to changes in the economy as well; and
again particularly to the rate of unemployment.
I had been under the assumption personally that the mortality
relationships indeed extended just this far. However, in a paper that
* njyself reported on at the American Association for Advancement
°f Science in national meetings, we now can observe that the total
40
mortality rate at virtually every age of the population is highly re
sponsive to fluctuations in the national economy; not only the long
term increase in per capita income appears to produce a longer iiie
span, even the shorter fluctuations in the economy, as these elements
of economic instability present themselves, decrease the actual iiie
span. The findings were reported for the United States, England,
and Wales, and for Sweden.
Chairman H u m p h rey. Would you clarify that, Mr. Brenner. You
said the statistical evidence on three countries on what?
Mr. B re n n e r. On the national mortality rate, on total mortality,
which includes all causes. In other words, we are finding that length
of life, in a word, is highly susceptible to economic stress, as par
ticularly refined in the short term by fluctuations in unemployment;
and over the long term by per capita income, or gross national
product.
The point we seem to be coming to— perhaps unpleasant to some,
or pleasant to others, as it may sound— is that with economic fluctua
tions, with the kinds of solutions that members of the panel have
been discussing, all of which involve money, money remedies— with
money remedies we are fundamentally talking about the purchase of
length of life.
This is a very peculiar concept, I think, to medical and epi
demiological circles, let alone figures prominent in the political sys
tem of the U.S. Government. W e had not, earlier, thought that money
expenditures per se influenced directly or indirectly, for very large
aggregates of the population the actual length of life. In fact, this
is statistically demonstrable; it is demonstrable in the aggregate for
total mortality; and for specific causes.
What the latter seems to mean, in turn, is that while we seem as
a nation to be quite prepared to spend dollars for the purpose of
health care on an individual level, or even on a national level—in
discussions on national health insurance—we are quite prepared to
spend money on health care as it involves health and length of life;
but we have not seen ourselves quite ready yet to take a preventive
remedy position of expending money vis-a-vis help to the economy
and particularly the unemployment situation and accomplish far
more than is possible under the health care system, specifically in
length of life; in terms specifically of mental disorder and physical
disorder.
I think soon we must come to the recognition of the translation
of such dollar expenditures to length of life and morbidity terms,
and aggression terms, and ultimately have to face the economic and
political reality that that indicates.
. Since testifying at the Atlanta regional meetings, and now bring
ing to your attention the findings presented at the Ameircan Associa
tion for the Advancement of Science, I have not made public the
findings of a study prepared by myself for the United Nations on
aggression and justice, vis-a-vis the economy, based on information
for three countries, the United States, England .and Wales, and
C&nada, in which it was found that crimes known to the police, ar
rests and imprisonment for all major crimes are, again, very highly
41
susceptible to fluctuations in the economy, and increase very sharply
and with a relatively short lag as a result of increases in the rate of
unemployment.
The package, then, that we sem to observe—and we seem to ob
serve it really for the first time in a statistical fashion, in a fashion
that economists are used to looking at it; that epidemiologists are
used to engaging it, and ultimately in the way that political econ
omists are used looking at this material, so as ultimately to be able
to translate length of life, mental disorder, aggression, into the sort
of quantitative terms that are amenable to economic analysis, so that
one might be able to say, as unfortunate as this phrase sounds, that
a certain precise level of unemployment, or change in that level, is
equivalent to the loss of life of so many Americans.
Under the Joint Economic Committee, under the leadership of
Senator Humphrey, I was asked to prepare a study for the Joint
Committee, which is in progress, which will attempt to do precisely
this, examining per capita income and inflation, but most particu
larly changes in employment and unemployment. We hope to be able
to come up with coefficients that will estimate with some accuracy
the relationship between quite exact levels of unemployment, for in
stance, and mortality or morbidity; or crime, homicide, as the sub
ject may warrant.
Chairman H u m p h re y . Mr Brenner, might I just interrupt. Is it
not a fact that in your earlier testimony you gave us some indications
of what we might call the “ lag time” insofar as State institutionaliation, and State costs are concerned?
Mr. B r e n n e r . Yes, Senator, that’s correct. I think it is very ap
propriate because in a case of illness, not only are the reactions often
unseen because the illnesses are unseen, but due to lag, say in the
case of cardiovascular disease, which is the cause of mortality of 70
to 80 percent of persons living in industrialized societies, in the case
of cardiovascular disease the lags in mortality may be as long as 5
years.
Therefore, it comes to be true that even now it is possible to
ameliorate the economic situation, particularly the employment situ
ation and in fact save lives because the lag in cardiovascular disease
is so long. It is true also of certain mental disorders, and it happens
to be true in homicides and certain other causes of death we are be
ginning to find.
Perhaps just one or two words additional vis-a-vis the excellent
testimony of the speakers, which I was moved by, all of which has
been quite relevant to my own studies of this problem.
Mayor Gibson and Mr. Jordan have alerted us to the necessity of
disaggregating quite finely estimates of the impact of the economic
situation by race, by age, by sex, particularly to examine the impact
on urban areas; and these are going to be quite different and much
more highly valuable than in the case o f the United States as a whole.
111 almost a little afraid to look at these data in detail myself; but
^ill be doing that as well for the Joint Economic Committee, if
^Senator wishes.
Finally, the many excellent comments by Bishop Rausch, but one
in particular that were o f importance to this particular work,
42
the issue of income distribution vis-a-vis justice, indicating full em
ployment is the foundation of a just society, which in fact looks to
be statistically accurate, not simply morally correct.
We are observing that in the case of crime, even m the case of
suicide and accidents, and cardiovascular disease over times the longrange trend of the economy is up. And yet, contrasted with that are
fluctuations in the economy, as principally dominated by fluctuations
in unemployment, that bring about particular increases m the rates
of suicides, homicides, accidents, and several other causes of mental
and physical disorders, despite the long-term growth in the economy,
employment fluctuations remain and remain quite substantial.
Indeed, so serious is that problem, for late teenagers and those into
their 20’s, the mortality rate has actually increased. Thank you.
Chairman H u m p rey. Thank you very much, Mr. Brenner. Our
next witness is Mr. Finney, president of the Woodlawn Organization.
Senator Percy.
Senator P e r c y . I would like to just introduce in 30 seconds the
truly enlightened leaders that we have in Illinois. The Woodlawn
Organization is one of the finest organizations that has been respon
sible for building an urban community and given hope to people
that I know of.
Chairman H u m p h rey. That’s a fine compliment.
Mr. F in n e y . I ’m not so sure, Senator, I can add anything to that.
Chairman H u m p h rey. Well, I think you got a good introduction.
STATEMENT OF LEON FINNEY, PRESIDENT, THE WOODLAWN
ORGANIZATION
Mr. F in n e y . First I would like to associate myself with the bill
proposed, S. 50, I had the opportunity to read it before in draft, I
have not read it in detail at this time; but I ’m generally familiar
with its contents. I think that it is in fact an appropriate approach
to the serious problem that I perceive in our country.
But off the side, let me get at some more testing matters. One, it
appears to me that we’ve got to get away from talking about percentages of the population that are employed or unemployed. These
are Americans we are talking about—they are people.
It seems to me that the comments that were contained in Mr. Jor
dan’s testimony were very important, that 17 million of our Ameri
can citizens are unemployed—17 million, not 8 percent, of a total of
200 million-plus; 17 million, that’s a lot of people; and 35 million of
our people are not fed well, they are in poverty. These are Americans.
You just can t kep throwing statistics around.
I heard someone say a few minutes ago that this was the greatest
country m the world. Well, OK, if you are going to compare it to
other countries. What about comparing its greatness from one citizen
u°i5e x
sure ^ a t 35 million of our people in this country
thmk that the United States of America is the greatest country in
the world because they are not privileged to go to bed with full
beUies; they are not privileged to have jobs; they are not privileged
to live in communities where they are free o f crime.
43
I ’m just very worried of us accepting the fact on some percentagebasis—I know countries that import workers. The Ford Foundation
sponsored a tour for me to go to Germany, and I was astounded to
find that in West Germany they had a negative employment rate,
that they had to import workers from elsewhere. How is it that a
Germany economy can work on full employment and the greatest
country in the world’s economy can’t work with full employment?
It astounds me that we continue to allow ourselves to operate on
some economists’ theories about people who are locked into our
shores here as American citizens, being unemployed. I find it un
acceptable. I don’t know how the Congress of the United States can
hold its head up when a matter such as this takes place, where 35
million of our people—our people, these are not alien people who
come from other shores, but they are our American citizens, are
somehow or other, we find, underprivileged, unemployed, and left
out of the system.
I look at my community, Woodlawn. We made great strides, as I
think Senator Percy has alluded to, but when you talk about a na
tional average of 8 percent unemployment across the country, you
are averaging in my city 35 percent. As far as I’m concerned, that’s
a depression.
I laiow that this country wouldn’t tolerate a depression over the
land, but it does in fact tolerate a depression in my neighborhood,
and neighborhoods like mine all over the country. And I want to
know why we, as public and private citizens, will allow a situation
such as this to happen.
Of course, we realize that every social entity is affected negatively,
as Mr. Brenner said, by an unstable economy and by unemployment.
I’m persuaded by the fact that maybe some of you are not aware of,
our crime rate is negatively affected in Chicago by the unemployment
rate that we have here. It worries me that we are willing to spend
$5,000 a year to incarcerate someone who burglarizes someone’s home,
robs someone on the street. Why? As Mayor Gibson and Mr. Jordan
have said, why? Because in many instances they don’t have any
other alternative than to steal, and burglarize, and to rob.
We spend $5,000 to incarcerate them for 1 year, and yet, we won’t
spend $5,000 to keep them on the street and give them a job, and
subsidize them until they can be accorded a job. I just wonder why
and how we can continue to tolerate a situation such as this.
You know, I ’m persuaded we have a serious problem in energy,
and it worries me, as it worries all other Americans. But I wonder,
you know, we talk about harnessing electric energy, harnessing gas,
and we talk about harnessing oil—but we haven’t gotten around to
the policy o f exploiting our most valuable resource and energy source,
and that’s manpower. We haven’t harnessed that great population
of ours, there are 35 million of us that are not harnessed, that we are
letting trickle through the system; 17 million we know for sure, are
*fTI? ployed. That is a tremendous source of energy, what about using
11* Aren’t there creative means of using human energy that might
supplement and augment our dwindling ore resources ?
1 m no metallurgist, or geologist, or anything like that, I ’m a human being; and I know there are people around who could work. It
73-285— 76_____ *
44
seems to me that muscles and their ability to work is a source of
energy. Yet, we don’t use it. We concentrate all of our time on con
serving oil and not putting in production human manpower and hu
man energy. I just find that somehow unacceptable, and I don t know
why we can’t get at that.
We conduct manpower training programs, and as 1 testified betore
this very same committee earlier this year—late last year, I showed
and demonstrated to this committee that we were able with man
power training programs to turn tax eaters into tax generators; that
we were able in fact to pay for every manpower training program.
As submitted by Mr. Jordan, every manpower training program that
we have ever conceived already paid for itself because we have been
able to put people back in the productive work force and they have
paid taxes that have gone back into our general tax reserve.
I’m worried somewhat by this concept of the trickle-down effect;
I’m worried also about laissez-faire Government, too. I think that
in certain times of crises the Government has the obligation to inter
vene in order to assure that its citizenry is well taken care of. I
worry about this notion of somehow or other stimulating business,
and maybe at the bottom things will trickle down.
I submit, Mr. Chairman and committee members, that we don’t
need a trickle-down effect for the Nation’s poor, not in my neighbor
hood, we need a series of tidal waves. We need massive input in our
communities in order to save them.
And I’m also persuaded by something else, and that is that every
urban city in this country—and I have visited most of them—every
urban city in this country is in serious trouble—serious trouble not
just from unemployment, but from the fact that goods and services
are dwindling. And yet, we cannot conceive of a way to use our man
power to put goods and services back into our urban cities. Why
can’t we find ways of using our manpower to produce goods and
services, housing, for instance, industry—take Newark, for instance,
you can see that Newark, as many urban settings, has lost much of
its housing stock; has lost much of its industry; has lost much of
its commerce.
Why can’t we use our manpower, our investment in manpower to
turn a Newark around, to turn a Cleveland around, to turn a Los
Angeles around—or turn, yes, Senator Percy, a Chicago in the be
ginning around because it’s in serious trouble.
So, these are the things^ I worry about, that I ’d like answers to. I
would like to see us rebuild our great cities. I would like to think
that every American citizen in this country would want to think of
this country as the greatest country in the world—at this particular
moment, however, I seriously doubt that 17 million unemployed, and
perhaps 35 million underemployed people, underemployed Americafrs think that the United States is the greatest country in the world.
Thank you very much.
Representative Long. Mr. Chairman.
Chairman H u m p h r e y . Yes.
Representative L on g. Mr. Finney, I ’m not in any way arguing with
anything you say, but just to make an additional pomt
45
I represent basically about half a million people in Central
Louisiana who are poor, and who for the last 5 years the unemploy
ment rate, the figures are less accurate even than in the cities* Of
course, they are scattered, they are hard to find, the people are hard
to find; they don’t know where to go and report. And for the last
5 years the unemployment rate has exceeded the national average
every year by at least V/2 percent, those that have reported.
M r. F in n e y . H
ow
m any people is th at, C ongressm an?
Representative L o n g . About a half million. I have never trans
lated it into number of people.
Mr. F in n e y . See, that’s what continues to worry me, we continue
to talk about percentages of people. We don’t look at the idea that
at some point there is a human being behind that percentage.
Representative L o n g . I recognize every one of them as a human
being because I drive down those country roads in this south Louisi
ana fringe area, and I see them, I know them as human beings. I run
into them as people that just can’t find a job anywhere.
All I ’m saying, and that is not to take away in anyway from what
you are saying, a great deial of the attention has been given to the
metropolitan and to the urban areas. The problem is just as real in
dealing with human beings in those areas as it is in the urban areas,
they are just harder to find because they are scattered over broader
areas.
Mr. F in n e y . There is no question about that. That also reminds
me, and that is the one question I would like to pose to everybody
here, I think that we are going to have to relate two things. We have
a large portion of our population that’s just simply unemployable,
we have to (admit it, there is no sense in ducking it.
And we have also a large portion of our population that is em
ployable. Now, any program that we devise—and I hope that this
Senate bill 50 doesn’t follow the 9ame fate of the family assistance
program, where it was talked to death in one House and voted on in
the other one, and nothing ever happened to it—but the point is, I
think we are going to have to relate those two matters.
. We have to have a guaranteed annual income for those that are
simply unemployable, one that’s livable. I ’m not talking about some
thing that we can afford, something that we think we can afford, but
that is livable. Senior citizens at this particular point in time are
eating out of garbage cans because the old age benefit contributions
they made over the productive years of their lives are not adequate
for them to sustain themselves in an inflationary economy—they are
'rJ^a*n no^ adequate.
There are people who are on welfare who have to eat one meal a
order to sustain themselves because there is not enough in the
welfare largesse for them to sustain themselves. That is one side of
the picture.
The other side o f the picture is the matter of, what are we going
to do for those that are unemployed? I think we have to look at these
patters together. I don’t think we can continue to separate them, and
rt?n<?er ^ anybody has an answer to it, Senator.
Chairman H u m p h r e y . I s u r e ly wouldn’t disagree with you for ft
foment, I think you are absolutely right. There is one category that
46
we call “ unemployment employables,” and even m that category
some of them would require training and a period of time to bring
them into the technology which is now related to employment.
Surely, there is another category, as you probably put it, that are
unemployable, or are not eligible or available for employment. For
us to go along with the Jerry-built system of welfare that we have
today, some of these people are the recipients of as much as 14 or
15 little programs; they get a little here, and a little there, and a little
here, with administrative costs that are staggering.
I think if we ever found out the total amount of money that is
spent on administration of these innumerable Federal, State and local
government programs we have, we would be shocked because that
money goes to people that are really not unemployed, or unemploy
able; those are people that are administering the program for the
people that we are supposed to be helping.
M r. F in n e y . One suggestion, Senator, that we fire all the social
workers and give the money to the welfare recipients, that’s who
needs it.
Chairman H u m p h rey. By the way, Martha Griffith, a former Con
gresswoman from Michigan did an amazing study for us here on the
Joint Economic Committee, which is the basis of new legislation that
will be enacted. To put it frankly, the first and immediate task of
Government in this field that we are discussing right now is to clean
up, reorganize, and establish under decent standards a program of
family assistance. That is absolutely essential, to get away from
what we’ve got at the present time.
Let me just quickly say—and then I ’ll turn it over to anybody
else—your figure on incarceration of $5,000, I want to help you, it’s
about $12,000. It’s $12,000 per person that is incarcerated in anything
else but a county jail.
Mr. F in n e y . I was giving you a county jail figure. [Laughter.]
I was. I’m giving you the figure for the Cook County Jail.
Chairman H u m p h re y . Well, when you get into State prisons and
Federal prisons, it’s staggering.
Mr. F in n e y . I ’m aware o f that.
Chairman H u m p h rey . Again, what’s needed, if we had enough
time, staff and so forth, what’s needed is a total tabulation, an aggre
gate figure of just the direct costs of criminal justice. The direct
costs, not indirect.
I tell you, if you saw that, you’d have a big bump on the middle
of the forehead, the middle of the eye, so to speak.
Mayor G ib son . Mr. Chairman.
Chairman H u m p h re y . Yes.
Mayor G ib son . There is one point that should be made here, before
I forget it, and that is in relation to Congressman Long’s comment
about his constituents, and their needs; and the fact that he felt that
m many cases the attention bad been directed towards urban centers.
♦i. * %rea't deai
that attention has been media attention, attention
that has not delivered basic services to the needs o f these people*
What has happened, I think—and that is one of the pitfalls that we
that his oonstituents and my constituents both are suffering
equally; and in many cases we are pitted against each other in trying
47
to get benefits for our people because we really don’t understand. I
think a part of the strategy generally has been to keep us in opposi
tion to each other. Blacks being in opposition to whites, both of them
suffering, and none of them receiving the basic needs and benefits in
our communities.
I think we have to get ourselves together to deal with that because
Newark has suffered, and his constituents have suffered; and I think
many people believe that Newark has benefited in this furor of Fed
eral programs, but Newark has not benefited. The unemployment rate
is 20 percent, ladies and gentlemen—that is depression. That is my
neighborhood, by the way, a city of half a million people.
Chairman H u m p h re y . Mr. Roy, we want to get you in here, and
then we’ve got lots of things we would like to talk to you gentlemen
about. You were with us in Boston, is that correct?
Mr. R o y . Yes.
Chairman H u m p h re y . Just do with us as you did in Boston, give
us your experiences.
STATEMENT OF GREGORY ROY, UNEMPLOYED WORKER, BOSTON,
MASS.
Mr. R o y . Senator, I thank you for letting me come here. I ’m from
Boston, Mass., which has one of the highest unemployment rates in
the Nation.
I am one of these statistics that they have been talking about here
all day—I am unemployed. And when you talk about in terms of
“ what is it like” , Congressman Long, who just left, said it best, it’s
catastrophic, absolutely catastrophic.
I had intended on buying a home this spring, but last year, almost
1 year ago to the day, I started to look because of dissatisfaction with
nay job. I have been looking for this year, and there still is nothing.
Senator Humphrey has through the Joint Economic Committee
brought, as he said, “ the Government out to the people” , and it’s the
best thing that ever happened. But, I have a question for the Sen
ators—unfortunately the rest have left—why does it take a national
emergency for the Government to do anything about it, why ?
That seems to me to be the whole thing with the United States,
the American people, they wait until somebody is killed; they wait
until there is a flash flood; they just wait. Why do they wait? I f you
want to interrupt and answer my question-----Senator P e r c y . I don’t understand what you mean, Mr. Roy. Un
employment compensation is a steady, consistent program. Anyone
unemployed who has unemployment compensation, there is no crisis
necessary—it is a crisis in their family, I recognize that—and of course
we^ are is available to them also.
, The Congress has acted on these matters, and the Presidents, m
the past, beginning with President Roosevelt back in the 1930’s.
Mr. R o y . That wasn’t my question, Senator. My question rather was
because of the employment statistics which are still being battered
around here, nobody knows for sure. And, like Mr. Finney had to
Say? speaking in numbers of people, not statistics.
48
Why does it have to get so high, so high before the Govenment
decides to really get on the stick and try to develop a work program,
and so forth; that’s the gist of that questionWhy isnt there any
study being done on solar energy technology? We have thousands of
unemployed engineers with brains that astound. These gentlemen are
knowledgeable in the field, yet, they are unemployed and cant get
^ Now, let me tell you why they can’t get jo b s —-because they are over
40 years old. Any company, any corporation with an insurance policy,
group insurance policy, as soon as you hit the age of 40, the price
goes up. So, it’s uneconomical for them to hire them, they are too
My problem is, I ’m too young, and I don’t have a college degree.
Two weeks ago to this very day I was told by the c o m p a n y president
of a large firm in the Boston area, after consulting three times with
the vice president of the company who wanted to hire me; everything
that they needed I had. The company president asked me one ques
tion, “Do you have a college degree ?”
I said, “ No, I have an associate’s degree.”
He said, “When do you expect to get it?”
I go to night school to continue, I said, “ 1977, next year.”
He handed me everything back and said, “ See you next year.”
The vice president’s mouth dropped, he could not believe it. The
president also went on to say to me, “ Do not go for your master’s
degree, or don’t even bother with us.”
I know of unemployed schoolteachers with doctorate degrees. They
have to prostitute themselves when they go for a job. They have to
tell these school boards that they have a bachelor’s degree, they can
not go and say they have a master’s, or a doctorate’s—it’s that bad.
I represent a group of unemployed professionals, 40 percent of
whom are teachers, schoolteachers; 35 percent that are professional
technicians and scientists of engineering firms; and the other 35 per
cent, attorneys, attorneys that cannot get a job because they did not
graduate from Harvard, Yale, or Dartmouth.
Senator P ercy . Mr. Roy, I just can’t really provide a forum of
this kind to you to make such statements that are just absolutely un
true. You are unrealistic about it. I just came from the Jones Com
mercial Hi^h School in Chicago with 600 students, and 85 percent of
them are able to get jobs; they take courses in accounting, book
keeping, secretarial services. They don’t need a college degree to
do it. Are you trying to say to the American public that you have to
have a college degree, or a master’s degree in order to get a job in
America? There is no factual basis for that kind of a statement, and
you know that.
Mr. B o y . I agree with you, sir.
Senator P e r c y . I really think it’s a waste of this committee’s time
to have that kind of testimony. I really would hope you would come
down to something that we could do something about.
Certainly, you have asked the question, why does the G o v e rn m e n t
f~eP
these extraordinary things when unemployment gets
mgh. There is a simple fact of life, we have the freedom to move in
tiiis country, and 20 percent o f our population decides to move every
49
year. There is a certain percentage of unemployed entirely through
the voluntary action of individuals. They want to move to Cali
fornia, they want to move somewhere else. There is no reason to have
a crisis over that and return to government which rims a huge deficit.
They voluntarily decide they are going to move from Illinois to Ari
zona, for instance.
What we are concerned about is involuntary. What we are con
cerned about is Leon Finney’s people who want jobs, who have the
skill and ability, who should be able to get employment. What we
want is a insight tas to what we can do about that.
I don’t think we can guarantee 100-percent employment, nor can
we take away the liberty of people to quit, to find a better job; nor
can we presume that everyone has to get a college degree in order to
get a job—that’s not factual.
Chairman H u m p h re y . Mr. Roy, don’t feel intimidated. This is an
open forum, we may have a senatorial title, but we are just men and
women. Go to it. [Laughter.]
Senator P e r c y . I ’d like you to come back at me, you asked the
question and I tried to give you an answer. Come back at me.
Mr. R o y . Senator Percy, don’t misunderstand me, but it seems to
me, being unemployed, that there are two classes of unemployed, the
professionals and the unskilled laborers.
Before I came down to Washington I took a poll outside the office,
the local office where people collect their checks. The statistics are
incredible. I f I may, 50 percent said there were no jobs. Out of the
100 people that we took this poll from—many, by the way, refused
to even answer. I said, “Why,” and they said, “We don’t really care.”
That’s the attitude.
You know, politicians, as far as myself being a city boy, country
boy, call me what you will, common citizen—there is so much dis
sension with the Government, politicians. We all think that you are
“fat cats,” et cetra, that’s the general attitude, you hear it from your
own constituents.
Well, these kids don’t care. This is the whole thing, you are dealing
with the waste of the younger generation. I ’m only 27, 28 years old.
I mean, people laughed in my face, a 25-year-old guy, he laughed.
He said, uBig deal, you are going to Washington, you are going to
testify—big deal.” I said, “This is for you, so I can present this to
Congress.” “ I don’t care.” This is the thing you are dealing with
here.
In Boston, Representative Mel King, talking about the blacky 34
percent in Boston unemployed, I couldn’t believe it. I was sitting
next to him, I couldn’t believe it.
So, this gap, it’s just phenomenal. People just don’t care anymore.
I asked the manager of the local office, “What type of jobs are you
getting in here?”
Chairman H u m p h re y . What local office are you speaking about.
Mr. R o y . These are the claims offices, Senator, where people pick
up their checks.
Chairman H u m p h re y . The unemployment compensation checks?
M r. R o y . Y e s , sir.
Chairman H u m p h re y . Thank you .
50
M r . R o t . Our State provides services of open listings. The maioritv -were minimum wage, for dishwasher, or secretarial. Now, how
S you j S S y rn im u iw a g e, if they get $2 25, $2.50 an hour and
after taxes probably take home a check for $80, $85 a week, ^5^.^
State pays you $90 a week tax-free? It pays you not to work. This i
the type of situation that we have.
.
Senator P e rcy . That sounds like a statement made by one o f my
hard-line right-wing businessmen. Would you expand on that, what
do you have in common with them? Are you saying that we have
unemployment compensation levels so high that it pays Mr. R o y , It pays not to work.
.
Chairman H u m p h rey. Well, I ’d like to put a caveat in there, how
do you live on $80 a week? I mean, you know, they talk a b o u t unem
ployment compensation levels are high, and I get into that syndrome,
too. But I want to tell you something, I happen to live in the city
of Minneapolis, which is the fourth-highest cost-of-living city m the
United States, according to the latest survey. How are you going to
get by on $80 a week?
Mr. R o y. My wife works, Senator.
. . .
Chairman H u m p h rey. That’s the point. The real point is, instead
of talking about the levels of unemployment compensation being too
high—how are you going to buy shoes? A mother’s got to buy the
children shoes, a little baby’s shoes are $12, $14, for a little pair of
shoes as big as that—and she’s got to have shoes. I f you have to heat
your home, how are you going to pay for that heat? How are you
going to pay for that rent?
I ’m talking about people that don’t want to go on welfare, the
working poor of this country. And I think a lot of us who are living
very well, we forget about the working poor in this country, and
there are an awful lot of those people.
Now, you get talking, Mr. Roy, because when we were in Boston
you were telling me about these scientists and these technicians that
have ability and have talent, and which the Government spent mil
lions to train. You know, everybody who goes to college is subsidized.
Any person that ever went to a university o r college a n y place in the
United States has been the recipient o f the largest subsidy th a t’s been
given to any individual citizen. We all know th a t, we all owe the
country something. We all owe the country at least 5 years o f our life
because we were paid fo r. When I graduated fro m th e university, I
was given my education. My people never had a chance to go to the
university, and I haven’t forgotten it. That goes fo r the Senators
that have a college education, or anybody else.
So, what about these people you were telling me about? Just feel
like you are in Boston, Washington never scared me, and I don’t
want it to scare you. You just go in there and dig.
Mr. R o y. Thank you, Senator. What I was trying to do was get
a little discussion going here.
Chairman H u m p h re y . Y o u g o t it g o in g .
Mr. R o y . Thank you.
I belong to a group of unemployed professionals, and we band to
gether to conduct workshops, and we try to retrain each other in how
to go about getting a job, finding a job. W e know, for instance— our
51
group has 500 active members any given week of the year that’s un
employed, by the way. We are all unemployed, we are not paid.
And yet, we do a great service. I mean, I have seen people come
in shaking. You heard Mr. Brenner talking about the health prob
lem and unemployment. Have you ever seen a man walk in the door
in January, just bright and chipper, knowing he has just been laid
off; and when you see him 6 months later, that man is ready for a
heart attack, I have seen it. It’s just incredible, the change in per
sonality of the man, the physiological makeup of the person, it causes
such distress.
We help place people back into the job market. We have a place
ment service. We openly solicit jobs from companies and try to match
our people with these open positions. So far we do about one out of
four, on a weekly average, which isn’t too bad, but it could be so
much better. But, we have flagrant violations of discrimination. We
know, for instance, our local newspaper, the Boston Globe, every
Sunday advertises the uHelp Wanted” ads. The first page is com
pany A, no names. The second page is company B. And yet, they
will not talk to the unemployed, they are simply advertising for each
other’s personnel. That is called company sabotage, or whatever you
want to call it. They will not talk to any unemployed individuals.
And I venture, I offer that as testimony, you have your aide some
time just try a local advertising out of the newspaper. Have one call
up and say, “ I work for so-and-so,” and have the other one call up
and say, “ I ’m unemployed,” and let him get the reaction. Find out
for yourself what it’s like.
The corporations, the personnel people have to be so retrained.
They put an ad in the paper, and they think they will get 25, or 50
resumes—they get a thousand per Sunday, the New York Times.
The Tuesday Wall Street Journal, 800; the Boston Globe, 500. These
people are amazed. I have gone into interviews and the man threw
bis hands up when I asked him how many people answered. “ I never
believed the amount of people that answered” is usually their an
swer.
They have to be reeducated, that is our field. Back in Boston I did
a more chronological type of presentation. Usually, the first 2 weeks,
when you get your pink slip, or whatever, you take a little vacation.
But after that you start looking, you start looking in the newspapers
and employment agencies. In the meantime, you have been painting
your house six times and mowing your grass three times, and raking
the leaves, but you can only do so much. The frustration keeps buildjug and building; and I might say, the credit keeps building and
building. The bills still come in, the oil has to be paid; gasoline has
to be paid; telephone has to be paid. All these compound traumatic
experiences, I can see, cause some psychological and physiological
unpleasantries. It’s the human factor we are talking about.
And there is also a very definite stigma with being unemployed,
l^et me put it to you this way, you find out who your friends are
awfully fast. And as soon as you truthfully tell the employment perthe hiring person, that you are unemployed, he completely turns
off to the job at hand and wants to know why you are unemployed.
52
This is the type of situation we always come across, and I venture to
guess anybody here can try it.
I would like to address Bishop Rausch bec&use I don’t know where
the church has ben all this time, but finally they are starting to do
something about it. They feel the pinch of unemployment, their
parishoners can’t put money in the basket. One group has been asked
on several occasions now to go out to the church groups and to talk
to the parishoners. We have had no less than 50 people at any one
of these church groups. We do this free of charge.
This was the point I was trying to make earlier, Senator Percy:
Why does it take so long? I mean, what’s happened here is that the
unemployed have to turn to themselves. It’s the great story about
the American people: If they are going to do it, they are going to
do it themselves.
Chairman H u m ph rey. Can I interrupt to tell you why? For the
same reason that the American people alerted to the energy short
age, there was never any lack of information on it, any more than
there was ever any lack of information about the fact that the Soviets
were going to launch Sputnik. We know they were going to do it, it’s
all there; we’ve got an information glut.
But I happen to think that Americans, like most people, have a
what I call physiological politics—empty stomach, full head; full
stomach, empty head. Until disaster comes, how do most people take
care of their health? They all go bargaining around, abusing them
selves, until one day they have a little heart attack—hopefully it’s
onI^ a httle one; or it’s something else that goes wrong.
n*n .
once’ *;hey are out jogging, swallowing the vitamin
pi s, they are out looking for organic food, deep breathing and do^ ai\d a^Jnsorts ° f things. Up until then, why, it’s potbelly
5 buffing and puffing. I suppose it’s a part of the human equation.
want to make note right now that I want the staff—
qfof_ thmk my colleagues will be appreciative of this,—give us a
T) .. y^ktate unemployment compensation rate; so that we will have
*
what did you say, $80, or $90—I would like to know what it
Dakota, Minnesota, Arkansas, Indiana, Mississippi,
In nr»p
t Y ^erseJ* W ell take a look and see what people get.
cnn w ? ^
lt s1$60 a
Now, I want to tell you, you
can have a real “bust” on t w
i 7
J
naI e
my own personal resume to look to the
eoin©- m
°*^e me f 1°^*
not going on college degrees ; I’m
Chairmfm^^enCe?
^a.ve to °®er 95 an asset,
experience?
mn>HKEY- What is your background, and what’s your
marketing. But, I have turned around to the pubI reallv want
n° W’ 8 ^)een
for me, as a young fellow;
when I tnm 40
^.now
public service. I dread the day
the public
^rn i
me’ I36011118® when I ’m 40, if Fni nj
principle. I k n w i P™kably
laid off just because o f general
53
Chairman H u m p h re y . Don’t try it, my frien d , you’ll h ave n oth ing
but trouble. [Laughter.]
And I assure you, when you get laid off here, you are laid off.
[Laughter.]
Mr. R o y . Thank you very much.
Chairman H u m p h re y . All right, Senator Percy, and then Senator
Javits.
Senator P e r c y . I ’ll be happy to yield to Senator Javits.
Chairman H u m p h re y . You’ll get another chance in the other round.
Senator P e r c y . I would like to ask our witnesses first whether the
proposal made by the President to Congress would offer some hope
in the area o f Woodlawn, where industry has gone out. One would
like to attract industry to Chicago, inside the city. It’s so far to go
out to the suburbs, that’s one of the great problems.
Would this investment tax credit that the President offers for any
area with unemployment higher than 7 percent, you can write off
plant and equipment in 5 years. What a tremendous incentive for a
company to build in those areas, rather than go some place else.
Would you think this is the place we should put our money to
provide incentive on private jobs, then, in addition to public service
jobs, which all of us have supported.
Mr. F inney. Senator, let me respond this way. One of the reasons
why industry leaves the poor areas of the cities is because the cost
of business is getting too high, the cost of doing business is too high.
They flee because of various factors that influenced that total cost.
Certainly, the proposal as I understand you are presenting it, that
the President is making, which might reduce the cost of doing busi
ness in the city and thereby encourage industry to relocate there. ^
But let me also quickly add that you’ve got other things that in
dustry worries about, and that is a skilled labor force. So, if you
locate industry there, you’ve got to have skilled labor, or those pro
grams to raise the skill levels of people who might be able to enjoy
the jobs.
There are other problems, too, which you have to be concerned
about, and one of them is the effective rate of crime, how safe the
area is because that’s another cost of doing business.
And then, finally, you’ve got the problem o f public education. In
many instances industry does not locate in a given area because the
public education systems are so bad, so terrible, that their employees,
who want to live in close proximity to the plant, don’t have adequate
places to send their children to school.
,
I think that as the President, and as the Congress considers the
matter that the President presents, it has to take a look to its size,
as well as straight at that bill, and see whether or not there are not
companion provisions to be made to assure that as that bill goes
through, it is not seen as a panacea, but only a cog in the machinery,
the total machinery that may stimulate the economy in a given com
munity.
J
J
Senator P e r c y . I would like to ask another related question, and
certainly, Mr. Brenner and Bishop Rausch and Mayor Gibson inight
nelP on this, just a very quick reaction as to whether or not^though
We aU believe in public service jobs, we recognize that essentially 80
54
percent of the unemployed have to be employed by the private sector
m the long run.
Could we do the same thing in what we have termed a human in
vestment tax credit, if industry would hire people and pay a portion
of their training, and train them right there in the factory, on the
job, for a real job that they know will exist; then, should we put
that human tax credit behind it which would mean a subsidy for
part of that training cost?
Mr. F in n e y . Senator, I don’t want to presume on Mr. Brenner,
but I think probably to that question I ’m the most expert person
here to answer, and I’ll answer it.
We’ve experimented with this whole concept of on-the-job-traming, and reimbursement allowances for the employers. There is no
doubt in my mind that is a sane way to go. As a matter of fact, in
Woodlawn we had the first program ever funded by the United
States that coupled the idea of training people at an institutional
training setting, and then moving them from the classroom to the
job, and then paying the employer to further train them.
We have had tremendous success with that, it is an excellent idea
and it should be revived and stimulated, money put back into it. I ’m
for on the job site training, off the job site training, wherever we
can train them, get them trained, and get them employed. There is
no doubt that ultimately most of the people that are unemployed
must be employed in the private sector. Yet, we need public inter
vention to do that. We just can’t leave it to industry alone to do it,
you must have the public sector to intervene in the economy, the
state of the economy in a given area in order to get people into jobs.
Senator P ercy . I have just 1 minute left, so I would a p p recia te
it if we could have one or two answers-----Chairman H u m p h r e y . Y ou take your time.
Senator P ercy . Have any of you had working relationships with
Leon Sullivan’s industrialization centers, and could you comment if
that ls^an approach we should really beef up now, and more ac
tively fund?
Senator J a v its . Would the Senator yield ?
That does not carry a stipend, that’s the big difference between
that and CETA training.
Senator P er cy . Thank you.
Mr. B r e n n e r . I have no direct experience of the programs you
are speaking of, my work has been largely of a statistical nature,
snowing relationships of national economic indicators* occasionally
btate and city, with statistical measures of variety o f social path0
ranging from morbidity and mortality to homicide and other
criminal behavior.
1 I think that the only problem I find with the proposals I have
heard at the moment, that they appear to be singular. I do not get
© sense of a generalized approach, rather specific proposals. Now,
? " T * ^?ere ^an °nly be specific proposals when one is proposing
anything. Yet, what it. raises is a series of “ if” questions.
j ? 1? would ask “ if- the government subsidizes industry to train
* l f £ lre 9
of individuals, would that work. Well, it is a periectiy empirical question, it might work and it might not work. I
55
don’t know that there is any way to assume that it would work, it is
a function of many things. It is a function of the general state of
the economy, obviously, as well, as Mr. Finney has pointed out.
There are a variety of proposals, all of which might be very nice
if it were demonstrable that they did indeed work.
I think your question is at the moment somewhat theoretical, and
it’s difficult to give an empirical answer to it.
Mr. P e r c y . Bishop Rausch.
Bishop R a u sc h . I would like to make a comment, and I don’t
know if I ’m hitting the nail on the head at all. It seems to me that
if we are going to give business a break, we ought to give them a
break when they invest in people. If in our operation—we have
about 220 employees, and we have a program in the building where
any person can further his education at our expense if it’s job re
lated. He gets time off from work, and we pay the tuition if he or
she successfully completes the course.
These people can leave us once they get the degree, or whatever. I
don’t worry about that at all, and I ’d better not, m my position. But
the fact is, what we have done, we have invested in human beings.
This country spends billions and billions of dollars on education
every year for people. But then, when they are done, there is no
place for them to go. This is another problem which I think needs
to be looked at.
But I would like to address something else while I have an oppor
tunity, and that is-----Senator P e r c y . Bishop, you will have to be very brief because
we’ll have a final call on a vote.
Bishop R a u s c h . I will be very brief. I want to make the comment
that I taught the Full Employment Act for 10 years to high school
kids. These kids didn’t believe that act because of what they ex
perienced, except at election time; then jobs became available. But,
if they were in an unemployed family, they said: “The law isn’t any
good; on paper it’s good, but it doesn’t have teeth in it.”
I think whatever this Congress does, however you fashion that
legislation, it’s got to be legislation that has teeth in it; that it is
is not a political tool, but a tool for human development.
Senator P e r c y . Could I ask Mayor Gibson to respond? We have
2 or 3 seconds.
Mayor G ib so n . On-the-job training, with a job at the end of it
has been demonstrated to be successful, as Mr. Finney pointed out.
We have used it in the city o f Newark. It has been used effectively.
It’s a good program.
Chairman H u m p h re y . W h a t do you think about the investmenttax-credit type of idea in the area of severe unemployment?
Mayor G ib so n . I like the on-the-job training program better. I m
not opposed, of course, to the capital investment type.
. Mr. F in n e y . On Leon Sullivan’s program I would say this, that
*n a depressed community the best volunteers are paid volunteers,
r don’t want to cut any program, but if it doesn’t carry a stipend,
it cannot be anywhere close as effective as a program that carries a
stipend with it. In maany instances those people have no means of
mcome. They need some subsidy in order to live.
56
Senator P e r c y , I would like to say to Mr. Roy that we appreciate
you being here. I wanted to provoke you into telling a story that 1
thought you had. I don’t want you to leave here without a feeling
that Senator Javits, or Senator Humphrey, or Senator Percy are
dealing in a theoretical sense with this problem.
It was 40 years ago right this year that my father got a job for
the first time, I think, in 4 years, at the bottom of the depression, a
steady job. We were on relief, and I saw the crushing, humiliating
effect upon a man that had worked all his life as a skilled worker
and couldn’t get a job. He wouldn’t accept welfare, and we sat there,
got thrown out of apartments and had our phones cut off; we had
no utilities and services. He fought, and fought, and fought to some
how stand on his feet. I know what people go through, and Senator
Humphrey knows just as well as anyone, Senator Javits went
through it.
We are trying to find the right programs; and your appearance
here today, just reminding us of the fact what we went through and
saw our parents go through; people are going through it today.
They are not statistics to us at all; they are human beings; and we
want to do something about it.
Your presence here has been immensely helpful to help us in
finding the right way.
Chairman IItxm phrey. I think we’ll have to conclude. I want to
conclude on this note, what Senator Percy has said. I was always
very close to my father, and I said that the depression took 10 years
out of his life, and I ’ve never forgiven the economy for it, to be
frank about it. One of the reasons that I ’m in politics is because of
that.
I used to see my father sit at his desk with his head in his hands,
a proud man, knowing that there were bills that we couldn’t pay,
taxes that were coming due, and we were literally on the verge of
being thrown out of our little family business. I have never for
gotten it, and I have never forgiven some people for what I think
was the malfeasance in office, the unwillingness to face up to the
hard realities of the time. And of course, when Mr. Roosevelt be
came President, to me he was like a savior; I have never forgotten
that, either. I have had people ask me why I am the way I a m — not
because of what, I have learned in college, but because o f what I
have learned of South Dakota economics during the depression. I
have never forgotten it, nor shall I, as long as I live.
That is why I am for economic policies that prevent this country
from going into such an incredible economic catastrophe that we
have suffered. I ’m sure that my father lost 10 years o f his life be
cause of that it took him from me 10 years sooner, and I shall not
forget it.
^
?
Now, having said that, let me say to you that it is my judgment
that nothing is really going to happen around here unless people
are going to understand that things are different from what they
used to be. In 1930, about 35 to 40 percent of our people lived in
mailer towns and rural areas. Today, we have the intensification of
the social aspects of unemployment and recession in our cities, as
57
Mayor Gibson can tell you. There has never been anything like
this.
During the 1950’s and 1960’s we were able to, at least, with rising
employment and production, as we said in the 1960’s, 10 million
people worked their way out of poverty into middle income. In the
last year and a half a million and a half have slipped back into
poverty. Plus the aggravated conditions in the cities with the rise
in crime and all, it has placed an incredible new problem before
Government, before organized society.
That is why your testimony today, Mr. Finney, and yours, Mr.
Brenner, and yours, Mr. Roy—Mr. Roy with technical, skilled
workers, college-educated people unemployed, scientists, technicians,
unemployed.
I couldn’t agree with you more, when we cut the space program
back, we laid off thousands of skilled people. Instead of cutting it
back, we should have put it into solar energy. Anybody with the
brain of a March Hare knows that we should be doing something in
solar energy. You could be a “ Mortimer Snurd,” and you’d know
what to do about solar energy, except this Government has got
paralysis of the brain when it comes to figuring out what we ought
to do.
I got a bill passed for $1 billion of solar energy research. I have
tried to convince my colleagues in Congress and finally got a
hundred million of it—a hundred million. One of these days when
the lights go off, why, we’ll find out that we ought to do something
about it.
In the meantime we are going to keep working; keep the faith;
don’t give up. I ’m an optimist, and I ’ll recess the meeting until 2
o’clock when we’ll be back here with Congressman Brown introduc
ing the panel.
We are going to have Paul McCracken, former Chairman of the
Council of Economic Advisors; Murray Finley, general president
of Amalgamated Clothing Workers of America; Reginald Jones,
chairman o f the board of General Electric on our panel; and we
have a panel o f discussants that will also participate.
We thank you very much. I have to go vote.
[Whereupon, at 12 :55 p.m., the committee recessed, to reconvene
at 2 p.m. on the same day.]
AFTERN OON SESSION
Chairman H u m p h r e y . We reconvene now the special meeting of
the Joint Economic Committee on its 30th anniversary conference.
This ^afternoon Congressman Clarence Brown of Ohio, who is a
ranking member of the House minority delegation on this oommitpresent our respective panels.
.
We will proceed, then, with the panels and thier discussion, Con
gressman Brown.
Representative B r o w n o f Ohio. Thank you, Mr. Chairman. It is
a pleasure to have the opportunity this afternoon to present the
Panel, which will make its individual presentation, and if it’s
appropriate, or acceptable to those gentlemen on the panel, I ’ll take
58
them in the order in which they are seated, away from the table,
and introduce them before each of their remarks.
Before that I should like to make just one or two remarks of
my own, Mr* Chairman, related to where we are in terms of the
economy, and where we are in terms of the question of full
employment.
One of the issues when I am on the panel tomorrow afternoon,
that I will discuss in some detail, is the question of what is full em
ployment 30 years after the Committee on Economic Development,
and this basic legislation which we are celebrating. We have gen
erally accepted 4 percent unemployment as full employment in our
economy.
The nature of the work force has changed rather radically since
that time. The nature not only of the work force, but of work itself
changed through a number of mechanisms. One is what the Federal
Government, State and local governments has done in the nature of
support for those who are out of work, and those in our economy
who are not fully employable in the first instance.
It has also changed m the nature of what we have done legisla
tively, by law, to encourage full participation in the work force,
and to discourage full participation in the work force; I make ref
erence to some of our laws on child labor, minimum wage, and a
lot of other things that have changed rather radically in those 30
years; and we have had some radical social changes.
I’m fond of disturbing some of my female colleagues by suggest
ing that back in the 1930’s most women did not work, they stayed
home and did things like the laundry, canning, tending the garden,
and other things that were in those years not counted as “ work” for
women, that was the routine of unemployment for women.
Now, women have entered the work force and are counted as part
of the work force, and somebody else is doing the kinds o f things
that women once did, as part of the work force, and the nature of
the jobs of women has changed rather radically.
Chairman H u m p h r e y . Can I save you quickly? Don’t let the
women think for a minute that we don’t believe that taking care of
a home is not work. I couldn’t get back to the house tonight if I left
that on the record here. You mean “ paid work.”
Representative B ro w n of Ohio. I tried to explain to my wife
carefully and subtly what I ’m trying to say, so that I can also go
home this evening because she is not technically employed at this
point, merely taking care of three children and a household, and
keeping her husband organized, which is a full-time job in and of
itself.
J
In any event, the nature of the work force has .changed, as we have
seen the number of women counted in the work force move up from
27 percent m 1939 to almost 40 percent in 1976.
I aont need to detail, I think, for those of you who are here the
radical nature of this change, and the fact that perhaps, then, 4
percent as a measure of unemployment is no longer an a p p r o p r i a t e
measure, and we need someone to look at this measurement and see
wnat m effect full employment is and what in effect u n e m p l o y m e n t
59
Without belaboring this point further, let me introduce to you a
distinguished panel of people who will discuss the general question
which we have for our topic today, the record under the Employment
Act of 1946.
Our first panel member is Murray H. Finley, general president
of the Amalgamated Clothing Workers of America, who received his
bachelor of arts from the University of Michigan in 1946; his
bachelor of law from Northwestern University. In 1949 he was
named attorney for the Amalgamated Clothing Workers of America.
He is on the board of directors of the Amalgamated Clothing
Workers’ Bank of New York; chairman of the board of the Amalga
mated Life and Health Insurance Co.; a member of the executive
coimcil o f the A F L -C IO ; a former manager of two major affiliated
unions in Chicago, and presently living in New York City, which
is an economic experience in itself, I assume.
Mr. Finley.
STATEMENT OF MURRAY H. FINLEY, GENERAL PRESIDENT,
AMALGAMATED CLOTHING WORKERS OF AMERICA
Mr. F i n l e y . Thank you for the introduction, Congressman Brown,
Mr. Chairman and members of the Joint Economic Committee.
As Congressman Brown’s introduction stated, I moved to New York
in 1972, which is one of the reasons we have such a great interest in
the problems of full employment.
We are discussing today, Mr. Chairman and members of the com
mittee, one of the great issues that faces our Nation, the problem of
jobs for people, the problem of full employment. It’s of course ap
propriate that we are doing this on the 30th anniversary of the act
of 1946.
The act, as we all know, stated in its preambles as its objectives
the hopes of having high employment and production for all people.
I suppose one of the great accomplishments of the act of course was
the establishment of the Joint Economic Committee, under whose
auspices we are appropriately meeting here.
I filed a more detailed prepared statement. I f you will permit me,
I will try to very briefly give a summary and overview of the out
look as we see the problems; what has taken place since the act of
1946, the defects, the hopes, and so forth.
t
I may open up, if I may, with the very simple position of the
labor movement— and T don’t see how anybody else can disagree—
what we are talking about when we are talking about full employ
ment. To us it’s a very simply thing, full employment means job
opportunities at decent wages for all those who are able to work
and seek employment; and to say to somebody who is looking for
*°*k, “You should be home canning, and therefore you should not
P® included, or cleaning the house,” seems to us to beg the real
issue.
So, starting with that thing that all those who are seeking work
actively, at a decent wage, that is in our judgment as simple and
as accurate a description of what full employment is.
73-285— 7<
60
Let’s take a brief look at the record of the 80 years since the act
of 1946. It is clear that our national economic policy has never even
come close to full employment. The average unemployment rate
since 1947 was slightly under 5 percent, 4.9 percent in the whole
period.
The record, of course, for the last couple of years indicates how
truly dismal that situation can become when we have no true na
tional policy affecting employment. As we all know, the official
figure is 7.6. If you calculate those who ceased looking for work;
those who are working part time, or less than full, but who want
to work full time, and you add that figure into it, you come closer
to a 0.5 percent true unemployment figure in this country.
But even assuming the average figures that we use are the official
ones, the problem with averages, they really only give you kind of
a broad one, but never affect any person. The person who is unem
ployed—to him or her—the unemployment rate is a 100 percent, not
4.9, or 7.6; to that person it’s a 100 percent.
But if you look at the averages, and how would it affect the differ
ent people in our society, on that 4.9 average of 1946, we see very
clearly that some groups suffered way beyond the average of 4.9;
nonwhite females over 40 percent; for blacks in our society the un
employment average is about 25 percent.
During this period we have had the economic philosophy which
dominated us, the government participated in jobs, deficit spending,
and so on; and this program did prevent a depression occurring
since 1946, barring the last year or so, in terms of definition. But
each time in the ups and downs of our record of unemployment, and
each recession and recovery, the level of unemployment was at a
higher figure than the prior level. We see these, if you take a quick
look, in the Truman era of 1947 to 1953, where the average unem
ployment was 4 percent, at the end of that period it was 2.9. Then
the Eisenhower from 1953 to 1961, we had an average of 5.1 percent
unemployment, it stalled at 2.9 and then went up to 6.7. The Ken
nedy-Johnson at an average of 4.7, going from the 6.7 down to 2.5
at the end of that period. And then, of course, the Nixon-Ford,
through 1975, with an average of 5.6, ending of course with an
average in 1975 of 8.5 percent unemployment.
So, we have seen a period of increasing average u n e m p l o y m e n t
with the ups and downs. During the same period there have been
rapid changes in technology and vast shifts in our labor force; and
the people themselves have been forced to accept the consequences
of the change. There have been declines in employment in agricul
ture, mining, railroads, manufacturing, while other industries such
as finance, real estate, and State and local governments have in
creased employment. And through that shift people lost their jobs,
were left to fend for themselves without a meaningful recourse or
programs to handle the problem.
During the same period the output of man-hour productivity has
been increasing at an accelerating rate. From 1947 to today the pro
ductivity has been increasing at about 3.2 percent per year; while
it was increasing at about 2.2 percent a year,
which meant that the accelerated drive in productivity required an
61
even greater number of jobs to be produced in order to prevent more
people from being thrown out of their jobs.
The entrance, as you mentioned, Congressman Brown, of women
in the work force has been one of the other dramatic changes. The
percentage of married wives working has doubled in the 3(/-year
period we are talking about. The number of women with young
children under 6 years of age who have entered the work force be
cause of economic necessity lias tripled. And of these women work
ing, one-third are the primary wage earners; and the other twothirds are not working for frivolous things. I may only point out
parenthetically that with the cost today of maintaining a minimum
but adequate budget, if you look at the average cost of a factory
earner, you will see that that average factory earner does not make
an adequate minimum budget. Unfortunately it requires two or
more wage earners for a family today, for a family of four to live
adequately under today’s costs. So, that i9 why women are working
today, having the problems of leaving the home, going back to the
home and doing the work when they get back.
The shrinkage in our Armed Forces— and this is not mentioned
as a matter of objection, just as a matter of statistics—with a mil
lion less than the standing Army of 3 million, has put another mil
lion or so people in the labor force.
The large migrations that have occurred, the blacks out of the
rural areas into our major cities; the whites who are leaving the
inner city for the suburbs; the immigration of the Spanish-speaking
from Puerto Rico and Mexico and other areas, have all caused dis
locations and distortions in our unemployment figures.
In addition to the internal structural changes, there has been a
deteriorating job situation, exacerbated by the international prob
lems of trade, where hundreds of thousands of jobs have been wiped
out by the increase of imports from abroad. This has been the cause
of the loss in these jobs in electronic, steel, glass, and so forth, and
the industry I ’m most familiar with, apparel, in the year 1975, when
actual production dropped 20 to 25 percent, depending on the par
ticular sector, imports were increasing as much as 40 percent, 25
percent, 30 percent, depending on the particular item. In a year
when we are in our worst recession, we find that our trade policy
has caused an increase in imports, and at the same time in the
same industry there was a decrease in terms of actual output domes
tic.
And while we have a number of training programs, all of which
were meritorious, that have been developed during this period, un
fortunately those programs have not been linked up with job cre
ation. So, we are training people, but when they are done with
their training, there is no correlation between the training and the
jobs that may, or may not have been available.
tt o e have never developed an adequate system of job delivery. Our
Employment Service has not been effective: the current existing
ate programs are horrendous; and so the problem of placing
people into jobs that are available has been a neglected area in our
country. The problem excepts perhaps the building trades, where a
62
fairly adequate system has been developed between two openings and
people available for work.
I don’t have to point out the comparisons we can make with the
free world, Western Europe and Japan, where the unemployment
rates that we have in this country would probably cause an internal
revolution, if any of these countries even approached anywhere near
the unemployment rates that we have.
When one looks at this overview, it is clear that if any organiza
tion, private industry or labor union was as shortsighted in looking
over the major ups and downs, and changes as we have as a Nation
on this most basic thing we are concerned about, the ability to pro
vide our people with jobs, no manager of an organization would re
main in office for any length of period.
And so, as we look back in the 30 years, it becomes clear, we have
done this by fits, starts, shortsighted acts, we have acted in the
9ense of firemen without truly looking over the problem as it truly
exists.
So, while all this is a kind of unhappy overview, I will close with
one kind of an optimistic picture, and that is the bill that was just
introduced this last Friday, the Humphrey-Hawkins bill, S. 50H.R. 50, the Full Employment and Balanced Production Act of
1976.1 don’t want to overlook the other people that participated and
sponsored it.
For the first time we have, in our judgment, a bill that, as a
Nation looks at the problem of jobs, of production, of savings of
money and in terms of efficiency in Government, it puts together the
Executive, the Congress, the Federal Reserve Board; it puts to
gether the States, and brings citizens participation in a program man
dating employment, with a program of coordinating once and for all
m this countiy on a national basis; a program by which we can do
away with the ups and the downs that have been such hardships for
so many millions of people for over 30 years.
I am hopeful that Congress passes this act very quickly; and I will
be very hopeful that the President will sign it, so that this will be
the last series o f hearings that the Joint Economic Committee will
have to hold on how to reach a full employment economy.
Thank you.
Representative B r o w n o f Ohio. Thank you, Mr. Finley.
[The prepared statement of Mr. Finley follows:]
P repared St a t e m e n t
of
M
urray
H. F
in l e t
Hunptoey ana members of the committee, I am pleased to hare
this opportunity to appear before this Committee to comment on what must be
^
il. ^ onomict Problem currently facing us—the programs and
3? be Pursuing to bring about full employment It is especially
t £!i*
hearings are being held, following so closely upon
i
t t most historic
far-reaching legislative proposals
Tn11
£ P*e u s * Congress. We trust that the authors of the
fttor S
w
Growth Act of 1976— Senator Hnmphey, Senot^
Senator Willimas, and Congressmen Hawkins, Reuss, and Bolling—
toe
°f ^ is Ac t-w ill receive a place in history alongside
legislators who have changed the direction of our nation to
ward a more progressive, enlightened society.
63
Since the Employment Act of 1946, there have been several times in which
Congress, and particularly this Committee, have taken up the issue of creating
a full employment economy. Presumably, the problem should have been solved
with the legislation of 1946; but, obviously, it was not. Over the past thirty
years there have been numerous hearings dealing with the issue of generating
full employment and a more stable economy. Just four years ago, in 1972, the
Joint Economic Committee held three days of hearings which explored the
question of reducing unemployment to a two percent maximum and now here
we are going around again. Once and for all, this constant and recurring issue
has to be solved, and we think the mechanism of the Humphrey-Hawkins Bill,
if enacted, will finally do so.
The record of the last thirty years clearly reveals that national economic
policy has never even come close to full employment. The average unemploy
ment rate since 1947 is close to five percent (4.9%) over this entire thirty-year
period. Table I appended to this statement details the figures. To repeat the
old cliche, those who do not learn from history are bound to repeat its follies
over and over again. Currently, many people have become concerned about the
unemployment situation anew because of the deep economic slump the country
has experienced over the past two years and the fact that it is an election
year. But the central issue facing the nation is not the temporary economic ups
and downs it experiences, but the continuing and sad acceptance of high levels
of human and capital waste that are totally unnecessary.
This is not a problem that will be resolved by modest economic recovery such
as is now being proclaimed underway. In the male apparel industry, whose
workers my union represents, we still need a thirty percent increase in em
ployment and hours of work to reach the pre-recession levels of 1973. The em
ployment problem is a long-term and persisting difficulty that can once and
for all be removed from our worries only through a structure of genuine full
employment and an ordered system of economic priorities.
The Committee should take note, o f course, that the officially reported unem
ployment rates are not a true measure of the difficulty that the nation experi
ences. For example, the latest officially reported unemployment rate is 7.6%
nationally, representing over seven million jobless people. But a truer measure
of the unemployment rate would place the figure at about ten and one-half per
cent, meaning close to ten million people without adequate livelihoods. This is
because the official unemployment rate ignores the million discouraged people
who have given up searching for jobs, the hundreds of thousands who are com
pelled to take part-time work because full-time jobs are not available.
Since 1946, we have seen the ascent of Keneysian economic theory put into
practice in our country to try to handle the problem. The stimulation of gov
ernment spending, deliberate deficits, public creation of jobs, and so forth have
prevented a general depression. But still we have had recurring recessions. And,
what the following graph shows is that the peaks in the unemployment levels
and the average unemployment level after each recession have a continuing
upward drift. We have not seen less than four percent unemployment since 1969
and not less than three percent unemployment since 1953.
Remember also that as our population increases, we are talking, even though
at the same percentage levels, o f a greater absolute number of people who are
suffering from lack o f adequate incomes. Remember also that unemployment
rate figures mask the rotation and large number of family members who suffer
reduced income. During last year, it is estimated some sixty million people felt
the consequences o f unemployment sometime during the year.
Previous testimony before the Joint Economic Committee has also pointed
out that certain groups in our society suffer even higher rates of unemployment
than the average figures show and. In fact, cover up. A recent 5?tudy by the
Urban League shows that black unemployment has not been under six percent
at any time during the past two decades. In 1975 every fourth black porker
Was unemployed and, as a consequence of that, the Urban Learne reports that
twiddle income black families have declined from a fourth of all black famuHss
to only a fifth, while those at the poverty level have increased markedly. The
income gap between whites and blacks has widened to a point to where it was
a decade ago, reflecting the roll-back in black economic gains. Youth unemploy
ment continues to be a long-standing problem and, in fact, was a focus of much
discussion during the hearings the JEC held in 1972. Currently, the youth
64
UNEMPLOYMENT RATE, 1 9 4 7 -
1 9 50
1955
I9 6 0
1975
1965
1970
19 75
unemployment rate for those between the ages of sixteen and nineteen is in the
neighborhood of twenty-five percent and approaches fifty percent for blacfc
youth. Likewise, we could continue and cite the figures of excessive unemploy
ment among women, among those over 45, among the handicapped, and among
the under-educated. What is interesting is that even during the years where the
average unemployment rate has been three percent or less, such as during the
period from 1967 through 1969, people belonging to any of the above discrim
inated against groups continued to experience exorbitantly high unemploy111611
rates.
Another thing that the statistics show over the last several years, with the
deepening levels of successive recessions, is that the average duration of unem
ployment is increasing. For example, during January 1976 the average unem
ployment duration was 15.8 weeks* and over a third o f all unemployed people
had been so for fifteen weeks or longer. These are the highest levels for these
indicators ever experienced during the last thirty years. See Table II.
Part of the key to understanding the unemployment figures that we
just talked about is to understand some o f the underlying causes that bring
about these high rates that we have been seeing. There have been rap*°
65
changes in technology and vast shifts in the structure of our labor force, and
our country has never made any provision for the people caught in the crush
of these forces. As a particular industry declines or the technology in it changes,
the people who lose their jobs have been forced to accept the consequences
of these changes without any help or reorientation into the new job market.
As Table III shows, there have been very sharp declines in employment in
agriculture, mining, manufacturing, and transportation industries relative to
the change in the total work force, while in other sectors such as wholesale
and retail trade, finance, insurance, and real estate, general services, and state
and local government, there have been much greater increases from the general
growth of the work population. The people who suffer these shifts are left to
fend for themselves. No institution assumes responsibility for offering them
guidance or retraining or relocation or any of the other necessities needed to
again enter the labor market.
Add to this the fact that the productivity or output per man hour has been
increasing at an accelerating rate over the last thirty years. For example,
during the period from 1919 to 1947, productivity increased at a rate of 2.2
percent per year, while from 1947 to the current time, productivity has been
increasing at about 3.2 percent per annum. This accelerated rise in produc
tivity means that an even greater number of jobs must be created in order to
prevent even greater numbers of people from being thrown out of employment.
In a similar manner, changes in the composition of the labor market have not
been adequately handled over the last thirty-year period. Much has been made
of the fact of the number of women who have entered the work force. In 1947,
women constituted 31.8 percent of total employment. In 1975, the percent of
women in the work force had increased sharply to 46.4 percent. The percentage
of married women working has doubled over this thirty-year period: the num
ber of women with children under six years of age who have entered the work
force has tripled. What this indicates is that, obviously, one income is not
sufficient to provide an adequate standard of living for a family.
We have done some studies within our own garment industry which has
seen this shift very strongly. Women now constitute eighty percent of the work
force. Of these, one third of them are the primary earners in their families.
They are clearly working out of financial necessity to maintain an adequate
level of income for their families.
Add to this the fact that our farmed forces now contain one million fewer
young people than when we had a standing army of over three million people
after the demobilization from World War IT: the large m o tio n s that have
occurred from rural areas to the cities and the large in-migration from Puerto
Bico and Mexico and other Spanish speaking areas, none of w M ch has neen
adequately handled without much pain and suffering by those affected, l can
personally testify to the great hardships nil of these structural <*anseR na^e
caused, because tlie Amalgamated Clothing Workers has established a Socia!
Services Department to handle the members’ financial
■which derive from the unstable employment and financial difficulties they are
constantly undergoing.
, . _ .
loh
An additional force that has come to have a very marked e f f ^ on the jon
situation in our country has come to tlie fore only during the last decade, nut
its potential can be absolutely devastating. America fcasbecome much more
intertwined in international trade and economic relationships. Mich of AmCTica’s industrial base is being wiped out by imported p r < ^ ts. Tie ^ i d e n t
and many economists continue to call for a freer, nnrestrairipfl
without making reasonable provision for the harm and P °*n^
d* " ^ s
holds. Let me show you how graphically the situation ca"
- ^
«»ning that sector which I know best which is the
and boys closing
industry. While clothing manufacturers in the United
_E wr«istent
thp difficulties of 1975. clothing imports enjoyed a boom
growth of imports stands in sharp contrast to the declining
P
Th4ffiOTreTslioVhow tainorts have eroded
^ e s T a s W ed^o
clothing sector, and the pace is accelerating. Tl,e ™ tc d
«>ntrol this trend somewhat by negotiating a number of MMtmd agreemwiw
mder the terms o f the Agreement Regarding International Trade in Textiles.
66
Unless imports are restricted quickly and in a more effective manner, jobs in
our sector and in many other manufacturing industries won’t exist, irrespec
tive of the prosperity of our domestic economy. This would be true for many
thousands upon thousands of jobs that have been lost in the electronics in
dustry, the steel industry, glass, shoes, and so forth.
One way the Congress has attempted to deal with all of the above enumerated
problems, especially over the last fifteen years, has been to enact several man
power programs, training programs, and emergency job creation programs.
While many of these programs have indeed provided people with substantially
raised levels of income and better employment opportunities, when measured
against the real needs, the positive productions have fallen far short of what
has been necessary. But the real defect is that there has been no real link-up
with the question of job creation and of providing real opportunities for people
who didn’t have them.
We in the labor movement also have noted that under times of great need,
such as during World War II and other periods, employers quickly adapted to
the problems of hiring some o f the so-called less desirable workers. Employers
made up for any lacks of education or cultural experiences or skills in the work
forces that they were hiring with various devices the necessity demanded.
Another reason that the various programs developed over the past fifteen
years haven’t resolved the unemployment problem is that there has been a con
tinuing lack of coordination between job vacancies and job seekers in any
kind of meaningful way. The system of job delivery in America is a hit and
miss situation. There is really no effective U.S. employment service, and the
existing state programs do a horrendous job by any standards and measures.
There ought to be a federalized employment service, requiring all job open
ings to be listed with it—with (the exception of certain industries or sectors,
such as in the building and construction trades, where an adequate system has
already been developed between vacancies and people available to fill those
vacancies.
A remedy for many of the structural and technological shifts in employment
opportunities in this society that we think particularly creative and helpful
is the manner in which the reorganization of the Northeastern Railroad just
completed has handled the problems of the work force on the railroads in
volved. For employees who have been working on the various railroad lines for
five years or more, they are guaranteed their full wage rate currently being
earned, plus fringes, on a lifetime basis until age 65. They also would receive
any subsequent raises that would be obtained by workers in the future. Natur
ally, they must be willing to take a job with the railroad if an opening arises
for them to do so. There are, in addition, generous relocation allowances and
other protections of income and security. For those who wish to leave the rail
road industry, there is a lump sum severance payment which is substantial
enongh to allow the person to pursue another Job or career.
We think some such system which does protect the income o f a worker ana
his family gives him some assurance of security and protects certain benefits
that are necessary in today’s world, such as health insurance, pensions, and
so forth would be the only meaningful way in which changes in the society
can be handled smoothly and without the individual worker having to
costs and great hardships that are involved*
Some such job and security protections are built Into other Western indus
trialized democracies, and they show that such programs are not stultifying or
inflationary. In fact, international comparisons show that there is no reason
why full employment is not totally compatible with low rates o f inflation and
Increases in productivity that are very close to what the United States has
experienced. Table V clearly shows that when adjusted to U.S. concept, the
unemployment rates in Australia, France, West Germany, Great Britain, Italy,
Sweden, and Japan have all been three percent or less since 1959.
. ..
The case of West Germany shows what is possible if one has a c o o r d i n a t e d
policy of balanced growth and deliberate attempt to coordinate full e m p lo y m e n t
with other economic objectives. At the same time, tbev have had a substan
tially lower inflation rate than the United States and a substantially greater
increase in productivity o f its work force. W e see nothing inherently d ifferen t
in the economic structure o f West Germany from that o f the United States
67
that would not allow us, if we put our niinds to it, to come close to replicating
their experiences.
Ultimately, however, the way for this country to fulfill the promise of full
employment would be to enact what I think is one of the most historic and
far-reaching pieces o f legislation ever to be submitted in the Congress—the
Humphrey-Hawkins Full Employment and Balanced Growth Act of 1976 (S. 50,
H.R. 50). We think that the major concepts and structures outlined in this
Act would be the most meaningful way finally to end the continuing and sad
acceptance o f high levels of human and capital waste that have been going on
for so long. It sets forth many of the principles that we think would lead to
a sustained full employment economy, particularly containing the following
elements.
1. It commits the nation to provide job opportunities at decent wages for
everyone able and willing to work—that the only persons who would be unem
ployed would be those who are temporarily jobless, such as entrants into the
labor force, people moving from one job to another or from one part of the
country to another, or those people who are temporarily jobless as a result of
seasonal fluctuations in their specific industries.
2 . It requires the President to submit annually a full employment policy and
program that would finally bring forth the plans, objectives, and goals that
would meet both the economic and social needs of our country.
3. It requires coordination of the various policy making groups, such as the
President and the various executive branches and the Congress. It requires
the coordination of fiscal and monetary policies and, for the first time,
requires the Federal Reserve Board to enunciate its policies and programs and
justify how they coordinate with the other economic programs being proposed
by the executive and legislative branches.
4. It provides Congress with a much stronger voice in reviewing and acting
upon the President’s economic plans and policies.
5. It establishes a citizens’ consultative body comprised of major groups in
the economy to help channel advice and experience into on-going policy con
siderations.
6 . It provides that full employment goal must be good jobs at adequate levels
of pay. To that extent that the economy’s regular channels of private and pub
lic employment fail to achieve that goal, the Government Is to create a public
employment program to provide those additional jobs that are needed to lower
the unemployment rate to a maximum o f three percent.
7. It finally establishes the priority o f full employment with all of the other
economic goals that our country pursues and removes workers from bearing
the brunt of the changes and instabilities caused by the fluctuation of economic
forces.
This legislation sets up a mechanism for more orderly and less crisis-ridden
structure to our economic system. It aims at translating full employment rhe
toric into full emplovment realitv. We think it sets up a reasonable, practical,
and workable mechanism that will finally provide the actual jobs that have
80
been promised.
This is obviously an election vear, and we think the Issue of where the can
didate® stand on this piece of legislation should be one of the primair i&ntes
of the campaign. We think every candidate for the Presidency and for Con
gress should be asked to commit himself to supporting and passing H.R. oO,
S. 50, and that the electorate should use the commitment of the candidates in
determining their voting decisions in November.
.
J'ull employment is an economic and social necessity for America. 1
The e 1
no lack of will to work in America—there is only a lack of Jobs. At long last,
* e must attain universal recognition that a person is entitled to a
at ft
decent wage as a matter o f right and that the total community should assume
this responsibility and must guarantee its fulfillment
Gentlemen, I truly hope to have the distinction o f being at the ^ s t series
°* hearings that the Joint Economic Committee ever has to hold on how to
reach a full employment economy.
68
T able I
HOUSEHOLD DATA: EMPLOYMENT STATUS OF THE NONINST1TUTIONAL POPULATION, 1929 TO DATE
[Numbers inthousands]
Civilian labor force
Total labor force
Unemployed
Employed
Total
noninstiPercent
tutional
of
populapopulaYearandmonth
tion Number
tion
Percent of labor
force
Nonagricuttural
Agri- indusTotal culture tries
Total
Not
season- Season- Not in
Num* allyadallyad-labor
ber justed
justedforce
Persons 14 yrs of age and over
192 9
(i)
193 0
(i)
193 1
(i)
1932..... .
(i)
1933.....................
m
}?34.....................
h)
(i)
1935----------------1S36----------------O)
1937-..................
<*>
}*».....................
(i)
1939....-------------.
1940--..------------- 100,380
}®}1..................... 101,520
..................... 102,610
49,440
50,080
50,680
51,250
51,840
52,490
53.140
53,740
54,320
54,950
0)
56,180
57,530
60,380
<*) 49,180
(i>49,820
0) 50,420
M 51,000
<0 51,590
0 52,230
0) 52,870
(0 53,440
Q) 54,000
n) 54,610
55,600
56.0 55,640
56.7 55,910
58.8 56,410
47,630
45,480
42,400
38,940
38,760
40,890
42.260
44,410
46,300
44,220
55,230
47,520
50,350
53,750
JJ44.....................}M.£30
JSg— ............... £-530
................... }^.520
1947------- --------- 107,608
55*300
60,970
61,758
63.1 54,630
61.9 53,860
57.2 57,520
57.4 60,168
52,820
55,250
57,812
—.......... }03*g2 66,040
K'S6?
F-355'540 53,960
M’470
10,450 37,180
10,340 35,140
10,290 32,110
10,170 28,770
10,090 28,670
9,900 30,990
10,110 32,150
10,000 34,410
9,820 36,480
9,690 34,530
45,7509,610
9,540 37,980
9,100 41,250
9,250 44,500
*>m
45*390
8,950 45,010
8 580 44 240
8,320 46,930
8,256 49,557
1,550
4,340
8,020
0
12,060 23. 6
()
12,830 24. 9
(0
11,340 21. 7
10,610 20.1...........
0)
9,030 16. 9
O
7,700
10,390 US::::::::
|
36,1409,480
8,120 !J:i::::::::
9 9 m ___43,990
5,560
4 . 7 ______ 42,230
2,660
19 „ __ 39,100
M70
12
....... 38,590
670
1 9 : : : : ___40 230
1,040
39
— 45,550
2,270
3 9 * "I ___45,850
2,356
41=
1
Persons 16 yrs of age and over
1947----------------1948.---------------JUS-..................
1950-----------------
103,418
104,527
105,611
106,645
60,941
62,080
62,903
63,858
i&i------------ 107(721 65,730
65*117
}£?V-------------- 108,823
.........— — 110,601
1954----------------- 111, 671
— - .............. 112,732
}JK----------------- 113.811
195 7
115,065
195 8
116,363
--------------- 117,881
JgO*................... 119,759
1961— ........ ....... 121,343
................... 122,981
1963--------------- -- 125,154
..................... 127,224
}J65..................... 129,236
}®66..................... 131,180
}SZ------------------ 133,319
JJ6J------- — ------- 135,562
66,560
66,993
6*072
69,409
69,729
70,275
70,921
72,142
73 031
73 442
74 571
75,830
77,178
78,893
80,793
82,272
!om------------ 137,841 M*24a
!£?------------ I40' 182
}J71y --------------- 142,596 86,929
1972*.....--------- 145,775
{J73*................... 148,263
1974----------------- 150,827
1975v v r - --------- 153,449
October---- 154,256
November------ 154,476
Dumber------- 154,700
1976: January------- 154,915
88,991
91,040
93,240
94,793
95 431
94,943
94,888
94 805
58.9
59.4
59.6
59.9
60.4
60.4
60.2
60.0
60.4
61.0
60.6
60.4
60.2
60.2
60.2
59.7
59.6
59.6
59.7
60.1
60.6
60.7
61.1
61.3
61.0
61.0
61.4
61-8
61.8
61.9
61.5
61.3
61.2
59,350
60, 621
61)286
62,208
62,017
62,138
63,015
63,643
65,023
66,552
66,929
67,639
68,369
69,628
70,459
70,614
71,833
73,091
74,455
75,770
77,347
78,737
80,734
82,715
84,113
86,542
88,714
91,011
92,613
93,267
92,787
92,731
92,665
57,038
58,343
57,651
58,918
59,961
60,250
61,179
60,109
62,170
63,799
64,071
63,036
64,630
65,778
65,746
66.702
67,762
69,305
71,088
72,895
74,372
75,920
77,902
78,627
79,120
81.702
84,409
85,936
84,783
86,023
85,556
85,536
84,491
7,890
7,629
7,658
7,160
6,726
6,500
6,260
6,205
6,450
6,283
5,947
5,586
5,565
5,458
5,200
4,944
4,687
4.523
4,361
3,979
3,844
3,817
3,606
3,462
3,387
3,472
3,452
3,492
3,380
3.524
3,156
2,856
2,853
49,148 2,311
50,714 2,276
49,993 3,637
51.758 3,288
53,235 2,055
53,749 1,883
54,919 1,834
53,904 3,532
55,722 2.852
57,514 2,750
58,123 2,859
57,450 4,602
59,065 3,740
60,318 3.852
60,546 4,714
61.759 3,911
63,076 4,070
64,782 3,786
66,726 3,366
68,915 2,875
70,527 2,975
72,103 2,817
74,296 2,832
75,165 4,088
75,732 4,993
78,230 4,840
80,957 4,304
82,443 5,076
81,403 7,830
82,499 7,244
82,400 7,231
82,680 7,195
81,638 8,174
3 .9 ______ 42,477
3. 8
42,447
5. 9
42,708
5 3 ____ 42,787
33
42,604
3!o
43,093
2.9
44,041
£*§*■-------- 44 678
4 4 --------- 44 660
4 1 " 'I I — 44,402
6.1 ilium | |
H —
S3
6.1 “ I----}M*|
57------; $ g
5
2 --------5.2
-----5Z ^51,394
5’ 2 -------- 1 52,288
3 .88 ----------------- 52,527
3
231
3 . 6 ----------------- w602
4 9 "'IIIII 54^280
59
—
55,666
1*2 --------- 56,785
5*q -------~ 57,222
f t
-.........I 58,655
i\"
it
li It s?s
1Not available.
«>«. y«"-«* “
69
T able I — Continued
HOUSEHOLD DATA: EMPLOYMENT STATUS OF PERSONS 16 TO 24 YEARS OLD, 1947-74
[Numbers inthousands]
Employment status and year
Unemployment rate:
194 7
194 8
194 9
195 0
195 1
195 2
195 3
195 4
195 5
1956............................................
195 7
195 8
195 9
196 0
196 1
196 2
196 3
196 4
196 5
196 6
196 7
M ............
196 8
196 9
197 0
197 1
197 2
1.!............
197 3
197 4
1973
’
January.......................................
February.................................... .
March..........................................
April...........................................
May
^ne...........12.6
July.............................................
August.........................................
September...................................
October........................................
November....................................
December.....................................
1974*
ftS"?...........................
February...
March.................. : : : : : : : : : : : : :
apni............... 9.7
May.......
June.......... .................................
July.............12-4
August.......................................
September....................................
October.......... ; ; ;
:
:
November-........ I___ I___IIIIII.
December__
Total, 16 to
24 yrsTotal
16 to 19 yrs
17 and 17
18 and 19
20 to 24 yrs
8.0
7.3
10.8
9.3
5.7
6.2
5.9
10.6
8.7
8.5
9.0
13.1
11.0
11.2
13.0
11.3
12.2
11.5
10.1
8.6
8.7
8.7
8.4
11.0
12.7
12.1
10.5
11.8
9.6
9.2
114
12.2
8.2
8.5
7.6
12.6
11.0
11.1
11.6
15.9
14.o
14.7
16.8
14.6
17.2
16.2
14.8
12.7
12.9
12.7
12.2
15.3
16.9
16.2
14.5
16.0
10.1
10.0
14.0
13.6
9.6
10.0
8.7
13.5
12.3
12.3
12.5
16.4
15.3
15.5
18.3
16.2
19.3
17.8
16.5
14.8
14.7
14.7
14.5
17.1
18.7
18.5
17.3
18.4
9.2
8.6
13.0
11.2
7.1
7.3
6.8
12.0
10.0
10.2
10.9
15.5
14.0
14.1
15.8
13.6
15.6
14.9
13.5
11.3
U.6
11.2
10.5
13.8
15.5
14.6
12.4
14.2
11.1
11.7
10.6
10.2
95
14.7
16.1
14.4
14.3
12.6
17.1
18.8
17.6
18.2
14.9
13.2
14.2
12.2
11.3
10.9
17.8
22.9
13.5
11.1
9.5
10.7
9.2
9.9
9.5
14.8
11.9
14.8
13.5
14.9
13.8
&2
13.0
17.4
16.0
18.1
15.9
12.8
11.0
12.9
11.5
J2-6
12.2
HI
u®
rr-
!!•?
110
u .i
10.1
13.8
15.8
15.2
12.9
13.2
19.7
16.8
10.8
12.5
12.8
17.3
12.8
13.1
}J?
17.4
11.5
16.3
w-g
15.2
14.9
23.9
}8*9
}3.5
18.3
n.9
2H
2®. 2
■
7.0
6.2
9.3
7.7
4.1
4.6
4.7
9.2
7.0
6.6
7.1
11.2
8.5
8.7
10.4
9.0
8.8
8.3
6.7
5.3
5.7
5.8
5.7
8.2
9.9
9.3
7.8
9.0
9.0
9.0
8.2
7.6
7.4
g.*
8.1
7.7
8.0
6.4
6.6
6.7
1:1
s
8.4
12.0
16.3
9.3
11.3
12.2
1.5
15.1
155
15S
7.7
*.£
f l
jj-jj
■
8.4
10*
*u-’
T a b le II
HOUSEHOLD DATA: ENROLLMENT OPPORTUNITIES AND POST-TRAINING EMPLOYMENT, 1973-74
[Covers enrollment opportunities under the Manpower Development and Training Act]
In thousands
Fiscal rear
Item
Total
Enrollment opportunities >.......................................... ..2,413.2
ERFoJIments (first time)*............................................ .. 2.519.1
Completions*.......... ....................... .......................... ..1,591.5
Obtained employment (posttraining) *..............................1,271.8
19631
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
59.2
34.1
20.1
16.1
125.8
77.6
51.3
39.4
231.8
56.9
96.3
73.4
281.1
235.8
155.7
124.0
270.9
265.0
192.6
153.7
229.9
241.0
164.2
127.5
198.5
220.0
160.0
121.0
211.2
221.0
147.0
115.3
213.7
254.8
135.9
105.1
229.2
301.6
170.9
141,0
183.0
267.1
166.3
139.3
178.9
244.2
131.2
113.0
* Program became operational August 1962.
* Enrollment opportunities are the number of positions authorized each fiscal year. The number
shown by fiscal year includes only those newly authorized in that year, although actual enrollment
opportunities fromprevious years, if not filled, may still be available.
* Generally larger than the number of training or works opportunities programed because turnover
or short-termtraining results in more than 1 individual in a given enrollment opportunity. Persons
served by more than 1 programare counted only one*.
« Completions do not include dropouts.
* Posttraining employment includes persons employed at time of most recent fotlowup.
Source: U.S. Department of Labor, Manpower Administration.
T a b l e II— Continued
MAJOR UNEMPLOYMENT INDICATORS, 1948-74
{Unemployment rates of persons 16 yrs and over]
All
Year and month
civilian
worktrs
1848...
1949...
1950...
1951...
1952...
1953...
1954
1955...
4.4
1956..
4.1
1957..
4.3
&8
1958.
195 9
§.}
196 0
5*®
6.7
196 1
5.5
196 2
5.7
196 3
5.2
196 4
4.5
196 5
3.8
196 6
3.8
196 7
3.6
196 8
3.5
196 9
4.9
197 0
5.9
197 1
5.6
197 2
4.9
197 3
5.6
197 4
See footnotes at end of table, p. 72.
Both
sexes,
16 to 19
years
Men, 20
yrs and
over
Women,
20 yrs
and over
3.2
54
4.7
3.6
5.3
5.1
4.0
3.2
2.9
9.2
13.4
4.4
4.2
4.1
11.0
U.l
11.6
15.9
14.6
14.7
16.8
14.7
17.2
16.2
14.8
12.8
12.9
12.7
12.2
15.2
16.9
16.2
14.5
16.0
2.5
2.4
2.5
3*8
3.4
16
6.2
4.7
4.7
£7
4.6
4.5
3.9
3.2
2.5
2.3
2.2
2.1
3.5
4.4
4.0
3.2
3.8
5.2
5.1
6.3
5.4
5.4
5.2
4.5
3.9
4.2
3.8
3.7
4.8
5.7
5.4
4.8
5.5
12.2
8.2
8.5
7.6
White
Negro
and
other
races
hold
heads
2.7
5.9
8.9
9.0
5.3
5.4
4.5
3.9
3.6
3.8
6.1
4.8
*.9
6.0
4.9
5.0
4.6
4.1
3.3
3.4
3.2
3.1
4.5
5.4
5.0
4.3
5.0
8 .7 ........
8 .3 ........
7.9 ....
12.6 ..
10.7........ ___
10.2 .
12.4
10.9____
10.8
"3 .T
9.6
3.3
8.1
2.8
7.3
2.2
7.4
2.1
6.7
1.9
6.4
1.8
8.2
2.9
9.9
3.7
10.0
3.3
8.9
2.9
3.3
9.9
3.5
5.6
4.9
3.1
2.8
Married
men
Full
time
workers
Parttime
workers
.
.
.
.
.
.
Un
employed
15 weeks
and over *
0.5
3.1 ..
1.3
.5
.4
.3
4.8 ...
3.0 ..
1.1
* ~
*■
:::::::
2 .6 ..........
________
2 .8 ..........
5 .1 ........ .
3 .6 ..........
______
3 .7 ..........
4 .6 .......... ________
3 .6 .......... ________
5.5
7.3
3.4
4.9
7.2
2.8
2.4
4.2
6.7
3.5
6.2
1.9
1.8
3.4
6.9
1.6
3.1
6.5
1.5
3.1
6.2
2.6
4.5
7.6
3.2
5.5
8.7
2.8
5.1
8.6
2.3
4.3
7.9
2.7
5.1
8.6
i t
State
insured*
1.1
.8
.8
2.1
1.5
1.4
2.2
1.6
1.5
1.3
1.0
.7
.6
.5
.5
.8
1.4
1.3
.9
1.0
Labor
force
time
lost *
6.0 ...
1:2::
5.1 ...
3.5
3.4
3.7
6.3
4.4
4.8
5.7
4.4
4.3
3.7
3.0
2.4
2.5
2.2
2.2
3.4
4.0
3.5
2.8
3.5
" 5.1
«
5.3
8.1
6.6
6.7
8.0
6.7
6.4
5.8
5.0
4.2
42
40
3.9
5.3
6.4
6.0
5.2
6.1
T a b lb I I — C o n tin u e d
MAJOR UNEMPLOYMENT INDICATORS, 1948-74-Contlnued
(Unemployment rates of persons 16 yrs,and over]
Year and month
1979:
Jan u a ry ......................
February........................
March...........................
April..............................
May................................
June..............................
July................................
A ugust......................
September....................
October.................... ..
November......................
December......................
W74:
January.........................
February........................
March.............................
April..............................
May................................
June...............................
July................................
August.........................
September.....................
October..........................
November......................
December......................
All
civilian
workers
Men, 20
yrs and
over
Women,
20 yrs
and over
Both
sexes.
16 to 19
years
White
Negro
and
other
races
5. S
S. 6
5.2
4.8
4.3
5.4
5 .0
4.7
4.7
4.2
4.5
4 .5
4.1
4 .2
3.9
3.5
3.1
3.1
2.9
2 .9
2.6
2 .5
2 .7
3.1
5.4
5.2
4 .8
4.5
4.2
4.9
5.1
5.3
5.3
4 .4
4 .6
4 .3
14.7
16.1
14.4
14.2
12.6
17.8
14.8
11.9
14.8
13.5
14.9
13.8
5 .0
5.1
4 .7
4.3
3.9
4.7
4.3
4.1
4.1
3.7
4.0
4.1
9 .0
9 .3
9.0
8.7
8.1
10.7
10.6
8 .8
9.1
7.7
8 .3
7.7
5 .6
5.7
5.3
4.8
4 .6
5.8
5.6
5.3
5.7
5.5
6 .2
6.7
4.1
4 .4
3.9
3 .6
3.2
3.4
3.3
3 .5
3.3
3 .6
4 .2
5.2
5.4
5.4
4 .9
4 .6
4.7
5.2
5.4
5.8
6 .3
5.6
6.4
6 .2
15.9
15.8
15.2
12.9
13.2
19.7
16.8
12.8
17.3
16.3
17.8
17.4
5.1
5.3
4 .8
4.4
4.1
5.2
4.9
4 .8
5.2
4.9
5.6
6.1
9 .5
9 .6
9 .3
8.3
8.2
10.7
11.0
9.2
9.7
10.0
11.0
11.6
i Unemployment rate calculated as a percent of civilian labor force.
* Insured unemployment under State programs—unemployment rate calculated as a percent of
average covered employment. As is the case with other data presented in this table, data relate to the
week containing the 12th of the month.
