the assumption. The forecast for the employment rate and this is the base rate, in 1976 is 7.7 percent. The forecast for 1977 is 6.9 percent. I just note that the unemployment rate in 1977 would exceed the levels of unemployment that we experienced as a peak in the 1958 recession.

Following up on Mr. Nathan's comment, I am almost persuaded that this administration is endorsing the Marxist concept incorporated in Das Kapital-1867. There Karl Marx argued that capitalist management, in order to contain inflation should see to it that they create what he called a "reserve army of the unemployed." I just believe Mr. Nathan's comments are probably the most important comments made here today at this panel given the goals of this administration, given its present programs. I just believe that it is clear that the prospects for the unemployed would remain bleak through the year 1981.

Now, three conclusions. No. 1, the 1976 Economic Report of the President and the related CEA report are largely a whitewash of past errors. Some day a historian will look at this report and find little relationship to what happened in fact. No. 2, in the absence of new policies and facts, a serious question is raised as to whether even the moderate projections for the economy will in fact be realized. No. 3, the goals or assumptions of this administration in my judgment seem clearly to contradict the mandate of the Congress as spelled out in the Employment Act of 1946.

Thank you.

Mr. Chairman, I would like to submit the February 5, 1976 issue of the "Advest" newsletter, the text of which contains my summary statement.

Chairman HUMPHREY. Without any objection the newsletter will be included in the hearing record as your summary statement. [The summary statement of Mr. Parks follows:]

SUMMARY STATEMENT OF ROBERT H. PARKS

IDEOLOGY, POLITICS AND THE ECONOMIC OUTLOOK

My assignment in the main is to appraise the 1976 Economic Report of the President and the accompanying Annual Report of the Council of Economic Advisers. I find problems with these reports on three counts.

First, the CEA's review of what has happened suffers, as expected, from the error of omission. Most noticeably is the role of governmental policymakers themselves played in pushing the economy into the worst recession in postwar history despite the warnings of many economists, legislators and others.1 Second, the CEA's projections of a moderate growth of the economy may not be realized unless policy shifts are instituted, and fast. The risks in my view are not adequately recognized.

Third, the "goals" of the Administration in key areas appear light-years away from the needs of the economy. This is particularly true for employment, even assuming the economy advances along the path foreseen by the CEA.

1 The warnings were dismissed almost completely by policymakers. My own views were set forth as follows: "The forward momentum of the economy in real terms is weak, and weakening further. The irony is that rapid inflation itself is further cutting into real buying power. The great irony is that governmental restrictive policies already in motion will likely further weaken demand. The greatest irony is that no early action on the policy front is being suggested by the Summit meetings. Next year is the word. In that case, the September 27-28 Summit session might just as well be held in the Coliseum in Rome, and the participants be provided with appropriate fiddles. (Economic and Investment Perspective entitled Economic Overkill, Sept. 9, 1974).”

Economic History

Despite extensive review of developments the past few years, the CEA report is largely a whitewash of policy failures, lost objectives, and defective economic theory:

(1) Economic Overkill.-The United States did not merely slide into the worst recession in postwar history. It was pushed into a "mini-depression" through restrictive monetary and fiscal policies superimposed on an economy already headed downhill. This was predictable, and many economists so warned. (2) Lost Objectives.-Instead of the promised economic slowdown, the economy experienced a major cyclical fall. Instead of the promised balanced budget, a massive deficit was created. Instead of spurring additional capital formation, economic overkill killed consumption and the derived demand for capital. (3) Defective Theory.-Fighting cost-push inflation and power-bloc pressures on prices through monetary and fiscal restriction was a perfect prescription for major recession. The new Spencerians, (classicists or Smithians) in charge assumed that the fiscal and monetary tools fashioned for use in a classical and purely competitive world would work as well in a world comprised of power blocs and extraordinary cost-push pressures on prices. They did not, predictably.

Economic Prospects

Most economists are on a bicentennial bandwagon rolling down Route 66. The happy consensus looks for real GNP to advance a healthy 6% and for price inflation to slow to 6%. The CEA is on the same bandwagon, but looks perhaps for a little more growth. But a number of cautions and caveats are in order at this juncture:

(1) Demand Weakness.-The leading indicators have flattened the past few months; real buying power of non-farm workers has been eroded, with real weekly earnings still almost 5% below the level of 1972 (Exhibit 1); foreign economies are experiencing a "sputtering" recovery, which foreshadows weakening of U.S. exports; a galaxy of depressants are still at work on housing demand, including high operating, financing, and construction costs; capital spending appears headed nowhere, possibly down in real terms; and bank loans to business remain extremely weak.

(2) Policy Worries.-Growth of the money aggregates are far below Federal Reserve targets. The money stock narrowly defined is just one case in point. It advanced but 3.1% the past thirteen weeks, and 4.6% this past year. Deflated for price rises, it fell absolutely over this entire period. The bank credit proxy advanced only 5.8% the past thirteen weeks and 3.3% this past year. It dropped absolutely when adjusted for price inflation.

At the fiscal level, a loss of borrowing power is forcing state and local governments to cut growth and raise taxes, and the full-employment surplus reported by state and local governments (Exhibit 2) could largely offset or negate Federal expansionary actions. That's another cause for worry.

Yet another worry is that inflation may speed beyond the expectations of policy makers, and induce them to restrict once again. Such a policy would be logical and laudable if an acceleration in the pace of inflation were to be caused by excess demand (hardly likely for a long period ahead), but would represent the height of folly if an inflation speed-up were explained rather by cost-push and power-bloc forces.