House
hold
heads
Married
men
Fulltime
workers
Parttime
workers
3.6
3.7
3.4
3.0
2.7
2.7
2.6
2.6
2.4
2.3
2.6
2 .8
3.1
3.1
3.0
2.5
2.1
2.0
1.9
1.9
1.7
1.7
2.0
2 .3
5.0
5.1
4 .8
4.3
4.1
5.0
4.5
4.1
3 .8
3 .5
3.9
4 .0
8.1
8.2
7.3
7 .2
5.7
8.2
8.5
8.8
9.6
8.0
8.1
7.4
3 .5
3.6
3 .4
3.1
2.8
2.9
2.8
3 .0
3.0
3 .2
3.7
4.5
3.0
3.1
2 .8
2.5
2.0
2.3
2.4
2.4
2.3
2.4
3.0
3.9
5.1
5.2
4.9
4.5
4.4
5.4
5.2
4.7
4.8
4.8
5.5
6.2
8.8
8.8
7.7
6.5
5.9
8.3
8.6
9.5
10.9
9.1
10.0
9.3
State
insured1
Labor
force
time
lost*
1.1
1.1
1.3
1.2
1.0
.9
.7
.7
.7
.7
.8
.7
3 .8
3.7
3.4
2.8
2.5
2.4
2.5
2 .3
2.1
2.1
2 .4
3.1
5.7
5.9
5.4
5.0
4.7
6 .0
5.7
5.3
4 .8
4 .5
4.8
5.0
.9
1.0
1.2
1.2
1.1
1.0
.9
.9
.9
1.0
1.0
1.3
4.0
4.2
4.0
3.6
3.0
2.9
3.2
2.9
2.7
2 .8
3.7
4.8
6.1
6 .2
5.7
5.4
5.1
6.4
6 3
6.0
6.0
5.8
6.6
7 .3
Un
employed
15 weeks
and over1
* Man-hours lost by the unemployed and persons on part time for economic reasons as a percent of
potentially available labor force man-hours,
73
T a b l e I I — C o n t in u e d
UNEMPLOYED PERSONS AND PERCENT DISTRIBUTION OFTHE UNEMPLOYED, BY DURATION OFUNEMPLOYMENT,
1947-74
IPersons 16 yrs of age and over]
Period
Total
Less
than
5 weeks
15 weeks and over
5 and 6
weeks
7 to 10
weeks
11 to 14
weeks
Total
15 to 26 27 weeks Average
and over duration
Number unemployed (thousands)
..... 2.311
194 7
194 8
..... 2,276
194 9
..... 3,637
1950
..... 3,288
195 1
..... 2.055
195 2
..... 1,883
..... 1,834
195 3
1954
..... 3,532
195 5
..... 2.852
195 6
..... 2,750
1957
..... 2,859
1958
..... 4,602
195 9
..... 3,740
196 0
........ ..... 3,854
196 1
.....4,714
196 2
.....3,911
196 3
.....4,070
1964
.....3,786
196 5
.....3,366
1966
.....2.875
1967
.....2,975
1968.................... .....2,817
196 9
.....2,831
197 0
.....4,088
197 1
.....4.993
1972
.....4,840
197 3
..... 4,304
1974
..... 5.076
1973:
January........... ..... 4,675
February......... ..... 4,845
March............. ..... 4,512
April.............. ..... 4, 174
May..................... 3.799
June............... ..... 4,847
My................ ..... 4,550
August............ ..... 4,208
September............ 4,165
October........... ..... 3,763
November....... ..... 4,056
December........ ..... 4,058
1974;
January........... ..... 5,008
February............... 5,140
March............. ..... 4,755
April.............. ..... 4,301
Way..................... 4,144
June............... ..... 5,380
July................ ..... 5,260
August............ ..... 4,885
September............ 5,202
October........... ..... 5,044
November............. 5,685
December........ ..... 6,106
1,210
1,300
1,756
1,450
1,177
1,135
1,142
1,605
1,335
1,412
1,408
1,753
1,585
1,719
1,806
1,659
1,751
1,697
1,628
1,535
1,635
1,594
1,629
2,137
2,234
2,223
2,196
2,567
203
208
309
275
169
168
149
306
230
234
258
363
304
324
377
334
358
314
286
252
278
247
263
394
456
425
390
463
308
297
555
479
252
223
209
504
368
360
392
596
474
499
587
478
519
483
422
346
3S7
367
364
564
687
664
576
690
193
164
331
301
153
126
124
305
217
211
240
438
335
353
411
323
354
319
276
206
218
1*7
200
331
435
369
330
418
398
309
683
782
303
232
211
812
703
533
560
1,452
1,040
956
1,532
1,119
1,088
973
755
536
449
412
375
662
1,181
1,158
812
937
234
193
427
425
166
148
132
495
367
301
321
785
469
502
728
534
535
490
404
295
271
256
242
427
665
597
475
563
164
116
256
357
137
84
79
317
336
232
239
667
571
454
804
585
553
482
351
241
177
156
133
235
517
562
337
373
8.6
10.0
12.1
9.7
8.4
8.0
11.8
13.0
11.3
10.5
13.9
14.4
12.8
15.6
14.7
14.0
13.3
11.8
10.4
8.8
8.5
8.0
8.8
11.4
12.1
10.0
9.7
2,231
2, 224
1,862
1,878
1,871
3,053
2,356
2,213
2,447
1,923
1207
2,097
478
479
366
349
278
352
594
323
331
403
321
412
640
777
628
568
500
454
655
634
439
513
532
567
383
384
535
358
246
214
273
369
305
254
306
329
942
979
1,121
1,022
904
775
678
671
643
670
690
654
557
608
679
649
531
439
283
339
380
375
391
372
386
372
441
373
373
336
295
332
264
295
299
282
10.4
10.6
12.0
11.4
11.2
8.6
9.0
9.6
8.7
9.8
9.6
9.6
2,644
2,383
2,117
1,931
2,094
3,226
2,609
2,500
3,006
2,560
2,936
495
501
415
346
324
402
732
370
382
530
477
588
682
927
607
480
473
556
740
784
565
690
821
954
398
423
567
431
284
273
348
411
412
362
502
613
789
905
1,051
1,112
970
922
832
820
838
902
949
1,151
478
574
682
728
593
543
430
435
488
556
576
679
311
331
369
384
377
379
402
386
349
347
373
472
9.0
9.7
10.8
11.2
10.6
8.7
9.3
9.6
8.9
9.5
9.4
10.3
2,801
74
II—Continued
T a b le
UNEMPLOYED PERSONS AND PERCENT DISTRIBUTION OFTHE’UNEMPLOYED, BY DURATION OF UNEMPLOYMENT,
1947-74—Contfnued
IPersons 16 yrs of age and over]
Period
15 weeks and over
Less
than
5 weeks
Total
5 and6
weeks
7 to 10 j 11 to 14
weeks j weeks
Total
15 to 26 27 weeks Average
weeks and over duration
Percent distribution
194 7
194 8
194 9
...
195 0
195 1
.........
©52.....................
195 3
...........
195 4
195 5
195 6
195 7
195 8
195 9
.........
196 0
196 1
196 2
............
196 3
196 4
........
196 5
196 6
196 7 _ ..........
196 8
196 9
197 0
Jgn....................
197 2
197 3
197 4 .. ..........
100
52.4
100
57.2
48.3
100
100
44.1
100
57.3
100
60.2
100
62.2
100
45.8
100
46.8
100
51.3
100
49.3
100
38.1
100
42.4
100
44.6
100
38.3
42.4
100
100
43.0
100
44.8
100
48.4
100
53.4
100 , 54.9
100 ' 56.6
100
57.5
100
52.3
100
44.7
100
45.9
100
51.0
100 _ 50.6
8.8
9.1
8.5
8.4
8.2
8.9
8.1
8.7
8.1
8.5
9.0
7.9
8.1
8.4
8.0
8.5
8.8
8.3
8.5
8.8
9.3
8.8
9.3
9.6
9.1
8.8
9.1
9.1
13.3
13.0
15.3
14.6
12.3
11.8
11.4
14.3
12.9
12.1
13.7
13.0
12.7
13.0
12.5
12.2
12.8
12.8
12.5
12.0
13.3
13.0
12.9
13.9
13.8
13.7
13.4
13.6
8.4
7.2
9.1
9.2
7.4
6.7
6.8
8.6
7.6
7.7
8.4
9.5
9.0
9.2
8.7
8.3
8.7
8.4
8.2
7.2
7.3
7.0
7.1
8.1
8.7
7.6
7.7
8.2
10.1
8.5
11.8
12.9
8.1
7.9
7.2
14.0
12.9
10.9
11.2
17.1
12.5
13.0
15.4
13.6
13.1
12.9
12.0
10.3
9.1
9.1
8.5
10.4
13.3
12*3
11.0
11.1
17.2
13.6
18.8
23.8
14.7
12.3
11.5
23.0
24.6
19.4
19.6
31.6
27.8
24.8
32.5
28.6
26.7
25.7
22.4
18.6
16.1
14.6
13.3
16.2
23.7
23.9
18.8
18.5
7.1
7.0
10.9
6.7
4.5
4.3
11.8
14.5
15.3 ..
17.1
15.0
5.9 ..
UNEMPLOYED PERSONS BY DURATION OF UNEMPLOYMENT
___________
Total
_______
Household heads
Thousandsof persons Percent distributionThousands of persons Percent distribution
SS& iU
J"3g ^
Total-------------------
8,180
8,174
IssSs^--^- 11
jS M
f c i r z :
tTwwks andovtr---------- --
Average (mean) duration
N8
^
^
100.0
J>n,u$
100.0
3,319
J,n£7T
3,330
100.0
100-0
|* t: ts tag a; gi
(S
}f
li
?|
It*
§
»I
10.8
*
M5
18k8 .
Si!
ftS
2<-2
75
T able II— Continued
UNEMPLOYED PERSONS BY DURATION, SEX, AGE, COLOR, AND MARITAL STATUS
Thousands of persons
Less than 5
15 weeks and
weeks as a
over as •
27 Aver
percent of
percent of
Less
15 to weeks
age unemployed
unemployed
than 5 5 to 14
26
and (mean)
in group
ingroup
Total weeks weeks weeks
over dura
tion, in January January January January
January 1976
weeks
1975
1976
1975
1976
Sex, age, color, and marital
status
Total, 16 yr and over*... 8,174
3,017
2,403
1,221
1,532
15.8
44.5
36.9
19.0
33.7
16 to 21 yr........................... 2,571
2,571
16 to 19 yr........................... 1,737
1,737
20 to 24 yr____ __________1.928
1,928
25 to 34 yr........................... 1,893
35 to 44 yr........................... 973
45 to 54 yr...........................
904
55 to 64 yr.......... ................. 550
65 yr and over......................
189
1,177
855
778
612
309
279
131
52
755
499
557
583
291
255
162
55
383
246
293
312
137
119
84
30
256
137
300
385
235
251
173
51
11.1
9.8
13.7
17.0
18.6
20.1
22.3
23.8
46.5
48.5
46.7
45.9
38.4
41.9
40.1
29.1
45.8
49.2
40.4
32.4
31.8
30.8
23.8
27.7
18.5
19.5
16.6
18.2
17.2
21.5
21.6
39.6
24.9
22.0
30.7
36.8
38.2
40.9
46.8
43.2
4,690
1,477
1,540
740
934
16.9
40.5
31.5
19.5
35.7.
1,494
997
1,114
1,080
544
520
318
117
601
452
371
291
134
125
72
32
476
314
356
385
187
166
98
33
264
162
197
164
84
66
47
21
153
69
190
241
139
162
101
31
11.9
9.8
15.2
18.5
19.7
22.7
22.8
25.0
43.6
46.5
42.6
37.8
34.9
40.9
37.4
26.9
40.2
45.3
33.3
27.0
24.6
24.0
22.6
27.5
18.2
18.7
17.4
20.6
17.6
20.7
20.7
40.4
27.9
23.2
34.7
37.4
41.0
44.0
46.5
43.9
3,484
1,540
863
482
599
14.2
49.8
44.2
18.3
31.0
1,077
740
814
813
429
384
233
72
576
403
407
321
175
154
59
20
279
185
201
199
104
89
64
22
119
84
96
148
53
53
37
10
103
67
110
145
96
89
72
21
10.0
9.9
11.7
15.1
17.2
16.7
21.6
21.9
50.3
51.1
52.6
56.4
42.5
43.0
44.1
0)
53.5
54.5
50.0
39.5
40.9
40.1
25.4
(0
20.6
20.5
25.3
36.0
34.7
36.8
47.2
6,686
2,497
1,975
991
1,223
15.5
45.2
37.3
19.0
20.5
15.5
15.2
16.8
22.4
22.8
(0
18.4
3,880
2,806
1,246
1,251
1,274
701
608
384
752
471
16.5
14.0
41.1
50.8
32.1
44.6
18.9
17.7
35.1
30.4
1,488
520
428
230.;
310
17.1
41.0
34.9
22.0
36.3
810
678
231
289
266
163
132
98
181
128
18.9
15.0
37.5
45.3
28.5
42.6
22.7
21.1
38.7
33.4
2,135
587
735
316
497
18.6
39.3
27.5
17.5
38.1
25.0
13.6
34.6
43.1
19.4
37.9
26.1
20.6
50.2
30.4
25 to 34 yr.
Hales..
Males........
Females... II
Widowed, divorced, or
piBsvni..
Widowed, divorced, or
0)
33.1
422
2,133
82
808
128
676
75
348
137
300
1,698
722
436
237
302
14b8
5L1
415
1&6
31.8
697
1,089
272
546
178
249
95
149
152
145
16.0
12.0
49.1
47.9
39.0
50.2
17.2
21.8
35.5
27.0
1Percent not shown where base is leu than75,000.
73-285— 76------- 6
76
T
able
III
EMPLOYEES ON NONAGRICULTURAL PAYROLLS
[tnthousands]
Goods producing
1947....................................
1975....................................
Percent change......................
Total
Mining
Construction
Manufacturing
18,482
22,549
+22
955
745
-22
1,982
3,457
+74
15,545
18, 347
+18
Service producing
Transportation
and public
utilities
Total
1947.................................... ...........
1975................................... ...........
Percent change..................... ...........
25,399
54,435
+114
4,166
4,498
+8
Finance,
Wholesale
and retail 1insurance and
re
a
l estate
trade
Services
1,754
4,223
+140
5,055
13,995
+177
8,955
16,948
+89
Government
1947...................................
1975...................................
Percent change.....................
Total
Federal and
State
State and
local
5,474
14,772
+175
1,892
2,748
+45
3,582
12,024
+236
Agriculture
1 9 4 7 ........................ .............................................
.........
1 9 7 5 ________ _______ _____ _______ _____ I __ ________________________________________
7 ,8 9 1
3, 380
Percent change__________________________ _____ ZZZZZZZ-Z-ZZZ______
Grand total:
~
..............
1 9 4 7 .........................................................
1975____________ __________ ____________ZZZZZZZZZZZZ ZZZZ ZZZZ______
Percent change______________________ _________ ZZ-.Z.Z____________
T able
IV
Imports
Men's and boys’ suits..*
Men's andboys’ sport
coats.......................
Men's and boys*
separatetrousers
1974
1975
4 3 ,8 8 1
7 6 ,9 8 4
+75
U.S. production
Percent
change
1975 vs 1974
1974
percent
change
Prelected
1974
vs
1975*
for 19751
-18
1,933,914
3,164,073
+63.6
19.684.000
16.141.000
4,989,370
5,509,834
+10.4
21.764.000
12.841.000
—41.7
40,009,471
55,008,148
+37.5
199.374.000
149,531,000
-24.5
the*!?!?
1875mon,w,M
^
hr
IMPORTS AS A PERCENT OF U.S. PRODUCTION»
Men's and boys' suits____
Men s and boys’ sport coats............
Men s and boys' separate trousers..........
........................................
1974
1967
96
22.5
20
19I
42.9
36.8
1875 • * * *
cuttin“
Tabljb V
LABOR FORCE AND UNEMPLOYMENT fN SELECTED INDUSTRIAL COUNTRIES, 1959 74
As published
Adjusted to U.S. concepts
Year
United
States1
Aus
tralia » Canada *
France
Germany.
Federal
Republic
and West
Berlin
Great
Britain
Italy
Japan
France
Germany.
Federal
Republic
ana West
Berlin
18,925
18, 951
3,51
18,919
3,663
19,050
3,731
19,398
19,638
3,687
19, 813
3,713
3,766
19,964
3,743
20,118
3, 803
20,176
20, 434
3, 815
3,884
20,749
3,932
20,958
21,155
3,939
21, 403
3,952
4,013 *21,701
26, 337
26, 518
26,772
26, 844
26,930
26,922
27, 019
26,962
26,409
26,291
26,535
26, 817
26,910
26,091
26,985
26,791 .
Sweden
Great
Britain
Italy
Japan
Sweden
Civilian labor force * (in thousands)
195 9
196 0
196 1
196 2
196 3
196 4
196 5
1966
1967
196 8
1969
197 0
....................
197 1
1972
1973............................
1974.............................
68,369
69,628
70,459
70,614
71,833
73,091
74,455
75,770
77,347
78,737
80,734
82,715
84,113
86,542
88,714
91,011
195 9
3,740
196 0
3,852
196 1
4,714
196 2
3,911
196 3
Jr070
1964
3,786
196 5
3, 366
1966
2,875
1967
2,975
196 8
2,817
196 9
2,832
197 0
4,088
197 1
4,993
1972
4,840
1973
4,304
197 4
5,076
See footnotes at end of table, p. 80.
5,889
6r214
19,100
6.382
19,120
19,090
6,491
6, 584
19,180
6,715
19,340
19,660
6,898
7,105
19,750
7.382
19,980
20,140
7,651
7,872
20, 420
8,116
20,680
8,323
21,000
8,579 «21,190
8,840 <21, 430
9,225 * 21,660
9,602 « 21,960
23,420
25.850
23,660
25.970
26,180
23,910
24,260
26,220
24.480
26.350
26,340
24.600
24,740
26,450
24, 830
26,380
25.850
24,790
25,700
24,650
24.600
25.970
26, 240
24.480
26.350
24,230
26, 316 * 24,540
26,420 * 24,780
<26, 200 * 24,710
20, 530
20,340
20,270
20,160
19,760
19, 740
19, 440
19,150
19,290
19,220
19, 030
19,090
19,010
18,800
18,930
19,130
43,330
44,120
44,610
45.040
45,420
46.040
46, 770
47,850
48,810
49,680
50.140
50,739
51,030
51.140
52, 310
52,080
23,747
24,109
24,381
24,625
24,761
24,939
25,101
25,166
25,008
24,902
24,912
24,801
24, 524
24,701
24,980
44,330
21,286
45.110
20,972
45,620
20, 882
46.110
29,629
45, 520
20,137
47,100
20,026
47,870
19,717
19,396
48,910
49,830
19, 525
19, 484 50,610
50,980
19,266
51t530
19,302
51, 780
19, 254
51.820
19,028
52,990
19,169
19,458 «52,740
(*>
3,632
3, 676
3,749
3,710
3,738
3,792
3,774
3, 822
3,840
3,913
3,961
3,969
3,977
4,043
Unemployed <(in thousands)
<»>
(1)
(I)
(J)
61
72
79
78
80
75
88
126
108
133
371
445
465
390
372
324
279
266
314
380
381
494
551
561
519
523
390
360
310
280
250
290
300
370
540
500
530
* 590
* 610
^580
* 690
440
200
120
100
120
90
80
70
260
300
220
* 140
* 180
•240
* 260
* 550
680
530
480
680
850
610
530
560
830
810
740
75 0
930
«1,060
<740
*740
1,170
880
750
640
530
590
770
820
730
740
710
660
660
750
720
600
980
750
660
590
590
540
570
650
630
590
570
590
640
730
670
♦730
0)
8
54
63
58
44
59
79
85
72
59
101
107
98
80
254
239
203
230
273
216
269
280
365
427
340
356
446
492
450
510
540
271
181
154
186
169
147
161
459
323
179
149
185
246
273
582
445
346
312
432
521
372
317
331
521
549
544
582
758
844
598
600
1,117
836
710
611
504
549
714
759
679
684
655
609
609
697
668
560
980
750
660
590
590
540
570
650
630
590
570
590
640
730
670
730
§
54
63
58
44
59
79
85
72
59
101
107
98
80
T able V — Continued
LABOR FORCE AND UNEMPLOYMENT IN SELECTED INDUSTRIAL COUNTRIES, 1959-74—Continued
Adjusted to U.S. concepts
Year
United
States *
Aus
tralia • Canada *
France
Germany.
Federal
Republic
and West
Berlin
Great
Britain
Italy
As published
Japan
Sweden
Germany.
Federal
Republic
ana West
Berlin
Great
Britain
1.3
1.3
2.6
2.0
1.1
1.2
.8
France
Italy
Japan Sweden
Unemployment fete*
1959...................
I960.......... - .......
1961.................... ........
1962.................... .........
1963................ ...
1964.................. .........
1665.................... .........
1966............ ........
H57.. . . . . . . . . . . . .........
|969 . . . . . . . . . ........
1969...
........
1970
1971
1972
1973
KW..................... ........
* 2.1
6.7
5.5
5.2
4.5
3.8
3.8
3.6
3.5
4.9
5.9
5.6
4.9
f.6
1 1.6
*3,0
'2.4
* 2.3
1.4
1.3
i-S
1.6
1.5
1.5
14
1.6
2.2
1.9
2.2
6.0
7.0
7.1
5.9
5.5
4.7
3.9
3.6
4.1
4.9
4.7
5.9
6.4
6.3
5.6
14
2.0
1.9
1.6
1.5
1.3
1.5
1.5
1.9
1.9
2.6
2.4
2.5
« 2.8
<2.8
* 2.7
*3.1
1.7
.8
.5
.4
.5
.3
.3
.3
1.0
1.2
.8
K5
*.7
«.9
* 1.0
*2.1
2.9
2.2
2.0
2.8
3.5
2.5
2.1
2.3
3.3
3.3
3.0
3.1
3.8
* 4.3
* 3.0
* 3.0
i Published and adjusted data for tha United States and Australia are identical. Canadian data are
adjusted only to exclude 14 year-olds.
i Publishedfiguresfor Italy, Japan, SwedenandGermany include military personnel.
•Not available.
•Preliminary estimates basedor incomDtotadata.
• Published figures for the United States, Australia, Canada, Italy, Japan, and Sweden refer to
unemployment as recorded by sample labor force surveys; for France, to annual estimates of unem
ployment ; andfor Great BritainandGermany, tothe registered unemployed.
« Adjustedfigures; as a percent of the civilian taborforce. Published figures; for France, unemploy
ment as a percent of the civilian labor force; for Italy, Japan, and Sweden, unemployment as a per
cent of the civilian labor force plus career military personnel; for Great Britain and Germany, regis
5.7
4.3
3.7
3.2
2.7
3.0
4.0
4.3
3.8
3.9
3.7
3.5
3.5
4.0
3.8
3.1
2.3
1.7
1.5
1.3
1.3
1.2
1.2
1.4
1.3
1.2
1.1
1.2
1.3
1.4
1.3
41.4
<*>
0)
1.5
1.5
1.7
1.4
1.3
.7
.8
.8
1.6
1.2
1.6
2.1
2.2
1.8
2.1
2.1
2.6
2.1
.8
1.1
1.9
1.5
2.7
2.5
2.0
1.1
1.4
1.4
1.7
1.7
2.3
2.1
2.4
.7
.7
1.5
.9
.7
1.2
2.6
1.5
1.4
1.9
2.3
1.6
1.4
1.4
2.2
2.4
2.4
2.5
3.4
3.8
2.6
2.6
5.2
4.0
3.4
3.0
2.5
2.7
3.6
3.9
3.5
3.5
3.4
3.2
3.2
3.7
3.5
2.9
2.2
1.7
1.4
1.3
1.3
1.1
1.2
1.3
1.3
1.2
1.2
1.1
1.2
1.4
1.3
1.4
(0
(*>
1.4
1.5
1.7
1.6
1.2
1.6
2.1
2.2
1.9
1.5
2.5
2.7
2.5
2.0
tered unemployment as a percent of employed wage and salary workers plus the unemployed. With
the exceptionof France, which does not publishanunemployment rate, these are the usually published
unemployment rates for each country. Published rates shown for Great Britain and Germany*cannot
be computed from the data contained inthis table.
* The Australian labor force survey was initiated in 1964. Unemployment rates for 1959-63 are
estimates by an Australian researcher.
Note.—The adjusted statistics, insofar as possible, have been adapted to the age at which^com
pulsory schooling ends in each country. Therefore, the data for the United States and the adjusted
data for France andSweden relate to the population 16 yr of age and over: the data for Australia, Can*
adarGermany, Great Britain, and Japanto the population 15 yr of age and over; and the data for Italy
to the population 14 yr of age and over.
T a b le
V—Continued
INDEXES OF OUTPUT PER MAN-HOUR, HOURLY COMPENSATION, AND UNIT LABOR COSTS IN MANUFACTURING, SELECTED COUNTRIES, 1960-74
[1967—100]
Item and country
1960
Output par man-hour:
Umted States......... ..................... ......................................... 79.9
Belgium........ ............ ....... ................... ....... .................... ... 70.5
Canada......... ............. ............................. ........................ ... 75.5
Danmark............................................................................... 66.6
France................................... ........................................... ... 68.7
Germany, Federal Republic and West Berlin............... ............ ... 66.4
Italy.................... ................................................................ 65.1
Japan................ ................................................................... 52.6
Netherlands.................................. ....... ...............................67.8
Sweden........................ .......................................................62.3
United Kingdom...............— ....... ......... ....... ........ ........... ...76.8
Switzerland......................... ............ ....... .............................80.4
Hourfy compensation in national currency:
United States............... ..................................................... ...76.6
Belgium............. ................... ........................ .....................52.3
Canada............... ........................................ ................... ...72.2
Denmark..........................................-....................................49.2
France.................................................................... - ............56.0
Germany, Federal Republic and West Berlin...............................54.3
Italy..................... ........ ................ .... .......................... - 49.5
Japan...........................................................-.................... ...43.1
Netherlands............... ........................ .............................. ...46.4
Sweden........................................................ -.................... ...50.1
United Kingdom.....................................- ...............-..............64.5
Switzerland........................................................................ .. 57.1
See footnotes at end of table, p. SO.
1961
1962
1963
81.9
71.7
79.6
70.3
71.9
70.0
67.4
59.3
71.3
65.5
77.4
80.5
86.6
76.7
83.9
74.0
75.2
74.4
74.1
61.9
73.0
70.4
79.3
79.9
90.1
79.3
87.1
76.4
79.7
78.4
76.5
67.1
74.9
76.0
83.6
82.2
79.0
55.5
74.1
55.1
61.6
60.6
52.5
50.2
52.8
55.0
69.5
62.2
82.2
59.7
76.3
60.4
67.9
68.5
61.5
57.3
56.1
61.5
73.1
68.1
85.0
65.9
79.0
65.7
75.0
73.2
73.2
64.0
61.5
69.4
76.5
74.3
1964
1965
1966
1967
1968
94.5
84.1
90.9
82.6
83.7
84.5
81.5
75.9
82.6
82.0
89.7
85.8
98.4
88.1
94.4
86.7
88.5
90.4
91.6
79,1
87.8
88.6
92.4
90.5
99.9
94.2
97.2
91.1
94.7
94.0
96.0
87.1
93.1
92.4
95.7
95.2
100
100
100
100
100
100
100
166
100
100
100
100
104.7
108.7
107.3
109.8
111.4
107.6
108.4
U2 . 6
110.7
110.1
106.7
105.2
88.9
74.7
82.0
71.0
80.6
78.9
82.3
71.9
71.9
75.0
82.0
80.5
91.2
82.5
86.1
78.9
86.8
86.7
89.0
8L 0
80.5
82.5
89.7
86.6
95.3
91.5
92.9
89.6
92.4
94.5
91.4
89.3
90.0
90.4
97.2
94.1
100
100
100
100
100
100
100
100
100
100
100
100
107.1
106.3
107.3
111.2
113.3
105.9
107.2
116.2
110.3
109.4
107.2
105.2
1969
1970
1971
1972
1973
1974»
107.4
117.7
113.3
120.3
115.4
113.8
112.2
130.0
120.9
118.2
108.1
116.1
107.4
128.4
115.2
129.3
121.2
116.6
117.8
146.5
132.3
123.5
109.1
125.5
115.1
132.3
122.9
138.8
127.5
122.6
123.0
151.7
140.4
129.2
114.2
132.2
121.6
144.6
128.1
150.0
136.1
130.3
133.4
163.9
155.5
138.3
118.9
138.7
128.3
129.3
158.8
133.1 '134.9
163.9
148.9
144.0
139.3
143.3
146.0
193 6 ” "l99.'6
170.6 _______
148.0
146.6
127.2
127.6
147.7 _______
114.0
116.3
115.3
124.1
119.9
115.5
117.6
137.5
124.8
119.5
115.8
112.2
122.1
131.8
124.3
145.0
134.4
133.0
141.1
163.4
144.1
131.8
132.8
124.7
130.4
151.2
133.8
165.4
150.4
151.6
167.1
189.1
164.9
148.1
151.5
141.7
137.5
175.1
143.6
184.3
168.2
169.4
191.6
218.7
190.1
166.7
171.3
157.4
147.3
206.1
155.8
217.8
191.1
191.8
236.7
272.2
218.2
184.6
194.1
172.4
161.2
_______
176.2
.........
228.1
220.2
_______
363.3
______
215.4
233.2
............
T able V — Continued
INDEXES OF OUTPUT PER MAN-HOUR, HOURLY COMPENSATION, AND UNIT LABOR COSTS tN MANUFACTURING, SELECTED COUNTRIES, 1960-74—Continued
(1967 100)
Itemand country
Unit labor cost In national currency:
UnitedStates...............................................................
Belgium------------ -------------- ------------- ----------- -----Canada......................................................................
Denmark............................................................................
France..............................................................
Germany, French Republic and West Berlin.....................
Italy.......................... ................................................ ! " .
Japan..................... ...........................................................
Netherlands..................................... ...............
Sweden............................................. ...............................
United Kfnnfom...................................................................
Switzerland..-................................. ............. .... ............ _
Unit labor costs in U.S. dollars: *
United States............... ..................... .................................
Belgium................................... ..........................................
Canada......... ............. ............. .......................................
Denmark............................................... ............................
France..................................... ............... .........................
Germany, Federal Republic and West Berlin. ..........................
Italy...................................................................................
Japan...............................................................-.................
Netherlands..............................................- .........................
Sweden......................... .....................................................
United Kingdom................................................................ —
Switzerland^................................................................... —
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
95.8
74.2
95.6
73.8
81.5
81.8
76.1
82.0
68.4
80.5
84.0
71.0
96.4
77.4
93.0
78.4
85.7
86.5
78.0
84.5
74.1
84.1
89.8
77.3
94.9
77.9
90.9
81.7
90.2
92.0
82.9
92.5
76.8
87.4
92.2
85.3
94.3
83.1
90.7
86.0
94.1
93.3
95.7
95.4
82 2
91.4
91.5
90.5
94.0
88.8
90.2
86.0
96.3
93.3
101.0
94.8
87.0
91.4
91.4
93.8
92.7
93.7
91.3
91.0
98.1
95.8
97.2
102.3
91.7
93.1
97.1
95.6
95.4
97.1
95.6
98.4
97.5
100.5
95.2
102.5
96.6
97.8
101.6
98.9
100
100
100
100
100
100
100
100
100
100
100
100
102.3
97.8
99.9
101.3
101.8
98.5
98.9
103.2
99.6
99.3
100.4
100.0
106.2
98.8
101.7
103.2
103.9
101.4
104.8
105.8
103.3
101.1
107.0
96.7
113.2
102.7
107.9
112.2
110.9
114.0
119.8
111. 5
109.0
106.7
121.7
99.4
113.2
114.2
108.8
119.2
118.0
123.6
135.9
124.6
117.4
114.6
132.7
106.7
113.1
121.1
112.1
122.9
123.6
130.0
143.7
133.5
122.3
120.5
141.1
113.5
114.8
124.6
129.8
117.1
130.6
132.9
132.7 ~ 153.2
137.7
153.7
162.1
140.6 ' "i82;o
127 9
124.8
146.0
152.6
182.8
116.7
95.8
73.9
106.3
74.7
81.8
78.1
76.5
82.5
65.4
80.4
85.7
71.1
96.4
77.1
99.1
79.2
86.0
85.9
78.3
84.8
73.6
84.0
91.4
77.4
94.9
77.7
91.8
82.6
90.6
91.7
83.4
92.8
76.8
87.5
94.1
85.4
94.3
82.8
90.7
87.0
94.4
93.3
96.1
95.6
82.2
90.9
93.1
90.6
94.0
88.7
90.2
86.8
96.7
93.6
101.0
94.8
86.9
91.6
92.8
93.9
92.7
93.8
91.3
91.8
98.4
95.7
97.1
102.5
91.8
93.2
98.7
95.6
95.4
96.8
95.7
99.5
97.6
100.2
95.1
102.5
96.2
97.7
103.1
98.9
100
100
100
100
100
100
100
100
100
100
100
100
102.3
97.3
100.1
94.5
101.1
98.3
99.0
103.7
99.1
99.2
87.4
100.3
106.2
97.9
101.9
95.8
98.7
103.1
104.3
106.9
102.7
101.0
93.0
97.1
113.2
102.7
111.5
104.4
98.7
124.6
119.2
112.8
108.5
106.2
106.0
112.4
113.2
116.9
116.3
112.4
105.4
141.8
137.2
129.9
121.2
115.9
117.9
99.7
113.1
136.7
122.1
123.4
120.5
162.5
153.6
159.5
137.2
130.8
131.0
128.7
114.8
166.2
126.3
154.0
147.2
207.3
173.9
188.0
165.7
147.9
136.0
160.1
t Preliminary estimates.
* Indexes in national currency adjusted for changes in exchange rates.
19741
1960
1973
124.6
144.1
156.8
237.3
226.1
' " v ia
155.5
Source: Department of Labor, Bureau of Labor Statistics. Estimates based on national and inter*
national publications.
81
Representative B k o w n of Ohio. Our second panel member today
is Mr. Paul McCracken, former Chairman of the Council of Eco
nomic Advisers. Mr. McCracken received his A.B. at William Penn
University in Iowa; his master of arts and doctor of philosophy
from Harvard University.
He was an economist at the U.S. Department of Agriculture in
1942-43; economist and director of research of the Reserve Bank in
Minneapolis from 1943 to 1948. In 1948 he joined the faculty of the
School of Business Administration and Graduate School of Ad
ministration of the University of Michigan. From 1956 through
1959 he was a member of the President’ Council of Economic Ad
visers, and returned as Chairman of the Council of Economic Ad
visers from 1969 to 1972. He is Chairman at this time of the Inter
national Committee of Economists, which was commissioned by the
OECD in Paris to make recommendations on economic policy.
He is a winner of many awards and has written many books on
financial and economic policy, and is noted throughout the world
as a lecturer on economics.
Mr. McCracken.
STATEMENT
OF PAUL W . MoCRACKEN, FORMER CHAIRMAN,
COUNCIL OF ECONOMIC ADVISERS
M r. M c C r a c k e n . T h a n k you very much, M r . Chairm an.
We received the suggestion that we each confine ourselves to 10
minutes. That struck me, the suggestion that a professor confine his
oral remarks to 10 minutes, struck me as the purest form of optim
ism, but I shall try.
It is, I think, pertinent for us to remember the observation that
Senator Wagner made back in 1945, when he opened hearings on
S. 380, and observed, “ We meet to consider what I profoundly be
lieve to be as important a proposal as any before the Congress
within my memory.”
Now, it was the set of hearings that led to the legislative process
that finally gave us the Employment Act of 1946. I think it might
be^ particularly appropriate at this juncture, and particularly in
this month to point out that Congressman Wright Patman, who
was for so long the alternating Chairman of the Joint Economic
Committee, was the floor manager for the Employment Act of 1946
in the House.
Now, the subject which has been assigned to our panel has to do
*ith the record, and I have looked at this rather broadly, and at
least raise the question, if we look at the economic performance duru*g the years, the 30 years of the act, what do we make out of it, how
do we evaluate it?
It occurred to me th at it m igh t at least be useful to^ compare our
economic perform an ce d u rin g that 30-year period with a period,
correspondingly, prio r to the act. I do this not in any sense suggestm g that, h ow ever the figures m ig h t come out, proves the potency
° r the lack o f it o f the act because all kinds o f differences, o f course*
would prevail. But nonetheless, this kind o f historical comparison
w°u ld at least giv e us some perspective.
82
Now, as I looked at this period—and by the way, I excluded the
Great Depression because, obviously, if one took the 30-year prior
period which included the Great Depression,^ that period would ox
course dominate the data. So, I took the period from 1889 to 1929
and compared it with the period 1946 of course to today. Let me
just say m brief , if one looks simply at the overall figures, the com
parison does not suggest that something came in in 1946 that gave
us the capability for a startlingly improved economic performance.
I f we look at that earlier 30-year period, civilian employment
actually increased slightly more rapidly on the average than it has
during the more recent period; real output also increased slightly
more rapidly then; of course real personal consumption expendi
tures increased significantly more rapidly; and the rate o f inflation
ih the last 30 years, last 29 years, has been somewhat greater than
in this earlier period.
I suppose it might come as somewhat of a surprise, at least to
some, that even the incidents of cyclical performance in these two
30-year periods turns out to be remarkably similar, as a matter of
fact, in terms o f the number of years in which real output declined,
it turned out that for each of these periods that number was six.
Now, we do have to point out, and Mr. Finley has already com
mented on this, that if you take period from 1958 to 1977—that
period would be roughly 20 years—there would have been approxi
mated five of those years that I should think anyone would reason
ably define as years when we experienced comfortably full utiliza
tion of our productive resources.
There are, however, three basic points that I think o u g h t to be
made on the side of the act, as it were. One o f these is that while
the incidence of cyclical fluctuations, in other words, the n u m b er of
these years where we had a recendence in output, turned out to be
the same. Nonetheless, the severity of these declines in the earlier
period was of course markedly greater; the average r e d u c tio n —year
to year, I should add—the average reduction in output in the earlier
period was 3.8 percent compared with somewhat less than that, I
think about 1.2 percent in these 30 years we are now con clu d in g .
And of course the most severe decline, namely from 1907 to 1908 of
8.2 percent was markely greater than the most severe y e a r-to -y e a r
decline, which would have been from 1974 to 1975.
N ow , the second point to m ake, and T th in k it’ s a very im p orta n t
one, is that while I excluded the Great Depression here fo r these
comparative purposes, nonetheless, w e did h av e a “ G re a t Depres-
. T t a t a n e ,.* ^eas^ during
these 30 years, w e h av e not had
which would be in that category, and th a t in spite o f the
met that we have had our episodes here o f v ery severe restra in ts in
the finuncial system, certain!v in 1970. a ga in in 1975. T don’t sug
gest* again, that in some m anner th is is to be attributed to the "Em-
P
I w
011
°^her hand, it is p ro b a b ly to be attribu ted
to th at greater understanding and perhaps greater atten tion to
some o f these fundam ental problem s o f w hich th e E m p lo y m e n t A c t
is at least # n expression*.
*vN° T ’ -th-eTe is J” 1® nrtier ™>int that T would lik* to make hem. al
though it is not m my written statement. We need to remember that
83
the management of economic policy this time is in the context of a
period, particularly in recent years, where the impact on the U.S.
economy of external economic developments is markedly greater.
For example, you just cannot explain the 1933 overheating of the
domestic economy unless you take into account the extent to which
we had sharp improvements in our trade position. According to my
rough calculations, if we had not happened to get the favorable
swing in our trade position from about the beginning of the sharp
decline in 1974 until the middle of last year, roughly, we would
have had about 1 million more unemployed than we actually did.
Now, a third point that I would like to make here is that many
that have not participated, many economists that have not partici
pated in the committee work, or the Council of Economic Advisers,
are often surprised to learn of the proportion of the activity which
is devoted to program analysis, what might be called “micro issues”,
in contrast to the overall level of business activity of production
and employment.
The analyses of proposals for trade policy; for regulation or de
regulation, there is an endless array of proposals. I think this is
mirroring to the extent that there is a growing focusing of economic
analysis on these specific programmatic issues, as well as just the
overall.
t Well, I concluded my prepared statement here by raising the ques
tion, at least quickly, as to where we go from here. I would just
make three summary comments. All of us would agree that the
one area which has been particularly disappointing is in the nrea
of price-level stability, which is of course related to the unemploy
ment problem, also. This is a worldwide problem, I am acutely
aware of that, having participated now in the OECD study to
which the chairman has alluded.
The second point that I have made here is, I think the managers
of economic policy can be asked to be even more forthcoming than
has been the case up until now, as to what the path is that would
represent, all things considered, the optimum for the objectives of
economic policy.
Now, I concluded here with a third comment, which is addressed
specifically to the Joint Economic Committee, and I make this
from the vantage point of an elder statesmen, as it were, who has
been here and is now back at the grassroots.
Reports of this committee in the earlier years reflected a_ sub
stantial degree of unanimity, they had, therefore, a particularly in
fluential weight in terms of the impact, I think, on the Congress,
&nd certainly public education. By definition, therefore, they repre
sented the combined judgment of the Members of the Congress,
^presenting both political parties, and representing ft wide spec
trum of ideological points of view as to what they could agree on
P terms of the importance of public policy. I think this was a very
important matter.
, .
Now, the more modem tendency for majority reports and minorv
has, it seems to me, gone too far in the last several years.
And while the committee reports remain a major influence, its lmPact on thinking could be even greater if there was greater emphasis
84
on. % greater degree of unanimity, such as, for example, the com
mittee report on international economic policy.
t
But I would conclude, Mr. Chairman, that an act and its institu
tion which it created, which have lasted for 30 years, and which was
given the Joint Economic Committee, which has no legislative func
tion, the status and influence which it has not only within the Con
gress, but in the country at large, and which gives the Council of
Economic Advisers with a personnel of only 50, which m this city
rounds off to zero, the kind of visibility and impact, all that sug
gests to me that something must have been done right 30 years ago,
and we would do well to keep that in mind as we ponder where to
go from here.
Representative B r ow n of Ohio. Mr. McCracken, thank you very
much. I must say that I think your hope for unanimity between
the majority and minority is highly ambitious. I for one, and 1
think probably Senator Humphrey would echo this, would settle
for unanimity on either side of the group, either among the minor
ity, or among the majority.
I think a careful reading of the Joint Economic Committee s re
port indicates that there are minorities in the minority, majorities
in the majority—I’m not sure, when you put all this together and
stir it up, whether it comes out black or white, or just sort of a dull
gray.
[The prepared statement of Mr. McCracken follows:]
P rep a red S ta te m e n t o f P a u l
W.
M cC ra ck en
I
On July 30, 1945, Senator Wagner of New York convened his s u b c o m m i t t e e
of the Senate Banking and Currency Committee to begin hearings on S. 380,
“The Full Employment Act of 1945.” He opened these hearings b y observing:
“We meet to consider what I profoundly believe to be a s important a p r o p o s a l
as any before the Congress within my m e m o r y S . 380 was, of course, what
subsequently metamorphosed into The Employment Act o f 1946, signed into
law 30 years ago last month by President Truman. And, Mr. C h a i r m a n , it a
pertinent to point out that Congressman Wright Patman, who was fo r so long
alternating Chairman of the Joint Economic Committee, was floor manager for
this bill in the House.
Have subsequent developments justified Senator Wagner’s hopes? What d o
we now make out o f this three decades o f experience? These are q u e s t i o n s to
which my own comments will be addressed.
Certainly the machinery set up by the Act had some significant results. Ac
cording to my count, for example, it has provided 32 members of my p r o f e s s i o n
the opportunity for a few years of frenetic, occasionally vexatious, and ulti
mately rewarding experience in the public service before returning to the mists
of academic obscurity. Hopefully we can pass along to our students the thovis^
that economic stabilization i s a bit more than comments in a seminar that tn
parameters of our fiscal and monetary functions must be adjusted.
.
Moreover, it succeeded in creating on the Hill a Committee with prestige
and influence even though it is not a legislative committee. And for an asteflw
with a total personnel of about 50 to achieve status and general visibility* a*
has the Council of Economic Advisers, suggests that something must hav
been right about the decisions made 30 years ago.
The ultimate question about which we must form some judgment, h ow cv e.
is whether the performance o f the economv hag been improved by the existence
of the Act and the machinery which it created.
I f we take this pragmatic view that the worth o f the Act and machinery
and processes thereby established are to be measured by the perform ance
85
the economy, this whole historical venture could easily emerge with a “straight
A ’ grade. By almost any test, except for the rate of inflation, the performance
of the economy during the 30 years o f the Act would be far superior to that for
the 30 years before the Act. (Excluding the war years that would be 19101940, but that would be a period whose statistics would be dominated by the
Great Depression.)
When we compare the performance of the U.S. economy during the three
decades before the Great Depression with that during the last 30 years, even
though this earlier period does include World War I and its displacement ef
fects, the superiority of our recent performance becomes less evident. From
1899-3929 civilian employment rose at the annual rate of 1.9 percent, compared
with 1.8 percent since 1946. Clearly the job-creation processes of the economy
were functioning at least as well in the three decades up to 1929 as during the
period under the Employment Act of 1946. And the economy was also generating
somewhat larger rates of increase in output during the early period—3.5 per
cent per year compared with 3.3 percent for the 1946 to 1975 period.
This earlier superiority in the capability of the economy to enlarge output
also carried through even better to what economic activity is ultimately all
about—namely, improvements in the material well-being of consumers. Real
personal consumption expenditures per person from 1889 to 1929 rose at the
rate of 2.7 percent per year, compared with only a 1.9 percent rate since 1946.
If in that earlier period real personal consumption outlays had risen only as
rapidly as they have since 1946, the average American family would by 1929
have had a material level of living about 20 percent below that which he
actually enjoyed.
AVERAGE ANNUAL INCREASE IN SELECTED ECONOMIC INDICATORS
[In percent)
1899 to 1929
Indicators:
Civilian employment_________________ _____________________________
Cross National Product (constant prices)________________ _______________
Personal consumpti on expenditures (constant prices)-........... -..........................
Personal consumption expenditures (constant prices) per capita............. .............
Consumer prices________________ __ ______________________________
1946 to 1975
p
J*r
J**
£'
•
1*5
y*
f*J
i
0,0
.Source: "Economic Report of the President, 1972,” “Historical Statistics of the United States From Colonial Times to
*957,” and “LongTerm Growth 1860-1965" (Census, 1966).
The price level performance in the three decades from 1899 to 1929 was, of
course, decidedly superior to that from 1946 to 1975. Since 1946 the consumer
Price index has risen at the average rate of 3.6 percent per
J™ ?
1968 to 1975 (the final seven years) the figure is 6.4 percent. From 1899 to 1929,
*s best they can be measured, consumer prices rose at the rate or only /.7 per«ent per year and that includes the jump in the price level incident toWorta
War I. Moreover, from 1922 to 1929, roughly “the Twenties after the
stabilized following the war, the price level trend was almost flat-Hristng at tne
average rate of 0.3 percent per year, compared with 6.4 percent from 1968 to
AoTo#
iue number of years in which real output was
~
year was 6 both for -899-1929 and during the
been
more than 5 of the 20 years from 1968 to 1977 w iU the ecOTomy have been
operating at reasonably full employment. No OTC^ ^ ^ ™
of the tI S
“ ent can be found in the years from 1899 to
imape of ttie U .^
?wnomy as lurching violently from boom to buret before staMUration poUcy
became an academic discipline is riot supported by the evidence of hist ry-
n
There are, however, three important things!to
*bo*t ^ i s r^ord in
favor of the Act and its institutions. First, white the incidence of cyclical
86
tuations during the earlier period was about the same as in the period since
1946, those earlier recessions were markedly more severe. The average decline
for those six years during the period from 1899 to 1929 in which there was a
recedence of real output was 3.8 percent, and the most severe was 8.2 percent
from 1907 to 1908. This contrasts quite unfavorably with an average decline
during recedence years since 1946 of 1.2 percent, and the maximum decline of
2.0 from 1974 to 1975.
^
^
Second, while the 30-year comparison period excluded the Great Depression,
since that would then have dominated the data, the fact is that we did have
a Great Depression in the 1930’s. We have not had one during the last three
decades even though economic policy was called upon to deal with severe
strains in our financial system in 1970 and again in 1975. No one would pretend
that the recurrence of a Great Depression was prevented by The Employment
Act of 1946. Probably the single most important difference has been the vastly
more sophisticated understanding of money and its economic role on the part
of the Federal Reserve System now relative to the 1930*s. This is all, however,
a part of that larger effort to watch the quality of our economic performance of
which the Act and its institutions are also building blocks.
Third, those who have not participated in activities of the Joint Economic
Committee or the Council of Economic Advisers are often not aware of the
major proportion of time and resources devoted to things other than macro
analyses of the overall economic situation. Some of the most useful policy work
of these two institutions is devoted to what might be called micro-program
matters. Illustrative of these would be such issues as trade policy, agricul
tural programs, the impact of public employment programs on unemployment
and wage levels, the effect of the minimum wage on inflation and unemploy
ment, the de-regulation of transportation, forest management economics, or
the economics of pollution control programs. The list could be extended almost
indefinitely. And this attention to these programs has at least raised the prob
ability that the cost-beneflt matter, which is inherent in these programs, will
get a more explicit consideration. And it is precisely because the Joint Eco
nomic Committee and the Council of Economic Advisers have no particularized
constituency that they can increase the probability that program decisions will
be in the general public interest. This may well be the area of greatest con
tribution to economic policy by The Employment Act o f 1946.
Ill
What can be said about where we go from here? This is a large subject, but
a few quick comments may be in order. An urgent matter has to do with the
problem of inflation. This is the dimension of our economic performance which
has definitely been poorer than in our thirty-year comparison period. The
President and the Congress during the last three decades have displayed no
lack of concern about the problem, but it is so still true that our major declara
tion on national economic policy is silent about the price-level problem. The
addition of “reasonable stability of the price-cost level** to the objectives or
national economic policy would be a constructive step.
Second, the managers of economic policy can reasonably be asked to be more
forthcoming about the path for production and employment that would repre*
sent the objectives o f economic policy taring the year ahead and for several
years ahead. With increasingly explicit claims on future output arising out of
decisions in the public sector, the time horizon for discussions in the Economic
Reports of the President and of this Committee must be lengthened beyona
/next year." This can assist in avoiding the erratic influences on the economy
I“ evitablT arise if °nr theory is that policies should zig or zag to counter
instability inherent in the economy—rather than recognizing that the patn
policies themselves is the one that the economy will follow a l o n g later.
Third, a comment addressed specifically <to your Committee. Reports of tms
Committee during earlier years reflected a rnibstantial degree o f unanimity,
therefore were recommendations for policy in which members reflecting
varying views and sections o f the country, and from both hous
united. This gave them an enormous weight that helped to establish the Joint
Economic Committee as an influential body even though it had no leffislati
function. The tendency for “Majority Reports” and "Minority Reports” b a s jr
aeems to me, gone too far in the last several years. W hile Committee Reports
87
remain a major influence, this impact on thinking could be even greater if they
reflected that considerable body of analysis and recommendations on which
there could be a wide range of agreement. (The Committee, for example, is to
be commended this year for a committee report in international economic
policy.)
Finally, an Act and the institutions which it created that have lasted and
gathered strength for three decades are not -things to modify lightly. The
elastic phrasing of our national economic objectives has assured its continuing
relevance and minimized the danger of obsolescence that more arithmetic tar
gets would have courted. The decision not to burden this Committee with heavy
legislative responsibilities or to establish the Council of Economic Advisers
with a large bureaucracy assured continuing vitality of these institutions.
These do, in short, work. Perhaps that alone is enough to justify Senator
Wagner’s high hopes in 1945.
Representative B r o w n o f Ohio. Our third speaker today is Regi
nald Jones, chairman of the board of the General Electric Co.
Mr. Jones received his bachelor of science degree from Wharton
School, University of Pennsylvania. In 1939 he begpi working with
General Electric *Co. In May of 1968 he became vice president for
finance of General Electric; in 1970 senior vice president of G E; in
1971 a member of the board of that corporation. In May 1972, he
was designated as vice chairman of the board of directors, and in
June of 1972 elected as president.
In December of 1972 he became chairman and chief executive offi
cer of GE. He is a member of the President’s Export Council—I
assume that is the President of the United States, and not the presi
dent of GE—and a member of the President’s Labor Management
Committee; he is a trustee of the University of Pennsylvania.
Mr. Jones.
STATEMENT OF REGINALD H. JONES, CHAIRMAN AND CHIEF
EXECUTIVE OFFICER, GENERAL ELECTRIC CO.
Mr. J o n e s . Mr. Chairman, distinguished members o f the Joint
Economic Committee.
.
nu .
We congratulate the committee, and especially you, Mr. Chair
man, for your initiative in organizing this very timely Conference
on Full Employment. There is no more urgent challenge facing this
country today than the challenge of getting people back to work,
and assuring plenty of good job opportunities in the years ahead
for our expanding labor force.
. .
,
As you well know, it’s not simply a matter of stimulating the
economy with infusions of Federal money; there are deep ana dis
turbing structural problems that threaten to make high unemp oynient a chronic sickness in our society, especially among young
People and minorities. Whatever legislation emerges from your
deliberations must address these structural problems, and avoid the
temptation to concentrate on short-term solutions.
#
It is our belief that the primary thrust of any program to achieve
foil employment must be to restore the dynamism of the Pnva^
sector— the productive core of o u t economy. The cychca recovery
already underway will help in this process, and we endorse the idea
of extending the individual tax cuts and making them permanent
m order to sustain the recovery. But our problems are so deep
88
even the individual tax cuts combined with investment incentives for
business will take a few years to come into full force in terms of
employment. Therefore, some immediate special employment meas
ures may be required in the transition period.
I f a reasonable amount of public works projects can be set m
motion quickly—and not delayed until the economy has already
recovered—you can provide temporary jobs for unemployed bread*
winners, particularly in the hard-hit construction industry. That
would be helpful, but if it is correct that public works projects re*
quire spending in excess of $25,000 per job, that is an expensive and
ultimately self-defeating way to tackle the unemployment problem*
The public works approach would appear to have limited usefulness.
Jobs for young people and minorities, generally with fewer skills
and less experience, pose even more difficult problems and require
longer-term structural solutions. Having in mind the temporary
character of publiciservice job programs, it might be a better in
vestment to concentrate funds on title I of the Comprehensive Em
ployment and Training Act, and begin to correct the mismatch be
tween the jobs and the skills that are becoming locally available.
It is reported that there are anywhere from a ^ million to 1
million unfilled jobs in the United States—and we ought to have
better date on this—but the people with the necessary skills are not
locally available to handle them. By giving people the training they
need through CETA we not only provide immediate income for
both the trainees and the teachers, but also begin to get at the long
term problem of chronic unemployment or underemployment among
minorities, youth, and women.
Experience shows that a program such as CETA reaches voung
people with employment problems. Of the enrollees from July 1974 to
June 1975, in title I programs. 61 percent were under 22 years of
age, 60 percent had less than 12 years of education, 45 percent were
females, and 40 percent were minorities.
Moreover, the CETA approach seems to get results. The Depart
ment of Labor reports that for the period from July 1974 through
June 1975—and that was the worst of the recission—of the 624,000
individuals who were enrolled in and left the programs under titles
I and II of CETA, 385,000—better than 60 percent—were either
placed in jobs or went on to more specific job training.
T\e simply have to work hard in the next several years in the
frustrating area of youth and minority unemployment, or we can
not expect them to support our economic or our political system.
Yet, everyone recognizes that public-9ervi.ce jobs and training'
programs are temporary expedients or transitional activities. That
is why any full-employment program must concentrate on resforinjr
the producer sector that provides most of the jobs, the income, and
the tax revenues on which our economy operates.
The Nation’s economic problems have been a long time developing,
ror most of the period between 1946 and the present, we have been
favorim? consumption over investment; we have been building « P
emana and neglecting supply; and we have been expanding the
government sector and neglecting the producer sector that supports
it*
89
Much good has flowed from these policies, but the one-sided em
phasis is catching up with us. The economy has drifted out of bal
ance. The producer sector, weakened by underinvestment, forced
deeply into debt by declining real profits, is not going to be able to
support the ever-growing demand for jobs, tax-supported services,
and rising standards of living that the people and their Govern
ment expect. So, we need tax policies that permit us to channel a
larger proportion of our national output into capital formation, and
we need restraint in the expansion of Government services until we
build up the tax base to support them.
BU SIN ESS XJNABLE TO BAISE NEEDED FUNDS
Well, how much capital will business have to invest ? The Coun
cil of Economic Advisers states that real business fixed investment—
excluding the need for working capital—may have to rise to 12
percent or more of GNP in 1975 through 1980, as compared with the
10.4 percent averaged over the decade 1965 through 1974, in order
to reduce the unemployment rate to even 5 percent by 1980.
Our own economists that this this is not a teachable goal under
the present tax laws. They forecast that business fixed investment
will not exceed 10 percent of GNP in 1977-80 because of inadequate
funds and incentives to invest.
The five charts that are at the back of my prepared statement show
why business will not be able to generate needed capital funds: cor
porate profitability and return on investment have been in a basic
long-term decline.
Chairman H u m p h r e y . Might I just interrupt, you mentioned
charts.
Mr. J o n e s . They are at the back o f the prepared statement, I m
reading a brief one.
Chainnan H u m p h r e y . Thank you.
Mr. J o n e s . Inflation has also eroded the funds provided by de
preciation, and so businesses had to turn outride for funds. TSiew
equity shares have almost become a negligible factor in capital for
mation because our tax system is heavily weighted in favor of debt,
rather than new equity. Therefore, most companies have been
Plunged deeply into debt. The result of this plunge into debt and
the squeeze on corporate funds is that corporate liquidity has all
but disappeared. It is somewhat better now than it wasa yt*ax ago,
but far from adequate. No wonder most financial institutions are
skittish about lending money to many businesses, and businessmen
are properly reluctant to go further into debt.
#
Corporations in these circumstances^ are just not goingr to be able
to make the capital investments required. And reduced capital in
vestments mean less economic activity, less employment, less im
provement in productivity, less ability to compete with overseas
competitors, and less improvement in our standards of living. Ihes®
are the consequences of a tax structure weighted against capital
formation and business investment.
90
ACTIONS PROPOSED
What must be done to restore the ability of industry to modernize
and expand our aging industrial machine? How can we trigger the
capital investment boom that this country needs to reach full em
ployment again ?
We would certainly support the extension of recently enacted in
centives—making the 10 percent investment tax credit permanent,
and making permanent the tax cut on the first $50,000 of corporate
income to help the struggling small businessman.
But two other areas of tax policy must be changed over a period
of years, starting now, if we are to restore vitality to the producer
sectors.
One is the area of capital cost recovery. The Congress should
legislate a capital-cost-recovery system which will allow producers
to adjust their depreciation or capital allowances to compensate for
the ravages of inflation.
Chairman H u m p h r e y . Could you just digress a little bit and ex
plain that a little bit more in detail ?
Mr. J ones. What we have in mind here is to permit deduction for
tax purposes, depreciation of replacement costs, rather than his
toric costs.
Chairman H u m p h r e y . I got you, thank you*
Mr. J ones. N o w , the other area that requires attention is integra
tion of corporate and individual income taxes to eliminate the bias
in favor of debt instruments and stimulate the issuance of new
equity. Again, there are several possible methods of achieving the
required integration* of corporate and individual taxes, and on both
of those we would suggest a start, realizing we can’t afford the loss
of tax revenues to go all the way, but over a period o f years we
could accomplish much.
Now, I would like to point out, in both these areas o f taxation,
our principal foreign competitors are well ahead of us. They have
methods for minimizing the impact of inflation and double taxation
that we badly need. You know, we have to remember that growing
exports and international trade are so significant to our economy.
Today our exports of goods and services have grown to 10 per^ was
®percent 4 years ago.
Mr. Finley has made reference to the jobs lost through imports?
noAA^A011? is more sympathetic than I. We have lost something like
2,800,000 jobs through our growtih in imports. But, I would point
out to you that we have gained 8.5 million through this tremendous
pw rth m export. So, we are 5.7 million jobs ahead, and they are
Jobs that pay on the average 25 percent more per hour. W e must take
^ r* Finley’s people, though, in some sort o f ad ju stm ent
situation.
Now, let me just go on to conclude by saying, as responsible legislators you want to know how much such tax reductions would be>
and how they could be financed if we are going to keep the Fea*
^fl ^
under control and prevent anotherdangerous round of
91
Well, the basic offset, of course, as your own report shows, is in
creased economic activity and employment that is generated by the
proposed tax reductions. This will not only increase the individual
and the corporate tax base, but also produce savings in Government
expenditures related to unemployment and income maintenance as
private employment increases. A valuable side effect, of course is
the help that will provide to hard-pressed State and local govern
ments in terms of reduced welfare costs.
We estimate that a properly phased-in program could accelerate
economic growth to the point where the program would be paying
for itself in about 3 years; and I think Mr. McCracken has written
very much along this same line. And beyond that it starts to pro
vide a fiscal bonus. More importantly, the cumulative effect of these
actions on economic growth would produce extra jobs in the period
of 1976-80 and help bring unemployment down to more acceptable
levels. Beyond that point the demographics favor us, we don’t have
the same structural problems; but we do have them in this period
to 1980.
Now, this investment in job formation cannot be postponed. De
cisions must be made this year, by managements in companies large
and small, so that the facilities will be in place to provide the jobs
and rising standards of living our people aspire to. That’s why the
Congress must restructure the tax laws affecting business, if the
Nation is to return to full employment.
Thank you.
Chairman H u m p h r e y . We thank you.
[The prepared statement of Mr. Jones follows:]
P r epar ed S t a t e m e n t
of
R e g in a l d
H.
J ones
Mr. Chairman, distinguished members of the Joint Economic Committee: We
congratulate the Committee and especially you, Mr. Chairman, for your initia
tive in organizing this very timely Conference on Full Employment. There is no
more urgent challenge facing this country today than the challenge of getting
People back to work, and assuring plenty of good job opportunities in the years
ahead for our expanding labor force.
As you well know, it’s not simply a matter of stimulating the economy with
infusions of Federal money; there are deep and disturbing structural problems
that threaten to make high unemployment a chronic sickness in our society,
especially among young people and minorities. Whatever legislation emerges
from your deliberations must address these structural problems, and avoid the
temptation to concentrate strictly on short-term solutions.
NEW PROBLEMS NEED NEW SOLUTIONS
This Conference comes on the thirtieth anniversary of the Employment Act
Jf 1946. Then, as now there was widespread concern that the economy was
facing high and chronic unemployment. The war was over, and the fear was
J'hat as we reconverted to a peacetime economy we would drift back into tne
depression from which we had just emerged. The answer then, a correct answer,
*as to stimulate demand—essentially to remove wartime controls and trigger
the pent-up demand for consumer and capital goods that had been postponed
°r fifteen years of depression and war.
^ But that rather simple solution is not our answer today. Conditions are
1^46’ the United States was virtually the only industrial nation left in
tact, while our competitors around the world lay in ruins. Today they are not
only rebuilt, but gaining on us in productivity and battling fiercely for markets
fcere and abroad
7s-285 0 - 76 - 7
92
In 1946, both consumers and business had a mountain o f accumulated funds
to spend, after the enforced saving of the war. Business in 1946 had liquid
assets that amounted to 86 % of its current liabilities. Today, business is deeply
in debt and liquid assets are only 34% of current liabilities.
In 1946, in spite of the problems of transition from war to peace, the unem
ployment rate was 3.9%, and we had only a fear of unemployment. There were
relatively few women in the labor force, and the migration of blacks from the
farm to the city had barely begun.
Today, with unemployment at 7.6% overall, and much higher than that
among youth, women, and minorities, we face an entirely different situation.
So while the nation again faces a question of how to assure full employment
of our labor force, the problems and the conditions are different, and will re
quire a different set of solutions.
Incidentally, it is customary to speak of our growing labor force as a prob
lem, but we must understand that potentially, it is an enormous asset. It takes
labor and capital to improve national wealth. Many industrial nations do not
have any slack in their labor force, and thus cannot increase output by putting
additional skills and talents to work. We have talented people who are willing
and eager to be put to work, sick of being on welfare or unemployment insur
ance, sick of being underemployed. This is our great challenge and our great
opportunity—to bring them into the productive mainstream of our private
sector and put them into dignified, high-paying jobs with a future.
How shall we go at it?
JOBS THROUGH THE TRANSITION
It is our belief that the primary thrust of any program to achieve full em
ployment must be to restore the dynamism of the private sector—the productive
core of our economy. The cyclical recovery already underway will help in this
process, and we endorse the idea of extending the individual tax cuts and mak
ing them permanent in order to sustain the recovery. But our problems are so
deep that even the individual tax cuts combined with investment incentives for
business will take a few years to come into full force in terms o f employment.
Therefore some immediate special employment measures may be required in
the transition period.
If a reasonable amount of public works projects can be set in motion quickly
(and not delayed until the economy has already recovered) you can provide
temporary jobs for unemployed breadwinners, particularly in the h a r d - h i t con
struction industry. That would be helpful, but if it is correct that public works
projects require spending in excess of $25,000 per job, that is an expensive and
ultimately self-detfeating way to tackle the unemployment problem. The public
works approach would appear to have limited usefulness.
Jobs for young people and minorities, generally with fewer skills and less
experience, pose even more difficult problems and require longer-term, struc
tural solutions. Having in mind the temporary character of public-service jod
programs, it might be a better investment to concentrate funds on Title I ot
the Comprehensive Employment and Training Act (C ETA ), and begin to correct. the mismatch between the jobs and the skills that are becoming locally
available.
reported that there are a n y w h e r e from half a million to a million
unfilled jobs in the United States (and we ought to have better data on this)*
but the people with the necessary skills are not locally available to handle
them. By giving people the training they need through CETA we not only pr<>yide immediate income for both the trainees and the teachers, but also begin
to get at the long-term problem of chronic unemployment or u n d e r e m p l o y m e n t
among minorities, youth, and women.
rt®^perienf e
that a Pr°Sram such as CETA reaches young p eoplew ^ "
employment problems. Of the enrollees from July '74 to June *75 in Title I
programs, 61% were under 22 years old, 60% had less than twelve years oi
Wn £L fA
emale8’ and 40% were minorities.1
TMhnT
I J10 9 ? TA aPl>roach seems to get results. The Department of T f W
reports that for the period from July *74 through June ’75— the worst of the
Empl(>yme,lt and TraInlll« Act Bwlew and ° Ter8l*ht’
93
recession—of the 624,000 individuals who were enrolled in and left the programs
under Titles 1 and II of CETA, 385,000-better than 6 0 % - were either placed
in jobs or went on to more specific job training. About half of these went to
unsubsidized employment while another half entered school or the armed forces
or other activities to increase their employability.3
We simply have to work harder in the next several years in the frustrating
area of youtli and minority unemployment, or we cannot expect them to sup
port our economic and political system. We must help this generation make the
transition from unemployment to employment, from school to jobs, so they
too can share in the rewards of a decent standard of living.
Yet everyone recognizes that public-service jobs and training programs are
temporary expedients or transitional activities. That is why any full-employment program must concentrate on restoring the producer sector that provides
most of the jobs, the income, and the tax revenues on which our economy
operates.
INCREASED CAPITAL FOB M ATI ON
The nation's economic problems have been a long time developing. For most
of the period between 1946 and the present, we have been favoring consump
tion over investment; we have been building up demand and neglecting supply;
we have been expanding the government sector and neglecting the producer
sector that supports it.
Much good has flowed from these policies, but the one-sided emphasis is
catching up with us. The economy has drifted out of balance. The producer
sector, weakened by underinvestment, forced deeply into debt by declining real
profits, is not going to be able to support the ever-growing demand for jobs,
tax-supported services, and rising standards of living that the people and their
government expect. So we need tax policies that permit us to channel a larger
proportion of our national output into capital formation, and we need restraint
in the expansion of government services until we build up the tax base to sup
port them.
CYCLICAL VS. SECULAB CONSIDERATIONS
Looking at the unused capacity in our factories today, some may say that it
is foolish to talk about a capital shortage—at least right now. That is a dan
gerous misunderstanding. It takes anywhere from two to four years to get new
factories built and up to full employment, and Boards of Directors have to see
their way clear this year to raise the money in order to provide the additional
jobs we need between now and 1980. This question of lead time, of incentives
for business to act right now, is critically important.
Moreover, w e should not be misled by those statistics about unused capacity
today. Much o f that is obsolescent— based, for example, on earlier assumptions
of cheap energy. That day is gone forever, and such equipment must be re
placed with more efficient, conservation-minded equipment in order to stay
competitive.
In addition, much new equipment must be installed just to meet the govern
ment-mandated requirements for pollution-control and safety—necessary uses
of capital, but producing practically no return to the investor.
And as the U.S. and w orld economy recover, inflationary shortages are widely
predicted in our basic industries—paper, steel, fertilizers, chemicals, and others,
especially energy. We must expand our capacity and we must make it more
productive in order to compete in world markets and raise our standards of
living.
Most discussions o f the capital needs o f industry concentrate on the need for
°ew plant and equipment, and ignore another key aspect—the need for working
capital. Business needs funds to carry inventories and receivables and equip
ment on lease to customers. Inflation has sharply increased the requirement
for such working capital, and this is why many companies have gone deeply
int° debt just to get the capital they need to operate.
BU SIN ESS UNABLE TO GENERATE NEEDED FUNDS
So business needs more funds both for working capital and for investment in
modernization and expansion of capacity, if it is to provide jobs for our growlabor force. H ow much are we talking about ?
from the Comprehensive Employment and Training Act Review and Oversight,
■ °« P t of Labor, Dec. 5 ,1975.
94
The Council of Economic Advisers states that real business fixed investmentexcluding the need for working capital—may have to rise to 12 % or more of
GNP in 1975 through 1980, as compared with the 10.4% averaged over the
decade 1965 through 1974, in order to reduce the unemployment rate to 5% by
1980. And since real business fixed investment actually declined during the
recession years 1974 and 1975, we have some catching up to do. Business will
have to invest at least 13% a year in 1977 through 1980 in order to provide
the jobs needed to soak up unemployment.
Our General Electric economists say that this is not a reachable goal under
the present tax laws, in spite of the anticipated improvement in corporate
profits from the exceptionally low levels of the recession. They forecast that
business fixed investment will not exceed 10% of GNP in 1977-80 because of
inadequate funds and incentives to invest And even that lower figure will be
exceedingly difficult to attain. Let me offer a few statistics to demonstrate why.
There has been a basic, long-term decline in corporate profitability as shown
on Chart 1. Reported profits before taxes fell from 10.9% o f GNP in 1965 to
8.0% in 1975, according to the latest available data. When we adjust pre-tax
corporate profits by removing just two of the illusions created by inflation—
inventory profits and underdepreciation—we see that profits have eroded from
11.2% of GNP in 1965 to 6.8 % in 1975.
Chart 2 shows how return on investment has deteriorated* The decline has
been exacerbated in recent years by the high levels of inflation. Pre-tax oper
ating profits expressed as a percent of the replacement cost of the stock of plant,
equipment, and inventories have plummeted from 14.7% in 1965 to 8.2% in
1975.
The other source for internally generated funds, depreciation, has also been
eroded by inflation. Capital cost recovery allowances based on historic original
costs have not kept pace with the rapidly inflating costs of construction and
capital equipment. As a result, industry has not been able to generate, through
depreciation, the funds needed o replace obsolete plant and equipment. There
shortfall by year-end 1975 has been conservatively estimated by the Commerce
Department at $8 billion for nonfinancial corporations, and the gap has been
growing rapidly.
The decline of funds available from retained earnings and depreciation forced
industry to turn increasingly to outside sources for capital funds. Here the
choice is either to raise funds bv the issunnpo nf new equity shares, or to go
THE PLUNGE INTO DEBT
Wuuge mtu ueot realty began.
95
The result of this plunge into debt and the squeeze on corporate funds is that
corpoiace liquidity uas ail uuc evapoiaieU. Chart 5 shows the point dramati
cally. In
lue liquid nuuncial assets of the nonfinancial corporations were
ot their current liabilities. By 1965 that ratio had fallen to 40.7%, and
by 19(5 it was down to
iso wonder most financial institutions are skittish
about lending money to many businesses, and businessmen are properly re
luctant to go further into debt.
Corporations in tnese circumstances are just not going to be able to make
the capital investments required. And reduced capital investments mean less
economic activity, lets employment, less improvement in productivity, less
ability to compete with overseas competitors, and less improvement in our
standards o f living. These are the consequences of a tax structure weighted
against capital formation and business investment.
ACTIONS PROPOSED
What must be done to restore the ability of industry to modernize and ex
pand our aging industrial machine? How can we trigger the capital invest
ment boom that this country needs to restore our economic vitality?
We would certainly support the extension of recently enacted incentives—
making the 10% investment tax credit permanent, and making permanent the
tax cut on the first $ou,0uQ of corporate income to help the struggling small
businessman.
But two other areas of tax policy must be changed over a period of years,
starting immediately, if we are to restore vitality to the producer sector.
One is the area of capital cost recovery. The Congress should legislate a capi
tal cost recovery system which will allow producers to adjust their depre
ciation or capital allowances to compensate /o r the ravages of inflation. The
present law contains a precedent for this type of approach by permitting tax
payers to use the LIFO method o f inventory adjustment. A number of methods
of accomplishing this objective in capital cost recovery are available, and it is
possible to phase these adjustments in over a period of years to minimize the
revenue impact. But acceptance of the concept and a meaningful start are much
more important than the particular method adopted.
The other area requiring attention is integration of corporate and individual
income taxes to eliminate the bias in favor of debt instruments and stimulate
the issuance of new equity. Correcting this inequity would reduce the upward
pressure on interest rates that results from the unnaturally high volume of
debt offerings. And most important of all, it would invigorate the market for
new equity shares. Again—there are several possible methods of achieving the
required integration of corporate and individual taxes, but the most important
point is acceptance of the concept and commitment to get started. Here too,
it is possible to phase in the program of correction over a period of years in
order to minimize the revenue impact.
WORLDWIDE COMPETITION
I should point out that in both these areas of taxation—capital cost recovery
and the integration of corporate and individual taxes—our principal foreign
competitors are well ahead o f us, and have various methods of minimizing the
impact of inflation and double taxation on their industrial sector. And this
brings up yet another very fundamental reason why the Congress must act. It
must act so that American industry can improve its productivity and remain
C0®[}P®titive in the battle for export-related jobs.
.
t*
There is little recognition in this country of the grow in g impact o f world
trade and world competition on jobs and income here in the United States.
~~any o f our people are now aware that total exports of goods and services to
we United States rose from $66 billion, or 6 % o f gross national product, m
1971 to $147 billion, or 10% of GNP, in 1975. Thus, e x p orts now provide a nsProportion o f U.S. national iicome and something like 8 milium jobs that
®ore than offset the 2 % million jobs lost through imports.
.....
Last year, American industry achieved a stunning and surprising $9.5 billion
surplus in the U.S. balance of trade. But we are heading into a much more
competitive period and actually ran a trade deficit in January. Yet we hear an
96
insistent clamor in the Congress to change our tax laws governing foreign
source income, without regard to the impact our foreign subsidiaries have on
our success in foreign trade. There are threats to eliminate or reduce the for
eign tax credit, which merely avoids double taxation. There are proposals to
tax foreign source income before it comes into the United States. There are
proposals to eliminate or reduce what few export incentives we have, such as
the DISC provisions to partially offset the tax advantages of foreign exporters.
These ill-considered efforts to tamper with our ability to compete in world
trade must not be allowed to succeed.
We cannot expect to have another $9.5 billion trade surplus in 1976. Our
competitors overseas are hurting from the recession and are going all out to
step up their export business. Many of our customers, particularly in the less
developed countries, have had to slow down their purchases o f U.S. goods be
cause they are having serious balance-of-payments problems. Meanwhile, as
the U.S. economy recovers we can expect an increase in our imports of raw
materials and some finished goods. The competition in world trade is going
to be extremely intense, and it would be downright self-destructive to add to
the tax burdens of our industries that operate on a world scale and bring in
most of our export business.
For the same reason—international competitiveness—we need tax policies
that will enable U.S. industry to modernize its plant and equipment. Our main
competitors, Japan and the European Economic Community nations, have been
investing two or three times as much of their GNP in new plant and equip
ment as we have, and their productivity has been increasing two or three times
as fast in the past two decades. Inevitably, they are going to catch up and
surpass us in industry after industry—with devaastating impact on jobs and
income—unless we keep ahead in the productivity race.
This is just another reason why, in addition to individual tax cuts, we must
have changes in business taxation to encourage capital investment.
IMPLICATIONS FOE FEDERAL DEBT
As responsible legislators you want to know how such tax reductions would
be financed, in order to keep the Federal deficit under control and prevent an
other dangerous round of inflation.
The basic offset, of course, is the increased economic activity and employment
generated by the proposed tax reductions. This will not only enlarge the in
dividual and corporate tax base, but also produce savings in government ex
penditures related to unemployment and income maintenance as private em
ployment increases. A valuable side effect of the increased economic activity
is fthe help this will provide to hard-pressed state and local governments in
terms of reduced welfare costs and increased tax revenues.
Our economists estimate that a properly phased-in program could accelerate
economic growth to the point where the program would be paying for itself in
about three years and start providing a fiscal bonus thereafter. More impor
tantly , the cumulative effect of these actions on economic growth would produce
extra jobs in the period 1976-1980 and help bring unemployment down to more
acceptable levels.
The required tax reductions would not be completely offset in 1977, and no
one is anxious to add to the Federal deficit. But our feeling, looking at the
underlying weaknesses revealed by the recent bout o f inflation and r e c e s s io n ,
is that we cannot delay in p r o v i d i n g the means to step up capital i n v e s t m e n t
and job formation for the long pull. With the economy running well under fnllemployment capacity right out to 3980, this is the beot time +o take our medicine
and swallow the immediate losses in tax revenue. Less productive uses o f Fed
eral funds, particularly new programs that do not contribute to the restora
tion o f a dynamic economy and a strong national defense, must be p o s t p o n e d .
B u t the investment in iob formation cannot be postponed. Decisions must
be made <this year, by managements in companies large and small, so that the
facilities will be in place to provide the iohs and the rising s t a n d a r d s of living
our people aspire to. That is why the Congress must restructure the tax laws
affecting business if the nation is to return to full employment.
97
CHART 1.
PROFITS BEFORE TAXES
AS A PERCENT OF GNP
1955: Reported 12.2%
Adjusted* 11.2%
1965: Reported 10. £
Adjusted* 11.2
REPORTED
1975: Reported 8.
Adjusted* 6.
1955
1960
1965
1970
1975
* Adjusted by Commerce Department by Removing
Inventory Profits and an Allowance for Underdepreciation
SOURCE: Calculated from Commerce Dept. Data
98
CHART 2.
RETURN-ON-INVESTMENT* BEFORE TAXES
NONFINANCIAL CORPORATIONS
* Pre-Tax Operating Profits as a Percent of Plant,
Equipment, and Inventories Valued at Replacement Cost
SOURCE: GE Estimates Based on Commerce Dept. Data
99
CHART 3.
PERCENT OF TOTAL FUNDS RAISED THROUGH
NEW EQUITY SHARES AND NEW LIABILITIES
NONFINANCIAL CORPORATIONS
(5-YEAR MOVING AVERAGE ENDING IN YEAR SHOWN ON CfftRT)
SOURCE: Calculated from Federal Reserve Data
100
CHART 4.
RATIO OF NEW DEBT* TO NEW EQUITY**
NONFINANCIAL CORPORATIONS
(5-YEAR MOVING AVERAGE ENDING IN YEAR SHOWN ON CHART)
* All Financial Liabilities
** Consists of Retained Earnings (Ex Inventory Profits But
Including Foreign Branch Profits) Plus New Equity Shares
SOURCE: Calculated from Federal Reserve Data
101
CHART 5o
LIQUID FINANCIAL ASSETS AS A PERCENT OF
CURRENT LIABILITIES
NONFINANCIAL CORPORATIONS
SOURCE: Calculated from Federal Reserve Data
102
Chairman H u m p h r e y , The statements that we have had here are
not only constructive, but they are provocative, and I know we want
to get into some questions.
My colleagues temporarily had to go to the House for a vote, and
I want to apologize to our panelists here; but some of you who testi
fied here before know about the situation we have to put up with
here, we have the business of the Senate and the House, and that
must go on.
We are going to preceed with our discussants now, and might I sug
gest that some informality here would be very helpful. I know that
this panel that is with us, those who are going to lead in the dis
cussion, have brief statements they want to make on their own, but
I would hope you would feel free, as panelists, to get into some dia
log, some interruption.
I’m asking each of the panelists to keep their comments as they
have been instructed, or have been advised, within reasonable limits
and then we’ll get the give and take here because this is an education
forum for us, on different points of view.
I believe we’ll start right, as I look out here to my right, with Mr.
Ray Marshall. Mr. Marshall is professor of economics, and director
of the Center for the Study of Human Resources of the University
of Texas in Austin. He has a very fine background, a Ph. D. from the
University of California at Berkeley.
And I want to say, the thing in your academic training that has
impressed me even more, or the most, Mr. Marshall, is that you re
ceived your master’s degree from Louisiana State University. I also
received mine there, and obviously you are the superior witness of
the day, there is no doubt about that. [Laughter.]
You have served as chairman of the Department of Economics at
the University of Texas, and also the University of Kentucky. My
Uncle John, John Humphrey served as the head of the Department
of Economics of the Kentucky University. You are in with the chair
man today, I can assure you. [Laughter.]
Now, we will take it one at time, and we will lead off with Mr.
Marshall, and then I ’ll present you individually. Go right ahead.
STATEMENT OF HAY MARSHALL, PROFESSOR OF ECONOMICS,
UNIVERSITY OF TEXAS
Mr. M a r sh a l l . Thank you, Mr. Chairman, it is a pleasure to be
here. We were asked to try to ask questions mainly, rather than
making a statement. I ’m glad you gave us a chance to make a little
statement.
Chairman H u m p h r e y . That’s what I thought you might want to
do. And I want you to cross-examine the panel.
Mr. M a r s h a l l . It’s hard for me to ask questions without stating
my underlying assumptions.
Chairman H u m p h r e y . You’d better be a good Senator, by the way.
Mr. M a r sh a l l . One problem I have with the figure that Mr. Jones
used, the $25,000 for public works jobs—I believe that was the figure
he used—I know the source o f that figure, but I don’t know how the
President calculated i t
That causes me some trouble, partly because I ’ve seen the figure
range all the way from $3,500 to $25,000—that’s a sizable range of
103
error, if we do have errors there. The Congressional Budget Office
estimated that the cost of a public employment job was considerably
less than that, in the neighborhood of $8,000; but that it costs a
great deal more to create a job, or to reduce unemployment by one
job through tax cuts. I believe you give heavy emphasis to the ques
tion of tax cuts.
Now, I believe their estimate was that it costs between $17,000 and
$21,000 to create a job that way.
I also liked your statement, Mr. Jones, about the need to take spe
cific labor market action, it seems to me that is entirely the case, I
wasn’t surprised at Mr. McCracken’s comment about the Council of
Economic Advisers having given some attention to specific labor
market matters, but I would be surprised to learn they had given a
great deal of emphasis to that. It seems to me the Council through
time has given much too much weight to general macrotype economic
policy, and not enough to specifically targeted labor market activities.
But, at the same time, the problem of the cost and the alternative
of using public employment and the alternative of using tax cuts
seems to me to be one that we really ought to dig into because all
these figures cannot be right, and they cannot apply to the same
thing.
I know from personal experience in Texas that the Operation Main
Stream program, which was a public employment program, was
much less expensive than that. The total cost, out-of-pocket cost, was
about $5,000 per job. It was a very effective program, it did a lot of
useful things that could not be done, would not have been done if we
hadn’t had that program.
It seems to me another thing we have to do is look at all the bene
fits and the costs associated with public employment. I think it’s
entirely true that we must look to the private sector for the main
thrust. But I ’m convinced because of my concern for pockets of un
employment, the problems of minority groups, the problems of
rural people, the problems of youth, that we are not likely to get
anything near full employment oy whatever definition you use, unless
*we start accepting aid as the level of full employment. We are not
likely to approach that without intolerable levels of inflation, unless
we have highly targeted programs like public employment; and that
the cost must be looked at as net cost.
It costs us a great deal not to do anything. I f we had not em
bodied all the labor that we did during the Great Depression m
schools, and bridges, and roads, that labor would have been lost to
society forever because one of the most perishable products that we
have is the labor of a human being. There is no way we can go back
and work yesterday.
t
- ,
r
It seems to me that we have to put into the equation that reality,
that is the fact that we lose that labor if we don’t use it. I think an
other important part of the reason that we ought to give a great
deal of attention to the cost of public employment is because it seems
to me to make a whole lot more sense to pay people to produce goods
and services than to pay them not to do anything. The alternatives
are extended unemployment insurance, or some kind of transfer payments, and it makes a whole lot more sense to pay people to produce
104
goods and services. It makes sense in terms of what we get for it,
and it also makes sense in terms of the inflation problem. It’s a whole
lot more inflationary to pay people not to do anything, than it is to
pay them to produce goods and services.
I t.hinlr it’s also clear that other costs, nonmonetary costs of not
doing anything about the problem of unemployment, which are not
monetary in a direct sense, also have to go into the equation. In spite
of all we hear about the changing character of unemployment, some
of the same old relationships seem to show up in the statistics. That
is to say, with rising unemployment, we get rising crime; we get
rising poverty; we get rising mental problems; increasing incidence
of suicide among middle-aged men.
Now, it may be new, but it shows up in the same old way, which
makes it very difficult for me to believe that there is a whole lot new
about this kind of unemployment, or that we can safely ignore it.
I completely agree that we need to do whatever we can to get the
private economy to provide most of the jobs. I think it’s also clear,
as you, yourself, have pointed out, Mr. Jones, in your excellent pre
pared statement, that the private sector is not likely to do it. There
are just a lot of things the private sector cannot do. That being the
case, we need to get public employment programs.
Now, one final comment about that, it seems to me the term “ pub
lic employment” is used too broadly; some people use the term “ pub
lic service employment,” as if you are talking about putting people
on Government payrolls. Well, it need not take that form, as you
indicated. It can also be private employment in the form of public
works, but nevertheless a part of a pubiic employment program; the
outcome is quite different. The outcome of a program that transfers
funds to State and local governments, as the public e m p loy m e n t pro
grams did, it quite different from Operation Main Stream, where the
farmers’ union operated a program in rural areas that put people to
work, doing all kinds of useful things.
So, “ public service” employment is not “ public works” ; and there
is another concept, “ supportive work,” which has been used in a lot
of circles, I think, with benefit All those different kinds of programs
have different outcomes.
I would like for you to enlarge on that, or other members of the
panel.
Chairman H u m p h r e y . Might I just interrupt on this because I
have to cast a vote, but I want the dialog to continue. I am going to
ask Jerry Jasinowski—we do have Members of the House on their
way back right now. But, we are building a record, and if vou would
like to continue for just a moment. Jerry, if you will preside, I ’ll be
right back, and Congressman Brown is on his way. I see my time is
running, the people’s business needs me.
Please, go ahead.
Mr. J ones . I f I could respond to Mr. Marshall, I think he has
asked some very good questions.
First of all, let me say, I haven’t found any source of what T
would call totaly reliable figures on the cost of a public wo^ks iob
versus a public service job versus cost in the private sector through
105
tax reduction. The White House can give you one set of numbers as
to the costs of jobs provided, as you know; and Congress can give
you another. You can get one from the House, and a different one
from the Senate.
The Congressional Budget Office, as you know, put out a report
which indicated that a public work job is considerably more ex
pensive than a public service job.
What I was trying to suggest here is that we need a mix of all
these things. Just as you indicated, we need to strengthen the pri
vate sector because this is where most jobs are going to develop. And
while it is true that the cost, shortrange, in the private sector through
tax reduction is expensive—and I ’m talking tax reduction for both
the individual and the corporation—the payback is there.
I mean, you can go time and time again and see the tremendous
improvement in the economy that follows a tax cut. There is a lag
of about 18 months, and then beyond 3 years you get an actual bonus
out of it.
Now, what we used in the program that we put together, that I
just mentioned very quickly, was public works, where the jobs could
be developed within 90 days; where the work has proceeded beyond
the drawing board and where we are ready to let the contract, are
ready to go to work. I think that has got to be done to a reasonable
degree. What’s reasonable? Well, certainly, a couple of billion is
not extraordinary in this area.
But we concentrated on the public service area because it’s less
costly and it serves a much larger constituency. The trouble, as you
indicated when you talked about public employment, one fellow
thinks you are talking about training, and another thinks you are
talking about making a grant to a local government to pay an em
ployee that they’ve already got on their payroll. There is a tremen
dous difference.
# .
We were concentrating on title I because in title I, $1.5 billion
would serve 1.2 million people, as we figure it; whereas in title VI,
which is the grant to local government, it’s a situation where you ve
got about $1.7 billion to serve maybe 300,000 people, a very sub
stantial difference.
a
.
_
Now, the House is talking about increasing the amount m title V1,
but setting it aside so that it won’t be given to local governments for
use in just hanging onto people currently on their payroll, but for
highly visible projects that would be handled in the local area, where
there is need for employment.
.
We think the mix of those three, building the private sector; some
limited public works, and expanded public service, particularly in the
title I areas of CETA, would give us something that would long-term
address the structural problem; and short-term give us some more
immediate relief.
,
,, ,
.
Mr. J a s in o w s k i [presiding]. I think in order to keep the elements
of this dialog going, I think it would be very useful to have Prof.
Robert Lekachman, who is a distinguished professor of economics
from Lehman College to comment and question our panel informally,
85 Chairman Humphrey said he would like.
106
STATEMENT OF BOBEBI LEKACHMAN, PBOEESSOB OF ECONOMICS,
T/RHMAK COLLEGE, CUT UNIVERSITY OF NEW YORK
Mr. Lekachman, Thank you very much, 1 am glad o f the chance.
Let me start very briefly by saying that, although this is an occa
sion of celebration of the 30th anniversary of the Employment Act,
I’m not among the admirers of the Employment Act, which 1 con
sider an extremely weak and toothless instrument.
It is for that reason, among others, that I’m pleased that Senator
Humphrey, Congressman Hawkins and others have sponsored H.E.
50, which 1 understand to be a serious effort to strengthen the Em
ployment Act of 1946.
■ I would strengthen it still further myself by enforcing rather
stronger requirements of action on the part of the Federal Reserve;
by speaking more concretely of anti-inflation restraints; by reenforc
ing the section which declares employment to be a right, and also
strengthening the statement of purpose which, though considerably
better than the statement of purpose in the 1946 act, nevertheless of
capable is being read as regarding full employment as a possible
trade-off against other objectives.
There was one thing that, when Mr. McCracken was going the his
torical comparisons, that came back to mind. I’m unhappily old
enough to remember the 1950’s quite vividly, and there are some
parallels between the emphasis which I have heard today on the part
of both Mr. Jones and my colleague, Professor Marshall, on struc
tural unemployment, which remind me quite vividly of a similar
emphasis during the 1950’s.
Now, without underestimating the true problems of bringing to
gether the right people with the right jobs, I would rather suggest
“ is, that where aggregate demand is high, and employers are huntfor employees, they will do a portion of the training which
CETA programs and others now do at public expense.
There will also be an impetus for job redesign, simplification, so
that the job is adjusted, in many inatMnyp, to the qualities of the
actually available employees.
That is to say, although I am certainly no opponent of efforts to
train individuals whose preparation and education may be sketchy,
nor am I an opponent of the effort to match those individuals with
jobs, if necessary created, for them to fill; at the same time I think
it is desirable to recall—though not currently fashionable—that all
of these efforts are easier when the economy is running at something
near full employment, than they are in the absence of that particular
feature of the economy.
I think it’s in this ught that I would like, if I may, explore fur*
tner the experience of the Employment Act with Mr. McCracken,
who has served both in the 1950’s and in the 1970’s as either chair
man or member of the Council.
I^t me ask this first question, Mr. McCracken, if I may take an
other comparison. Why has the experience of the United States been>
as^Mr. Finley suggested in his opening statement, on the whole less
satisfactory from the standpoint of employment
the experience
107
of most of the other advanced countries in the postwar period? I
believe th at to be fa irly comm on ground.
Mr. M c C r a c k e n . Well, Mr. Chairman, I found myself so startled
by the allusion that he was old enough to remember the 1950’s that
iqq/v a
e difficulty tracking after that, since I remember the
19t>0 S*
Mr. L e k a c h m a n . So do I , as a matter of fact.
M r . M c C r a c k e n . W e ll, good, I feel better.
Well, that, of course, is a very large subject, and I think we could
do very little more than just identify the areas that ought to be ex
plored here.
O ne o f the questions, o f course, has to do with the definition o f
jUnemployment. I do not mean by saying that that it’s merely a
definitional problem , but there is that dimension in tryin g to get
figures th at are rou gh ly comparable.
Now, it is also true that to the extent that one can reduce the fig
ures to comparability, unemployment rates in the United States,
given levels of pressure on the price level, seem to be higher. In other
words, the relationship seems less favorable here.
The second set of considerations may be that in the European coun
tries, especially during much of this 30-year period, there was more
underemployment there and less unemployment and, therefore, there
was more elbowroom to keep the economies moving ahead very rap
idly, without the same degree of pressure on the price levels.
I guess the third point that I would make, however, is that is we
bring ourselves up to date, the fact of the matter is that the kinds of
problems that we are concerned about here, namely, the problem of
both high rate of unemployment and high rate of inflation is quite
general; it’s the same kind of problem in varying degrees that we
see in most of the other countries of the industrial world. Hope
fully, we are moving out of that. In that degree, at least, there is a
considerable degree of parallelism in our experience here vis-a-vis
Japan, or the other countries of the industrial world.
Mr. J o n es . Could I make one comment ?
Mr. J a s in o w s k i . Sure .
Mr. J o n e s . It is a fact, however, as I understand it, our demograph
ics are different. Their baby boom follows ours by 5 years. They
will hit the same demographic problem about 1980, 1981, that we
hit in 1975 with 10 percent of our work force in that very young
age bracket, where it’s historically been 7. It will return to 7 percent
in this country in about 1981 or 1982. The people are here, we know
that. In Europe, they hit it, as we do now, in about 1981.
The second factor is, of course, they had to rebuild from the ravages of the war, and we poured in capital, as well as their very high
savings rates. So, they have a much more modern industrial machine
than we and, therefore, higher productivity. You know, in Japan
for example, 32 percent of their machine tools are over 10 years of
age; in the United States that figure is 67 percent. These are some
factors that create dissimilarities.
Mr. L e k a c h m a n . A tragedy that we haven’t managed to lose a war
recently, I suppose.
73-285 0 - 76 - 8
108
But, let me return for a moment to an aspect of Mr. McCracken’s
response. I heard in it what I suppose is an echo of the Phillips
Curve doctrine, that there are tradeoffs built into unemployment and
inflation relationships.
I heard Congressman Udall on television, who I understand is
running for a higher office, respond to some panelist’s question about
the difficulty of achieving full employment without inflation. His
answer was something like this: That these were separate problems
to which you addressed separate policy instrument; that you ex
panded the economy by whatever combination of public and private
measures were needed to produce full employment. I f the side effect
of this was inflation, then you addressed the inflation directly.
In a highly delicate fashion, he was alluding to some variety of
incomes policy. I don’t want to interpret too much into a single
answer of Congressman Udall, but speaking in my own voice, isn’t
one possible answer to the tradeoff the contemplation of both, a per
manent full employment policy and a permanent anti-inflation policy
at a discard of what has been the policy of recent years, which has
been to proceed alternately against one of these problems, at the
cost of exacerbating the other.
M r . M cC r a c k e n . Are you addressing this comment to me ?
Mr. L e k a c h m a n . Yes.
M r. M cC r a c k e n . Well, let me comment on that. Poor M r . Phillips
apparently was on the verge of achieving immortality, only to have
his law suddenly discredited, apparently.
I think we probably went too far one way in the direction of as
suming some kind of reasonable invariant relationship, and are now
going too far in the sense of suggesting that there is no relationship
Suppose that we were to pursue a policy by which the demand
for output at least in nominal terms—that is we’ll stay in current
dollars—were to rise substantially more rapidly than what seems to
be ahead of us.
If we put the economy under too much pressure, I would guess
that we see a price level response. I think that would be the general
expectation, also. One cannot go so far as to say that these are two
totally different problems; I don’t understand that, and I don’t see
any logic to support it. Moreover, in the substantial amount of inter
national experience that we have had with this electric phrase “ in
come policies.” which I suppose ranges all the way from mild exhorta
tions to outright price controls, I don’t see how one can read that
experience and be confident that we have some kind of a wage and
price control program which can deal with the problem of inflation,
by which then we can put the economy under pressure.
*
^
put it even more strongly. I think that has been one
of the problems that countries who have tried these programs have
run into, thinking that they had solved and dealt with the prob
lem of inflation by incomes policv. They overstimulated the economy
themselves sooner or later with the program blowing up.
i
j OECD in its review of this experience has certainly coil"
eluded that there might have been some temporary displacement ef
fect on the price-cost level, but whether it had any enduring impact
109
was doubtful. That is based not only on their own experience, but in*
temational experience.
So, I guess I would not see the logic that somehow or other these
are two totally different things, I just don’t think they are.
Mr. L e k a c h m a n . Might I diner on that, Mr. McCracken----Representative B r o w n of Ohio. May I interrupt long enough, so
that we can open this up all the way, I want to introduce the other
two discussants who have not been introduced, and then perhaps we
can make this a little more free wheeling, or get a little more involv-
ment from everybody in the conversation.
Our other two guests this afternoon I will introduce separately,
but one comment, if I may, from each, and then everyone will be
involved in the panel discussion and participation.
We have James Compton, the president of the Chicago Urban
League, who has his A.B. degree from Morehouse College in Atlanta,
Ga,, diploma from the University of Grenoble in France. He also
attended Miloa University, Chicago, Chicago Teachers’ College in
Chicago. He was executive director of the Chicago Urban League
beginning in 1972, and executive director of Broome County League
at Bingham, N. Y., prior to that.
He taught school, elementary and adult evening classes in Chicago.
His career has centered around education, social and community or
ganization work, with emphasis on helping minority groups improve
their economic and social condition.
Mr. Compton, can we get a question, or a comment from you, and
then I will introduce our other guest.
STATEMENT OF JAMES W. COMPTON, PRESIDENT, CHICAGO URBAN
LEAGUE
Mr. C ompton. Thank you very much, Congressman Brown.
I first wish to take the opportunity to commend the committee,
and especially its chairman, for the regional hearings which you con
ducted throughout the major areas of the United States, and also
for the convening of this very important conference over this 2-day
period on what I consider to be one of the most severe problems that
we are facing in this country today, and that is the problem of nign
unemployment.
w _
_
.,
,
May I say, initially, on behalf of the Chicago Urban I^ague,that
we applaud the basic features and the intent of the reviswl liumphrey-Hawkins bill entitled “ Full Emplojmaent and Balanced
Growth Act of 1976.” We are heartened by its recognition or tne
need for a national commitment to full employment, comprehensive
and explicit planning, the policy and program formulation and ac
countability to quantitative and qualitative details to struc
well as cyclical barriers to full employment.
.1 want to commend the authors of this legislation for th^ir recog
nition of our very special problems of our inner cities, e P^P _
inhabit the inner cities; the direction of labor and pro u
sources to social needs, including housing and community develop
ment as well.
110
I ask, in considering this bill, that even more consideration be
placed on these latter features, that is the employment of minorities
and youth be given special attention as an institutional problem,
rather than inaividual-by-individual problem. Special scrutiny be
given to compliance with enforcement of nondiscrimination provi
sions. That the legislation defining unemployment include those who
are working part time while desiring full-time work; an accurate in
formation system be incorporated in the legislation to provide timely
unemployment data relative to structural barriers, and to monitor
the content and distribution of the increased productivity it gen
erates.
This legislation is of profound importance to the people of Chi
cago and to the Nation as a whole. It is especially vital to the inter
ests of minorities who constitute a disproportionately large segment
of the unemployed, as well as underemployed.
And on tnis, the 30th anniversary of the Employment Act of 1946,
that is appropriate and long overdue, to attempts to compensate for
the inadequacies of the past.
In basic conception and purpose the Chicago Urban League and
its constituency applauds this legislation, and we urge and plead its
enactment into law.
In that Professor Lekachman is an expert in the aspects of em
ployment in the public sector, I will not try to repeat his remarks,
except to say that I do support and do agree wholeheartedly; and I
do think that when you talk about cost factors of this type of em
ployment, in the public sector, that we should give less attention to
the cost factor, regardless of whose figures we are using, and give
more attention to the investment factor and human beings.
I don’t think that the cost factors, regardless of whose figures we
use, would be greater than the cost factors involved in heavy crime
that we have in our major cities; the cost of welfare, or paying peo
ple not to work; the costs in broken homes and misery; the cost in
mental illness, and ultimately the cost of threat of violence to the
social fabric of this Nation. So, I support that aspect of it as well.
Representative Brown of Ohio. Our fourth discussant this after
noon is Bernard Anderson, of the Wharton School of Finance, pro
fessor of industry; he is a graduate of the Wharton School; coauthor
of a recently published study on the impact of government man
power programs; member of the American Economic Association and
Industrial Relations Research Association; and he is a former in
structor at Swarthmore College.
Professor Anderson please proceed.
STATEMENT OF BERNARD ANDERSON, PROFESSOR OF INDUSTRY,
WHARTON SCHOOL OF FINANCE
Mr. A nderso n . Let me begin by thanking you for the invitation
to come here today, and let me commend the Joint Economic Com
mittee for holding these hearings on what I consider to be the most
important domestic issue in the country.
Let me make a very brief statement, and then I would like to direct a question to my fellow alumnus, Mr. Jones, and then another
question to Congressman Brown.
I ll
I would like to begin by saying, it seems to me that full employ
ment is far too important to be left to economists— and if I should
debunk my profession somewhat, you will forgive me, Mr. Mc
Cracken, but I think that too much of the discussion of full employ
ment and its consequences, its feasibility, has come forth from econ
omists who have, as you, I ’m sure will agree, a particular view on
this issue.
I begin with the notion that work is an important ingredient in the
lives of individuals. Now, we have heard in this country in recent
years a great deal about the work ethic. Well, I think it’s ludicrous
to talk about the work ethic without developing creative and imagina
tive policies that make it possible for every individual willing and
able to work in fact to have a job.
We have heard that there are changes in the structural content of
the labor force, and that certainly is true. But I can’t understand why
we don’t see and emphasize the fact that the opportunity to make a
productive contribution to this society is the birthright of every
American.
I suggest that the opportunity to work should be the centerpiece of
the national economic policy. I f we have observed changes in the
composition of the work force, does that then not suggest that we
should have policies that make it possible for minorities and women,
and youth to be more fully adapted to the economy ?
That is, I don’t understand why, if the composition of the work
force changes, that we then should be satisfied with a higher rate of
unemployment. I don’t understand why we want to define full em
ployment as that rate of unemployment that is consistent with some
notion of price stability.
b
.
I would suggest that another important ingredient of this, to which
Mr. Compton has referred, that full employment is a sine qua non
for the achievement of economic equality in this country, which I
understand to be another objective of public policy.
Now, with those remarks I would like to say that it is likely, given
the current changes in the economy, that we would have difficulty in
achieving full employment in the years ahead. We need measures
that would permit us to deal effectively with the energy shortages,
the inevitable rise in the cost of energy; foreign competition, the need
to expand production without spoiling the environment, and a num
ber of other desirable public objectives.
Now, Mr. Jones, permit me to ask you this, I am in fo rm ed that
multinational corporations, like General Electric, achieve a rate ot
return on investment that is higher in Western E u r o p e n countries
that have some form of national economic planning, than they do in
the United States.
, ,
I > interested in your chart No. 2 to your prepared statement,
which shows the decline in the rate of return on investment dunng
the period between 1965 and 1970.
.
o *
Now, if in fact that is the case, if multinational corporations do
venr well in foreign countries that have a considerably Jp*®*
-r
volvement of government in the
affairs of the n^ion, 1
wonder if you would care to comment and give us the b e n e f i t of your
thoughts, on the desirability of some form of national economic pla
e c o n o m
i c
112
ning for the United States, as a tool for achieving in the years ahead
full employment without inflation.
Mr. J ones . I will be happy to try to respond, M r . Anderson. First
let me say that our experience is not one of higher return in the
planned economies of Western Europe. Our experience is lower re
turn and withdrawal, actually, of any significant operation in West
ern Europe on the part of our company. We have some small opera
tions there, they are not significant in our total.
We have found, as a matter of fact, in our own experience, that we
are doing much better in exporting to Western Europe than we are
doing in trying to locally manufacture there. There are occasions
where because of local regulation—national chauvinism, whatever
you want to call it—we must produce certain products in the coun
try in order to be able to sell them, which I am sure you appreciate.
Just to give you a couple of figures, the favorable balance of trade
at General Electric, that is its exports in excess of its imports in
1970 was $500 million; last year it was $1.5 billion, three times as
much.
There are a number of reasons for that. One of course is the fact
that the U.S. dollar was so badly overvalued that we had a real cur
rency problem. When we went to floating rates, we were of course
advantaged. Not advantaged unfairly because I firmly believe the
floating rate put the dollar in about the right relationship to other
currencies. You have a terrible burden when you are required to be
both the transaction currency and the reserve currency; we still have
a bit of that problem, but we are a lot better off.
The second thing that helped us, of course, was the general growth
in the economies throughout the world in that period from 1970 to
1975.
But the third, very important factor was DISC legislation, which
was passed by Congress because what DISC enabled us to do is off
set some of the advantages our international competitors had, and it
made it a much better deal for us, in many respects, to manufacture
the product here in the United States and ship it abroad, and get
that tax saving here.
Now, I would say that with respect to planned economies, with the
possible exception of one, most of them have not been, I don’t believe,
successful. What you are up against is a situation where labor does
not have the mobility in many of these countries, and the redundan
cies are not permitted—that’s what they call them there—and this
has caused the Government to pour more and more money into the
industry in order to keep it viable.
* ^J'kink that the economy in Italy is in a shambles; the economy
m the United Kingdom, where 60 percent of their GNP now is in the
public sector, is in great trouble; the economy in France is now ex
periencing difficulties, as you know, the franc is dropping precip*usly. I just came back from Japan where the Japanese industrialare most pessimistic. Admittedly, their situation has not been
as critical as ours, but they are telling me that there is no way that
. e _®^nomy m Japan is going to match the government planning
statistics that have been outlined for the year 1976.
113
Chairman H u m p h r e y . What is the rate of unemployment in
Japan?
Mr. J o n e s . It’s about 2 percent, something on that order.
Chairman H u m p h r e y . And they think that’s bad.
Mr. J o n es . They think that’s very bad because------Representative B r o w n of Ohio. Is it accumulated on the same
basis as the United States ?
Mr. J o n e s . Not quite. The First National City Bank letter of cur
rent issues has a very interesting section in it which compares the
way we accumulate our unemployment statistics, and how the major
industrialized nations around the world do it. In each case their
unemployment statistics would be slightly higher if they were com
puted on our basis; but there is still a wide difference.
Chairman H u m p h r e y . Slightly higher than ours?
Mr. J o n e s . No, slightly higher than reported, but still well below
ours.
Chairman H u m p h r e y . In other words, they add more people in,
more elements in their economy; is that what you are saying?
Mr. J o n e s . N o . The way they accumulate the statistics—let me just
give you a specific. In most of the Western Europen nations the dif
ference between their reported unemployment, if it were put on a
U.S. basis, would be up about 1 point.
Chairman H u m p h r e y . One point, I got you.
Mr. J o n e s . Japan is slightly different. Mr. Finley, do you want to
answer?
Mr. F i n l e y . It would be 4 percent, on the same basis as ours, com
pared to our 7.6. So, their stated figure of 2 percent, if you made it
on a comparison basis, would be about 4 percent to our 7.6.
Chairman H u m p h r e y . But it is a fact that we have had, as a pre
vailing statistical fact, a much higher rate of unemployment over
the last 10, 15, 20 years, or at least 15 years than any other indus
trialized nation in the world; isn{t that true?
Mr. J o n e s . While you were out we mentioned one of the reasons
for that, our demographics are different. Our baby boom is 5 years
ahead of the European baby boom. We’ve got 10 percent of our work
force now, you know, in the 19-and-under age bracket.
Chairman H u m p h r e y . Our population—compared to many of the
Europeans—is older.
Mr. J o n e s . N o t in this area. They will hit about 10 percent, as we
have now, in the 10-and-under bracket, at about 1981.
Mr. F i n l e y . On this point that the Senator is raising, if you take
the 15 years, Senator, from 1959 to 1974, which I would think would
cover the point you are making about the demographics. Japan went
from 2.2 in 1974, and ours went from 5.5 to 5.6. They were always
substantially under ours every year for 15 years. While there may be
some demographic differences, that can’t be the total answer. 1 tnmK
this is the point that the Senator is referring to.
. . .
.
. Mr. J o n e s . The point that Mr. Anderson was brining up, that
jn these nlnnned economics you do not have the freedom, if you are
industrialized, to lay anybody off. In Japan, when you go to wor
for a certain company, you are with that company for life.
114
Chairman H u m p h r e y . That is not the plan, that is company
policy.
Mr. J ones . That has been the system in Japan.
Mr. F in l e y . I s that true of the countries like Sweden that im
ported labor?
Now, they had full employment. Their underemployment was the
southern Italians, Portuguese, the Turks, and some Spaniards. They
can get rid of that. I don’t think they were quite as frozen as that.
Mr. A nderson . If I might interject a comment here. Mr. Jones,
I think you might agree that the characteristic of the economic plan
in almost every country is highly compatible with the basic institu
tions and values of these countries. For example, in Japan they
have long had a tradition of not laying off because the employer has
a paternalistic relationship with the employee. That is different,
from what I understand at least, from the economic plan in Ger
many, to which Mr. Finley just referred.
But now, let’s look ahead and give me the benefit of your thought,
if you will, on whether you believe that the private sector in the
free market, without any greater coordination in our economic life,
will be able to handle effectively and efficiently the host of problems
that seems to be on the horizon in this country.
That is, the General Electric Corp. did not become a multi
national corporation without some sort of planning. I ’m sure you
now have goals for sales and profitability over the next 5 years.
Do you see any inconsistency in the same kind of coordinated spe
cification of goals and objectives, and the identification of alterna
tives, and means of achieving these alternatives for the Nation at
large, that seem to work so well for the corporations ?
Mr. J ones . I think there is an order of magnitude difference, sev
eral orders of magnitude difference. Professor D ru c k e r, who is quite
a student of management has said that something like the General
Electric Co. is unmanageable as it exists; and when you recognize
that we are 1 percent of the GNP, you can recognize the p roblem ,
two orders of magnitude different, if you transfer that to the na
tional scene.
Of course, I didn’t realize that we were going to get into a big
debate this afternoon about a planned economy versus a nonplanned
economy. But, you know, most people would tell you that we have
planned economy right here in the United States because
the planning is done by the consumer. He buys what he wants to
buy.
Now, I am certainly not objecting to our setting forth goals and
objectives for what we should, as a Nation, strive to achieve. I think
they should be realistic. But^ when I contemplate the difficulty, the
enormous job of trying to make millions, billions of decisions that
th6 th^U^h f *n a ^ aimec^economy of this complexity, I just pale at
Look what we have done, for example, in the energv field. With
all the planning that we have put in to this in the last 3 vears, we
nnd ourselves dependent increasingly on imported oil. We don’t
seesm to be able to recognize that, with all the planning that we
have done, our answer has got to be to rely on resources that are
115
indigenous to the United States if we are going to free ourselves
and become independent of foreign oil.
Representative B rown of Ohio. This Government has injected it
self most radically into this whole process by setting the price scale
in the energy area.
Mr. J ones. Congressman Brown, you said it, and I have to agree
that this is part of the problem. We must remember that ours is
perhaps not only the most litigious society in the history of civiliza
tion, it’s also the most adversary. The great difference between our
society and that of Japan is just that point. Theirs is a consensus
society—ours is an adversary society.
Representative B rown of Ohio. You mean we don’t sing the com
pany song as we go to work in the morning; is that what you are
talking about ?
Mr. J ones. I ’m afraid if a I wore a sweatshirt and tried to do
that, I wouldn’t have the job 30 seconds; this is not a paternalistic
society.
Chairman H umphrey . But doesn’t there get to be a point here,
which our discussants are raising, looking at all the merits and the
values of our relatively open and free economy, as to what happens
to that segment of the population that for some reason or another
either is not able to get a job, or is not skilled, or trained to get a
job, or the economy itself doesn’t permits them to get a job. What do
we do with them ?
There was the argument made here about public works, which
I want to just quickly put in, the private sector is not going to take
care of waters and sewers; the private sector is not going to take
care of the police department; and it isn’t going to take care of the
parks; and it isn’t going to take care of the highways. It’s been tak
ing care of the railroads, and that’s why they are such a mess.
Representative B rown of Ohio. Mr. Chairman, you had the rail
roads regulated, they are the oldest regulated institution in the
country.
Chairman H umphrey. But they are at least supposed to take care
of the road beds, never mind the rates for a minute. They are sup
posed to do something about the roadbeds.
.
But my point is, what do you do with the people, as posed in the
question here because we are all on the basis that most of those jobs
will have to be in the private sector. And everybody agrees that
hopefully the economy will respond so that in due time the private
sector will provide the jobs.
.
I think the question before intelligent men and women m this,
what is the alternative for those persons that faU in between the
time of long unemployment and the long period of recovery that is
hopefully going to provide private employment ; what do you do
with the 6 million, 7 million, 8 million, 5 million, or whatever group
lt is#
Your unemployment compensation funds are bankrupt, practically
all of them. These business people say they don’t want any help, and
they are all in here borrowing money right and left to be able to
take care o f their unemployment compensation funds, which is an
employer-paid fund. The Government of the United States is going
116
to have to loan money to these State unemployment funds, or give
them money because the private business fell out the window a long
time there.
#
Now, what do you do with these people m between? We would
like to hire in our little business 10 more people, but we don’t have
the sales. What are we going to do about it ?
Mr. J on es . That’s why, Mr. Chairman, I did recommend while
we make these tax cuts and other moves for individuals and cor
porations to stimulate the economy and enhance the opportunities in
the private sector, that during the transition we should have a
reasonable public works bill, and we should have something more
than we have in the CETA area, particularly. That’s the most inex
pensive, and for the long term the most productive, it will give us
a more skilled work force.
You know, we don’t have the mobility that we once had in this
country. People used to go where the job was. Now, with consider
ations of quality of life they want to stay in the area they know
best, where their families are, where their friends are; and that’s
why we have a y2 million, or 1 million open jobs in this country.
We’ve got to take the training to them to fill the jobs locally.
Chairman H u m p h r e y . Mr. Jones, I want you to know, I thought
your statement was very positive. You gave us some good material,
and I was very pleased with what you had to say.
But, there has been a constant barrage in this city—which is the
governing city—against forms of emergency public wrHcs and whlic
service employment, as if they were some sort of a disease. I don’t
happen to think public service employment is too hot myself, but I
thiTik it’s a lot better than paying people to sit on their tail.
Repersentative B ro w n of Ohio. Mr. Chairman, I hate to interrupt
this, I am in the peculiar position of being the minority member of
this committee, but the moderator of this panel. I would like to, if
I can, get back to the discussants and let them proceed.
Mr. A nderson . In my final 2 minutes, Congressman Brown, I
wanted to direct a question to you.
Representative B ro w n of Ohio. I understood you did.
Mr. A nderson . In your introductory remarks you alluded to ft
change in the structure of the work force and suggested that we
might be wise to examine whether 4 percent unemployment is the
appropriate level for measuring full employment.
would like to ask you why you would not think that the apPr?P^? , .?J. or
employment is a condition in which every
individual willing and able to work would in fact have a job.
Representative B ro w n of Ohio. Well, I think there are three things,
probably that are involved in that. First, there is that change in
e structure m the labor force; second, there is a certain “ frictional
unemployment; and then finally, it seems to me that our survey pro
cedures of what the impact, and what the real factors of unemployw ^ reT ou£ht to change some, as our society changes.
V ? eii .ne5 ™ men ^ the work force, and I didn’t do so
triri ’
e
° f the matter is that we have more people working
th a n xw.
numbers of people in our society-—
ad in 1946, with this high rate of unemployment that we
117
are currently suffering under. The question that occurs to me is,
when you have two people in a family of four let’s say, who both
have full-time jobs, doing very well working, and one of them is
temporarily unemployed, is the impact of that household as severe
as the 4 percent unemployment, which we permitted as a judgment
of full employment back in 1946 when the pattern was, one working
head of household per household.
That’s the allusion I tried to make about the woman at home who
is doing the canning, the cooking, the gardening, and all the other
things that were going on in the household, but in fact was not
counted as part of the work force in the technical sense of the term,
then; nor was she counted as unemployed, of course.
Now she is out in the work force, she is running a beauty parlor
while the husband works in the factory. Now, if she is out of work,
or the husband is out of work, there is some assistance in the family
relationship there that tends to carry the family.
The other thing that has happened is that we have unemployment
compensation, the union supplemental unemployment benefit plans
that have been negotiated, and when the main person in the house
hold, or the main wage earner in the household is unemployed in a
technical sense, he may be very well sustained in an economic sense
for a period of time at least; and he is passing through to the family
the funds that go to keeping the economy moving in some condition
that it did not move when he was unemployed back in 1946 because
when he was unemployed back in 1946, the family was down on its
ears.
When he is unemployed today, his wife has a job some place
rise, there are the sustaining social services that have been folded into
the economy, thank goodness, since 1946, then the family is not quite
as bad off as it was before.
Now having said that, that does not take care of the problem that
was mentioned by one of the other members of the panel, and that
is the high percentage of unemployment of the ghetto blacks, for
instance; the high precentage of unemployment in the teenagers.
, I fully subscribe to the fact that our programs should be directed
in those areas. Unfortunately, the Federal programs have not been
terribly successful in those areas, and I think the change in the
structure of our work force; the change in the structure of what
unemployment means; the change in the structure of what we offer
as a sustaining factor in unemployment has to be taken into acount
when we figure 4 percent unemployment as full employment.
I must say that those things work both ways. We have made em
ployment by teenagers unlikely by the high minimum wage laws.
1 think we would have a lot more people employed if our minimum
wage laws were structured to take into account that a teenager
rciight be, as a beginning worker, something different that what con
sider a minimum wage for a head of a household. That has not been
e^ e^and I think it’s a government-induced unemployment to some
M r. M a r s h a l l . Y ou m igh t also get substitution o f teenagers fo r
adult m ale w orkers, which m igh t make their unem ploym ent a good
bit higher.
118
Representative B r o w n of Ohio. There ^an oth er change m our
work force that is substantial, I think, and t h a t i s t h a t t h e r e are
many highly technological industries which don t reqmre now
samJ kind of lengthy apprenticeship and skilled craftsmanship'that
were required before. In the printing industry, whicli is something
I know something about, now that it’s gone offset, is not the hi hly
individually skilled industry it used to be
^
room equipment, linotype operator, and s o fo r t h Y o u can bn g
somebody in that knows typing, and have them contribute to that
^ However, ^henfare many other technological changes that have
made it absolutely necessary that you get a highly ^ ille d person
on the job rather than a low-skilled person because of the technical
equipment with which they work.
.
M
Mr. F in l e y , I think you put it correctly, Mr. Chairman, and M r.
Compton and Mr. Anderson, I want to agree with them.
We are facing today about 10 million unemployed people in tnis
country. When you take the 7 million, and you take the partially
unemployed and the discouraged; and in that percentage you have
among teenage blacks something like 40 percent, and whites in
general 25 percent, and women----Mr. A nderson . It’s higher than 40 percent, and let me tell you
why it’s higher.
Mr. F in l e y . All right.
Mr. A nderson . Less than half of those who are black between lo
and 19 are even counted. I have estimated that the rate of unemploy
ment among black teenagers is at least 50 percent, and it’s closer
even to 60 percent.
Mr. F in l e y . You know, I should have taken the same increment,
the general one. I f you have that close to 50 percent, or 40 percent,
you’d get to the true picture; you’re right.
Let me tell you something, I think 40 perient is a horrendous
picture—you have 10 million people. And to talk about a proper
program that will do maybe 1 million people, so on, you have to
remember, also, that around 1.8 million are going to lose their unem
ployment compensation this year. Now, that million you are going
to train is not going to keep up with the 1.8 million who are going
to lose unemployment, and they are going to go on welfare or some
other degrading, costly kind of a thing.
That is in front of us now. And, let me also point out some
thing else. We had in 1939,17 percent unemployment, Mr. Chairman;
in 1943, we had 1.9; in the same year we had 9 million more civilian
labor force, it wasn’t in the Army. The civilian labor force went
from 36 million to 45 million in that same period. These were the
people you couldn’t train; these were the people who didn’t want to
work; these were the people, all the things you say about them, “My
God, they are not in the right place” , and their education, they are
black, they are brown and they are young, and what have you.
In a period of a couple of years we added 9 million people to the
civilian labor force of this country because nobody knew about Mr.
Phillips; nobody knew $bout all these things, because the Nation
put its energies to the problem. We had a war and we had to get
production up.
119
Nine million more civilians were employeed, besides 12 million went
into the Army. We didn’t have all this problem about, aMv God,
they are underprivileged, I ’ve got to train them and educate them,
and then find a slot.”
We’ve got 10 million sitting here today. Our cities are deteriorat
ing at a rate that we all know. It’s a tragedy, wasted lives of young
kids that don’t have any hope. And to talk about slowly going down
to 7.6 and 7.4—capital formation, I don’t quarrel with that, I be
lieve in the private sector. This labor movement is dedicated to the
proposition.
But what’s also recognized, that we have problems that the private
sector alone is totally incapable of handling, and the rest of society
has to step into this—that’s our government; that’s public works
jobs and training, and fiscal and monetary programs, and that’s your
H.R. 50, your S. 50. It can be tightened up, I don’t like the 4 years
to get down to 3 percent.
I’ll tell you, if you tell a guy that has been unemployed for 2 years
to wait 4 more years, that’s rough in my way of thinking.
But by God, at least this is going to address it, not at the expense
of the private sector, but to save the private sector, if you will. I’ll
close on this statement.
Chairman H umphrey . Yes, Mr. Compton.
Mr. Compton. Mr. Chairman, I would like to make a comment
based on the remarks of Mr. Jones, that while I’m in concurrence in
agreement that jobs go unfilled because of the poor delivery system,
and the fact that other factors cause persons not to be matched up
with that, I would also say that we still have problems that are per
taining to employment discrimination as a fact that some jobs go
unfilled. The fact that in the city of Chicago, for example, over a
10-year period, we have lost over 500,000 jobs to suburban areas with
an inadequate public transportation system to bring pfeople from
where they live to the jobs.
#
We also still have the problem of both racial and economic dis
crimination in the suburbs, so that many of these persons who would
probably be working where the jobs are do not work because of these
discriminatory factors.
Also, I would like to ask of Mr. McCracken the definition of a
depression; and given your definition, do you see us being in one,
Pr|®ently, in certain areas of the United States?
Mr. J o n e s . D o you want me to take the first question, and Mr.
McCracken the second ?
Mr. C o m p t o n . Y es.
Mr. J o n e s . Well, Mr. Compton, I couldn’t agree with you more on
he problems in this area that you have raised, of discrimination.
We talked about the delivery system, you brought it up and I
nought it up, we are both in agreement there.
.
Une of the activities that perhaps you know about, and the chairMr. Murphy, has been very influential in this. Through the
- ational Academy of Engineering, for example, we recognized the
PJ-oblem that we cannot get minorities interested in engineering,
istorically we haven’t been able to get an adequate^ supply. One
Percent of the graduating engineers in the United States, just 4
120
years ago, were black. How are we going to get the upward inte
gration: so that-we get an equivalent number, lets say, of good
qualified blacks in engineering-management rolls m our technical
society that they have in relation to the total population of the
°° Sofa few of us have gotten together, and the chairman has been
very influential in starting this, we formed something called the
National Advisory Committee on Minorities in Engineering, and
now launched the National Fund. I am happy to say that as a
of the work just over the last 3 Vi years, we have more than doubled
the output; but we are not going to be satisfied until we get 5 times,
at least, the output.
We are very conscious of the problems you raised, and we are
working to right that wrong.
Representative B row n of Ohio. Mr. McCracken.
Mr. M cC r a c k e n . Well, M r. Chairman, may I make two comments,
one quite specifically to the question that was posed; and then I
would like to make a more general one, if I may, on the discussion
up until now.
On the question which I think Mr. Compton raised—is this a
depression, was that it?
Mr. C om pton . Yes.
Chairman H u m p h r e y . In certain areas.
Mr. M cC ra c k e n . Oh, well, as a matter of fact, I think it was
Mr. Finley who said that for the individual who is unemployed, it
isn’t 7 percent unemployment, it’s 100 percent unemployment.
Indeed, I recall, the first time I testified up on th e Hill here as
Chairman of the Council I was asked, “ W h a t is th e a cce p ta b le rate
of unemployment?” and my response was that, “ So long as society
had people looking for work and unable to find a job, it’s got un
finished business.”
Now, as to whether, if one is talking about overall, as to where
you go from recession to depression, 7 percent, 8 percent, 9 percent,
I really don’t know. I mean, that’s a question of terminology. The
important thing is to be as accurate as possible, at least factually, as
to what is going on. It’s a serious problem.
I would like to make this general comment, Mr. Chairman. It
seems to me it helps to clarify our thinking here if we recognize
that we are here in our session with three not unrelated, but sepa
rable types of problems.
One of them is the problem that we are here now with an economy,
an overall economy with 7.5 percent or so unemployment, and there
is the problem, what policies do we perceive to get the general
economy expanding at whatever is deemed to be the appropriate
rate—and of course, judgments will differ about that. But, in any
case, we want to set a policy which will be expanding the general
economy.
r
,, There is a second set of problems, and that is that at the moment
there are people who are unemployed, who as the economy moves
back to full employment, will be reemployed; but it is going to take
What are the programs by which these people are going
to be taken care of, and their problems, in this interlude between now
121
and when they are going to be reemployed. We have of course to
keep in mind that there is a certain amount of moving around in
the labor market; in other words, the 7 million this month will
contain many who were not unemployed this month and will not
be unemployed next month, but that is a detail. There is that set of
problems.
And then there is the third set, and that is that even at the point
at which the general economy has gottten back up to where we
start to observe many of the symptons of a fairly fully employed
economy, as evidenced what is happening to the price level, and
other characteristics, also, we are still going to have a significant
amount of unemployment.
Now, as I indicated in testimony before the Senate Budget Com
mittee last week—at which you were there also—while I’m not an
expert in the area of public employment, my impression would be
that if we are talking about an enduring role of some kind of public
service type employment, that I would see it in this third area of
problems because we all should, I think, agree that it’s much better
for a person to be on the payroll instead of just drawing a welfare
check, doing some kind of useful work; it may be rebuilding our
national parks; it may be a long array of activities of that sort, I do
think as we are talking about these different things, we need to be
specific as to what the problem is that we are addressing, and what
the quantitative magnitudes are. For example, what is the part of
the totality of this set of problems for public service employment
to deal with.
Mr. Finley indicated that if we take into account not only the
numbered unemployed, but I take it those who dropped out of the
labor force also, we have something in the neighborhood of 10 million
unemployed. Well, if you only take the reported figure, it would be
about 7 million. Now, let’s be very precise about this, what is public
service employment supposed to do? Should we take that instru
ment to take care of at least for an interlude these 7 million, and
what should we pay them.
I suppose if it were in the neighborhood of the minimum wage,
that would be $6,000 or so, and $6,000 times 7 million is $42 billion,
we are talking about?
1 think we need to face candidly the orders of magnitude we are
ak°ut for each problem.
Chairman H umphrey . I would just interrupt to say, I think for
purposes of analysis your figures are helpful. Then, once you took
care of them, you would have to deduct what you would have had
to pay for unemployment compensation, and what you would have
at 0
^or °ther services.
M r. M c C r a c k e n . Oh, I agree, sure. But I’m talking about the
m^pitude of the program that one would be proposing.
Now, I haven’t analyzed S. 50 carefully at all yet, but I think
here are certain aspects of this that are desirable. I have always
®lt that public policy ought to lay out more explicitly than it has
Wiat constitutes the path that represents the target for public policy.
f 8 vy2 percent, for example, is that just a guess as to what may
happen, or is it what, all things considered, we think is the appropri
122
ate rate; and what is the set of policies that will achieve that. Those
aspects I would be sympathetic with.
.
Chairman H umphket. Don’t leave, I m going to come back, this is
a most helpful discussion.
.
Mr. Lekachman. I would like to make a brief comment m con
trast, once more, between the Employment Act of 1946 and the
present Humphrey-Hawkins bill.
.
What was wrong, in my view—most wrong—with the 1946 Act
was in fact partly symbolic. The words “maximum employment were
substituted for “full employment” ; but partly substantive as well,
the statement of purpose, which preceded the provisions ot the l»4t>
Act, in fact listed a whole list of objectives, among them price sta
bility, the strengthening of the free enterprise system, and so on.
And thus it was possible, a year or so ago for Secretary Simon, if
I remember correctly, to testify in favor of a proposal to impound
some appropriated funds on the grounds that this would promote
price stability, one of the objectives of the Employment Act of
1946.
.
_
,,
What is right, it appears to me—most right—in H.K. 50, the
Humphrey-Hawkins bill, is that those segregated words “ full em
ployment” have been returned to the actual legislation. I would
wish even though, that the statement of purpose in the 1976 proposal
were even sharper and clearer; but at least the^ words are back.
Now, this suggests to me a central difference in economic strategy.
The 1946 bill represented a strategy which I think in the main was
followed, with exceptions, in the 30 years which followed. It was
a balancing of desirable objectives. Very seldom was full employ
ment accorded an absolute priority.
I ’m not insensible to the dangers of inflation, and the pains that
inflation imposes, usually on the most vulnerable groups in our econ
omy. But I would say this, if you start with full employment as an
objective and keep your eye fixed upon it, you will then have the
impetus to develop ingenious ways of coping with some of the pain
ful side effects of your progress to full employment.
That’s why it seems to me, unfashionable as it may be for an econ
omist, one must simply select a value, state it, pursue it, and then
cope as best you can with some of the painful side effects of your
pursuit of the central strategy. That is why I am enormously hear
tened by the appearance of H.R. 50, and disheartened by some of the
residual signs of the 1946 act still persisting.
Senator J a v its . Mr. Lekachman, if you will allow me, I w o u ld
now like to now substitute for myself as acting chairman, Congress
man Brown of Ohio.
Representative Brown of Ohio. You will be happy to know Sena
tor Humphrey and I passed the baton in the elevator, and he will be
back eventually.
I don’t know whether that exchange was to direct a question, or just
to make a comment. If I may direct a question to Mr. Finley.
I have written down a note as a response to your comments pre
sented formally, do I understand that labor is now advocating an
institution of protective tariffs, as a matter of protecting jobs in this
society.
123
And the question really is, where is labor in the area of protection
ism, and what I conceive to be a reduction in international trade as
a result, versus free trade and the competition from abroad of other
labor in taking jobs from this country.
Sir. F i n l e y . Well, let me say this, we are not for protectionism,
that’s against free trade. We are for protecting iobs, this we are, and
I say this very clearly. The description or free trade versus
protectionism is a little misleading, Congressman, because we never
had truly free trade: none of the trading partners that we deal with
ever believed in it, it’s kind of a misnomer.
Japan rebuilt its economy, to use the term you used, with the most
protectionist provisions that ever were; this was true of the Common
Market, as well.
Now, the labor movement is very concerned—and I don’t know
how long to go on this, I ’ll try to do it very quickly. The labor move
ment takes the simple position that there have been tremendous
changes in the last couple of decades in the structure of the economy
of this country versus the rest of the world. We were the dominant
economy after the war, and the others have grown, partially with
our export of technology, and so on.
You are dealing Avith managed economy; you are dealing with an
Eastern European bloc; you are dealing with, essentially, state in
volvement, and to talk about freedom in that context, and to talk
about policies that might have been adequate in the 1920’s or 1940’s
in the changes of today is just meaningless and harmful. All right.
Haying said that, what we want is a fair regulation on trade, it’s
as simple as that. We are for trading around the world. We think,
though, that trade should not be that if somebody is manufacturing
a garment at 20 cents an hour in South Korea, they can with total im
punity and immunity bring those garments in here at the cost of jobs
of American workers who have brought up standards to a reasonable
degree. We don’t think American workers should compete with child
labor; and I could go on in this.
So, what we say, we want a fair regulation of trade. We are not
requesting higher tariffs as such; in some places the tariffs can re
gain ; some places they can be reduced; in some cases you will need
quotas—and I ’m sorry Mr. Jones is gone—I think that the multina
tional corporations, rather than having a disadvantage, have more
laws to favor them in their foreign operations than the domestic
corporation has.
So, the answer is, we are not protectionists in that sense, we want
to protect the jobs of our members; and that is the American
interest.
Representative B r o w n of Ohio. But, how do you quantify the dif
ferences in, for instance, the socia l structure of the Japanese family
Wiere there maybe aren’t as many women working as m the United
states; and the benefits that were described by Mr. Jones in terms
of habits of continued corporate employment, spreading it out over
Jour employees, regardless of howmuch work there is for the factory
to do, and the social benefits that exist here versus the social benefits
that exist there; then reduce that down to the degree of protection^ that American goods and American labor ought to have?
73-285— 76------- 9
124
I think that is a really serious question for anybody that negotiates
in international trade. Perhaps I should also ask Mr. McCracken, who
h9! i ? F i S ! VjJp“ n 1i;s not really, today, the best of examples, their
■wage levels have gone up remarkably m that sense. So, to make compansons, I ’ll leave that for Mr. McCracken.
But I would take one that I’m reasonably familiar with, I will
take South Korea. We imported from there one-third of all the suits
that came into this country last year, they came from South Korea.
And there you’ve got a wage level of 25 cents an hour. The people
work 13 days, 1 1 -hour days—and when I say people, some of them
are 13- or 14-year old people—they have 1 day off, on the 14th day,
and then they go back for another 13 days. They get no overtime.
Now, they do give them a kind of barracks, and so on. bo, we esti
mated if we doubled it with the so-called fringe benefits, you stiU
have a comparison of a 40-cent figure or 50-cent figure—and I think
by doubling it we are very generous, and we are willing to be—
against an American average earning of $4.30, $4.40, with a 30-per
cent fringe cost.
^
That’s a totally impossible comparison in terms of anybody com
peting in that situation.
.
Mr. M cCracken. Well, I ’m not quite sure whether it’s the 98-cent
treatment, or the $3.98 that I ought to give here.
Representative B ro w n of Ohio. The reduced number, perhaps the
98-cent treatment would be adequate.
M r. M c C r a c k e n . Very well. If I could outline my views here in
detail^ the thrust of my comments would be to take a more liberal
view m terms of trade policy than I think M r. Finley would be will
ing to sign his name to.
The basic thing that I would like to look at is, what is the general
character, the pattern of our overall trade position. I alluded to the
fact, to be precise, that from the third quarter of 1974 to the second
quarter of 1975 we had actually an enourmous swing, and a favorable
one, in our trade overall. Had we not had that, in other words, had
the trade position remained where it was, we would have had, I think,
something like 1 million more unemployed.
If we find that our trade position, or payments position is overall
out of balance, then, in all possibility, we are talking about a malad
justed exchange rate, where it then does begin to look as if we have
a comparative disadvantage in everything as was true, as seemed to
be the case in the beginning of the 1970’s.
But, so long as our general trade position is in reasonable balance,
then it seems to me overall, what happens, is that we can maintain
full employment at home, but with that trade we have better jobs.
Representative B ro w n of Ohio. Are there comments from any of
the discussants?
Mr. C o m p to n . I would like to comment to something Mr. Mc
Cracken said earlier when he was doing the calculations and a r r i v e d at
about a $42 billion figure, when we were discussing public service
jobs. One of the programs administered by the Urban Xeague in 32
cities is a construction program, to recruit minorities in the construc
tion industry, and over a 9-year period, I think tie Federal Govern
125
ment has contributed in the neighborhood of about $22 million, chan
neled through the National Urban League to the 32 cities.
When I think of the investment factor, I know that in terms of
wages, in terms of skill development, in terms of taxes paid back
into the Federal Government, that that is a far better approach than
the approaches that we have been doing, which keep people on wel
fare, unemployment compensation, and things of that nature.
I would just ask your comments, if you have any further, on some
thing of that nature.
Mr. M cC r a c k e n . I certainly would have no comment on attempt
ing to evaluate the experience of the program that you are talking
about. The basic point that I was making was when we talk about,
for example, public service employment, or whatever the proposed
program is, as a solution for unemployment, I think we have to be
very explicit about the magnitude of the Federal program that we
are talking about, so that we don’t talk about 1 billion or so to put
7 million people to work because those figures are just not related to
each other. The first news says, I favor public service employment
to get all those 7 million people to work, if it takes a $42 billion in
crease in the budget to do it, I ’ll face up to it; that’s a perfectly can
did answer. I don't think I would be willing to go that far because
I recognize if you are talking about what the net impact is on the
budget, you have pluses and minuses to reckon with. But we do need
to be quite explicit about the magnitude of the program we are pro
posing to deal with the problem.
Representative B rown of Ohio. Is the efficiency of the production
of the job significant? I ’m told that CETA, for instance, in terms of
public funds given to the CETA program, in my area, at least, it
takes about $10,000 to put a person to work. Assuming that the per
son hasn’t been working before—and that’s one of the other com
plaints—you get a very small percentage of actually unemployed
through CETA funds.
J _
Organizations such as Leon Sullivan’s OIC program, can do the
same job in my area for about $1,800 or $1,900. It seems to me that
on that basis some kind of Federal funding of such private programs
might be a great deal more effective because they tend to bring the?
three elements of society together, the Federal funding, the person
looking for the job, and a job opening that is actually available, at a
much lower price than CETA funds. Do you have any comments ?
Mr. C o m p t o n . Yes; I would agree with you on that. It is costing
us right now in the neighborhood of $1,200 per person in the admini
stration of this labor advancement education program for appren
ticeship in the construction industry. So, I think there is great merit
xn what you just said, in having these programs being administered
through organizations such as the Urban League, or IC, and others.
I think in some of these instances, wth CETA being channeled
through State and local governments, there is a possibility of greater
expense.
Representative B r o w n of Ohio. A friend of mine in the House has
Proposed something like the reinstitution of the old GI Bill of Rights
after World War II, where the company is actually given the subsidy
oniploy a person. You know, the first year you pay twa-thirds of
126
his pay* the second year one-half of his pay, and the third year onethird of his pay, and finally he is fully on the payroll of the company.
In the meantime the Government is subsidizing his pay.
Now, the only fault I see in that is, that not until the company can
actually use the additional employee are they likely to take advan
tage of that program. In the meantime they may find it easier to
employ that person than an older person who is laid off, and who is
a higher paid person.
I react nervously in some ways to that.
Mr. A nderson . I would simply like to comment on your remarks
about OIC. We just completed a nationwide study— I will not call
it an evaluation of OIC, but it was a nationwide study, the most in
tensive study of OIC yet conducted—and your comments are correct,
OIC does seem to be able to serve the disadvantaged at a lower cost
than comparable Government programs. But I think you have to be
careful here. I regret that Mr. Jones left because it is often alluded
to—many people allude to the great support of the business com
munity for Reverend Sullivan’s activities. I think the record will
show that well over 90 percent of all of the funds of the OIC pro
gram are Government funds.
We have concluded that much of the success of the OIC program
is attributed to the close cooperation between Reverend Sullivan and
his staff, and the business community in opening up jobs which other
wise might not be made available to the disadvantaged.
Now, another point that might be made there, though, is that un
der the CETA legislation as presently witten—and I recently re
viewed the 1976 regulations—I was pleased to see a firmer commit
ment to support community-based organization like OIC and the
Urban League. It was not clear, initially, that Reverend Sullivan’s
organization and the Urban League would be protected as these
moneys were sent to the State and local level.
It seems no wthat they have done much better than they hoped,
and in fact, in my estimate OIC has something like 15 to 20 percent
more funds under CETA than they had under the original categori
cal program. But despite that, we have to recognize that some parts
of this manpower problem cannot be solved by the community-based
organizations. We need a public service employment program, in part
because, as I say, many of the jobs available to trainees in programs
like OIC are relatively low-wage jobs. And our study of the 1 1 major
categorical programs of the 1960’s show that on the whole manpower
programs have been effective in changing the relative economic posi
tion of their participants in comparson with similar people who have
not been in the program, But, it mererly raises them from a level
somewhat below poverty to a level somewhat just above poverty.
The manpower program today, during the 1960’s, did not seem to
increase significantly the wage level of tie vast majority. We have a
problem, some economists call it “subemployment” ; s o m e allude to
the “ dual labor market.” Be that as it may, I think we have to give
attention to the wage levels of the jobs that participants in manpower
programs get when they complete their training in these programs.
Representative Brown of Ohio. The question was directed* really*
not to who should get the credit, I guess whoever pays the
127
should get the credit from the public for the financing of federally
funded employment programs, but rather which would be the most
adequate method of doing it. I would like to suggest one other method
as a possibility for support either by the public or private sector,
and that is for the technolgically unemplyed, whether there is not
some advantage in the stimulation of the technical college vocational
education program to an extensive degree at times of unemployment,
to provide lower tuition opportunities, or nontuition opportunities
for someone who is technologically unemployed, if that can be estab
lished in some way, so that they can be trained for a new job, for an
improved situation when their particular type of work is no more.
Is there a reaction to that.
Mr. L e k a c h m a n . If I may, Congressman Brown, I will speak for
a local interest.
Representative B r o w n of Ohio. I think most of us do in one form
or another, so, I think you are right at home here.
Mr. L e k a c h m a n . The City University, where I currently teach,
among its numerous units does, as I understand, do some of the
things which you are describing, particularly in 2 -year colleges, and
some of the specialized programs in the 4-year colleges are indeed
directly vocationally oriented.
It’s a sad paradox of a condition when the economy is still running
at subpar rates, that the city of New York, as one of its numerous
calamities, is now engaged, practically, in dismantling the City Uni
versity. In fact, just to sharpen the irony of its activity, it’s doing so
in a way which is bearing particularly heavily on precisely the kind
of vocational training opportunities which I believe are consistent
with our inquiries. If you want to construe this as a plea for Federal
funding, I ’m on that side of the issue, certainly.
Representative B r o w n of Ohio. It never occurred to me.
Mr. L e k a c h m a n . B u t, I ’ll accept State funding, private funding,
international fundng, money from OPEC if it is forthcoming for
this purpose.
bBut it is, it seems to me—and New York is not alone in this par
ticular dilemma—that publicly financed vocational training oppor
tunities, among many other important activities of the general fiscal
crises of the cities.
Chairman H u m p h r e y . Go ahead, Mr. McCracken.
_
Mr. M c C r a c k e n . May I make just one comment on this. I have
been in the teaching profession now for almost 40 years, starting my
teaching career at the secondary level. In that entire period, going
back to the first year-----,
Representative B r o w n of Ohio. You are counting the two stints
on the Council of Economic Advisers, I assume.
M r. M c C r a c k e n . Well, that’s teaching, of course, too. Yes, that
includes those two stints.
B u t, g o in g back to the beginning o f m y teaching career, I have been
hearing educators, m y own profession, talk in g about the need fo r a
more relevant typ e o f train in g, to be responsive to the kinds o f jobs
that are out there, and th at sort o f th in g, at the secondary level, and
I suppose at the universities, too.
,
.
I th in k one o f the questions which the people in public policy
ought to bear dow n h arder on w ith the educators is, w h y is it you
128
constantly talk about this—at least in the 40 years that I can speak
authentically about—you seem to be saying the same thing now you
did 40 years ago, with very little in the way of results; and society
'has not allocated resources in your direction.
Chairman H u m p h r e y . Well, I disagree with that, Mr. McCracken.
We have 28 vocational technical schools in the State of Minnesota
today; 10 years ago we had 4 . They are training people by the thou
sands simply because in the past young people got their training
alongside their father or their mother, or their brother. You cant
get training at the Ford plant out there; he can’t take him to
Honeywell.
I was taught—I was an apprentice pharmacist when I was 17. I
knew all that I needed to know to go through pharmacy school, and
I was taught by my father. But, had my father been the manager of
a Walgreen drugstore, he never could have had me in the store; they
never would have permitted him to have his son in the store.
But the day of the small entrepreneur seems to be fast evaporating.
I assure you that in my little local community where my father and
mother lived, there is only one independent retail drugstore in the
entire county. The rest of them are all discount stores, or all chain
stores. No manager brings his son in. So, there is a structural differ
ence today. And today we have to teach these young people how to
repair their radios, TV’s. I was a radio repairman, learning it out
of our business. I was 16 years old, and I knew how to fix radios, as
well as any man does around here today. But I learned it from peo
ple alongside o f me.
Now, in order to learn it, you’ve got to go to college, or a voca
tional technical school. So, I happen to be a strong supporter of it.
In fact, I just talked to 1,000 of these young people the other night,
L 000 from my State that were prize students from these schools.
They are learning a great deal.
I just don’t think it’s fair to say that we haven’t made the change,
there is some change being made. The real problem for these young
people is: Where do they go to work?
M r . M c C r a c k e n . W e ll, S ir. C hairm an— by the w a y , let the record
show that I have been in th a t drugstore.
Chairman H u m p h r e y . I’m glad to know that.
Representative B r o w n of Ohio. I hope you bought something.
M r . M c C r a c k e n . A s a m atter o f fa ct, I d i d ; I bou gh t a post card.
Chairman H u m p h r e y . That’s a nonprofit item, dam it. [Laughter.]
Mr. M c C r a c k e n . Mr. Chairman, I must still insist that the basic
point that I’m making still stands. Now, perhaps it stands in the other
49 States. But, nonetheless, in the 40 years that I have been an edu
cator, I have been hearing this, “ We need to do more in the way of
vocational training,” and I still hear it. I still think there is a prob
lem here.
Let me give you an indication. Throughout the country we started
an enormous number of junior colleges and communiy colleges, the
basic thrust of which is to be responsive to some job-training needs
that the ordinary liberal arts college is not responding to.
Now, there is one aspect of that which I find very disturbing, and
thftt 13 how frequently, talking to the president of a community col
129
lege and asking him about his programs, he will cite the rising pro
portion of students who go on to get a liberal arts education—and
in a sense of course, being in the business I’m in, I ’m delighted. On
the other hand, this could seem to mean that there is a tendency for
this to start to shift into the same kind of mainstream, thinking that
the real education is a liberal arts training.
Chairman H u m p h r e y . I don’t disagree with that. The thrust of
what you say I agree with, but there is a certain snob appeal, may
I say, to having had the liberal arts education, even though I think
that’s a part of preparing oneself to life.
What I was trying to get at was, there is a new awareness of the
necessity for young people being trained, and the vocational techni
cal schools are gaining some acceptance. There is, however, as yet, a
certain look down at them.
M r. M c C r a c k e n . N o doubt about that.
Chairman H u m p h r e y . For example, in our
State they aren’t per
mitted to have a football game.
Mr. M c C r a c k e n . Well, there you are.
Chairman H u m p h r e y . It’s very interesting. But what I’m trying
to point out is, despite these limitations, it’s beginning to take hold.
M r. M c C r a c k e n . Push it along.
Representative B r o w n of Ohio. I must say, Senator, that you and
I share a very grave concern about the discouragement of small busi
ness—I ’m not sure we share the same conclusions as to the cause of
the discouragement. I think it stems from a little too much “Uncle
Sam,” a little regressive tax policy that makes it very difficult for
anything but the largest institutions to put together the capital re
quirements for expansion and growth, and job xormation in a society
where so much of the capital is controlled, or dominated by Federal
decision, or Federal regulation.
Chairman H u m p h r e y . Well, that isn’t what did it out our way,
Congressman. I guess we don’t want to have our argument here, but
I want to tell you, when you’ve got tax laws that permit mergers to
have certain company spinoffs to lose money for 5 or 6 years while
the legitimate businessman is trying to stay in, that’s one thing. When
I know my competition, and I run the business, says they were pre
pared to lose $200,000 a year until they took the market because they
are a subsidiary of a giant, that’s part of their tax loss, they dont
have to worry about that.
.
_
„
Representative B r o w n of Ohio. That’s exactly my point. The Con
gress wrote the tax laws, and that’s what bothers me. We have writ
ten tax laws that encourage consumption, but very clearly discourage
the formation of additional new small businesses. And until we re
verse that policy, all of this other talk is really largely shifting sand.
Chairman H u m p h r e y . I want to ask a couple of basic questions,
and then we are going to recess.
.
,
Representative B r o w n of Ohio. Mr. Chairman, 1 11 have to be ex
cused again, and I probably will not be able to be back.
Chairman H u m p h r e y . We are going to adjourn. We have some
People that can be very helpful on this—I think IU put the question
this way, have we developed—and possibly, Mr. McCracken, vou can
?ive us a response on this and others here, so don t leave the mstitu-
130
tions for formulating economic policy? I ’m talking now on the gov
ernmental level,
Mr. M c C r a c k e n . That’s a very good question, and I don t have a
definitive answer.
.
Chairman H u m p h r e y . What’s your general view?
.
Mr. M cC r a c k e n . I think this is a question that ought to be given
a systematic examination. The SEA structure, Joint Economic Com
mittee structure has been operating essentially unchanged now for
30 years. We have had the Economic Policy Board, or its prior name
was the “Troiker,” the “ Quadriette” and various forms. #
I think one of the key questions that ought to be examined, prob
ably incident to the hearings on S. 50, ought to be a searching look
at this question, what about the institutional structure. It would cer
tainly not be strange if, after 30 years, something ought to be done*
needs to be done. And that doesn’t mean that they have not been
working, it’s just that time has caught up with us.
Chairman H u m p h r e y . Fine. Mr. Lekachman.
Mr. L e k a c h m a n . I ’ll amplify on that. I don’t think that the pres
ent economic policy structure is adequate. I point out—and I agree
with Mr. McCracken—that this is an opportunity to examine it
closely. But I point, as a preliminary to that to one g la r in g anomally
of our policymaking mechanism, and this of course is the independ
ence of the Federal Reserve Board. I don’t see how it is possible to
make coherent national policy, particularly coherent full employment
policy, until the Federal Reserve Board is housebroken.
There are a variety of methods of doing so. I would willingly shorten
the term of members of the Board from 14 years to 4 years; man
date representation of minorities, and perhaps other groups on the
board; and perhaps prevent the Board from including a majority
of economists and bankers at any one time. I think an occasional
economist or banker, taken in moderation, is not necessarily danger
ous [laughter] but the Board as it is currently constituted—and I
speak with respect of my old teacher, Mr, Arthur F. Bumsr—but I
bear in mind also that if he completes his current term he will be 7^
years old, and the year will be 1984, by coincidence. [Laughter.]
This, it strikes me, is an actual menace to full-employment policy.
And I urge you, Senator, with the help you can muster, to do some
thing about the Federal Reserve, preferably next week.
Mr. A n d e r so n . I would like to associate myself with Mr. Lekach
man in his views, with a slight modification. I think that the inde
pendence of the Federal Reserve is in today’s economy, and given our
goals for the future, something that needs to be closely examined.
Pm not sure that I would agree that it would be desirable to man
date any specific type of representation on the Federal Reserve Board.
I agree that over the years it has been too topheavy with economists
and bankers. But, after all, it is a bank, and economists need full em
ployment, too.
I would say, Mr. Chairman, also, that another area that deserves
close examination is the adequacy of our economic intelligence. We
simply^ must look very closely at the information base, the data base
on which economic policy decisions are made. I tKinir in the area of
labor force statistics, here $ great
; Pm ft former economist at
131
BLS, and I think I know. There are some deficiencies in the system,
but they do a great job. They need more resources to do a better job.
I think we need more information on the economic aggregates in
corporations. That information must become the foundation for the
development of wise economic policy. There is a lot we don’t know
today about the labor force, about capital markets and other markets,
that we need to know if we are going to formulate wise economic
policies.
Chairman H u m p h r e y . Anyone else?
Another quick one, you answered a couple of them here, or at least
commented on a couple of the concerns I have jotted down for a quick
discussion. Let me put it this way, should price income policy be a
continung part of economic policy, in light of the economy as it now
is, with large labor forces, large corporate forces, and so forth.
Mr. Finley, do you want to take a whack at that?
Mr. F i n l e y . Well, I ’ll take a whack at it, Senator, because our ex
perience with this kind of a policy was, when you have price incomes
policy—and we had the recent experience with the freezes and the
phases, and so on—we are very, very much concerned about that.
I’ve also had experience, we represent people in Canada with that
program, and that’s another example which convinces us totally that
that is not the answer to our economic problems.
Chairman H u m p h r e y . Anyone else ?
Mr. L e k a c h m a n . Well, I differ a bit with my good friend, Mr.
Finley.
Chairman H u m p h r e y . Get right up to that microphone.
Mr. L e k a c h m a n . I ’m sorry.
I share and sympathize with what happened to the unions under
the Nixon version of control. I don’t think that particular shape of
controls is inevitable. I think it’s almost inevitable if we are going
to have full employment, without risk of inflation, which may well
sabotage the very measures needed to achieve full employment, that
some sort of restraint, particularly of prices in concentrated indus
tries, and in sectors like health care, is essential. I know there are all
kinds of problems with it, but the fact is, I don’t see how we can
achieve full employment in a politically acceptable fashion without
doing so.
# If I may remind you, Mr. Finley, that George Meany at various
times has said that he favors equitable controls over all incomes. Per
haps that’s one exit from the difficulty, that if we do go back to a
system of incomes policy, it will not be limited to wages, if we go
beyond prices at all, but"will cover all other forms of income as well.
Mr. M c C r a c k e n . Well, I think incomes policy is more rhetoric
than policy. My suggestion is, I would make this suggestion, that
anyone before the committee who proposes incomes policies ought to
he pressed to be very precise and say what they mean, because other
wise it seems to imply that there is some painless palliative out here
that won’t hurt anybody, and the only thing that will happen is that
will have a stable price level.
,
. 1 think they need to be pressed, precisely what do you mean; and,
Jpve me the evidence as to how much difference it s going to mak&
Chairman H u m p h r e y . V e r y good- 1 tend to find myself somewhat
132
intrigued by the general phraseology of incomes policy. Go ahead,
Mr. Anderson.
Mr. A nderson . I simply wanted to say that as a general proposi
tion the move towards full employment will stimulate some pressures
on prices, and it would be desirable in that context to have some sort
of incomes policy. However, I think that the record of incomes policy
in Western Europe and other places will show the great difficulties
of making such a policy effective. In our own country, for example,
I don’t believe there is a period in the last decade when any incomes
policy has been very effective.
For example, the guideposts probably were effective because of
very convenient economic conditions which contributed to that. So,
we have to be concerned about the consequences of incomes policies,
what impact will there be on the collective bargaining system, on the
private decisionmaking character of the collective bargaining system.
What kinds of Government intervention in the private markets will
be necessary to make these policies work ?
I am very cautious about the possibilities of developing any type
of incomes policy that does not fall heavily on labor because wages
are the easiest thing to control.
Chairman H u m p h r e y . Might I just note that when I think of in
comes policy, I think about people in public office exercising the
power, the influence that they have. I was the mayor of my city at
one time, and we used to have a few labor-management disputes, Mr.
Finley. When they got out of hand, I called them in the office. I
didn’t try to be the arbitrator, but I tried to be the persuader; and
sometimes it worked.
I remember it one time here when I was Vice President, the Presi
dent of the United States gave me a nice little assignment to talk to
the postal workers. They had an income bill up here that was going
to pass, that would have broken what we called the guidelines at the
time.
My job was to talk to my friends in the postal workers and per
suade them that they shouldn’t try to take a bite that big the first
year as they were talking about, take a little less, and the next year
we could pick up a little more, and so on down the line. We worked
it out, and we had an incomes policy.
I remember when the steel workers were having a dispute in 1965
or 1966 that was very bitter, there was a strike on. The President of
the United States by the name of Lyndon Johnson called them all in,
put them in the White House, called me over and said:
Listen, we are not going to have any more of this business, we are going
to settle this. Now, you fellows get busy and settle it. There is room over there
in the Executive Office Building, it's on the fourth floor, the Vice President
is on the third floor. He is going to be listening from downstairs, and I'm going
to be looking out the window across the street here. I want you to come over
here every night at 6 o’clock and teU me what progress you have made.
Well, they made progress. They stayed reasonably well within
what we called the wage-price guidelines. Now, that’s what you call
the art of persuasion with the perception o f power behind it. Obvi
ously, no Vice President had any power, but the man looking out the
window across the street had some.
133
That’s about the only incomes policy that I have seen very effective
for any period of time, except this, and I want to comment on it.
There seems to be, and very understandably so, a great concern
over price stability; and obviously, we would be concerned about it.
We should be concerned about inflation. But I think the question that
is most important to those of us who have sat in on these many hear
ings is, who pays the price for price stability; and who is supposed
to let their blood loose to dampen down the fires of inflation. That’s
the problem.
Nobody wants inflation, certainly not large inflation. I don’t think
there is any way out of some inflation. No one wants to have wild
price fluctuations, }^ou need price stability. But the question is, how
do you do it equitably? Everything gets down on that old adage,
“How you stand is determined pretty well by where you sit.”
It’s mighty easy for myself and some of my friends who are well
heeled to talk about price stability, and what we’ve got to do to have
price stability. And it?s very easy even for a good economist that’s
well paid, or for a professor that’s fairly well paid—there are none
that are overpaid, that I know of, at least by the universities; they
get a little help some place else—but at least they’ve got tenure. And
it’s easier for those of us who find ourselves in those positions to be
much more theoretical and much more “objective” about inflation and
price stability because, really, the crunch isn’t on us.
I think what we have heard here from some of our folks here today, particularly, might I say, what we have heard this morning on
some of the social costs of unemployment; and what we have heard
from you, Mr. Compton—we had Vernon Jordan and others here
today—about who suffers, who takes it, who really is injured.
Now, we constantly hear about the rate of inflation, which of course
is a tax on everybody. But, when you get both inflation and unem
ployment, you not only get punched, but you get knocked out. There
is a great deal of difference between being in a battle and getting hit,
and being knocked out.
I think what has happened to us here is that we have been unwill
ing to come to grips with the fact that a very substantial proportion
of our population, most of whom have suffered for a long time for
other reasons, many of whom thought for the first time in their lives,
in the 1960’s, that they had a chance to get out of their predicament,
have suddenly again been pushed down in the economic canyon, or
economic sewer.
I’m reminded what we often talked about, “ rising expectations.
Congressman Brown rightly noted that in 1946 one breadwinner
might have been enough ; and when he lost the job, or she lost the
job, that was curtains, so to speak, that was terrible.
Today, you have frequently two breadwinners in the familv and
only one loses the job, and someone says, “Well, that’s not so bad.
But everything is relative. The fact is, the reason there are two bread
winners m the family is because the house payments require two; the
car payments require two; if the kids get their teeth fixed, the defini
tion of an orthodontist is $1 ,200. You know, you’ve got to get the
braces on. And even poor folks like to have nice teeth, too.
So, you have all of these many demands that have been built in,
so that today you need the extra income. There isn t hardly anyone
134
right here, there is not a one of us sitting here now, the six of us here,
that couldn’t get along with much less than we are getting along with
right now, based on what we once got along with.
When I think what I got along with in 1939, 1940, 1941, as com
pared what I think I ’ve got to have in 1976, it’s ludicrous, absolutely
ridiculous. But, it’s what you get accustomed to. My old daddy once
said to me, “ Never let a person eat a T-bone steak if you are going
to keep him on a hamburger diet.”
I had a smart father, I tell you; he was the smartest man I ever
knew in my life. And how right it is, people got accustomed to some
thing a little better. There are rising expectations, and they want it.
Now, we have all these things called “transfer payments,” Govern
ment services, union contracts that for the period of the last 20
months, I say, have been the counteracting forces to social turmoil.
Can you imagine what would happen in this country in light of the
problems that exist in our cities, of a social nature, and the tensions
that are evident in our society if we were without old age insurance,
unemployment compensation, food stamps, welfare, et cetera.
I would think, first of all, it would be fair to say that we would be
in a major depression. And second, that it would have been of such
consequence that you would have had a revolutionary upheaval—that
easily could have happened. Because, when you take people from a
relatively good standard of living, or at least a moderate one, and
drop them out, it would have had a catastrophic effect. But they
didn’t drop that far, there was a safety net, and that is really what
has helped us so much.
So, as people condemn programs, which are never as good as they
ought to be, I think they ought to know what it means to have them.
It’s sort of like a person that’s had a heart attack. You maybe can t
run the 4-mile run; and you maybe can’t be the weightlifting cham
pion ; you ought not to engage in too much Indian-wrestling because
you are apt to have a recurrence, but it’s better to have a few little
pills, maybe a digitalis tablet, that you can take once in a while, than
die.
And, what we have been doing is taking these unemployment com
pensations, and pensions, and transfer payments, and all this sort of
thing we talked about, which has been a palliative.
Now, what I ’m getting to is this— and someone said this today—
possibly these very things that have helped us get through this
period— and they have helped, there is no doubt about thatrthey have
prevented genuine misery— they may also have dulled our sensitivity
in the sense of coming to grips with the problem.
For example, had the Arabs kept on the boycott on oil for 6 more
months, you and I we would have found answers to the oil shortage,
we would have. W e would have turned heaven and earth to do it. It
would have been done, just as I said many times, when the Japanese
cut off natural rubber, what did we do t W e produced synthetic rub
ber. W e would have done it.
But p o s s i b ly the very programs that we have had, that have mini
mized the pain, have also dulkd the senses. Now, I don’t have my
little quotatidn from De Toqueville, but what he once said was that
those difficulties, those pains which onto seemed ihvit&bk. the mintrte that they seemed to t» subject to reform, become intolerable.
135
I really believe this is what we are seeing in part here, when you
talk about the rate of unemployment, compared to the rates of infla
tion. The truth is that while things may not be as bad as some of us
would like to paint them, they are bad enough, compared to what the
people thought they could have—and it’s perception* I don’t know if
Pm making myself clear, but it’s perception.
Now, when you have that television that brings into evervbody’s
home—which it didn’t do in 1946,1947, 1948, 1949,1950,1951," 1952television is really the last 10, 15 years, major television—and televi
sion brings to the poorest of the poor, if it’s only on the street corner
and in the saloon, in the barroom, wherever it may be, television
brings to the people the picture of what’s out there. It’s their one
escape. And then they say, “ I’ve got to have it.”
Now, they either have anguish about wanting it, or they take it.
I suppose that it’s fair to say that no one instrument has the poten
tial for more good and more evil than the picture, the tube, and the
spoken word all at once because on the one hand it can lift people,
it can educate people; on the other hand it arouses emotions and de
sires that are almost beyond control.
And I think we are speaking about the structural part of our econ
omy. I don’t think that’s the only problem. I know there are differ
ences that happen in the economy, changes, structural changes; busi
ness is different today. You can argue about big business and little
business, and I happen to be a strong proponent of what we call the
smaller business—and even that’s hard, somewhat, to define.
But the real fact of the matter is that people are different today,
they really are. For example, in 1939, 38 percent of the population of
this country was rural—38 percent. What is it today ? What has hap
pened to our cities? What happened in terms of the coloration of our
cities? What have the cities become?
The residence not only for the big corporations in the downtown
steel and glass beautiful buildings. But within the shadows of those
magnificent new structures are the worst slums that this Nation has
ever known. And it isn’t just the physical slums that’s taken place
there any longer, it’s happening to the people.
And all of that adds to the problem, as I see it, we are trying to
get at here, whether or not we can fashion a public policy that is
more than words, that will actually be effective in providing useful
work—I think as one of you defined it—for people who want to work,
which is really the definition of full employment. And if we can’t do
better than we are doing, I predict that we will be having a growing
economic and social problem and not a lesser one. We are like a man
or a woman that has a low-grade fever. We are getting along pretty
good, we look healthy; we can still go out at night; we can still en
joy the good life, but not quite. And the longer you keep it up, the
leaker you get.
And despite the movement towards recovery—and I happen to
think it is, I am more bullish about the economy than some people
are—I still think it will leave, at the best estimate, 6 percent of our
P^ple unemployed. I f you get really optimistic and get on the join herns’ as I call them, you will still have about 6 percent of the peo
ple unemployed.
136
Now, you have to ask yourself a question. Do you want to leave
those people just on the dole—which is apparently what some people
want to do because I haven’t heard anybody say, I don’t care who it
is, “ Just let them rot.” Even the most, call it what you will, conserva
tive person says, “There’s got to be something done”—or do you try
to find ways and means of stimulating the private economy as much
as possible, without going into a tailspin; and if that doesn’t absorb
that unemployed group, have programs of a substantial nature to
take up and absorb that unemployed group.
That’s the central question, that’s what we are working at. I don’t
think we disagree on objectives. I must say, as I listened to the wit
nesses, I listened to Mr. Jones here, Mr. McCracken, Mr. Finley and
all of you here, I don’t think there is any disagreement about our
objective. I think the disagreement is, how do we get at it.
The bills that we have before us, the so-called full employment and
balanced growth legislation, are attempts to get at it. I hesitate to
say that they are the ultimate, not at all; they may be only a very
<;rude and feeble attempt. But I believe in designing machinery for
-decisionmaking, and I think what is really wrong, the question I
asked is that our economic institutions are not finely tuned, not only
to the structural problems of our economy, but to the psychological
problems of our economy, the perceptions that people have as to what
they ought to be doing.
It’s the one thing for somebody to say, “ Well, you don’t need two
breadwinners in the family, you ought to get along with one.” It’s
one thing for you and I to say to somebody, “ Well, you really don’t
need two cars,” but, who educated people to want two cars; who
educated people to throw away their clothes before they are worn
out; who was it that trained people, that said you didn’t need one
pair of shoes, you needed four?
It’s the same American free enterprise economy that today says,
“Well, we’ve got to have price stability.” You can’t have it both ways.
I grew up in a family where daddy was lucky if he had one suit. I’d
hate to take a look at how many suits most of us have; and what
would happen to the clothing industry if we went back to that ? What
would happen to the automobile industry?
$o, what s been said here, in part, to me, the most important, what
we are contemplating here is not an attack on the enterprise system,
but I think we are engaged once again in like treating a spoiled child,
disciplining it for its owii good. I remember when they were after
Roosevelt, that s my earliest memories. The b ig .businesse people in
this county were after him, they considered him the Black Knight,
or the Red Knigrht, or the worst thing that ever happened to them.
And the first thing that Franklin Roosevelt did was save the busi
ness people. He did it simply because he had to.
? ? dear friend, Arthur Burns, right in this room said
that he considered it his first duty to save the banks. I don’t disagree
with, that. Nothing would be worse than to have our banks go “ker.
l i
banking system of this country went to pieces, the
wtole economy Would come apart, there is no doubt about it.
But 1 would like to have somebody else somewhere in the Government, someone that said, “Hey, I got a duty, too, P d l i k e td «ave
137
If I could get one person as effective on jobs as Arthur Burns is on
finance, we’d have this thing half made. I respect Arthur Burns—
I’m going to tell him that tomorrow. I have tremendous respect for
him because he fights so hard for the people that he represents. Well,
I’m just looking for somebody to represent the folks, because ulti
mately the banks aren’t going to do any better than the economy does.
But he had to do what he’s done. He frankly admitted here—isn’t
that interesting. Now, here is the Franklin Bank. As far as my peo
ple in Minnesota are concerned, the only Franklin that they” know
is Benjamin Franklin, and he's dead.
But, he was going to save the Franklin Bank. Now, nobody out my
way could have cared less. I ’m a Senator from Minnesota. Except,
when I explained to them that if that bank goes down the tube, five
more go down. It isn’t going to be long before the Northwestern Na
tional Bank in Minneapolis is going to go, and the First National,
and so forth. Then they began to understand.
We have had the Council of Economic Advisers in here, and they
sat right in this room and told me for 1 hour that we couldn’t make
public service jobs work, too expensive. When I hear that a public serv
ice job costs $10,000 a year, that doesn’t bother me a bit. How much
does it cost to send a kid to college? About $10,000 a year; not your
money, but the public’s money, somebody pays it. How much does
the job program. You remember that Job Corps? We estimated that
it would cost about $10,000 a year to keep a kid in the Job Corps. And
then we had about a 40 percent dropout rate. And this became a big
hue and cry. I was in the campaign of 1968 in which the Job Corps
became a big issue for some reason or another, as if that was the ma
jor issue.
Well, I went up and check Harvard. It costs more money to put
somebody through Harvard in a year than it does the Job Corps.
And not only that, the dropout rate was as big too. And I didn’t
hear anybody say that we ought to close up Harvard; not one bit.
And not only that, they get a lot of Government money.
There are universities that I love, and I’m an exprofessor and will
have to go back to teaching if I don’t quit this present work that I’m
•doing, and they all get lots of Government money—they never ever
consider it subsidies. They just come down here and are very quiet.
They come to see me in my office. We are building new buldings out
there at the University of Minnesota. I just got $5 million for a new
building. That isn’t a subsidy; you know that: that’s just help, that s
Well, I^m giad to help them, I think they needed $50 million, as
far as I ’m concerned. That’s my university, I’d like to help them. I
just want folks to ’fess up. I ’fess up. I have been on the public pay
roll. I have been to the State University. My father’s business de
pended on people that went on WPA, and I want to tell you some
thing, we paid enough taxes back so that we have been able to take
^are of all of it.
*
I like what I have heard here by some of you that pointed out what
CETA did, putting people on payrolls; that’s the answer. But uj01-®
important, giving people a sense of dignity, that’s the answer. Ajid
I tell you, what’s wrong in this country is not just economics; it s
138
spirit I-think baft of the things that’s happened to our spirit is that
people feel that somehow or other things aren’t working, and nobody
cares. *
That is particularly true of an awful lot of disillusioned young
people. And you have 10 percent of the young people in this country
disillusioned, you’ve got poison in the well. As old Sam Rayburn
said, -Never spit in the well from whence you are going to drink,”
and we have been letting people spit in the well, and pretty soon it
gets polluted.
With that little sermonette, I’d like to just suggest two things. No. 1 T
we are everlastingly grateful to our participants. We have learned
something today. I think we have had excellent papers presented,
and I want to thank each and every one of you. I want to thank our
discussants over here.
And tomorrow, I want you to know, that the show continues. This
is what we are going to have for “ feature attractions” : We have poli
cies for achieving full employment, where our lead start is Mr. Arthur
Burns; in the supporting role is Alan Greenspan. [Laughter.]
And for walk-on parts, Hubert Humphrey and Jacob Javits, and
Richard Bolling and Clarence Brown, all members of this committee*
■ The discussants, who will be there to write reviews and pass on
comment will be Frank Morris, president of the Boston Federal Re
serve Bank; Michael Harrington of the Democratic Socialist Orga
nizing Committee; Byron Johnson of the University of Colorado, and
Robert Eisner of Northwestern University.
Now, if that isn’t a mix you have never seen one. I predict to you
that this will be a stellar attraction, and I want to invite all of those
who have gone through this day to come back and bring your friends
and relatives.
TTiank you very much. [Applause.]
[Whereupon, at 6:10 p.m., the committee reeessed, to reconvene at,
10 ajn., Friday, March 19 ,1976.]
THIRTIETH ANNIVERSARY OF THE EMPLOYMENT ACT
OF 1946— A NATIONAL CONFERENCE ON FULL
EMPLOYMENT
FBIDAY, MARCH 1 9 , 1 9 7 6
C ongress of t h e TJntted S tates ,
J o in t E conom ic C o m m itt e e ,
Washington, D.C.
The committee met, pursuant to recess, at 1 0 :05 a.m., in room 318,
Russell Senate Office Building, Hon. Hubert H. Humphrey (chair
man of the committee) presiding.
Present: Senators Humphrey, Sparkman, Ribicoff, Javits, and
Taft; and Representatives Bolling, Hamilton, Brown of Ohio, Brown
of Michigan, Heckler, and Rousselot.
Also present: John R. Stark, executive director; Jerry J. Jasinowski, Courtenay M. Slater, and William A. Cox, professional staff
members; Michael J. Runde, administrative assistant; and M. Cath
erine Miller, minority economist.
O p e n in g S t a t e m e n t
of
C h a irm an H u m p h re y
Chairman H u m p h r e y . The committee will please come to order.
Today it is a pleasure to welcome our panelists and our discussants,
and those who have come to share in and participate in this second
day o f the Joint Economic Committee's national conference on full
employment.
Yesterday’s sessions were interesting and productive, providing this
committee and the Congress with important insights into the nature
and the cost, both economic and social, of unemployment in America,
and a number of useful recommendations on how to do a better job
°f keeping our people at work and our economy at full production.
. Today, I look forward to discussing alternative policies for achiev
ing full employment in a healthy and stable economy with distin
guished witnesses from the administration, from Mr. Alan Greenspan,
the Chairman of the Council of Economic Advisers and Mr. Burns,
the Chairman of the Federal Reserve Board. But this morning we
are very honored to have an outstanding leader of the Congress, my
good friend and a friend of all of us here, the distinguished Speaker
°f the House of Representatives, Hon. Carl Albert.
Speaker Albert has demonstrated throughout his long and distin
guished career of public service a keen awareness of the problems of
the disadvantaged, the poor, the unemployed, but above all, the needs
°f our Nation. This awareness has been translated time and time
again into effective action by the Congress to help alleviate these
(139)
73-285— 76------- 10
140
problems and to give our economy the necessary incentive and stimu
lant that the times require.
It is indeed an honor and a personal pleasure for me to introduce
our friend and our respected colleague, the Speaker of the House of
Representatives, Carl Albert.
STATEMENT OF HON. CARL ALBERT, THE SPEAKER, U.S. HOUSE OF
REPRESENTATIVES
Representative A lbert . Thank you, Senator Humphrey, and thank
you for inviting me to say a few words on this memorable occasion.
I know that the Congress and the Nation join me in congratulating
you for the great work you have been doing, not only as a U.S. Sena
tor, Chairman of the Joint Economic Committee, but also the special
work you have been doing in commemorating the 30th anniversary
of one of the memorable acts of this country, the Employment Act of
1946.
It is an honor to be included here with you.
The landmark legislation which was passed in 1946 symbolized the
promise of a new freedom, the right to be free of the fear of jobless
ness and poverty and the right to have a good job and a decent wage.
But for a generation, this great promise of the Employment Act has
gone largely unfulfilled and, for the past 8 years, it has been virtually
ignored. Long-term joblessness has pushed a sizeable segment of our
population into an insecure and alienated way of life, separated from
the mainstream of society, and dependent upon an inadequate and in
equitable welfare system.
Some Americans have been able to wait out comfortably the in
creasingly severe recessions that have occurred during the last &0
vears. For the average American family, however, unemployment has
been a financial and an emotional disaster.
For the American taxpayer, unemployment has been a deficit-producing nightmare.
Why do we have 10 million Americans walking the streets unable
to find full-time jobs?
Have we lacked the capability or the will to stop this destroyer of
our well-being?
Have we lacked the resources?
I am sorry to say that we have apparently lacked the desire neces
sary to end joblessness in this land of plenty. We have allowed our
selves to be led astray by the false, misguided trickle-down and trade
off economics of Hoover, Eisenhower, Nixon, and Ford.
The long-term cost of a policy that contemplates u n em p loy m en t
above 6 percent into the 1980’s is exorbitant. The Democratic leader
ship is committed to stopping this tragic waste of money and
manpower.
We defeated unemployment under President Truman. We again
achieved full employment under Presidents Kennedy and Johnson.
Tiie 94th Congress is currently trying hard to redeem the commit
ment rendered to the American people by our predecessor, the 79th
Congress m 1946, to provide work for all Americans able, willing
and seeking to work.
141
There may be some short-term cost to eliminating unemployment,
but the cost of any other policy like the administration’s, which con
templates unemployment above 6 percent into the 1980’s, is far, far
higher. The cost is incalculable.
For this reason, the Democratic leadership in Congress and cer
tainly in the House is offering its strongest support for the Full Em
ployment and Balanced Growth Act of 1976.
This bill was prepared through the great and successful effort of
Congressman Hawkins and Senator Humphrey and many others who
are deeply concerned with the tragic waste represented by our shame
fully high unemployment levels. Destiny knocks at the door of the
04th Congress. This Congress cannot, and it will not, evade this his
toric rendezvous.
Thank you, Mr. Chairman.
Chairman H u m p h r e y . Mr. Speaker, we are singularly honored by
your willingness to participate in this Conference and your willing
ness to give us the leadoff statement for this morning’s session.
We want to think you very much. We know that you have a very
busy day, Mr. Speaker, and at any time that you feel that you must
leave us, please feel perfectly at ease to do so.
We just want you to know our gratitude and appreciation for your
attendance and presence.
Yesterday morning, as you know, we had the distinguished Vice
President of the United States, Mr. Nelson Rockefeller, as our intro
ductory speaker and he gave us a splendid statement.
Today, for purposes of introducing our panelists and also for pre
senting a statement relating to economic policy as it pertains to em
ployment, we have one of our senior members of the Joint Economic
Committee.
Senator Ribicoff of Connecticut has served on this committee for
approximately 10 years. He is presently chairman of the Senate Com
mittee on Government Operations, and I might add that had he not
selected that post, I would still be a very junior member of the Joint
Economic Committee rather than its chairman.