(3) Defective Theory.—This may come into play again. That is, just as the crowding-out thesis proved to be a phantom when applied to the capital markets, the new crowding-out proposition advanced by the CEA probably faces the same fate. The new thesis, developed on pages 46 and 47 and elsewhere in the CEA report, asserts that direct governmental funding and governmental deficits to generate employment will displace private borrowers from the market, displace private capital formation, hence displace private jobs.

This, in my judgment, is the essence of the convoluted jargon presented in the report. Apart from the jargon, however, the substance of the argument is spurious in the context of the present economy. The economy is still operating with massive unemployed resources, and given accommodative policy by the Federal Reserve, there is little risk that additional job-creating actions by the Congress or the Administration is going to displace private investment and private employment.

Economic Goals

The economic goals of the Adminstration are a worry too in that major problems would remain unresolved for years ahead. I have specific concern over the cutbacks scheduled in the budget for training, employment, and social services, and for the proposed cuts in education. Just about every other sector of the budget is headed up but these. My concern over these matters is heightened when consideration is given to the employment goals of the Adminstration. (1) The Numbers.-What is our starting point? The overall employment rate for the fourth quarter 1975 is reported at 8.4%. The rate jumps to 9.1% when an estimate is made for labor force time lost, and to 10.6% when a further adjustment is made for discouraged workers who have just stopped looking for work. In other words, the additional adjustments add about two percentage points to the base. However defined, the starting point represents a personal tragedy for the unemployed.

(2) The Goals.-One is hard pressed to know just what the goals of this Administration are. The Budget, for example, goes to great pains to distin-guish between short-term forecasts of the unemployment rate as against longterm assumptions.

Here are the numbers:

(3) Policy and Ideology.-One would almost have to believe that this Administration is endorsing the Marxist prescription for capitalist management to contain inflation. Marx argued in Das Kapital (1867) that the way to contain inflation is to provide for a "reserve army of the unemployed". The new classicists must be re-reading Marx. They are so far right, they are left.

In any event, these forecasts and assumptions spell extraordinary trouble ahead for labor, assuming these "goals" are realized. From a logical point of view, these numbers contradict the CEA rationale for promoting jobs. The idea is to promote moderate expansion to promote jobs, permanent jobs, over the long-run. I should think that the period 1975 to 1981 is fairly long-run, particularly for the unemployed.

From a legal point of view, these forecasts and assumptions stand in conflict with the mandate of Congress. That mandate, as quoted on page 158 of the CEA report, is as follows: "The principal directive of the Employment Act (of 1946) is that the Federal Government 'use all practicable means consistent with its needs and obligations . . . for the purpose of creating and maintaining . . . conditions. . . to promote maximum employment, production, and purchasing power."

"

Query: Would the forecasts and assumptions noted here meet this directive? Conclusions 2

(1) The 1976 Economic Report of the President and the related CEA report will largely whitewash for past errors.

(2) In the absence of new policy shifts, and fast. a serious question is raised as to whether even the moderate projections for the economy will in fact be realized. In the absence of additional steps to spur employment, the outlook for the unemployed will remain bleak for years ahead.

(3) Many of the projections, assumptions and "goals” incorporated in the President's report, the CEA report, and the Budget appear to contradict the directives of the Employment Act of 1946. Does not the Congress have an obligation to see that these directives are carried out?

2 These conclusions are spelled out in somewhat more detail in the attached reports prepared for investment clients (Perspectives nos. 29 and 30).

EXHIBIT 1.-AVERAGE WEEKLY EARNINGS IN SELECTED PRIVATE NONAGRICULTURAL INDUSTRIES, 1947-75 (For production or nonsupervisory workers; monthly data seasonally adjusted]

* Includes eating and drinking places.

Average gross weekly earnings less social security and income taxes for a worker with three dependents.
Monthly data are annual rates.

in annualizing the rates of change, the effect of the change in tax rates at the beginning of 1974 and 1975 and in May 1975 is taken into account separately.

7 Preliminary.

Note.-See Note, Table B-27.

Source: Department of Labor, Bureau of Labor Statistics. 1976 CEA Report.

EXHIBIT 2.-ACTUAL AND FULL-EMPLOYMENT FEDERAL AND STATE AND LOCAL GOVERNMENT RECEIPTS AND EXPENDITURES, NATIONAL INCOME ACCOUNTS BASIS, CALENDAR YEARS 1969-75

1 Preliminary.

2 The $9.1 billion estimated increase in overwithholding of personal income taxes is not included in 1972 full-employment receipts.

Note.-Detail may not add to totals because of rounding.

Sources: Department of Commerce (Bureau of Economic Analysis), Office of Management and Budget, and Council of Economic Advisers. 1976 CEA Report.

Chairman HUMPHREY. Mr. Parks, you previously asked a very pertinent question. Does not the Congress have an obligation to see these directives are carried out?

Mr. PARKS. That was a rhetorical question.

Chairman HUMPHREY. It was a very good question. I might add that we are not only having trouble with this law but with a number of laws that the Government doesn't want to pay any attention to. They are deliberately ignoring them. It is constantly necessary to take the Government to court. I have never seen anything like it. I am not referring only to the Employment Act, because that is less of a directive, but I pointed out yesterday that we have laws on the books relating to the Department of Agriculture where people in my State had to go to Federal court to enjoin, first of all, the Secretary in one instance and also to direct him in another instance. It was a refusal to do anything under the law.

Now, if you as a private citizen did that, they would bring you before the court and you are either fined or you are jailed or at least you are humiliated. I want to say that I have never seen anything