So I am indebted to Senator Ribicoff for many things.
We have asked the Senator to present our panelists to lay down
the ground rules for this morning’s discussion and to share with us
his wisdom that is the result of years of experience in government as
well as a very bright and creative mind.
Senator Ribicoff.
Senator R ib ic o f f . Thank you, Senator Humphrey. I am glad, for
the sake of Government Operations and the Joint Economic Commit
tee, I chose Government Operations. Of the many outstanding chair
men this committee has had, none of them really exceeds you for the
thrust and vibrancy you have brought to the chairmanship of this
committee.
Since 1973, our Nation has suffered under the combined tyrannies
°f inflation and recession. During this period, it has really been easier
to focus on the problem of inflation, because each and every one of
us can see it and feel its bite.
I am glad that this conference has been called to focus our attention
°n the great costs of a stagnant economy and high unemployment.
142
Today, there are 10 million jobless Americans walking our streets
with little hope of finding employment. In my State of Connecticut
alone, there are 178,500 individuals without jobs, about 2.1 percent o f
the work force.
The costs of high unemployment are paid not only by the unem
ployed, but also by those of us who are lucky enough to have jobs.
We pay socially in terms of bitter youth and battered families; wepay economically in lost tax revenues and lost GNP—lost goods and
services that might have made our country richer.
Today, we turn from a recognition of these costs o f unemployment
and the severity of our situation to the task of charting the road back
to full employment, to a healthy and growing economy.
The road iJack will not be easy and it will not be cheap. But thefailure to start on the trip back will be more costly.
We must look to new combinations of tools. Public employment
moneys should be used to fund jobs which will create other jobs. In
this way we can use public funds as seed money, as investment capi
tal. We can look to jobs which build and rebuild infrastructure in
our decaying cities.
For example, funds to employ people in renovating a decaying
plant or a decaying theater result in private-sector jobs for the peo
ple who then work in that plant by the President.
If this 2 -year period of stagflation—inflation and recession to
gether—has taught us anything, it should have taught us the impor
tance and necessity of long-range planning.
Currently no one in the Federal Government is charged with the
responsibility of looking ahead, of warning us about the future. TheJEC has recognized the need for such planning. Let us institutional
ize the task.
I want to tip mv hat to both Senator Humphrey and Senator Javits
who have been in the forefront of this effort.
Meaningful tax reform is also a route to economic recovery. While'
we travel the road back, tax reform lessens the inequities and the
burdens we place on the American family earning under $15,000 per
year. The tax code also provides incentives for certain types o f
behavior.
Our tax laws need to be examined to insure that these incentives
are not perverse; that we are not discouraging actions which would
raise employment.
There are many different views represented around this table. I
will be interested to see if the participants can combine some of those
views into a route map for full employment. What moneary and fiscal
policy, what programs offer us the surest, fastest route to full em
ployment without double-digit inflation?
Now, I have the honor of introducing the expert members of this
morning’s panel: Arthur Burns, Chairman of the Federal Reserve*
Board; Alan Greenspan, Chairman of the Council of Economic Ad
visers; and our discussants: Frank Morris, president o f the Boston
Federal Reserve Bank; Byron Johnson of the. Uni verity of Colo
rado; Robert Eisner of Northwestern University; And Michael H arrragton, the Democratic Socialist Organzing Committee.
* O a behalf of the Joint Economic Committee, , we b&ve designated
four members to participate formally in the discussion: Our Chairman*
143
Senator Hubert Humphrey, a man with a long history of commitment
to full employment and likewise Senator Jacob Javlts, Congressman
Richard Bolling and Congressman Clarence Brown, all respected and
able.
Let me lay out the ground rules for this morning’s discussion. Each
of the participants will have 5 minutes to briefly summarize theif
views on policies for acheving full employment. The order of these
presentations will be as follows: First, Arthur F. Burns, then SenAtor Hubert H. Humphrey, followed by Chairman Alan Greenspan,
Congressman Richard Bolling, Senator Jacob Javits and Congress
man Clarence Brown.
Following these oral presentations, the designated discussants will
each have an opportunity to question the members of the panel. Fol
lowing these questions, we will then have an informal dialog between
all members of the panel and the discussants.
Senator Humphrey will moderate this discussion to the extent that
it is necessary.
I know that this is going to be a most productive day.
Thank you very much, Mr. Chairman.
Senator T aft . Mr. Chairman.
Chairman H umphrey . Yes, Senator Taft.
Senator T aft . Mr. Chairman, I wonder if, in laying out the ground
rules, some provision could be made for the introduction of prepared
statements by members who are not members of the panel?
Unfortunately, I am not going to be able to stay for the entire day,
and I like to introduce my prepared statement.
Chairman H umphrey . Senator Taft, you spoke to me yesterday
about that, and indeed, we want your prepared statement and the
prepared statement of any other member of this committee to be in
cluded, and it will be made a part of the record of our proceedings
here. It will be included as a part of it.
[The prepared statement of Senator Taft follows:]
Prep ab e d
S t a t e m e n t o f S e n a t o b R o b e r t T a f t , J b ., a
S t a t e op O h io
U.S.
S e n a t 'o b F b o m t h e
I should like to take this opportunity to express my thoughts on the series
of hearings which the Joint Economic Committee has held to mark the w tn
anniversary of the Full Employment Act of 1946.
.
This long series of hearings has been a depressing experience, perhaps one
of the most frustrating I have faced in all my years in W a s h i n g t o n . I t has
been an exercise in myopic pseudo-economic and mutual ^ckslappinga.
g
those who still think that we can spend our way out o f an inflationary rece^oa*
There seems little doubt that most members of the Committee ™®t into the
hearings with the preconceived notion, totally unsubstantiated by either eco
nomic theory or historical experience, that public spending is a
to create jobs, especially permanent jobs of a worthwhile nature, than cutting
taxes to stimulate private spending on consumption and
A public jobs program is almost entirely service-oriented. It does little to
economic growth and future job creation.
What happens when we cut taxes for consumers ?E ven Ifce mo t
*
textbooks point out that tax cuts can be just as stimuiative as s p e n d i^ in
creases. The consumer is left with more o f his takehome p a y . J P S S l
tog and saving go u p , stimulating the consumer goods
Jiding incentive for those industries to hire workers, a n d - i
f «nds, either through consumers* savings accounts, or by increased business
profits.
144
What happens when we cut taxes for business? It allows firm s to retain
more of their profits from existing operations, and to anticipate higher re
tained earnings from expanded operations. It simutaneously makes expansion
more desirable, and helps provide the funds.
The upshot of such tax cuts is two-fold:
First, when the consumer spends on consumer goods, he ends up with some
thing he really wants, not something some bureaucrat has selected for him.
Second, when the business tax cut is spent on investment, or when con
sumer spending stimulates investment, we end up with a new factory, or
or mine. These go on providing new jobs long after the investment is finished.
They provide jobs immediately, when they are under construction (a point
that had to be hammered on at the Committee by one of the witnesses), and
thereafter, while they are in operation. The immediate jobs are iu the con
struction trades, and in the industries providing the steel, glass, pipes, con
crete, and machinery that go into the new plant. The permanent jobs go to
the workers hired to run the new plant, producing whatever it is that the
consumers had called for.
Instead of this, the Committee has steadfastly clung to the notion that tax
cuts do not work, in spite of the success we have had with them, in the early
‘twenties under Republicans, and in 1963, under President Kennedy. The
Committee has determined, with no hard studies to back them up, that public
jobs are quicker and better.
When we cut taxes, we end up with new factories which go on producing
and hiring for years. When we hire people to pick up papers in the park, for
the same amount of money, we end up with a nice clean park for the untrained,
unskilled, unemployed former Public Works employee to sit in, contemplating
his good fortune at having had a public job once upon a time.
The Committee spent almost no time on the problem of capital formation.
That means that the Committee spent no time on the sort o f permanent
growth we need. Wages are determined by the amount o f land and equipment
that a worker has to work with. Countries with a large capital stock per
worker have high wages. Countries with a growing capital stock per worker
have growing wages.
At no time did the Committee check with other free world nations to find
out their experience in these matters. Most o f the rest of the developed in
dustrial world has been on a crash capital formation program since 1940. At
that time, the U.S. had twice the per capita income of Sweden or Switzerland.
In 1974, both these countries surpassed us in per capita income. The economic
models attribute this to their high rates of investment, caused in turn by their
low rate of taxation on growth capital. At no time did the Committee consider
this approach.
What sort of approach to growth did the Joint Economic Committee take?
It held a series of hearings entitled “The Limits of Growth/' or “ Why We
Should Pretty Well Give Up On Progress.” I think it was incredible for the
Committee to yield to this fashionable anti-growth mystique at a time when
so many of our people are unemployed. This chic attitude is held only by the
prosperious, for they are the only ones who can afford it. Other countries, now
as advanced and developed as the U.S., are still growing, and faster than the
U.S., in spite of the fact that they lack our abundance of natural resou rces.
How can Sweden, which is two-thirds frozen marshland, and S w itz e rla n d ,
which is three-quarters Alps, continue to outstrip us in productivity in creases
without that fact registering on the Congress?
W e sorely need a fresh look at the concept o f government control o f the
economy. W e need to give up the preconceived notion that Washington knows
best. W e need to look at history, and at the examples set by other countries,
with an open mind. A little common sense and scientific method, applied to our
economic problems, will serve us far better than will the intellectual incest
that marked these hearings.
S. 50, a bill which would supposedly solve our unemployment problem, would
require the government to conduct monetary and fiscal policy in the optimum
manner, to produce full employment. I f we knew the optimum manner in
which to conduct monetary and fiscal policy, we would not be where we are
today. I have seen no evidence at these hearings that the Joint E con om ic
Committee knows best. Indeed, I have heard repeatedly the old myth that easy
145
money leads to low interest rates. The Committee seem either to be com
pletely unaware of the effect of easy money on inflation, and of inflation on
intrest rates, or they ,do not care to take a time frame of more than six months
into account. Looking across countries, tight money lowers inflation and in the
long run lowers interest rates, because it eliminates or reduces the inflation
factor, and can do so at full employment. Germany, Switzerland, and Sweden
in the ’fifties and early ’sixties are prime examples. At the other extreme,
Latin America has frequently experienced rapid money creation, as easy as
could be, followed by inflation of 100% and interest rates of 105%.
I shudder to think where the planning recommended by a Committee as
inexpert as this would lead us. And the interest rate myth is not the only
one that has been demonstrated repeatedly. There is the myth that tax cuts
cannot stimulate job creation; the myth that the country benefits just as
much from a public service job as from one formed in response to consumer
purchases; the myth that investment does not create jobs until after it is
completed; the myth that public service jobs produce goods that expand supply
and hold prices down, when this is obviously the role of private industrial
jobs; and the list goes on.
Another section of S. 50 would have the government provide special incen
tives for industry to locate in depressed areas. If industry has been fleeing
such areas because of genuine economic reasons, such as depletion of mineral
resources, a fall in demand for the particular products of the region, or the
development of new technology that renders the resources of another area
more valuable in production of a product, this will merely tax the entire
nation to subsidize industries that are going to be producing less for the same
input than they could produce elsewhere. Total national income will be re
duced. There is also the ludicrous possibility that this much-vaunted govern
ment planning program will provide subsidies to the very industries in states
such as Ohio which are in trouble because government planners have for
bidden them to buy the natural gas they need to keep operating, because the
planners think they know better than the free market where the gas should
go and how much it should cost
Where will it all end?
Probably with a new Committee, holding a new set of hearings on the 30th
anniversary of S. 50, trying to write a new bill to get the government still
more deeply involved in picking up the pieces of an economy it shattered in the
first place!
Chairman H umphrey . May I say that I want to thank one of the
networks this morning for their description of our day’s activities.
As we left here yesterday, Mr. Burns, I said that we were going to
have a true extravaganza here today, and that we had two the stellar
performers, and some of us had walkon parts, but we really welcome
Mr. Burns who has come to us with some personal sacrifice, I might
add. He has bpen wrestling with a little bout of cold and flu and he
has come today and we thank you very much.
Mr. Greenspan, we have had you here so many times you must be
gin to feel this is like home, even though at times not as comfortable,
I realize that. But I assure you it is all in the best of good American
style and no acrimony, nothing but respect.
Mr. Burns, please proceed with your presentation.
STATEMENT OP HON. ARTHUR P. BURNS, CHAIRMAN, BOARD OF
GOVERNORS, FEDERAL RESERVE SYSTEM
Mr. B u r n s . Well, I want to thank you for giving me the oppor
tunity, I did not realize that I was to make a presentation this morn1J1g. However, I will be glad to speak for a few minutes.
This is the 30th anniversary of the Employment Act and my own
association with the Employment Act goes back manv years, and
146
looking at the head table I see an old friend, who looks very young—
-and probably still is very young—and yet he has been on this Joint
Economic Committee, I believe, since 1950. In any case, when I ar
rived in this city in 1953, he was there always attending meetings of
the committee and asking stimulating questions and my friend Jacob
Javits and you, Senator Humphrey, have been associated with this
effort for years.
I am almost in a mood of reminiscence, partly because I am getting
on in years, partly because I haven’t prepared myself for this morn
ing. [Laughter.]
You know when I got here in 1953, the Council of Economic Ad
visers was in shambles and there was great uncertainty within the
Congress as to whether the Council should be continued* President
Eisenhower was uncertain whether to do so or not, and I was assigned
the responsibility of formulating a plan for organizing economic
advice within the executive establishment. There was very little in
terest in the Council at that time. Congressmen were disillusioned,
the President was disillusioned, and others.
I went to work. Your father, Senator Taft, was of great assistance
to me at the time and he believed, in the Council a,nd I persuaded
Jesse Wolcott who was then Vice Chairman of the Joint Economic
Committee, persuaded Joe Dodge, then Director of the Budget, per
suaded Nelson Rockefeller, who was then chairman of the govern
mental reorganization committee of some sort, persuaded Herbert
Brownell, the Attorney General and the President himself that the
Council ought to be reconstituted.
I wrote a reorganization bill. We made some changes in the ma
chinery of the Council. That was passed by the Congress, but then
the problem arose of appropriating money for the Council the the
chairman of the Appropriations Committee at the time was the Con
gressman from—a very conservative Republican Congressman—up
state New York, John Taber.
And John Taber didn’t like economists. He thought they were evil
people and there were too many of them in any case, and he did not
see why good money should be spent on a Council of Economic
Advisers.
And he just refused to make an appropriation available, and he
was czar of the Appropriations Committee, and there ^e were and 1
day he sent a bristling letter to the White House saying that the old
gang is still in control and the White House is not cleaning house as
the President had promised and there is this wild fellow, Arthur
Bums, who is appointing a number of radicals to his staff and giving
them fancy salaries—and he supplied names and all.
Well, this letter was sumitted to me in due course and the letter
was a complete fabrication and at that point I decided I had better
have a visit with John Taber. So I went to see John Taber and
showed him this letter and I said:
Now you submitted false information to the White House. I am sure yon
it innocently, but I am here to teU you that every word in thin communica
tion is simply untrue*
I said:
I am here to tell yon more than that, I haw be&i around here several month*
'waiting to get the Council organized and you have blocked my path at every
147
turn, and Mr. Taber, you bad better make up your mind, and I am going togive you just about 2 or 3 days to do it. You are going to support the Council
or I go home. I have other things to do.
And John Taber looked at me and he said, “ Young man”—I was
young at that time [laughter]—“ I like the cut of your chin and I’m
going to support you. I don’t need 2 days.” And he did.
A new friendship developed in this city and when economists needed
money for a census, they would come to me and I would go to John
Taber, and money became available.
Well, this is a very serious enterprise, Senator Humphrey.
I struggled with the concept of unemployment, the concept of full
employment, for many years. I have watched my fellow economists
and I have watched you and your colleagues in the Congress debate
numbers. What is the unemployment rate that is to be associated
with full employment ? Or, full employment corresponds to what un
employment rate ?
Well, some people say 4 and others say 3 and others says 5 and
others say 5V2 and still others say, it used to be 4, and now it is 5 or
I have deplored this number’s game—nobody really knows what he
is talking about when he throws these numbers around, and I refuse
to have participation in any of it.
And yet, we do have a problem, a problem in Government, in de
termining whether or not full employment exists and how we may
get to it.
Thinking about that problem, I delivered a lecture in I believe it
was 1963 and I delivered the same lecture once again at the 20th an
niversary of the Employment Act, in which I presented a concept of
full employment that I thought made operational sense at the gov
ernment level. The concept substantially came to this, that two con
ditions are required for the existence of full employment: First, the
number of men seeking—the number of individuals seeking jobs is
equal to the number of jobs seeking individuals, men or women.
And second—that is, at prevailing wages. This equality exists at
prevailing wages—and second that the labor market is so organized,
that those who are willing, able and seeking work either have jobs or
can find jobs in relatively short period or are available for retraining.
Now, that concept of full employment made very good sense to me
then and it still does. I persuaded, with much diligent effort some o f
my friends in the Labor Department to organize a statistical system
tha would make it possible to function with this concept, but they
ran into opposition and perhaps didn’t bring enough energy to the
task and job vacancy statistics did not flourish and now they have
been abandoned, and therefore, whatever promise this concept may
have is a concept for the future and one that we cannot work with at
present.
More recently, being keenly aware of the agony of unemployment,
being keenly aware of the fact that this country has changed since
my boyhood—very few of us have the opportunity any langer of go
ing back to the folks on the farm when we lose a ]ob m the city. Ours
is now an urbanized society. Family ties are not as strong as they
used to be. Many individuals lead lonely lives.
148
In this stage of the evolution of our society, I have come to the con
clusion that Government has a responsibility of acting as an employer
°^Now, to many this is a radical concept, but I think, as you all
know, I am a fairly conservative economist. I believe strongly in a
free-enterprise system, and I have tried to meet my own objective
with respect to what is desirable in our society within the context of
a strong, free entrprise economy.
Now, to improve—first of allr I think, Government has the respon
sibility of releasing the energies of private enterprise so that moie
jobs will be created and that these jobs be good ones for our people.
I think we have neglected investment in our country. I think we have
overtaxed investors, overtaxed business enterprise, and I think re
forms in that area would speed capital investment and enable us to
bring our costs down and in the process become more competitive m
the world—although we haven’t done badly in that respect in the last
few years.
. .
I think secondly that we have gone much too speedily m legislat
ing and administering environmental and safety programs. The purpose is excellent, but we have been careless over the years, and I don t
think we can, or should try, to correct for all of our carelessness m
a very short time.
,
I would stretch out our environmental, our timetable for achieving
our environmental and safety goals.
I think that would improve job opportunities in this country. Many
jobs are being held back by all kinds of lawsuits and much of the
investment that we have these days is going into plant which will do
nothing to low cost production, although it will give us cleaner air,
which we need—well, we have got to be more realistic, I think, in
that respect.
In the third place, I think we need keener business competition in
our country in many areas and reform of our antitrust laws I think
would be a good thing; tighter enforcement of these laws would be
a good thing. We have a maze of anticompetitive regulations and I
think we ought to get rid o f much of that.
Fourth, I think that our labor-market policies need to be reviewed.
Tliis is an area that, oh, political people don’t like to enter but I
don’t think we can continue neglecting what we are doing to our
labor markets.
I think the Federal Minimum Wage Law is responsible for a great
part of our unemployment, particularly among teenagers. I think
the Davis-Bacon Act is responsible for much of the unemployment
in our construction industry. I think we have become—I think that
we have liberalized our unemployment insurance legislation to the
point where a fair number o f people, not energetic, not ambitious,
would rather stay on unemployment insurance than go out and look
for a job. I think we ought to review our labor market, our labor
legislation, and beyond that, our Federal-State Employment Service
has never been very efficient.
With modern technology, we should have a nationwide, computer
ized job bank, and I have been fighting for that for y e a r s , a n d we
still don’t have it. There is a great deal we can do in that direction.
149
Beyond that, if we still have unemployment, as we may, I think
the Government should serve as employer of last resort* but at a
wage that would be unattractive—deliberately unattractive—so that
individuals would be helped to get by for a short period of time but
they would also have a strong incentive to create opportunity for
themselves, to find a job for themselves—a regular job for them
selves—in private industry or a regular job in government.
Well, Senator Humphrey, I have taken more than 5 minutes, I
am afraid, but I want to thank you for giving me the opportunity,
and I am sorry that I have not had the time to prepare a formal
statement.
Chairman H u m p h r e y . Mr. Burns, I am really pleased that you
didn’t have time to prepare a formal statement, because you have
given us not only some very valuable and interesting historical
background and, by the way, a new insight on my part. I didn’t
know you had brought all of these radicals into Government, but
I think that story about yourself and Congressman Taber is one of
the little priceless vignettes of American politics, and we thank you
for contributing it to what is ordinarily not the most appealing
record, namely the Joint Economic Committee where we are dealing
with statistical evidence so often.
But your observations that you have given us today, along with
the splendid address which you gave at the University of Georgia
which you brought to the hearing for our colleagues and the record,
outlining some of the points that you have emphasized, I think are
most helpful, and I am sure that you will recognize that there will
be discussants that will want to review that with you. Your ad
dress, Mr. Burns, will be placed in the record at this point.
[The address follows:]
T
he
R
eal
I ssues
of
I n f l a t io n
and
U nem ploym ent
(Address by Hon. Arthur F. Burns, Chairman, Board of Governors of the
Federal Reserve System, at the Blue Key Honor Society Annual Awards
Dinner, the University of Georgia, Athens, Ga., September 19, 1975)
I am pleased to be here at the University of Georgia and to have the oppor
tunity to address this distinguished audience. Tomorrow promises to be an
©aciting day for you, and vou will need all the rest you can muster. I shau
therefore not waste many words as I share with you my concern about our
nation’s future.
^ Ur country is now engaged in a fateful debate. There are many who declare
that unemployment is a far more serious problem than inflation, ana that
monetary and fiscal policies must become more stimulative during the coming
year even if inflation quickens in the process. I embrace the goal of full em
ployment, and I shall suggest ways to achieve i t But I totally yeJe^t the
argument of those who keep urging faster creation of money and still larger
governmental deficits. Such policies would only bring us additional trouble;
they cannot take us to the desired goal.
The American economy has recently begun to emerge from the deepest de
fin e of business activity in the postwar period. During the course of the
recession, which began in late 1973, the physical volume of our total output
of. goods and services declined by 8 per cent. The production of factories,
fiunes, and power plants fell even more—by 14 per cent. As the over-all level
economic activity receded, the demand for labor rapidly diminished and
Unemployment doubled, reaching an intolerable 9 per cent of the labor force
this May.
The basic cause o f the recession was our nation’s failure to deal effectively
™th the inflation that got under way in the mid-sixties and soon became a
150
dominant feature of our economic life. As wage and price increases quickened,,
seeds o f trouble were sown across the economy. With abundant credit readily
available, the construction of new homes, condominiums, and office buildings
proceeded on a scale that exceeded the underlying demand. Rapidly rising
.prices eroded the purchasing power of workers’ incomes and savings. Man
agerial practices of business enterprises became lax and productivity languished, while corporate profits—properly reckoned— kept falling. Inventories
of raw materials and other supplies piled up as businessmen reacted to fearsof shortages and still higher prices. Credit demands, both public and private,
soared and interest rates rose to unprecedented heights. The banking system
became overextended, the quality of loans tended to deteriorate, and, the
capital position of many banks were weakened.
During the past year many of these basic maladjustments have been worked
out of the economic system by a painful process that could have been avoided
If inflation had not gotten out of control. As the demand for goods and services
slackened last winter, business managers began to focus more attention on
efficiency and cost controls. Prices of industrial materials fell substantially,
price increases at later stages of processing became le.>s extensive, and in
many instances business firms offered price concessions to clear their shelves.
With the rate of inflation moderating, confidence of the general public was
bolstered, and consumer spending strengthened. Business firms were thus able
to liquidate a good part of their excess inventories in a rather brief period.
Meanwhile, as the demand for credit diminished, tensions in financial markets
were relieved, and the liquidity position of both banks and business firms
generally improved.
These self-corrective forces Internal to the business cycle were aided by fiscal
and monetary policies that sought to cushion the effects o f economic adversity
and to provide some stimulus to economic recovery. On the fiscal side, piiblic
employment programs were expanded, unemployment insurance was liberalized,
and both personal and corporate income taxes were reduced. On the monetary
side, easier credit conditions were fostered, resulting in lower interest rates
and a rebuilding of liquidity across the economy.
With the base for economic recovery thus established, business activity hafr
recently begun to improve. Production of goods and services turned up during
the second quarter and is continuing to advance. The demand for labor has
also improved. Both the number of individuals at work and the length of theworkweek are rising again, and unemployment has declined three months in
a row. Retail sales have risen further, and of late residential construction has
joined the recovery process.
Along with these favorable developments, however, some ominous signs haveemerged. Despite an occassional pause, inflation once again may be acceler
ating. By the second quarter of this year, the annual rate o f increase in the
general price level was down to 5% per cent—about half the rate of inflation
registered in the same period a year earlier. But over the summr, prices
began to rise more briskly.
This behavior of prices is partially worrisome in view o f the large degreeof slack that now exists in most of our nation’s industries. Price increases in
various depressed industries—aluminum, steel, autos, industrial chemicals,
among others—are a clear warning that our long-range problem of inflation
Is unsolved and therefore remains a threat to sustained economic recovery.
History suggests that at this early stage o f a business upturn, confidence in
the economic future should be strengthening steadily. A significant revival o f
confidence is indeed underway, but it is being hampered by widespread con
cern that a fresh outburst of double-digit inflation may before long bring onanother recession. By now, thoughtful Americans are well aware o f the pro
foundly disruptive consequences of inflation for our economy. They also recog
nise that these consequences are not solely o f an economic character. Inflation
has capricious effects on the income and wealth o f a nation's families, and
this inevitably causes disillusionment and discontent Social and political fric
tions tend to multiply, and the very foundations o f a society may be en
dangered. This has become evident in other nations around the world, wheregovernments have toppled as a result o f the social havoc wrought by inflation*
I f we in the United States wish to enjoy the fruits o f ft prosperous economy
and to preserve our democratic institutions, we must coxnfr t<* g r ^ squarely
151
with the inflation that has been troubling our nation throughout much of the
postwar period, and most grievously during the past decade.
A first step in this process is to recognize the true character of the prob
lem of inflation lias its roots in the structure of our economic institutions and
in the financial policies of our government. All too frequently, this basic fact
is clouded by external events that influence the rate of inflation—such as a
crop shortfall that results in higher farm prices, or the action of a foreign
cartel that raises oil prices. The truth is that, for many years now, the econ
omies of the United States and many other countries have developed ft serious
underlying bias toward inflation. This tendency has simply been magnified by
the special influences that occasionally arise.
A major cause of this inflationary bias is the relative success that modern
industrial nations have had in moderating the swings of the business cycle.
Before World War IT, cyclical declines of business activity in our country
were typically longer and more severe than they have been during the past
thirty years. In Ilie environment then prevailing, the price level typically de
clined in the course of a business recession, and many months or years elapsed
before prices returned to their previous peak.
In recent decades, a new pattern of wage and price behavior has emerged.
Prices of many individual commodities still demonstrate a tendency to decline
when demand weakens. The average level of prices, however, hardly ever de
clines. Wage rates have become even more inflexible. Wage reductions are
nowadays rare even in severely depressed industries and the average level of
vvaire rales continues to rise inexorably in the face of widespread unemployment.
These developments have profoundly altered the economic environment. When
prices are pulled up by expanding demand in a time of prosperity, and are
also pushed up by rising costs during a slack period, the decisions of the
economic community are sure to be influenced, and may in fact be dominated,
by expectations of continuing inflation.
Thus, many businessmen have come to believe that the trend of production
costs will be inevitably upward, and their resistance to higher prices—whether
of labor, or materials, or equipment—has therefore diminished. Labor leaders
and workers now tend to reason that in order to achieve a gain in real income,
they must bargain for wTage increases that allow for advances in the price
level as well as for such improvements as may occur in productivity. Lenders
in their turn expect to be paid back in cheaper dollars, and therefore tend to
hold out for higher interest rates. They are able to do so because the re
sistance of borrowers to high interest rates is weakened by their anticipation
of rising prices.
These patterns of thought are closely linked to the emphasis that govern
ments everywhere have placed on rapid economic growth throughout the post
war period. Western democracies, including our own, have tended to move
Promptly to check economic recession, but they have moved hesitantly in
checking inflation. Western governments have also become more diUgent in
seeking ways to relieve the burdens of adversity facing their peoples. In the
process they have all moved a considerable distance towards the welfare
state.
in the United States, for example, the unemployment insurance system has
•*en greatly liberalized. Benefits now run to as many as 65 weeks, and in some
eases provide individuals with after-tax incomes almost as large as their ea*n“
ings from prior employment. Social security benefits too have been expanded
materially, thus facilitating retirement or easing the burden of job loss for
older workers. Welfare programs have been established for a large part or the
population, and now include food stamps, school lunches, medicare and medic
aid, public housing, and many other forms of assistance.
Protection from economic hardship has been extended by our government
to business firms as well. The rigors of competitive enterprises are nowadays
eased by import quotas, tariffs, price maintenance laws, and other forms or
governmental regulation. Farmers, homebuilders, small businesses, and other
groups are provided special credit facilities and other assistance. And even
large firms of national reputation look to the Federal Government for suste
nance when they get into trouble.
4
Many, perhaps most, of these governmental p ro-a m s have highly com
mendable objectives, but they have been pursued without adequate regard for
their cost or method of financing. Governmental budgets—at the Federal, State,
152
and local level— have mounted and at time, as in the case of New York City,
have literally gotten out of control. In the past ten years, Federal expenditures
have increased by 175 per cent. Over that interval, the fiscal deficit of the
Federal Government, including government-sponsored enterprises, has totalled
over $200 billion. In the cultural fiscal year alone, we are likely to add another
$80 billion or more to that total. In financing these large and continuing
deficits, pressure has been placed on our credit mechanisms, and the supply
of money has frequently grown at a rate inconsistent with general price
stability.
Changes in market behavior have contributed to the inflationary bias of
our economy. In many businesses, price competition has given way to other
forms of rivalry— advertising, changes in product design, and “ hard-sell"
salesmanship. In labor markets, when an excessive wage increase occurs, it is
apt to spread faster and more widely than before, partly because workmen
have become more sensitive to w^age developments elsewhere, partly also be
cause many employers have found that a stable work force can be best main*
taind by emulating wage settlements in unionized industries. For their part,
trade unions at times seem to attach higher priority to wage increases than
to the jobs of their members. Moreover, the spread of trade unions to the
rapidly expanding public sector has fostered during recent years numerous
strikes, some of them clearly illegal, and they have often resulted in accept
ance of union demands—however extreme. Needless to say, the apparent
helplessness of governments to deal with this problem has encouraged other
trade unions to exercise tlieir latent market power more boldly.
The growth of our foreign trade and of capital movements to and from
the United States has also increased the susceptibility of the American econ
omy to inflationary trends. National economies around the world are now
more closely interrelated, so that inflationary developments in one country
are quickly communicated to others and become mutually reinforcing. More
over, the adoption of a flexible exchange rate system— though beneficial in
dealing with large-scale adjustments of international payments, such as those
arising from the sharp rise in oil prices—may have made the Western world
more prone to inflation by weakening the discipline of the balance of pay
ments. Furthermore, since prices nowadays are more flexible upwards than
downwards, any sizable decline in the foreign exchange value o f the dollar
is apt to have larger and more lasting effects on our price level than any
offsetting appreciation o f the dollar.
The long-run upward trend of prices in this country thus stems fundamen
tally from the financial policies of our government and the changing character
of our economic institutions. This trend has been accentuated by new cultural
values and standards, as is evidenced by pressures for wTage increases every
year, more holidays, longer vacations, and more liberal coffee breaks. The up
ward trend of prices has also been accentuated by the failure of business firms
to invest sufficiently in the modernization and improvement of industrial plant.
In recent years, the United States has been devoting a smaller part of its
economic resources to business capital expenditures than any other major
industrial nation in the world. All things considered, we should not be sur
prised that the rate o f improvement in output per manhour has weakened
over the past fifteen years, or that rapidly rising money wages have over
whelmed productivity gains and boosted unit labor costs o f production.
Whatever may have been true in the past, there is no longer a meaningful
trade-off between unemployment and inflation. In the current environment, a
rapidly rising level o f consumer prices will not lead to the creation of new
jobs. On the contrary, it will lead to hesitation and sluggish buying, as the
increase of the personal savings rate in practically every industrial nation
during these recent years o f rapid inflation indicates. In general, stimulative
financial policies have considerable merit when unemployment is extensive
and inflation weak or absent; but snch policies do not work well once inflation
has come to dominate the thinking of a nation’s consumers and businessmen.
To be sure, highly expansionary monetary and fiscal policies might, for a short
time, provide some additional thrust to economic activity. But inflation would
inevitably accelerate— a development that would create even more difficult
economic problems than we have encountered over the past year.
Conventional thinking about stabilization policies is inadequate and out of
date. We must now seek ways of bringing unemployment down without be
coming engulfed by a new wave of inflation. The areas that need to be ex
plored are many and difficult, and we may not find quickly the answers we
153
seek. But if we are to have any chance of ridding our economy of its infla
tionary bias, we must at least be willing to reopen our economic minds. In
the time remaining this evening, I shall briefly sketch several broad lines of
attack on the dual problem of unemployment and inflation that seem promising
to me.
*
First, governmental efforts are long overdue to encourage improvements in
productivity til rough larger investment in modern plant and equipment. This
objective would bo promoted by overhauling the structure of Federal taxation
so as to increase incentives for business capital spending and for equity in
vestments in American enterprises.
Second, we must face up to the fact that environmental and safety regula
tions have in recent years played a troublesome role in escalating costs and
prices and in holding up industrial construction across our land. I am con
cerned, as are all thoughtful citizens, with the need to protect the environment
and to improve in other ways the quality of life. I am also concerned, how
ever, about the dampening effect of excessive governmental regulations on
business activity. Progress towards full employment and price stability would
be measurably improved, I believe, by stretching out the timetables for achiev
ing our environmental and safety goals.
Third, a vigorous search should be made for ways to enhance price compe
tition among our nation’s business enterprises. We need to gather the courage
to reassess laws directed against restraint of trade by business firms and to
improve the enforcement of these laws. We also need to reassess the highly
complex governmental regulations affecting transportation, the effects on con
sumer prices of remaining fair trade laws, the monopoly of first-class mail by
the Postal Service, and the many other laws and practices that impede tlie
competitive process.
Fourth, in any serious search for noninflationary measures to reduce un
employment, governmental policies that affect labor markets have to be
reviewed. For example, the Federal minimum wage law is still pricing many
teenagers out of the job market. The Davis-Bacon Act continues to escalate
construction costs and damage the depressed construction industry. Programs
for unemployment compensation now provide benefits on such a generous scale
that they may be blunting incentives to work. Even in today’s environment,
with about 8 percent of the labor force unemployed, there are numerous job
vacancies—perhaps because job seekers are unaware of the opportunities, or
because the skills of the unemployed are not suitable, or for other reasons.
Surely, better results could be achieved with more effective job banks, more
realistic training programs, and other labor market policies.
I believe that the ultimate objective of labor market policies should be to
eliminate all involuntary unemployment. This is not a radical or impractical
goal. It rests on the simple but often neglected fact that work is far better
than the dole, both for the jobless individual and for the nation. A wise
government will always strive to create an environment that is conducive to
high employment in the private sector. Nevertheless, there may be no way
to reach the goal of full employment short of making the government an em
ployer of last resort. This could be done by offering public employment—for
example, in hospitals, schools, public parks, or the like—to anyone who is
willing to work at a rate of pay somewhat below the Federal minimum wage.
. With proper administration, these public service workers would be engaged
*n productive labor, not leaf-raking or other make-work. To be sure, such a
Program would not reach those who are voluntarily unemployed, but there
» d s o 110 compelling reason why it should do so. What it would do is to make
Jobs available for those who need to earn some money.
It is highly important, o f course, that such a program should not become
a vehicle for expanding public jobs at the expense of private industry. Those
employed at the special public jobs will need to be encouraged to seek more
remunerative and more attractive work. This could be accomplished by build1Jig into the program certain safeguards—perhaps through a Constitutional
amendment—that would limit upward adjustment in the rate of pay for these
special public jobs. With such safeguards, the budgetary cost of eliminating
unemployment need not be burdensome. I say this, first, because the number
or individuals accepting the public service jobs would be much smaller than
® number now counted as unemployed; second, because the availability of
Public jobs would permit sharp reduction in the scope of unemployment inUrance and other governmental programs to alleviate income loss. To permit
154
Active searching for a regular job, however, unemployment insurance for a
brief period—perhaps 13 weeks or so— would still serve a useful function.
Finally, we also need to rethink the appropriate role of an incomes policy
in the present environment. Lasting benefits cannot be expected from a manda
tory wages and price control program, as recent experience indicates. It might
actually be helpful if the Congress renounced any intention to return to
mandatory controls, so that businesses and trade unions could look forward
with confidence to the continuance of free markets. I still believe, however,
that a modest form of incomes policy, in some cases relying on Quiet govern
mental intervention, in others on public hearings and the mobilization of
public opinion, may yet be of significant benefit in reducing abuses of private
economic power and moving our nation towards the goal of full employment
and a stable price level.
Structural reforms of our economy, along some such lines as I have sketched,
deserve more attention this critical year from members of the Congress and
from academic students of public policy than they are receiving. Economists
in particular have tended to concentrate excessively on over-all fiscal and
monetary policies of economic stimulation. These traditional tools remain useful
and even essential; but once inflationary expectations have become widespread,
they must be used with great care and moderation.
This, then, is the basic message that I want to leave with you: our nation
cannot now achieve the goal of full employment by pursuing fiscal and mone
tary policies that rekindle inflationary expectations. Inflation has weakened
our economy; it is also endangering our economic and political system based
on freedom. America has become enmeshed in an inflationary web, and we
need to gather our moral strength and intellectual courage to extricate our
selves from it. I hope that all of you will join in this struggle for America’s
future.
STATEMENT OF HON. HUBERT H. HUMPHREY, A U.S. SENATOR
FROM THE STATE OF MINNESOTA
Chairman H umphrey. It is now my privilege to make some
comment here. I think that most of my colleagues and our partici
pants here today know that I have been, along with a host of others,
deeply concerned over the developments in our economy of recent
years.
I look back over the period of the 1950’s and the 1960’s and while
there was some price instability and we suffered from recessions, I
think it is fair to say that in the recent 20 months or so that we
have had the most serious recession and the highest level of unem
ployment and the sharpest turndown in production that we have
had since the Great Depression, and it is because of that series of
obvious facts that we direct ourselves today, once again, to the eval
uation of the Employment Act of 1946 which is public law, and to
see whether it is adequate and also whether or not it has been ad
hered to.
I sometimes feel that Government, as contrasted with citizens,
feels that it has no obligation to live by the law. The citizens are
required to do so under impactive penalty.
But law is law. We have laws that govern the Central Intelligence
Agency; we have laws that govern the F B I; we have laws that gov
ern the IRS; we have laws that govern all agencies of Government
and we have laws that relate to the citizens.
Now, the Employment Act of 1946 is a law. It is not just a state
ment of noble purpose. It wasn’t just a sense of the Senate resolu
tion, md it wasn’t just a resolution that was adopted by a host of
aa-gspodijrg. It was passed. It was debated It was signed by the
President o f the- United States, and it is? public law.
155
Now that law called upon the Government of the United States—
and that means all branches of the Government, all institutions of
Government—to effectuate policies which would promote maximum
production, maximum employment, and maximum purchasing power.
It is my judgment that that law has, from time to time, been con
veniently ignored.
So here we have the 30th anniversary of the Employment Act,
an anniversary upon which we find ourselves farther from our
goals that were established than we were 30 years ago. Such a situ
ation is clearly not an occasion for any rejoicing or singing the
hallelujah chorus, but an occasion for reassessment.
It is an occasion to ask why. Why were these goals not attainable,
or not attained ?
Why have our goals been only imperfectly realized?
Why are they farther from realization today than at any time in
the last 30 years?
Why is our doubt about our ability ever to achieve full employ
ment—and I accept the definitions which have been handed out here
or have been stated as of yesterday and as of today, namely, full
employment is that condition when those who are willing to work
and able to work are able to find the work that will provide them
with at least a modicum level of income and standard of living.
So why are we in doubt about our ability to achieve full employ
ment with reasonable price stability and why is this doubt greater
than ever?
. . . .
Why do our economic policymaking institutions seem to serve us
less well today, yesterday, the last 5 , 10 years, than they have in the
past.
Or, is this something of a temporary nature with peculiar cir
cumstances surrounding it that may pass away?
. It is also an occasion to ask, and I think the most important ques
tion, what shall we do? We are all experts on problems. We have
fantastic, statistical-gathering organizations to point out our mis
ery. We even developed in this committee the misery index, which
Is a combination of unemployment statistics and inflation.
Having perfected our ability to ascertain the misery, we haven’t
done very well in providing the prescription to alleviate the pain
an<i the misery. And I don’t mean just Government.
However, I think it ought to be stated very clearly Government
does have an effect upon the economy and that is what Government
for. It is not neutral; it is there for a purpose.
^
The whole Constitution is a document of action which the Gov
ernment of the United States is supposed to promote the general
Welfare or is supposed to establish justice, or it is to provide for the
common defense and other great necessities of our people. #
I think it is time to propose changes in our policymaking struc
ture after having examined it most carefully, and to press for the
a{toption of these necessary changes.
.
-Now, what changes are needed is obviously subject to discussion
and debate and decision. It is time to update our Government ma
chinery to meet new situations, a new type of work force.^ Things
are different. The period of the thirties, the country was, m large
Measure, rural. Today it is highly urbanized.
.
-tn the period of the thirties, we didn’t know about multinational
73-2S5— 76----- U
156
corporations or conglomerates to any degree. But today, they art
a matter of institutional economic fact. This is not to prejudge their
merits, because there surely are arguments on both sides as to merit
or liability.
Because I believe that it is time to update our Government ma
chinery on economic policy, looking ahead and not looking back, I
therefore have introduced, along with other members of the Joint
Economic Committee in cooperation with Members of the House of
Representatives who are not on this committee, such as Congress
man Hawkins, a proposal known as the Full Employment and Bal
anced Growth Act of 1976.
In the Senate, it is S. 50; in the House* H.R. 50. This act is de
signed to strengthen and supplement the Employment Act of 1946.
Now those of us who are legislators know that proposals such as
this are subject to revision and to adaptation, but the purpose is
clear. The purpose of the proposal is to design a set of institutional—
or to design machinery for arriving at decisions. It is a decision
making process that I think is at the heart of our problem.
The question is whether we have a coordinated decisionmaking
process or a decisionmaking process that coordinates the economic
facilities and the economic institutions of the Government or whether
we have a series of institutions or a series of agencies and instru
mentalities that more or less operate on ther own?
The failure to make wise and timely use of overall—what they
call macroeconomic policy-Heconomic policy in the 1970’s has been
compounded by the failure to supplement fiscal and monetary policy
with the broad range of additional policies needed to deal with our
complex economy.
I think most of us, as traditionalists* recognize the importance
of fiscal and monetary policy. The problem, in a democratic society,
is that people are involved, and the theory sometimes punishes the
people. Ana as one witness said here not long ago, the price stability
gained at the price of ever-greater poverty for some or degradation
for some is a price stability policy that is indefensible.
^ In other words, if price stability is to be gained at the price of
(_ million, 8 million, 10 million people being left unemployed, then
that policy is politically and morally indefensible.
^°w theoretically, it is, I suppose, defensible in that if you can
wait long enough^ possibly fiscal and monetary policies operating
through the private economy will produce the necessary results, or
the required results.
But again, I point out that governments based upon the consent
of the governed, governments based upon the will of the people,
cannot maintain policies over a prolonged period of time which
extract from a minority of the people incredible sacrifice, suffering
and pain in order to placate and satisfy iust the majority of the
people.
The test of moral government is not only what it does for the
majority, but how it responds to the needs of the minority. The
moral equation of democratic government is justice, and not just
justice for some, but justice for all. And I don’t believe we can
disfcuss economics merely in dollar terms or statistical terms. We
5*^5 ^ dwjips economic policy with the human equation being a
fundamental part of it.
157
Now I recognize that our transfer payments. I recognize that the
many social programs that we have effectuated in the past, legislated
over the years, has eased the pain.
I have often wondered what would happen to this country had
we not have had old-age security, pensions, unemployment com
pensation, food stamps, welfare, supplemental—SSI, as we call it,
the supplemental incomes.
Might I say that these programs were legislated over tremendous
opposition, unbelievable opposition. N owt everybody looks upon them
at least as necessary. Some people feel that they have not been prop
erly administered, others feel they are too costly, but there is no
one that I know of that really is taken seriously that recommends
their abolition.
So we have cushioned the pain, to be sure. We have, in a sense,
moderated the pain. But we have not, as yet, got at the source of
the trouble.
1 believe it requires intelligent people in a democratic society to
look at why it is that this country over the long period of time has
has a higher level of unemployment than any other industrialized
nation in the world.
Now there may be reasons and answers—because of the compo
sition of our population, because of the size of our country, be
cause of a number of things.
But at least we ought to know why.
Second, I think we need to ask why was it that in every other
recession, prices declined, but in this recession prices increased?
Why these, unique circumstances?
I have ho satisfactory answer.
Why is it that in every recession or depression that this country
has experienced in the 200 years of its history up until this one
us the recession deepened,*delation took place, not inflation?
This time it was inflation and recession, the twin evils, at the
same time, a unique set of circumstances that never before has been
evident to plague our society.
This is why I believe that new approaches are, necessary7. I would
like to believe that what, we have gone through is only a temporary
matter, but I don't believe we can believe that.
And I ’d like to believe that the methodology that we have used
find the treatment has been effective, but I don’t think so. I think
it has been the most costly treatment or the most costly approach
to the problems of recession and inflation that this Nation has e\er
known.
.
.
There are very few people wlro seem to understand the incredible
difficulty that American busin&ss is going through, the losses the
people have sustained in the market, the huge number of bank
ruptcies that have taken place in our private economy, and not pist
because of Government regulations but because of lack of purchasing
power and ill-advised and ill-applied economic policy.
And again, while we can sav that some suffering has been relieved
or removed because of unemployment compensation, union contracts
union benefits, welfare, and food stamps, there isivt anvone
that I know of who thinks that this is an adequate response to a pre
vailing condition.
158
So how can we improve policymaking, to achieve our goal of full
employment ?
While we can’t rely on fiscal and monetary policy exclusively to
achieve our employment goal, we must do a better job of setting out
put and employment targets each year which overall economic policy
should try to achieve.
I think one of the weaknesses that we have had is the unwilling
ness or the failure to set reasonable targets for us to look to.
I have, at times, been critical of Mr. Bums and the Federal Re
serve—not Mr. Burns as such, but the Federal Reserve—and I
have never forgotten one response when you said, Mr. Burns, well,
what are your goals? What does he Congress want us to do? What
is the objective that you seek to attain or achieve?
And I think it was a very responsible response, that we, in the
Congress, that are the people’s representatives we push and shove
and at times scream and holler, but we have never really said to the
Government, to the Federal Reserve System, nor have we said to
the President nor anyone else that here is what we want as a goal.
This is what we ought to be shooting for, this is what we ought to
be looking toward, and we will measure our performance on that
basis.
Instead of that, we talked in generalities and at times even in
specifics about the rate of inflation or the wholesale price index or
the consumer price index, we have complained and we have screamed
about it, but we have never said, all right, in the year 1976 it is our
goal and it is by law, by resolution of the Congress, that we are in
structing the instrumentalities of the executive Dranch and the other
agencies of government and we, in the Congress, taking our fair
share of the responsibility to lower the unemployment rate a precise
figure, as a goal, or to lower the inflation rate, and then to try to
pursue policies that would bring it about.
Now, I am not one that believes that government alone could do
this, but I do believe that it is necessary for government, at least,
to set the standard.
Second^ we need better economic planning. Instead of careening
from crisis to crisis, we should take the time to stt long-range priori
ties and plans, at least to a degree, for labor, capital and the re
sources needed to satisfy priorities, and we must have a number of
supplemenary policies in our economic tool kit, ready to apply, a
permanent countercyclical antirecession grant program for State
and local governments to enable them to maintain employment dur
ing recession.
Temporary public works projects to be triggered when the na
tional unemployment rate rises above, 4% or whatever percentage
points we set it. These jobs would be phased out as unemployment
drops. And then we should have assistance to chronically depressed
areas, regions and areas, in the form of job training for the work
force and better availability of capital to encourage industrial
development*
Finally, we need & reservoir for those, who through no fault of
their own, are unable to find jobs in regular, public employment, or
in the private sector* I envision this as a relatively anyJl individual
program for the permanently disadvantaged.
159
^ Although some people express concern about increasing public
jobs—and indeed, there are defects in these jobs, if they are not
carefully designed—I find such jobs, even imperfect, far superior to
increasing income maintenance and welfare payments.
I think the United States of America nas been buying itself
trouble at a terrible cost of waste of production and human resources.
[The prepared statement of Chairman Humphrey follows:]
P rep
A
ab e d
Strategy
Statem ent
for
F
ull
of
E
Senator H
ubert
m ploym ent an d
H . H um phrey
B alanced G r o w th
During the thirty years since the enactment of the Employment Act of 1946,
its famous mandate “ to promote maximum employment, production and pur
chasing power,” has become fully incorporated into the litany of national goals—
to which all must give at least lip service.
It is easy to forget that, like other great national documents to which time
has leant its mantle of respectability, the Employment Act was the child o f
heated controversy and reluctant compromise. A distinguished historian of
modern economic poUcy describes it this way:
“Every phrase in the (Em
ployment) Act is a monument to a battle of the year long legislative war that
preceded its passage. The biggest guns of ideology and pressure, conservative
and liberal, business and labor, had been engaged in the fight. There has been
in our generation no other confrontation on so massive a scale over the basic
character of the American economy. When the smoke cleared it was impossible
to tell who had won.” 1
It is still not clear who won. Full employment is still an elusive goal and
a controversial concept. The “ maximum employment, production and pur
chasing power’' demanded by the Employment Act has been achieved only
sporadically during the past thirty years.
the
record o f t h e e m p l o y m e n t a c t
This is not to say that the Employment Act has not brought great benefits.
It has. The procedures established by the Employment Act have served, not
only to ward off any repetition o f the Great Depression, but—with exceptions—
to keep the unemployment rate and the initiation rate within a somewhat
narrow range.
The exceptions have, of course, been painful. The unemployment rate aver
aged 6.8 percent in 1958 and 6.7 percent in 1961. In 1975, as we all know, It
soared far outside the range of previous Employment Act experience, averaging
8.5 percent.
There have been two really serious episodes of inflation during our thirty
years under the Employment A ct The first came at the very beginning when
consumer prices rose 34 percent (or an average of 11 percent per year) during
the immediate postwar years 1946, 1947, and 1948. The second episode has been
very recent indeed. Consumer prices rose 29 percent (or an average of 9 per
cent per year) during 1973, 1974 and 1975.
#
Despite these distressing episodes of high unemployment and high inflation,
it is worth remembering that during the 24 year period from 1948 to 1972,
consumer prices rose at an average annual rate of only 2.3 percent. During
those same years the unemployment rate averaged 4.8 percent.
When It is remembered that this period spans both the Korean War and the
Vietnam involvement— two periods when economic management was especially
difficult—I find the record o f overall price stability from 1948 to 1972 im
pressive. By contrast, the unemployment rate during this period was certainly
Wgher than it should have been. Even so, it compares very favorably not only
w*th the pre-Employment Act experience o f the thirties but also with the
8.5 percent of 1975 and the 7.6 percent of February, 1976.
It is perhaps fair to conclude that during most of its life the Employment
Act has served us well but far from perfectly. That, however, Is a question
for the historians to debate. The immediate dilemma which must be confronted
160
at this Thirtieth Anniversary Conference is that the comfortable and familiar
institutions which have evolved under the Emj)loyment Act no longer serve
ns adequately in the 1970’s. During the 19o0’s the unemployment rate averaged
4.5 and the rate of consumer price increase 2.0 percent per year. In the l«Jw s
the unemployment rate was 4.8 percent; the inflation rate 2.3. In the first
half of the 1970’s, the unemployment rate has averaged 5.9 percent and tne
inflation rate 6.6 percent.
,
* .
True, the worst is for the moment behind us. Both unemployment and innation will be far less in 1976 than they were in 1975. However, the 5 to 6
percent inflation and 7-plus percent unemployment expected for this year are
a painful contrast to the 1950’s and 1960’s, imperfect as the performance of
those decades may have been.
TIIE NEED FOB BEASSESSMENT
An anniversary upon which we find ourselves farther from our goals than
we were thirty years ago is clearly not an occasion to ask “ why.” Why have
our goals been only imperfectly realized? Why are they farther from realiza
tion today than at any time in the last 30 years? Why is our doubt about
our ability ever to achieve full employment with reasonable price stability
greater than ever? Why do our economic policy-making institutions seem to
serve us less well than in the past?
It is also an occasion to ask “ What shall we do.” It is a time to propose
changes in our policy-making structure and to press for the adoption of these
changes. It is time to update our government machinery to meet the new chal
lenges of the 1970’s and the 1980’s. I have therefore introduced, along with
other Members of the Joint Economic Committee, the Full Employment and
Balanced Growth Act of 1976 (S. 50) which is designed to strengthen and
'supplement the Employment Act of 1946.
In raising questions and considering institutional changes* the costs we
suffer—the enormous waste of human and capital resources—by continuing
to tolerate excessive unemployment and unnecessary inflation should be ever
in the forefront of our minds. These costs—this waste— will not be banished
by the modest economic recovery now underway.
What have been the economic costs of this recession?
Consumers and business have lost $500 billion thus far in income and pro
duction that would have been theirs at full employment. Between now and
1980, the economy could loose an additional $800-900 billion because the
economy will not be operating at capacity. This amounts to an income loss of
over $6,000 for every man, woman and child in the U.S. by 1980.
1 The total loss in Federal, State and local revenue from this recession could
exceed $400 billion by the end of this decade.
In the depths of the recession, more than a quarter of our productive
capacity was idle. Even after 9 months of recovery underway, capacity utiliza
tion was below 80 percent.
The true number of unemployed far exceeded the 8.9 percent peak unemploy
ment rate as conventionally measured- When discouraged workers and the
part-time unemployed are included, the unemployment rate soared above 12
percent in 1975 and still remains close to 10 percent.
Even if the economy grew 6 percent in real terms not only this year, but
every year for the remainder of this decade, the unemployment rate would
still be above 5 percent in 1980. By itself, growth—even at a rate which would
be unprecedented historically over a sustained 5 year period—will only di
minish, not eliminate, the waste of our precious resources. To reach full em
ployment with reasonable price stability will require not just monetary and
fiscal policies which sustain economic growth, but a wide range of supple
mentary policies to give directions to that growth.
CAUSES OF RECENT POOR ECONOMIC PERFORMANCE
Why has U.S. economic performance deteriorated in the 1970’s? The full
answer is complex and may exceed our intellectual grasp at the mom ent
Nonetheless, some of the causes of poor performance are dear and should be
recognized.
First, and perhaps most important, fiscal and monetary policy have been
badly mishandled. Policy was overly restrictive in I960, helping to precipitate
161
the 1970-71 recession. By contrast, in late 1972, when moderate restriction
would have been appropriate, both fiscal and monetary policy underwent a
shift toward expansion, helping produce the demand pressures which con
tributed to sharply rising prices during 1973. Table I documents these fiscal
and monetary policy changes and shows changes in real output and prices
during these periods.
The errors of 1969 and 1972 admittedly are easier to identify in retrospect
than they were at the time. In any case, they are dwarfed by the more dra
matic errors of 1974. In 1973 and 1974 the interaction of inflation and the
progressive income tax system dramatically and unexpectedly Increased Fed
eral tax receipts. From late 1972 to mid 1974 the full employment surplus
(that is, the estimated surplus which would result if the unemployment rate
could be kept constantly at 4 percent) rose by over $40 billion—a massively
restrictive swing which has no precedent in modem economic history. At the
same time growth of the money supply was held to about 5 percent—a rate
which sounds reasonable until it is remembered that this was the period
during which the economy had to absorb severe external price shocks, includ
ing a quadrupling of world oil prices.
The result of these restrictive policies is now history. Instead of using
policy to minimize the impact of external shocks on the domestic economy, we
allowed these shocks to throw us into the most severe recession in 40 years.
TABLE 1.—FISCAL AND MONETARY AGGREGATES AND REAL OUPUT GROWTH, 1968-75
[Seasonally adjusted annual rates]
Federal Government
surplus or deficit
(billions of dollars)
Percent
change
inthe
money
supply
Actual
budget
Fullemployment
budget1
1968:
1st half.............
-10.9
-8.5
7.8
2d half..............
-.8
1.8
8.1
1969:
1st half.............
+11.6
+11.4
4.6
Percent
change in
real
gross
national
product
Percent
change in
gross
national
product
deflator
3.9
7.2
4.8
1.1
5.2
4.7
3.8
5.7
3.8
1.8
1.4
-1.4
4.4
5.3
6.4
&.0
4
-1.4
+.2
3.0
-3.9
6.2
5*0
3.7
5.6
1
2
3
4
9.2
3.0
2.8
3.5
6.2
5.8
3.4
16
5.8
2.8
3.4
4.7
Quarter
1
2
4
1
2
2d half............ .
+5.5
+10.9
1.9
1970:
1st half.............
-7 .0
+7.3
4.7
2d half..............
-17.4
+4.8
5.7
+1.0
9.5
-.2
3.5
-5.8
8.3
1
-10.9
10.1
3
4
7.6
7.9
5.3
8.5
3.4
7.0
11.6
4.9
1
2
3
4
8.8
.2
2.7
1.4
6.5
7.2
7.4
8.8
1
2
3
4
-3.9
-3.7
-2.3
-7.5
9.8
10.0
12.5
13.4
1
2
3
4
-9.2
3.3
12.0
5.4
7.7
4.3
7.1
6.5
1971:
1st half.............
2d half..............
-21.2
-22.8
1972:
1st half.............
2d half..............
1973;
1st half.............
2d half............
1974:
1st half_____
2d half........
1975:
1st half..........
2d half........
-17.9
20.6
5.4
29.9
3.9
-9.3
5.7
-6.0
2.8
4
1
2
, Estimates of hypothetical surplus or deficit which would have resulted «t e constant 4 pet rate of unemployment
* Preliminary.
Sources: Department of Commerce, Federal Reserve Board of Governors, Council of Economic Advisers.
162
,
The errors of 1974 could have been recognized and rectified at the time.
That they were not is a serious indictment of the politico-economic process.
It is compelling evidence that our policy-making process and institutions re^ There has been some reform. The Congressional Budget Act of 1974 has
greatly enhanced the ability of the Congress to act rationally on fiscal policy.
These new procedures served us well in 1975. The public should know that the
economic recovery in 1976 is largely the product of Congressional budget de
cisions taken during the past year.
The new budget procedures have brought our policy making machinery only
part way into the modern age, however. Further changes are needed. The de
cision making process still suffers from the failure to set specific overall eco
nomic targets and from the failure to consistently keep monetary policy in
harmony with fiscal policy.
The failure to make wise and timely use of fiscal and monetary policy in
the 1970’s has been compounded by the failure to supplement macro-economic
policy with the broad range of additional policies which are needed to deal
with the complex world of the final quarter of the twentieth century. Policy
must be concerned with the parts of our economy as well as with the whole.
In the past few years, the U.S. economy has been affected by events as diverse
as the disappearance of anchovies off the coast of Peru, the quadrupling of
world oil prices, and the amount of rainfall in my own state of Minnesota.
MODERNIZING OUB POLICYMAKING STRUCTURE
It is not always possible for national policy fully to offset the consequences
of particular events, but we can do better than we have so far. Specifically,
how can our policy-making structure be improved?
First, systematic procedures for setting specific quantitative targets for out
put, employment, and purchasing power should be instituted. Second, all the
appropriate agencies of government, including very importantly the Federal
Reserve, should be required to follow policies designed to achieve those goals.
Third, a time frame for achieving long range goals must be developed through
a sensible, democratic planning process. Finally, the government must develop
a much more sophisticated understanding of what is happening in particular
markets, on both the labor and price side, how existing government policies
Influence the operation of those markets, and how government policies can
be altered to improve the functioning of markets.
The process of reaching agreement on specific economic goals should begin
with the requirement that the President in conjunction with each Economic
Report, propose interim numerical goals for employment, production, and
purchasing power. These short-term goals should be accompanied by a long
term full employment goal consistent with the minimum level o f frictional
unemployment necessary for efficient job search and mobility in the labor
force, and a timetable for achieving the goal. Initially, I believe we ought to
set a goal of achieving a 3 percent unemployment rate in no more than four
years, which is what we have done in the Full Employment and Balanced
Growth Act of 1976, (S. 60).
The President should also be required in each Economic Report to make a
determination of the extent to which aggregate monetary and fiscal policy
can be relied upon to achieve the goals of full employment, production, and
purchasing power. This is necessary in order to identify the limits of aggre
gate monetary and fiscal policy, and determine the extent to which priceincomes policy, direct employment policies, and other supplementary policies
are necessary.
New institutional requirements should also be placed on the Federal Reserve
to make it a full partner in national economic policy-making. The F e d e r a l
Reserve Board should be required to submit to the President and Congress,
shortly after the transmission of the President’s Economic Report, an indeaependent statement setting forth its intended policies for the year ahead,
and the extent to which these policies will achieve the economic goals P*0*
P°®ed by the President. I f the President determines that Federal Reserve
policies run counter to the achievement of the goals proposed in the E c o n o m i c
Report, the President should make recommendations to the Federal Beserve
and Congress to ensure closer conformity of monetary policy with the achieve
ment o f national economic goals.
163
Finally, the Congress should review the President's proposed goals and the
independent report of Federal Reserve policies, and, in conjunction with its
analysis and debate on the budget resolution, set national economic goals and
fiscal policy for each year. The Congress should also determine if further
guidance to the Federal Reserve on monetary policy is necessary.
THE NEED FOB PLANNING
Annual economic goals should be set in the context of a longer-run overall
plan for reaching and maintaining full employment, reasonable price stability
and an equitable distribution of income.
If we do not begin, to plan, and instead continue to careen from crisis to
crisis, our economic performance will continue to be damaged, the confidence
of our citizens in the institutions of the economy and government will decline
further, and the viability of our mixed, capitalistic system will be threatened.
Let me elaborate a bit on why we need long-range planning in this country.
We need such planning in order to establish long-range goals and meet our
most important needs. We live in a world of finite resources and must make
choices as to what to do and when to do i t I f we carefully set out long-range
priorities, there will be time to carefully consider alternative policies, and
proceed in a sensible manner.
We also need to set long-range goals to push ourselves and the nation to do
the very best. Economic and social goals are not just technical considerations
for economists, but are broad choices that reflect the moral tone and spirit of
a society.
Planning can also assist us in developing information and understanding
about the long-run supply side of the economy: our population trends, labor
force participation, the supply of certain skills, the availability of capital
and natural resources, and our capabilities more generally. We also need to
know more about production and resource flows among industries. Better
information can help minimize future shortages and bottlenecks.
Economic planning is needed to prepare for contingencies. I f employment
policies that could be promptly implemented at the beginning of a recession
were available it would not be necessary to wait a year or more after a re
cession begins before corrective policies were implemented. Instead of design
ing accelerated public works programs just in time for the upturn of the
business cycle, a shelf of programs and policies should be ready for implemen
tation at the first signs of a recession.
Finally, economic planning will help us rationalize the long-range impact of
government policies and programs on the economy and avoid duplication and
contradiction in government activities. The economy, we must remember, la
an integrated whole and, as long as policy is undertaken In a fragmented way,
the results will be unsatisfactory. Agricultural production objectives will con
tinue to be set without consideration given to transportation, fertilizer, or
energy requirements. Export promotion schemes will continue to encourage the
shipment of commodities abroad that are in short supply here at home. Outpioded rules and regulations will continue to waste resources and aggravate
inflation.
One can see that the arguments for planning are in large measure based
on efficiency considerations. I f we look ahead, set priorities, examine the
supply side of the economy, and consider alternatives, we are likely to estab
lish more effective policies and programs. A more comprehnesive framework
“or the economy will also force us to reexamine government policies and pro
e m s that don’t work. Zero base budgeting, capital budgeting, and other
specific economy in government measures fit neatly into such a planning
system. Proper planning is true economy in government, where there is enough
time to seriously evaluate programs and make changes. Such a process i8 *ar
superior to short-run gimmicks to slash the budget or set arbitrary spending
^ “Ings.
RESTRAINING INFLATION
We also must develop comprehensive and innovative policies to restrain
inflation. Little of the recent inflation has been due to excessive government
spending, and there is no significant tradeoff between jobs and prices at the
Present time. Most of the inflation has been due to food and energy price
increases, devaluation of the dollar, a recession-induced decline in productivity,
164
and price increases in concentrated industries. All of this means that, in
addition to the proper use of monetary and fiscal policy, micro-policies to
restrain inflation are necessary.
First, in coi^junction with our economic planning effort, we need to develop
better information on the supply side of the economy so that shortages and
bottlenecks can be spotted and dealt with. Long-term national food and energy
policies are needed. Improved information arid management of^ exports may
also be necessary. Finally, outmoded government rules, regulations and pro
grams that w^ste resources and raise prices should be eliminated or changed.
Second, we need to forcefully restrain excessive price increases in non
competitive industries. Prices in such areas should be monitored and, if cer
tain increases threaten to seriously undermine efforts to restrain inflation,
public hearings should be held to determine their validity. Vigorous anti
trust enforcement should be pursued. Wage increases must also be carefully
considered although our recent inflation has not in any significant way been
caused by excessive wage increases.
A COORDINATED STRATEGY FOR REDUCING UNEM PLOYM ENT
The Employment Act of 1946 envisaged primary reliance on fiscal policy as
the means to achieve “maximum employment, production and purchasing
power.” fiscal policy was and is crucial. In the last thirty years we have
learned, however, that monetary policy, price-incomes policy, and a variety of
policies for dealing directly with specific problem areas in the economy also
are essential. Failure to make skillful and continuing use of a co-ordinated
set of these various policies helps explain why the goals of the Employment
Act have been only partially realized. Today, with an economy which is more
complex than ever and in which the disparities of income and opportunity
among different regions and different subgroups o f the population are so
enormous, a fully stocked tool kit of economic policies is more urgent than
ever.
Implicitly, Congress and the President have recognized the need for policies
to supplement our traditional macroeconomic tools. The training programs
adopted in the early 1960*s were a recognition that some disadvantaged groups
needed training and counseling to enable them to compete in the labor force,
regardless off how favorable the overall economic climate was. Programs of
been continued, though not always at an adequate level, and
the Comprehensive Employment and Training Act of 1973 (CETA) incorporates
them as a continuing element of employment policy.
In the early 1970’s for the first time since the Great Depression, Congress
adopted temporary public service employment as a means of alleviating recesunemployment. In late 1974, public service jobs were again pro
vided In response to sharply rising unemployment. Finally in 1975 Congress
for the first time passed legislation (later vetoed by the President) establishing
a countercyclical program to provide temporary assistance for State and local
governments during this recession in accordance with their u n e m p lo y m e n t
rate.
These measures have supplemented, not substituted for. more traditional
policy measures. They mark a basic shift In ofcr strategy for achieving full
employment. Unfortunately, they have been adopted in a fragmented, unmjlTmeF* In
for example, public service employment was
passed only after the unemployment rate had risen from 5.1 to 7.2 percent,
^ . eVieD t o * y . the program supports only 300,000 lobs. Likewise, counter51 ] a™
1*1* ?-™*}ocal governments were passed by Congress early
in 1976 but later vetoed by the President. These delays clearly reflect the need
" J ? , mor*f permanent set of countercyclical policies that can be triggered
f
>
.
0m
^ falters, as well as for continuing efforts to
K t S y S A : * <Bfflcnlty flnditlg and holding good jobs even in times
COTJNTERCTCLlCAli MEASURES
c9ordInf H<« between Federal, State and local
ments often has led to inconsistent and inefltectiye execution a t national eco» coordination is particularly manifest daring
!!L £ L ? employineni “ wessons produce large reroute shortfalls for State
local governments and increased apeuAlUNii for many nneniptay®®n
165
related services. Each percentage point increase in the national unemployment
rate reduces State and local government tax receipts by approximately $6
billion and increases State and local government expenditures by millions
more* In 1975, for example, State and local government revenues fell $27.4
billion short of full employment levels due to the recession.
These revenue shortfalls and increased demands for services force State
and local governments to undertake austerity measures to maintain bal
anced budgets or to limit the size of their budget deficits. The results are tax
increases, cuts in current service levels and capital construction delays or
cancellations— actions which directly undermine and contradict Federal gov*
ernment efforts to stimulate the economy. There is a direct relationship be
tween high unemployment rates and restrictive budget actions. As shown in
Chart I, States and localities that possessed healthy economies were able to
minimize restrictive budget actions in Fiscal 1976 because they experienced
modest expenditure growth and continuous revenue growth. State and local
governments that experienced high unemployment, however, were forced to
undertake major expenditure reductions and tax increases exacerbating eco
nomic decline in areas that already experienced the most severe unemploy
ment problems.
C h a rt I
BUDGET ADJUSTMENTS BY LOCAL GOVERNMENTS IN FISCAL 1976:
A sample of 106 jurisdictions
18%
15%
12%
Budget
Adjustments:
Tax Increases
and Expendi
ture Cutbacks
(As a percentage
of Adjusted
1974 Taxes)
9%
6%
10
11
12
14
UNEMPLOYMENT BATE (March, Unadjusted)
Source:
Joint Economic Committee
State and local governments constitute a major sector of the economy,
spending over S200 bilUon annually and employing one out of every seven
American workers. Restrictive budget actions in such a large sector of tne
economy will inevitably affect the pace of economic recovery. It is unrealUOC
and in most cases illegal for State and local governments to wdertake sup
portive fiscal policies o f their own through deficit spending. Since most o f
the restrictive budget adjustments result directly from the failure to achieve
national economic objectives, the Federal Government has a dear responsi
bility to partially redress the hardships that its economic policies have cre
ated. Furthermore, only the Federal Government has the resources and the
flexibility to channel assistance to the most severely^ depressed State and
localities, thus preventing the concentration of restrictive budget actions in
areas that are already the most depressed.
166
The principal and initial element of any comprehensive strategy to coordi
nate Federal, State and local government economic policies should be a perma
nent program of counter-cyclical assistance to State and local governments.
This program would provide general purposes assistance to State and localities
whenever the national unemployment rate exceeded a predetermined trigger
level. The total amount of assistance that is available should vary with the
national unemployment rate and the magnitude of State and local govern
ment. expenditures. More aid should be available as the recession deepens and
the program should phase out after recovery is well underway. The assistance
should be distributed to individual governments on the basis of a formula
that takes into account the total amount of own sources revenues raised by
that government and the level of unemployment within its jurisdiction.
The total amount of this assistance should be sufficient to stabilize and local
government budgets, so budget policies at all levels of government are com
bined into one consistent and coherent fiscal policy.
Along with countercyclical grants, other lines of defense during economic
downturns should be public employment, public works projects and direct
stimulus to employment in the private sector. In each case the policies and
the unemployment triggers for these policies should be carefully thought out
and set in place before a recession begins. A national unemployment rate o f
4 or 4.5 percent and local employment rates slightly above that should auto
matically trigger job creation programs.
We presently have an emergency public service employment program in
operation. While 1 strongly support continuation of this program I recognize
the need for reforms—reforms which will answer some of the recent criticism
directed at public employment. First, with the enactment of a permanent
countercyclical grant program, there will be less of an incentive for State
and local governments to transfer regular employees to CETA payrolls, and
as a result net job creation would be sharply improved. Secondly, a permanent
program triggered at a specified unemployment rate would allow State and
local governments to identify those projects which are of greatest benefit to
the community and to put new public employees to work on these projects
when the program is triggered by rising unemployment. Furthermore, a trigger
which reduces these programs as unemployment declines again allows for
better planning on the part of State and local government and would eliminate
the uncertainty which surrounds the current funding o f some sections of
CETA. Recessions provide the opportunity to utilize otherwise idle workers
on highly useful community projects. These chances to build, renovate, and
Improve community facilities should be viewed as what they are— opportuni
ties. We should be ready to grasp these opportunities when they occur.
A program to deal with recession related unemployment should not, how
ever, be limited to job creation in the public sector. There are a number o f
Innovative measures to stimulate job creation in the private sector which
the U.S. has never seriously considered.
We need to explore new means for encouraging private sector job develop
ment. Presently, 85 percent of the labor force is employed in the private sector,
and most of the growth in jobs should be concentrated in the private manu
facturing, construction, service and agricultural sectors, rather than the gov
ernment sector.
CHRONICALLY DEPRESSED REGIONS AND STRUCTURAL EMPLOYMENT POLICIES
All regional and local economies do not experience simultaneous changes In
economic conditions. Some approach full utilisation of labor and capital re
sources before the national economy reaches full employment Others lag well
behind national indicators. Some remained chronically depressed for long
periods.
Aggregate fiscal and monetary policies are not designed to respond to the
widely varied economic conditions that individual regions experience. This
structural inadequacy becomes increasingly acute as the economy approaches
full employment. At that point, additional monetary and fiscal stimulus only
places upward pressure on wages and prices in tight labor markets, while
doing little to reduce unemployment in depressed areas. More specific policies
should be developed to reduce unemployment in regions and areas, particularly
care areas of central cities, and rural areas that do not participate folly in
national economic prosperity.
167
There are many related reasons that certain regions or areas do not fully
share the benefits of economic growth. Migration of jobs may reduce the avail
ability of employment opportunities, members of the labor force may lack the
skills necessary for employment, investment capital may be unavailable, energy
sources may be completely unavailable or too costly and the deterioration of
public services may accelerate the exodus of jobs and middle-income families.
Certainly, there is no simple answer that will reverse this downward spiral.
Rather, an integrated strategy is necessary that will upgrade the skills of the
labor force, provide the capital necessary for investment, prevent the de
terioration of public services, and offer positive incentives for the development
of new employment opportunities.
One component of this regional economic development strategy should be
a Domestic Development Bank to make low interest loans to businesses and
State and local governments for the purpose encouraging private sector in*
vestment in chronically depressed areas. The bank should make long-term
loans at interest rates that are not higher than Treasury borrowing costs plus
service charges. The major purpose of this bank should be to increase the
availability of jobs in areas that experience unemployment rates consistently
and significantly in excess of the national average.
In addition to special financial aid to chronically depressed areas, we must
also strengthen existing programs to train disadvantaged workers. This in
cludes workers with outdated skills, workers in depressed areas who have no
marketable skills, and those who need remedial education in addition to train
ing. A number of studies have shown that on-the-job training is an especially
useful tool in aiding disadvantaged workers to compete in the job market.
Presently, Federally-supported training programs are coordinated through
the prime sponsors set up under CETA. While these programs have by and
large been quite successful, the amount of Federal support to job training and
development has declined in real terms for the last several years. We should
not allow these training programs to be reduced. In fact, job training support
shold be increased, especially during economic downturns when we should
seize the opportunity for retaining workers idled by recession*
YOUTH UNEMPLOYMENT
The special problems faced by young people entering the labor force for the
first time persist whether the overall rate of unemployment is close to 4 per
cen ter 8 percent. Even in 1969, when the ovjescall unejaployment rate averaged
3.4 percent, the rate for 16-19 year olds was 12 percent. In 1975, when overall
unemployment averaged 8.5 percent, the teenage unemployment rate jumped
to 20 percent. These double-digit unemployment rates extend also to young
adults 20-24 years old. In many inner city ghettoes, the unemployment rate
for young people exceeds 50 percent.
The total number of teenagers and young adults who were jobless in Jan
uary 1976 was 3.7 million—almost half the total number of Americans un
employed.
Many of these young people will lose the opportunity to develop job skills
and work experience, to experiment with different kinds of jobs, and to adjust
to the demands o f the labor market—a healthy process which normally pre
cedes entry into a career job.
Younger workers are also much less likely to be eligible for unemployment
compensation. During 1975, only 30 percent of those under 25 were eligible
fo r benefits, compared to more than 75; percent of those over 25.
Prolonged unemployment increases the incidence of crime, drug abuse, ana
other forms of behavior that can ruin a person's chance of achieving a pro
ductive life in the future and that seriously increase the social costs of con
tinued high unemployment.
„
. ,
. ,
High unemployment rates among youth result from many factors, including
lack of work experience, inadequate job skills, poor job counseling, the weak
work attachment of many students, and the rapid influx into the labor market
the past few years of those born during the postwar baby boom The proN
lem of .youth unemployment will remain severe for tJie rest °£
S
as the baby boom children of the 1950’s move into the labor force. As Chart 2
shows, however, the teenager labor force will begin to shrink m the second
*alf of this decade.
168
C h art
II
PERCENT CHANGE IN TOTAL LABOR FORCE OVER 5 YEAR
PERIODS, BY AGE GROUP, 1970-1985
percent change from:
Total Labor Force
16-19 years old
.
20-34 years old
1970
to
1975
1975
to
1980
1980
to
1985
7.9
II .A
6.2
lrr15#5-
-5.7
-14.5
tei':.:
"TFT
19.7
f:.
'i i V v
6.0
1
r,mh::
•
35 years old and
over
0
6.7
On the other hand, the teenagers of the late 1960?s and early 1970’s are
moving into the adult labor force. Mahy of them have serious family or
financial responsibilities. In devising policies in the second half of the 1970 s,
we must be aware of the sharp growth in the 20-34 year old labor force, and
the need for training and full-time' jobs among workers under age 25.
To meet the particular needs of youth, we should consolidate existing y o u th
•employment and training programs. Furthermore, we must combine these with
better job counseling at the high school and college level. This means a more
effective -partnership between schools and businesses and labor unions. A
smoother transition from school to work would be enhanced by apprentice
ships and on-the-job training in the private sector. And finally, as part of a
comprehensive youth employment strategy, teenagers and young adults should
be eligible for jobs in public employment projects, including conservation, re
habilitation of inner cities, etc.
SOB BfcSEBVOIRS
Whatever structural policies are Implemented, there is likely to be some
residual of people especially difficult to employ. The President should be re
quired through the Secretary of Labor to establish special means for training
169
and locating jobs for these people in the private sector and, to the extent that
this is not successful, to provide public employment. It is anticipated that this
will be a small number of people if the other policies and programs I have
mentioned are implemented.
In sum, although some people express concern about increasing public jobs,
and there can be defects in these jobs if they are not carefully designed, I
find such jobs far superior to increasing income maintenance and welfare
payments. Extending unemployment compensation and increasing food stamp
payments, as those payments relate to the recession, enormously increases the
cost of government, debilitates the quality of the labor force, and encourages
poor work habits, For 1975, for example, recession related income transfer
payments are estimated at $20-25 billion.
We should substitute work for such income maintenance and welfare to the
maximum extent consistent with the needs and handicaps of those eligible
for such programs.
,
But the advantages of full employment go far beyond reducing welfare
payments, Full employment could add $800-900 billion to the nation’s income
between now and 1980, which could mean savings of $6,000 for every man,
woman and child in the United States. Total Federal, State and local tax
revenues could be increased by over $400 billion, which would virtually elim
inate the red ink of government deficits we have had for years. Welfare costs
would be down, we would have less crime and, most importantly, the people
who have been unemployed would feel they had a purpose in our society.
I believe full employment is a principal way to restore the spirit and direc
tion of America. The Full Employment and Balanced Growth Act of 1946
<S. 50) is one blueprint for how we can do that.
Chairman
H um phrey.
Our next participant is Mr. Greenspan.
STATEMENT OF HON. ALAN GREENSPAN, CHAIRMAN, COUNCIL OP
ECONOMIC ADVISEES
Mr, G r e e n s p a x . Thank you, Mr. Chairman,
Since I believe I will probably have ample opportunity to engage
in the general discussion, I will limit my opening remarks to just
a few words.
I think that we are all aware, at this stage, that we are in the
process of coming out of the worst recession since the 1930?s, as
you have pointed out. And by any measure, there is no question
that this recession has taken a vast and tragic toll in human suffer
ing and economic cost, and I think essentially because of that, we
cannot afford to go through what we have just been through again.
And I think, therefore, we must be certain that the policies we
pursue in the months ahead and the way we view Economic policy,
must be calculated to sustain a steady and durable economic recov
ery, policies which will bring the unemployment rate down as rap
idly as is feasible in a manner which will keep it down, and not a
full series of policies which will create a wholly new instability in
our economy and a stuation which could be far worse in the years
immediately ahead.
,
We do talk about specific numerical targets for ]obs and I think
that I would subscribe to what Mr. Burns has said about the specific
numbers involved. I would also like to make a further point, that
when we talk about a particular goal, whether it be 3 percent, 4
percent or 5 percent unemployment, we must remember that we are
talking about the jobs part of that in the context of permanent,
productive and high-paying jobs, jobs with a future, and
we
must be careful not to seek, as a goal, a statistic. And I thmk there
170
is a tendency, too often, when we look at this type of job goal or
unemployment goal, to recognize that it is a proxy for a very broad
and very important issue with respect to maintaining the type of
job markets, the type of full employment, the type of productivity,
the type of standard of living which the American worker has been
accustomed to.
I think we all must be aware that that is what we wish to achieve,
as well as the total concept of job creation and full employment.
Just let me say, in closing, that above all we must continue to re
duce the inflationary pressures which have plagued our economy in
recent years, because I believe, perhaps more than anything else, that
it is the inflationary instabilities which we have experienced which
have perhaps inhibited job creation and undercut the type of viable
rowth this economy needs; that this type of inflationary instability
as perhaps done more to create the unemployment and the terrible
difficulties that this country has had in recent years.
Thank you, Mr. Chairman.
Chairman H umphrey. Our next panelist in response is Congress
man Bolling.
f
STATEMENT OF HON. BICHARD BOLLING, A U.S. BEPBESENTATIVE
IN CONGBESS FBOM THE FIFTH CONGRESSIONAL DISTRICT OF
THE STATE OF MISSOUBI
Representative B olling. That you, Mr. Chairman.
I don’t think I will talk economics. I think I will talk about how
I see we must proceed to obtain a new consensus or a new compact
on how we should deal with the economy; and to do so, I have to
talk a little history. And what Mr. Bums said about his experience
when he first came to Washington is a part of that history.
There is only one member of this committee today, my distin
guished friend from Alabama, who used to be my Congressman,
Senator Sparkman, who was here when the Employment Act was
passed and he has been a member of this committee from the very
beginning.
And when the Employment Act was passed, virtually everybody
in the United States expected the United States to go back into a
depression. And the Employment Act, which is far from perfect,
has accomplished quite a remarkable lot, and if I see it correctly, it
was in legslative form the result of a very hard-fought compromise,
and that result spread across both a spectrum of party, and also a
spectrum of ideology.
There were a great many very powerful businessmen, financiers,
who were involved in the Employment Act, as well as a great many
other people m labor and liberal groups that were involved in the
Employment Act. And nobody was really pleased with the outcome,
but it provided a framework in which the political process could
work _and the two principal goals of the Employment Act could be
considered each year.
Now, when there was a Truman in the White House, I think it
would be safe to say that there was a great deal more concern about
employment than there was about price stability. And when Presi-
171
dent Eisenhower and Mr. Burns were there, there was more concern
I would think, in he early days, about price stability than there was
about employment.
And I won’t go on to make the contrast, because in every case,
both matters were considered.
Now that compact, that consensus, whatever you want to call it,
that result of a hard-fought legislative battle over a new creation,
I think, served us rather well, and I don’t happen to be able to pick
a partisan date that suits me as to when it stopped serving us well.
I think on the 20th anniversary of the Employment Act, ironically,'
it was clear that a Democratic administraton and a Democratic Con
gress, much abetted by the unwillingness of Republicans to deal
with the matter, failed to have the tax increase that was essential
to prevent the kind of inflation that has plagued us ever since.
Now I happen to think that the policies of the Nixon adminis
tration were often pernicious and I would be happy to argue them,
but this is not the time to do it—but the point is; that the act served
us well, until about 1966, and now the act and its goals simply are
not adequate to the problems that confront us.
The economy has changed drastically. Not only are prices more
rigid, but wages are more rigid. Not only do we have a higher level
of unemployment when we come out of a recession that we used to,
we also have a greater threat of inflation than we used to, and we
need a new consensus or compact or whatever, because the old one
isn’t good enough.
Now, just the other day, I think we started the action end of
that, when there was introduced a new Humphrey-Hawkins bill,
and I would like to say that the gentleman who spoke first-here to
day, although he didn’t appear very much involved in this, was fully
involved in the creation of a viable piece of legislation in the Full
Employment and Balanced Growth Act. ^
Speaker Albert has been working on this for about IV2 years, and
he has been working on it in a way which was designed to achieve
results rather than to achieve fame for anybody in particular, and
Senator Humphrey and Congressman Hawkins and their staffs and
many others have been involved for months in draft after draft to
move a piece of legislation which was a concept which couldn’t fly
into a piece of legislation which would serve the function that I
have described of setting up the kind of legislative battle that would
lead, ultimately, to a compact.
„
I don’t have any idea what that legislation should contain in the
end. I have my own predilections, my own prejudices, my own views,
^nd they would certainly differ from a variety of other people’s, but
the point is that the society is going to have full employment with
price stability only if the greater community makes that decision,
not just the Congress, even with the Executive. It is going to have
to be something that is gone into so carefully that its results repre
sent a rational approach to the great majority of the movers and
shakers in this society.
.
, .
Too often, the political process is ignored as we begin to deal
^ith these ldnds of matters.
.■
I am informed—I haven’t had a chance to check it out—that just
the other day for the first time the administration indicated an in73-285— 76------- 12
172
terest in appearing and testifying on tlie Humphrev-Hawkins bill.
If that is so. the issue is beginning to be joined, and the product will
be the result of the political-legslative process and it will work al
most exactly as well as it is understood by the leaders of the com
munity who are not politicians, and the community, as far as I am
concerned, is the United States of America.
So T think this is an historic week, and as we did not do in 1966,
I think on our 30th anniversary we arc starting something construc
tive. In 1066,'I think we were watching something destructive and
reminding ourselves of how well things had gone up to that point.
' I hope very much that this year we will be able to join that legis
late e battle and get leaders of all segments of this society involved
in working out the ultimate compromise. I think that is the way,
and the only way, that we are going to get full employment.
Thank you.
Chairman HrMrintEY. Thank you, Congressman.
Our next panelist—and we have two to complete this and then we
■go to the discussants—is Senator .Jacob Javits.
Senator Javits.
STATEMENT OF HON. JACOB K. JAVITS, A U.S. SENATOBTBOM THE
STATE OF NEW YOBK
Sejiator J avits. Thank you, Mr. Chairman.
Mr. Chairman, the Chinese have an expression, “ Every long
journey starts with a first step.” It seems to me that the first step,
which we arc taking now and which we hope we will be joined in
by the American people, is an absolute sense of outrage, an absolute
sense of outrage that the most productive society upon which the
sun has ever risen must tolerate 7 million unemployed and with an
enormous attitude in official circles that it is irremedial, that we can t
do anything about it.
Now, this, I feel, we simply cannot accept, and the people of this
country cannot accept. When Franklin D. Roosevelt promised us
50,000 planes just ^before World War II and made 100 ,000, that s
the American spirit. This blind abdication of responsibility which
is the root, in my judgment, of our trouble, is a profound national
deficiency which I hope very much that this outcry, and that is
what it needs to be here, must correct.
Now, Mr. Chairman, let’s be very realistic. I am a politician like
all the rest of us here. A President can be elected notwithstanding
7 million unemployed. There are still 86 million who are employed.
But again, that is not our country, that is not its morality, that is
not its sense of #decency^ that is not its sportsmanship. Hence, the
correction of this basic imperfection of oux society, structural im
perfection which makes us feel that a governmental policy must
accommodate 7 million unemployed is simply wi^ng, unacceptable
and, m my judgment, un-American. It is just not our way.
, Accordingly, I "think we all have to interest ourselves very deeply
jn what is to be done.
Now, Senator Humphrey and Congressman Hawkins have come
forward with a methodology. There ,arfe certain’ basie substantive
173
policies which need to be followed, but I would like to divide my
short discourse in two: the methodology and then the .substantive
policy. '
Now, the Humphrey-Hawkins bill, in which I have joined be
cause I am very anxious to forward all of these efforts, as I will
demonstrate in a minute, is a very interesting approach to the
methodology which we need to adopt, I have offered my own, also
with Senator Humphrey, in the balanced growth and national eco
nomic planning bill, and it seems to me that the more we talk
about this, and by the way, I will see that an analysis of the bill is
distributed to my colleagues and to the discussants and anyone else
that wants it, but the basic assumption of the bill is that the economy
will perform better if there is some kind of long-term planning anil
some agency to monitor it. Second, that our economic choices and
tradeoffs, our national decisions which we have to make as a nation,
and that the only way to do that is by form of indicative, not
mandatory, planning, I believe that everything that has been said
indicates the essential truth of that fact, and that essentially what
we are dealing with is shall we plan nationally with respect to our
resources so as to deal with full employment and assure full employ
ment. Furthermore, I think we ought to excise the 3 percents, the
4 percents, the 5 percents, et cetera. The only standard of national
satisfaction that we are dealing adequately with the promise of the
1946 act is that any able-bodied American who wants to work can
work, and that, I think, is the essential thrust of' Mr. Burns’ em
ployer of last resort—any American who wants to work can work.
Let’s forget about the percentages. We all know how untrue they
are today, and the panel that sat yesterday where the discussants are
sitting, with whatever mistakes it may have made was united on
onef thing, and that is it is true in America, that there are millions
of people who want to work, who don’t want to draw the dole or
unemployment compensation or anything else, who can’t work, and
there is something deeply wrong in our society.
So I have offered this planning bill with Senator Humphrey and
! am delighted in that association, because we are all on the same
track, and I joined the Humphrey-Hawkins bill for the very same
reason that he joined the Humphrey-Javits bill.
The other thing is that I have also offered a suggestion in S. 47*2
if we can’t get a full employment statute for a Federal Full Employ
ment Board whose sole care will be the adequacy of employment m
the country.
Now, just a few minutes on substantive matters.
Vice President Rockefeller made an extremely interesting state
ment before this committee yesterday, in which he recommended
eight, measures, basic policies for substantive action which, in his
opinion, would combine best the private and the public sector, and I
believe that those are splendid, Sir. Chairman.
I associated.myself with them yesterday, I associate myself with
them again. And essentially what he said is we can achieve what is
called full employment—we all know that doesn’t mean every single
person is actually working—but we can achieve full employment by
‘the utilization of both the tensions and the sense of community that
174
occurs between the public and the private sector. That is why I
have emphasized planning so very strongly.
I would just like, if I may, to move into those eight points very
quickly.
Productivity programs in industry, which are very, very far be
hind the times—we are at the bottom, not at the top of the heap in
ternationally, fan extraordinarily strajijge position for the United
States, and this will take an upgrading of skills and a facility
of the adoption by labor and management of new and improved
work rules and industrial processes, and I think the reason why we
are so slow in that and why trade unions often seem so sticky is
that the worker does not have an adequate piece of the action.
He not only has to have his reform pension plan and the other
bedrock assurances which we give him but he also, in my judgment,
has to have a direct piece of the action through profit-sharing and/or
stock ownership. And that will finally get you the people’s capital
ism which is really the United States of America.
Second, Vice President Rockefeller recommended retaining our
leadership in, science and, technology. One of the most abysmally
depressing documents is to show how far behind we are—take for
example, Germany and Japan, in what we are spending for research
and development, both publicly and privately. We have a very
archaic view of money in this country. We think we are in terrible
danger because we owe $600 billion. I wouldn’t care if we owed a
trillion dollars provided our gross national product was $3 trillion.
Any industrial country worthy of its salt feels the same way.
I would like to say to my chairman, these prices have stayed up,
partially because of administered prices, inadequate trust laws, et
cetera, but"mainly because America has lost it boldness and its vigor.
That is why business and workers are losing confidence in our
country.
That is why your prices have stayed up. They’ve allowed them to
stay up because we’ve lost our spirit of enterprise. I wouldn’t say
it is irremedial. I don’t accept any such thing or any such word
for the American economy, but it is a big problem for us, and we
are in the process now of getting out.
The Vice President also spoke of a reformulation of our tax
policy, plant modernization, getting to work on an enormous effort
to improve our own sources of energy which, in his judgment, would
cost $100 billion. America wasn’t afraid to spend $100 billion
in World War II every year. And we ended the war richer and big
ger and more powerful than we had ever been before, because we
spent it to defeat tyranny, and that is not wasted money.
And it is the same with this energy proposition.
Well, Mr. Chairman, I have taken more time than I should have.
I would just like to close as follows: we are a unique society; we
all agree on that. And the unique societies have to modernize too.
And our modernization, in my judgment, now can be summed up
in three words.
' One, we, too, like the rest, of the world, have to plan, and we are
no longer a frontier society. We cannot afford to get up and navigate
by the seat of our pants. So some form of planning statute is essential-
175
Second, the worker has to have a piece of the action. Businessmen
have to learn not to be afraid of workers 011 their board because they
own stock, just like anybody else. They ought to welcome them.
And third, America has got to be bold again, in terms of research
and development, in terms of capital investment, and in terms of
dealing with the rest of the world.
The world is not going to get smaller, or more constricted. If we
don t do these things we will pass from the scene, as many other great
nations have.
But if we do, we have an excellent chance to lead the world
into a new dawn, and that is what we are talking about here.
Thank you, Mr. Chairman.
Chairman H u m p h r e y . Senator Javits, I am sure that I srpeak
for all of us when I say we are grateful and thankful for your
leadership.
[The prepared statement of Senator Javits follows:]
P repared S t a te m e n t
of
S e n a t o r J a c o b K . J a v it s
is the 30th Anniversary of the Employment Act of 1946. The irony of
the situation lies in that we are further away from the promise of that legis
lation now than we were then. Rates of unemployment formerly totally un
acceptable, today are greeted with a remarkable degree of equanimity. Un
employment has become just another economic issue and trade-offs between
unemployment and inflation are weighed in the balance as competing policies,
not as profound national deficiencies.
I have not lost sight of our commitment of a full employment policy. This
.year, I reintroduced the Full Employment and Job Development Act, which I
originally had introduced in 1973. Even before the recession hit and before our
unemployment rate started to soar, there was an obvious need for a “FuU
Iwnployment Board” to spearhead efforts to get people back to work, as well
as to pursue the object of full employment as a national goal for the future.
This independent Board, consisting of 5 full-time members appointed by the
President, would study the employment problems of the Nation and make
annual recommendations to the President and Congress to implement poUcies
directed toward full employment. The Board would be the first step in trying
to develop a comprehensive, rather than the present haphazard, approach to
the unemployment problem.
in addition, I introduced, together with Senator Humphrey, the Balanced
growth and Economic Planning Act of 1975. In order to achieve the goal of
full employment, we must not legislate in a vacuum. All espects of our economy
must be considered ia any national employment policy. I believe that our
long-term economic outlook could be far more serious if we do not begin to
ueal wisely with certain fundamental and structural aspects of the economy.
Because I wish to forward initiatives intended to achieve full employment
as a reality and not just a phase, I have joined with Senator Humphrey and
others in cosponsoring S. 50, the Full Employment and Balanced Growth Act
of 1976, because of its potential for the fulfillment of the promise of legisla
tion of 1946. However, even with the latest changes in this bill, much work
will have to be done and further modifications are necessary. We cannot
possibly expect that all the provisions can be enacted and, in fact, we may
Bnd, unfortunately, that even its target of 3 percent adult unemployment as
^realistic or impossible to reach in the near-term. This should not mean
termination of our examination o f the problem o f derailment from our pro
claimed goals. On the contrary, necessity makes us now focus on the issue
ttore clearly than ever.
There is nothing more implicit in the very fabric of our free enterprise
society than the promise of fuU employment. The pledge of the Employment
*ct of 1946, “ to promote maximum employment, production and purchasing
?ower,” has been honored more in the breach than in the observance. We have
aot even defined what full emloyment is or could be, and there are many
176
differing views on the definition. We only know when it does not exist, and
we scream when it “ hurts” by saying that unemployment is at an “unaccept
able” or “ intolerable" level. There is now a growing recognition—paralleling in
a sense the evolution toward recognition of the need for comprehensive na
tional health insurance- that. Legislation is needed to accomplish the objective
of full employment over the long-term. A ‘‘can do” approach to the whole
issue of eliminating unemployment is needed. Policymakers must face the fact
that something must be done about, the truly shocking fact of over 7 million
persons unemployed, which our Federal Government is accepting as practically
irremediable.
lit iny view, the private, not the government sector is the place where full
employment policies must have real fruition— lhat is what our people want—
hut with the public sector as a backup as an employer of last resort. We have
massive programs to hire people in the public sector, hut, at best, these
temporary jobs are designed to be transitional. Full employment does not
mean full employment make work. Kathcr in our capitalist system it means
hiiriiessing the energies of the private sector to make a more productive and
viable economy—for our country and people everywhere.
We have not utilized the private sector's position in our labor market in
identifying problems within its sphere. This is an area where a full partner
ship among management and investors, labor and Government can he formed
to identify present and future demands of the labor markets. As these man
power projections are determined, these three groups could develop their
apprenticeship and manpower programs specifically to respond to the need.
While there have been scattered attempts in the past to accomplish this ot>Jeetive, there needs to be greater coordination and participation of the private
sector—that is where the responsibility lies—and Government must facilitate,
not retard it.
Our changing economy has caused structural unemployment problems of dis
location, lack of training, and the need for relocation. Our recent efforts have
been to decentralize and decategorize our manpower programs. With the
cyclical upswing in our economy more new entrants can be absorbed to a
larger work force and workers are slowly—albeit too slowly—finding their
way hack into jobs. But, significant segments of the population are being left
behind. Blacks are still a disproportionate number—double that of whites—
Of the unemployed. The rate of teenage unemployment has remained constant
at 19 pcrcent—almost three times the national unemployment rate— with
urban minority teenagers at almost twice that.
The economic base of urban areas is deteriorating in many instances, and
will continue to do so as businesses find it more attractive to move to the
suburbs; thereby further eroding the economic climate in the cities. We n<*ed
to undertake programs to deal specifically with these problems. While this
may seem like a return to the categorical programs o f the 1960s, a review
of any Mock grant policy is now necessary because o f the present exigencies.
The time has come for us to look with a fresh view at the state of theeconomy, and the role of Government in its operation. The popular notion
stated strongly by the President, that the less government the letter govern
ment, should be examined closely. New points o f departure lead to profitable
discussion and an interchange of ideas. It is these new' concepts and innovative
approaches that may not instantly be implemented or become law, but the
discussion that it engenders can be very fruitful in asking the questions which
define the problems.
It is this dialogue that is so valuable in developing the participation o f
various segments o f our society, with each contributing its unique perspective.
H<H>efully, discussion will hasten the development of a true full employment
policy, designed in a cost effective and humane way.
It is a national goal we share as a people and are determined to implement
as national government policy.
Chairman H u m p h r e y . Our next panelist from the Joint E con om ic
Committee is the distinguished Congressman from Ohio, C larence
Brown, who is the ranking member on the House side of the minoritvafid who has been a very significant force in this committee.
Congressman Brown.
177
STATEMENT OF HON. CLARENCE J. BROWN, A U.S. REPRESENT
ATIVE IN CONGRESS FROM THE SEVENTH CONGRESSIONAL.
DISTRICT OF OHIO
Representative B rown of Ohio. Thank you, Mr. Chairman.
If this 30th anniversary observance of the Emplovment Act is to
mean more than a political show in a Presidential election campaign
year, I think we should do more than point with pride or view with
alarm. We should use the occasion to reassess our objectives and
the methods by which we have tried to reach them.
It has, after all, been almost a full genetation.
In looking back at the 29 years of annual statistics since the
Employment Act was passed, there are good reasons to both point
with pride and view with alarm. We can be proud of the fact that
the average unemployment rate during those 29 years was a little
less than 4.9 percent and that we had 9 years when the annual aver
age unemployment rate was under the full employment target of 4
percent set by the Committee for Economic Development in 1946.
But we must view with some alarm the fact that 7 of those 9v
years of under-4-percent unemployment were war years: 3 years, the
Korean war and 4 years, the Vietnam affair. And even more alarm
ing is the fact that the years lagging the years of lowest unemploy
ment saw the highest jumps in inflation as reported by consumer and
wholesale price indexes.
We must be concerned that price stability and our classic definition
of full employment apparently have some problems coexisting. I f
price stability is one of the twin goals, perhaps we should look at
these years when it was achieved and see what the unemployment
rate was.
During a nonwar decade from 1955 through 1964, relative price
stability, about 1
percent increase per year, was achieved, but
alas, the unemployment rate in that decade averaged 5.4 percent,.
5 percent even in the first 5 years and 5.7 percent in the second 5
years.
No policy maker in a free society would deliberately seek increased
unemployment as a policy goal, to cure inflation, to achieve price
stability, or for anv other purpose. Everyone wants full employment
with price stability.
.
But, conversely, why would any leader seek artificial employment
levels if it woult mean sharp inflationary price instability that robs
the elderly and the poor and those on fixed incomes who are least
able to deal with the instability in prices.
The problem is, what do we mean by full employment and price
stability ?
^ suggest full employment may mean something different today
than it aid in 1946, and that we should try to revise our assessments
of what these terms mean and how we should try to achieve them.
Faulty concepts and failure to understand the intricacies of un
employment statistics may cause us to go down wrong policy trails
ln our effort to achieve full employment, an area we may later regret.
At the present time, we are properly moving in the right direction*
^ith unemployment down from its peak of 8.9 percent reached m
178
May of 1975, to a level of 7.6 percent last month. That is a healthy
correction, and the pace of unemployment production seems to be
quickening in the last couple of months.
The key question is: What goal are we after? When the Unempolyment Act of 1946 was enacted, the general consensus then, and
it has carried over to now, was that 4 percent unemployment is “ full
employment.”
However, we are living in quite a different world today than in
1946. We need to rethink the measurement of full employment, the
survey methods for determining unemployment, the methods of
sustaining the unemployed, the nature of frictional unemployment
and the structural changes that have taken place in our labor force
over the past three decades.
The U.S. Department of Labor, the Joint Economic Committee or
someone should undertake a thorough and extensive analysis of the
concept and definition of full employment.
First we should consider the fact that many Federal, State and
local programs have been enacted, or achieved, by labor and industry
to help soften the blow of unemployment, and we should be proud
of it.
Unemployment compensation has been greatly liberalized as have
workman’s compensation, pension programs, welfare, early retire
ment, health benefits, food stamps, day care centers, medicare and
medicaid plans and many other public services which soften the
social and economic impacts of unemployment, if not the psycholog
ical impacts.
These don’t terminate unemployment, however, but they make it
somewhat more tolerable for the unemployed.
Second, we should look at the changes in the nature of the work
force. In 1929, the 49,440,000 people in the work force were 644
percent of the population between 16 and 65, and there were prob
ably higher percentages of the under-16-year-olds and the over-65vear-olds working then than there are now because of the more re
cent tightening of child labor laws and stricter adherence to fixed
standards with the more general development of private pension
plans to supplement social security.
By 1947, when the Employment Act was new, the percentage was
still about the same, 64.9 percent.
But by 1975, the percentage of the labor force to those 16 to 65
was up to 71.2 percent. The entry of women into the work force
has risen from 27.9 percent in 1948 to 39.4 percent in 1976.
Now, for the benefit of my colleague from Massachusetts who is
here, that is not to suggest that the pre-1946 housewife was not
working. Chances are she put in a full day on the family laundry,
gardening, sewing, canning, but chances also are that she was not
counted in the work force, either as employer or unemployed.
In those days, the head of the household wage earner was more
often than today the sole wager earner. Today there may be two
major wage earners in a family. In those days when the sole family
breadwinner was unemployed, the impact on the family was con
siderably more devastating than where one of a pair of family wage
earners is temporarily unemployed today.
179
In that light, 4 percent unemployment then may have had a
greater social impact and meant more shrinkage in spending and
savings than a greater percentage of unemployment would todav
with another wage earner in the family and all of the economic and
social supports \vc have built into the system since then.
Third, there is the training nature of frictional unemployment,
those persons unemployed due to the technological shifts of whole
industries or who are not properly equipped to make transitions
from disappearing jobs to new jobs.
In some industries, it may be very difficult today to teach a highly
skilled old craftsman new skills of a more intellectual nature re
quired by technical change.
In other industries, the job it once took years of apprenticeship
to learn may be replaced by a machine which can be operated readily
by very little training.
Unemployment caused by changes in technological sophistication
must be measured in aggregates of individual problems to determine
how much frictional unemployment is correctable and how much of
it is optional or endemic, and will either cure itself, or may have
incurable causes.
The teacher who left the work force 20 years ago to raise her
family may have to be retrained for a new job before she will find
employment today because her profession is currently glutted, but
the plant nurse, laid off from an industrial slowdown, may well
be unemployed by choice for awhile because she may wish to enjoy
a few weeks off with unemployment compensation before she goes
back to work in a local hospital where she will be welcome when
ever she is ready.
In this frictional unemployment category, we should also list un
employment due to problems of location or personal difficulties.^ The
alcoholic worker may not be able to hold a job in the best of times,
even though he possesses a skill in great demand, and the most
skilled worker may never find a job in a geographically depressed
area. These are specialized problems, unlikely to respond to massive
programs of Federal employment. A generalized jobs program by
the Federal Government as an employer of last resort may have
merit in a generalized and lengthy depression, as in the^ 1930’s va
riety when it is deemed desirable to redistribute wealth in order to
stimulate the economy by putting money into the hands of those
who will spend it, although there are still many who feel that such
efforts were not impressive in their success until World War II
helped in recovery from the Great Depression.
Even regional development programs may not help the alcoholic
or lure the nurse back to duty before she wishes to be reemployed.
But there should be continuing support for mechanisms^ to retrain
the aerospace engineer or the linotype operator when his industry
folds up or his skill becomes obsolete, and there are training pro
grams which must be undertaken for social reasons to helj) achieve
^quality of opportunity for segments of our economy which have
been shortchanged in training by the nature of our past society.
But these training programs must be specific to the trainee and
his potential skills in relation to his area, and the job needs of the
180
future. A government clerical -job for an aerospace engineer would
"be an economically wasteful, dead end, and an equally improbable
match up for a husky, ghetto teenager of limited literacy.
Specific institutions adept at economically training: and placing
such employees to match up to the jobs that will exist as the
present recovery progresses should be supported now. These would
include opportunities in industrialization centers, vocational and
technical schools, and the like.
For such training programs to hav° job openings in which to
place their clients, the most massive need is to stimulate -job creation.
The creation of demand has already been accomplished by inventory
reduction during this recession and the return of consumer confi
dence as a result of a degree of price stabilization and increased
personal savings.
The increase in savings has brought some easing of interest rates
in the short run and even rays of hope for longer term, lower in
terest rates. Improvement in the latter is necessary to spur housing
starts which underpin the recovery, but any lasting recovery must
have expanding plant productivity, and this will require capital in
vestment, considerable capital investment, if we are to meet future
national needs for plant modernization, resource development and
expansion of productivity for better future standards of livincr.
The massive investment required calls for us to rethink another
of the basic premises of the Employment Act era. At the end of
World War IT. the ITnited States possessed the only massive national
capacity of industrial production in the world. That fact, the Great
Depression and World War II made a strong impact on us, an im
pact that caused our Federal fiscal policies and tax laws and our
personal standards to be then tilted heavily toward the encourage
ment of consumption rather than investment, but our goal of full
employment in the next generation, as opposed to the last generation,
may be more achievable if we will retilt our system to encourage
savings over consumption. The encouragement of investment bv less
confiscatory tax laws on the individual corporatons and financial in
stitutions, by few anticompetitive^ regulations by government, by
more encouragement of conservation, restoration, full utilization,
modernization and research and technical development, is funda
mental to achieve more job fonnation in the years ahead.
The time for make-work projects to sustain the unemployed is past
in the present recession-recovery economic cycle. Once the recession
has begun, it is generally too late to plan sophisticated public works
because they simply take too long to put people on the job. Those
should already be ready to go, so that they can be started whenever
a recession begins.
But it is not too late—it is just the right time, in fact—to en
courage the development of private jobs by encouraging existing
business and new entrepreneurs with more generous investment
and depreciation writeoff?, reduce profits taxes, and even an easing
of anticompetitive Federal rules and regulations.
We need to redress the imbalance th*t has been growing for the
last 30 years or so if we are to achieve more consistently in the next
SO years our goals of full employment with price stability, whatever
the modern balance between those two figures should really be.
181
"Mr. Chairman, I thank you for the opportunity to make this
presentation.
Chairman H r s t r iiB E T . Thank you very much, Congressman Brown.
We will proceed with the discussants, and I would like them to
make their statements and their questions, and then members of the
■committee who have not participated up to now should be given pri
ority on any questioning.
We will start right out with Mr. Byron Johnson, and we will co
down the line.
Mr. Byron Johnson i<* from the University of Colorado and well
known to many of us here.
STATEMENT OF BYRON L. JOHNSON, PROFESSOR OF ECONOMICS,
UNIVERSITY OF COLORADO
Mr. J o h x s o x . I have enjoved this very much, and I recognize the
historic significance of this. It had been mv good fortune, Mr. Burns,
to join the Executive Office of the President in 1942 at the inflation
ary height in the summer of 1942 and the President sent down a re
quest that we put together an economic stabilization program and we
had 6 weeks on the staff to put that together. He sent it down to the
Hill and said, I 511 give you 3 weeks to pass this, and if you don’t do
it, I ’ll do it by Executive order under my inherent war powers, and
that’s how we got the first economic stabilization program on the
books in the fall of 1942.
I was in the fiscal division, which was the precursor of the Council
of Economic Advisers, and my colleague. Grover Enslev, became first
Deputy Director and then Director of this Committee, and I have
therefore paid some attention over the years to how things have gone.
But during World War II we got along with 1 percent unemploy
ment at best, so I went out to teach at the University of Denver m
1947, I told my students that 1 percent was probably the minimum,
2 percent was acceptable, but at 3 percent we should certainly start
taking reverse action to overcome this high unemployment, and that
bv the time unemployment got to 4 percent, we should ring alarm
bells.
In light of that history, I confess I have had great difficulty in
following the discussion of the past 10 years, and I have been most
distressed bv your difficulty with the numbers game, and vet your
statements, both in print and here again today, say that you favor
full employment.
,
I think it is important that H.R. 50, or something like that, gets
approved to make clear what was left in dispute m
namelv
that maximum employment meant full employment, and that full
employment does have measurable targets, so we can hold admimstrators and members of the Federal Reserve Board and the Council hold
[heir feet to the fire, because as long as we are foggy, as long as we
have a high-fog index, we can expect that the temptation will be to
solve our problem for redefinition, and I confess as a classmate and
student o f my good friend, Walter Heller, I was distressed when he
—
-1 ine phrase
■
’
"• iterim target,” because I was sure the word
usea
-u
interim” would get lost, and sure enough, it got lost, so that I cannot
escape the feeling that the time indeed has come for new directions, and
182
Mr. Chairman, at the suggestion of your executive director, my old
friend, John Stark, I did prepare a statement on new directions for
America under the Employment Act, and also I did prepare a more
complete statement on how to restore full employment without in
flation, which I won’t do more than offer it for your consideration.
Chairman Humphrey. We will incorporate it in the record, but I
think it would be well for the moment, Professor Johnson, if you
would just give us a thumbnail sketch of what you call your new
directions.
Why don’t you just run that down? We have the time. Actually, it
is only 11:30 and you aren’t even supposed to be on until a quarter to
12, so you’re all right.
Mr. Johnson. It seems to me that the failure to define and accept
full employment as a goal in 1946 was a fundamental fumble, and
I am delighted with H.R. 50 and S. 50 in which you arc now, I think,
rightly remedying that.
Second, I think the term “maximum production” has been a quanti
tative analysis trap and that in our society we have got to start look
ing at the quality of our lives, and I am delighted to see the kind of
specific language which is contained in S. 50, because it seems to me
it comes to grips with the necessity to start stating some basic social
priorities.
I was one of the first graduate students to start looking at Keynes—
in fact, I wrote my first paper on Keynes for one Dr. Walter Heller,
not yet then a Doctor, and the only people in Washington who
asked me about Keynes was the National Resources Planning Board
when I came down here for interviews in 1942.
But it was a great step forward during the Great Depression to
think in terms of full employment, but we need a qualitative as well
as a quantitative approach, to what America is to be, and I am de
lighted to see that kind of language in S. 50.
Third, I think the phrase “maximum purchasing power” failed to
come to grips with the anti-inflation bias which I think is the intent
of the committee, but which was never stated clearly in the law. Inded, you will recall that when I was a Congressman in 1959 and 1960
I was one of the sponsors of sundry bills to try to write into the Em
ployment Act that stable, general levels of prices ought to be made
a part of the law. I am delighted to see the progress that I now see
in H.R. 50.
Incidentally, this is the finest draft that I have seen of that bill and
I want to complimcnt the drafters and the sponsors for the real
progress that has been made, and I appreciate Congressman Bolling’s
generous compliment to the Speaker for the work that his crew has
done behind the scenes.
In the fourth place, it seems to me that we speak of the Employ
ment Act calling for the purpose of creating and maintaining, in a
manner calculated to foster and promote free, competitive enterprise.
Whatever happened to that phrase?
You know, we’ve got the private control of output and price, what
ever happened to the public review of the private control of output
and price? And it was just last month that we celebrated the 200th
anniversary— this is a great Bicentennial— Adam Smith’s book came
out 200 years ago this month, and at least at Boulder our economics
183
faculty with Ken Bolting writing a play has had a joyful commemo
ration of that historic event, because the author of modern economics
warned us what the dangers were of inflation in the private control of
output and price, and it seems to me that when we wrote that into
the Employment Act, that was the intent of the Congress, it is con
sistent with everything from the Sherman Act, and why we have to
restate that as though that were a policy to be achieved rather than
a policy to be enforced is what I have some trouble with.
So I think it is helpful to have that written into the act.
Fifth, the Employment Act did not address the quality of our
lives, and I understand your concern, Mr. Bums, about retreating
from speeding up the enforcement of cleaning up the environment,
but the younger generation are here—you know, we always say, well,
that will take one more generation; they’re here and they don’t want
to wait. I rea11j think the time has come for the Congress to say this
is national policy and frankly, as one of the teachers of land econom
ics, I am convinced that in most cases the cleaning up of the en
vironment is, in fact, cost-effective. If it isn’t cost-effective, then per
haps our technologies should be linked with the industrialists to see if
we can’t find cost-effective ways.
But I am wrestling with a rural development program to recycle
animal waste, for example, and we are satisfied from the front end
analysis that we have done that this is going to be cost-effective. I
think there are very many ways in which we can clean up the streams
find clean up the air and salvage valuable commodities which are now
being wasted and polluting the air and our lives.
Sixth, it seems to me that the Employment Act neglected the in
ternational interdependence that is crystal clear to us today. We can
no longer live in a world unto ourselves, and I have been depressed
that my colleagues in the field of macroeconomics have been so wholly
obsessed with gross national product that the notion of gross world
product, the notion of how to maximize the welfare of the whole com
munity have been, it seems to me, lost from view.
Seventh, it seems to me that the Employment Act needs to reflect
our growing awareness that resources are divisible between renewable
and nonrenewable or exhaustible resources, and we must take steps
as rapidly as possible to reduce our dependence upon the exhaustible
resources, and that means not just to be independent of oil, but to be
less dependent upon oil, to be more dependent upon solar, wind, geo
thermal and other inexhaustible sources.
#
And so these, it seems to me, Mr. Chairman, are the kinds ox new
directions, many of which I see reflected in the Employment Act re
draft that you have before you, and with those comments, let me only
®dd one other footnote, and it is really a question, I think, to both
of you. I have been deeply distressed that macroeconomists have suf
fered from amnesia. When they are discussing how to fight inflation,
they say, we must have tight money policy, and therefore, since they
have forgotten other terms of credit, they speak of raising interest
rates to somehow tighten up.
,
That doesn’t make mony tighter, it just makes it more expensive.
It is the volume of money that is important, not the price of money,
and money buys nothing more for you whether you pay 2 percent or
184
10 percent, and I lived through World "War II with 2 percent Federal
money, and we managed to fight inflation without raising interest
rates.
.
,
.
i
I think the record of the late forties, early fifties wa san abomina
tion and I think the notion that the Fed is independent is an abomi
nation. I was on Wright Patman’s subcommittee which held the
hearing in 1959 and 1960 on this mythology that the banks own the
Federal Reserve. I f you go back and read the hearings of that com
mittee, von will find that I think v\o established beyond a shadow of a
doubt that the banks do not own the Federal Reserves. The Federal
Reserve is a part of the TJ.S, Government. It* policies should be to
carry out the intent of the will of Congress and the best interest of the
countrv. It is not a handmaiden for the banks, and raising interest
rates doesn’t even serve the banks, in the long run.
But in any case, I am absolutely convinced that you don’t throw
gasoline on the fire. The raising of the price of money is* in fact, an
inflationary action, so that I would much rather have you fight to
accelerate savings by raising downpayments, shorten amortization
periods, push interest rates down, then I think you would get the
additional housing, that would create the private jobs that we all
want, Tt; would encourage the small businesses, it would encourage
the public construction,.
T nave just come from being chairman of my board of regents for
the utitversity and I have great trouble getting the funds to build the
facilities that the place needs because we are looking—even on our
bonds, we are looking at 6.38 and 6.8 percent to borrow money and
other people are looking at 8.5 to 10.5 percent.
It seems to me that the failure to use other terms of credit than
interest rates have been disastrous for the economy for the last 23
years, and I would seriously hope that you would give sober thought
to alternative policies in this regard, and also that in retreating from
wholly being dependent upon macroeconomics you would recognize
that depressions come in divergent pockets of our society, in age. in
race, in location, and in sectors of the economy* and that a somewhat
more sensitive microeconomic policy in the field of monetary policy
might do far more.
The attempt to use the axe to kill the fly, it seems to me, is wrong
and I think we heed some scalpels to do our surgery and we need the
fly«watters for flies and not sledgehammers. Thank you.
Chairman H u m p h r e y . Thank you, Mr. Johnson. The statements
you have prepared for the committee will be placed in the hearing
record at this point.
[The statements follow:]
N e w D ir e c t i o n *
por
A
m e r ic a ,
U nder
the
E
m ploym ent
A
ct
(By Byron L. Johnson, Professor of Economic*, University of Colorado)
1£7G is a double celebration. Everyone knows that it is the bicentennial of
tlie signing of the Declaration of Independence, as radical a statement of the
risrlit of a free i>eople to govern themselves as was ever penned fU&d made into
we'are rightly proud of the gains ft has helped us to make.
Y e t w e arfc not fnlly content. Economic uncertainties and a sense of dwsatisfaction with many aspects of onr economic and social life call for a N e w
Direction a n e w spirit—for America. The second anniversary to be celebrated
in 1976 provides an ideal opportunity for taking stock, and establishing the
>ew Directions.
185
For 1976 is also the 30th anniversary of the passage of the Employment Act
of 1946. The generation of experience since then clearly offers an ideal time
to reassess our economic goals and objectives, our progress and achievements
and to outline the new directions better suited to our needs and m the years
ahead.
The Employment Act suffers from several omissions that have plagued our
experience under it. The following seem clear. Others may wish to add to this
list
First, the Congress in 1946 refused to accept “full employment” as a goal.
Instead, they finally chose the macro-economic response to the 1930 s of “maxi
mum employment, production, and purchasing power.” This has become a weak
blueprint. Worse yet, in recent years we have u&ed related redefinition to
retreat from the concepts of Fuji Employment (suggested by the NRPB, by
Sir William Beveridge, and the bill by Sen. Murray, along with Thomas,
O'Mahoney, and Wagner, as well as by Rep. Patman), all of which gave rise
to the Act
Administration spokesmen like to report the increase in employment, with
out attending to the underemployment of millions, and the unemployment of
millions more. For a growing labor force has permitted more employment in
absolute numbers, while we experience increased unemployment as well.
At the time the Act was passed, an unemployment level of 2% seemed a
reasonable and tolerable number, given market frictions, personal circum
stances, seasonal factors, and other dynamic forces. Many assumed then that
whenever unemployment reached 4%, the nation would begin vigorous cor
rective action.
Erosion of official and unofficial courage has caused us to tolerate much
worse. We use redefinitions to cover our retreat. In the early 1960’s, The
Council proclaimed a 4% rate of unemployment as an “interim target"—
only to have the word interm, quickly disappear. By 1975 we are offered the
hope that unemployment may get back down to 1% \ !
New Directions for the Employment Act in 1976 require a return to the
intent of Full Employment, making clear that goal by striking “those'' and
inserting “ every person” able, willing, and seeking to work will beafforded
useful employment opportunities, as the Act states
Second: The term “maximum production” tends to become a case of the
“quantitative analysis trap”, to the neglect of qualitative analysis, notwith
standing the phrase “useful employment opportunities*’. In a society choking
on its own air pollution, we find gas guzzling autos produced by the millions
as defensible because they represent production, and provide employment.
And in a new era, with no war in Southeast Asia, and with detente with
both the Soviet Union and China, we are willing to increase the military bud
get not so much to provide for the common defense as to assure employment.
Planned obsolescence of all manner of goods and structures assures that
qurs will remain a throw-away society, with ever-larger trash piles. For the
planned obsolescence does provide “maximum employment and production*'.
' The Employment Act in 1976 requires a New Direction* to bring utility of
that production, the quality of serviceability, into our guidelines for the future*
In this respect, the Employment Act of 1946 is symptomatic of what ails
our whole society. It is producer and production oriented, not oriented so as
to maximize the public s welfare Utility, usefulness, serviceability, are ele
ments in production that w’ere once taken for granted, as in “oekonomic —
the management of the household. Yet every school child now knows about
The Waste Makers, The Throw-Away Society, Planned Obsolescence—and has
these ideas reinforced by his daily experience at home and at school.
In an economy turned upside-down, consumers appear to exist in order to
from producers! Things sold In the market don’t have to work, or be
jjseful— they just have to sell. Advertisers help us with suggestions as to
things to give the man who has everything!
Yet at the same time, in our society, one-fifth of a nation lives in poverty.
Millions have an inadequate diet, and live in substandard housing, and mil
lions risk very limited access to adequate health care
la a nation still in love* with the automobile, one-half of the population
nnable to drive, because o f a g e , or disability, or limited income. Ii or them,
the public transportation of another era has tended to disappear. Our efforts
186
to provide alternative transportation for them are as yet minimal, sketchy,
and timid. We have brought back the Technology of the past—we have hesi
tated to introduce the transportation technology of the future, even though
many firms would cheerfully supply it.
New Directions under the Employment Act require attention to the quality
of our lives, and the things that support our life.
Good food, with the natural endowment of vitamins and minerals, seem
simple. But our producer orientation has caused us to surrender to “junk
foods” and to artificial colors and flavors. We then take pills to replace what
the processors have removed—or they “enrich” the food by artificial means.
No wonder the younger generation are turning to “organic’' foods— whatever
that may mean.
Appliances are now built so that if any element fails, no consumer can ex
pect to be able to repair the element, and no repair shop can afford the labor
time to repair or replace the faulty element. Thus it proves less costly to the
consumer to replace the entire item than to pay for the work to replace the
faulty part. Surely industrial design is capable to producing things with
springs, switches, coils, or other elements that could be replaced by an ama
teur with ordinary tools. As a nation we waste so much each year that a
considerable portion of our purchasing power simply replaces otherwise service
able objects which suffered from one faulty element, not now easily replaced,
so the whole item was discarded.
As a New Direction for America, the Employment Act should encourage a
qualitative approach to production.
Third, The Employment Act now avoids a clear anti-inflation position. It
states only that its goals include “maximum purchasing power”. This language
has increasingly permitted an approach to price stability that would sacrifice
employment in order to help depress the economy, in the hopes (vain ones)
that this would help stabilize prices. This is regularly defended as a trade
off, and economists will draw a Phillips Curve to illustrate the view.
Former CEA Chairman Leon Keyserling has properly equipped that “to
support more unemployment to hold prices down is to ask the unemployed
youth in the ghetto to go without a job so that my third car won’t cost more!”
By using the phrase “trade-off” we make it appear inescapable, and ignore
the fact that the worker whose job is traded off is not able to sit at the trad
ing table.
All of this might have some small redeeming value if it worked. But it
doesn’t work. Inflation has not been stopped by macro-economic juggling of
the rate of unemployment. The Phillips Curve has in fact drifted up to the
right, away from the point of origin. We must take steps that will push it
back down and to the left, back toward the zero point.
The Employment Act of 1946 does not explicitly refer to a stable general
level of prices. From time to time, various members of Congress have sought
to add such language, including the author, in 1959 (See Amending the Em
ployment Act of 1946, Hearings of the House Committee on Government Oper
ations, March 25, 26, and April 9, 1959).
Unfortunately, the slow drift upward of prices from the Initial passage of
the Act until 1965 has been aggravated by events since 1964 until “double
digit inflation” has been experienced. Confidence in the value of the dollar
demands a stable general level of prices, with the truly necessary price In
creases being matched, in the aggregate, by price decreases where increased
efliciency and productivity makes this possible.
New Direction under the Employment Act after 1976 demands that a stable
general level of prices be added as the Intent of the nation. Every effort con
sistent with the other purposes of the Act should be made so that this goal
quickly becomes a reality.
The Joint Economic Committee should focus on this topic In sufficient breadth
to bring back something like the wage-price guldeposts of the early 1960's.
The Government’s policy mix should encourage greater use of private borrow
ing which at stable prices could again be at low interest rates, to stimulate
housing and heavy construction.
Fourth, The Employment Act calls for the government to utilize all its
plans, functions, and resources for the purpose of creating and maintaining,
in a manner calculated to foster and promote free competitive enterprise . . .
Yet government policy against monopoly has not been especially sensitive to
187
puce consequences of monopoly. The US lias not used all its function to en
courage price competition, from abroad as well as at home, and indeed, yields
io prc&suie to resist such competition, all too often.
The dominance of macro-economics for the past four decades has helped
micro-economic considerations to fade from public view. The nature of the
economy has imperceptibly shifted from many small enterprises to more and
more massive and monopolistic enterprises The dnve to further concentration
and centralization, the merger movement, the corporate conglomerate, culmi
nating in the multi-national or trans-national corporate giant, has proceeded
at .such a relentless pace that one would think it were the intent of modern
major corporate leaders to prove that Karl Marx was correct m his prediction
of such concentration and centralization!
Whatever the early defense for the use of the corporate giant as a better
servant of the people, the concept of corporate efficiency today bears less and
less relationship to the societal utility of the corporation. The IT&T offer to
pioude funds to move the CIA toward overthrow of a foreign regime is only
the visible tip of an iceberg of monumental indifference to any society except
one's own corporation, its assets, its markets, its power, its profits.
Yet “Man is the measure of all things’* including all economic activity. If
an action fail* to serve man’s needs, it should be questioned and changed.
New Directions Under the Employment Act after 1976 must relate more
effectively to the structure of our economy, to restoring wider opportunities
for small, independent, locally-owned, and consumer-oriented enterprises. The
proposed Bank for Urban Cooperatives is a step in the right direction. So is
the Rural Development Act. But the government must give more vigorous sup
port to its enforcement of the Sherman Act. It may require a combination
of programs including such elements as: divestiture of unrelated enterprises,
“unlinking ’ of the chains, tightening of estate and inheritance taxation and
their integration with the income tax, a graduated capital levy, and greater
encouragement of equity rather than debt financing such as by untaxing cor
porate dividends in cash except as income to the stockholder.
Fifth, The Employment Act in 1946 did not address the quality of life. It
<lid not look to the nation as consumers so much as producers. A consumeroriented economy will help provide the public awareness and sensitivity that
will provide the support to the New Directions for America.
When our gaze centers first on our real standard of living, rather than
ju&t on the money illusion of cash income, we will increasingly demand utility
and serviceability in the goods and services we buy, and the nation will learn
how to cooperate in the changes needed in our roles and producers.
Will such action reduce employment? Possibly, quite probably. But a high
standard of living also includes adequate leisure, and longer vacations. Hence
may be able to move toward a 35 or 30 hour work week, or we may trade
longer vacation periods for shorter work weeks. Thus total numbers employed
need not drop. Every person ready, willing, and able to work should still be
enabled to find truly productive work, in service to himself, his family and
his community. More people should be able to afford more adequate housing,
better diets, as much education as each can usefully enjoy, and have suitable
Protections against the hazards of life. . . . And in the process, we may better
‘insure domestic tranquillity.”
,
,
Suth. The Employment Act of 1946 neglects the international interdepend
ence that events now make clear to us all. Energy, food, pollution, and security
hese are but current reminders that no nation is really an island, com
pletely autonomous or autarchic, capable of complete self-sufficiency. Not only
*re all nations interdependent, but the degree of interdependence is increasYet macro-economics, with its continuing focus on Gross Notional Product,
4>«ds to avoid attention to our international interdependence. The Energy
^rlsis of the past two years has helped increase our awareness as has the
^?.dIing reserves of food grains.
^
_
..
.
# Where we are importers or exporters, we share with other nations the need
or Rreater international collaboration to assure that the goals we seek for
ourselves are attained in ways that enable others to enjoy attainment of their
valid goals. How else can we establish that we love our neighbors as
as we love ourselves?
.
.. ..
New Directions under the Employment Act now require greater attention
° our mutual interdependence. Freer trade, freer movement of foods and per73-285—76------13
188
sons, are part of improving the quality of our lives. The fifty United States
owe their success to the freedoms \\e enjoy within and among the 50 States.
We should be encouraging greater freedom in an internationally responsible
manner among all nations'. And we should do this in recognition that we made
such a commitment In 194o, in helping draft and then signing the Charter of
the United Nations.
Seventh, the Employment Act needs to reflect our growing awareness that
resources are divisible between renewable and non-renewable (exhaustible).
It should encourage steps to reduce oar dependence upon exhaustible resources.
For in truth, every ton of coal, every barrel of oil, every carload of ore,
that we use for ourselves now is being taken forever from the Earth's patri
mony. This generation has been profligate in robbing future generations of
access to such resources One does not need the dire predictions of the Club
of Rome to understand the depletion of Nature’s storehouse
Obviously our economy cannot abruptly terminate dependence upon such
non-renewable resources. But by calling continuing attention to the difference
and by taking appropriate steps, we can begin to reduce our own wasteful
consumption of the relatively scarce natural resources, and encourage transfer
to renewable resources.
This action is consistent with a consumer-orientation. For by attention to
serviceability, we can lengthen the life of our resources taken from that
treasure chest.
Amending the Employment Act as suggested above can provide New Direc
tions for America’s third century.
But even more than new laws, or amendments to old laws, America needs
a new spirit, a new ethic, a philosophy that recognizes that each of us must
serve to the best of our ability, so that all may prosper.
The Congress and the Presidents should join in a re-examination of govern
ment to assure greater integrity, higher efficiency, and truer economy.
Every trade, profession, and craft should be giving honor to those who im
prove design for better service and longer life, who style and build tools and
appliances for greater safety and lifetime effectiveness, who rebuild pride in
craftsmanship and workmanship, so as to raise the morale of producers, and
increase the appreciation by consumers.
With a new spirit, the effective restraint will be self-restraint, and legal
process can be addressed to assuring competent performance by rewards for
such competence, reserving penalties for abuse of public confidence and the
public trust.
Integrity is the root of all virtue. The Nation is hungry for more of it. Let
1976 usher in a new rededication to the promise of America, as well as im
proved performance seeking to match that promise.
To R e sto r e :
F
ull
E
m ploym ent
W
it h o u t
I n f l a t io n
(By Byron L. Johnson, Professor of Economics, University of Colorado)
This nation pledged itself “to promise and maintain maximum e m p lo y m e n t ,
production, and purchasing power.” That pledge is in the Employment Act
of 1946. There is no problem the nation faces, at home or abroad, that would
not be made easier if we were honoring that pledge more effectively.
Clearly there is no simple quick fix. The nation's economy is not going to
be restored to health simply by a tax cut, or by a balanced budget, or by tight
money, or by high interest rates, or by any other nostrum taken alone, no
matter how eloquently espoused by ranking political, journalistic, or academic
pundits. The people are weary of oversimplification. Thev want the truth.
They know that wasting 5% or even 4% of the labor force, is a tragic be
trayal of the 1946 pledge .
We who were economists in Washington during World War II know that
this nation can do better, because it has done better, under far more s e v e r e
strains than we face now. But we did better when we were gneral practitioners,
not super-specialists. We applied Keynesian macro-economic analysis, but we
also applied micro-economic analysis to the specific civilian and military needs
of the time. For every worker and businessman lives and moves in micro
economics, whether well or badly, not in macro-economics. And his economic
concerns are experienced or felt within those micro-economics. So the intelligent
189
and thoughtful citizen knows tliat tlio nation’s hopes lie in a comprehensive
analysis a full diagnosis, and a combination of steps that will respond to the
many needs of the nation. Politicians who would led us must abandon their
habits of oversimplification. Economists must stop leaning so heavily on macro
economics, our favorite over-simplification.
We need an integrated and inter-related program such as we put together
when we faced the stabilization problem in the summer of 1942. Its success
will not turn on any one step, but on the combination. For in a complex
economy, everything does depend upon everything else for its success.
The specific elements of such a program are each fairly familiar. The
trouble rhe public has in understanding lies in part with the economic spe
cialists and politicians who concentrate on some single element, to the neglect
of the whole, and tlie inter-relationship of each part to all the others
It is not enough to want to fight inflation, as the Administration does For
the high unemployment it tolerates not only has a heavy economic co«*t—it
places an umcasonable social and political cost upon the whole nation.
It is not enough to want to fight unemployment—for the increased rate of
inflation that may encourage also reduces people’s willingness to undertake
long-term investments and rfcks, and threatens the stability of the entire
social and economic structure.
It is not enough to argue that a healthy economy demands a larger share
of income devoted to savings and capital formation—for the economy must
also meet the needs of both individual and collective consumption, and the
nation must also continue to assault poverty, and must share its output
reasonably with those who have been retired by reason of age or disability.
We must somehow do all of these things and more in order to achieve full
employment without inflation
Briefly, the Federal Budget has grown so large that budgetary policy must
play a vital role in the economy. But monetary policy must join in support of
a sound economy. And the fever of inflation must be broken, so that interest
rates and other prices favor more steady growth and greater confidence both
at home and abroad To the extent that our national goals require further
structuia 1 lefoim.s within the economy, we must face up to these as well.
Turning to the specifics—cutting Federal outlays will always be popular,
especially if the cuts don't affect those recommending the cuts. Yet no one
can defend outlays which are wasteful, or non-productive There are many
places where the budget can be cut sharply:
(a)
For example, m an era of detente, of negotiation rather than confron
tation, swollen military outlays can be significantly reduced. Preparedness for
only one war, hereafter, rather than for two and one-half major wars, permits
lieavy cuts. Meaningful unification of the armed forces would permit many
further economies. It is time to take seriously the suggestion that the Army,
Navy, Air Force, and Marine Corps be merged. But let them be merged into
the Coast Guard. Three reasons support this: 1) the Coast Guard serves on
land, sea, and air in one uniform and under one command; 2) the Coast
Guard is accustomed to civilian direction; and 3) the Coast Guard is ac
customed to doing useful things in peacetime;
(ft) For example, as the nation moves back toward full employment, outlays
for unemployment compensation and welfare will be sharply reduced. Further
more, with growing awareness of the waste of lives from forced retirement,
many more workers could then delay their retirement, reducing Social Security
costs and other retirement pay. Incentives to postpone retirement should In
clude larger monthly benefits for each year of delay. The whole nation would
Ram from the increase in productivity.
_ ,
There may be other budget outlays that should be increased, to save
money:
(o)
For example, we spend an unbelievably large sum each year on health
JJre, yet fail to achieve reasonably good health for a vast number of citizens.
Pre-paid comprehensive health care is being delivered by the better group
Practice organizations at costs of about $250 per person per year. At that
Price, the whole nation could be cared for, equitably and adequately, for less
than $55 billion per year. Yet we are spending more than $100 billion in both
Public and private outlays under the present hodge-podge. The Federal govern
ment ought to rationalize this system to reduce total outlays, even thougn
more of the total might have to flow through the Federal purse. We could
Javo a healthier citizenry at significantly lower public plus private outlays
'or health care;
190
( b)
For example, our present urban transportation systems are not only
increasingly expensive, but they threaten our health and lives, and destroy
our urban environment shamelessly and frightfully. They consume vast quan
tities of scarce petioleum. Costs per person mile escalate, and shifting to buses
is not really cutting costs—just shifting them to the general taxpayer. We
need a system which will have the amenities of the auto, without its handi
caps. Happily several companies are developing automated, elevated, light
weight, transportation systems. Indeed, if the United States does not move
soon, and decisively, German and Japanese companies have technology suf
ficiently advanced that they may ^on preempt the market. Such systems must
he total transportation systems, hauling LCL freight, the mail, and solid wastes
to recycling center—and all of these uses will pay full costs, so the total system
can bo fully self-supporting, rather than require subsidies. There are very
real economics to be achieved, both for households and for business firms, to
say nothing of public outlays, from investing in transportation systems that
*\ill serve our needs, our energy and enviromental concerns, and do so at
lower total costs. The initial costs are so high that the first proof tests ought
to be funded by the Federal Government. When the economic feasibility and
profitability has been proven, local revenue bonds, and even private capital,
will be available to help extend the systems to other areas. Because it will
take almost a decade to achieve these gains, the nation ought to start now.
The longer we wait, the longer it will take, and the higher the costs.
What about the Federal tax revenues? Like many of my former colleagues
still in the Congress, I have no enthusiasm for Federal deficits as stimulants.
They push the Treasury massively into the money market, soaking up funds,
driving up interest rates, shattering the housing market, making new small
business ventures more difficult if not impossible, add to the high cost of debt
service, and generally feed fears of inflation both at home and abroad. If this
he heresy from a liberal Democrat, so be it. In my last visit with my mentor,
the late Harold Groves, (whose Public Finance Text dominated the field for
20 vears) I found him opposing deficits and urging fiscal discipline. I agree.
Therefore I do not endorse a significant tax cut now. I do endorse meaning
ful tax reform Treasury Secretary Barr correctly warned of a taxpayer revolt,
back in 1969. Special privilege and loopholes which give tax breaks to those
who need them least must now be ended. When Congress thus increases the
taxable base, rates will not need to be increased to increase revenues. With a
full employment policy, income increases and the tax base increases even more
rapidly, thus the budget can move more quickly into a balanced position.
Moreover, tax equity is advanced; taxpayer morale gains; our self-respect
i* regained; and other nations may have the courage to follow our own selfdiscipline. More significantly for full employment, the reduced pressure on the
capital markets will help to bring all interest rates down, thus cutting costs
of borrowed money to households, business, and governments alike. Which
brings up monetary policy—
It is time to talk about ways to increase the rate of savings, not merely
about the needs for capital. An increase in prices for any good or service is
generally supposed to cause the market to respond so as to increase the supply*
But this has little significance for money. Balsing interest rates has done
little, and can do little, to increase the rate of savings or the supply of loan
able funds. Most savings are programmed by terms of debt repayment, by
terms of retirement trust fund programs, by insurance contracts, by retention
of corporate earnings, and by depreciation schedules—which together are
major sources of funds for capital investment.
The simplest way to increase the rate of consumer savings is to encourage
the use of shorter term loans. The more rapid amortization of consumer loans,
and of mortgages generally, will do wonders to increase the retnrn-fiow of
borrowed money back into the savings pool. One of the tragedies of our past
acceptance of higher interest rates is that we then accepted longer-term
mortgages to help hold monthly payments schedules down, and in the process
tied up loanable funds much longer, and reduced the real rate of annual
savings.
In addition, the rate of savings can be improved by raising the requirements
fts to down payments for consumer loans, and for housing (other than lowerpriced housing). This will encourage savings in anticipation of major capital
outlays.
191
This program should result in lower interest rates, enabling many more
families to qualify for dccent liousmg without requiring any subsidy. This
should mean a significant increase in housing construction, a major stimulant
to full employment. The result should be higher incomes, higher tax revenues,
and lower requirements for housing subsidies and for welfare payments. It
should cut interest costs for everyone.
Monetaiy policy can be much more sensitive, more quickly, to national,
local, and other social priorities. For example: (1) Low-priced housing could
have low down payment* and longer amortization while high-priced homes
could require higher down payments and shorter-term amortization. This would
improve the rate of savings among those able to save most, while not inter
fering with wider access to housing by those with least incomes. (2) Local
areas suffering from heavj unemployment and from natural disasters could
he given access to below-market interest loans from area banks, provided
again those banks had continuing favorable access to the Federal Reserve.
Such changes in monetary policy would enable local private banks to do
quickly and well what we now pay government bureaucrats to do—frequently
badly, tardily, and at high cost Government insurance of 90% of such loans
will assure that banks, carrying with the borrower the 10% remaining risk,
will act «o as to best serve such communities without waste.
An obvious corollary of smaller Federal deficits or of a balanced Federal
budget is that the money supply will grow by reason of expansion, not of
Federal deficits but lather loans by banks to households and business—made
in order to restore full employment. At lower interest rates, the demand for
such funds will grow adequately. Federal Reserve policy must accommodate
that growth.
But will this combination of fiscal and monetary measures stem inflation?
Perhaps not, unless other steps occur as well.
As Gardiner Means has shown again recently,1 there are sectors of the
economy in which scarcity, w’hether natural or contrived by monopolistic
practices, makes it easy to inflate price levels. At least three kinds of re
sponses are available:
1 The best response is to take steps to increase supply. This can be done by
cutting all barriers to access to foreign sources, both tariff and non-tariff It
can be done with loans to expand output, or by investment credits used se
lectively against areas of scarcity and inflating prices. Structural reform
might also be served by legal assault on monopoly, with divestiture demanded
against both horizontal and vertical monopoly wherever market shares ex
ceed 10%. It is too late to speak of “preserving competition ” The nation now
requires restoring competition. The other alternatives—regulation of monopoly
and government ownership—do not have a distinguished record of good service,
low costs, and ample supply, in most sectors where they have been applied
in the U S. economy. Neither Republicans nor Democrats are successful So
cialists. Nor are all Socialists successful.
2. The next best response, at least for the short-run, is to discharge demand.
This can be done in some cases by monetary policy, if consumer credit or busi
ness credit is involved, or by persuasion that less scarce alternatives are
better, or by selective taxes that discourage demand. If these routes are not
available, or fail to work, rationing or priorities allocation can be applied
to assure that high priority uses are protected.
„
_
The program outlined herein cannot achieve instant success. In all prboability, it will be necessary for the government once again to nse—
3. The third response, a temporary freeze on all prices (this includes wages,
the price of labor) until the other steps have had time to stem the inflationary
pressures Such controls accompanying a total program to achieve full employ
ment without inflation are likely to encounter far less resistance than aprofcram of controls standing almost alone against the inflationary tide. When
business and labor are told the truth, and see a competent program, they will
____ .
...
be more accepting of this temporary step.
This nation owes it to itself, and to its own tradition, to demonstrate that
^ can do better, that it can and will keep the pledges of the Employment Act
<* 1946. And we are not alone. Other economically developed nations in the
1 Challenge, September/October 1975, pp. G-20.
192
w oild are having trouble restraining inflation, and maintaining full employ
ment. Economists are doing humanity a great dis-service by hiding behind
“ The Phillips Curve” and thus supporting even tacitly the proposition that
higher unemployment is needed to stop inflation. The Phillips Curve is drift
ing out of sight—it is a moving target, not a fixed relationship. We must
abandon this oversimplification, too. We need much more direct approaches
in both macro-economic and micro-economic policy to achieve full employment
without inflation.
The needs of this nation are above and beyond partisanship. The continuing
use of e;isy over-simplifications and economic nostrums by either the Executive
or the Legislative branch only corrupts public understanding, and destroys
public confidence. This quadrennial year is the jea r to return to telling the
people the whole truth. This 30th Anniversary of the Employment Act of
1946 i> time to return to its pledges This start of our third century is time
to return to full emplojment at stable price levels. This election year is the
.year to put the word “candid” back in “ candidate.”
T h e T ru th A bou t I n fla tio n
fBy Byron L. Johnson, Professor of Economics, Univeisity of Colorado)
It i> tragic that the United States continues to tolerate economic policies
that feed inflation, increase unemplo> rnent, and disrupt both domestic and
foreign markets. If the Republican administration is incapable of giving
leadership, the I)emocratic Congress must do so We must not permit any
repeat of the runaway inflation of the 1920's, for we know what disaster
followed, the world around. Those of us over 55 have bitter memories of that
entire era, from 1929 to 1945.
The old shortcuts will not work. We dare not return to higher tariffs or
import^, unless we want to repeat the tragedies. “ Floating the currencies” and
the abandonment of fi*ed currency exchange ratios are today's bankrupt poli
cies that letreat from responsibility. Such policies make clear to everyone
that we don't intend to put our own house in oider; that we don’t intend to
cooperate in protecting small investors, merchants or buyers against the depre
dations of multi-national corporations and speculators, who are now able to
manipulate anj currency they wish without corrective action by either the
Central Banks or by the International Monetary Fund. We are already re
peating the errors of the 1920’s. We are forgetting why the United Nations
created the Bretton Woods Agreements during World War II, so that those
days would not reoccur. Orderly economic growth without inflation, around
the world, cannot be achieved without the United States putting its own house
in order. Let's tell the public the truth:
The truth is that inflation is not needed for growth, that inflation is a very
unfair tax, that inflation is like a cancer, that inflation corrupts personal,
corporate and public decision-making.
The truth is that we need to balance the Federal budget, for there is no
need to hare the US government competing for loanable funds. There exists
adequate private and corporation demand for money to increase the money
supply without Federal deficits. Either cut wasteful outlays, or increase taxes,
or both T Tax reform to distribute the total burden more equitably is always
in order. The truth is that every nation needs to increase the rate of savings
to accommodate the increasing rate of investment. In the US, an end to deficits
will help. It would help more to encourage faster repayment of loans, by using
shorter amortization periods. For the repayment o f loans and mortgages is
one of the important ways to increase the rate of savings. This will help drive
interest rates down. At lower rates, more rapid amortization is easier.
The truth is that we need to be more sensitive to the ways loanable funds
are put to use. First priority should go to loans which expand output in na*r"
kets where items are In short supply. Lower cost housing is a clear case.
Harnessing inexhaustible energy sources, and other steps to increase energy
availability, present clear cases. Public transportation that is e c on om ical, effi
cient, safe, and non-polluting is another clear case. If preferential terms (low
down payments and longer terms for amortization, or very low interest rates) are
to be used, then such terms should be reserved for such socially desirable purposes.
Preferential terms also are needed for disaster relief, for help to depressed or
193
distitsstd areas, or to areas publicly identified for encouragement m development
To 1educe wasteful uses of credit, merchants should identify the surcharge for
credit "ales, and encouiage payment by cash or check; and higher down payments
should be asked where credit is needed or used. The wasteful use of credit impairs
the pioduelive uses of ciedit. The character of the uses of credit are as impoitant as the volume of credit.
The tiuth is that a growing economy needs a growing money supply. During
the Gn at Depression, the justification for Federal deficits and for preferential
loan terms was that these steps were needed to encourage adequate growth.
In the 3970 s there exists adequate demand for loanable funds. Indeed, inflation
now encourages excessive demand and overbuilding, for it appears cheaper to
pay the high interest costs than to pay the higher construction costs antici
pated if one waits With an end to inflation, prudence would avoid such costs.
The truth is that a stable general level of prices is needed so that persons
will again make decisions on the fundamental merits of proposed transactions,
not on their inflationary elements. The truth is that neither this nation, nor
any other nation, can expect to maintain a stable price level until it has faced
up to a fiscal policy that clearly is anti-inflationary, and to a monetary policy
that is clearly responsible, looking to drive down interest rates (for the in
crease in the price of money is also inflationary), and looking to use credit
responsibility to encourage orderly growth.
The truth is that a generally stable level of prices is then possible. If loans
or public inve^ments are directed into expanding output in areas of genuine
shortages, the market will help hold prices down. Monopolistic practices, con
trived scarcity, and the private control of output and price—these are illegal
in the US, and the law enforcement will work much better if a competitive
market is encouraged to inhibit effective use of price-fixing and rigging.
The truth is that while price controls are never attractive, in the short
run thej may be necessary, and are useful. With acceptance of the program
noted above, both business and labor are more likely to accept temporary
controls, because in the short run, a price freeze is needed in order to give
the oth^r program elements a period of inflation free time in wrhich to take
hold of market forces. The only escape clause that should be permitted during
the freeze is for situation* where losses threaten the solvency of the business.
Then, after pressures have abated, and the freeze has been lifted, stand-by
machinery should *till be available to impose selective controls which roll
back pi ice increases that cannot be fully justified when challenged.^ It is
better to have a shotgun in the closet, and not need it, than to need it and
not have it!
The truth is that wage controls are also a form of price control The truth
is also that so long as wage increases only reflect increases in the general
level of productivity, increased wages need not increase the general level of
the pi ice. But efforts to increase wages more rapidly than productivity is in*
creasing will only serve to push prices up. In practice, this should mean that
where major improvements in productivity take place, there should be price
cuts—for there are personal service areas that cannot increase productivity
flud thus where there will continue to be price increases (e g.: haircuts).
E\erv sector of the economy has a right to participate in increased productivity
flnd lower prices in some sectors serve that purpose. Labor understands this
truth and will accept a total program.
.
_
. The truth Is that when the US has taken these steps to put Us own honse
m oider, other nations will move in the same direction. But, if we in the LS
with all our talent cannot manage these matters, others will have less hope.
we tackle inflation effectively, a more orderly international market will
emerge. Prospects for peace will be materially enhanced. So let us begin.
I nflation Must B e Stopped N ow
(B* Byron L. Johnson, Professor of Economics, University of Colorado)
My first official concern with fighting Inflation was not as a member of this
’omralttee, on which I was privileged to serve in the 86th Congress, but as a
*taff member of the Fiscal Division of the US Bureau of the Budget, under
Resident Roosevelt, in 1942.
194
Inflation, following Pearl Harbor, was growing rapidly. Demands of war
on two fronts,, for our allies as well as ourselves, plus pent-up demand at home,
required containment. Federal public spending was shooting upward. The
Piesideut asked us to prepare the economic stabilization program for use at
that time. We fought for higher taxes, stringent credit controls, priorities and
allocations of critical materials, strong and adequate wage and price controls.
Although tax increases were slow to come, basically wTe won. We kept interest
rates low. We did not delude ourselves or the public with the false allegation
that raising the price of money would be an anti-inflationary action.
Having experienced our safe passage through this major crisis as a junior
economist, I am appalled at the gross incompetence with which this adminis
tration is handling what should be a minor crisis. We see the Federal Reserve
Board pouring gasoline on the fires of inflation, but in the name of fighting
inflation. Interest rates, the price of money, have been officially raised to new
heights. The monetary policies now being favored appl> the wrong theory
the wrong way to the wrong problem.
Raising interest rates does not necesasrily reduce the rate of growth of the
money supply. It serves only to raise the price of money, and it feeds inflation.
The theon that interest on money is not a price, and a cost-push inflationan
force, is pure nonsense. Yet the Federal Reserve defends a price hike as antiinflationary, while compounding inflation. For the increase in the price of
money also feeds the fires of inflation. When banks pay more for money, they
must charge more, and borrowers must pay more.
As a result, every buyer of a home today, new or old, is finding the monthl>
mortgage payments up sharply. Fewer new homes are being built. The result
is a growing shortage in the supply of housing. This is pushing housing prices
up, even if one can pay cash. This clearly feeds inflation, except for the home
builders, who are once again our national whipping boy, and are losing busi
ness. We cannot fight inflation with inflation To justify the ever-higher
interest rates by the resulting inflation, after the fact, of cost-push inflation
of had monetary policy, is the worst kind of faulty justification
The real problem is to attain the goals of the Employment Act of 10^6, at
stable pi ice levels, with a sound dollar. This requires a program that reduces
inflationary pressures constructively, that deals equitably with the economy,
and all sectors thereof, and that responds to the real needs of the people
and the times.
Specifically, there are better ways of using monetary policies to fight in
flation (regardless of what we do with fiscal policy). During inflation, policy
should seek both to restrain excess demand, and to increase the supply of
items whose scarcity is feeding inflationary pressures.
The monetary policies now being used do the exact reverse of what is
needed. We are drawing savings down, and away from the investment in
housing and in capital {riant that would increase supply. Instead, at higher
interest more of the loanable funds will go into consumer loans, that are less
sensitive to high interest rates—and which are encouraged by the spectacle
of rising inflation. Thus present policies feed inflation not only in the price
of money, but in their effect upon the use of loanable funds.
There are better ways. To discourage excessive consumer demand, especially
for items in scarce supply, the Federal Reserve and other monetary authorities
should take steps to increase the amount o f down payment required to pur
chase consumer goods, and to reduce the length of time allowed to repay
loans. This not only cuts excessive demand, without raising interest rates, but
even more important, it will accelerate the rate of savings. The repayment of
loans is one of the most significant forms o f savings. It is actually what we
need now. And with lower interest rates, more people would be able to agree
to repay more loans faster, and thus greatly increase the flow of savings.
(Parenthetically, one of the tragedies of the repeated use of high interest
rates is that it encourages longer periods for repayment, so that the rate of
savings is effectively reduced by the policies now used—the reverse of our
true needs).
Moreover, high interest rates are a very heavy tax upon the economy, hut
not a tax paid to the Treasury. Each one percentage increase in the interest
rates on the next trillion dollars of new debt contracts adds $10 billion an
nually to the burden on the borrowers. And borrowers are facing a 3 to 5%
increase over rates of one year ago.
195
Monetary policy should not carry the whole load. Fiscal policy must help.
Now* is the time to balance the Federal budget, and to consider the more
heroic step of starting to reduce the Federal public debt. The fears that this
will be a fiscal drag overlook the strong demand for savings through loans to
household and business firms—demand that would be even stronger at lower
interest rates. The fact of a surplus in the Federal Budget would provide a
form of savings being returned to banks and other holders of the public debt,
for them to invest in other productive u«es. It would help bring interest rates
down, and help hold interest rates down. It would get the Treasury out of
competition for relatively scarce supplies of savings, or pressing for undue
increases in the money supply At lower rates, there would be much greater
demand on the part of the public for housing and related consumer capital
items
On the expenditure side, it is time to recognize the end of histolities, and
the fruits of detente, and have the budget reflect that our security require
ments have sharply decreased. Hence cut military outlays sharply, and free
the-*e resources for more productive employments. Invest in upgrading man
power for greater production, and invest in the essential human services It
is time to meet more fully the nation’s long term concerns about energy and
the environment.
On the revenue «ide, it may not require any tax increase to balance the
budget if the above expenditure policies are adopted. But the long overdue
closing of tax loopholes will provide significant additional revenues without
any tax rate hike. And the increase in equity from broadening the base will
better serve the nation.
To the extent that tax favors are left in the revised tax laws, such favors
should be confined to tho^e that clearly serve social goals, including the fight
against inflation Any investment incentives given should be directed toward
investment that will increase the supply of items where rising prices indicate
scarcity needing to be overcome. In the same way, government loans should
give preference to uses which expand competitive production and fight infla
tionary pressures. One way to attack demand-pull inflation is to assure greater
supplies to meet the greater demand. Freer trade is also a good anti-inflationary weapon.
In the short-run, competent wage and price controls are needed, to assure
both buyers and sellers that the government means to stop inflation, in its
tiii(*ks, by a combination of policies that will accomplish that end. A combina
tion of policies adequate to do the job would help increase our exports, help
redress our balance of payments without the temporary boost of a grain short
age Confidence in the dollar would be restored, both at home and abioad. Social
justice would be better served.
We mu«t stop using gasoline to fight the fire. We have the kind of monetary
and fiscal waters that will put out the fires of inflation. This committee can
help secure their adoption. I urge you to take forthright action.
Chairman H u m p h r e y . I k n o w , Mr. Burns, that you arc taking
notes, or mental notes, and we will want you to come back, because
I want to encourage good dialog here, and I would kind of like to
keep ducking while you are going at it—there are some experts
around here.
#
,
Our next participant will be Mr. Harrington. TVe welcome you ana
ask you for your participation now.
STATEMENT OF MICHAEL HARRINGTON, DEMOCRATIC SOCIALIST
ORGANIZING COMMITTEE
Mr. H a r r i n g t o n ’. Mr. Chairman, I would like to iust raise a couple
of themes, because I think that they impinge very much upon the dis
cussion of full employment in the United States.
.
First of all, there is a myth which I think the support of this com
mittee and the Congressional Budget Office could do much to dispel
which I think inhibits our debate. That myth and it is not Just a
Republican myth. It is now even in the Democratic Party is that
196
the Government has been doing so much, that we threw so much
money at problems, that we acted so radically, that we innovated so
much, and that is why we failed.
I would like to point out that the Congressional Budget Office in
its report for this year shows that for the last two decades Federal
spending has only increased on a full employment basis from 17 to
20 percent.
Second, I would like to point out that the main area of increase
has been an area of extremely effective spending, for the aging in the
United States. The main spending increases, the quantum leaps in
America, have been in social security benefits and in medicare.
T do not know of a single politician, even Ronald Reagan, who is
going to come out against social security and medicare.
Third, the committee in its report points out—and this is a fact
that I think most Americans do not realize—that Federal emplovployment as a percentage of civilian employment has been going
down. What T want to suggest is that we did some good things with
our money. We did not act radically.
I think Pat Moynihan ieally put his finger on it in his book on
“ The Politics of the Guaranteed Annual Income'5 when he said in
the 1960's the social programs were underfinanced and oversold. We
talked as if we were doing so much, we didn’t do so much and now,
if we are going to do what we have to do, we have to get over the
myth that we did so much.
The second point I would like to raise—I am afraid it is sort of a
bipartisan point, because it is a criticism of IIumphrey-Hawkins,
which I support as the focus, which I would vote for in almost any
version, or urge someone to vote for—but it is a criticism of Ilawkins-Humphrev and Mr. Burns and sort of a criticism of a lot of peo
ple, and that is I think this country has got an ideological prejudice,
a nonempirical proposition that pubic employment is bad and private
employment is good.
I don’t believe you can demonstrate it. I don’t believe that over
building Florida condominiums and Las Vegas casinos is better than
having a decent health system. I don’t believe that having the Gov
ernment nationalize all the losses of the railroads while leaving the
profits to the private sector is a rational policy.
I do believe, for example, not that Government should be the em
ployer of last resort but that in some cases it should be the employer
of first resort.
I would like to see, and in this I agree with Leonard Woodcock of
the U AW and many others, I would like to see publicly owned rail
roads in the United States—nationalize the profitable as well as the
losing sector, and j>ut Americans to work restoring railroads,
environmentally benign, energy-saving form of transportation which
was ruined precisely because our lack of planning and our following
the corporate priorities of the trucking industry, and the oil in<^u®'
try, et cetera, rather than the national needs, putting the railroads
back in some kind of decent shape under public ownership. And 1
say this, in part because I am a Socialist, but you don’t have to be a
socialist to be commonsensical about this—and it is common sense,
it seems to me, to understand that public employment, in many cases,
can be better than private employment.
197
One of my criticisms of Ilumphrey-IIawkins was in the framework
of supporting it, is that I think it reflects Mr. Burns' prejudice which
1 thiak is ver\ nonempirical, very ideological.
The last point, and then let me very briefly conclude. The last point
comes m the minority section of the Joint Economic Committee Repoit and in Congr essman Garry Brown's remarks.
I feel that under the guise of redefining full employment we are
about to do something that I am told that the Australians once did
with the abongenes: they didn’t count them in the census because
aborigines weren't people. And now there is a tendency to saw look,
you \e now got a lot ot teenagers in the labor market, you've now got
a lot of women in the labor market, therefore vou tolerate higher
levels of unemployment, because after all, it's merely teenagers and
'women.
And I would point out to you that teenage in this case is a euphe
mism, m many situation-, for a generation of black and other minor
ity youths who are being absolutely devastated by the experience of
this lecession, and I think at a time when women are coming into the
labor market and claiming a rightful place in the labor maiket, to
say, well, their unemployment is not as important, in effect, as male
unemployment, is tragic."
And 1 even see this, by the way, in one of the revisions of Ilawkins-Humphrey that I didn't like, which was introducing a means
test to qualify for a job. Defining the means test in terms of house
holds, I suspect, might be a way of saying, you have to choose between
a male employee in the family and a" female employee in the family,
and IVe got a good gue<-s in this society who would loVe in that tradeoff.
But finally, Mr. Chan man, I just want to say that for all of mv
criticisms of this or that aspect of Hawkins-IIumphrey, I think this
is one of the most important steps that has been undertaken in Ameri
can society, and perhaps I could even help you by criticizing the bill
a bit while supporting it, because I really want to tell Secretary
Simon that it is not socialism—in my opinion, it’s not half that good—
but it’s as good as w’e can get uniier the circumstances, and I am
ti emendously happy we are making that step forward.
Chaii man H u m p h r e y . We thank you very much, Mr. Harrington.
As I would have expected, your comment is incisive and helpful and,
I would gather, a bit provocative, and we appreciate it very much.
Our next participant is Professor Eisner from Northwestern I niversity, and we have heard from you before, and we welcome aour
attendance here again.
STATEMENT OF ROBERT EISNER, PROFESSOR OF ECONOMICS,
NORTHWESTERN UNIVERSITY
E i s x e r . Thank you very much, Mr. Chairman. I am very glad
to be here,
.
i *T n
I may not be quite as provocative as Mr. Harrington, but I will
try.
I think that there are some very important issues that
|)e"
deviled discussion of full-employment policies for now three decades,
and I find them remaining unresolved, resolved, with all due respect
198
in the statements of Mr. Bums and Mr. Greenspan and of those of
a number of committee members.
To begin with, there is this notion abroad in the land and perpetu
ated over and over that inflation and unemployment are twin evils.
They arc not twin evils: the situation is asvmetric. There are manv
things that constitute to inflation that have nothing to do with the
rate of unemployment.
I think that in some of its most extreme form you get statements
which I think Mr. Greenspan came pretty close to indicating that
you have to. above all, combat inflation, and we cannot try to recover
from this recission in a way that will contribute to it again, the no
tion being somehow that the inflation has contributed to the recession.
That was stated very flatlv by a Presidential candidate in my State-not the Presidential candidate that Mr. Greenspan, I presume, is
working for—but Mr. Reagan indicated very flatly—and thesewere
television spots that came over and over again—that this inflation is
what has brought 011 the recession and unemployment.
I think that is perpetuating a myth to the American people, it is
spreading misinformation to a population which has a hard time try
ing to make out economic realities to begin with.
The reason, in fact, we can associate the recent inflation with the
unemployment we have is, I would judge, and I am sure many other
economists have, as well, essentially some very misguided policies of
thejidministralion in the last several years.
T^nless we learn from those policies, and learn correctly, Mr. Green
span's injunction to avoid getting to this same place again, I think,
is not going to be realized.
What we had was an inflation, of course, which was overwhel
mingly generated by prices over which we had little control, prices
of petroleum products and essential raw materials. In the face of that
kind of an inflation, somehow the fiscal and monetary authorities de
cided the thing to do is to hold down demand. With prices going up,
they either permitted or encouraged a very large swing in fiscal pol
icy which crave people essentially less to spend to buy all the other
goods and services that could be produced.
For example, in the second half of 1972 when a President aspirin?
for 1 more vears inspired the economy, we had a full-emplovment
budget deficit of $10.9 billion. In the second half of 1974, we had a
surplus of $29 9—and I try to avoid such technicalities, but I think
most of us here know that that is probably the best measure of a
billion swing in the effect of Federal fiscal policy in a repressive di
rection to hold down demand.
That kind of a swing, that kind of a jolt to the economy, is s e e
thing that not even an economy as basically prosperous and produc
tive as ours can withstand. That is the lesson of past policv to watch,
not the notion that somehow government spending and deficits fueled
inflation.
f
*
Indeed, I might add, for Mr. Burns’ consideration, the observation
that m that same period as we swing into what Mr. Greenspan cor
rectly called our worst recession, and by far, since the Great Depres
sion of the 1930’s, the rate of growth of the money supply changed
itom a plus 10.1 percent to a plus 3.9 percent.
199
Now of course, you know, unsophisticated people may say, well,
\vc had inflation, look, the money supply was growing. In fact, the
money supply was growing considerably less than it had grown at
the beginning of this period when we swung into a very substantial
recession and indeed, into some substantial inflation in ii)74.
The fact, then, is that much of our inflation is due, at this point
in time in the last several years, to increases in prices of a supply
nature and in trying to combat that, we must watch for those kinds
of tax policies and regulations whicn, in fact, simply aggravate the
problem of cos-t and the problem of the supply price, which influences
final price.
Now, there is associated with this problem on combating inflation
versus unemployment-well, 1 might just add, you know, another
few words hoie.
I f you have any public opinion poll on what the greatest problem
facing the economy is, except in our peak unemployment recently,
inflation always seems to come out 011 top. 1 daie say most of the
public does not leally perceive what they are suffering fiom.
If prices went up 12 percent and incomes went up 18 peicent, we
would all grumble about inflation, but we would tolerate it in good
form. When prices go up 12 percent and incomes go up G percent, we
are in an awful shape, but of course, that is simply reflecting the fact
that the gros.-> national product in real terms has declined by 6 percent.
What the public fails to sometimes perceive—and I am not sure
that we alwajs educate them properly—is that economics is a hard
discipline and the real payoff to the public ultimately is the total
volume of goods and services produced. It is not the prices which are
chagrcd for them, although that can bo painful to those who don't
find their incomes going up. I f the total pie is less, then we have less,
no matter what lias happened to the price level.
I think wo have to put that context around some of the remarks
that the chairman has made heie, and that Senator Javits has made.
The fact, ically, is that the unemployed are not the only ones who
have suffered from unemployment. Unfortunately, it is too widely
perceived that way, and as a consequence— I don’t know how elections
will turn out. There have been some of my respected colleagues who
have been doing studies showing that perhaps, cynically—they’re not
intending to be cynical— that no matter how bad the situation is or
has been people will vote for a party whch has been associated with
some improvement.
So if unemployment wras at 9 percent a couple of aears ago and by
election time it i« declining, people will say, that's great, even though
7.6 percent is still higher than the average bottom of all of our post
war recessions.
.
So, the real fact is that the unemployment is a distaster to the econ
omy as a whole. W e can note that, as a conscquence of even our cur
rent unemployment, we are producing output at a rate some $1;>0
billion per year, or $250 billion per year, iess^ than that which we
would be producing if we had merely been projecting along the noi mal growth path from 1973.
I was among those, I suppose, most horrified, both by the wrong
ness and the tremendous loss in the war in \ ictnam. How many of us
have stopped to think that in all of our years of combat in Southeast
200
Asia that we lost, in total output—the cost of that to the Treasury
was about $150 billion, and that is less than what we have been los
ing per year in output because of the fact that we simply are not
utilizing the skills and labor of all of the people who want to work.
Now, I might add, you know, finally on this inflation-recession
business, I wonder how many of you reflected on the remarks—I no
tice in the bond market by Secretary Simon a day or two ago, verv
optimistic, predicting a 2 percent rate of inflation before long—I
forget now the precise date of that—and also a substantial reduction
in unemployment.
Now. how could he be forecasting a great drop in unemployment
and a drop in the rate of inflation? I am not at all sure he is right—
certainly we all hope he is right—but I wonder if in the back of his
mind was the notion that maybe there are some other things happen
ing. maybe, for example, looking at the fact that was also in the
papers that the price of sugar fell from 64 cents a pound in world
markets fairly recently to about 15 cents a pound.
Now that has nothing to do with Mr. Greenspan’s tight budget or
ill*. Burns' relatively modest growth in the money supply. That has
nothing to do with the notion, for example, that Jlr. Burns expresses
that ‘‘highly expansionary monetary and fiscal policies might, for a
short time, provide some additional thrust to economic activity, but
inflation would inevitably accelerate.*’ That is from his speech in
Georgia in September.
Now. why should we say that? I mean, it is sort of conventional to
say, and Mr. Burns is saying what many other respected and learned
people—not all as respected and learned as he—will say. Why does
expansionary policy, highly expansionary policy, as he says, inevita
bly lead to inflation. When Mr. Greenspan welcomes the huge drop
in unemployment—which our figures seem to show huge, because they
are so high to begin with, but still very high ?—he apparently is reporting upon a major expansion in economic activity.
"Hell. that was an expansion in economic activity which apparently
has not caused inflation. Why should an expansion in economic activ
ity brought about by conscious Government policy bring about any
inflation?
You know, it is utterly unclear. There seems to be a growing notion
that somehow if we recover too fast, it is bad. I never heard any doc
tor prescribe that to a patient, saying: You’re awfully sick, but I
have decided you should take 4 or 5 years to recover. Otherwise, who
knows what the consequences will be?
W ell. that is not true for a sick patient and it is not true for the
economy.
^ ere are ano^her set of policies and points which emerge in
Mr. Greenspan’s remarks and Mr. Bums’ and those of a number of
members o f the committee that somehow the thing to do is to stimu
late private investment. I was delighted by Mr. Bums’ remarks in
terms of his faith in the free enterprise economy. I should assure
all of you that I will bow to nobody in my defense of that as wen
and the notion of free competition, a free competition which I thin*
can include competition between Government enterprises and private
enterprises.
r
201
But how in the world can so many advocates of free competition
: Well, we believe m free competition; we believe in leavng busi
ness alone. And then say: But we have to have tax incentives to
stimulate private investment.
We have to say, vve don’t trust the businessman to spend the right
amount 011 plant, on equipment, on training, on research and devel
opment. We have decided that the economy needs tampering with and
v>e are going to give them a 10 percent equipment tax credit, or a 12
percent equipment tax credit, something to make them spend more
on equipment.
I vvill submit that investment is very important, capital accumula
tion is. but in connection with some research I have clone—and any
body else can find these figures—if you define capital formation
broadly as all of that productive activity today which will contribute
to output m the future, including not only plant and equipment piuchases by business, but plant and equipment purchases, housing, dur
able goods by consumers, by Government. I f you include as well the
huge formation of human capital m education and in job training,
do you know what you would find# You would find that the business
expenditures for plant and equipment are, at most, some 20 percent
of our total capital formation.
Xovv who is anybody in the Congress and an Administrative office
to say, we have decided that capital formation should be exclusively
the purchase of plant and equipment by business, and that vve are
going to encourage?
I would say there is a huge loss of capital formation in this unem
ployment. There are figures which indicate that 20 percent of those
16 to 19 are out of work, 50 percent of the black ghettos. That kind
of unemployment means large fractions of a generation that never
get an investment in their own skills and training m job experience,
in participation in the economc system which will make them produc
tive in the future.
# All of that, I think, should be central to the much welcome discus
sion that we are having of trying to invigorate the Employment Act
and really renew a commitment to full employment in this Society.
Chairman H um p h r ey . Thank you very much, Mr. Eisner.
Mr. Frank Morris is the president of Boston Federal Eeserve
Bank, and we appreciate your coming to us again.
Might I say that following your presentation I want to permit my
esteemed friend, Mr. Burns, to make some rejoinder here. I also think
Mr. Greenspan will be back with us so that he can do that.
STATEMENT OP FRANK MORRIS, PRESIDENT, BOSTON FEDERAL
RESERVE BANE
Mr. M o r r is . I will leave it to Mr. Bums to comment on the other
panelists’ remarks on monetary policy. My silence should not be
interpreted as agreement.
_
.
T_ . .
.What I would like to do is to comment on the Humphrev-Hawkins
hill, a bill to revise the present Employment Act. I have been study
ing it for the past few aays and I find many things that I like in it
and a few things that concern me about it, but to talk about things
202
that I like about it fiist, I think it goes a long way toward meeting
the need that Congressman Bolling stated, the need to establish a new
consensus in this country on economic policy.
First, I like the recognition in the bill that monetary and fiscal poli
cies arc inadequate alone to establish the kind of employment and
unemployment levels that we would like to see in this country. That
if we tr y to push monetary and fiscal policy too far, we are likelv—
almost certain— to generate a high rate of inflation, which in turn
will lead to recession and unemployment, that we need to have sup
plemental public employment programs if we are to come close to the
kinds of unemployment levels that we talked about in the early davs
of the Employment Act.
I like the enunciation in the act of the right to a job for every
American who is willing to work,
I like the recognition, the explicit recognition, that inflation is a
major national problem for the United States, a recognition which
was not in the original Employment Act.
I like the emphasis on the need for economic balance as a goal of
policy, as well as full employment, because I think in any long-term
sense, economic balance and iull employment have to accompany each
other.
I like the fact that the bill would establish on a permanent basis
supplementary employment programs. I think our experience in the
past has been to turn these programs on in recession years and then
turn them off. As a consequence, we have never been in a position,
really, to evaluate very carefully which of these programs are suc
cessful, and which are failures.
I think recognition of the fact that a part of our employment pro
gram problem is likely to be a chronic one, needing a permanent
approach to it is an important part of the act.
And finally, I like the orientation of the act toward a maximum
feasible substitution of work for income maintenance. I think there
is a growing feeling in tlis country that we have probably gone too
far on income maintenance and not far enough in job creation, and
as a consequence we# have damaged the incentive structure of the
country. It is something we are going to have to address ourselves to.
Xow, to point to the things that concern me, the act, the bill states
that we should have as our goal a minimum level of unemployment
consistent with the frictional unemployment necessary for efficient
job search and mobility in the labor force, and it states that this
number is 3 percent. Now, one thing that concerns me about enunci
ating a 3 percent target is that I fear that we may not be able to
attain this target without a reform of the unemployment compensa
tion system, and that this is something that the Congress should take
a serious look at in the process.
For example, I ’ll give you one example of what I ’m talking about:
the problem of temporary layoffs. Our present unemployment com
pensation system encourages employers to gear their operations^ to
temporary layoffs. It encourages them because our experience rating
system does not penalize anywhere near sufficiently the employer
.
8®ars bis operations to temporary layoffs, and at any one point
in time, a significant percentage of total unemployment is reflecting
people who are temporarily laid off.
203
Now, the evidence suggests that 85 percent of people temporarily
laid off ultimately go back to work for the original employer. Tlie
compensation, unemployment compensation benefits are high enough
to discourage a search for work on the part of someone who is temorarily laid off because he has a conviction that well within the time
efore his benefits run out, he will be rehired by his original
employer.
So I think we have got built into our structure a sizeable amount
of unemployment which is going to make hitting the target of 3 per
cent very difficult without a reform of the unemployment compensa
tion system.
And incidentally, I think that one other aspect of this is that the
employer who gears his work to temporary layoffs is really pushing
a part of his costs of operation onto the rest of society.
So I think first the Congress has to face up to the fact that the
attainment of the 3 percent goal will require less liberal income main
tenance programs.
The second thing that the Congress is going to have to face up to
is the scale of public employment that we are talking about. I think
most economists feel that monetary and fiscal policies should be
geared to move our economy to a level of unemployment, as we cur
rently calculate it, of somewhere in the neighborhood of 4V& to 5Vi
percent, that if we push beyond this range we are likely to generate
accelerating inflation again.
Well, if you would accept for the purposes of argument these num
bers, this means that we are talking about, in the context of the
3-percent program, 3-percent goal, we are talking about 1y2 t° %V2
million public jobs, which is a massive undertaking, and I think we
have a learning process to go through here if this program is to be
carried off successfully. I think we have a need for a number of pilot
projects to try to figure out how we can do this in a sensible way, be
cause I think if we rush into it without sufficient preparation. the
whole idea may be discredited, and we may go back to reliance on
income maintenance programs instead of jobs, which I think would
be harmful to the incentive structure of the country.
Now, in the area of unemployment, the problem which I think is
most troublesome to me is the high level of unemployment among our
youth, and this I think is something that the Congress has really got
to focus on very heavily.
. We, both at the Federal level and at the State and local level, sub
sidize very heavily with public money higher education for our
young people, but we do practically nothing to help the young per
son who is not going into higher eaucation. This is where our prob
lem lies, it seems to me.
Our educational institutions are not providing our young people
who do not go on to college with the kinas of skills needed to prepare
them for the labor force.
Now, at the Federal Reserve Bank of Boston we are conducting—
we have conducted for several years a small program of our own to
train young people in clerical skills. Every 6 months we take on 12
young people, many of them black, Spanish-speaking from the Roxbury area of Boston, people who cannot meet our minimum hiring
standards because they can’t read and write properly, they can’t add
E
73-285—70------14
204
up a series of numbers properly, they do not have the training to
bring them into our bank and put them to work on day 1, so we put
them in for 6 months on our clerical skills training program, and
the results of this program have been very heartening.
We have been running it for several years and we have got a track
record now on the people who have graduated from this program.
Of these young people, 75 percent are working today either for the
Federal Reserve Bank of Boston or for some of the other institutions
in Boston who hire them away from us. And that, I think, is a very
heartening record. I think if we could multiply this little program of
ours a thousandfold, we could really do something constructive to
help young people entering the labor force who do not have the skills
to find a good paying job.
So I think the Government has a lot to learn. I believe in the con
cept of employer of last resort, but I also believe that we have got
a lot to learn about how to put this program to work.
Thank you, sir.
Chairman H umphrey . Mr. Morris, you have been most constructive
and I think very helpful to us here.
Let me quickly say that the main thrust of that S. 50 or H.R. 50
is to require the Government to search into the kind of solutions and
adaptations that you are talking about.
The bill itself, outside of the supplementary employment features
and the countercyclical aspects, is a process, a methodology. You have
pointed out again what needs to be thought about in terms of an em
ployment program.
Now, Mr. Burns, I just can’t hardly wait here. I know that you
have been most patient, and I think you are entitled to lots of time,
and we are going to do it this way. We would like to have you and
Mr. Greenspan make responses, and then I want my colleagues that
have not participated here to get in here.
Would you like to take on a couple at a time or just one at a time?
Mr. B u r n s . Well, I ’m not in a very quarrelsome mood today.
[Laughter.] This is, after all, a celebration of the Employment Act.
I will take------
Chairman H umphrey. I want to put you in charge of the Disarma
ment Commission, Mr. Burns.
Mr. B u r n s . I will take advantage of your invitation and make a
few comments in reply first to Mr. Johnson and then to Mr. Harring
ton, and then to Mr. Eisner. I am not going to quarrel at all with Mr.
Morns. We do our quarreling in private.
Mr. M orris. For the time being.
Mr. B urns. Mr. Johnson, as far as interest rates in our country go, or
for that matter elsewhere around the world, they are dominated by
our inflation experience and inflationary fears. You take short-term
interest rates at the present time are in the neighborhood—short
term open market interest rates in the neighborhood of 5 percent,
which is lower than the inflation rate.
in
long-term rate, yes, is high, uncomfortably high, 8,
10 percent, but within the basic inflation rate of 6 or 7 percent, the
real rate of interest is really not high at all.
ls- ?J'-ari N a tio n premium is built into our long-term
interest rates in this country, and for that matter, around the world.
205
If you were to look at interest rates in Latin American countries,
you would find that they are in the high, double digit figures. Why,
bccause of the inflation rate.
And let’s not lose sight of that factor.
Now, I would like to say a word also about independence of the
Federal Reserve System. You will find that you have many suppor
ters who believe that independence of the Federal Reserve System
doesn’t serve a sound national purpose. I would call just two facts
to your attention: first, that we in our country have had an indepen
dent central bank, and Germany has had an independent central
bank, and they are the two strong independent central banks around
the world, and poor though our record of inflation is, it is one of
the very best among the nations, and certainly the same is true of
Germany. I call that to your attention.
Second, what are we talking about when we speak of, you know,
removing, divesting the Federal Reserve of its independence?
Well, you can try to do that, and let’s see how. One is to let Con
gress make monetary policy. That is utterly unrealistic. Monetary
policy has to be adjusted not only from month to month, but liter
ally from hour to hour. We operate in the markets—Congress could
n’t possibly do it. It doesn’t make any sense.
M r. J o h n s o n . But what about some goals? There are none in your
present law.
Mr. B u r n s . What about what ?
M r. J o h n s o n . W h a t about some goals? There are none in your
present law .
Mr. B u r n s . What about goals?
Mr. J o h n s o n . Goals. Shouldn’t you be coherent with some national
goals ? That’s what I ’m asking for. I don’t want day-to-day policy-—
Mr. B u r n s . Well, I ’ll comment on that presently, but let me just
continue. Next you can certainly put the Federal Reserve under the
thumb of the White House, and many people believe that should
be done. And people who think in these terms have an idealistic
concept of the White House. They think of the Oval Office and its
majesty. They think of the President at his desk surrounded by
wise advisers, calling on each of them for his opinion, calling in
competent, highly qualified public citizens, and then pondering these
issues of monetary policy, and finally reaching a decision.
The fact of the matter is, if monetary policy were—found its
home in the White House, some fellow in the basement of the White
House—he might even be called a Haldeman—would in effect be
making monetary policy. I ’m not sure you really want that.
Now, as for goals, Senator Humphrey commented on my views
on that subject. It is the business of the Congress to set national
goals, and obviously we at the Federal Reserve, these goals being
specified, being law abiding, being conscientious, we would live
within the mandate of the Congress.
t
Now, we might quarrel with the Congress in setting the mandate,
and the Congress might not like the way in which we pursue the
the goals set by the Congress, but there can be no question about
our living within the law and respecting the law within the best
of our ability.
206
Let me turn to Mr. Harrington.
I admired your eloquence, Mr. Harrington. I was disturbed a
little when you stated that you would vote 011 almost any version
of the Humphrey-Hawkins bill. That delighted my good friend
Senator Humphrey. But when I though about that statement you did
say almost, and there was a saving grace in that remark.
"Now, you spoke also of the Government as serving, in your judg
ment, at times as employer of first resort, and of course, it should.
I have no quarrel with that. I don’t think any conservative economist
would quarrel with that.
You spoke of nationalization of railroads. Well, I don’t know
that I have much of a quarrel with you even on that subject. Think
of the sorry state in which our railroads find themselves. They have
been overregulated by the Government; initiative has been squeezed
out of business enterprise; they have been dominated by trade unions;
impossible work rules have been imposed on these railroads. And
now, with initiative, dynamism squeezed out of most of our rail
roads, they are ripe for nationalization, not because nationalization
is a good thing, but because the railroad industry has been corrupted
by Government and by the trade unions.
Next you spoke of my penchant, proclivity towards free enterprise.
You are quite right about that. But you commented, there is no
empirical basis for that. I suggest that you read an article written
by a newspaperman in this room—I see him here—Mark Rowan,
an article that he wrote in the Washington Post yesterday on the
British economy, and that may indicate to you, as it did to me,
that there is some empirical basis for questioning the blessings of
socialism.
Now, let me say a word or two to my friend Mr. Eisner. When
Mr. Eisner argues that the factors on the supply side are—must
bear their share of responsibility for the inflation that we have
had, of course he is right, and I agree with him fully. But when
he is virtually silent—I may have misinterpreted, Mr. Eisner—on
the way in which we have conducted our Federal deficits, I think
that is a glaring omission.
Year after year, in good years and bad years, we have run a huge
° e“ clt jn <wr Federal finances. What does that mean? It means the
i* ecieral Government has pumped more money into the pocketbooks
of people than it has taken out of the pocketbooks of people*
You take the 10-year stretch from 1966 through this year, using
the estimate for this fiscal year, I think the cumulative deficit in
the Federal budget is some $217 billion, and if we counted in all
uaget outlays and outlays by Government sponsored enterprise,
the figure runs up to about $300 billion.
Federal deficits have played an enormous role in
U1^a
n in our country.
^ iust ra^se a question there, Mr. Bums?
v ^°U l lca^e that a deficit must increase the quantity of
seft t l it
money supply. All you have to do is
bondq if ___
e deficit is financed exclusively by the selling of
£7
c2Scern ls the money supply.
the Q m sToss ’S m ? *
Johnson just commented on the will of
ngress, Senator Humphrey has commented on the will of the
207
Congress. If the Congress proceeds to appropriate money at such
a rate, for us to fight the Congress would hardly be in conformity
with the congressional will.
Now, now and then, of course, we do resist. We lean against the
wind, and we have done that. Also, if what you wish to say is,
Mr. Eisner, is that we have made mistakes in the Federal Reserve,
of course we have made mistakes. Now, the—I ’m sorry that Con
gressman Bolling isn’t here. I think he put his finger on the start of
all of our difficulties within the past decade. He was wrong by 1
year, but his generalization was valid.
You go back to the year 1965. What did we do in that year? We
had the second installment in the reduction of the personal income
tax. We had the second installment in the reduction of the corporate
income tax. We legislated a sizable reduction in excise taxes. We
inaugurated Great Society programs. We financed, got under way
huge financing of the war in Vietnam. And, I ’m sorry to say that
while the Federal Reserve in December 1965 made a symbolic
gesture by raising the discount rate, and all hell did break loose when
that happened, we did not followup sufficiently in our open market
policy in 1966.
Representative B r o w n of Ohio. That was also the beginning of the
time of real off-budget financing, too.
Mr. B u r n s . Yes; and that has been growing.
Chairman H u m p h r e y , B u t I would like to also cite that the rate
of unemployment was under 4 percent and the rate of inflation
was under 4 percent.
Representative R o u s s e lo t. Unemployment has always been low in
wartime.
Chairman H u m p h r e y . There was not a war in 1965, knock that
off.
Mr. E is n e r . Unemployment hit 4 percent in 1965 before there
was any substantial escalation.
Mr. J o h n s o n . The very month the Federal Government normally
makes its tough economic decisions inside the executive—it was a
terrible blunder, in my opinion, for the Fed to preempt the President’s necessity to face up to the budgetary situation in preparing
his budget and the recommendations for January of 1966. The
timing by the Fed took the Congress off the hook and gave the
American public the wrong impression that you had done something
meaningful.
It was—I ’m glad you said it was a blunder, but the blunder was
most of all bad, it seems to me, in terms of timing. You should have
held the executive’s feet to the fire and Congress’s feet to the fire for
a couple of more months.
Mr. B u r n s . Well, one can argue that.
Representative B r o w n of Ohio. Well, to tighten it up too much
would have resulted in further crowding out, and you had in 1967
and 1968 a kick in the teeth to the housing market because of what
happened to interest rates.
Is my memeory failing in that?
Mr. Burns. I wanted to say one word more on your comment,
Professor Eisner, on tax incentives*
208
If I understood you correctly, you argued, here, oh, awful con
servatives like Alan Greenspan, Arthur Burns, Clarence Brown,
others, argue that tax incentives are desirable. You go on to say
that arguing in this fashion we are expressing a certain distrust,
a certain lack of confidence in the business community. I f we trusted
businessmen, why do we have to give them tax incentives.
Now, that was the drift of your argument, if I understood it
correctly.
Mr. E isn er . Yes; I would say that’s implicit. I ’m sure you don’t
intend that, but that clearly is implicit. You wouldn’t leave the
economy to itself.
Mr. B u r n s . All right, so I ’ve understood you correctly.
Now, when we talk about tax incentives, what are we talking about
in order to stimulate investment? We are talking about reducing
taxes on investors, reducing taxes on business.
Who imposed the high and in some instances nearly confiscatory
taxes? It was Government who did that. It is therefore those of us
who plead for tax incentives are simply pleading for a correction
of a governmental mistake. And we have in mind very much what
has been happening in a country across the Atlantic, a wonderful
land which is suffering from its own confiscatory taxation.
Mr. E isn e r . The remedy is to eliminate confiscatory taxation. I
doubt that the corporate profits tax would be called confiscatory,
but I for one would strongly advocate eliminating the corporate
profits tax, integrating it with the individual income tax, but not
have a special loophole for purchase of equipment or anything else.
Dont start I think that—I’m not a specialist on the British
economy, but if anything breaks the British economy, it is nominally
nigh tax rates, huge tax rates, and then loopholes on capital gains,
loopholes on this and that. That leaves business paralyzed. All it
can do is engage in those activities for which Government offers
an excuse.
Representative B r o w n of Ohio. It discourages formation of pro
ductive capacity, doesn’t it?
*
^ e greatest discouragement to capital formation
is he recession itself, and if you look at these figures, you’ll find
business expenditures for plant and equipment in real terms took
lLfirSi
. .
I believe Mr. Greenspan may have the figures handy—
® say ° f
it is larger.
about
20 to 25
percent in the recent recession. Perhaps
i
has. nothing to do with changes in tax policy. I would
flhln
mves^ when it considers investment opportunities profit*
fy are#not profitable because of the general malaise of the
to do Something18
Congress, the monetary authority
t>eonl» wfc
Bh°T n of 0hio- But our objective ought to be to
*ger' * ouSht not to be just simply absorb those
the£ around
X r E
f
PiC * " d ^
*° 8P
for
cPre?isel7’ and if the pie is made larger, the demands
relv nnon m » -fTT1068 ST®ater? if more is being produced. I would
66 enterprise American system, American business
209
to spend money, to expand, to do what is necessary where it appears
necessary. If it is to build a new plant, you build a new plant, but----Representative B r o w n of Ohio. But Professor Eisner, it isn’t
just the demand that enlarges the pie. You have to have the resources
and the production to enlarge that pie, and sometimes those don’t
necessarily produce more jobs, they produce more goods and some
times more services.
Mr. E is n e r . Well, that may be. You know, for example, Mr.
Burns referred to the matter of making us competitive in foreign
markets. I would say, we all know that the industry in which we
are most competitive, so to speak, is agriculture. We have a tre
mendous advantage. We could export great amounts of agricultural
produce.
Now, when you offer tax incentives to American business, what
you are saying is, we are going to tilt the system, not necessarily
just in favor of investment. In fact, what you will be doing is
tilting the system to those capital intensive industries that use a
lot of equipment, and that means you would tend to make us
less competitive in the areas that are not getting that kind of tax
advantage.
Representative B r o w n of Ohio. But agriculture is a capital in
tensive industry. Certainly per worker it is.
Mr. E is n e r . We’d have to check as to the extent of the equipment
rate of benefits to agriculture as compared to the steel industry or
automobiles industry, places that are tremendously intensive in
terms of tax-----Chairman H u m p h r e y . There is no tax credit on land.
Representative B r o w n of Ohio. I ’m not talking about land. I’m
talking about those big pieces of equipment that are used on farms.
Mr. E is n e r . There is some. I think, you see, that unfortunately,
I believe, is one of the myths. You have something like a tax credit
which overwhelmingly helps heavily capital intensive, concentrated
industry, but every little farmer, every small businessman will lobby
Congressmen and say, well, we can’t take that away.
I remember before the, I believe it was the House Budget Com
mittee, and Mr. Conable indicated, you know, you can talk as an
economist. You can tell us to get rid of the corporate income tax
credit instead of having an equipment tax credit, but you don’t
face the political problem.
Well, why don’t we face up to that? All economists will say, if
taxes are too high, lower taxes. Don’t look for new exemptions,
&ew incentives. But instead, I guess, eliminating the corporate tax
would look very unprofitable, I suppose, politically.
. Mr. B u r n s . You have no quarrel with me. I would prefer a reduc
tion of the corporate income tax to an increase in the investment
aspect.
M r. E is n e r . Good. I knew you did, Mr. Bums.
Representative B r o w n o f O hio. I share th at position, too. I do
not th in k y ou should suggest that capital incentives are not pro
ductive o f job s, because I th in k they are, very clearly.
Mr. E is n e r . But there are many things productive of
jobs, though,
from public employment to private employment, to job training
210
programs, to educating people so they can work. In fact, this strikes
me as a most indirect, farfetched way of encouraging jobs. If
you want to cut a tax that will directly affect jobs, I would cut
payroll taxes. I would do the exact opposite of what President Ford
proposed, of raising our payroll tax for social security from 5.85—or
from 11.7 to 12.3 percent.
I f you are worried about unemployment among youth, it is utterly
absurd and folly to add to the fact that young people are difficult
to employ, have high unemployment, to give the employer an addi
tional cost of paying for social security benefits he is not going to
realize for 40 or 50 years.
Representative B r o w n of Ohio. The minimum wage.
Mr. E is n e r . The minimum wage, I—there are lots of political
problems in the minimum wage, and I would say that if you can’t—
would meet the problem of the minimum wage essentially by guaran
teeing through effective action that everybody in our productive
society is able to produce enough to make it profiable for an employer
to hire him, and if there are people who are untrained and not
in the job market, young people—and that is where the shoe really
pinches—who you feel will not be worth it to an employer, there is
a good place then for the government to intervene, if necessary, to
have subsidies, to see to it that it becomes profitable to hire young
people, that is an investment in capital which you could not expect
the free enterprise system to make, because no employer can train
a young worker, take the chance that he’ll turn out good, and figure,
gee, what has he gained.
I f the guy does turn out well, then he can’t own him as he can
own a piece of equipment. He can go somewhere else.
Representative B r o w n of Ohio. The timing of that, though, it
seems to me, is when the recovery begins. You had that kind of a
system at the end of World War II, when you had a GI bill pro
gram that subsidized industry to hire people and train them and
then reduce the amount of subsidy that they got as they worked
toward journeyman level, but that has to be done at a time when
you have got the recovery under way.
That may be appropriate at this time, but if they are not going
to do it anyway, they are not going to be stimulated to make an
investment.
Mr. J o h n so n . Y o u have young people coming into the market
every year, Congressman, and it seems to me that paying for the
on-the-job training out of Federal funds becomes the finesse that
he is talking about to achieve the same purpose without taking on
the political battle of trying to fight the minimum wage. In other
words, you guarantee the minimum wage, but—you’re going to
spend the public dollar anyway of paying for the guy’s education,
whether it’s in the vocational school, occupational college, junior
college, or a university, so why not pay it on the job to the em
ployer, but require there be some real, on-the-job training so that
that person can make that progress up the career ladder.
Representative Brown of Ohio. But that then becomes a subsidy so
that you would pay------
211
Mr. J o h n so n . It’s a subsidy, but it avoids the political question
which he was raising with you that if you directly attack the
minimum wage, you are going to lose. I f you say you "are going to
provide on-the-job training, you can win. The purpose is served.
Why fight about the method?
Representative B r o w n of Ohio. I f it’s a chicken and you call it
a swan, it becomes a swan, right?
Mr. J o h n s o n . Right. It’s prettier.
Chairman H u m ph r ey . We should remember that every one who
has gone to college has been subsidized. So a little subsidization to
people that are trying to learn how to get a job in something beyond
higher education is not, I think, without—is not beyond our means.
I don’t like this elitist argument that we’ve all got to have a
college education in order to be worthy of American citizenship.
Some people may just want to learn how to weld. They might
want to learn how to repair a TV. They might even want to
learn how to put on a roof. It might be helpful. And it doesn’t help
to get a Ph. D. to do that. I ’m not against Ph. D.’s or M.A.’s.
I just don’t think they necessarily are required for everybody.
I ’d like to just quickly join in so we can get some facts in here.
Then I want Mr. Greenspan to get in it.
I asked our staff person here to give me a little idea on the
percentage of Federal tax revenues coming from coroprate income
tax, because there was word about confiscatory taxation. In the
1950’s, 33 percent of all tax revenue came from the corporations.
Today it is 14 percent.
The real going tax rate on corporations is about 38 percent; and
the banks, it is 11 percent.
Now, if you have got an income of around $40,000 a year, you’d
have to give me about $40,000 a year personal income, you pay 38
percent tax. So the corporate—I believe—I want to say that I think
a lot of tax changes are needed, and I tend to agree with what is
said here, that if you want to make adjustments, do it on the corpo
rate tax rate.
I believe in capital formation, and I think it is esential that
We put our minds to it. But I don’t think we ought to scare people.
I don’t think we ought to say the corporate taxation is confiscatory
because it is not, and if it were, how come all these private planes?
It isn’t confiscatory.
I don’t think we ought to say that it has gone up, because it has
gone down.
Representative B r o w n of Ohio. B u t it’s a double dip.
Chairman H u m p h r e y . Well, double dip or not, there is still plenty
of dip.
Mr. H a r r in g t o n . Senator, at the same time that the corporate
taxes are going down, the social security portion of Federal revenues,
which is the most regressively based portion, was going up dramati
cally.
Chairman H u m p h r e y . The fact is that in the 1950’s, the average
share of the Federal tax revenue was 33 percent from corporate
income. Today it is 44 percent.
t
1
I ’d like to just say one other quick thing about inflation control.
212
The two biggest items on inflation were centered here today,
over which the President didn’t have^ any control, or Mr. Burns or
Congress. But from the point of view of our inflation rate, we
were in the best position on both, because we had a larger share
of domestic production in both than any other industrialized country
in the world. We had the larger share. We had food in abundance,
and therefore, we did not suffer the same inflationary pressures from
food prices that other people did, recognizing that it might—I
recognize the world market, but our prices domestically for food
have been less than other prices i nother parts of the world.
Second, on fuel, we produced approximately 65 percent or better
of our own fuel, domestic fuel resources. We imported about 35
percent. It is up a little bit now. But again, we had lower fuel costs
than any other industrialized nation in the world, and those are
two terrific items in a budget.
So the two items that have been the biggest factors in inflation
rates worldwide were food and energy, and in both of those items
we were in a very favorable position. That doesn’t mean we didn’t
suffer from them. And I think the point is made-----Mr. B urns. I cannot follow you.
Chairman H umphrey. You cannot?
Mr. B urns. N o, because the prices we pay for fuel are at the
international level-----Chairman H umphrey. Not at all. We had a fixed price on our
65 percent of our domestic oil production, Mr. Burns. We were paying
an average of $7 a barrel for oil here while the rest of the world
was paying an average of $11, because we did not let the oil com
panies raise their prices on domestic fuel. And even today we are
paying an average of $9 as compared to $13. So we did get a
benefit on fuel, I mean, rightly or wrongly. And the oil companies
didn’t like it. I ’m not arguing whether we did the right thing or
not. I think we did. But we paid less for it.
And on food we obviously paid less because we did not have to
pav the international costs of shipping and of handling and storage
which goes into the international market.
Represetative B rown of Ohio. I should point out, Senator, that
the price that we are paying for energy is going up rapidly because
of that price freeze. I think it now exceeds 45 percent, and that
price freeze means that we are going to pay more and more for
that $13 barrel of oil.
Chairman Humphrey. Well, in the meantime-----Representative Brown of Ohio. To somebody else, outside the
country.
Chairman Humphrey. We have improved fuel efficiency, industrial
efficiency; the cost to American industry today on fuel for the same
amounts is apprceiably less because we have improved our fuel
efficiency. We have companies that have gone into other companies,
like DuPont, has a segment of their company that teaches fuel
conservation, so that while the fuel costs have gone up, we have
gotten better use out of our fuel. W e know that.
Mr. Greenspan, do you want to get in this business? You have
been over there. W e don’t want to let your fertile and active mind
213
go unused. I want you to get in there and take them on now for a
while.
Congressman Brown and I will shut up.
Mr. G r e e n s p a n . After that introduction I am speechless.
Chairman H u m p h r e y . Don’t get speechless on me.
Mr. G r e e n s p a n . I won’t.
Well, I ’ve enjoyed just sitting here for a change and listening.
It has not usually been my luxury to do so.
I would like to raise a couple of issues which I think directly
relate to the basic discussion this morning. They are somewhat un
related, but I think not necessarily.
The first is the relationship between inflation and unemployment,
and I think rather than look at the historical record and try to
discuss the various complex macroeconomic equations we tend to con
struct, I think I ’d just like to point out something about the current
period, the most imediate period of what I think is very well worth
observing.
It is fairly obvious to anyone who is looking at the particular set
of numbers that we have observed in the last several weeks that
there is a very perceptible improvement in confidence in our econ
omy. That is yon can see it in the consumer area, you can begin to
see it stirring in the business investment area, and where I think it
is very perceptibly coming from is the decline in the instability, the
decline in the inflationary patterns that have existed in this economy
for a number of years, and I think that the decline in the Consumer
Price Index, which you may be aware, Mr. Chairman, was 0.1 in
the release that came out this morning, which we considered to be
obviously quite favorable—I think what we are seeing is that as
this instability simmers down, the extraordinary reluctance on the
part of the households to buy goods, to be aggressive in the consumer
markets, is changing.
I mean, we have seen not only the indexes of consumer confidence
rising, but we are now beginning to see finally the savings rates
falling, most immediately manifested in the extraordinary pickup
in passenger car sales during the month of February and in March,
and this to me is suggesting that the uncertainties, the risk premiums?
the concerns of our household in purchasing are a function of
the degree of inflation.
#
.
.
Also, we are beginning to see similar stirrings going on in the
business investment area, where the high degree of uncertainty and
risk induce, probably, although the evidence here is difficult to come
by, a marked increase in risk premiums in investment activities.
That is, we are getting a much higher rate of return required in the
last several years to initiate investment than has existed in previous
years.
I think with the simmering down of inflation, with the simmering
down of instability and uncertainty, I think that is beginning to
change as well, and hence, the recovery that we are looking at right
now to a very substantial extent rests upon the reduction of inflation
itself.
Now, the interrelationship that we get between inflation and un
employment and growth is a very complex one, and I would.
214
scarcely say, as Professor Eisner indicated that I would say, that
fast growth implies inflation. I don’t believe that at all. I think
it is quite possible to get very significant growth without inflation,
but also vice versa, I think it is quite posible to get stagnant
growth in an inflation environment. I don’t think these are closely
tied in the way that we can conventionally see them.
So that what I am indicating—as far as, I think, a terribly im
portant, but very rarely discussed, policy issue at this point—is to
further reduce the degree of uncertainty about the future and the
general concern, and I think we will continue to see the type of re
covery that we have observed in the last 2 or 3 months, which I have
indicated previously, I think, is obviously well in excess of our fore
casts and I think most anybody else’s forecasts that I can see.
And I might also say that this particular phenomenon of inflation,
uncertainty, risk, and investment, is manifesting itself in the other
major industrial countries in the world, and so that this is not a sim
ple problem which is United States oriented at all. And I think that
we have to focus on a recognition that if we allow inflationary in
stabilities to reemerge in this particular period, we are going to very
likely go into the same sort of economic malaise that hit us through
the period prior to—well, really, throughout the mid-1970’s.
Now, Mr. Chairman, on a second and somewhat unrelated point,
but I think something we ought to be thinking about, really gets to
the nature of looking at this whole question of what we mean by un
employment and a recognition that there are so manv different types
of unemplovment which require different focuses and different reme
dies. And the one thing which I think we rarely tend to realize ex
cept technicians is that when we talk about excessively high rates of
unemployment, which there is no question they are at the moment,
and there is no question that there are vast numbers of people who
are in extremely dire straits—I think that one doesn’t have to look
at the numbers to observe that phenomenon—but that it is not, it is
not 7 million people who are going to be unemployed for 1 or 2 years.
We have a different type of problem.
If in fact the 7 million unemployed were the same people, I would
say the types of remedies we are talking about would have to be
completely different.
What we are observing is the usual, extraordinarily rapid turnover
that exists in our labor markets, and that we have, sav, 30 million
spells of unemployment a year, and that far greater number of people
experience unemployment once or twice and sometimse three times a
year than the average involved. And what this means is that the vast
amount of unemployment is 2, 3, and 4 weeks, and that the average
is sometimes 6, and in a period like now, I suspect, although we don’t
have the data, it is probably closer to 10.
Now, the reason I raise this as an issue is that it is very important
that the types of policies which we have applied to this problem con
front the nature of the problem and not something else, and here one
of the reasons I am concerned about, one, the nature of some of the
broader programs of public service employment—and I would like
to collaterally say a few things good about unemployment insurance,
although a number of people I think have said things with which I
agree.
215
Kccause of the fact that the vast proportion of unemployment at
any particular time is represented by people who will be back in hav
ing jobs within periods of reasonably small number of weeks, it is a
mistake to draw them out and put them at jobs or give them types of
jobs which could deflect them from searching for the jobs with a fu
ture, the jobs which are high paying, the jobs which are productive,
and I think we must be very careful, not matter how we come to on
some of these policies, to make certain that what we are doing is con
fronting the real problem.
And here, one of the reasons why I think it is important to recog
nize that unemployment insurance does serve a great and I think
more than a cushioning sort of a problem, is that it is very difficult
to fashion a program which cushions the unemployment problem
when the period is indeterminate. And in that sense, what unemploy
ment insurance does it it adjusts itself automatically, whether a per
son is unemployed for 4, 8, 12, or 16 weeks, when he goes back and
gets a job, that is over with.
And I think that one of the difficulties that we have with a num
ber of these other types of programs is you lock in people in types of
jobs which I think in very many instances makes their future em
ployment opportunities a lot less than they would otherwise be, and
I would merely suggest that when we think in terms of unemploy
ment, it—I think I ’ve forgotten who said this—it certainly does af
fect the vast number of people, but in a way not only—in one sense
because there are so many more people unemployed at one point, but
I think that we have a tendency, and I think unfortunately some of
our policy discussions too often seem to assume, even indirectly, even
perhaps even unconsciously, that when we talk about high levels of
unemployment, it is the same people all the time.
Thank you, Mr. Chairman.
Chairman H u m p h r e y . Thank you.
Congressman Heckler, I know that you have questions you wanted
to ask.
Representative H e c k l er . Yes, I do, Mr. Chairman.
I would like to thank you for structuring this really meaningful
conference, and for your continued leadership and your in-depth in
vestigation of the problems of unemployment which brought you even
to the important, in my sense, but perhaps in a national sense rather
obscure site of Fall River, Mass., in search of a meaningful under
standing of the problems of unemployment.
And I think this conference today, yesterday and today, these have
been very, very important sessions, and they have been very, very
stimulating. I am so envious of all of my colleagues who have this
sense of certainty about the answers, and the panelists as well, and I
have to confess that my own mood is a nagging skepticism, that I am
the unpersuaded juror.
.
. i n *
i.
As impressed as I am with the rhetoric which all of you have ar
ticulated, and indeed, as certain as I am that I will extract the best
proposals each has offered, perhaps offering them again later as my
own, but the fact is that despite all of this I think I have become
too disillusioned over the failures of programs which arouse great
expectations, of the failures of the Great Society to really resolve the
problems of poverty, the failure of the Economic Opportunity Act
216
to really provide economic opportunity for everyone. All of these
failures are too real in my mind, and my own sense of hope, when I
voted for many of these programs, has turned to, I think, almost a
sense of disillusionment.
Now, I am deeply troubled about unemployment. I have a district
in which there is 12 percent unemployment, and I see this as a moral
problem for the country, one which we must address. But we must
not address it in such a way as to create new expectations, and again,
the inevitable disillusionment and bitterness. And that is what I
would hope to avoid.
I have recently visited the People’s Republic of China where I saw
the work ethic in such a full blown representation that I was envious
again. And I asked many of the Chinese why they were working so
hard in this society, and they discussed the preconditions to their
revolution and to the world in which they find themselves. They ear
lier felt they were the property of the society or the landowners or
the vested interests, and now they felt a share in the nationbuilding,
and they were willing to work for it.
And that seems to me to underscore the significance of the profit
sharing proposal which one of the panelists has mentioned today,
Senator Javits.
I think this is very important, that people share in the profits. I
am deeply concerned about the fact that when we discuss unemploy
ment, there isn’t enough emphasis or sensitivity to the unemployment
among women, and I am very delighted that Mr. Harrington raised
that issue because I think that is a very real problem in this society,
and I hope that Mr. Greenspan will include in the next report of the
Council of Economic Advisers, an analysis of the impact on women
which was missing in this year’s report.
Nonetheless, I still am left with many questions, and the questions
do not go to the goals of the legislation, because I think they are de
sirable, in fact imperative. But my questions are really relevant to
the situation in which we find ourselves today, to what are the politi
cally viable alternatives which will give real meaning to this legis
lation. And I look at the—listened to the proposal for the reduction
of corporate taxes, and that’s not politically viable. And on the other
hand, we heard Mr. Burns talk about a reduction in the minimum
wage for certain categories of workers, and that is not politically
viable.
So what we are really looking at, in my judgment, at this point in
the abstract, since we cannot affect all the other related issues in one
piece of legislation, for jurisdictional reasons and others, looking at
this proposal today, as it stands, and adding it to all of the other
legislation and the costs of other legislation on the books, what are we
doing to the question of inflation and what are we doing to the eco
nomy today if we were to pass one more piece of legislation without
having the opportunity to change those other legislative issues that
the panelists have individually commented upon.
Now, Mr. Eisner, I wonder what is your response, if we cannot
change the corporate tax structure, and if Mr. Bums, if his proposal
on minimum wage and your proposal on subsidies for training youth
ai* not politically viable— and I really do not feel that they are, then
£
say, what would the impact of the Hum phrey-Hawkins bill be on inflation?
217
Mr. E isner . Well, first I should quickly say that as far as the cor
porate income tax goes, I dd not mean to suggest eliminating it
really as a method of tax reduction. The proposal generally is simply
that individual taxpayers pay—include corporate income, their share
of it-----Representative H eckler . Right.
Mr. E isner . On a cursory but not studied reading of the HumphreyHawkins bill, I do find it a generally quite attractive proposal, and I
don’t see that it should contribute to inflation in any way.
You run into many problems in something like this as to how to
avoid unintended effects, and I believe Mr. Harrington raised one
which I think you picked up which was very important, and I also
caught it in reading. You know, you have a proposal that public em
ployment be available particularly on the basis of income in the fam
ily or how many wage earners there are in the family, and that is just
a disastrous interference with individual freedom and particularly
a discouragement for women working and of young people.
So I guess the important thing would be to take that proposal and
I’m sure in the legislative process it will be carefully scrutinized and
get all kinds of expert testimony and push ahead with it.
Representative H eckler . Do you feel that there would be any im
pact on inflation if we-----Mr. E isner . No ; I don’t see how it would be an impact on inflation.
That is, to the extent you are having people produce more, it may—
if they are not producing things that go to the market, or are com
petitive with market production, then it is true you will be increasing
demand, but that would enable people to buy more. And with all due
respect again to Mr. Greenspan’s remarks of a few moments ago sug
gesting that there is a lot of salvation to be found in the attitudes
of people, in their psychologies, and if they therefore are not too
worried, the economy will advance. Not being a psychologist, I have
always been a little bit skeptical of this kind of an explanation.
I would say that the economy advances when somebody is spending
more to buy our goods or services, either Government, business, or
private nonbusiness purchasers.
Now, you can’t have it two ways. I f you want greater purchasing
power to produce more, then you have to have that, and to say that
may be inflationary I think is indicating a lack of real commitment
to full employment and prosperity, and I think that indeed has been
the critical problem now over 30 years. Every time there is a serious
effort to try to promote full employment, except in time of war, peo
ple hold back saying, “but that may be inflationary.”
Now, there can be inflationary problems when we get unemploy
ment in some sense too low, but it has hardly ever been that. In fact,
I would argue in our kind of economy you can never worry about
that except in times of war, so I hope we won’t have to worry about
it particularly. And I would say that the Humphrey-Hawkins has
nothing to do with inflation. I f it does anything by promoting more
people, by somehow encouraging training, increasing the supply of
labor, it would tend to make more products available at lower cost
and reduce inflation.
.
..
But I wouldn’t think of it as having much to do permanently with
inflation at all.
218
Representative H e ck ler . D o you look upon the goal of public em
ployment as desirable in itself, or as a temporary answer to the prob
lem of the jobless person who ultimately should find, a place in the
private sector. If that is the case and you feel the private sector is
going to provide the long-term and best-compensating job oppor
tunities, then should the public employment be slightly less attractive
than the jobs in the private sector, thereby allowing the incentive of
the private market to lure that person back into private employment?
Mr. E isn e r * I would not take the position I understand Mr. Burns
to take, of making the public employment entirely unattractive. I
think one should be concerned-----Representative H eck ler . I do not think that he said it should be
entirely unattractive; less attractive, substantially less attractive.
Mr. E isn e r . Yes, but very substantially. I think it might be a mis
take in terms of allocation of resources for the Government to pay,
let us say, a full private industry wage to people who are not able to
produce that much on a long-term basis because that would tend to
promote uneconomic operations. I would say, however, that there is
a lot of Government activity which would be highly productive,
where people could be hired to do things at which they would be
fully capable of producing an income equivalent to those in private
industry, and I would not discourage that That is to say, you know,
that we don’t really value help in our educational process or in clean
ing our land or in police forces or anything else.
I might add just in connection with Mr. Greenspan’s remarks on
unemployment insurance that I can see some problem, which I am
sure Mr. Greenspan is aware of, as are all economists, and that is that
there are—without saying that that’s a major source of our unem
ployment, no doubt many people with unemployment benefits figure,
well, I don’t have to look that hard for a job, or I can afford to quit
this job and I will get some benefits, but I ’m a little bit puzzled at
why in that context he would not want to encourage the availability,
perhaps insist upon public employment rather than unemployment
benefits.^
That is, I would think that if a person were told, well, you have
unemployment benefits for 4 or 8 weeks but then you’ve got to go to
work on some Government job or else you lose it, you mignt get some
of these people to opt for looking a little bit harder for private em
ployment.
Representative B r o w n of Ohio. I just read in the Times of 30
steps to ease inflation. You have at least three governments in the
world, the British, the Italian, and the Argentine that are apparently
about to collapse because of inflation rates, primarily.
Now is that not a danger? Is there no stability danger in inflations
Mr. E is n e r . Well, I may come perilously close to suggesting that
inflation is not a problem. I can imagine catastrophic inflation which
would demolish the economy, but that is really not the problem. You
know, we have spectacles of very prosperous economies with a lot of
inflation*
You know, my good colleague, Milton Friedman, south of me in
Chicago, was fond of saying, you know, you can show high growth in
inflation or low growth. I think Mr. Greenspan has just indicated
219
you can have unemployment sometimes with inflation and sometimes
expansion with it or without it.
The problems of the Italian economy, even for those of us who view
it from afar, are pretty deep. There is a very ineffective governmental
system with huge amounts of graft and corruption, and I am no
specialist----Representative B rown of Ohio* Large public employment.
Mr. E isner . That could be. If you have wasteful public employ
ment, that could do it, but it is not the inflation per se. I mean, if
their economy were growing, if output were increasing, if they were
close to full employment---- Representative B rown of Ohio. Through Government employment
now?
Mr. E isner . Through either means, whatever the means. If the real
output is growing. Of course, if the Government is simply hiring
more people and having them sit on their shovels and do nothing,
then people will feel a depressed standard of living.
But there is an economic crisis when people do not have the goods
that they need, and that is the real problem.
Chairman H u m p h r ey . All right.
Congressman Rousselot, you want to comment?
Representative R ousselot. I think the time has really passed for
too much more comment. I have enjoyed the chance to be here and
sit for 2 hours and listen. That is a new experience for me, and I
guess it is good discipline.
I really would have liked a chance to----Chairman H u m p h r e y . Why don’t you take it now ?
Representative R ousselot. I don’t want to take the time of other
people. Everybody keeps moving on to lunch or wherever they’re go
ing. I don’t want to be the one to hold everybody up.
I was hoping we could discuss more extensively—in the Banking
and Currency Committee, we have talked many times about the im
pact of unemployment insurance and its length—not the fact that
we don’t need it. As Mr. Burns has said many times, when he was
in the academic community during the 1930’s, they generated the
idea of unemployment insurance to cushion the ability of the lower
income people to be able to adjust to other jobs and give thena a
chance to adjust, whereas the wealthy didn’t need the adjustment be
cause they usually had savings and other things to cushion their ad
justment when they were confronted with unemployment.
But the question that I have is that unemployment insurance that
is 65 weeks has become highly expensive and—I mean for the length
of time—and is there a question whether, as Mr. Eisner says, the
person tend to wait until the last—not all of them do, obviously—
but do they tend to wait until the last 4 or 5 weeks before they
seriously look for a job?
_ _
u vi *
. Well, in all cases, they of course do not, but I would like to put it
in the record, Senator, a letter from Arthur Burns which was a re
sponse to questions that I had raised on this issue of unemployment
insurance and the extent of time.
,.
Chairman H umphrey. We will put that in the record at this po
[The letter referred to follows:]
73-285 0 - 76 - 15
220
C h a ir m a n
of t h e
B o ard op G o ver n o rs,
F e d e r a l R e s e r v e S y s te m ,
Washington, D.C., March 11,191$.
Hon. J o h n H. R o u s s e l o t ,
House of Representativest
Washington, D.C.
D e a r M r . R o u s s e l o t : Your letter of March 1 requested information on re
search studies dealing with the effects of unemployment insurance on incen
tives to work. This question has only recently begun to receive much attention,
and the results of the studies undertaken to date must therefore be regarded
as tentative. Nevertheless, I think you would find some of them of interest.
Kathleen Classen of the Public Research Institute studied the effects of
unemployment insurance on job search and the duration of unemployment in
a paper entitled “The Effect of Unemployment Insurance: Evidence from
Pennsylvania.” This area was also investigated by Stephen Marston in a paper
entitled “The Impact of Unemployment on Job Search,” ( Brookings Economic
Papers, 1975). Both of these scholars concluded that unemployment insurance
benefits reduce the intensity with which an unemployed person seeks a job,
and this tends to increase the duration of unemployment.
There are two papers by Martin Feldstein that you may find of interest—
“ Unemployment Compensation: Adverse Incentives and Distributional Anom
alies” ( National Tax Journal, 1974” ) and “ “ Unemployment Insurance: Time
for Reform” (Harvard Business Review, 1975J.
The GAO has also conducted a recent study entitled Problem of Filling
Job Orders and Placing Job Applicants in Massachusetts. In this study, it was
found that the Masachusetts Division of Employment Security was able to
place workers who did not receive unemployment insurance benefits in new
jobs much more readily than workers who received such benefits.
I believe a searching review should be made by the Congress of our present
unemployment insurance programs and their effect on workers' incentives. If
I can be of any further assistance to you in such an endeavor, I would be
most happy to do so.
Sincerely yours,
A rthur
F.
B
urn s.
Representative R ousselot . Mr. Bums discusses several Brookings
economic reports and another one that was done on the effect of
unemployment insurance in Pennsylvania, a very detailed study,
and I am sorry we didn’t get more time to get into the minimum
wage, because I really think that does have a substantial derogatory
impact on youth and, in some cases, women.
I see our panelist, Mr. Harrington, shaking his head, and I am
sorry I really haven’t had a chance to talk to him about the benefits
o f socialism, because I really would like to hear about all the benefits
o f socialism in England. That’s the glaring-----Mr. H ar r ing ton . One word, Senator, because I am afraid we are
going to suffer from the English example for the next 10 years.
Representative R ousselot . I hope we don’t.
Mr. H ar r in g to n . I wish the Congressman might look at the
Swedish example, where unemployment is under 2 percent. Second,
in considering-----Representative R ousselot . If I might respond to that, they
give tremendous tax credits to their business to encourage them to
create new jobs and new equipment and they give tremendous in
centives to their private sector to produce jobs.
Mr. H ar r in g to n . O f course.
Representative R ousselot . T h e y don’t rely just on govern m en t.
_ Mr. H a r r in g t o n . O f course. But all I am saying is that the
British thing is going to be driven to death,
une last point on Britain------
221
Representative R ousselot . Oh, it’s not driven to death. We just
don’t want to go down the same road.
Mr. H a r r in g t o n . All right.
One last point on Britain, I would just point out to you that the
Heath government spent Sy2 years in giving massive governmental
subsidies to private business and had enormous public borrowing
for that purpose. And what bothers me is that we are in danger
in this society of coming to a very facile generalization, because
in a society with a welfare state of some substance a crisis has
occurred, we will say that because it is a welfare state it is on account
of the welfare state.
In reality, I think the English situation is much more complex and
involved English capitalism as well as English socialism, if you
will, it involves the Conservative Party as well as the Labor Party.
I think we have to be very careful—
Representative R o u ss e l o t . It is true also that the nationalization of
major industries has been a massive failure.
Mr. H a r r in g t o n . I am afraid that they did what we are doing
with the railroads: They nationalized all of the industries that were
totally messed up by British capitalism. I wish that on occasion
somewhere in this world we would nationalize a going concern.
Chairman H u m p h r e y . Well, I hope that we would keep the con
versation somewhat within the purviews of the American scene. We
are celebrating our bicentennial. I no longer thought we were a
colony.
Go ahead.
Mr. J o h n s o n . I ju st wanted to add a comment on unemployment
compensation.
I don’t think most persons who have been unemployed long
relish being unemployed. There is a psychologically debilitating
effect there and I think most of us recognize that continued unem
ployment is something that they would cheerfully give for any kind
of a good job.
I think the notion that after 13 weeks they might be referred to
a public employment for a chance to keep their skills up would be
a very major step forward. I join in deploring the 65 weeks. If
we spend that kind of money, why not have the person working and
have the community getting the benefit of that.
So I would not want my silence to be an expression of agreement.
I also want to add one footnote to Congresswoman Heckler’s
comment, I think a counsel of either cynicism or despair bv appointed
or elected officials is devastating to the public. I think if those of
us who hold public office are not willing to keep the faith, as Adam
used to say, the public really is being served very badly by us,
and if we feel that cynical or that despairing, we really ought to
resign.
Chairman H u m p h r e y . Well, now, gentlemen, we have come to a
point where we are going to let our panelists retire and enjoy a
luncheon.
Let me just add for the record a letter I received from Mr.
Leonard Woodcock in reference to the endorsement by the UAW s
222
Convention of the Full Employment and Balanced Growth Act of
1976 known as the Humphrey-Hawkins bill, and I will ask that
it be included in the record at this point.
[The letter referred to follows:]
I n t e r n a t io n a l U n io n , U n it e d A u t o m o b il e , A er o s p a c e
A g r ic u l t u r a l I m p l e m e n t W o r k e r s o f A m e r ic a - U A W ,
an d
Detroit, Mich.t March 18,1976.
Hon. H u b e r t H, H u m p h r e y ,
U.S. Senate,
Washington, D.C.
D e a r S e n a t o r H u m p h r e y : I regret not being able to attend the Joint Eco
nomic Committee’s National Conference on Full Employment.
I would appreciate it if, at the Conference, you would indicate that my ab
sence is due to the UAW’s Collective Bargaining Convention— which is meeting
March 1&-20—and that the Convention adopted today the attached resolution
endorsing the proposed “ Full Employment and Balanced Growth Act of 1976”
and urging its speedy passage.
Sincerely,
L eonard W
oodcock,
President
Enclosure.
F u ll
E m p lo y m e n t
1976, UAW
a n d N a t io n a l E c o n o m ic P la n n in g , A d op ted M a r c h
C o lle c t iv e B a r g a in in g C o n v e n tio n , D e t r o it , M ic h .
18,
The opportunity to find a job at decent pay must be made a fundamental
economic right. A worker without a job is robbed of his human dignity and the
chance to enjoy self-fulfillment.
Persistent unemployment is a pervasive problem in the nation which im
pinges on all other social ills. Being without a job and without the hope of
finding a job corrodes confidence in our way of life, generates insecurity and
is an economic dead-weight amounting to billions of dollars in lost goods and
services.
A full employment economy is in the best interests of employers, since those
who earn are the customers who purchase the goods and services offered by
the employers. It is* in the best interests o f the workers because their job
security and the enhancement of their standard of living depend on having a
job and the economic security that goes with i t It is the interests of the nation
as a whole because full employment is essential for economic stability and
social tranquility. Full employment is the key to a general prosperity, with
full production, a stable economy and a government with a social conscience.
For nearly three decades the Full Employment Act of 1946 has promised
but never mandated a national policy of full employment. The millions of the
chronically unemployed and the millions of cyclically unemployed are testi
mony to the falure of our nation to move beyond stated policy to the actual
implementation of a full employment program.
Moreover, the past three decades have also seen th e use o f a sophisticated
“numbers game” whereby “full employment” is defined as an every-increasing
percentage of unemployment. Involuntary unemployment Is morally unaccept
able in a democratic society which takes pride in its political Bill of Sights
but fails to guarantee an economic Bill of Rights to its people.
Those of little faith and even less compassion argue that full employment
cannot be achieved without substantial rates of inflation. We maintain that
full employment and inflation are not inseparable partners. Indeed, genuine
full employment will help to fight inflation and make possible an e v e r -in c r e a s ing improvement in the quality of life.
For years now, only lip-service has been given to the notion of ft full em
ployment economy. Except in wartime the nation has never mustered its cco59*2*5
to eradicate unemployment. In fact, however, fulfillment of the goal
or rail employment can be achieved.
Proposed legislation, known as the Hawkins-Humphrey bill, has been intro*
e Hj ? we (H R * 50>
Senate (S. 50). Its title is the “ Full 8 * '
Woyment and Balanced Growth Act of 1976.” The most recent (March
223
1976) version of that bill provides the basis for effective legislative action.
It specifies that every adult able, willing and seeking to work has a right
to useful employment at a fair rate of compensation. The federal government
is to take action so that their unemployment rate will not be more than 3 per
cent, and to achieve that within 4 years. In addition, the federal government is
to undertake special programs aimed at unemployment among young people.
The bill recognizes that traditional government activity—through fiscal and
monetary policy— has not been sufficient to achieve and maintain full em
ployment, and provides that supplementary employment policies are to be
utilized. These policies would include public service employment, public works
grants to state and local government, and other activity aimed at cyclical
and structural unemployment.
A most important feature of the bill is that it specifies procedures for demo
cratic national economic planning to achieve full employment as well as other
important social goals such as: development of energy, transportation, food,
small business, and environmental improvement programs, improved health
care, education, day care, and housing, etc.
In short, the Hawkins-Humphrey bill would clearly establish a national
full employment policy, and would create the mechanisms needed to implement
that. Further improvements could be made in the bill; that is true of every
piece of legislation; nevertheless its enactment would be a true breakthrough
in the struggle for economic justice. Many individuals and groups—including
UAW and AFL-CIO leaders—have participated in the development of this
bill. Therefore, it is expected that support for the bill will be widespread and
enthusiastic.
The UAW will make a major effort, by every level of the Union, in the
U.S., to bring about speedy passage of the Full Employment and Balanced
Growth Act of 1976.
The UAW fully supports the principles and provisions of that Act as set
forth in the Hawkins-Humphrey bill (H.R. 50 and S. 50). We will support
feasible proposals which would further improve the bill, but such activity
must not be allowed to substantially delay congressional action. Now is the
time for enactment of effective full employment legislation; nothing could be
a better Bicentennial event.
A national petition drive to secure widespread individual endorsement of
the Act has been initiated by the National Committee for Full Employment.
The UAW endorses that petition drive and will participate in that effort.
Chairman H u m p h r e y . I should also like to note that on the mat
ters that we have been talking, just to fill the record here a little,
that there are IVi million workers who have been unemployed or
out of work for over 6 months. I say this because I think Mr. Green
span made a point that there are different types of unemployment
and we need to, as we look at any legislative proposal, be cognizant
of the different types of unemployment, but here are 1% million of
them—and by the way, that IV2 million will be without benefits very
shortly, because the funds are all used up, which poses another prob
lem that no one has really directed their attention to.
I also note that the 1975 national average weekly unemployment
benefit paid by the States was $70. That’s gross; $70 a week. In this
day and age, that is not exactly living it up.
There are a number of States that paid unemployment compensa
tion benefits less than the average—Mississippi paid $48 a week;
Texas, $54 a week; New Mexico, $55 a week; Oklahoma, $56 a week;
Tennessee, $57 a week; and I also include at this point reference to
the rates of unemployment that have existed in other countries over
a 10-year average from 1962 to 1973—that is before the high unem
ployment rates, and when we were having relatively good employ
ment as well.
. 1
11
Japan, 1.3; France, 1.8; Germany, 1.3; United BSngdom, with all
°f its problems, 2.4; and during that same period of time, our un
224
employment rate was up over 5 percent 011 the average.
So we still have problems of unemployment that we cannot afford
to ignore or to pietond that they are nonexistent.
I wish that Mr. Burns had not left, because he made such a humor
ous comment about the White House and monetary polic\. I can only
think of one thing worse than having it made in the White House
and that is a group of people making it who lhive a special interest
in high interest rates. I consider that a conflict of interests.
I think that political leaders making monetary policy and trying
to be specalists would be a disaster, but I do rhink that political peo
ple have the responsibility to set goals and to set targets. That is
what the political process is for, and then we rely on the so-called
experts or technicians to help us accomplish those goals.
But if the Federal Reserve banking system essentially becomes the
province of the bankers, that is an outright conflict of interests, and
when I see five members of the Federal Reserve Board being from
the banking establishment and two from the academic community
and no one representing industry, no one representing manufactur
ing, no one representing agriculture -and it was said here agricul
ture needs credit--and 110 one representing labor or the consumer,
it seems to me that that is a stacked deck.
Now that does not mean that we ought not to have prominent
banking people—I think they ought to be there—but I am speaking
now of the Federal Reserve'Board, not the Federal Reserve banks
in their respective districts. I am talking about what is supposed to
be a Government entity, because the Federal Reserve bank out in the
district is a different animal entirely than the Federal Reserve Board.
The Federal Resene Board is a public policy board with members ap
pointed by the President and confirmed by the Senate.
We don’t confirm the members of the Board of Minneapolis of the
Federal Reserve Board; those are not confirmed at all by us. We have
nothing to do with them per se as a member of Congress.
Now, we didn't confirm our good friend hen*, Frank Morris, who
has given us outstanding testimony today. That comes out through
the Federal Reserve bank system of his region.
I just think people that use credit ought to have something to say
about its supply, that’s all. And I don’t think that a C o n g r e s s m a n
ought to tell you what the credit ought to be, but T do think the cen
tral bank ought to have better representation.
It has been my prejudice and just my point of view, and I don t
want Congress to have to run the system.
I would finally add that the purpose of the H u m p h rey-H aw k in s
bill is not to see that within 1 year, there is no projection of putting
people on massive Government payrolls.
The emphasis, as has been stated here, even as a point of criticism,
was to rev up, to stimulate the private economy, and how?
By trying to have the President in cooperation with the Council
of Economic Advisors to present to the Congress annual goals for
production, employment and purchasing power. Congress would then
debate these targets and would resolve them one way or another, ana
the Federal Reserve Board would be required to issue a report either
concurring with these targets or explaining why the Fed would not
conduct the monetary policy necessary for achieving them, to gs*
some accountability.
225
And then, might I add that the President would be required,
under this act, with the advice, extending the jurisdiction of the
Council of Economic Advisors, to present to the Congress that kind
of tax proposal, fiscal policy, the kind of employment policy, training policy, manpower policy, whatever is required, to try to achieve
a goal.
For example, if we had this now in the year 1976, would it be im
possible to say that at the end of 1976 unemployment should be not
more than 6 percent, that is a goal; or that gross national product
should have a real increase of 8 percent; that is a reasonable goal.
And if you did that—and said that the inflation rate should not ex
ceed 4 percent; then you direct the policies to the Congress of the
United States and the" Congress debates those policies to see whether
or not those goals and policies are ascertainable, and if those targets
are ascertainable in the judgment of the elected officials, then policies
must be effectuated to accomplish them.
Not that the Government does it, but if it requires, for example,
a change in the tax system, better investment, or more training as
has been said—and I think the point has been well made here that
capital accumulation is not merely in money, but in skills.
I f those activities are necessary, then we ought to go at them.
I believe, and I want to say very frankly, that I never feel that
any legislation that is introduced is the ultimate. It is a projection.
It is an expression of hope. It is a point around which you focus
attention.
But we need to decide just one question, because it is here. Are we
going to permit the rate of unemployment to exist for the next 3 or
4 years that no one in the Government has estimated will be less than
5 percent by 1980? Are we going to permit more and more people to
lose their unemployment compensation benefits, to be on welfare, to
be on the die, or are we going to provide some other alternative?
That is all it boils down to.
I don’t think there is any other choice. You just can’t have a
maybe attitude here. You have to make up your mind to try to do
in our system—and I say in this capitalistic, or mixed system; it
isn’t just capitalism, it is a mixed system—are we going to put the
emphasis there in every way we know to get the employment ex
panded and unemployment absorbed?
Let’s assume that miracles are performed. Let’s presume that we
have a 10 percent real growth in GNP. which would mean that by
the end of this year, calendar year 1976 we could have 6 percent
unemployment.
_ .
^
That’s about the best we could get; wouldn’t that be right, Mr.
Greenspan? About 6 percent?
That leaves you 5V£ to 6 million people unemployed. Lets say
that of that 5Vi or 6 million, only 2 million are really long-term
unemployment. I think you make a well-established point; there is
a lot of transitional unemployment, mobility; there is the constant
movement in our labor force. Well, let’s say there are 2 million. What
arfc you going to do with them ? What kind of waste are we willing to
tolerate?
226
I think then the question becomes simply this—and these are real
alternatives—either you have an income—maintenance program for
them, because you can’t let them starve, or you have an incomemaintenance program for them—of what? Well, at least you would
have to get it up to the poverty levels—or you have an employment
program for them. There isn’t anything else.
You can’t put them to sleep. That’s it.
And so I think that what we are really talking about here is
structural reformation of economic policymaking machinery on the
one hand, structural analysis of the unemployment problem in the
country, the labor force, and then facing up to the gap, the lag,
between the ability of the private sector as well as upfront Govern
ment employment.
I think that point is well made. The ability of private employment
plus upfront Government employment, which is just regular service,
to absorb the unemployed.
If it can’t absorb it, then the question becomes how do you handle
the human equation. Because economics loses its meaning as a science
when it gets down to the point where it says, well, we can forget 2,
3, 4, 5 million people.
I
repeat what I said at the beginning, that no public policy can
be justified for price stability that requires as the price as stability
ever increasing destitution on the part of a substantial number of our
fellow citizens. You can’t do that.
That is exactly like saying that is the way you get law and order
is that if there are too many people on the streets, you shoot them.
You can’t do that.
It is a terrible thing that has happened in this country that we
have gotten down to the point where we are arguing about details
when we really ought to be asking ourselves not the question of
whether we ought to do it, but simply the question of how we ought
to do it.
Fortunately, the witnesses here today are all of the mind that
we ought to do it, and now the question is, which is the best way ?
This afternoon, we will have policies for achieving full employ
ment, We have explored the problem; now we will bring in the clinic:
Walter Heller, former chairman, Council of Economic A dvisers;
Alice Rivlin, Director of the Congressional Budget Office; Leon
Keyserling, former Chairman, Council of Economic A d v ise r s; Eli
Ginsburg, Chairman of the National Commission on M a n p o w e r
Policy; and Mr. Hendrik Houthakker of Harvard U niversity, ft
fonner member of the Council of Economc Advisers.
So we have a panel of five very iminent people.
The discussants will be William Spring of Boston U n i v e r s i t y ;
Stanley Frankel of the Ogden Corp.; Hugh O’Malley of the Small
Business Service Bureau; and Jules Sugarman, chief administrative
officer of the city of Atlanta, Ga.
Following that panel, we will have audience participation, for any*
one who wishes to get up and ask a question or make a speech.
Representative R o u s s e l o t . Mr. Chairman.
Chairman H umphrey. Yes.
. Representative R o u s s e l o t . I would like to bring to the a t t e n t i o n
of nay colleagues, and to those participating in this c o n fe r e n c e , an
innovative solution to the problem of unemployment and recession
227
in our Nation. The Jobs Creation Act of 1975, H.R. 10015, intro
duced by Representative Jack Kemp (R.-N.Y.) and cosponsored by
myself, is a viable free-enterprise alternative to the HumphreyHawkins Full Employment and Balanced Growth Act of 1976. The
Jobs Creation Act, which currently enjoys the support of over 80
Members of the House of Representatives, would emphasize the
role of the private sector, rather than the Government, in providing
employment for the Nation’s jobless and in sustaining a strong
recovery. It would accomplish this through appropriate tax in
centives, capital investment tax credits, accelerated depreciation
allowances, and other appropriate measures to encourage capital
formation and otherwise promote a vigorous strengthening of the
free-enterprise system.
I have two things I would like to put into the hearing record: A
copy of the bill, H.R. 10015, together with the remarks of Repre
sentative Jack Kemp and myself concerning the legislation.
Chairman H u m p h r e y . D o y o u have it here?
Representative R o u s s e l o t . Yes, I do.
Chairman H u m p h r e y . It will be included.
Representative R o u s s e l o t . And second, in my own district we
have tried now for 3 years a Re-Employment Action Committee
(REAC), which helps the jobless, and I would like to submit for
the record some of the results of that.
Chairman H u m p h r e y . That is the one that we heard of when we
were in Los Angeles?
Representative R o u s s e l o t . That is correct.
Chairman H u m p h r e y . I t has an enviable record, I might say.
Thank you, the material will be included in the hearing at this
point.
[The material referred to follows:]
228
SH tii
CONGRESS
V
V
f* %
S n H. R.
4
/\ /v
1
0
0
4
1
m*
5
IN THE HOUSE OF REPRESENTATIVES
O cto b er
Mr.
K e m p ( fo r
himself, Mr.
K a ils b a c k ,
M r . T a l c o t t , M r. R o i'S s e lo t,
Mr.
3,1975
Mr.
D on
(o lm x s of
H. C l a c s e x , Mr. C le v e l a n d ,
Texas, M r . M i l l e r o f Ohio,
an d M r . L a o o m a h six o ) introduced the fo llo w in g b i l l; w h ich w as referred
to the C om m ittee on W a y s and
Means
A BILL
To accelerate the formation of investment capital required to
expand i>oth job opportunities and productivity in the private
sector of the economy.
1
Be it enacted by the Senate and House of Representa-
2 fives of the United States of America in Congress assembled;
3
That this Act may be cited as the “Jobs Creation Act of
4
1975 ” .
Sk c. 2. T a b l e o f C o n t e x t s . —
5
Sec.
Sec.
Sec.
Sec.
Sec.
1.
2.
3.
4.
5.
Short title.
Table of contents.
Tax credits for qualified savings and investments.
Individual retirement accounts, savings, and bonds.
Exclusion from gross income of amounts received by an individual
as dividends from domestic corporations.
Sec. 6. Limited exclusion of certain capital gains.
I
229
2
Sec. t. Extension of timie for paj'ment of estate tax where estate consists
largely of interest in closely held business.
Sec. 8. Interests in family farming operations.
Sec. 9. Adjustment of corporate normal tax rates.
Sec. 10. Adjustment of corporate surtax rate.
Sec. 11. Increase in corporate surtax exemption.
Sec. 12. Increase in investment credit.
Sec. 13. Increase in class life variance for purposes of depreciation.
Sec. 14. Capital recovery allowances.
Sec. 15. Alternative amortization period for pollution control facilities.
1
TAX CREDITS FOR QUALIFIED SAVINGS AND INVESTMENTS
2
S e c. 3.
(a)
In G e n e r a l .— Subpart A
(relating to
3
credits allowable) of part IV of snbchaptcr A of chapter 1
4
of subtitle A of the Internal Revenue Code of 1954 is
5
amended by adding at the end thereof the following new
6 section:
7
“SEC. 43. INCREASED SAVINGS AND INVESTMENTS BY IN
8
DIVIDUALS.
9
“ (a) I n G e n e r a l .— There shall be allowed to an indi
10
vidual, as a credit against the tax imposed by this chapter
11
for the taxable year, an amount equal to 10 percent of the
12
increase in the total amount of qualified savings deposits and
13
investments such individual made during such year over the
14
amount of total qualified savings deposits and investments of
15
the individual made during the prior year.
1G
“ (b) L im i t a t i o n . — The credit allowed bv subsection
17
(a)
18
the case of a joint return under section 6013).
for a taxable year shall not exceed $1,000 ($2,000 in
19
“ (e) D e f i n i t i o n s .— For the purposes of this section—
20
“ (1 ) Q u a l i f i e d s a v in g s d e p o s its a n d in v e s t -
230
3
1
m e n t s . — The
term qualified savings deposits and invest
2
ments means—
3
“ (A) amounts deposited in a savings deposit or
4
withdrawable savings account in a financial insti
5
tution;
6
7
“ (B)
amounts used to purchase common or
preferred stock in a domestic corporation;
8
“ (C) amounts used to purchase a bond or other
9
debt instrument issued by a domestic corporation;
10
“ (D) amounts equivalent to increases in the
11
surrender value of life insurance and annuities se
12
cured from domestic life and mutual companies.
13
“ (2) F i n a n c i a l i n s t i t u t i o n . — The term ‘finan
14
cial institution' means—
15
“ (A) a commercial or mutual savings bank
16
whose deposits and accounts are insured by the Fed
17
eral Deposit Insurance Corporation or otherwise
18
insured under State law;
19
“ (B) a savings and loan, building and loan, or
20
similar association the deposits and accounts of
21
22
23
which are insured by the Federal Savings and Loan
Insurance Corporation or otherwise insured under
State law;
24
“ (C) a credit union the deposits and accounts
25
of which are insured by the National Credit Union
231
4
Administration Share Insurance Fund or otherwise
insured under State law; and
3
“ (D) a life insurance or mutual company duly
4
chartered by a Shite, territory, possession, or Dis
5
trict of Columbia, and in good standing there
6
with.” .
7
()>)
T e c h n i c a l A m e n d m e n t .—
The table of sections
8 for such subpart A is amended by adding at the end thereof
9
the following:
"Sec. 43. Increased savings and
viduals.”
10
(c)
E ffe c tiv e
D a t e . — The
investments
by indi
amendments made by
11
section (a) of this section shall apply to qualified savings
12
deposited and investments made 'after December 31, 1974.
13
i n d i v i d u a l r e t i r e m e n t a c c o u n t s , SAVINAS, a n d bon d s
14
Sec.
4. (a) Section 219(b) (1)
(relating to the maxi
15
mum deduction for retirement savings) of part V II of sub
16
chapter B of chapter 1 of subtitle A of the Internal Revenue
17
Code of 1954 is amended by striking out “$1,500” and
18
inserting in lieu thereof “ $2,000” .
19
(b)
Section 408 (relating to individual retirement ac
20
counts) of subpart A of part I of subchapter D of chapter 1
21
of subtitle A of the Internal Revenue Code of 1954 is amend
22
ed by striking out “$1,500" in the three instances in which
23
said figure appears and by inserting in lieu thereof “$2,000 .
232
5
.1
(c) Section 409(a)
(relating to retirement bonds) of
2
subpart A of part I of subchapter D of chapter 1 of subtitle
3
A of the Internal Revenue Code of 1954 is amended by strik-
4
ing out “$1,500” and by inserting in lieu thereof “ $2?000” .
5
(d) The amendments made by subsections (a),
6
and (c) of this section shall apply to taxable years beginning
7
after December 31, 1974.
8
E X C L U S IO N F R O M GROSS IN C O M E OF A M O U N T S RECEIVED
9
BY
AN
IN D IV ID U A L
AS
DIVIDEN DS
FROM
(b),
D OM ESTIC
10
CORPORATION S
11
Sec. 5. (a) (1) Subsection (a) of section 116
12
lating to partial exclusion of dividends received by individ-
13
uals)
14
Revenue Code of 1954 is amended to read as follows:
15
16
mi
(re-
part III of subchapter B of chapter 1 of the Internal
“ (a)
E x c l u s io n F r o m G ross I n c o m e .— G ross in-
come does not include amounts received by an individual
^
as dividends from domestic corporations.” .
(2) The section heading of such section 116 is amended
19
by striking out “ PARTIAL EXCLUSION” and inserting in lieu
20
thereof “ EXCLUSION” .
21
(3) The table of sections for part I I I of subchapter B
22
of chapter 1 of such Code is amended by striking out the item
23
relating to section 116 and inserting in lieu thereof the
24 following:
“Sec. 116, Exclusion of dividends received by individuals.”.
233
6
1
(4) Section 643(a) (7) of such Code is amended by
2
striking out “partial exclusion” and inserting in lieu thereof
3
“ exclusion” .
4
(b) The amendments made by the first subsection of
5
this section shall apply to taxable years beginning after
6
December 31, 1974.
7
8
9
L IM IT E D E X C L U S IO N OF C E R TA IN C A P IT A L GAIN S
S ec . 6. (a) I n G e n e r a l .— P art I I I (relating to items
specifically excluded from gross income)
of subchapter B
10
of chapter 1 of the Internal Revenue Code of 1954 is
11
amended by—
12
(1) redesignating section 124 as section 125, and
13
(2) inserting immediately after section 123 the fol-
14
lowing new section:
15
“SEC. 124. LIMITED
16
GAINS.
17
1$
EXCLUSION
OF
CERTAIN
CAPITAL
“ (a) G e n e r a l R u l e . —In the case of a taxpayer other
than a corporation, gross income for the taxable year does
19
not include an amount equal to the net section 1201 gain
20
resulting solely from the sale or exchange of securities, to
21
the extent that such amount does not exceed $1,000.
22
<‘ (|>) E x c e p t io n . — Subsection (a) does not apply to a
23
taxpayer who is subject to the tax imposed under section
24
1201 ( b ) .
25
26
“ (c ) D e f in it io n s .—
N e t s e c tio n
1201 g a in .— The term 'net-
234
7
1
section 1201 gain' has the same definition it has under
2
section 1222 (11).
3
4
5
“ (2-)
S e c u r it ie s .— T he term 'securities’ has the
same meaning it has under section 1 0 5 (g ) ( 2 ) . ” .
(b) T e c h n i c a l A m e n d m e n t s .—
6
(1) Section 1202 of such Code (relating to deduc
7
tions for capital gains) is amended by adding at the end
8
thereof the following new sentence: “Xo amount of such
9
excess shall be allowed as a deduction under this section
10
to the extent such amount is excluded from gross income
11
under section 124.” .
12
(2) The table of sections for part III of subchapter
13
B of chapter 1 of such Code is amended by striking out
14
the item relating to section 124 and inserting in lieu
15
thereof the following:
uSec. 124. Limited exclusion of certain capita? gains.
‘‘See. 125. Cross references to other Acts.”.
16
(c) E f f e c t i v e D a t e . — The amendments made by this
17
section apply to sales or exchanges of securities occuring after
18
December 31, 1974.
19
e x t e n s io n s
of
t im e
for
paym ent
of
estate
tax:
20
WHERE ESTATE CONSISTS LARGELY OF INTEREST IN
21
CLOSELY HELD BUSINESS
22
Sec.
23
7. (a) E l i m i n a t i o n o f R e q u i r e m e n t o f U n
d u e H a r d s h i p ,—
Section 6161 (a) (2)
(relating to exten
24 sion of time for paying estate tax) of subchapter B of chap-
235
8
1
ter 62 of the Internal Revenue Code of 1954 is amended
2
by striking* out “ undue” before ‘‘hardship” .
3
(b) E f f e c t i v e D a t e . — The amendment made by sub-
4
section (a) shall apply only with respect to estates of de-
5
redents dying after December 31, 1974.
6
7
IN T E R E S T S
Sec. 8.
IX
(a) I n
F A M IL Y
F A H M IX G
OPERATIONS
G e n e r a l.— -Part IV
(relating to tax-
8
able estates of citizens or residents) of subchapter A of eliap-
9
ter 11 of the Internal Revenue Code of 1954 is amended
10
by adding.at the end thereof the following new section:
11
“SEC. 2057. INTERESTS IN FAMILY FARMING OPERATIONS.
12
“ (a)
G e n e r a l R u l e .— For purposes of the tax im-
13
posed by section 2001, the value of the taxable estate shall
14
be determined by deducting from the value of the gross
15
estate the lesser of (1) $200,000, and (2) the value of the
16
decedent’s interest in a family fanning operation continually
17
owned by decedent or spouse during the 5 years prior to the
18
date of his death and which passes or lvas passed to an indi-
19
vidual or individuals related to him or his spouse.
20
“ (b)
S u b se q u e n t D is q u a lific a tio n
R e s u l t s in
21
D e f i c i e n c y . — The difference between the tax actually paid
22
under this chapter on the transfer of the estate and the tax
23
which would have ken paid on that transfer had the interest
24
in a family fanning operation not given rise to the deduction
25
allowed by paragraph (a) shall be a deficiency in the pay-
73-285 0 - 76 - 16
236
0
1
ment of the tax assessed under this chapter on that estate
2
unless, for at least 5 years after the decedent's death—
3
“ (1 ) the interest which gave rise to the deduction
4
is retained by the individual or individuals to whom such
5
interest passed, and
6
7
8
9
10
“ ( 2)
the individual or any of the individuals to
whom the interest passed resides on such farm, and
“ (3)
such farm continues to qualify as a family
farming operation.
“ (c ) D e a t h
of
S u b s e q u e n t H o l d e r .— In the case of
11
the subsequent death of an individual to whom the interest
12
in a family farming operation has passed, his successor shall
13
be considered in his place for purposes of paragraph ( b ) .
14
15
16
17
“ (d) D e f in it io n s .—
“ (1)
F a m il y
f a r m in g o p e r a t io n s .— A
‘family
farming operation’ is a farm—
“ (A )
actively engaged in raising agricultural
IB
crops or livestock ‘for profit’, within the meaning of
19
section
20
21
22
23
18*3, and
“ (B )
over which the ow ner or one of the
owners exercises substantial personal control and
supervision.
u (2 )
R e l a t io n s .— A n individual is ‘related’ to the
24
decedent or his spouse if he is that person’ s father,
25
mother, son, daughter, grandson, granddaughter, broth-
237
10
er, sister, uncle, aunt, first cousin, nephew, niece, hus
2
band, wife, father-in-law, mother-in-law, son-in-law,
3
da,ughter-in-law, brother-in-law, sister-in-law, stepfather,
4
stepmother, stepson, stepdaughter stepbrother, step
5
sister, half brother, half sister, or in the absence of any
<i
of the above his next of kin.” .
7
(b) The amendments made by this section shall apply
8 to taxes imposed by section 2001 after December 31, 1974.
9
10
a d ju stm e n ts o f corporate norm al t a x r a te
Sec. 9. (a) A d ju stm e n ts o f Corporate N orm al
11
T a x B a te . —Section 11(b)
12
imposed on corporations) of part II of subchapter A of
13 chapter 1 of subtitle
34
15
K)
17
18
19
20
(relating to the normal tax
A of the Internal Bevenue Code of
1954 is amended to read as follows:
“ (b) Norm al T a x .— The normal tax is equal to the
following percentage of the taxable income:
“ (1)
22 percent, in the case of a taxable year
beginning before January 1, 1975, and
“ (2)
20 percent, in the case of a taxable year
beginning after December 31, 1974.
21
For purposes of applying the percentages of tax set forth
22
in the preceding table in the case of a corporation which
23
is a component member of a controlled group of corporations
24
(within the meaning of section 1563), the taxable income
25
of the other component members of such group shall, under
238
11
1 regulations prescribed by the Secretary or his delegate, be
2 taken into account.” .
3
(b)
The amendments made by this section shall apply
4
to taxable years beginning after December 31, 1974.
5
A D J U S T M E N T OF CORPORATE S U R T A X R A T E
6
7
Sec. 10.
(a) A d j u s t m e n t o f C o r p o r a te S u r t a x
R a t e . —Section 11 (c)
(relating to surtax imposed on cor
8 porations) of part II of subchapter A of chapter 1 of Subtitle
9
10
A of the Internal Revenue Code of 1954 is amended to read
as follows:
n
“ (c) S u r t a x . — The surtax is equal to the following
12
percentage of the amount by which the taxable income ex
13
ceeds the surtax exemption for the taxable year:
“ (1) 26 percent, in the case of a taxable year end
14
15
ing before January 1, 1975, and
“ (2) 22 percent, in the case of a taxable year be
16
17
ginning after December 31, 1974.” .
18
(b)
19
20
21
The amendment made by this section shall apply to
taxable years beginning after December 31, 1974.
in c r e a s e in c o r p o r a t e s u r t a x e x e m p tio n
S ec. 11. (a) I n G e n e r a l — Section 11(d)
(relating
22
to surtax exemption) of part II of subchapter A of chapter
23
1 of the Internal Revenue Code of 1954 is amended by strik
24
ing out “$50,000” and inserting in lieu thereof “ $100,000” .
25
(b) T e c h n i c a l a n d C o n fo r m in g A m e n d m e n ts .—
239
12
1
(1) Paragraph (1) of section 1561 (a)
(as in ef-
2
feet for taxable years beginning after December 31,
oO
1974)
4
benefits in the case of certain controlled corporations)
5
of part II of subchapter B of chapter 6 of the Internal
6
Revenue Code of 1954 is amended by striking out “$50,"
7
0()<r and inserting in lieu thereof “$100,000” .
(relating to limitations on certain multiple tax
8
(2) Paragraph (7) of section 12 (relating to cross-
9
references for tax on corporations) of part II of sub
10
chapter A of chapter 1 of the Internal Revenue Code of
11
1954 is amended by striking out “$50,000” and insert
12
ing in lieu thereof “$100,000” .
13
(3) Section 962(c)
(relating to surtax exemption
14
for individuals electing to be subject to tax at corporate
15
rates) of subpart F of part III of subchapter N of chap
16
ter 1 of the Internal Revenue Code of 1954 is amended
17
by striking out “ $50,000” and inserting in lieu thereof
18
“$100,000” .
19
(c)
E ffe ctiv e D ate.—The amendments made by
20
this section shall apply to taxable years beginning after
21
December 31, 1974.
22
IN C R E A S E
23
Sec. 12. (a) I n c r e a s e
24
IN
IN V E STM E N T
o f
CREDIT
In v e s t m e n t C r e d it t o 15
P e r c e n t .— Paragraph (1) of section 4 6 ( a )
(determining
240
13
1 the amount of the investment credit) of part IV of subchap
2 ter A of chapter 1 of the Internal Revenue Code of 1954 is
3
4
5
amended to read as follows:
“ (1) General R u l e .—
“ (A)
F ifteen - percent credit .— Except
as
6
provided in subparagraph (B), the amount of the
7
credit allowed by section 88 for the taxable year
8
shall be equal to 15 percent of the qualified invest
9
ment (as defined in subsection ( c ) ).
10
11
“ (B)
T w elve - percent credit .— In
the case
of property—
12
“ (i) the construction, reconstruction, or
13
erection of which is completed by the taxpayer
14
before October 1,1975, or
“ (ii) which is acquired by the taxpayer
15
16
before October 1, 1975,
17
the amount of the credit allowed by section 38 for
18
the taxable year shall be equal to 12 percent of the
19
qualified investment (as defined in subsection ( c) ).
20
21
'“ (C)
T r a n sit io n a l r u l e — I n the case of
property—
22
“ (i) the construction, reconstruction, or
23
erection of which is begun by the taxpayer be
24
fore October 1,1975, and
241
14
I
“ (ii) the construction, reconstruction, or
2
erection of which is completed by the taxpayer
after September 30, 1975,
4
subparagraph (B) shall apply to the property to
5
the extent of that portion of the basis which is prop
(i
erly attributable to construction, reconstruction, or
7
erection before October 1, 1975, and subparagraph
8
(xV)
shall apply to such property to the extent of
9
that portion of the basis which is properly attribut
10
able to construction, reconstruction, or erection after
11
12
September 30, 1975.” .
(b)
R e p e a l . —Section 4 6 ( c ) ( 3 )
(relating to the
13
definition of qualified investment for public utility property)
14
and section 46(e)
15
certain regulated companies) of part IV of subchapter A of
(relating to the limitation in case of
16 chapter 1 of the Internal Revenue Code of 1954 are repealed.
17
(c) E f f e c t i v e D a t e . —The amendments made by sub
18
sections (a) and (b) of this section shall apply to taxable
19
years beginning after December 31,1974.
20
INCREASE IN CLASS LIFE VARIANCE FOR PURPOSES OF
21
DEPRECIATION
22
Sec. 13. (a) In G
.— Section 167 (m) (1) (re
lating to class lives for purposes of depreciation) of part \ I
of sulx'linpter B of chapter 1 of the Internal Revenue Code
23
24
eneral
242
15
1
of 1954 is amended by striking out “ 20” and inserting in
2
lieu thereof “40” .
3
(b) E ffe ctiv e D ate.— The amendment made by this
4
section applies to property acquired or the construction of
5
which is begun after December 31, 1974.
G
capital recovery allowances
7
Sec. 14. (a) Except as otherwise expressly provided,
8
whenever in this section an amendment or repeal is expressed
9
in terms of an amendment to, or repeal of, a section or other
10
provision, the reference shall be considered to be made to a
.11
section or other provision of the Internal Revenue Code of
12
1954.
13
(b) Part V I of subchapter B of chapter 1 is amended
14
by adding after section 188 the following new section:
15
“SEC. m
c a p it a l r e c o v e r y a llo w a n c e .
16
“ (a) G eneral R u le.—In lieu of the deduction pro-
17
vided by section 167 the taxpayer may elect, in accordance
18
with regulations prescribed by the Secretary or his delegate,
19
to take a deduction for capital recovery with respect to any
20
section 189 property. Such election may not be revoked
21
except with the consent of the Secretary or his delegate.
22
23
24
u (b) Section 189 Propeety.—For purposes of this
section, the term ‘section 189 property’ means—
“ (1) tangible personal property, or
243
16
1
“ (2) other tangible property (including a building
2
and its structural components) but only if such prop-
3
erty—
4
“ (A) is used as an integral part of manufac-
5
turing, production, or extraction or of furnishing
6
transportation, communications, electrical energy,
T
gas, water, or sewage disposal services, or
8
“ (B) constitutes a research facility used in con-
9
nection with any of the activities referred to in sub-
10
paragraph (A ), or
31
“ (C) constitutes a warehouse or storage facility
12
used in connection with any of the activities referred
13
to in subparagraph ( A ) , or
14
“ (D)
constitutes a pollution control facility
which is used to abate or control water or atmos1^
pheric pollution or contamination by removing, altering, disposing, or storing of pollutants, contami-
1®
nants, wastes, or heat
19
Such term includes only property with respect to which a
20
deduction for depreciation (or for amortization in lieu of de-
21
predation) would be allowable if the taxpayer did not make
22
an election under this section. The preceding sentence shall
23
not be construed to limit or deny a deduction under this
24
section for any taxable year prior to the taxable year in
244
17
1
which a deduction for depreciation (or for amortization in
2
lieu of depreciation) would first become allowable with re
3
spect to anv property.
4
“ (c) A m o u n t o f D e d u c t i o n . — The deduction allowed
5
for .any taxable year with respect to property which is the
6
subject of an election under subsection (a)
7
amount elected by the taxpayer which does not exceed—
8
“ (1)
shall be any
in the case of section 1245 property
(as
9
defined in section 1245(a) (3) ) or property described
10
in subsection (b) (2) (D) of this section, the amount
11
determined by applying to the acquisition costs of such
12
property the applicable percentage set forth in the fol
13
lowing schedule:
“ For the year which is—
The applicable
percentage is—
The taxable year in which the acquisition costs were paid
or incurred ______________________________________ _—
Tlie first taxable year after such costs were paid or in
curred ____________________________ ___________________
The second taxable year after such costs were paid or in
curred ____________________________________ ___________
The third taxable year after such costs were paid or in
curred _______________________________________________
The fourth taxable year after such costs were paid or in
curred _______________________________________________
14
15
16
17
18
19
40
18
12
6
“ (2) in the case of section 1250 property (as
defined in section 1250(c)) other than property de
scribed in subsection (b) (2) (D) of this section, the
amount determined by applying to the acquisition costs
of such property the applicable percentage set forth in
the following schedule:
245
18
,,
.. , .
For the year which is—
The applicable
percentage is—
The taxable year in which the acquisition costs were paid
01* i n c u r r e d _____________________________________________________
The first taxable year after such costs were paid or in
curred _______J_____________________________________
The second taxable year after such costs were paid or in
curred _________ I___________________________________
The third taxable year after such costs were paid 0 1 * in
curred _______J____________________________________
The fourth taxable year after such costs were paid or in
curred ______________________________________________
The fifth taxable year after such costs were paid or in
curred ______________________________________________
The sixth taxable year after such costs were paid or in
curred ________ I____________________________________
The seventh taxable year after such costs were paid or in
curred ______________________________________________
The eighth taxable year after such costs were paid or in
curred _____________________________________________
The ninth taxable year after such costs were paid or incurrecl ___________________________________ __________
1
“ (d)
A
c q u is it io n
20
10
14
j;}
11
0
7
5
li
11
C o s t s .— F or purposes of this sec-
2
tion, the term 'acquisition costs’ means any costs paid or
3
incurred to acquire section 189 property which would be
4
taken into account in determining* the basis of such property
5
under section 1012 . The taxable y ear in which such costs or
6
any portion thereof are paid 01* incurred shall be the first
7
y ea r in which the taxpayer either obtains title to the prop-
8
crty, 01* has the incidents of ownership such as possession,
9
use, and risk, even though legal title for security purposes
10
remains in the vendor or another. I f the acquisition costs of
11
an item of section 189 property are paid or incurred in more
12
than one taxable year, the maximum deduction under sub-
13
section (c) shall be computed separately with respect to each
14
portion of such costs which are paid or incurred in a different
15
taxable year.
1<>
“ (e) C a r r y o v e r o f U n u s e d D e d u c t i o n s — I f in any
246
19
1
taxable year the taxpayer elects to deduct less than the
2
maximum amount deductible under subsection
3
excess shall be carried forward and be deductible in any suc
4
ceeding taxable year.
5
“ (f)
(c), the
C k o s s R e f e r e n c e .—
“ For special rule with respect to certain gain derived
from the disposition of property the adjusted basis of
which is determined with regard to this section, see sec
tions 1245 and 1250.”.
6
(c)
Section 46(c) (2)
(relating to the investment
7
credit) is amended by adding at the end thereof the following
8
new sentence: “ The useful life of any property which is
9
the subject of an election under section 189(a)
shall, for
10 purposes of this subpart, be the useful life that would other
11
wise have been used in computing the allowance for deprecia
12
tion under section 167 had the taxpayer not made such an
13
election.” .
14
(d) Section 57 (relating to tax preference items) is
15
amended by adding at the end thereof the following new
16
sul>section:
17
“ (d) E x c e p t i o n . —Notwithstanding any other provi
18
sion of this section, no part of any amount allowed as a
19
deduction for capital recovery under section 189 shall be
20
considered an item of tax preference.” .
21
(e)
Paragraph
(2)
of section 1016(a)
(relating
22
to adjustments to basis) is amended by inserting “ capital
23
recovery,” before “ and depletion,” .
247
20
1
(f) Paragraph (2) of section 1245(a)
(relating to re
2
computed basis) is amended by inserting “or for capital
3
recovery under section 189 ’ after “or for amortization under
4
section 108, 109, 184, 185, 187, or 188” each time such
5
phrase appears therein.
6
(g)
Paragraph
(3)
of section 1245(a)
(relating
7
to the definition of section 1245 property) is amended by
8
inserting “or to the allowance or capital recovery provided
9
in section 189” after “the allowance of amortization pro
10 vided in section 185” .
11
(h) Paragraph (3) of section 1250(b)
12
depreciation and adjustments)
13
“ capital recovery,” after “ obsolescence,” .
14
(i) Paragraph 1250(c)
(relating to
is amended by inserting
(relating to the definition of
15
section 1250 property) is amended by inserting “or to the
16
allowance for capital recovery provided in section 189”
17
after “ the 'allowance for depreciation provided in section
18
107” .
19
(j) The amendments made by this Act shall take effect
20
on Januaiy 1, 1975, and the amendment made by subsec
21
22
tion (b) shall apply only to acquisition costs paid or in
curred on or after such effective date.
248
21
1
A L T E R N A T IV E
A M O R T IZ A T IO N
PERIO D
FOR
P O L LU T IO N
CONTROL F A C IL IT IE S
2
3
Sec. 15. (a) In G eneral.— Section 169 (relating to
4
amortization of pollution control facilities) of part V I of
5
subchapter B of chapter 1 of the Internal Revenue Code of
6
1954 is amended by—
7
(1) striking out “ 60 months” in subsection (a)
8
and inserting in lieu thereof “ 60 months or 12 months”,
9
(2) striking out “ 60-month period” in subsection
10
(a)
11
month period” , and
and inserting in lieu thereof “ 60-month or 12-
12
(3) striking out “ 60-month period” in subsection
13
(b) and inserting in lieu thereof “ 60-month or 12-
14
15
month period” .
(b)
E ffe ctiv e D ate.— The amendments made by this
16
section apply to any new identifiable treatment facility (as
17
defined in section 169 (d) (4) of such Code) acquired or the
18
construction, reconstruction, or erection of which is begun
19 after December 31,1974.
249
[From the Congressional Record, Feb. 5, 1978]
A F ree E
n t e r p r is e
A
n s w e r to
I n f l a t io n
and
R
e c e s s io n
(By Hon. Jack G. Kemp of New York in the House of Representatives)
Mr. K e m p . Mr. Speaker, I have taken this special order today to permit the
Members, like myself, who believe in limited Government and free enterprise
solutions to our Nation’s problems to present alternatives to the New Dealtype answers being offered by so many today on the Democratic side of the
aisle.
We also must say, in all candor, that while we applaud the leadership of our
President in coming up with a comprehensive plan for the Nation’s economy,
we must as a group speak out against the huge budget deficit being proposed
to the American people, much of which, of course, is the result of fiscal irresponsiblity of previous Congresses and administrations.
Outrageous deficit spending financed by huge increases in the money supply
and unlimited Government borrowing is strangling the productivity of the
American free enterprise system. Government is choking to death the incentives
and capital investment necessary to generate jobs, the goods and services so
necessary to increase the wealth of this Nation.
It took 186 years for this Nation to reach a $100 billion budget. It took
only another 9 years to reach a $200 billion budget. It took 3 more years to
reach a $300 billion budget, and at the rate we are going within just a very
few short years over 55 percent of the total private income of America will
be taken by Government in the form of taxes by Government in the form
of taxes at one level of the Government or another.
The time is overdue for the Implementation of policy providing for an en
during economic recovery. It is time for the adoption of a plan which will
work, not only in the short run but also on a more permanent basis. And, it is
time for an economic recovery which does not sow the seeds of another reces
sion or additional inflation.
During the past several weeks, an impressive number of Members have
participated in the preparation of a fiscally responsible, free market policy for
economic recovery.
Our policy may not be politically popular or possible but it is, nonetheless,
time tested—it reflects the lessons of economic history.
The statement, together with those who have participated in its formulation,
follow s:
STATEMENT OF ALTERNATIVE ECONOMIC POLICIES
We believe that solutions to our dual economic problems of inflation and
recession lie in returning decision-making to the people through the forces of
the marketplace— letting the people decide what to produce, sell, and buy, and
at what price levels. The pricing mechanism of the marketplace, derived from
the interaction of supply and demand, is a more efficient, productive and stable
regulator o f the economy than government can ever be. No government agency
or official is as capable of making such decisions as are the people through the
voluntary exchange of goods and services. To believe otherwise is to deny
the basic tenets of democracy and liberty.
We also believe increased productivity—not compulsory rationing, allocations
or regulations and controls—is the basic answer to our problems. We believe
Prosperity to be related directly to the amount of capital invested in increased
production. We believe over-concentration on consumption, fostered by govern
ment policy, has led to inadequate attention to the production which results
In improved efficiency, more jobs at higher pay, and more goods at less cost.
Finally, we believe our economic ills—from heavy inflation to rising un
employment, from high interest rates to inadequate capital formation, from
exorbitant fuel costs to anti-competitive regulatory practices—have one root
cause: Policies of government, principally those of the Federal government
which cause or contribute to inflation.
We, therefore, propose the following:
Controlling the run-away growth of government and the paring increases
Jn Federal expenditures and deficits, in an effort to better balance the budget.
This would reduce the need for government borrowing from the capital markets
an£ would put a brake cm the inflationary expulsion of the money
The enactment of job-creating, accelerated capital formation techniques,
250
sufficient to insure the full productive capacity of this country and the millions
of jobs which would flow from such full capacity. Such measures would
include:
A tax reduction for both small business and corporations, to spur produc
tion ; and,
A permanent increase in the investment tax credit, to allow long-range
planning in order to help avoid a repetition of this recession.
Giving protection against inflation to the individual income tax payer by
indexing income tax brackets, thus taking the “ windfall profit” out of inflation
for the government when taxpayers slide into higher tax brackets solely as a
result of government-created inflation.
The removal of anticompetitive regulatory practices of the Federal govern
ment, practices which drive production down and prices up.
That a limitation, established as a percentage of aggregate national personal
income, be placed on the level of revenue taken each year by the Federal
government.
Increased reliance on the laws of supply and demand to conserve fuel and
to increase production, including the deregulation of natural gas and domestic
crude oil.
That increases in the money supply be tied more directly to increases in
national productivity, thus eliminating the price rises which accompany ex
pansionary monetary policies.
We believe these measures should be adopted and enacted. We intend to
push actively for them.
SIGNATUEES
Jack F. Kemp, of New York.
Bill Archer, of Texas.
William L. Armstrong, of Colorado. *
Robert E. Bauman, of Maryland.
Robin L. Beard, of Tennessee.
Clair Burgener, of California.
Don Clancy, of Ohio*
John B. Conlan, of Arizona.
Philip M. Crane, of Illinois.
Robert W. Daniel, of Virginia.
Sam Devine, of Ohio.
Barry M. Goldwater, Jr., of
California.
William F. Goodling, of Pennsylvania.
Tennyson Guyer, of Ohio.
Tom Hagedorn, of Minnesota.
Marjorie S. Holt, of Maryland.
James G. Martin, o f North Carolina.
John Y. McCollister, of Nebraska.
W. Henson Moore III, of Louisiana.
William M. Ketchum, of California.
Trent Lott, of Mississippi.
Ralph Regula, of Ohio.
J. Kenneth Robinson, of Virginia.
John H. Rousselot, of California.
Richard T. Schulze, of Pennsylvania.
Keith G. Sebelius, of Kansas.
Floyd Spence, of South Carolina.
Steven D. Symms, of Idaho.
Charles Thone, o f Nebraska.
David C. Treen, o f Louisiana.
This statement establishes the framework for our remarks here this after
noon, and it outlines the problems we see in other proposals being advanced.
We welcome the support of other Members, from both sides of the aisle,
with whom we did not have an opportunity to confer before the statement's
release.
I would like to amplify, from my own understanding of the issues at hand,
on the points raised through the statement.
TH E CAUSES OF OUB ECONOMIC ILLS
Policies o f government, principally those of the Federal Government, cause
and contribute to inflation. Only when we understand what caused our prob
lems can we set about on a true course to correcting them, insuring to ourselves
and our posterity that our leaders will not repeat them.
The solutions to our economic problems can hardly lie, therefore, in further
reliance upon government decisionmaking—government interference in the
economic affairs— in the private economic lives— of the people.
No matter how well intentioned or how well administered the programs of
government may be, they can never duplicate the efficiency, productivity, and
diversity of the economic marketplace—a marketplace composed of the count
less millions of decisions made every day by the American people on what to
buy and what to sell based upon their priorities not government’s No govern
ment agency or official is capable of making such decisions as well as or
251
better than the people. To believe otherwise—and such a belief is too fre
quently reflected in many of the proposals for remedial action which we hear
in these times—is to deny the basic tenets of democracy and liberty.
Advocates of big government purport that there is almost no sphere of the
national life in which the Government may not legitimately intervene.
The liberty view, on the other hand, holds that—just as the Government
produces little and must be limited in its power to siphon off the fruits of labor
of the private sector—so must large areas of the national life, on principle, be
cordoned off from Government interference, no matter how well intentioned.
It is, therefore, incumbent upon a legislator who believes in a free society
to oppose, in deed as well as word, certain types of legislative initiatives on
the grounds that the Government should not involve itself at all in those
types of matters.
It seems that at a time when virtually everyone is calling for reduced
Federal spending, so as to reduce the pressures of inflation and taxes, that we
have an opportunity to examine the existing programs with a view toward
ending the funding of those less than essential programs. We must seize this
opportunity.
In terms of this continued advocacy of big government, let us look at the
Democratic Party leadership’s proposals for economic recovery.
A N A N A L Y S IS OF THE DEMOCRATIC PARTY LEADERSHIP'S PROPOSALS
They have proposed mandatory and presumably permanent wage and price
controls, or at least, minimally the placement of controls on a selective basis
for some critical industries. They have done this despite the fact that higher
prices and wages are the results of, not the causes of, inflation; they have their
cart before the horse, once again.
These are the kinds of controls which destroy the bargaining process
individual or collective—between employees and employers, a process essential
to a free society.
These are controls which deprive industry of the capital investment funds
which are needed for jobs, to increase productivity, and to increase the supply
of goods required to drive prices downward. These are also controls which
cause innumerable shortages of goods which the consumers both need and want
They are patterned after the control devices which have failed time and tune
again, from Rome in A.D. 301 to America in 1971-74. It seems to me that
after our experience with the beef freeze—-and shortages in over 600 other
goods—some would have learned enough so as not to repeat their errors. Ap
parently this is not the case.
,
_
They also propose an expansion of the public service jobs program, one n
unlike the “make work” programs of the thirties. They p r o p o s e this despite
the fact that these jobs are essentially nonproductive and that all funds from
them must come from taxes or expansion of the national public debt—eltne
ot or both of which make inflation and recession worse. This program deprives
the private sector of the economy of the fullest means to create real, p
'
nent jobs—tax-generating jobs instead of tax-consuming o n e s . This is truly
a counter-productive program, taking out of the nongovernment
very capability it must have to reduce unemployment
f
d
They also propose the rationing of gasoline, the most P ^ j^ ly H
n
inequitable of all the fuel conservative measures under
matically increased supplies, which could come about
snnnlv into
would accomplish the same objectives-bringing dem an dan d . mapply into
harmony, without penalizing the people. I f there is rationing,
lt: i ? 11 l>e made fair, when applied on a case by case baas.
T>prnnRt:ruction
The Democratic leadership also proposes the reviv;al o
“ p o r n o ration »
f i n a n c e Corporation, a G o v e r n m e n t chartered and opera
to bail out failing businesses with the taxpayers dolla .
. ..
Payers to save a company whose products they
tbe CZ
" ot wish to buy in sufficient quantities to keep it afloat. If the,_ hadme^com
Pany would not be ailing in the first place. T h i s M r ^ r a d o n s functions wouLd
needlessly duplicate our existing system of 14,00°
and ot
^
lending institutions. This program would reward inefficiency_ and p
erye
went over and against companies which succeed, Pr°d™
oj. failure - that’s
Jobs and pay, rather than consume, taxes. I t ’ s a r e w a r ^ n g of torture^that s
What the corporation’s role would be. It would oe using
?3-285 O - 76 * 17
252
lend to companies who— because of excessive Government deficit-induced bor
rowing—could not borrow enough capital on their own to remain competitive.
They propose the allocation of credit by the bureaucracy in Washington in
stead of by the free choice of the people and our vast, highly competitive pri
vate credit system, permitting bureaus and boards and bureaucrats to decide
what or whatever is to be purchased by the people. It gives to the bureaucracy
the role of determining what is productive and what is speculative, as to the
uses of available capital. And, keep in mind, that Government itself is drain
ing off huge amounts of capital in order to pay the deficits; over 62 percent
of the available capital in this country was preempted by the Federal Govern
ment during calendar year 1974 to finance its deficit. I cannot help but be
lieve, that if Thomas Edison had gone to such a bureau and asked for money
to invent and develop the light bulb, as an alternative to whaleoil lamps and
candles, they they would have said, “No,” on the basis that the venture was
too “speculative.” We sa y : Let the incentives of the marketplace determine
what is speculative and what is productive—determined by the total of the
decisions made by vast millions of people through their buying or abstention
from buying.
They propose the reform of our tax laws, under the euphemism of closing
loopholes. They do not mention that the largest so-called loophole is the per
sonal deduction for real estate taxes and interest paid on home mortgages by
homeowners, without which few homes could be built and purchased, reforms
which typically add additional burdens to the tax load already being borne
too heavily by the middle class. We are opposed to the elimination of such
incentives. We need tax reform, but it ought to be on the basis of logic and
economics, not catch phrases.
They also propose, through offering a variety of programs, some in wholly
new fields for the Federal Government, a massive increase in Federal spend
ing. Few actually say they favor it, but that is the inevitable result of the
proposals being offered. These proposals for new spending are being made
despite the fact that this would result in increased deficits— the principal
factor fueling inflation and pushing up interest rates; despite the fact that
this would mean additional reliance on Government instead of increased inde
pendence from it; despite the fact that such spending is simply taken from
our already over-burdened people; and, despite the fact that such spending
would take further from the non-Government sector of the economy the pri
vate means to deal with the very social problems to which Government pro
grams would be addressed. It used to be that Government was the last resort,
to be relied upon when when the private sector had failed. Now, as soon as a
problem is spotted, actual or potential, the clamor is for the Federal Govern
ment to rush in and spend money. We cannot abuse ourselves with such folly
any longer.
w h a t ’ s b ig h t a n d w h a t ’ s w r o n g w i t h
the
a d m in is t r a t io n ’s fb o po sa ls
I am pleased with many of the President’s proposals to overcome our eco
nomic ills. I believe that many are clearly within the best interests o f the
Nation to implement, as soon as possible. I applaud the President’s leadership
in identifying much of what is amiss in our economy today and clearly speak
ing for the pricing system.
I believe there is much merit to his proposals to place a 5-percent ceiling on
increases in Federal salaries, retirements, pensions, and so forth, through
June 30, 1976.
I agree with his proposed moratorium on new spending programs for fiscal
year 1976. I just wish he bad proposed a moratorium on new spending per se,
so that we cou1d have held the line on fiscal year 1976 spending at the level
of fiscal year 1975 spending.
I agree that we should provide additional incentives to public utilities to
expand energy supplies to meet rising demands, for an increase in supply,
in relation to demand, will permit utility costs to be driven downward.
I agree that a deregulation of domestic crude oil and new natural gas is
called for. This would result in an appreciable increase in oil and natural gas
supplies. At a time when hundreds are being furloughed in industry—not be
253
cause of capital shortages or inadequate demand, but because oil and natural
gas are not adequately available—we believe these to be sound measures.
We applaud across-the-board corporate tax cuts, those which will lead to
the capital formation requisite to expansion of machinery and plants in an
effort to enhance efficiency, for it is that enhanced efficiency—producing a
product at less cost—which will stimulate job-producing demand. Of course, the
catch to this proposal is that it is contingent on congressional approval of
the plowing back, through tax cuts, of the $30 billion of additional revenue
generated by the $3 per barrel tax on oil.
We are, on the other hand, concerned over several other proposals offered in
the state of the Union and related messages.
No matter how strong the rhetoric against inflation-creating budget deficits
the fact remains that we will have defiicits of at least $30 billion this year
and $52 billion next; they will probably end up being much more. The impact
of these deficits in generating worsened inflation are economically inevitable;
it will hurt the economy.
Here, in these deficits, are the potential seeds of a worse economic picture.
In hopes of stimulating the economy through deficit spending, it may actually
be slowed. In a shift from dealing with inflation to recession, we are concerned
that the short-term anti-recission meassures may worsen our long-term abili
ties to combat inflation.
CHAIRM AN M AH O N ’ S REPOET ON THE BUDGET
On Monday of this week, the distinguished and learned chairman of the
Committee on Appropriations, Mr. M a h o n , addressed the House, as he does
after the submission of each budget, on the implications and ramifications of
the proposed budget for fiscal year 1976. As is customary for that presen
tation, the chairman simply put forth the facts on what the budget says and
what it does not say. It is, undoubtedly, the most accurate and penetrating
analysis yet done on the implications of the budget
I cannot overly stress how honored I am to be now serving, on the Com
mittee on Appropriations, in the shadow of this man and his stewardship of
that committee. The reasoned, reflective voice of truth, removed from con
siderations of partisanship, is what he has, is now, and will continue to bring
to the deliberations of that Committee and Subcommittee. The Nation needs
that.
Let me quote, briefly, from his remarks of this week, for they are of pro
found importance to understanding what confronts u s:
The budget proposes outlays of $349 billion. But in my judgment, the Gov
ernment will never live within that. The spending will be much higher.
*
*
*
*
*
*
*
The budget calls for spending in fiscal year 1975 of $313.4 billion and
billion in fiscal year 1976. This is an increase from 1974 to 1975 of $45 billion
and from 1975 to 1976 of $36 billion. This will cause a unified budget deficit
of $34.7 billion in 1975 and $51.9 billion in 1976, but the total additional in
crease in debt will be $52.8 billion in 1975 and $67.6 billion in 1976—an in
crease of $120.4 billion over 2 years. If that will not shock the American
People to the marrow of their bones then we as a nation are insensitive to the
fiscal situation which confronts us.
*
*
*
*
*
*
*
The total increase in the amount of the debt which must concern us over
the next 18 months is not the $87 billion increase in the United budget but the
likelihood that we will go into the capital market for as much as $150 to $170
billion just on the matters proposed in this budget. That amount, alarming as
it may be, does not reflect the liability associated with loans guaranteed by
the Government.
.
The implications of the chairman’s remarks are grave for all of u s ^no are
charged with the constitutional responsibility of exercising fiscal and monetary
responsibility.
^
w«
Let me put before this House, in chart form, what the chairman put before
us several days ag o :
254
PROJECTEO FEDERAL DEBT INCREASES
[In billions of dollars]
Fiscal year1975
1976
Total
Projected unified budget deficit.......................... ...............................
Borrowingfromthe trust funds............. . ........ ................................
Borrowingto finance off-the-budget agencies........................................
Other financing...............................................................................
34.7
+8.3
+13.7
-4.1
51.9
+3.1
+10.4
+2.2
86.6
+11.4
+24.1
-1.9
Subtotal: projected real base deficit-................... .................. Effects of congressional refusal to support President's proposed selected
spending reductions.....................................................................
52.8
67.6
120.4
+5.9
+17.0
+22.9
58.7
84.6
143.3
Subtotal.................................................... _ .....................
Possible congressional action on proposed tax cuts offered by the
President.......... ......................................................... ...............
+4.3
+19.0
+23.3
Total.......................................................................... ........
63.0
103.6
166.6
Mr. Speaker, charts on proposed expenditures and new obligational authority
reflect similar increases and possible actions and inactions; thus, in addition
to the announced projected debt rising by these additional amounts, so too
will expenditures and new obligational authority rise accordingly.
The likelihood of the Federal Government borrowing nearly $170 billion or
even $100 billion from the capital markets in this Nation over the next 18
months is staggering. Interest rates would soar to even new record highs; and
there would be little, if any, money left for private borrowing by manufac
turers, homebuilders, et cetera. Inflation would rise steadily as the Federal
Reserve System pumped up the supply of new money— through extensions of
credit to boost available funding for borrowing. A deeper recession and higher
inflation could well set in. Thus, these measures— designed to get us out of
recession— would actually put us further into it, all caused by trying to cure
our problems with inflated dollars.
The policies which we have today outlined are better, more effective, faster,
and more enduring ways in which to bring our country out of this recession,
to provide millions of jobs— through the nongovernment sectors of the economy—
and to do so without additional reliance on the taxpayer. These policies will
stop inflation. They will stop the recession. They will restore the economy.
FEDERAL BUDGETS SHOULD BE BALANCED TO HOLD DOWN INFLATION
AND INTEBEST BATES
I propose a reduction in the runaway growth o f Federal budgets, holding
the total level of expenditures down to the level of projected revenue. This is
a goal of budget balance, free from the deficits that are our No, 1 problem.
We must help eliminate the deficits from Federal financing. To do otherwise
is blatantly counterproductive, for it is this borrowing of money from the
Nation’s capital markets by the Federal Government which drives up interest
rates and drives down available capital for private individuals and businesses,
and it is the monetizing of the national debt which produces the additional
increase in money stock which causes inflation.
How does this process work?
When Government spends more than it takes in, it still must pay its bills.
It pays those bills through borrowing funds from the same financial institu
tions that lend them out privately, to businesses, to contractors, to prospective
home purchasers, et cetera. The more capital Government takes out of the
markets, the less remains.
Thus, competition for those dollars remaining allows those institutions to
set higher rates of interest. This, in and of itself, reduces the amount of
speculative capital, because those with speculative ventures cannot nearly
as well afford to pay the higher rates of interest. But, the effect is higher
interest rates, and when businesses, contractors, home purchasers, and so
forth, cannot borrow, recession is the inevitable result, meaning the loss of
productivity and jobs.
The Federal Government, unlike you or me, has another way to pay off its
bills. The Government may pay off a portion of Its new debt by monetizing
255
it—a process by which the Federal Reserve System extends credit to its mem
ber banks, through “high-powered” money devices. If the money supply in
creases faster than production, higher prices are always the result. There
has never been a dramatic increase in money supply in the last century which
has not been followed by a dramatic increase in prices. As the rate of inflation
goes up, so too does the rate of prices, following by a few months to a year.
The conclusion to be drawn from this is that deficit spending must be sub
stantially reduced—with the eventual goal of balancing the budget
T H E ESSENTIAL CHARACTER OF CAPITAL FORMATION
I am proposing the enactment of capital formation inducing laws at the
earliest opportunity. A corporate tax cut would aid significantly in making
capital funds more available to industry, business—large and small—and home
construction.
There are additional policies which would help to accomplish the same ob
jectives, including amendments to the capital gains tax structure, increasing
the exemption of interests and dividends from savings and similar institutional
investments.
Prosperity rests— more than on any other determinant—on the amount of
capital invested per person within an economy. In other words, the more
capital invested per person, the greater the economic growth and the better
the standard of living—in real, not inflated, dollars. Our laws have ignored
this cardinal rule of economics during recent years, favoring instead those
policies which have led to a decline in the rate of capital investment.
Our present Federal tax structure encourages overconsumption and discour
ages investment, because the tax laws place a significantly heavier burden on
savings and investment than on consumption. Taxwise, it is now preferable
for the taxpayer to consume and spend instead of producing and saving. The
tax policy which underlies the present tax structure has resulted in laws
which have stifled needed capital formation and economic growth. It should
be reversed.
That the economy of the United States needs vast increases in capital out
lays is demonstrable.
In a recent editorial, entitled “ Productivity: The Rest of the World Is
Catching Up,” the Washington Post depicted our situation this way:
Since 1960 productivity increases in this country have been the lowest of
any of the major industrial countries, and our rate has hardly been better
than the average for all the other industrial countries together.
This principal measure of prosperity—capital investment—gives much cred
ence to the editorial. According to an extensive study of the Joint Economic
Committee, gross private domestic investment in the United States last year
was only 15.7 percent of gross national product. By contrast, Germany in*
vested 26 percent, France 28 percent, and Japan 37 percent.
Minimally— to curb inflation and to maintain a “socially acceptable level of
unemployment”—the United States should raise its investment rate to 18 to
20 percent. To stop inflation and to send unemployment back down to the
lowest rate in the past 10 years, a much greater investment rate would be
required.
Yet, even to maintain the 15.7, 1973 rate, the United States will have to
invest over $4.5 trillion—$4,500 billion—in capital over the next 12 years.
Under present tax policy and laws, it will be difficult for this amount to be
raised. To the degree that it is not raised, our prosperity will be further
threatened.
T AX REFORM IS NEEDED TOO
The enactment of job-creating, accelerated capital formation techniques,
sufficient to insure the full productive capacity of this country and the mil
lions of jobs which would flow from such full capacity, is needed.
.
Such measures would include a tax reduction for both small business and
corporations, to spur production. They would also include a permanent increase
ln the investment tax credit, to allow long-range planning in order to help
avoid a repetition of this recession.
.
,
A personal income tax cut can also be feasible m the sense that stimulated
consumption will decrease the surpluses which have caused many layoffs. And,
256
if additional personal funds are put into savings, then additional borrowing—
badly needed for home construction and corporate borrowing— will be spurred.
But, we should be aware that if the supply of money in the hands of consumers
is increased and the number of goods remain the same or decrease as inven
tories are reduced, then prices will go up, not down. Thus, there are counter
productive dangers in enacting solely a personal income tax cut of which
Government, the Congress, and especially the people ought to be fully aware.
These are important factors in aiding our economic recovery. One of the best
things for the economy right now would be measures that strengthen natural
recovery forces that are contained in the profit motive and work incentives.
An effective method would be to winnow an effective across-the-board tax cut
of the measures incorporated in the budget and at the same time to drastically
cut Federal spending so the resulting deficit would not further deplete the
Nation’s capital.
It must be understood that the secret of recovery does not lie in mere arti
ficial stimulation of consumer demand. There must be a restoration of real,
useful production that will in turn be employed efficiently by market forces.
Unless there is a beginning made toward that end, there will be no recovery
and those pessimistic projections in the budget could prove to be optimistic
instead.
CANADA H AS CUT ITS CORPORATE TAXES AND UNEMPLOYMENT IS W A Y DOWN
Two years ago, Prime Minister Pierre Trudeau succeeded in obtaining a
reduction in corporate income tax from 49 percent to 40 percent.
Advocating and pushing through the proposal required strong leadership.
What happened once the proposal was enacted?
Canada became a magnet for outside capital, even as it generated it in
ternally. Successive surveys of capital spending plans showed jumps from 9
percent to 13 percent, then to 20 percent.
Unemployment is at 5.6 percent, notably less than ours.
The tax reduction was coupled with an innovation which allowed the pro
gressive tax brackets, major deductions, and exemptions each year to be ad
justed to hold down dollar-level increases in government revenue which would
result solely from inflation. This is important, because here in the United
States, if inflation amounts to 10 percent in a year and one gets a 10-percent
wage increase to offset it, one’s real purchasing power is still reduced because
the taxpayer will through his wage increase move into a higher tax bracket
solely because of inflation.
On January 1, because inflation averaged 6.6 percent in 1973, the Canadian
tax brackets were adjusted upward by 6.6 percent, in effect denying the Gov
ernment a $400 million inflation reward. This indexing device destroys one
of the incentives for Government leaders to continue to allow inflation. On
Janary 1, 1975, the brackets will move up to 10.1 percent, saving the taxpayers
$750 million. I f one believes— and I certainly do— that government’s threat to
individual liberty can be measured in terms o f the growing percentage of the
people’s livelihood which is taken in the form of taxes, I think one can see the
importance of restraining the growth of government in this manner.
I think this proposal ought also to be incorporated in a major tax revision.
Did all of this add up to a staggering deficit—because o f reductions in reve
nues associated with the tax cuts? Not at all. This is one of the most remark
able aspects of the Canadian tax cut. A year ago, the Finance Minister pro
jected a deficit of $450 million in the current year as a result o f these tax
cuts, but there has been so much real economic growth that revenue increases
are adding up to a $250 million surplus. Those figures may be small to us, but
remember their entire budget is much smaller than ours, too.
INDEXING INCOME TAXES AND TH E TRANSFEfi PAYMENT PROBLEM
Government actually has a motive in fostering inflation. We must eliminate
that motive, that incentive to create and maintain inflation.
As inflation occurs, demands are created within the work force for higher
wages. When those higher wages are obtained—even if it is just to keep pace
with the rate of inflation— the wage earner will slide from a lower tax bracket
to a higher one. Government reaps a benefit in two ways. First, since more
money is being earned, there is more base to tax. Second, as a person slides
257
from one bracket into another, he slides into a higher rate of taxation, because
of the progressivity in our tax laws—the more money yon make, the higher
rate at which it is taxed. Of course, if inflation went up 12 percent, and wages
went up 20 percent, one would be subject to an additional tax on that amount—
8 percent— over the rate of inflation.
I believe that income tax brackets should be indexed.
There is another reason, an important one, why we should make a careful
reexamination of our individual income tax laws and the way in which those
laws redistribute income among those who generate taxes and those who
consume them. This is known, among the economists, as income transfer. It
is an important phenomenon, for the percentage amount being transferred,
through Federal policies, including our tax laws, from those who produce to
those who consume or depend upon government largess, increases annually.
The Wall Street Journal recently editorialized on this problem. I include
the full text of that editorial, for I think it is of profound importance to the
deliberations of the Committee on Ways and Means and of this House during
this session:
THE TRANSFER PAYMENT EXPLOSION
It was encouraging to hear Eric Sevareid of CBS comment favorably on
President Ford's proposals to at least begin to bring federal spending under
control. For more than a decade, most Americans have tended to assume that
the U.S. is so rich it could do just about anything. Mr. Sevareid was ap
parently shocked to learn that if present trends continue, by 1985 half the
national income will be controlled by government. What this means, of course,
is that half of all national income will be taken in taxes.
That prospect in itself is cause for alarm, but what is even more troubling
is the reason for this growth of government. Spending is not increasing by
leaps and bounds because of military requirements. It is not growing because
government is rebuilding cities, constructing dams or financing scientific re
search and development. It is mushrooming at a steadily accelerating rate
because of government commitments to give cash to people who are not pro
ducing after extracting it from people who are producing. We are in the midst
of an explosion in transfer payments.
As recently as 1965, government transfer payments to individuals came to
a modest $37.1 billion. Last month, federal, state, and local governments were
disbursing cash to individuals at an annual rate of $155.9 billion, for which
no services are rendered. These include Social Security pensions, government
pensions of all kinds, unemployment benefits, black-lung money, food stamps,
welfare payments and health insurance benefits. While the payments are of
course defended on grounds of compassion, they are having a serious effect on
the economy, by steadily breaking down the relationship between reward and
effort. The following table is revealing:
1965
1972:::::........................................................... ’
1973.
.............................................................. .
.....................................139.8
lumber 19741:::::::::::::::::::::::.::__________
Government
transfer
payments
n
billions)
(in
Warn and
salaries
$37.1
ml
117.8
5538.9
691.7
17.0
155.9
765.4
20.4
751.1
Transfers
as percent
ofwates
and salaries
6 .9
}*-5
is. 6
1December figure is at an annual rate.
What the table doesn't show is the great burst since O tfober, when a rapid
triggering of unemployment, welfare, and food stamp benefits w inddedjrith a
SHde in wages and salaries. In two months, wages and sauries
^
W.6 billion at an annual rate and transfer payments advanced by
■MMon.
The December 1974 over December 1973 annual rates showed an increase in
wages and salaries of $46.1 billion and an increase in transfer payments oi
$33.3 billion. With the bottom o f the economy not in sight, it seera rnghly
Ukely that in 1975 transfer payments will grow more than wages and salaries.
It is taken as
that production Is maximized when taxes are zero,
258
i.e., output is greatest when employers and workers can keep everything they
produce. The nation benefits from taxes, even though production is not maxim
ized, when it employs receipts in ways the private sector cannot—providing
general government, police and fire protection, national security, etc. Helping
the poor, the elderly and weak is certainly an important function. From the
figures one would asume it is being discharged far better now than five years
ago, though the improvement is certainly not reflected in political rhetoric.
The problem is that the tradeoff between lower production and general
benefits has a breaking point when private production can no longer carry the
burdens placed on it by government. The nation has been flirting with that
breaking point for a long time, but seems to have reached it in October.
Present and future taxes, which have to be raised to finance government
deficits, are now so high that it is more beneficial for more and more producers
and workers to not work than to work.
Any serious attempt to solve the nation’s economic problems has to focus
on this explosion of transfer payments. Mr. Sevareid’s concern with govern
ment spending has to come to grips with the implications of the following
table:
FEDERAL BUDGET
[In billions of dollars]
Total................................................ ...................................
Transfers................................................... ...................................
Defense................................................. ________ _________77 5
All other...................................................
1970
1975
Increase
196.6
304 4
107.8
66 6
134 2
82 0
38 2
67 6
45
35 7
The only reason we have for even cautious optimism about the future is
that, at long last, a few brave policymakers, politicians and opinion shapers
seem willing to break the bad news to the public. President Ford made a good
start in his State of the Union Message. Mr. Sevareid made his contribution.
Now, somehow, the news has to get to Capitol Hill.
ESTABLISH A LIM IT ON FEDERAL REVENUE
Federal, State, and local tax collections have risen marketedly, as percent
ages of national income, during the past half century. In 1929, such tax col
lections constituted only 13 percent o f total national income; by 1950, it had
risen to 26 percent; and by 1972 it had risen to 34 percent. The increase is
even more dramatic when compared to total national personal income: 1930,
15 percent; 1950, 30 percent; and 1972, 43 percent. I f present trends continue,
by 1985, total Government’s share of national personal income will have in
creased to 54 percent—54 cents out of every $1— more than half the people’s
earnings. As I said earlier, by the year 2000, it will have increased to nearly
67 percent of all personal income.
Government spending— and the raising o f revenue requisite to that spend
ing—has a historical ceiling beyond which it invites either or both the collapse
o f the economic strength of a nation or the loss o f freedom.
Government must realize that it cannot indefinitely tax the people at con
stantly increasing levels without destroying the people’s ability to support
themselves and their families*
The Congress has tried for nearly 200 years to control total spending by
controlling the overall level of appropriations as each individual appropriations
bill came to the floor. These efforts— commendable though they may be and
successful though some may have been on occasion—simply have not worked
sufficiently.
The reason these efforts have not worked is that the intentions which under
lay them are not directed at the one point where more effective control really
could be exercised: at the level o f revnue, o f income.
Wcf have for too long tried to control spending only where the money flows
from the Treasury. In other words, we are trying to ping holes in the Treas
ury’s dike or to heighten that dike, when, instead, we should be trying to
control the level of water behind it
259
It is always easier to control a problem at its source. The source here is the
level of revenue raised by the Government from which programs are then
funded. To deal with the qusetion of expenditures alone is to work only with
the result of our problem, spending, instead of its cause—too much being
taken from the taxpayers with which to do that spending.
When an institution knows that it will have a known amount of dollars
with which to work, it typically devises means of spending those dollars. It is
human nature. Parkinson’s law, thus states that spending rises to meet in
come. That is a truth demonstrated by our national experience as a govern
ment. There is a more modern corollary to Parkinson’s law which, however,
more accurately describes the tendencies of Congress; present spending rises
to slightly exceed present income in expectation that future increases in in
come will cover that spending. When an institution operates from those
premises—and the Congress has operated from those premises for years—it
means an ever-increasing amount of dollars being taken from the taxpayers.
We cannot, of course, as the legislative branch of the Federal Government—
and without an elaborate amendment to the United States—establish revenue
and budget outlays ceilings binding on all governments—Federal, State, and
local.
We can, however, establish such ceilings with respect to the Federal Govern
ment. That is what Title I of the Fiscal Integrity Act is all about.
It would establish for each fiscal year a revenue and budget outlays limit
for the Government. No appropriation could be made for any fiscal year by
the Congress in excess of the revenue and budget outlays limit for that fiscal
year.
How would the limit work?
The revenue and budget outlays limit for each fiscal year shall be the amount
derived by multiplying the estimated aggregate national income for such
fiscal year by a “ Federal revenue factor.”
Thus, from the first year of the operation of this provision, a ceiling in
relajtion to national income is established on Government revenue and spend
ing. As the economy grows, new dollars would be available for existing or
new programs, but a greater percentage of the people's income would not be
available.
One should note that a cut in outlays is accompanied by a cut in revenue—
and vice versa—so that cutting revenue will not result in creating more of
a deficit—as is now a danger—and cutting outlays should result in a cut in
taxes.
The bill specifically requires that, if during any fiscal year the revenue of
the Government exceeds the established limit for that year, the amount in
excess shall be used for the payment of the public debt of the Government.
It cannot be carried over to be spent on programs during a subsequent fiscal
year.
What if an emergency arises—such as a large-scale war or severe economic
crisis—which absolutely requires spending beyond the revenue level?
In that case—that emergency—a resolution passed by no less than two-thirds
of each Hou»e of Congress may suspend the limitation, but only to the extent
necessary to meet that particular emergency and only for that fiscal year
within which the resolution was passed. I f the suspension is to be continued
beyond that fiscal year, the Congress must pass a new resolution allowing it.
A vague, general, “ times are tough” emergency resolution would not be allow
able. The provisions of the bill guard against that happening.
It should ulso be made clear that the power of the House Committee on
Ways and Means and the Senate Committee on Finance with respect Jo tax
reform is not impaired bv this bill. Within the overall revenue limitation,
those committees can carry out any degree of tax reform—increase certain
taxes, reducing others— eliminating old taxes, imposes new ones—deemed necessary. The limitation is that the total revenue collection not exceed thatper
centage established in relation to aggregate national income lor that penoa.
ENERGY MEASURES
I believe the most effective fuel conservation device
aent interference and to place greater reliance on the price mechanism o f
the marketplace. This win result in three immediate benefits:
First, incentives to conserve; second, incentives to produce, and last, incen
tives to develop alternative sources
249
[From the Congressional Record, Feb. 5, 1978]
A F r ee E n t e r p r is e A n s w e r
to
I n f l a t io n
and
R ec e s s io n
(By Hon. Jack G. Kemp of New York in the House of Representatives)
Mr. K e m p . M r . Speaker, I have taken this special order today to permit the
Members, like myself, who believe in limited Government and free enterprise
solutions to our Nation’s problems to present alternatives to the New Dealtype answers being offered by so many today on the Democratic side of the
aisle.
We also must say, in all candor, that while we applaud the leadership of our
President in coming up with a comprehensive plan for the Nation’s economy,
we must as a group speak out against the huge budget deficit being proposed
to the American people, much of which, of course, is the result of fiscal irresponsiblity of previous Congresses and administrations.
Outrageous deficit spending financed by huge increases in the money supply
and unlimited Government borrowing is strangling the productivity of the
American free enterprise system. Government is choking to death the incentives
and capital investment necessary to generate jobs, the goods and services so
necessary to increase the wealth of this Nation.
It took 186 years for this Nation to reach a $100 billion budget. It took
only another 9 years to reach a $200 billion budget It took 3 more years to
reach a $300 billion budget, and at the rate we are going within just a very
few short years over 55 percent of the total private income of America will
be taken by Government in the form of taxes by Government in the form
of taxes at one level of the Government or another.
The time is overdue for the Implementation of policy providing for an en
during economic recovery. It is time for the adoption of a plan which will
work, not only in the short run but also on a more permanent basis. And, it is
time for an economic recovery which does not sow the seeds of another reces
sion or additional inflation.
During the past several weeks, an impressive number of Members have
participated in the preparation of a fiscally responsible, free market policy for
economic recovery.
Our policy may not be politically popular or possible but it is, nonetheless,
time tested—it reflects the lessons of economic history.
The statement, together with those who have participated in its formulation,
follow s:
s t a t e m e n t of a l t e r n a t iv e e c o n o m ic p o l ic ie s
We believe that solutions to our dual economic problems of inflation and
recession lie in returning decision-making to the people through the forces of
the marketplace— letting the people decide what to produce, sell, and buy, and
at what price levels. The pricing mechanism of the marketplace, derived from
the interaction of supply and demand, is a more efficient, productive and stable
regulator o f the economy than government can ever be. No government agency
or official is as capable of making such decisions as are the people through the
voluntary exchange of goods and services. To believe otherwise is to deny
the basic tenets of democracy and liberty.
We also believe increased productivity—not compulsory rationing, allocations
or regulations and controls—is the basic answer to our problems. We believe
Prosperity to be related directly to the amount of capital invested in increased
production. We believe over-concentration on consumption, fostered by govern
ment policy, has led to inadequate attention to the production which results
in improved efficiency, more jobs at higher pay, and more goods at less cost.
Finally, we believe our economic ills—from heavy inflation to rising un
employment, from high interest rates to inadequate capital formation, from
exorbitant fuel costs to anti-competitive regulatory practices—have one root
cause: Policies of government, principally those of the Federal government
which cause or contribute to inflation.
We, therefore, propose the following:
Controlling the run-away growth of government and the paring increases
Jn Federal expenditures and deficits, in an effort to better balance the budget.
This would reduce the need for government borrowing from the capital markets
an£ would put a brake cm the inflationary expulsion of the money
The enactment o f job-creating, accelerated capital formation techniques,
251
better than the people. To believe otherwise—and such a belief is too fre
quently reflected in many of the proposals for remedial action which we hear
in these times—is to deny the basic tenets of democracy and liberty.
Advocates of big government purport that there is almost no sphere of the
national life in which the Government may not legitimately intervene.
The liberty view, on the other hand, holds that—just as the Government
produces little and must be limited in its power to siphon off the fruits of labor
of the private sector—so must large areas of the national life, on principle, be
cordoned off from Government interference, no matter how well intentioned.
It is, therefore, incumbent upon a legislator who believes in a free society
to oppose, in deed as well as word, certain types of legislative initiatives on
the grounds that the Government should not involve itself at all in those
types of matters.
It seems that at a time when virtually everyone is calling for reduced
Federal spending, so as to reduce the pressures of inflation and taxes, that we
have an opportunity to examine the existing programs with a view toward
ending the funding of those less than essential programs. We must seize this
opportunity.
In terms of this continued advocacy of big government, let us look at the
Democratic Party leadership’s proposals for economic recovery.
A N A N A L Y S IS OF THE DEMOCRATIC PARTY LEADERSHIP’ S PROPOSALS
They have proposed mandatory and presumably permanent wage and price
controls, or at least, minimally the placement of controls on a selective basis
for some critical industries. They have done this despite the fact that higher
prices and wages are the results of, not the causes of, inflation; they have their
cart before the horse, once again.
These are the kinds of controls which destroy the bargaining process
individual or collective—between employees and employers, a process essential
to a free society.
These are controls which deprive industry of the capital investment funds
which are needed for jobs, to increase productivity, and to increase the supply
of goods required to drive prices downward. These are also controls which
cause innumerable shortages of goods which the consumers both need and want
They are patterned after the control devices which have failed time and
again, from Rome in A.D. 301 to America in 1971-74. It seems to me that
after our experience with the beef freeze—-and shortages in over 600 other
goods—some would have learned enough so as not to repeat their errors. Ap
parently this is not the case.
,
_
They also propose an expansion of the public service jobs program, one n
unlike the “make work” programs of the thirties. They p r o p o s e this despite
the fact that these jobs are essentially nonproductive and that all funds from
them must come from taxes or expansion of the national public debt—eitne
ot or both of which make inflation and recession worse. This program deprives
the private sector of the economy of the fullest means to crea te real, p
'
nent jobs—tax-generating jobs instead of tax-consuming o n e s . This is truly
a counter-productive program, taking out of the nongovernment
very capability it must have to reduce unemployment
f
They also propose the rationing of gasoline, the most Pa^*tly H
n
inequitable of all the fuel conservative measures under
matically increased supplies, which could come about
snnnlv into
would accomplish the same objectives-bringing demand^and. mapply into
harmony, without penalizing the people. If there is rationing,
lt: i ? 11 l>e made fair, when applied on a case by case oasis.
TfprnnRf;ruction
The Democratic leadership also proposes the reviv;al o
“porooration ”
finance Corporation, a Government chartered and opera
to bail out failing businesses with the taxpayers dolla .
. ..
Payers to save a company whose products they had already
™
" ot wish to buy in sufficient q u a n t i t i e s to keep it afloat. If the,_ hadme^com
Pany would not be ailing in the first place. T h i s M r ^ r a d o n s functions wouLd
needlessly duplicate our existing system of 14,00°
1
°
nfanagelending institutions. This program would reward inefficiency_ and p
erve
went over and against companies which succeed, pr0^
0* f anUre- that’s
Jobs and pay, rather than consume, taxes. I t ’ s a r e w a r ^ n g of
.^nat s
What the corporation’s role would be. I t would oe using
?3-285 O - 76 * 17
253
cause of capital shortages or inadequate demand, but because oil and natural
gas are not adequately available—we believe these to be sound measures.
We applaud across-the-board corporate tax cuts, those which will lead to
the capital formation requisite to expansion of machinery and plants in an
effort to enhance efficiency, for it is that enhanced efficiency—producing a
product at less cost—which will stimulate job-producing demand. Of course, the
catch to this proposal is that it is contingent on congressional approval of
the plowing back, through tax cuts, of the $30 billion of additional revenue
generated by the $3 per barrel tax on oil.
We are, on the other hand, concerned over several other proposals offered in
the state of the Union and related messages.
No matter how strong the rhetoric against inflation-creating budget deficits
the fact remains that we will have defiicits of at least $30 billion this year
and $52 billion next; they will probably end up being much more. The impact
of these deficits in generating worsened inflation are economically inevitable;
it will hurt the economy.
Here, in these deficits, are the potential seeds of a worse economic picture.
In hopes of stimulating the economy through deficit spending, it may actually
be slowed. In a shift from dealing with inflation to recession, we are concerned
that the short-term anti-recission meassures may worsen our long-term abili
ties to combat inflation.
CHAIRMAN MAHON’ S REPOET ON THE BUDGET
On Monday of this week, the distinguished and learned chairman of the
Committee on Appropriations, Mr. M a h o n , addressed the House, as he does
after the submission of each budget, on the implications and ramifications of
the proposed budget for fiscal year 1976. As is customary for that presen
tation, the chairman simply put forth the facts on what the budget says and
what it does not say. It is, undoubtedly, the most accurate and penetrating
analysis yet done on the implications of the budget.
I cannot overly stress how honored I am to be now serving, on the Com
mittee on Appropriations, in the shadow of this man and his stewardship of
that committee. The reasoned, reflective voice of truth, removed from con
siderations of partisanship, is what he has, is now, and will continue to bring
to the deliberations of that Committee and Subcommittee. The Nation needs
that.
Let me quote, briefly, from his remarks of this week, for they are of pro
found importance to understanding what confronts us:
The budget proposes outlays of $349 billion. But in my judgment, the Gov
ernment will never live within that. The spending will be much higher.
*
*
*
*
*
*
*
The budget calls for spending in fiscal year 1975 of $313.4 billion and $349.4
billion in fiscal year 1976. This is an increase from 1974 to 1975 of $45 billion
and from 1975 to 1976 of $36 billion. This will cause a unified budget deficit
of $34.7 billion in 1975 and $51.9 billion in 1976, but the total additional in
crease in debt will be $52.8 billion in 1975 and $67.6 billion in 1976—an in
crease of $120.4 billion over 2 years. If that will not shock the American
People to the marrow of their bones then we as a nation are insensitive to the
fiscal situation which confronts us.
*
*
*
*
*
*
*
The total increase in the amount of the debt which must concern vs oyer
the next 18 months is not the $87 billion increase in the United budget but the
likelihood that we will go into the capital market for as much as $150 to $170
billion just on the matters proposed in this budget. That amount, alarming as
it may be, does not reflect the liability associated with loans guaranteed by
the Government.
„ .
.
The implications of the chairman’s remarks are grave for all of us who are
charged with the constitutional responsibility of exercising fiscal and monetary
responsibility.
^
. *
Let me put before this House, in chart form, what the chairman put before
us several days ag o :
255
it—a process by which the Federal Reserve System extends credit to its mem
ber banks, through “high-powered” money devices. If the money supply in
creases faster than production, higher prices are always the result. There
has never been a dramatic increase in money supply in the last century which
has not been followed by a dramatic increase in prices. As the rate of inflation
goes up, so too does the rate of prices, following by a few months to a year.
The conclusion to be drawn from this is that deficit spending must be sub
stantially reduced—with the eventual goal of balancing the budget
THE ESSENTIAL CHARACTER OF CAPITAL FORMATION
I am proposing the enactment of capital formation inducing laws at the
earliest opportunity. A corporate tax cut would aid significantly in making
capital funds more available to industry, business—large and small—and home
construction.
There are additional policies which would help to accomplish the same ob
jectives, including amendments to the capital gains tax structure, increasing
the exemption of interests and dividends from savings and similar institutional
investments.
Prosperity rests— more than on any other determinant—on the amount of
capital invested per person within an economy. In other words, the more
capital invested per person, the greater the economic growth and the better
the standard of living—in real, not inflated, dollars. Our laws have ignored
this cardinal rule of economics during recent years, favoring instead those
policies which have led to a decline in the rate of capital investment.
Our present Federal tax structure encourages overconsumption and discour*
ages investment, because the tax laws place a significantly heavier burden on
savings and investment than on consumption. Taxwise, it is now preferable
for the taxpayer to consume and spend instead of producing and saving. The
tax policy which underlies the present tax structure has resulted in laws
which have stifled needed capital formation and economic growth. It should
be reversed.
That the economy of the United States needs vast increases in capital out
lays is demonstrable.
In a recent editorial, entitled “ Productivity: The Rest of the World Is
Catching Up,” the Washington Post depicted our situation this way:
Since 1960 productivity increases in this country have been the lowest of
any of the major industrial countries, and our rate has hardly been better
than the average for all the other industrial countries together.
This principal measure of prosperity—capital investment—gives much cred
ence to the editorial. According to an extensive study of the Joint Economic
Committee, gross private domestic investment in the United States last year
was only 15.7 percent of gross national product. By contrast, Germany in*
vested 26 percent, France 28 percent, and Japan 37 percent.
Minimally— to curb inflation and to maintain a “socially acceptable level of
unemployment”—the United States should raise its investment rate to 18 to
20 percent. To stop inflation and to send unemployment back down to the
lowest rate in the past 10 years, a much greater investment rate would be
required.
Yet, even to maintain the 15.7, 1973 rate, the United States will have to
invest over $4.5 trillion—$4,500 billion—in capital over the next 12 years.
Under present tax policy and laws, it will be difficult for this amount to be
raised. To the degree that it is not raised, our prosperity will be further
threatened.
TAX REFORM IS NEEDED TOO
T h e e n a c t m e n t o f j o b - c r e a t i n g , a c c e l e r a t e d c a p i t a l f o r m a t i o n t e c h n iq u e s ,
s u ffic ie n t t o i n s u r e t h e f u l l p r o d u c t i v e c a p a c i t y o f t h i s c o u n t r y a n d t h e m i l
lions of jobs which would flow from such full c a p a c i t y , is n e e d e d .
.
Such measures would include a tax reduction for both small business and
increase
to help
avoid a repetition of this recession.
.
,
A personal income tax cut can also be feasible m the sense that stimulated
consumption will decrease the surpluses which have caused many layoffs. And,
corporations, to spur production. They would also include a permanent
ln the investment tax credit, to allow long-range planning in order
257
from one bracket into another, he slides into a higher rate of taxation, because
of the progressivity in our tax laws—the more money you make, the higher
rate at which it is taxed. Of course, if inflation went up 12 percent, and wages
went up 20 percent, one would be subject to an additional tax on that amount—
8 percent— over the rate of inflation.
I believe that income tax brackets should be indexed.
There is another reason, an important one, why we should make a careful
reexamination of our individual income tax laws and the way in which those
laws redistribute income among those who generate taxes and those who
consume them. This is known, among the economists, as income transfer. It
is an important phenomenon, for the percentage amount being transferred*
through Federal policies, including our tax laws, from those who produce to
those who consume or depend upon government largess, increases annually.
The Wall Street Journal recently editorialized on this problem. I include
the full text of that editorial, for I think it is of profound importance to the
deliberations of the Committee on Ways and Means and of this House during
this session:
THE TRANSFER PAYMENT EXPLOSION
It was encouraging to hear Eric Sevareid of CBS comment favorably on
President Ford's proposals to at least begin to bring federal spending under
control. For more than a decade, most Americans have tended to assume that
the U.S. is so rich it could do just about anything. Mr. Sevareid was ap
parently shocked to learn that if present trends continue, by 1985 half the
national income will be controlled by government. What this means, of course,
is that half of all national income will be taken in taxes.
That prospect in itself is cause for alarm, but what is even more troubling
is the reason for this growth of government. Spending is not increasing by
leaps and bounds becau.se of military requirements. It is not growing because
government is rebuilding cities, constructing dams or financing scientific re
search and development. It is mushrooming at a steadily accelerating rate
because of government commitments to give cash to people who are not pro
ducing after extracting it from people who are producing. We are in the midst
of an explosion in transfer payments.
As recently as 1965, government transfer payments to individuals came to
a modest $37.1 billion. Last month, federal, state, and local governments were
disbursing cash to individuals at an annual rate of $155.9 billion, for which
no services are rendered. These include Social Security pensions, government
pensions of all kinds, unemployment benefits, black-lung money, food stamps,
welfare payments and health insurance benefits. While the payments are of
course defended on grounds of compassion, they are having a serious effect on
the economy, by steadily breaking down the relationship between reward and
effort. The following table is revealing:
Government
transfer
payments
n
billions)
(in
Warn and
salaries
1965
$37.1
5538.9
1973.
.............................................................. .
j?7«..::::::.............................................. 139.8
*^m b e r 19741:::::::::::::::::::::::.::__________
117.8
691.7
1972:::::........................................................... ’
103:2
155.9
m s
751.1
765.4
Transfers
as percent
ofwates
and salaries
6 .9
15.5
17.0
i« .j
20.4
1December figure is at an annual rate.
What the table doesn't show is the great burst since O t f o b e r , when a rapid
triggering of unemployment, welfare, and food stamp benefits winddedjrith a
SHde in wages and salaries. In two months, wages and sauries
^
W.6 billion at an annual rate and transfer payments advanced by
■MMon.
The December 1974 over December 1973 annual rates showed an increase in
wages and salaries of $46.1 billion and an increase in transfer payments oi
$33.3 billion. With the bottom o f the economy not in sight, it seera rnghly
Ukely that in 1975 transfer payments will grow more than wages and salaries.
It is taken as
that production Is maximized when taxes are zero,
259
It is always easier to control a problem at its source. The source here is the
level of revenue raised by the Government from which programs are then
funded. To deal with the qusetion of expenditures alone is to work only with
the result of our problem, spending, instead of its cause—too much being
taken from the taxpayers with which to do that spending.
When an institution knows that it will have a known amount of dollars
with which to work, it typically devises means of spending those dollars. It is
human nature. Parkinson’s law, thus states that spending rises to meet in
come. That is a truth demonstrated by our national experience as a govern
ment. There is a more modern corollary to Parkinson’s law which, however,
more accurately describes the tendencies of Congress; present spending rises
to slightly exceed present income in expectation that future increases in in
come will cover that spending. When an institution operates from those
premises—and the Congress has operated from those premises for years—it
means an ever-increasing amount of dollars being taken from the taxpayers.
We cannot, of course, as the legislative branch of the Federal Government—
and without an elaborate amendment to the United States—establish revenue
and budget outlays ceilings binding on all governments—Federal, State, and
local.
We can, however, establish such ceilings with respect to the Federal Govern
ment. That is what Title I of the Fiscal Integrity Act is all about.
It would establish for each fiscal year a revenue and budget outlays limit
for the Government. No appropriation could be made for any fiscal year by
the Congress in excess of the revenue and budget outlays limit for that fiscal
year.
How would the limit work?
The revenue and budget outlays limit for each fiscal year shall be the amount
derived by multiplying the estimated aggregate national income for such
fiscal year by a “ Federal revenue factor.”
Thus, from the first year of the operation of this provision, a ceiling in
relajtion to national income is established on Government revenue and spend
ing. As the economy grows, new dollars would be available for existing or
new programs, but a greater percentage of the people's income would not be
available.
One should note that a cut in outlays is accompanied by a cut in revenue—
and vice versa—so that cutting revenue will not result in creating more of
a deficit—as is now a danger—and cutting outlays should result in a cut in
taxes.
The bill specifically requires that, if during any fiscal year the revenue of
the Government exceeds the established limit for that year, the amount in
excess shall be used for the payment of the public debt of the Government.
It cannot be carried over to be spent on programs during a subsequent fiscal
year.
What if an emergency arises—such as a large-scale war or severe economic
crisis—which absolutely requires spending beyond the revenue level?
In that case—that emergency—a resolution passed by no less than two-thirds
of each Hou»e of Congress may suspend the limitation, but only to the extent
necessary to meet that particular emergency and only for that fiscal year
within which the resolution was passed. I f the suspension is to be continued
beyond that fiscal year, the Congress must pass a new resolution Row ing it.
A vague, general, “ times are tough” emergency resolution would not be allow
able. The provisions of the bill guard against that happening.
It should ulso be made clear that the power of the House Committee on
Ways and Means and the Senate Committee on Finance with respect to tax
reform is not impaired bv this bill. Within the overall revenue limitation,
those committees can carry out any degree of tax reform—increase certain
taxes, reducing others—eliminating old taxes, imposes new ones— deemed necessary. The limitation is that the total revenue collection not exceed thatper
centage established in relation to aggregate national income lor that penoa.
ENERGY MEASURES
I believe the most effective fuel conservation device
aent interference and to place greater. reliance on the price mechanism o f
the marketplace This win result in three immediate benefits:
..
First, incentives to conserve; second, incentives to produce, and last, incen
tives to develop alternative
of eaergy.
260
I voted earlier this afternoon to defer the imposition of the fee on foreign
oil imports, the fee imposed by the President through Executive order last
month. That measure to defer the fee passed; it will soon be law.
I voted against the tax or import fee for several reasons. I believe, as the
experts have pointed out, that the fee could artificially push up the cost of
gasoline by as much as 7 to 10 cents per gallon; heating oil and other petroleum
products and derivatives will similarly cost more. I believe those additional
costs will reduce consumption only marginally, and that it is that decreased con
sumption which was one of the two aims of the use of the import fee.
Additionally, there is little reason to believe that this action alone will
create sufficient pressures on the oil producing nations to reduce their prices.
I see, therefore, no reason why the people should be forced to bear this ad
ditional, Government-imposed cost.
The policies of the Federal Government created the domestic shortages and
the dependency on foreign oil imports in the first place. Now, that same Gov
ernment wants the people, not itself, to pay higher costs, with Government on
the other hand to benefit from receipt of the fees. This is another example, in
my opinion, of Government asking the people to “ take it on the chin,” when
it is Government which ought to be required to suffer the hardship instead.
There is no easy answer to our energy problems. In order to reduce our
dependence on imported oil and, therefore to more efficiently protect ourselves
against another oil embargo, we must begin to develop the capability of being
independent of foreign oil for domestic energy. Encouraging maximum do
mestic energy production must be our prime concern. From experience we
know that the pricing mechanism of the free market is the most equitable,
economical and productive way to allocate scarce resources.
I support deregulation of natural gas and decontrol of domestic oil, together
with positive incentives for capital investment in energy research and de
velopment. I am convinced that this is the way to permanent energy recovery.
In the broad overview of options, our alternatives are, at best, limited.
Regulation of oil and gas against deregulation; rationing against supply and
demand; import tariffs, taxes, fees, or quotas against tax incentives and dis
incentives for domestic and foreign energy investments respectively. These are
the major points of contention, and the major points to be decided in the
formulation of a comprehensive approach to energy.
Increased Federal controls would probably force the Federal Government to
impose a quota to limit imported oil, as a readily available means of forcing
domestic market investment in both new and old energy sources. Even with
this negative incentive, the bulk o f costly research and development would still
have to come from the Federal Government. Price controls would also be im
posed to prevent the reduced oil supply from forcing the price out of reach.
Rationing, to allocate available supplies would then almost certainly follow.
With an import fee, import quota, and/or rationing in effect—even if coupled
with corporate tax incentives and “ plowbacks” for energy related investments—
consumer prices would not reflect accurately the limited supply and large
demand for oil products, and thus, the investable capital would be substantially
reduced, causing little or no R&D by industry. These events would be counter
productive to our long-range goal of developing adequate energy.
In our present economic state, and at a time when there are other urgent
domestic priorities to consider in the expenditure o f tax dollars, an increase
in federal outlays for research and development projects in new energy areas
would place a drain on the economy it could not support.
There is no question that deregulation of natural gas at the wellhead and
decontrol of domestic oil will result in higher prices at first. However, it is
important to note that the increased cost at the wellhead represents only 20
percent of the total cost of gas at the burner tip. The estimated increase that
I see as most realistic is about 10 percent at its peak. With decontrols—
combined with measures to eliminate foreign investment tax credits and with
windfall profit taxes on any additional profits not reinvested in energy de
velopment—individuals and businesses would be deciding which uses o f energy
should be reduced or foregone, rather than the Federal Government. Continued
regulation, on the other hand, would effectively drive the price up as it caused
greater dependence on imported liquified natural and on synthetic natural gas.
The experiences we have had in the past several years with Federal regula
tions and controls on the pricing system in the free market—the failures as
261
sociated with the Federal bureaucracies inefficient and anticompetitive inter
ference with supply and demand—leads me to the conclusion that decontrols
are the key to effective domestic energy recovery.
Because I strongly support deregulation as the most positive means to estab
lish energy priorities, I believe better alternatives exist to the import and
proposed excise tax on domestic crude. First, deregulation will permit the
price of oil to rise. Combined with a fee, tax, or quota on imports, that price
would be greatly accelerated and would place too heavy an immediate burden
on the economy. Certainly, western New York would be severely hurt by action
of this nature. Our supply of Canadian oil would be reduced immediately, as
would our access to Arab oil and domestic oil. Considering the particularly
hard effects energy shortages have already had on the economy of our area—
United States Steel, for example, just laid off 1,500 people in its Buffalo plant—
I seriously doubt that we could survive a sharp curtailment of our direct
oil supply.
My alternative proposal is a combined tax incentive, directed at energyrelated investments, and a tax disincentive, directed at foreign investments
and non-energy-related investments.
At the present time, American companies investing abroad in energy related
areas are given a tax credit for taxes paid to foreign governments. At the
same time, royalties paid by those companies to foreign governments or quasi
government entities are treated by the U.S. Government as taxes, and are,
therefore, also credited. My proposal would treat royalties as royalties, not as
taxes, thereby eliminating that credit, and reduce the credit for foreign taxes
over a period of years—perhaps 5—to a defined minimum level.
I am not really convinced that a so-called “windfall profit” tax is necessary.
Logic and good business sense both point toward the use of additional profits
for reinvesting in increasing production from which to meet rising demand;
after all only through that increased production can a company maintain its
place within the industry. If, however, a windfall profits tax is imposed, I
would fully support a “plow-back” provision—like that which was in the bill
reported by the Committee on Ways and Means last session, allowing com
panies to use additional income for energy-related research, development, de
ployment, exploration, recovery, and production without the assessment of
the windfall profit tax on that amount so reinvested.
The treatment of foreign taxes and domestic taxes should be closely co
ordinated to assure maximum incentives for domestic production.
In short, while this type of program would bring American dollars back to
the United States through reduced foreign investment incentives, it would
positively reinforce the incentive to invest domestically in energy resources
and potential energy sources. I am convinced that this would be a highly
effective program. It would not cause a massive drain on the economy, nor
would it immediately reduce the supply of oil imports. It would not drastically
reduce our gross national product, and it would not cause gas lines at service
stations.
In line with efforts to conserve energy and promise mass transportation,
I am considering a provision for a “horsepower” tax on all new automobiles
sold in the United States. The tax would be a graduated one, ranging from no
tax on low horsepower cars, up to approximately $500 on high horsepower
cars.
The Washington Post of January 26, 1975, editorialized on what they see
will happen, in a real world context, if rationing is instituted in this country.
That editorial follow s:
[From the W ashington Post, Jan. 26, 1975, as reprinted in the Congressional Record]
How To R a t io n G a s o l in e
Let us suppose, for a moment, that you are the person to whom President
Ford assigns the job of designing a system to ration gasoline. The President
thinks that rationing is a terrible idea and wants to cut consumption by raising
prices and taxes instead. But a great many well-intentioned senators and con
gressmen think that rationing is much fairer. We are now going to suppose
that they win the coming fight, a rationing law is enacted, and you are ap
pointed to set up the operation. The basic program is clear. There remain only
262
a few minor issues of policy that a sensible person like yourself should have
no difficulty resolving quickly and—to repeat the key word—fairly.
The first question is to whom to give ration books, and your first inclination
is to give them to every licensed driver. That brings you to the family in which
both parents and all three teen-aged children have licenses. I f they have five
ration books, the kids can continue to drive to school.* You think that they
ought to take the school bus, and you revoke the kids’ coupons. But then you
learn that they all have part-time jobs— one of them plays the xylophone in
a rock band—and they will be unemployed if they can’t drive. You get a call
from the White House telling you not to contribute to unemployment, which
is rising. You give in, and return the kids’ ration books. That gives the family
five times as much gas as the widow across the street whose three children
are all under 16.
Continuing the crusade for fairness, you take up the case of Family A, whose
harassed father has to commute BO miles to work every day, and Family B
next door, whose father runs a mail order business out of his basement. Family
B goes to the beach every weekend— very inexpensively because, as the con
gressmen made clear, the point of rationing is to avoid raising prices. Score
another point for fairness and turn to the case of two suburban communities,
a mile apart, one of which has bus service to and from central city and the
other of which does not. Reasonably enough, you give less gas to people in the
community with buses—until you discover that none of them works in the
central city. They all seem to work in other suburbs, most of which have no
public transportation. Your response, obviously, is to make everyone in the
United States fill out a form showing where he works. Then you hire a com
puter firm to identify those who can get to their jobs by public transit in less
than 90 minutes with no more than three transfers; they will get fewer cou
pons. There are certain difficulties in enforcing these rules, as you concede
to several congressional committies, but you expect to be able to handle them
with the expanded appropriations that you have requested to hire more federal
gas investigators.
Now that you are beginning to get the hang o f the thing, you will want to
proceed to the case of the salesman who flies to an airport and rents a car.
If you issue gas to the rent-a-car companies, the salesman might be tempted
to use one of their cars to take his family on a vacation. But the salesman’s
personal coupons won’t cover company trips. Now you have to decide how
much gasoline to give to companies, and which business trips are essential.
You might turn that over to the staff that you set up to decide which delivery
services are essential and how to prevent delivery trucks from being used for
personal business.
By the way, you have to consider the rural poor—for example, the laborer
who lives far out in the country. Some weeks he’s employed far from home and
commutes hundreds of miles. Some weeks he finds work nearby. Some weeks
he’s unemployed, particularly when the weather’s bad. You post a prize for
the formula to cover that one.
You are beginning to discover the great truth that simple rules are never
fair, and the fairer the system gets the more complicated it has to become.
Even in World War II, when there were only one-third as many cars and
the national dependence on them was far less pronounced, it was necessary
to set up boards of citizens in every community to rule on a flood of special
requests, hardships, grievances and challenges. It is a method that requires,
unfortunately, a massive invasion of personal privacy. Americans accepted it
then as a temporary wartime expedient. But the present emergency is not
temporary.
A year ago, when the Nixon administration was considering rationing, the
planners suggested simply giving everyone the same number o f coupons and
letting people buy and sell them legally on a “ white market,” as they called
i t But in a white market the laborer with the long trip to work would have
to bid against the family that wants to drive its station wagon to Yosemite
for its vacation. Under President Ford’s price scheme, at least the country
would know roughly what the increased price o f fuel would be* In a white
market, no one could say haw high the bidding might go, or how widely it
might fluctuate from one season to another.
Congress, and specifically the Democratic leadership, ia behaving rather
badly. Its committees have been exploring the economics and technology of
energy with considerable skill for more than two yean , and they understand
263
the choices as well as the administration does. The Democratic leadership's
cries for further delay now are hardly more than a plea merely to postpone
unpleasant but urgent decisions. A year ago, when President Nixon asked for
rationing authority, Congress said that rationing was unpopular; the law never
passed. Now that President Ford proposes the other alternative, higher prices,
congressmen cite polls to show that people would prefer rationing.
In the present state of general indecision, the most widely popular decision
is probably the one represented by Gov. Meldrim Thomson of New Hampshire.
Gov. Thomson opposes both rationing and higher prices. He would prefer, evi
dently, simply returning to the halcyon days of 1972 before the energy squeeze
took hold of us. It is a pleasant idea. But it is not, unfortunately, one of the
real choices— not even for New Hampshire.
Mr. R o u s s e lo t. Mr. Speaker, the proposals which we are presenting today
to restore stability to our economy and relief from inflation and recession are
the only workable and lasting solutions.
Our proposals include:
A balanced budget—reducing Federal expenditures to balance with antici
pated revenues.
Tax cuts that will be made possible by the reduction in Federal spending.
Repeal of regulatory laws which allow Federal intervention in the private
sector discouraging competition, raising prices, and otherwise promoting infla
tion.
These solutions would allow the free market to function to deliver goods and
products at competitive prices to all consumers—returning the basic decision
making power to the people. While some of the Members in this House are
advocating stronger Federal regulation, our proposal is to get the Federal
Government out of the business of controlling consumer supply and demand.
We completely reject the regulatory climate of wage and price controls, con
trolling interest rates, and allocating credit which rob each American of free
dom of choice and prevent the return to a healthy economy.
Our Nation is currently experiencing double digit inflation and recession
which is primarily the result of the Federal Government’s interference and
regulation of the economy, and to believe that further control is the answer
is pure folly.
Our current economic problems are rooted in the actions of the Federal
Government, and it is illogical to allow further intervention in the private
sector to correct a situation which has primarily been caused by governmental
regulation. I f Members of this body are truly interested in reversing the infla
tionary trend that has now led to recession, they should be more concerned
with fiscal discipline of the spending of tax dollars rather than imposing con
trols on the private sector. The ideas of regulating wages and prices, interest
rates, and consumer credit are completely unworkable and inequitable.
WAGE AND PRICE CONTROLS
During my service in Congress, I have discussed the results and consequences
of controls in great detail in statements on the floor of this House, and in
views included in House Banking Committee reports on this issue. Congress
finally got the message when it rejected any extension of the control authority
beyond April 30, 1974.
Economic controls cause distortions and shortages. During our recent ex
perience with controls—1971-74—shortages emerged in all industries, and in
early 1974, Congress received extensive information from private industry
representatives on the extent and consequences of the commodity shortages.
Following are some examples of the seriousness of this situation brought about
by this interference in the economy:
First. In a statement to the Senate Banking Committee on January 30,
^974, O. Pendleton Thomas, chairman of the board and chief executive officer
of the B. F. Goodrich Co. stated:
In those sectors where prices are controlled, serious shortages and black
markets are occurring. Each day we are faced with a lengtebmng list oi
actual or potential shortages of critical raw materials including tallow, rubber
solvents, zinc oxide, titanium dioxide, carbon black, process oils, epoxy resins,
antitoxidants, polyester and nylon fibers, and synthetic rubber. In some cases,
the severity of these shortages has been compounded by suppliers being forced
out of business. In recent weeks, for example, one supplier of bead wire, which
264
is used in tire construction, was forced to close its West Coast plant because
of the inability to gain approval to raise prices sufficiently to assure an ade
quate return on investment. Another diversified supplier recently eliminated
bead wire from its product lines.
Controls on domestic prices have also stimulated exports of certain raw
materials, many of which are already in short supply in this country, especially
chemical feedstocks. During the first ten months of 1973, the combined exports
of toluene and butadiene used in synthetic rubber production were 270 percent
higher than during the same period of 1972.
When conventional economic forces are permitted to function, imports into
this country are a significant factor in the supply of critical materials. During
recent world shortages our price controls have prevented the inflow of ma*
terials—instead, as I have just indicated, exports of some materials have been
accelerated, seeking the higher world market prices, thus compounding our
problem.
Second. In a March 8, 1974, statement to the House Banking Committee,
John C. Datt, director of congressional relations for the American Farm Bu
reau Federation, discussed the effects of controls on food production:
Due to controls, prices of fertilizers in this country became so out of line
with world prices that a sizeable portion of our domestic production moved into
foreign markets to the detriment of U.S. food production. This was recognized
belatedly by the Cost of Living Council in November, and fertilizer controls
were removed; however, there is reason to believe decontrol may have come too
late to maximize U.S. farm production in 1974.
Price controls have played a role in the energy crisis. Uncertainty created
by economic controls is one of several factors that have brought new refinery
construction to a halt. Indications are that this same uncertainty has con
tributed to a decline in oil and gas exploration in this country.
Agriculture is now facing a shortage of baling wire. Much of our bailing
wire is imported. Domestic prices frozen at levels unrelated to world prices
have contributed to an extreme shortage of wire in this country since American
farmers and ranchers are prohibited from bidding for supplies in the world
market.
The unwise, though relatively brief, attempt to control beef prices in 1973
brought chaos in the industry— and shortages at the meat counter. It was
costly to farmers and to consumers. In fact, the reductions in beef supplies
which have resulted in price distortions in recent months are more a result
of the abortive controls imposed last year than any other single factor. Further
more, these controls contributed nothing to the stablization of the economy.
Third. The Associated Builders and Contractors, Inc., discussed construction
industry shortages in its statement to the House Banking Committee in March
1974:
The basic question is one of supply and demand. Experience has shown that
controls create shortages and whenever there are shortages there is upward
pressure on prices. Why do controls produce shortages? The plain fact is that
if a price ceiling makes it unprofitable to produce an article those in the
business of producing it find it sensible either to cut its production or to stop
producing it entirely.
. . . On the list of recent critical shortages, according to the experience o f
a firm facing the shortage problem, are lumber, steel and steel products, paper
products, hardware, copper wire and copper cabling, trucks, aluminum bar and
tube, electrical components, and paint. These are just some of the items which
are basic to construction found to be in critically short supply by firms which
use them.
Wage and price controls are actually harmful to the economy. The stimula
tion of competition in the free market is the only route to a healthy economy.
In a competitive market, prices respond quickly to changes in supply and
demand, and prices are the barometer of the economy. The price mechanism is
the best possible allocator o f our resources as well as our goods and products.
Tampering with this delicate balance only leads to disruptions, distortions, and
shortages—conditions which prevent economic growth.
IH T E R E ST SA TO C O N TfiO L
It has been suggested that the Federal Government should regulate interest
rates. However* this type of action would do nothing to correct the causes of
rising interest rates.
265
Deficit spending puts pressure on the Federal Reserve to finance the deficits
by increasing the supply of money in the economy. This is a particularly rele
vant point when considering that the President’s budget submitted to Congress
this week calls for an almost $55 billion deficit in Federal funds during fiscal
year 1976. This excessive increase in the money supply creates a chain re
action— it increases prices which in turn push interest rates upward over the
long run as lenders raise rates to compensate for the inflationary impact gen
erated by the growth in the money supply. Excessive growth in the money
supply at rates estimated to range between 10 and 12 percent occurred in the
first years of the 1970’s. However, a restrictive growth in the money supply—
like what we are now experiencing at a rate estimated at 3.2 percent—forces
the private sector to absorb the Government’s deficit, and also pushes up in
terest rates.
Clearly interest rates can be brought down by congressional fiscal reform
bringing Federal spending into balance with anticipated revenues, and it is
on this point which Congress should concentrate its efforts. This would allow
the increase in the money supply to be tied to real growth such as growth in
national productivity.
CREDIT ALLOCATION
This week a subcommittee of the House Banking and Currency Committee
is holding hearings on credit allocation proposals. Credit allocation is an at
tempt to set priority areas for consumer lending and redirect the allocation
of bank credit to national priority areas. Such an action does not, however,
guarantee that funds will be available for lending in any specific areas.
This interference in the money market and with the free market mechanism
of distributing capital further ignores the causes of rising interest rates and
tight money. It would again involve the setting up of a Federal bureaucracy
to administer what can be best handled by the free market. It ignores economic
interrelationships and attempts to isolate certain segments of the economy.
One result of credit allocation could be shortages in industries that are not
priority areas— industries which contribute not only goods and services, but
also jobs and incomes to working people in that industry. In addition, there
is some speculation that such a program could also cause upward pressure on
interest rates.
This is the time for Congress to examine all areas of governmental inter
vention in the private sector which discourage competition, raise prices, or
otherwise promote inflation in the economy. There can be no question but that
the Government has contributed to the upward pressures on costs and prices
from tariffs, import quotas* price supports, and other laws which protect seg
ments o f the economy from market forces. At the President’s Conference on
Inflation in September 1974 the following list was suggested as target areas
for regulatory reform— this list was generally adopted by the economists who
participated in the Economists Conference on Inflation preceding the main
conference:
R
To I m p r o v e E c o n o m i c E f f i c i e n c y
C o st Stru ctu re of t h e E co n o m y
e c o m m e n d a t io n s
and
P r ic e
and
(Originally presented at the Sept. 23,1974, Meeting of Economists,
New York City)
part
I
(1) Repeal the interest rate ceiling on long-term government bonds.
(2) Repeal of the private express statutes that provide the post office with
a monopoly o f first class mail.
(3) Outlaw state prorationing of oil and gas.
(4) Repeal the Connolly Hot Oil Act.
(5) Terminate the embargo on uranium imports.
. .
(6) Amend marketing order legislation to p r o h i b i t restrictions on the inter
state movement of specified types of agricultural products, supply controls for
products, state fluid milk price and output control, and production quotas on
individual producers.
(7) Repeal the meat import act.
_ .
(8) Repeal import quotas on dairy and otlier farm products.
266
(9) Remove all route and commodity restrictions imposed on ICC licensed
motor carriers.
(10) Approve automatically railroad and truck rates within a zone of rea
sonableness.
(11) Repeal the antitrust exemption of railroads and trucking rate bureaus.
(12) Reduce or eliminate entry barriers into trucking.
(13) Abolish rate and entry controls for inland water carriers and freight
forwarders.
(14) Approve automatically all air fares, including discount fares, within a
zone of reasonableness.
(15) Authorize existing CAB licensed carriers to extend their operations
into any markets while at the same time permitting them to withdraw from
unprofitable or undesired markets.
(16) Authorize charter carriers to wholesale seats to travel agents.
(17) Make capacity-limiting agreements among the airlines subject to the
antitrust laws.
(18) Eliminate regulation Q and other regulations which prevent savings
institutions from paying competitive rates for deposits.
(19) Terminate the “voluntary” quota agreements for steel and textiles.
(20) Make merchant and passenger ship firms subject to the antitrust laws
for any conference agreements.
(21) End “voluntary” quotas on other foreign exports to U.S.
(22) Prohibit resale price maintenance.
part
n
(a) Repeal legislation now preventing the sale of surpluses from the stock
pile.
(b) Prohibit unreasonable restrictions on union membership, such as prior
apprenticeship and excessive entrance fees.
(c) Abolish union operated hiring halls.
(d) Repeal the Davis-Bacon Act and similar laws concerning wages paid
under government contracts.
(e) Repeal legislated further increases in the minimum wage.
(f) Deregulate the wellhead price of natural gas.
(g) Terminate crude petroleum allocation and oil price controls.
(h) Repeal the Jones Act governing coastal shipping.
(i) Abolish subsidies for ship construction and operation.
( j ) Make such auto safety devices as the seat belt interlock system, heavy
duty bumpers, and air bags voluntary rather than mandatory.
Congress must act now to get the Federal Government out o f the business of
regulating the private sector, and must act to bring Federal spending into
balance with anticipated revenues. It is these actions and these actions alone
which will start our country on the road to lasting economic stability.
Mr. K emp. Mr. Speaker, I appreciate the gentleman's remarks. His state
ment concerning the credit allocation scheme of some of our friends on the
other side of the aisle reminds me o f a letter which appeared in my morning
newspaper. It said : “ The only way to keep this Nation from going totalitarian
is to impose gasoline rationing and wage and price controls in the country
im m e d ia te ly Is that not an incredible contradiction in terms?
It is interesting that the liberal community, which is so antitotalitarian in
its rhetoric, is coming up with solutions which indeed lead to totalitarianism,
and led to the tragic situation in Great Britain, where we find almost 70 per
cent o f its total industry is now nationalized. Professor Von Hayek’s book,
“ The Road to Serfdom/' chronicles how it could be possible here.
Mr. Speaker, I thank the gentleman for his contribution.
J ob-H untebs F ind H elp : A gency M anned
by
U nemployed
(By Mike Ward, Times Staff Writer)
An agency that uses federal funds to help the unemployed does not sound
like the pet project of a conservative congressman.
But the Re-employment Action Committee (REAC), which helps the jobless
267
^ n l n n ^ 1!!068,,1? Alhambra- Auza and Pomona, owes its existence to one of
Ann wh-f “ ^ conservative congresmen, John Rousselot (R-San Marino).
servatives* a tiehf
fun^s’ ,lt Prides itself on virtues dear to con^ ‘, . .
budget, local control and self-help.
rsi Pnirr *J5il? inistrat0r Paul Weisend, professor of business management at
Ret) t e l i n n T f saif REAC was initiated by a commission appointed by
?
functions as a non-political agency.
SP°HS^red!
C‘ trus College and receives federal Comprehensive
b ^ e T i s $77 (WO
through the county. The current yearly
The funds finance three offices where persons out of work can seek counseling,
tPt *n PrePa,n n£ resumes and information on available jobs,
neisend said the state Employment Development Department is too swamped
Jtys t0 ^ Ve the .k.ind of individual attention which REAC offers. He
added that he is not critical of the state employment office because its work
load is enormous when the unemployment rate is high.
But many jobless persons, he said, need someone to talk with about their
job prospects, need advice on how to get a job and need help in evaluating their
assets in the job market.
The REAC offices are run by individuals who have empathy with the unem
ployed because they are jobseekers themselves. REAC hires them on a tempo
rary basis with the understanding that they should look elsewhere for perma
nent employment.
Donna Kingwell, who ran the Azusa REAC office until she left in December
to join a political campaign staff, said the fact that she was unemployed for
a while gave her a better understanding of the problems of the jobless.
She said she believes that most people out of work are sincerely interested
in finding a job and are not content to draw unemployment benefits. But, un
derstandably, she said, they want a job that’s comparable in salary to what
they had in the past.
“I’ve been in the unemployment line myself, and I wasn’t willing to accept
the first $2 an hour job that came along,” she said.
“The individual has the right to say, ‘No, I don’t want that job.’ "
At the same time, she said, REAC doesn’t waste its time with those who won’t
keep the job interview appointments or help themselves.
REAC gets all kinds of job-seekers, from the unskilled to the professional.
Some skilled persons, such as machinists, have a fairly easy time finding jobs,
Ms. Kingwell said. But there are occupations where the job market is extremely
tight and people who have been laid off must think about changing careers.
Ms. Kingwell said REAC encourages job-seekers to think of their hobbies
and other interests that might lead to employment. The jotr possibilities are not
always obvious. For example, she said, one young man just out of the Navy had
a background of painting ships. He tried to get civilian painting jobs, but
couldn’t.
She suggested he use his painting knowledge to seek a sales job in the paint
department of a home building supply store. He went out that afternoon and
was hired.
In another case, an aerospace engineer found that looking for work in the
aerospace field was hopeless, but REAC helped him find a job with a bank. The
bank needed someone for a special position requiring knowledge of engineering
and banking, and the engineer is now a bank vice president.
REAC has been placing 40 to 50 persons a month from its offices at 315 U.
Azusa Ave., Azusa, and 130 E. First St., Pomona. REAC opened an Alhambra
office in January at 1342 E. Main St., and officials hope it can place 25 to 30
persons a month.
REAC places 20-30% of its job applicants.
In addition to counseling job-seekers. REAC staff members call on business
men to generate job listings.
,.
Weisend said many employers aren’t actively seeking new workers, but have
jobs they would fill if they found the right persons.
“Only about 20% of the job openings are visible,” he said.
The REAC staff tries to find the hidden jobs and encourage employers to
fill them.
.
.
*
Weisend said REAC operates on a low budget in relation to the number or
Persons placed. One reason the budget is low is that REAC does not try to
provide job training.
73-285 0
-
76
-
18
268
Weisend said there are plenty of schools offering occupational training if a
person needs to acquire a skill.
He sees BEAC as a temporary program to combat high unemployment. The
unemployment rate nationally is now 8.3%, but Weisend said many economists
think the rate is closer to 10%. In any event, he said, once the unemployment
rate drops to 5%, REAC will go out of business.
REAC’s creation goes back to 1971 when Rousselot appointed a human re
sources commission to find ways to help persons affected by massive layoffs in
the aerospace industry.
Rousselot said unemployment engineers in the West Covina area organized
a group called Experience Unlimited to help each other find jobs and this vol
unteer, self-help approach was the inspiration for REAC.
The original concept was for REAC to be supported by private donations. But
donors did not leap forward and there was no time to solicit contributions,
Rousselot said, so REAC turned to government for support.
REAC began in a limited way under sponsorship of the city of Monroevia
and then came under sponsorship of Citrus College last year Citrus helps man
age the program, but funding come from the federal government through the
county.
Rousselot said Supervisor Pete Schabarum has been instrumental in obtaining
funds for REAC.
Rousselot said he has never believed the answer to unemployment lies in
spending billions of federal dollars. But, he said, he thinks REAC is a good
use of federal funds.
“ I wish all federal agencies were run as effectively as this,’* he said.
One thing REAC tries to do, he said, is deal with unemployment on the
community level.
The persons involved with REAC have a missionary dedication to the project,
he said.
As project administrator, Weisend puts in long hours and his wife, Fern, per
forms many secretarial tasks, such as preparing fund applications. Volunteers
from a wide range of occupations serve on REAC committees.
Rousselot said every community with an unemployment problem needs REAC
or some other vehicle to help the jobless. He compared REAC to a volunteer fire
department that stands by ready to help neighbors when the need arises.
Rousselot said he is convinced there are “ a fantastic amount of job oppor
tunities available,” but many of the jobs are hidden. And it takes an agency
like REAC, he said, to encourage employers to make those jobs available and
to direct qualified applicants to them.
Rousselot said too many communities ignore the plight of the unemployed
"You can't just wish the problem aw ay/’ he said.
Chairman H u m p h r e y . Thank you very much, Mr. Greenspan and
panelists. The committee stands recessed until 2 p.m. this afternoon.
[Whereupon, at 1:30 p.m., the committee recessed, to reconvene
at 2 p.m. the same day.]
AFTERNOON SESSION
Senator J a v i t s [presiding]. The committee w i l l come to order.
The Chair has asked me to preside until he gets here, which will
be in about 15 minutes, and I would like to announce to the very
distinguished members of the panel and to the discussants that, un
happily for me, I must leave at 3 p.m., but Senator Humphrey and
other members will be here to carry on.
May I express the gratitude of the committee to all of you for your
attendance. You are very busy people of great distinction and it will
be our moral duty to see that your testimony and what the discus
sions produce is turned into action for our country, which is our
common aim*
ThismorningV panel representea the public sector, the adminis
tration and congressional opinion. This afternoon, we will be hearing
269
from the other vital half of the two decisionmaking components in
our society, the private sector, and we are deeply grateful to those
who have formerly served, or are serving right now, like Ms. Rivlin,
in a capacity of serving the American people here in Washington.
Of course, the reputations of all concerned are extremely well
known.
We would like to call your attention to the fact that in our dis
cussion this morning in which, hopefully, some of you may have
participated, there was a discussion of what full employment really
means in terms of percentages or other standards. The general feel
ing was that we were all committed to the same thing, but we had
different definitions of the goal.
Mr. Burns, for example, defined the goal of full employment of
allowing anybody who really wants to work, and is able to work, to
find a job within a relatively short period of time in the economy.
Alan Greenspan, along with some of our discussants, stated that
we needed to leave out of our vocabulary any effort to tie full em
ployment to a specific figure, like 3 or 4 percent, and what we are
looking for is productive work, real employment. Structural
changes, along with institutional reforms along the lines of the
Humphrey-Hawkins bill, and along the lines of my planning bill,
joined by Senator Humphrey, would give us a methodology for a
change of structure in our situation.
We have discussed public service jobs, a public works program,
and stimulative tax relationships for the private sector. Also, sub
sidies for on-the-job training, the minimum wage impact on teenage
unemployment, and generally I think that covers this morning’s
highlights—oh, yes, we discussed the possibility of reducing the cor
porate income tax as a stimulus to employment and instead sub
stituting other special tax indulgences, like the investment tax
credit.
Now, that is generally a very, very brief rundown of this morning.
First, we will proceed by calling on the panel. Anyone who has a
statement will have it incorporated into the record, without objection,
and panel members each will speak for 5 minutes and the Chair
will call on Mr. Heller first, then on Ms. Rivlin, and the rest of
the panel in the order they are seated.
Then we will hear from our discussants who are, respectively,
William Spring, the Director of the Regional Institute on Employ
ment, Training and Labor Market Policy and has a fine record in
the field; Stanley Frankel, vice president of the Ogden Corporation,
and now on the President’s Advisory Council on Youth Oppor
tunity ; Hugh O’Malley, the Small Business Service Bureau, special
izing in consumer affairs and formerly the attorney general of
Massachusetts.
If it is agreeable to the panel, Mr. Heller, would you please proceed s
STATEMENT OF WALTER W. HELLER, REGENTS’ PROFESSOR OF
ECONOMICS, UNIVERSITY OF MINNESOTA, AND FORMER CHAIR
MAN, COUNCIL OF ECONOMIC ADVISERS
Mr. H e lle r . Mr. Chairman, I confess I was told to take 10 to
12 minutes, and I will admit that even to make that I will have to
270
speak, as one of our newsmen said about Senator Humphrey, at
the speed of 100 words a minute, with gusts up to 200, and I will
do my best.
What strikes me as strange, Mr. Chairman, in fact, unreal, on
the occasion of the Employment Act’s 30th anniversary, is that
we basically have to fight the battle of full employment all over
again. The words of the Employment Act are still there, but the
commitment is not. No policy that projects unemployment at 6V2
percent in 1978 and takes 5 years to get back to 5 percent—-as
President Ford’s budget does—can be called anything but a rejec
tion of the spirit of that act. And careful analysis, it must be added,
shows that under {>rojposed White House policies, that dismal pro
jection is too optimistic.
A willing White House could breathe new life into the act that
has served the country so well during most of its 30-year life. But
a President whose leitmotiv is “we must stop inflation cold,” and
whose main anti-inflation weapon consists of huge buffer stocks of
unemployment and idled industrial capacity can hardly be expected
to provide that new spark of life.
A rededication to the principles of the act—and even more, a firm
and binding commitment to those principles—may well require a
new national debate and new legislation. The Humphrey-Hawkins
Full Employment and Balanced Growth Act of 1976 provides the
focus around which that debate should now take place.
The conference itself can be thought of as the kickoff of the con
gressional debate. It faces two critical assignments. First, to
crystallize and define the national will on full employment. Second,
to find new ways to carry out that will.
For the U.S. economy in 1976-77, in an economy running at least
$150 billion a year below its potential, the Keynesian prescription
of stimulating aggregate demand can work rather well, spurring
expansion without rekindling inflation.
While it has to be flanked by more direct and imaginative jobcreating measures, the basic thrust must come from expansionary
fiscal and monetary policy. But prescribing successfully for an
economy just emerging from the pneumonia of deep recession remains
far easier than curing the chronic headache of excessive unem
ployment coupled with excessive inflation. A balanced policy must
seek new ways not only to generate full employment but also to
hold inflation at bay in the process.
It is not an exaggeration to say that the country and the Congress
face a critical fork in the economy policy road in 1976.
We can either follow the economic “austerity trail,” haunted
more by fears of inflation than by concern for the unemployed,
beset by doubts about the capacity and resiliency of the U.S.
economy, darkened by the shadow of public protest against big
jverament, and studded with “go slow” signs posted by the White
ouse.
Or we can follow the eoonomfc “prosperity trail,” deeply conqprned about unemployment and slack, yet confident in the great
potential and adaptability of the U.S. economy; reassured by
receding inflation and no excels demand in sight; and aware
the public may oppose big spending and bothersome control^ yet
g
271
support good programs and measures to speed the return to full
employment.
To be sure, this road is posted with 55-mile-an-hour speed limit
signs—but also with reminders that the minimum speed is 45 miles
per hour.
But if the prosperity trail, the only aceptable one, is to lead to
true and sustainable full employment, new ingenuity and new
resolve will have to be applied to both job creation and inflation
prevention.
Granted, the first step must be a more aggressive fiscal-monetary
policy to take up some of the $150 billion-plus slack in the economy.
This means keeping the Federal Reserve’s foot off the monetary
brake and lifting the President’s foot off of the fiscal brake. It
means that both the Congress and the White House must keep in
mind that fiscal responsibility and fiscal restraint are not synonymous.
Indeed, in terms of its impact on jobs and output, it is the
President’s budget that is fiscally irresponsible—it would deal a
withering blow to the focus of economic recovery in 1977. So the
first exercise in ingenuity will be for Congres to find ways and means
of vetoing the President’s fiscal program and exerting some leverage
on the Federal Reserve to maintain an accommodative stance.
But fiscal and monetary policy alone cannot surmount the abiding
problem that confronts us all: First, to create the 12 to 14 million
jobs required between now and 1980 to absorb both the stream
of new entrants into the labor force and the huge pool of unem
ployed workers and, in the process, cutting down the intolerable
disparities between blacks and whites, men and women, teenagers
and middleagers, core city residents and suburbanites, and so on;
and second, doing so without touching off a new round of demand
inflation later in the seventies.
This job simply cannot be done by pumping up the economy
and assuming that the flow of job-creating demand will find its
way neatly into the nooks and crannies and hollows where chronic
unemployment exists.
So monetary-fiscal stimulus for expansion will have to be care
fully coupled with more sharply targeted measures to improve labor
information and mobility, to train and upgrade and employ the
disadvantaged, and to tide the unemployed over with temporary
jobs and retraining rather than transfer payments alone.
In the realm of direct job creation and measures to upgrade the
work force, this conference will have the benefit of far more
expert counsel than I can provide. The outsanding studies by the
Congresional Budget Office—from whose head, Ms. Alice Rivlm,
you will be hearing this afternoon—the superb work done by the
Urban Institute, the contribution by other members of this after
noon’s panel, and, indeed, the provisions of the Humphrey-Hawkins
bill itself point the way for a frontal assault on the job problem. ^
Let me add just a couple of general thoughts on the subject.
The first addresses itself to the criticism by both conservative and
liberal students on the subject that temporary job assistance like
the public service jobs program has been too costly, involves too
many delays, and has sometimes been used for job substitution
rather than job creation.
272
But it still remains true that the shortest distance between two
economic points is a straight line, that if we want to use Federal
money to create jobs, the most direct way to do it is to fund and
fill jobs that are waiting to be done.
It the principle is sound, which it is, one should merely be able
to improve the “ delivery system.” The policy resolve should be to
eliminate the detours, sharp curves, and soft shoulders, not to
abandon the road.
Second, one should carefully distinguish between the temporary
employment programs to tide over those who are thrown out of
work or denied a job by recession and slack from the continuing
programs that are needed to reach those outside the economic
mainstream. Here programs on the pattern of the job corj>s, the
summer youth programs, job opportunities program, antidiscrimina
tion measures, and a variety of other measures, and a variety of
other steps to upgrade the skills and provide job experience for
the disadvantaged must be developed and strengthened. All this
is familiar ground.
Just as aggregative measures have to be interwoven with sharply
focused structural measures in tackling the jobs problem, we have
to employ a similar dual approach to the inflation problem. We
have to gear policy to cope with the supply and price disturbances
that disrupt demand management.
The oil price explosion was only one—albeit the most s p e cta cu la r —
example of sharp changes in supply prices that touch off major
shifts in real income and buying power and require major fiscal
and monetary adjustments to offset the resulting effects on aggregate
demand.
Recent studies show that a considerable part of the doubling of
industrial commodity prices, other than food and oil, in 1972-74—
which accounted for a quarter of world inflation in that period—
traces to speculative buying. The prices of primary metals, for
example, rose 40 percent more than one can account for by past
relationships of prices to the needs of the industry.
What lessons should the policymaker draw from this? First, that
demand management alone—relying on those buffer stocks of the
jobless and of excess capacity to contain inflation—is an inadequate
answer in not only human but economic terms. The building up
of buffer stocks of strategic raw materials in slack times to throw
into the speculative breach during the next commodity squeeze—
not to mention the vital need for buffer stocks of oil and food—
ought to be a basic ingredient of stabilization policy.
Second, economic policy will have to develop more delicate
sensors and antennas as well as a more agile response mechanism,
first, to minimize surprises and, second, to maximize the speed of
response to external shocks and developing internal bottlenecks.
Policymakers might still be surprised* but they would not* one hopes,
be quite so astonished.
The recent reform of the congressional budget process puts
Congress in a new and better position to adapt its fiscal policy to
changes in the economic environment. Whether this requires more
formal econoimcj>latming aaad programing is an open question that
the Htmiphrey-Javits mil ana its backets in Gm gressand the
economics profession will keep very much alive*
273
Out of the give-and-take on this issue, one may hope for at least
a hrm commitment in the White House and Congress to lift and
lengthen the sights of the political process in dealing with economic
policy a commitment to draw on better data, horizon-scanning, and
future-focused analysis for earlier detection of emerging trends,
threats of shortages, and danger signs in both the national and
international economy. It may require a White House agency, sideby-side with the Council of Economic Advisers, to give form and
focus to this function.
In the face of powerful producer groups—labor, business, farmers,
and so on—no long-run policy can deliver both full employment and
contain inflation without some curbing of price and wage appetites.
On both sides, there is enough clout, enough market power, to
enforce income claims that add up to more than the total output pie
at existing prices.
We must find a formula for lowering the norm for price and
wage advances in the noncompetitive sectors of the economy, must
develop and apply some guidelines and restraints for concentrated
industries and powerful unions that will curb the price-wage and
wage-wage spirals. And the time to install such limited restraints
is precisely when the economy is operating far below its output
potential. Once it gets there, it is too late—only more onerous
controls will then do the job.
In the grander design, an incomes policy must seek an economic
disarmament agreement in which labor and management agree to
settle for slower advances in money income in exchange for less
inflation, that is, without sacrificing real income. To forge such
a social contract—and to provide the tax or other inducements,
especially to labor, to initiate and maintain it—is at best a difficult
task. But unless ways are found to deescalate income claims, the
prospect of attaining full employment without either unacceptable
rates of inflation or unwanted degrees of wage-price control re-*
mains clouded.
The U.S. economy of the midseventies has enough leeway for
expansion to permit a long advance toward our employment objec
tives. Good analysis and good policy could achieve some significant
output goals without a resurgence of inflation.
But without some innovative social engineering, skilled economic
management, and good luck, the country will again face hard choices
and uncomfortable trade-offs between jobs, prices and controls in the
late seventies.
So, in the fourth decade of the Employment Act’s life, a redoubled
commitment both to make full employment—the right to a job—
a reality and to shield the country from intolerable inflation in the
process should be at the top of our economic agenda.
Chairman H u m p h r e y [presiding]. Mr. Heller, we thank you very
much for your statement, and I am sure that Senator Javits indi
cated the format that we will have—your presentations and then
the discussants afterwards. We are in the process here on this side
of listening and prodding.
.
.
Ms. Alice Rivlin, we welcome you here. Alice Rivlm is the Di
rector of the Congressional Budget Office and one of our most re
spected and admired public servants, and we are really happy to
have you here.
274
STATEMENT OF HON. ALICE M. RIVLIN, DIRECTOR,
CONGRESSIONAL BUDGET OFFICE
Ms. R iv l in . Thank you, Mr. Chairman. I am delighted to be here
to celebrate the 30th anniversary of the Employment Act and the
Joint Economic Committee.
I think perhaps the most important thing to be said about the
Joint Economic Committee is that it has, over the years, raised
the level of debate about economic issues, almost unbelievably, pro
vided a forum for discussion of economic policy, and has had a sig
nificant influence on that policy.
Unfortunately, it is often revealed that there are no easy answers.
I f we all perceive now that things are more complicated than they
were thought to be 30 years ago and that we do not always know
what to do about the economy, it is partly to the credit of the Joint
Economic Committee.
One change over that 30 years is clearly the degree of public
awareness and concern with economic statistics. The unemployment
rate, the consumer price index, the wholesale price index, industrial
production, all are front-page news every month with analysis and
caveats about what the changes might mean or might not mean.
This is generally good, if one believes that more information
leads to better policy, but I wanted to say one thing today about
the focus on the unemployment rate. Perhaps economists, in focus
ing on the unemployment rate, have tended to mask the real im
portance of what unemployment represents. The unemployment
rate, after all, is a proxy—it is not important in itself, it is a proxy
for the underutilization of the whole economy.
In a recession, sales fall, production falls, incomes fall, profits fall.
The unemployed themselves bear the heaviest burden of this under
utilization of economic capacity, but they do not bear it alone. I
stress this, because, as I go about the Hill, I have had a number
of Congressmen and Senators say to me, “ But unemployment only
affects 7.6 percent, or 9 percent, or whatever it is, of my constituents,
and inflation affects everybody.”
I think that is an error to which the focus on the unemployment
rate has contributed, and we should, perhaps, be thinking more gen
erally of the rate as a proxy for costs of underutilizing our econ
omy which, like the costs of inflation, are very generally spread.
But unemployment rates are also a proxy for something else, for
differential chances in life among the various groups of the popu
lation. The fact that the black unemployment rate is higher is a
reflection of a lot of things: Of lower education levels, of past and
present discrimination, and of the nature of the jobs that blacks hold.
Recession widens the absolute difference between black and white
unemployment rates.
Teenage unemployment is high, and that is, in itself, a symbol of
the fact that we don’t have a good way of getting young people into
steady jobs in the labor market.
One would expect somewhat higher unemployment rates among
teenagers as they shop around for jobs, but surely not as high as
present rates, and not the huge increases in the unemployment rate
resulting from a recession. The population in the 16- to 24-year-old
bracket accounts for about 20 percent of thelabor force, but this
275
group accounted for nearly half of the recession-induced unemploy
ment increase between 1973 and 1975.
Women are a somewhat different case. They do not necessarily
have high unemployment rates because they hold bad jobs. They are
concentrated in the steady job, white-collar occupations and they
don?t shift around very much. There, the problem is partly the crowd
ing of females into occupations considered female, and therefore,
a job market results which is not open to males and females alike.
So we have these two problems. Nobody is disagreeing really on
the direction of change, the aggregate unemployment rate is too
high, and the differentials are too wide. But we have to work on
these two problems at once, on the low level of economic activity
and on the problem of equal opportunity.
The best single thing that one could do to change the differen
tials, to help the unemployment rates of blacks and women and teen
agers, would clearly be to get the overall rate down, but this won’t
solve the differential problem by itself. It is still true that one has
unacceptable levels of unemployment among blacks, women and teen
agers, even when the white adult male rate is at the full employment
rate.
This is not just a sad cost barrier imposed on these groups. It
reflects a barrier to the economy running at full capacity. In a world
in which women and blacks could compete for the same jobs, one
could run the economy at higher capacity without running into
inflationary problems, without running into bottlenecks, and without
the white male unemployment rates beginning to rise before full
employment is achieved for everybody.
This suggests, of course, what Walter Heller was mentioning a
minute ago in that I regard inflation as still a problem, when one
is talking about how far to go with reducing unemployment by any
means, or particularly by fiscal policy and monetary methods.
One has to admit, as an economist, that inflation is an area of
tremendous uncertainty at the moment. We aren’t very sure, any of
us, about what to do about it.
.
It is true that in the last couple of years we have seen inflation
unrelated to tight labor markets and to the things we used to think
that inflation was related, but it doesn’t mean that the Phillips
curve has been repealed and we can now have a rapid return to low
unemployment rates by fiscal policy and monetary means alone with
out worrying about inflation.
„
We have to move with some caution, and one has to, I trunk, still
rely on past analyses of past relationships to get some idea of where
the danger points might be if one moved too rapidly with economic
stimulation. The estimates we have done at the Congressional r5uage
Office have raised a red flag—if we move below 4 percent unemp oyment or if we move to 4 percent too quickly—we will have an mflaNonone is absoSely sure about that, but analysis of the past would
of how much to use fiscal and mone
tary policy and how much to seek other instruments, such as public
service employment or counter-cyclical grants that mig
the number of jobs with a lesser inflationary cost.
276
The question is clearly the mix of policies. We have at least four
kinds of policies available for the Congress to use. There is fiscal
and monetary police'where one does have to weigh the risks of
inflation against the gain of the reduction in the unemployment- rate.
There are various kinds of what might be called targeted job prob
lems aimed at reducing recession unemployment- faster than one
might do it with aggregate policy; and there are various kinds of
targeted jobs in training and other kinds of programs aimed at a
different objective, that of reducing the differentials in the unem
ployment rates even at full employment—and one doesn’t have to
wait until one gets to full employment to do some of those kinds of
things.
The dilemma that has to be kept in mind as the Congress formu
lates these different kinds of policies is that the different objectives
do lead to the design of different kinds of programs. I f one is really
using public service employment to combat recession, then one wants
to make the pay rates reasonably low and the jobs not too attractive
so that people will move out of public service employment as the
economy improves.
On the other hand, if one is using public service employment to
bring people who do not otherwise have good jobs skills into the
labor market and let them work their way into better jobs, it creates
a different kind of a program in a longer term sense. It is a more
difficult thing to do, but presumably just as necessary.
Finally, there is the question of unemployment compensation,
which is a very necessary program at a high level of unemployment.
But as one looks across at the Federal budget at the various choices,
it is clear around $19 billion is being spent to pay people not to work
and only about $5.3 billion is spent on jobs creation, and one won
ders if that is an appropriate allocation of Federal resources.
Let me end where Walter Heller ended: It does not seem, from
an analytical point of view, that there is any magic number below
which we cannot push unemployment. It is a question of the will
and it is a question of choosing the right mix of policy.
Chairman H u m p h r e y . Thank you very much, Ms. Rivlin.
[The prepared statement of Ms. Rivlin follows:]
P bepabed S ta te m e n t
of
H
on.
A
l ic e
M. R
iv l in
Mr. Chairman, Members of the Committee, and Invited Guests: Unemploy
ment continues to be a focus o f national attention and debate. It represents a
waste of human resources that is reflected in a lower level o f output of goods
and services than could potentially be produced. Unemployment also places an
undue burden on the individuals concerned. Not only is there the loss of income
associated with joblessness, but skills deteriorate, seniority may be lost, not to
mention the damage to an individual's sense o f pride and self-esteem. Because
the probability of being unemployed is higher for some persons and groups than
others, full employment is not only the economic problem o f restoring fullcapacity production levels, but a social problem as well. Even at high levels of
aggregate employment, differentials result in unequal chances.
Society ean use four kinds of strategies to deal with unemployment: The
first is expansionary fiscal and monetary policy; the second, targeted expendi
ture and tax programs that increase public and private employment; third,
unemployment can be reduced by government programs that train and edu
cate potential workers and that facilitate the functioning of the labor market
Finally, the government ean supply direct cash assistance to reduce the financial
burdens of unemployment
All of these have costs, however. Fiscal and monetary policy tend to acceler
ate lunation as they reduce unemployment Targeted employment pro-am s
277
and training programs work only imperfectly. Unemployment assistance
meliorates the effects, but does not attach the basic problem. What is needed is
a mixed strategy that combines the strengths of all of these.
I. BACKGROUND
During the three decades following the passage of the Employment Act of
1946, unemployment has varied widely. During the early 1950s, the unemploy*
ment rate fell below 3 percent and in 1975 the average unemployment rate
was 8.5 percent. Over this time period, six major recessions and recovery cycles
have occurred. While most of the variation in unemployment is the result of
cyclical movements in the demand for goods and services, the unemployment
rates achieved in relatively good times are higher than many people find ac
ceptable. As shown in Chart 1, unemployment in the United States has not
fallen below 4 percent since 1970. Thus, the definition and achievement of full
employment and the choice of an acceptable combination of unemployment and
inflation rates remain central issues within the federal policy debate.
C hart 1
The Unemployment Rate, 1945-1975
Source:
Bureau of Labor Statistics
278
Daring the early years following enactment of the Employment Act, fiscal
and monetary policies were the dominant mechanisms for lowering unemploy
ment. During the 1960s, the federal role in facilitating and regulating the
labor market (e.g., through equal employment opportunity policies) and in
increasing work education and skill levels expanded dramatically. In the late
1960s and 1970s, the duration of unemployment compensation benefits and the
fraction of workers covered increased and direct federal involvement in the
unemployment compensation system expanded.
Two major questions need to be answered as the Congress considers the
development of an effective and appropriate anti-unemployment policy:
How high a level of employment can be achieved using fiscal and monetary
instruments alone before the inflationary effects become intolerable?
What are the effects of different mixes of the available anti-unemployment
instruments on unemployment, employment and inflation during periods of
high and low unemployment?
The federal budget provides one view of the current employment policy. In
fiscal year 1976, $5.3 billion in outlays are devoted to programs that create
jobs directly. Outlays for programs that train and educate potential workers
(including federal aid to education as a long-run antiunemployment program)
are $18.3 billion, and approximately $19.9 billion in unemployment compensa
tion benefits will be provided to unemployed workers.
The causes of unemployment are varied and create the demand for a mixed
federal full employment strategy. Unemployment is both a cyclical and struc
tural phenomenon. As such, it can be caused by a number of factors such as
inadequate aggregate demand for goods and services; structural imbalances
between the skill levels of available workers and the requirement of jo b s ; dis
parities between the geographic locations of workers and job s; seasonal im
balances between the availabilities of workers and job s; short-term layoffs or
furloughs of workers by employers experiencing shortfalls of demand; and
occupational and other barriers to certain disadvantaged groups in the labor
force. Unemployment might also be increased or perpetuated by income as
sistance programs that aid the unemployed.
Just as its causes vary, so does the level of unemployment vary among seg
ments of the labor force. Among the patterns that have been reflected over
time and during the current recession are:
1. By Family Status: Although family heads normally have lower rates o f
unemployment, their unemployment has increased dramatically during the cur
rent recession. In January 1974, 1,533 household heads were unemployed. By
November 1975, this number had grown to 2,980,000. Over a similar time period,
the unemployment rate for household heads increased from 2.9 to 5.6 percent.1
2. By Age: Younger workers have higher unemployment rates during periods
of low aggregate unemployment and suffer disproportionately from recessioninduced employment.3 Although 16-24 year old workers account for only approxi
mately 20 percent of the civilian labor force, they accounted for approximately
48 percent of the recession-induced unemployment between 1973 and 1974.
3. By Race: Nonwhite workers—of all sexes and ages—have higher unem
ployment rates than do their white counterparts during periods of both low
and high unemployment. The gap between the unemployment rates o f whites
and nonwhites has grown from 4.3 to 6.1 percent during the recent recession.*
4. By Education: Unemployment rates of more educated workers are con
sistently lower than those with less education. In March 1975, the unemploy
ment rate of college graduates was 2.9 percent while the rates for workers
who had not graduated from high school and for all workers were 15.2 and
9.2 percent, respectively.4 Less-educated workers also account for disproportion
ate shares o f recession-induced unemployment.
1 Unpublished Bureau of Labor Statistics data.
•Recension-Induced unemployment la calculated by subtracting the unemployment dur
ing periods of low aggregate unemployment from that during periods of high aggregate
unemployment.
. _
• “The Impact of Economic Recovery on Unemployed Nonwhite and White Americans:
A Preliminary Assessment,” Congressional Budget Office, December 5, 1975.
* Derived from M anpow er R ep ort o f th e P resid en t, April 1975.
279
5. By Type of W ork: During recessions workers in some industries are
t0- ? ? unemPloyment rates than their fellow workers. For
? “ I• “ anufacturinS (for both durable and nondurable
T ^ o V i ^
f0r Oisproporuonately high shares
Although the economic recovery is now underway, many workers are still
mpn?Pi T
As shown in Chart 2, in February 1976, the average unemploywere I v l l Ht X l
anf the ? teS for teenage and ™nwhite worked
.unen?pl0^ment rates of workers in cyclically volatile
occupations and industries also remain high: for instance, the unemployment
rates for construction workers and nonfarm laborers were 15.5 and 14.1 per
cent in February 1976.
C h art 2
UNEMPLOYMENT IN FEBRUARY 1976
Unemployment
rate (percent)
Number of
individuals
unemployed
(thousands)
Total unemployment.................
7.6
7,100
Males over 30 yr old.................
5.7
2,917
White...............................
Nonwhite..........................
5.0
11.2
2,296
590
Females over 20 yr old..............
2.522
White...............................
Nonwhite..........................
12.2
Teenagers 16 to 19 yr old..........
19.2
1,697
White...........................
Nonwhite..........................
17.1
35.2
1,358
330
3.6
6.7
14.1
489
808
693
15.5
8.1
8.4
4.4
668
713
1,418
693
Occupation:
Professional and technical__
Craft and kindred.....................
Nonfarmlaborers.....................
Industry:
Construction......................
Manufacturing—nondurable.
Wholesale ana retail trade...
Government......................
1,960
560
Source: Bureau of Labor Statictics.
ii.
w h a t is fu ll e m p l o y m e n t ?
Much of the unemployment in the United States today is the result of the
depressed state of the economy. Restoration of a high level of demand for
goods and services is a necessary condition for achieving full employment,
although high demand will not do the job by itself.
Indeed, one fear is that a rapid increase in demand, propelled by an ex
pansionary monetary and fiscal policy, would rekindle the inflation that only
recently has begun to subside. A question that any full-employment strategy
must address is how far unemployment can be reduced by raising aggregate
demand without threatening another outburst of inflation. While it is not
true that unemployment and inflation always go in opposite directions—-the
last few years have demonstrated that they can both go up together—high
unemployment has been associated with low inflation and vice versa, for most
the last three decades. This is shown in Chart 3.
280
Inflation*and Unemployment, 1947-1975
•Inflation is measured by the rate of change in the Consumer Price Index.
Source:
Bureau of Labor Statistics
The chart also shows that for the last four years the unemployment inflation
trade-off has deteriorated badly, with intolerably high levels o f both going
together. Various explanations of the perceived worsening o f the trade-off
have been suggested: increased monopoly power o f business and labor that
facilitated inflationary demands for higher profits and w ages; a shift in the
demographic composition o f the labor force that increased the proportionate
representation o f teenagers and women—two groups whose relative high un
employment rates can be attributed in part to factors other than inadequate
aggregate demand; and an expanded system o f unemployment insurance and
income transfers that might increased measured unemployment by facilitating
longer spells o f unemployment, encouraging people to stay in the labor force
when they otherwise would have dropped out, and perhaps causing some work
disincentive. More generally, it has also been suggested that the expectation
of inflation has in itself accelerated inflation as those who had the power to
hedge in advance, did so.
281
None of these explanations has been proven. What is true, howpv^r. i« t w
m . FISCAL POLICY AND FULL EMPLOYMENT
Historical evidence alone cannot provide a definitive answer to the question
of how far fiscal and monetary policy can bring the economy toward a full*
employment goal. Unemployment rates below 4 percent were consistent with
low rates of inflation in the early 1950s. Yet when unemployment fell below
4 percent in the late 1960s, inflation began to rise and in 1973, inflation took
off once again when unemployment was 4.6 percent. Because we’re currently
experiencing a legacy of inflationary expectations that has followed in the
wake of recent high rates of inflation, it is extremely difficult to predict how
much inflation would be associated with any fiscal and monetary policy
strategies adopted today.
However, it is likely that monetary and fiscal policies could bring unem
ployment substantially below its current rate of 7.6 percent without exacerbat
ing inflation in the short run, although the long run effects of a more expan
sionary policy in accelerating inflation would be greater. In its Annual Report,
released this week, CBO projected that if federal spending and tax programs
are extended through 1977 on a current policy basis, the unemployment rate
would be in the 6.4 to 6.9 percent range by the end of 1977. Inflation is pro
jected to be in the 4.7 to 6.2 percent range in 1977. What would be the impli
cations for inflation and unemployment if a more expansionary fiscal policy
were adopted?
CBO has simulated the potential inflationary impact of achieving various
unemployment targets. The analysis is based on the assumption that these
targets are achieved through standard fiscal and monetary policies, not
special tax incentives or jobs programs.® The ranges shown for the inflation
rates reflect different assumptions about the influence of past price changes
on wage changes.
In these simulations, it was assumed that expansionary policies were en
acted beginning in 1976:111 (the third quarter of calendar year 1976), with
the unemployment target achieved 24 months thereafter (in 1978:11) and
remaining there through 1980. Further, it is assumed that wages and prices
are allowed to rise unchecked, that is, no wage and price controls are imposed
as the expansionary strategy is pursued.
TABLE 1.—PROJECTIONS OF INFLATION FOR DIFFERENT UNEMPLOYMENT TARGETS
[In percent]
Unemployment target for 1978:11......................
Percent change in Consumer Price Index for 1978.
Percent change in Consumer price Index for 1980,
Table 1 shows the estimated change in the Consumer Price Index associated
with achieving various unemployment rate targets in 1978:11. The effect is
shown both for 1978 and for 1980. The two most noticeable effects in the
table are that inflation is high, related to past history, and that inflationary
effects lag, becoming greater later on than they are at the time unemployment
282
percent in these simulations, inflation increased somewhat more,
“double-digit” rates becoming a threat by 1980. (The high end of
9.9 percent, was derived from an accelerationist version of the
model in which the response to wage changes to past price changes
to be unity in the long run.)
with near
the range,
simulation
is assumed
Fiscal policy alternatives
There is no single unemployment rate that denotes “full employment.” The
choice of a degree of fiscal stimulus depends ultimately on how much inflation
one is willing to live with; (or whether one views wage and price controls as
a feasible and effective supplement to fiscal policy). For purposes of illustra
tion, OBO has simulated three sets of fiscal policy alternatives that would
provide an added stimulus to the economy to reduce unemployment to 4.0
percent range within two years (with inflation rates between 5.6 and 8.2
percent at that time and between 5.9 and 9.1 percent by 1980). To achieve 3.5
percent unemployment (and added inflation) somewhat more stimulus would
be required; to achieve 4.5 percent unemployment (and less inflation) less
stimulus would be needed.
Three sets of policy alternatives; increased government spending (80 per
cent purchases; 20 percent transfer payments), tax cuts (80 percent personal;
20 percent corporate), and a combination of the two, are shown in Table 2.
Although the paths to the 4.0 percent unemployment target can be timed
in different ways, the timing used in this illustration causes unemployment to
fall most rapidly in the first year, and then to approach the unemployment
target slowly in the second.
Changes in spending and taxes are shown relative to the current policy
budget as reflected in the Second Concurrent Resolution on the Budget by
Congress. In the current policy budget, the tax policies currently in force
are extended and outlays are adjusted for inflation and changes in the number
of persons eligible for benefits. I f the current policy budget remained in
force, unemployment would be in the 6.2 to 6.4 percent range by the middle
of 1978 with inflation running from 5.0 to 6.0 percent.
Achieving 4 percent employment by mid-1978 would require larger budget
deficits. The size of the additional deficit would depend on the expenditure/tax
package selected, since tax cuts are less stimulative dollar-for-dollar than
additional outlays. If government outlays only were increased, the deficit in
mid-1978 would be $35 billion to $40 billion higher than if the current policy
budget were followed. With the combined fiscal strategy, the deficit would be
from $70 billion to $75 billion higher than for a current policy budget by
mid-1978.
For purposes of these simulations, monetary policy was assumed to be more
expansionary than projected for a current policy budget but less than fully
accommodative. That is, interest rates were allowed to increase somewhat in
response to the more expansionary fiscal policy. I f monetary policy were fully
accommodative, then the increased deficit associated with achieving the 4.0
percent unemployment target would be lower.
It should be emphasized that the estimates in Tables 1 and 2 are based on
assumptions about relationships that may not hold in this particular recovery.
The private economy could be stronger or weaker than is projected here. Crop
failures here or abroad, a major strike, a rapid rise in short-term interest
rates— all contrary to the assumptions underlying these estimates—would
change the outlook for inflation and unemployment.
It is clear, however, that a rapid return to full employment would require
very large departures from a current policy budget. A more gradual path of
recovery, bringing unemployment into the 4 percent range by 1980, would
require less fiscal stimulus from the federal budget. Further measures such
as public service employment and tax incentives especially designed to en
courage employment might have a greater job-creating potential per dollar o f
federal government outlay. I f such measures were part of the overall budget
policy, the expenditures and tax changes required to reach the 4 percent
unemployment target would be somewhat less.
IV. CAW W E DO BETTES?
Because insufficient demand for goods and services is not the only cause o f
unemployment, fiscal and monetary policy alone cannot be relied upon to
eliminate it altogether. It is unlikely that aggregate demand measures could
283
M & ’ssfflns
sszss
” ** ••*“ —
■
Before considering the policies needed to achfere fin employment, it is important to examine some factors that contribute to the persistence of nne£n?t0C^ ( “ * f i la^°r ma! kets- Tbis ln tora proWdea a basis for evalua ting alternative full-employment goals (in terms of the percent of the labor
force unemployed) as well as considering the potential eftectireness of alternative fnll-employment policies.
Job-related factors
Certain groups of individuals—blanks, teenagers, women, and the unskilled—
have high rates of unemployment even when the overall demand for labor i*
high. As shown in Table 2, the average unemployment rate for adult white
males m high-employment periods since 1950 has been only about 2.3 percent,
compared with 5.3 percent for black males, 9.& percent for white teenagers,
27.8 percent for black teenagers, and 3.4 percent and 6.8 percent for whit*
and blaek women, respectively.
This persistent inequity, even in prosperous times, suggests that the rel
atively high unemployment experienced by some groups will not be remedied
by fiscal and monetary policies alone. When unemployment is already low,
such policies may only increase demand far skilled, adult white males, driving
up their wages without much effect on unemployment and wages for other
groups.
To a large extent, the relatively high employment rates of certain group*
are related to the jobs these people hold when employed. Blacks, teenagers,
and the unskilled have one thing in common. They tend to hold jobs at tl*
bottom of the labor market hierarchy. They predominate as laborers and lowlevel sales and service workers. Although they are disproportionately repre
sented in the industries with high employment variability, even in stable
industries they have relatively high unemployment rates. They become un
employed frequently, because they are fired, because they quit, and because
they leave and reenter the labor force. There is little incentive for employer
or employee to maintain a long-term relationship since there is little, if any,
on-the-job training and hence, no pay-off to seniority. Job satisfaction is low,
and this also weakens job tiea. The employer can find an equally unskilled
replacement and the worker can expect to find another equally poor job, par
ticularly in tight labor markets. Duration of unemployment is not long on
the average for these groups, but unemployment occurs frequently.
TABLE 2L—FISCAJL POUCY ALTERNATIVE TO ACHIEVE A 40 PCT UNEMPLOYMENT TARGET IN 2 YEARS.1
{Dollars inbitlionst
1976:111
titwiMt
y
n
w
i t
1976:1V
1977:11
1977J
( 7. K7. 5)
t. Increased
Government
purchases enty; ctom i
in Governmaot txpawk-
„ tures......................
il. Tax cut only; changt in
15.0
taxes___________ _ __ _____
Co»Wo«dfi«caisiraiegyr
thanfe in Government
15
Hfcf-
1977:11 1977:IU
1977:1V
1978:1
1978:U
& 3 - f c 7 ) « 7 - U ) <4. H i ) flL M .3) f l.M .3 )
$18*0
P*
$53.0
887.0
—35.0
-64
- 9 9 .0
-121.0
910
- 17 , S
17
28.5
*-49.5
33.5
|8 1 0
$89.0
—MfiwO
-157. ft
42.5
- S .*
44.5
- 3 8 .5
$89. Q
- 15 7.0
44.5
tb™ faliy accommodative.
For teenagers, frequent job change* may reflect tn attempt to sample the
job market, and hence, may be productive in the long run, enabling the youth
to seek an occupation he most enjoys. For blacks, the unskilled, and disadvan
taged persons, however, frequent job changes reflect a lack of upward mobility
in the labor market hierarchy, engendering an attitude of futility and aliena
tion In a society attuned to progress and individual opportunity.
73-285— 76------- 19
284
The situation for women workers is somewhat different. While some women
workers, particularly blacks, hold very low-level jobs, many women hold fairly
stable, white-collar jobs, such as secretary, nurse, and teacher. The major
barriers facing these women are occupational. Most women are concentrated
in a small number of occupations where women predominate.
Frequency of unemployment is not as serious a problem for women as for
blacks and teenagers since women hold more stable jobs and quit rates are
no higher than for men. Rather, they experience more longer spelis (durations)
or unemployment because, once unemployed, they spend more time looking
for work. If they are sceond earners in a family, women might take longer
to find a job because there is less urgency to take the first offer available
Women may also be less flexible in their job requirements due to their lack cf
mobility and their household responsibilities. Some analysts contend, however,
that family characteristics play little if any role in explaining duration of
female unemployment According to this view, limited opportunities in the job
market and limited aspirations of women themselves have produced an excesssupply situation in traditional female occupations as women have entered
the labor force in increasing numbers without broadening their occupational
representation.
One could argue that unskilled individuals, teenagers, and women will al
ways have relatively high unemployment rates. For the unskilled, there will
always be a weak job attachment, particularly in society whose ethic is
progress and individual opportunity. In some other industrial countries of
Europe and Japan, unskilled workers change jobs less frequently, jobs are
taken for life and there is a strong resistance to layoffs on the part o f labor
unions. Yet in those countries, there is less chance of an individual improving:
his lot by finding a better job and upward mobility is less likely.
Frequently sampling of various jobs may enable a teenager to select a career
and hence, some of the high rates o f teenage unemployment may reflect a
nf"es«ary adjustment to the realities o f work. Women, too, given the estab
lished pattern o f sex role behavior may incur more unemployment than men.
even if all occupational barriers were removed. Some married worsen, for
instance, may view their jobs as secondary to their household responsibilities,
and hence may remain unemployed longer due to inflexible job requirements.
Even for those with a looser attachment to the labor market, jobs that pro
vide some sort of on-the-job training and upward mobility within their firm
will increase incentives for both employer and employee to maintain the work
relationship. As a short-run measure, subsidized training programs to upgrade
skills could both increase the employability o f such workers and strengthen
their job attachment. By reducing turnover for disadvantaged workers, such
policies would reduce the high-employment rate, allowing an increase in the
full-employment target.
Reducing teenage unemployment would also mean a higher full-employment
goal. To the extent that a certain amount of “ sampling” o f the labor market
is deemed desirable, the acceptable unemployment rate is likely to be some
what higher for teenagers than for other groups. However, some measure^
to reduce teenage unemployment could be effective. These include improved
career and vocational counseling and increased career and vocational emphasis
in school curricula that would reduce the incidence o f job mismatches and job
search through trial and error. Training programs that ease the transition
from school to a working environment might also be beneficial.
Measures to reduce the cost to employers o f hiring teenagers might also
offset some o f the risks associated w i t h such hiring (such as lack o f p r e v i o u s
work history and anticipated high turnover rates). One such proposal is to
reduce the minimum wage for teenagers. But minimum wages do result in
higher wages for those workers who are able to obtain employment, and thus
other measures could be sought to reduce the cost to employers o f hiring
teenagers and other low-produetivity workers. Exemption from social s e c u r i t y
taxes or outright subsidies to firms hiring teenagers are possible a l t e r n a t i v e s .
Since such measures might displace unskilled a d u l t workers from jobs, however, their results are not unambiguously fatorable.
285
In the case of women, unemployment results in part from limited job op
portunities and barriers to entry from many occupations. It may also be traced
to attitudes held by women themselves who limit their goals to traditional
female pursuits. If, by breaking down occupational barriers and widening
women's labor market goals, as well as ending discrimination against females,
women become more equally distributed among occupations then it is likely
that female unemployment will decline more rapidly in response to overall
economic growth. More competition between women and men in the labor
market as women increase their labor force participation and attachment
could potentially moderate inflationary wage pressures in occupations tradi
tionally held by men. In addition, career counseling and retraining may widen
occupational choices and reduce excess supply problems in certain femaledominated occupations. Special programs for older women reentering the labor
force after the child-bearing years have been extremely successful in reducing
female unemployment in some European countries.
Targeted employment policies and the full employment goal
As shown in Table 3, adult women represented 35.6 percent of the labor
force in 1975 compared with 26.8 percent in 1950. Teenagers are 9.5 percent
of the labor force today compared with 6.8 percent in 1950.
Suppose that measures to broaden the occupational distribution of women
could bring the female unemployment down to within 0.5 percentage points of
the male rate. Teenagers are likely to have much higher unemployment rates
than adults, even under optimal conditions, but their unemployment rates
could conceivably be brought; to within 2 percentage points of the adult rates
with appropriate transitional counseling and training programs. (Experience
in other countries suggests this is not an unrealistic: target.) Finally, imagine
that upgrading skills and improving chances for upward mobility among blacks
could bring their unemployment rates to within 0.5 percent of the rate for
whites.
If effective policies to achieve these goals had been pursued in 1973. the
overall unemployment rate would have been 3.3 percent rather than 4.0 per
cent. In 1956, the overall unemployment rate would have been 3.3 percent
rather than 4.1 percent. That is, in 1956 the unemployment rate would have
been 0.8 percentage points lower; in 1973, it would have been 1.6 percentage
points lower. Thus, it appears that special measures to reduce high unemploy
ment rates of those particular demographic groups would, if effective, con
tribute even more today to reducing unemployment {and raising the fullemployment target) than in the past. It should be noted, however, that
measures to increase the access of these demographic groups to jobs predom
inantly held by adult white males are likely to raise the unemployment rate
for adult white males somewhat. Thus, the effect on the overall unemployment
rate could be overstated. However, even' if the full-employment unemployment
target could be reduced by 1 percentage point as a result of measures to
reduce the relatively high unemployment rates Of blacks, women, and teen
agers, such measures combined with expansionary fiscal and monetary policy
could potentially bring the overall unemployment rate to the 3 percent range.
TABU I.—UNEMPLOYMENT BATES BY DEMOGRAPHIC GROUPS IN SELECTED HICH EMPLOYMENT PERIODS
II to II yr..........
IMt 20 imt ovtr.
F«Mto20Mtf
II to II v ..........
Mato 20 Md war..
Fanato 20 and ava
Total..............................................
MSI: ll>
» » :*¥ •
IMS:II■
2.1
«.«
2.1
II
2.1
IS
1
§
1
il
II
2.S
IMt: I
1157:1
IMS: IV
1961: IV
1*69:11
1*73: IV
(aRpa'ttSi)
10.6
m2
10.7
13
10.1
1.8
10.7
3.7
3.2
3.4
12.8
2.8
9.8
2.3
14
16.1
7.1
7.2
IS. 7
23.7
5.0
25.3
18
6.1
25.0
16
61
28.2
5.4
8.1
22.8
5.3
6.8
4 .0
3.9
17
3.4
14
4.8
15
• Uwptayawm m * If ran m ml availabta baton MM. Thoat mnkan a#ply to Ml IKM
M m tifitlMr.
3.0
3. 5
2.1
6.8
6.2
2,1
6.8
* Not tvailtbto.
Sourct: Bwmu of labof Statistics.
1.8
4.2
287
TABLE 4.—changes
in the demographic composition of the labor force
Stare of labor farce(percent)
Year
Humber
in labor
force
1950.....
1955___
I960.
1965.
1Projections.
Source: Manpower Report of the President, April 1975.
Unemployment insurance
The foregoing has emphasized high unemployment rates for certain demo
graphic groups in the labor market. A different sort of effect on the measured
unemployment rate stems from the unemployment insurance system and
other income maintenance programs.
Unemployment insurance is sometimes thought to increase the amount o f
unemployment, in good times and bad. For one thing, it may increase the
length of time an unemployed persons spends between jobs; the income sup
port provided enables him to seek a preferred job rather than being forced to
accept any work at the risk of starvation. In addition, the availability of
unemployment insurance will increase measured unemployment to the extent
that it provides an incentive to potentially discouraged workers not to drop*
out o f the labor force. Further, in some cases, the unemployment insurancesystem may even result in a work disincentive because some individuals m ar
prefer to collect unemployment benefits rather than work.
Some empirical evidence suggests that measured unemployment is perhaps
as much as 0.3 to 0.7 percentage points higher under the existing unemploy
ment insurance system than it would be with a much more limited system.
The net effects of this disincentive are probably greater during periods of low
unemployment when jobs are actually available. However, it is not possible
to distinguish whether this is due to a work disincentive, the retention of
potentially discouraged workers in the labor force, or to an increase in the
time devoted to job search. While a work disincentive may be viewed as an
undesirable result of unemployment insurance, it is not at all dear that pro
viding income support for potentially discouraged workers or for a more
productive job search for unemployed tocftviduals is undesirable.
v. job
creation
Fiscal and monetary policy to reduce unemployment rapidly run the danger
of accelerating inflation. Improvements in the job market like those discussed
in the last section work only slowly. Thus, to reduce unemployment still fur
ther in the short run, special programs to provide jobs for the unskilled and
disadvantaged who have high unemployment in good times can provide major
help. Jobs can be designed to strengthen the job attachment of these indi
viduals: by enhancing their skills, providing unemployment stability, and a
▼ested interest on the part o f the individual and the employer to maintain the
work relationship. Further, the jobs should provide new opportunities that
widen the participation o f such groups in the labor market and increase their
chances for upward mobility. Such jobs could be public sector jobs that would
provide a transition to regular private sector employment, or they could be
subsidized private sector jobs: the cost to employers of providing such
transitional experience to unskilled and disadvantaged workers would be
temporarily reduced until the transition is completed.
A number o f targeted expenditure instruments can reduce unemployment or
maintain it at lower levels than those achievable by fiscal policy alone.
288
Properly designed, tliey may hare le&S inflationary impact than broad fiscal
and monetary instruments. Such measures include:
1 Public Service Employment—Job creating programs that either fund jobs
in state and local governments or in federal programs. These programs can
be used either countercyclical^ by hiring workers who remain unemployed
even during periods of low aggregate unemployment.
2. Accelerated Public Works— Countercyclical programs that fund manpower
intensive and short-term public works projects during periods of high un' employment.
3. Countercyclical Assistance to State and Local Governments— Aid to state
-and local governments designed to allow them to maintain services and em
ployment levels during periods of high unemployment.
4. Employment Tax Credits and Wage Subsidies— Tax expenditures and
direct outlays aimed at increasing or maintaining employment in the private
sector. These can be used either countercyclically or to reduce unemployment
during periods of low unemployment and they can either be general subsidies
or targeted toward less skilled workers and new or additional jobs.
5. Job Guarantees— Programs that combine job placement s e r v ic e s , private
sector employment subsidies; and public service employment programs in order
to publicly guarantee employment to workers. These may be used either
countercyclically or to further reduce unemployment beyond those levels
achievable by general fiscal and monetary instruments.
The effects of these expenditure programs and tax policies are uncertain
because most of them have not been tried on any substantial scale. When im
plemented as demonstrations, they have not been carefully evaluated.
The net effect on employment of such programs is a function o f the extent
to which they add new jobs rather than simply replace existing jobs, the
aveiage salaries of the jobs they provide, and the proportion o f their outlays
accruing to wages and salaries Their effect on the unemployment rate depends
on the proportion of the newly created jobs that are held by formerly unem
ployed individuals. Both public service employment and countercyclical aid to
state and local governments may be used to employ former state and local
employees. To the extent that these individuals would have been laid off if
federal support had not been provided, their jobs should be counted positively
as direct program effects. To the extent that these state and local workers
would hare been otherwise employed by these units of government but have
been shifted to payrolls supported by federal funds, fiscal substitution occurs
and net program effects decline.
CBO has estimated the effects of a number o f these programs. A counter
cyclical public service employment program with average salaries of $7,500
and nonwage costs of 10 percent will probably increase employment by 73,000
to 121,000 per $1 billion in outlays within twelve months following their
initiation.7 Because these outlays will create tax payments and the additional
employment will reduce unemployment compensation benefits, the net budget
cost per
billion of outlays will be approximately $470 million.
The net effects of accelerated ptiblic works and countercyclical revenue
sharing are different from those of public service employment because of
differences in wage levels; proportions of expenditures going to wages; and
^expected rates of fiscal substitution. A countercyclical revenue sharing pro-gram might increase employment by 70,000 to 97,000 jobs at a net budget cost
•of approximately $580 million per $1 billion in outlays An Accelerated Public
Works program could create between 57,000 and 70,000 jobs per $1 billion in
outlays at a net budget cost o f approximately $525 million.
To compare these targeted programs with a broader application o f fiscal
policy, a general increase in government purchases would increase e m p l o y m e n t
by 40,000 to 70,000 jobs per $1 bilHoja fn outlays. This is a bit more than h a l f
the estimated effect o f public service employment.
The effects o f tax and tax< expenditure instruments oriented to stimulating
increased private sector employment are more difficult to predict* There has
t See “Temporary Measures, toJStlmulate Bmplpymeat ; An Evaluation of Some Alterna
tive*,” Congreiataual Budget Office, September, % 1975. assuming 2 5 -7 5 percent fiscal
ftnbst!ttiti6n Mia
mmtfpUer.
289
been little experience with employment tax credits, and the responses of pri
vate employers to subsidies that reduce labor costs are highly uncertain These
provisions may alter employment patterns in one of two ways. A provision
which provides workers with incentives to enter the workforce will increase
the supply of labor and, if demand is sufficient, reduce the unemployment
rate. Second, employers’ demand for labor may be increased directly by re
ducing the cost of labor relative to the cost of capital through targeted tax
expenditures.
Currently, the earned income credit offers a credit to low income earners
in an attempt to induce more people into the workforce. This credit is not a
universal approach to reducing unemployment since it is only available to low
income workers who have dependent children. The credit to employers for
employing public assistance recipients under the work incentive (WIN)
program is the only tax provision which is explicitly designed to increase the
demand for labor. A 1975 amendment temporarily broadened this credit to
apply to other AFDC recipients besides those in the WIN program.
One possible new approach using the tax system would be an employment
tax credit designed to increase the demand for labor by providing a tax credit
to employers for hiring more people. An ETC would tend to increase the
amount of labor and decrease the amount of capital used. Substituting an
employment tax credit for the existing investment tax credit would provide
some incentive for firms to hire more labor rather than buying additional
capital equipment. The short-run employment effect would have to be weighed
against the long-run effect of reducing overall productivity in the economy.
Furthermore, tax credits have no magic. They are one way of distributing
federal funds, and they do so in a fashion which harms the tax system and
possibly public confidence in it. Thus, unless there is a compelling reason,
direct subsidies would appear to be preferable to more tax expenditures.
The long-term and short-term effects of a job guarantee policy are even
more difficult to estimate. To the extent that high unemployment rates for
disadvantaged groups in the labor force result from frequent job changes
associated with job satisfaction and attempts to improve one’s labor market
position, the guarantee of a job is not likely to reduce unemployment for these
groups unless the job provides some upward mobility that will increase job
attachment. However, if public service jobs are made more attractive than
private sector alternatives, workers will be drawn from the private sector,
increasing the cost of the public jobs programs and driving up wages in the
private sector. Over the longer run, however, this could result in improved
working conditions in the private sector.
Chairman H u m p h r e y . I hope that our discussants are taking
copious notes, because what I want to provoke here is not so much
a discussion on the part of the staff of the JEC or myself or my
other colleagues, but an interchange between the panelists and those
of you we have invited, because this record will supplement normal
congressional hearings.
i *
I am going to vary our listing here a little bit, and for one^rea
son onlv, that since Mr. Keyserling was a former Chairmani of, the
Council of Economic Advisers and was Vice Chairman at the time
this act became law, I thought we would hold him up as a sort of
a swing hitter, in order to have a perspective from the beginning to
Mr. K e t s e r l i n g . After what I have heard thus fai*, Mr. Chair
man, I would be delighted to speak last. _
Chairman H t t m p h k e t . We w i l l get you involved lat&r.
I think we will ask Mr. Hendrik Houthakker of Harvard Um-
' M ? H „ E t e 'r , I believe that Senator Javits
background here in a short synopsis form, so we
appreciate your coming.
?
290
STATEMENT OF HENDBEE S. HOUTHAKKEH, PEOFESSOK 0?
ECONOMICS, HAEVAED UNIVERSITY
Mr. HotrrHASKER. Thank you, Mr. Chairman. A s a former mem
ber of one ©f the institutions helped out by the Employment Act
and as one who has had the privilege of testifying before this com
mittee many times, I am happy to De present at the celebration of
the 30th anniversity and 1 share the feelings expressed by the other
panelists that the celebration is really an occasion for stocktaking.
Although the unemployment rate that we have at the moment does
not give a very accurate picture of the state of the labor market, the
recent behavior of the economy raises serious questions about
the relevance of the Employment Act of 1946 to contemporary
conditions.
We have not yet found a good way of combining reasonably full
employment with reasonable price Stability. The Employment Act
itself fails to address this dUemma, but public concern forces policy
makers to counteract inflation even at the expense of employment,
and thus to ignore the law. Even if the public were prepared for it,
continued inflation would probably not ensure continued high
employment.
Our political and economic system derives its strength from widely
dispersed private initiative with the Government playing an essen
tial but limited role. While Government intervention has been grow
ing, its contribution to the public welfare has come under increasing
criticism. This is in part because many Government programs of
recent yeans were enacted on the basis o f good intentions rather than
adequate analyses of their likely effects. By the time their effects
can De assessed, many of these programs have acquired a constitu
ency of their own aad are considered politically untouchable. A s a
result the discretionary element in Federal expenditures, so neces
sary to carry out the mandate of the Employment Act, has virtually
disappeared.
The general level of taxation is so high that only tax reductions
oaa be seriously contemplated. A s & result, the Federal budget is
in chronic deficit and fiscal policy difficult to execute.
Moreover, many of the Government programs of recent years are
in the nature of transfers, which means that those who pay for
them do not consider the benefits part e f their real income. Although
it is often suggested that these programs are paid for by “the rich.”
or could be paid to r by them if tax loopholes «w e eliminated, the
fact o i the matter is (that the bulk o t the tax revenue -sorties f coin
ordinary working people, and that no conceivable amount o i tax
reform can alter that basic fact significantly.
These working peeple and their unions, therefore, look Bt their
after-tax incomes when it comes to wage demands and labor force
participation. The maoroeeauamic effects v i large transfer programs
merit more stnc^y thasi -thqy have .had so far. ft is conceivable that
the greater disposition of married women to look lor outside work
is lu s jt lm w u t ^ f Women’s .Lib than o f ^falling real incomes -after
ta x ; suwejnwafy ox these wi*es nannnt find Txrork at prevailing min
imum wage rates,'they add to the unemployment -vate.
T he sam e illusions about w ho u ltim ately p ays lies Tjehind the
291
idea of sharing with States and local governments. Many of its de
fenders argue as if the Federal Government has large sources of
revenue that are available only to it. The fact is that by and large,
the taxpayers are the same at all levels of government.
Because of the mistaken belief that grants from Washington come
free to lower levels of government, the latter are encouraged to make
expenditures they would not have made from their own revenues;
generous pension schemes for State and city employees adopted in
the last few years are an example.
Now that revenue sharing has also become politically untouchable,
the opportunities for fiscal policy are further reduced.
The gradual emasculation o f fiscal policy has shifted the burden
of macroeconomic policy to the monetary authorities whose deci
sions are largely independent of political control—and perhaps that
is just as well. The economic fluctuations of reeent years appear to
result largely from changes in monetary policy, both here and
abroad. Monetary policy operates to a large extent on nominal,
rather than real, GNP and is therefore a clumsy tool for correcting
unemployment.
The performance of monetary poliey, and for that matter fiscal
policy if it could still be practiced, depends critically on the response
of money prices and money wages to variations in aggregate demand.
Unfortunately this response appears to have become weaker over
time, partly as a result of government intervention in the form of
regulation, price controls, import quotas and the like*
Congress in particular has been far too eager to interfere with
the price mechanism. Perhaps the outstanding case in point is energy5 where recent legislation has made us more vulnerable to ex
ploitation by OPEC than we need to be.
It is too often overlooked that the gasoline panic of 1974 was the
consequence not of the Arab embargo, but of price controls; other
countries that were hit even harder by higher oil prices had nothing
like this totally unnecessary disgrace to a market economy, and
have curtailed their consumption w e effectively than we have.
The trouble with these and many other forms of Government
interference is not that they put an undue burden on business but
that they put even larger pamts of our economy on a cost-plus pricing
basis, thus* weakening not only employment policy, but also effi
ciency. Competition is an essential part of a private enterprise
economy. It should be encouraged not onfy i& business^ but also in
the labor market, where union restrictions, especially in construc
tion, and minimum
laws ace contributing to unemployment.
An important method of preserving and fostering competition is
free international trade; Despite the large tradte surplus of 1975
there is now evidfence of resurgence of protectionism. The steel in
dustry has long been committed to a policy of cutting output rattier
than prices in periods of weak demand, contrary to tho ideal of full
employment.
..
.
.
^
This policy is threatened by competition from imports and there
*re now again reports of an international steel cartel to be negoti
ated under U .S. Government auspices.
m
Any plans in. this direction should at least wait for a thorough
•fifrlysis, of the probfeaw* of the steel indu^uy, similar to. the once
con d u cted in> 1 9 6 * aa& IV H .
20?
The protectionist pressures from other industries such as shoes and
soybean processing should also be resisted pending impartial studv.
The economic problems of recent years have revived interest in
planning an old idea that has been tried many times but generally
with little success. Effective planning requires a much better under
standing of economic processes than we now have. Economics has
made progress, but it is still far from ready for this kind of
responsibility.
In a complicated economy such as ours, decentralized private ini
tiative will contribute much more to the general welfare than bureau
cratic direction, no matter how well-intentioned. W hat we need is not
increased Government intervention, but abstention from the various
forms of foolishness we are already engaged in.
Thank you.
Chairman H u m p h r e y . I can hardly wait to get to you, but I am
going to wait. I thought I should forewarn you of my deep interest
in your commentary, and I found it provocative and informative.
Our next witness will be Mr. E li Ginzberg who is chairman of
the National Commission on Manpower Policy.
Mr. Ginzberg, you have been a member Of this Commission, Direc
tor of this study for some time; is that correct?
Mr. G in z b e r g . I am the initial chairman of that, but I was the
chairman of the National Manpower Advisory Committee since Pres
ident Kennedy’s day.
Chairman H t t m p h h e t . W ell, we surely welcome you. I know of
no one who is more or better informed on manpower policies, and
so we look forward to your testitmony.
Please proceed.
STATEMENT OF HON. ELI GINZBERG, CHAIRMAN, NATIONAL
COMMISSION ON MANPOWER POLICY
Mr. G in z b e r g . I want to begin as did Arthur Burns by a little
history. I was reminded only as I sat here this morning that I did
a book on the long-term unemployed in New York City in the
1930s, and this book was used as evidence by General Walter Menninger to get the Employment Act written in 1946.
Of course, I pointed out in that volume, called “The Unem
ployed,” the tremendous social and human destructiveness of having
people out of work and having them wanting to work and having
no opportunity for work. So I feel I have returned to the beginning.
Let me say that I have a prepared statement which I will make
part of the record and I am sending oVer a formal set of comments
on the Hawkins-Humphrey bill to Representative Hawkins.
Chairman H u m p h r e y . Have you testified before his subcommittee?
Mr. Ginzberg. I have agreed that we would do it by letter, and
I have prepared that letter.
v.
Chairman H u m p h r e y . You will share that letter with us?
Mr. G in z b e r g . That is correct.
I also want to call attention to the fact that the National Commis
sion has just now got in hand eight major chapters of a book called
“Jobs for ATnerfcatis,” in which chapters have bden contributed by
Abronowicz, who looked over the1entire history of the Employment
Act since 1946; Solo, who has done a pieceon-Unemployment*nd infla
293
tion ^Arthur Okun who has done a piece on new approaches to job
creation; Omen who has a piece on the matching of macro and man
power policies; Brimmer who has a piece—which I don’t think exists
anywhere else—which is an up-to-date analysis and detail of the eco
nomic and income position of black Americans, which I would think
you would want to get a handle on very early. It is a very exhaustive
piece.
Then, we have a piece by Professor Bergmann on discrimination
and employment problems and we have a very good piece by Lamp*
man on the limitations of jobs and when income maintenance is
needed. The last piece is by Juanita Krebbs, who is a member of
the Commission, on the issue of whether any gain results from the
restructuring of the work problem.
Chairman H u m ph rey . Who will be publishing this?
Mr. G inzberg. This is background for an American Assembly
meeting that the Commission is sponsoring, and Prentice-Hall will
have that in press right after the Autenhaus meeting which is ini
late May.
But we have copies of these pieces for you.
Chairman H u m ph rey . I understand that we have received the
separate pieces and I was just wondering whether we ought to have
those printed as a committee print.
Mr. G inzberg . I would ask you not to do that, sir, because it is
going to be generally available.
Chairman H u m ph rey . That is why I was asking how it was going to
be handled. Thank you very much. We will abide by your judgment.
But we will steal from it copiously right afterwards.
Mr. G inzberg . You are welcome to them immediately.
Chairman H u m ph rey . Thank you,
Mr. G inzberg . Let me begin by saying that one of the questions
that kept coming up yesterday and today is the question of a target
figure on unemployment. I want to make a point that I don’t think
has been made too clearly yet, and that is the dynamic nature of
the numbers of people who want to work in this society.
That is not a static number—and I do not mean that it depends
on how many people become 18. I want to just review with you
briefly the number of people whom we don’t count whom I believe
are potential job claimants. That is, you do know about the dis
couraged workers and the people who drop out That is a sizable
figure. But what one fails to include are the people who are forced
out in the upper age groups. I am impressed more and more with
compulsory retirement, and the number of useful Americans who
are put on the shelf. I am further impressed with the number of
handicapped people, who need work more than anybody else, in a
certain sense, in order to participate in a society in which they are
handicapped and therefore isolated, and who need the interchange
of work setting.
I am impressed with the fact that every time the economy strength
ens, a large number of the part-time workers become interested in
in full-time work. I am a little dubious about how we count the num
ber of underemployed among the part-time workers.
Next, and very important, are the number of people who hang
around schools. I have been in my 40th year, now, teaching at
294
lumbia, and I think a large number of youngsters hang around
school learning nothing. The truancy rate in the New York ghetto
high schools runs about 40 percent these days.
So I would say that the only reason they are on the school rolls
is because they have no place else to be. So I think we underestimate
the number of youth who are interested in work.
The next one is the tremendous number of housewives. Since I
have always thought that women were human and were equal citi
zens, I have never seen anything in the Constitution— I saw some
things about blacks in the old days, but not about women— I see no
T eason why they are n o t entitled to work like a n y b o d y else, and
«verytime the job market strengthens, more and more women want
to come out and work.
We have consistent errors by the governmental authorities in esti
mating the number of women who want to work. W e are constantly
underestimating that.
Next, I want to point out that I think we have large amounts of
people on the farm and more particularly what the census calls
“ rural-nonfarm” who are waiting for jobs. They do a little bit of
work, and therefore they are counted, but they are really under
employed, looking for decent jobs. Then we have this preposterous
number of people who are getting transfer payments, and I would
say a very high proportion of them would prefer to work. I don’t
know just what proportion. I don’t think everybody who gets a
transfer payment ought not to be entitled to it, but our Commission
unequivocally thinks that the notion to pay people for 65 weeks in
order not to work is, for a long-run policy of the United States, an
insane policy.
That is, one ought to start to take the money that we have and
decide very carefully how to use those moneys to do constructive
things. There is obviously a lot of work. A lot of people want to
work, and to continue with transfer payments without taking a
second look at that, seems to me------Chairman H umphrey. Have you ever talked to anybody in the
Government about that}
Mr. G in z b e b g . Oh, I have talked to people o f all kinds.
Chairman H u m p h r e y . I shouldn’t interrupt you, but what you
just said is so patently obvious and has been so to me, I can’t under
stand how people that can count up to 10 haven’t decided that what
you are saying is sensible.
Mr. CriNZBERG. I think I know why, Senator.
Chairman H ttm fh k ey. W ell, tell me, please, because I am really
getting ulcers over it, even th ough I have a family drugstore, there
is a limit over how much medicine a guy can take.
Mr. G in z b e b g . My guess is that it has to do with our failing
system of economic accounting; that is, we just fail to understand
what are the true costs of forcing people out of a society.
Let me repeat, or suggest to you, what we heard about the plight
W Great Britain. I did another study in 1939 called “ Grass on the
the story of the Wefah miners. X prophesied—that book
is available—then that England was going to pay a tremendous price
lor having neglected its nnmaa being th« way it did and ■forced
them into peqpetnal idhana.
J ■
295
There are quotations there that are just relevant to today. I am
embarrassed to go back and look at my old books, because I would
sa^ that the extreme exacerbation between the trade unions and
British management which underlies, in my opinion, most of the
low productivity, does not have that much to do with the welfare
society. It has to do with the fact that people in England don’t work
because they are constantly fighting.
That constant fighting is a direct consequence, in my opinion, of
10 years of excessive unemployment in Great Britain, the most ex
treme form of which was in those south Welsh valleys.
I never thought that I would live to see human beings not know
the difference between one day and the next, including weekends,
because the whole society had run down into nothingness.
I was in a town called Bryn Malla, the headquarters of Merthyd
Tidwell at that time, in which 90 percent of the population—working
population—had been unemployed for 10 years, which is a sure way
to ruin yourself. And anybody who is speculating about Great
Britain ought to go back and understand the relationships between
what happened in the twenties and the thirties and what has hap
pened to Great Britain since that time.
So I feel very strongly about the fact that if we don’t understand
that the game should not be to figure out how to minimize, the
structural changes and feel that youth and women don’t count, as
my distinguished conservative colleagues do all the time, but to
realize that there are two to three times the numbers of people in
the United States who are interested in working. It is a great
mistake.
Now, I was in Sophia, Bulgaria—I want to make another point.
I don’t think we are talking just about jobs. We had better talk
about real jobs that the citizens of the United States are willing to
pay for overtime. Otherwise, we are just kidding ourselves, because
I have had enough experience in the military to know that you can
be “ busy doing nothing.”
We used to say we used to need one corporal to two privates,
and the three of them didn’t do any work. So that I do think it is
essential to keep in mind that we have meaningful work, and I do
think, therefore, that this whole question of wages for public fobs
is a critical matter.
„ _ .. ,
I have been distressed—I testified before Representative Daniels’
subcommittee in 1974 that I thought it was ft mistake not to pay
attention to the costs of different kinds of public jobs, and the reason
being is that we cannot solve the income problems of American fam
ilies through jobs, not through public jobs.
. ^ _
You know, you don’t have to agree with Arthur Burns that they
ought to be 10 percent below the minimum wage, but I don’t think
they can be very much above the minimum wage, if you are going
to have a large-scale job support program for people who are at
the periphery of the labor market. That doesn’t make any sense
to me.
*
* t y j.
Because otherwise, yoa jnflt create » new
2 kJ 5?T
market which I think will get ns into all kinds o f additional
problems.
2y6
So I think we want productive -jobs, and we want to use the public
jobs—but I would agree with Alice Rivlin, you have to decide what
vou want to use them for. Now, the Congress has appropriated over
§1 billion a year for youth. I think we get very little service out
of those billion dollars.
I would like to see public service jobs and training experience
while the youngsters are still in high school so th e y can have 2 or 3
years to get somebody of skill that would really fit them into the
labor market, and I think one can reprogram that billion dollars, and
a lot of other billions. According to Ms. liivlin;s figures, we are now
spending $47 billion in and around manpower support and income
transfer moneys. That’s not chickenfeed. That is $47 billion.
And I think it is essential for the Congress to think very hard,
and for the administration to think very hard, and our Commission
is doing so, and we will have a set of recommendations for you very
quickly—we have a meeting next week, and we will come forward
with a set of recommendations on how to move.
Let me, in conclusion, just call attention to a few of these ideas.
I have mentioned the fact that I think we could reprogram the
question of moneys used for youth to improve both their skills and
their work experience.
T have never understood why Operations Mainstream is good for
a few farmers and not good for a few urban people. I happen to be
a New York City fellow, but it is totally incomprehensible to me:
Why can’t a person 58 or 59 years old, who falls out of work a few
years from being eligible for social security benefits, with no skills,
no education, ana unable to be reskilled do some useful public work?
It is totally incomprehensible to me as to why that is not an
appropriate program to use for this type of person.
Next, I do think, and our Commission has so indicated in its first
annual report that we have to look at the unemployment insurance
system. Unemployment insurance does have an integral part to play,
but that after 26 weeks, or some number of weeks—our Commission
has not decided how many weeks to recommend—some of that money
should be used in thinking about job search, training, and public
service employment as alternatives.
It is intolerable to say to the taxpayers of the United States that
they should keep on paying people not to work for 65 weeks. That
is not a national policy; that is a national disgrace.
I would say further, I would like to call your attention to the
fact that there are sizable disabilty payments given to people, and
I am involved with a program called supportive work in which we
take ex-addicts, ex-prisoners, AJFDC mothers who have never
worked, or who haven’t worked for 3 or 4 years, and youthful de
linquents, and we are trying to put them into a work situation be
cause we are convinced mat the only possibility of long-term social
rehabilitation as well as economic rehabilitation of these people
will come if they can be self-supporting.
So I would like to end by simply saying that I hope I don’t have
to tlo a study called “The Unemployed,’ which really conditioned
my life m the 1930’s for the 1980’s.
Chairman H u m p h r e y . Mr. Ginzberg, we thank you very much
and we await the Commission’s report, and I hope it will not be
297
another report that is just filed away. One of the dangers of all of
these reports is that they fill up shelves and libraries and offices
and the apparatus of the Congress is not sufficiently alerted or active
enough to do anything about it.
r> ^ ld I^ ? pe» ¥ s- Elvlin>^
you will see that the Congressional
Budget Office takes a good, hard look at that report when it comes
m. 1 know you will.
Ms. R iv l in . We certainly will, Senator,
Chairman H u m p h r e y . Because it is where the action is going to be.
[The prepared statement of Mr. Ginzberg follows:]
P repared St a t e m e n t
of
H
on.
E l i G in z b e b g
Note: Since the National Commission for Manpower Policy is currently
engaged in developing its recommendations about our employment strategy
which will not be finalized before the fall of 1976, the foUowing points must be
viewed as indicative of its thinking, not as considered conclusions.
1. There is need to place the issues of jobs for all Americans able and willing
to work at the top of the nation’s agenda*
2. The human, social, and economic costs from a large shortfall of job op
portunities goes far beyond the $200 million plus calculated loss of GNP
this year.
3. The number of potential appUcants for jobs, not now included in the
count of the unemployed includes many who are discouraged, the seriously
handicapped, the premature retirees, a minority of part-time workers who
want full-time work, many on the school rolls waiting for the job market to
improve, many housewives who want to work, persons on the farm waiting for
an opportunity to shift to a regular job, and many in receipt of transfer pay*
ments. No one knows for sure how many are represented these groups but
they probably exceed the number of counted unemployed.
4. The fact that unemployment and underemployment bear particularly
heavily on certain population groups and certain areas must be emphasized.
Minorities and youth have rates that are five to ten times as high as white
married men.
5. A first requirement to close the gap between potential job seekers and
jobs is to improve the operation of macro-economic policies. The federal gov
ernment must be concerned about a renewal of the inflationary spiral. Hence
it should explore new ways of monitoring and dampening wage-price pressures
as it resorts to more stimulative policies, including consultation with business
and labor about the average size of wage and price adjustments.
6. Since potential job claimants have different needs these should be re
flected by manpower policies that address them as for instance:
Reprogramming the $1 billion plus of current expenditures for youth to
provide for those who seek to enter the labor market at 18 or so a combined
school-work experience over 2/3 years, involving both the private and public
sector training slots.
. .
When older unskiUed men and women lose their jobs withm 5 years of
being eligible for social security, with little prospect of being reemployed, an
expanded program such as Operation Mainstream appears appropriate.
Efforts should be made to convert the XJI system, after a certain point—i.e.
26 weeks or so, into a manpower training, employment search, or public service
employment
, ,, .
Recipients of AFDC with no young children to care for at home should be
encouraged to work part or full-time, in public service employment, preferably
receiving m a n p o w e r services that will increase their employability.
Those in receipt of disability payments should be encouraged to enter supported w o r k p r o g r a m s and/or sheltered work shops to link them more closely
Low* income and minority gwrap members with
h!P®
the opportunity for serious Skill training and transitional employment as
under Titles I tuid II ofjCETA) so as to be able to improve their occupational
17l^ en m w ^ commttnitfes are able to develop a shelf of
labor intensive the better the prospects for using PSE as a connter-cyelical/-
298
device. The federal government should also explore various tax and invest
ment policies (such as are used in Sweden) to stimulate employment in tiie
private sector in cyclical declines. The states should consider (as in N.Y.)
whether it would fee beneficial to use the UI system to help maintain more
employees on the payroll but reducing their work weefc, and supplementing
their reduced earning* via <01.
8. As the na&on moves toward a fuU-employment policy it is desirable that
It experiment with the following complex issues and learn as it goes:
(а) How to create productive jobs in the public sector the output o f which
the public recognizes as being worthwhile and is willing to pay for.
(б ) l i e establishment of wages and working conditions on public jobs that
do not jeopardize the standards achieved by the regular work fo r c e ; but at
the same time do not pull workers out of their present jobs because the public
jobs pay better.
(c)
A realization that public jobs cannot solve the income needs of families
but only deliver on the promise of providing work fo r everybody able and
willing to work.
{d) Explore the potential for reducing the extreme cyclical swings in em
ployment of certain industries sucb as construction; and the possibility of
long-time financing assistance for strengthening important national objectives
such as modernizing the infrastructure o f our older eities and advancing ©ur
energy independence.
Chairman Htjmphkey. I would just call to your attention, Mr.
Ginzberg, that in the S. 50 or H .R . 50 we have the language on this
Full Employment Act directing the President, under this program,
to analyze the relationship of income maintenance needs, existing
inoome maintenance programs and full employment policies re
quired by this act, to make recoramendatons on how the income
maintenance and employment policies can be integrated to insure
that employment is substituted for income maintenance to the maxi
mum extent feasible.
W e were unable to eome up with any particular formula on un
employment insurance and its relationship to employment, bat we
felt that this was the sort of thing that we needed to direct our
attention.
I simply want to say that this rat does not tty to spell out spe
cifics. What it seeks to do, above all, is to set the machinery into
motion to find the specifica
Now, Mr. Keyseriing, we are anxious to hear from you, and after
that we will turn to our discussants, and I want you to mix iiu p .
A s shown by your statements, you All have different points o f view,
and while I want you to be polite, I want you to be eager and
incisive.
A ll right, Mr. Keyserling, please proceed.
STATEMENT <H? LEOH S. mTTSfiRLHKl, FffKMEB CHAIEMAS,
COUNCIL OF ECONOMIC ADVISEES
Mr. K etvh lxh o. M r. Chairman mmI -members o f the committee,
Senator Humphrey asked me to make some reference to my early
experiences as Chainnan o f the Council o f Econom ic Advisers, and
I always used to say to my staff, you men and women can always
t*ll us what is geing to happen tom orrow ., but you can’t toll us what
happened je ^ rd a y . Tow eaa always teH vs what y o» think we
ought to do,brrt you never relate it to the Yast laboratory o f experietwe with
Andriyan
mbkfo show* m m bsA we> have done
IM g ;
299
Now, we should have teamed from that experience that we have
the biains more than ever before, the capabilities more than ever
before, the resources more than ever before, to get to full employ
ment within 4 years. We have done it.
What stands in the way is wrong economic thinking, economic
thinking based upon the economic textbooks instead of upon empircal observation and therefore I thought I would be most helpful
in this short time to summarize what I think we should have learned
from what has happened.
I am always amazed that most of the economic discussions of what
has gone wrong and how we can better it, don't really make an analysis
of why it went wrong, or precisely what made it go wrong.
Now, I am just going to summarize the findings. They will be
definitive. But let me say that if anyone wants the empirical evi
dence on which they are based, they can look to my 30 years of con
tinuous study embodied in 35 publications, embodied in recent testi
mony before the Joint Economic Committee, before the Hawkins
committee, and in invited comments before the Joint Economic Com
mittee which amplify with figures, analysis, and charts what I sav
categorically.
In 1944,1 had a vision and embodied it in my essay entitled “ The
American Economic Goal,” in which I spoke of the promise of
America after World War IL
This is a synopsis, Mr. Chairman, of the prepared statement which
I would like to have inserted in the record.
This plan for post-War full employment won me a $10,000 prize,
most of which I generally contributed to the IRS in support of our
war effort. But later on, the results were more comforting to me.
The Employment Act of 1946, for which I make no apology which
I helped to initiate and draft, was not far from a facsimile of the
core of my poet-War plan, advocating goals for full resource use
and their achievement through the coordinated policies developed
by the President and the Congress under what I called the watchful
eye of an informed people.
In the 30 years since then, despite good performance at times, the
objectives of the Employment Act have not been attained. There
has been a gradual erosion in the quality of the administration of
the act and a strong long-term or secular deterioration in our eco
nomic and social performance. I will leave it to others to debate
whether this has been due primarily to the language of the act, or
to the interpretation and application of it* The hour has struck for
the Congress itself to clarify and strengthen this fundamental
statute, and to leave less executive discretion for its misinterpre
tation and misapplication.
,
. .
What have been the sins of commission ana omission which now
need prompt and thorough rectification?
.
First; In all human affaira-nm family life, business life, and
above all in government—we need specific purposefulness and goals
to guide policies and programs.
.
In contrast and increasingly, leaders and economists m and out
side the Government have substituted defeatist forecasts of how
bad things will continue to be if policies continue in their erroneous
way, instead of forging meaningful goals and designing efforts to
reach them.
73-285— 76------- 20
300
This has driven us backward toward anachronistic bondage to
the “ immutable laws of economics,” instead of forward to a -justifiable faith in our ability to shape our economy in accord with our
potentials and needs.
To illustrate, we are told by many in influential places and not iust
by the Administration, that we cannot achieve a 7.9 percent average
annual growth rate required to get unemployment down to 3 percent
by the end of the calendar 1980 at the latest if the Humphrey-Hawkms bill is enacted by the end of 1976. This view is defended on the
grounds by the Congressional Budget Office, and others, that we have
not averaged anything like this rate of real economic growth for any
substantial time withm the past 2 decades or so.
But the actual growth average annual rate from 1953 to 1975, of
only 3 percent has given us five cycles of stagnation, recession and
inadequate upturn.
This has meant forfeiture, in conservative figures, of more than
3.3 trillion 1975 dollars of gross national product and more than 61
million man- and woman-years of employment opportunity. Proiection of a course only somewhat better than this between now and 1980
would cost us again conservatively, another trillion dollars of GNP
and another 17 million man-years and woman-years of employment
opportunity.
This dismal record cannot be permitted to befog our intelligence in
determining what we can and must do in the future.
During World War II, with 15 million people withdrawn into the
armed forces and away from economically productive utilization, we
achieved an average annual real economic growth of about 9 percent,
not because it was easy, but because we had the national resolve and
more purpose. To register the very much lower annual real economic
growth rate needed to restore a full and just economy by the end of
1980 is entirely feasible. It depends upon renewal of this national
resolve and moral purpose.
We can now, with less strain and effort mobilize vastly greater re
sources than we used to kill our enemies overseas for what we now
need to uplift our people at home.
Second: Without long-range and purposeful goals, our national
policies and programs have been improvised, tardy, fragmentary, and
at times at cross-purposes or entirely erroneous. We have belatedly
adopted inadequate antirecession measures; we have not promptly
deployed adequate proprosperity measures.
This defensive economic maginot line approach is dangerously
vulnerable. Above all, we must act in the long-term perspective, and
tomorrow arrives rather quickly.
Third: Fiscal and monetary policies have indiscriminately applied
aggregative or blunderbuss methods. We must instead apply these
policies in a more discerning and even selective manner to remedy
distortions in the economy, and thus to achieve the balance or equilib
rium relationships among the components required for sustained, full
prosperity.
Some o f our economic advisers have been like a man driving up to
an Exxon station and saying, fill ’er up. When asked whether to pour'
^ gastatik and oil into the radiator, he
replies: What a,the cliilera*ee, Jlaveii’t you he&rd o f Lord Keynes I”
301
We now hear that.fiscal and monetary policies have failed, but they
have failed only when misused. We need to improve and rely pri
marily upon these powerful instruments. They do not intrude bn the
government directly, or the private decisions, and that is good.
fourth: Nonetheless, fiscal and monetary policies need to be sup
plemented with more specialized and microcosmic policies and pro
grams; for example, youth training and employment programs and
programs to break bottlenecks and overcome shortages.
Fifth: We must discard the proposition that the sound applica
tion of measures directed toward economic stability and growth call
for neutrality on the subject of income distribution. Economists in
the main have not detected that serious neglect of economic and social
justice has been at the very heart of the recurrent maladjustments
producing high unemployment of workers and other productive
resources.
Our most precious potential source of strength is that there is no
big trade off between improved equality and efficiency in these United
States.
We need not rob Peter to pay Paul; we need not array one group
against another. We can substantially obtain glad consent of the
knowledgeable.
Sixth: The notion that we can fill the promise of America, extend
sensible help to those in poverty and starvation everywhere with no
growth or low growth is sensation-seeking nonsense.
Nonetheless, the content of full employment and full production
must be reshaped to honor the great priorities of our economic and
social needs. This is not only a moral imperative, it is also a sine qua
non for full employment and full production.
To attain the new abundance, we must have quality as well as
quantity.
Seventh: We must put an end to the veritable orgy of incontinent
and inequitable tax reductions. Tax reductions. Tax reform we do
need, but to treat tax reduction and increased public investment as
interchangeable or of equal value has been for many years, the most
costly error of national economic policy. Only vast increases of public
investment can bring priority goods and services into line with pub
lic needs.
We should always budget the size of priority public investments
in accord with the requirements for them at full resource use.
To slash priority outlays to restrain inflation when the economy is
tight, and to slash them again to save money when the economy is
slack ignores that the F e d e ra l budget exists to allocate priorities in
line with priority needs, resources in line with priority needs, and
that first things should come first, not be dumped first.
Increases and decreases in taxes are the proper weapon to combat
overstrain or underuse of the economy, as the case may be, by exact
ing variations in what is expendable or postponable, not what is
essential.
..
•
Eighth: We must stop excoriating public spending, as if more pub
lic dollars spent for health services or to expand mass transportation
or to improve the environment is less beneficial than more priva e
dollars spent for cigarettes and for so many automobiles that our
cities become even more clogged up and our air even more
ou e
302
Further, every expansion of jobs and machines, private and public,
is indexed by an expansion of dollars spent; and saving dollars by
idling human beings and other resources is not national economy; it
is national profligacy.
Federal budget policy must be guided by cost-plus analysis, and
we should have realized by now that a fully utilized economy is the
only avenue to a Federal budget in balance or in surplus. The blood of
sufficient Federal revenues cannot be squeezed from the turnip of a
starved economy.
Ninth: We must make the now-free-wheeling Federal Reserve
answerable to the elected representatives of the people and harness it
to the services of a full and fair economy. The Federal Reserve Board
has not yet reduced the housing industry to ashes, but certainly it has
given it some severe burns.
Tenth: We must forever confine to infamy the pernicious doctrine
of the trade off. This doctrine is immoral and un-American, because
breadwinners and their dependents, to the tune of $60 million a year,
should not be directly victimized by rotating unemployment in order
to protect the affluent and the rich against hypothetical price
increases.
More pertinent, empirical observation o f the economy in action since
1953 demonstrates conclusively that a strong and healthy economy is
accompanied by more price stability than a weak and sick economy.
Now I am not going to take your time here, Mr. Chairman, to talk
until we get to the question period about what some of the other wit
nesses have said. I dissent with them profoundly. I am a m a zed that
Walter Heller, under whose wonderful leadership the Council o f
Economic Advisers reduced unemployment from 6.8 percent to 3.5
percent by 1965 with 1.5 percent annual inflation is still regurgitating
the textbook warnings that lower employment is more inflationary.
I have observed the experience when I was chairman of the Council.
I am amazed that they have not learned from the more recent experi
ence. I am amazed that they have not observed that the economy has
less inflation now, first— it is still intolerable, but less than 1 or 2 years
ago—first, because of extraneous factors that have nothing to do with
the amount of employment: what the Arabs did, what the oil barons
in the United^States did, the farm shortages—and that in any event,
the inflation is reducing as the unemployment is being reduced, as
the employment is growing. And if it grew better and the employment
increased more, there would be less inflation. A t least, that is the
record.
Now, as to the trade off, I have examined almost everything writ
ten on this subject. They don’t even talk about what the trade off
should really be. The traue off should not be a nonempirical examina
tion of the relationship between prices and unemployment. The trade
off really means what is the trade off between the value o f employ
ment and the value o f price stability. They never even talk about that,
and they couldn’t possibly make any model showing that on a trade
°ff
that kind, a full-employment economy, at anv given level o f
pnee inflation, was less desirable than a highly unemployed and
®fcMMWrr with %somewhat different rate o f inflation.
The argum ent is irrelevant^ because the evidence shows that there
303
is no trade off. But they haven’t even talked about what the trade off
really is: It is the trade off between full production and full-employment and price behavior, not the trade off between how one affects
the other. And their failure even to talk about that shows that they
have not injected even the sense of the real wealth of nations or a
sense of moral values in the whole examination of the trade off issue.
Eleventh: We must substitute planning under freedom for the
proven losses of errant aimlessness, and lest planning seek the wrong
ends, we must, through congressional legislation, impose some man
date upon the President and his economic advisers.
We should not leave it to a Leon Keyserling, a Walter Heller, an
Alan Greenspan or a William Simon, nor an Arthur Bums, nor to
the Congressional Budget Office, to determine that 6 or 7 percent un
employment in 1978 or 1980 is good for us, or at least the lesser of
two evils.
The Congress itself should define ultimate national values, includ
ing the allowable limits of unemployment, and then tell the experts
that it is their job to help devise methods to get unemployment down
to this level.
The engineers should not determine where the American passengers
should go.
The new legislation should also call upon the Congress to exhibit
a fuller and more effective exercise of its responsibilities in the proc
essing of what the President submits.
In the modern world, where private groups plan secretly without
limitation, we should see limited public planning in the open, I re
peat. under the watchful eye of an informed people.
Finally, we should not confuse the right of our entire adult citi
zenry to have the last word in a democracy with the beguiling idea
that public leadership at the national level should ask the people at
large to initiate the basic solutions to our economic and social prob
lems. We should not, because genuine participatory democracy is
vital, revert to the rugged individualism of the 1920’s and early 1930’s
and ask the mistreatea and helpless to help themselves.
We have not suffered because out Federal Government has been
too strong, but rather because it has been too weak, too hesitant, and
too misguided. On the domestic front, we have not promised too much.
We did well when we honored these promises. We did less well when
we tried to vindicate them on the cheap or in the wrong way, and we
did disgracefully when we reneged on them.
No national administration on the domestic front has promised
more than we could and should have delivered.
us not now aspire
to less; let us instead begin to match performance to promise. We
have promises to keep.
w
"These principles* I am firmly convinced, are embodied in me llujnphrey-Hawkins bill. Its prompt enactment can recommence the fulfillnient of the true promise
America.
,
_
..
™
Chairman H u m p h r e y . Thank you v e r y much, Mr. Eeyserlmg. We
appreciate very much your very frank* candid, and thoughtful state[The prepared statement of Mr. Keyseriiag foltowa:]
304
P bepabed S tatem ent
of
L eon H. Keybeeltng 1
Mr. ChairmaD, Members o f the Joint Economic Committee, and assembled
Friends: I am delighted to respond to Senator Humphrey’s invitation, request
ing that I discuss the reasons why we have not done better under the Employ
ment Act of 1946, and how we may now proceed promptly to bring to our
economy and our people, as rapidly as possible, the manifold economic, finan*
cial, social, and civil benefits of sustained full employment.
In 1944 I had a dream, which I embodied in an essay entitled The American
Economic Goal. Drawing upon what I had learned in public service during the
New Deal from early 1933 forward, and then during World W ar II, I set forth
in 2,000 words how we might translate into reality what I called “ the promise
of America.” This essay won me a $10,000 prize, most of which I generously
contributed to the Internal Revenue Service in support of the war effort.
But later on, the results were more comforting to me. The Employment Act of
1946, which I helped to inspire and draft, adhered rather closely to the central
feature of the plan proposed in that essay. This involved purposeful estab
lishments of specific economic goals, and the coordinated use of all national
policies to achieve them.
This is not the place to compare the records under the Employment Act
during different periods. Suffice it to say that I may take some legitimate
satisfaction in the good start made during the Truman Administration, and
that, before we did worse, I usually forecast the results of erroneous national
policies which I criticized from their inception.
During the thirty years as a whole since 1946, the promise of America as
contemplated by the Employment Act of 1946 has not been fulfilled. There
has been a gradual erosion in the quality of the administration o f the Act,
and a strong long-term or secular deterioration in our economic and social
performance. I will leave it to others to debate whether this has been due
primarily to the language of the Act, or to the interpretation and application
of it. The hour has struck for the Congress itself to clarify and strengthen
this fundamental statute, and to leave less Executive discretion for its mis
interpretation and misapplication. What have been the sins of commission and
omission which now need prompt and thorough rectification?
First. In all human affairs— in family life, business life, and above all in
government—we need specific purposefulness and goals to guide policies and
programs. In contrast and increasingly, leaders and economists in and out
side the Government have substituted defeatist forecasts of how bad things
will continue to be if thought and policy continue their erroneous way, in
stead o f forging meaningful and efforts to reach them. This has driven us
backward toward anachronistic bondage to the “Immutable laws o f econom
ics,” instead o f forward to a justifiable faith in our ability to shape our
economy in accord with our potentials and needs.
To illustrate, I cannot subscribe to the view, held in some quarters, that
we cannot achieve the 7.9 percent average annual rate o f real economic growth
required to get unemployment down to 3 percent by the end o f calendar 19S0
at the latest, i f the Hawkins-Humphrey B ill is enacted by the end of 1976.
This view is based upon the observation that we have not averaged anything
like this rate o f real economic growth for any substantial time within the past
two decades or so. But the actual average rate since early 1953—only 3.0 per
cent—has given us five cycles o f stagnation, recession, and inadequate upturn.
This has meant forfeiture o f more than 3.3 trillion 1975 dollars o f gross
national product, and more than 61 million man- and woman-years o f employ
ment opportunity. Projection o f a course only somewhat better than this be
tween now and 1980 would cost us more than another trillion dollars of
G.N.P., and more than another 17 million man- and woman-years o f employ
ment opportunity. A direct consequence o f a laggard economy is shrunken
public revenues, soaring budget deficits, and grave neglect o f socially vital
programs. The dismal record;in the past, so tar short o f otir endowm ents
and aspirations, cannot be permitted to befog our intelligence in. determining
what we can and must do hi future.
'
During World W ar II, with 15 million people withdrawn into the armed
forces and away from economically productive utilization, we achieved an
average annual real economic growth rate of about 9 percent, not because it
Ecoia<»®ic Advisers under President Truman. President. Con*
305
Z J ^ bZ l beCaUSZ ,We had the national resolve and moral purpose. To
'SSSt f
7 T
l0wer amraal real economic growth rate needed to re
store a full and just economy by the end of 1980 is entirely feasible: it depends upon renewal of this national resolve and moral purpose. The resources
we mobilized, to kill enemies overseas* can now be mobilized to uplift our
own people at home.
Second. Without long-range and purposeful goals, our national policies and
programs have been tardy, fragmentary, and at times at cross-purposes. We
have indulged in short-range and ad hoc improvisations, instead of accenting
planned and long-range efforts. We have belated adopted inadequate anti
recession measures; we have not promptly deployed adequate pro-prosperity
measures. This defensive economic Maginot Line approach is not nearly good
enough. Instead of embracing only the idea that if we take care of today, to
morrow will take care of itself, we must begin to prepare for tomorrow so
that today will be taken care of better. Tomorrow arrives rather quickly.
Third. In the use of stimulative or restrictive fiscal and monetary policies,
we have indiscriminately applied aggregative or blunderbuss methods. We
must instead direct these policies in a more selective manner to remedy dis
tortions in the economy. We must promote a long-range balance among private
business investment, private consumer spending, and public outlays at all
levels which, for the first time in decades, will maintain the economy in
equilibrium at full resource use. Some of our economic advisers have been
like a man driving up to a station and saying, “fill ’er up.” When asked
whether to pour gas into the tires, air into the gas tank, and oil into the
radiator, he replies: “ What’s the difference. Haven’t you heard of Lord
Keynes?” To avoid more of this by planning instead of bungling, we need the
“ Full Employment and Balanced Growth Act of 1976.”
As fiscal and monetary policies have failed, some have tended to argue that
they are no longer of great utility in the modern economy. This is nonsense;
the failure has been due to misuse. We need to improve these relatively con
ventional but powerful policies by much more careful analysis of how they
bear upon the balanced allocation of resources and incomes.
Fourth. We need to discard, once and for all, the proposition that the scund
application of measures directed toward economic stability and growth calls
for “ neutrality” on the subject of income distribution. Improved income dis
tribution in the United States is fundamental to optimum economic per
formance. Serious neglect of economic and social justice has been at the very
heart of the recurrent mal
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