THE 1976 ECONOMIC REPORT OF THE PRESIDENT WEDNESDAY, JANUARY 28, 1976 CONGRESS OF THE UNITED STATES, The committee met, pursuant to notice, at 10:05 a.m., in room 318, Russell Senate Office Building, Hon. Hubert H. Humphrey (chairman of the committee) presiding. Present: Senators Humphrey and Proxmire; and Representatives Bolling, Reuss, Moorhead, Long, Brown of Ohio, Brown of Michigan, and Heckler. Also present: John R. Stark, executive director; Richard F. Kaufman, general counsel; Loughlin F. McHugh, John R. Karlik, Courtenay M. Slater, William A. Cox, L. Douglas Lee, and Ralph L. Schlosstein, professional staff members; Michael J. Runde, administrative assistant; George D. Krumbhaar, Jr., minority counsel; and M. Catherine Miller, minority economist. OPENING STATEMENT OF CHAIRMAN HUMPHREY Chairman HUMPHREY. The committee will come to order. We are very pleased that the Council of Economic Advisers is with us today. We welcome you before the Joint Economic Com mittee. As I have said to you, Mr. Greenspan, on a number of occasions, you have been very cooperative with us and we want to express our appreciation for the cooperation which has been extended by the Council and the members of its staff. We welcome Mr. MacAvoy and Mr. Malkiel, members of the Council. I don't believe we have seen you of recent date, Mr. MacAvoy. We remember when you were with us on the first occasion. The issues to which we might address ourselves this morning are legion: Regulatory reform, energy policy, agriculture, health, and welfare. I hope that we will address each of these issues and others at some point during our hearings. However, we will start off this morning by focusing on the issues which are most essential to the particular mandate of the Joint Economic Committee. These are, of course, the issues of employment and inflation. The administration has what can only be described as a "donothing" position on both of these issues. You will remember that in 1948 we had what the President-President Truman-described as a "do-nothing" Congress. That may have been a dramatic exaggeration but many felt that way. I don't want to travel under false colors, and I don't make these comments at all personally, but in examining the budget message and the Economic Report of the President, gentlemen, I can't help but say we are not attacking the two fundamental issues of inflation and recession which plague the economy today. The President states in his economic report, "It is often said that we must choose between inflation and unemployment-I reject this view." I agree with the President that we do not have to choose between inflation and unemployment. The difference between us is this: the President, as best as I can tell, is satisfied to endure both inflation and unemployment for a considerable period of time. I believe that, with proper policies, we can make much more rapid progress against both inflation and unemployment. I know what the traditional argument has been: That if we move too fast on unemployment, that it generates inflation. I think that is subject to debate. Merely having stated it, doesn't necessarily prove the case. With regard to unemployment, the President recommends phasing out both public employment programs and income-support programs for the unemployed. This would be fine if the private sector were in a position to absorb the slack thus created. We must recognize, however, that revival in the private sector cannot occur miraculously over night. It will be several years-I think we all agree on thatbefore the private sector will be in a position to offer enough jobs for all those who are seeking work. During this period, this transitional period, the Government must continue and indeed enlarge its temporary emergency job programs. I want to speak very candidly. I consider both the administration and the Congress timid, fearful about attacking the problems of employment. We are content to dole out money in a sophisticated welfare program rather than putting people to work. I would like to have this Council explain to me why with all the things that need to be done in this country, why we aren't able to put people on jobs to get it done and why we go the easy way of running a computer to just turn out checks. That is what is happening. Why aren't we reforesting our forests. We are 15 years behind, Mr. Greenspan, If you don't believe so, you can ask the Secretary of Agriculture. He isn't doing anything about it. I am chairman of the committee and I am the author of the National Resources Planning Act for range land and forests. We are 15 years behind in our reforesting. We have hundreds of thousands of young people who could be out planting those trees under proper supervision. That is looking to the future you know, because that is a renewable resource that we need to do something about. And I look and see what is happening to our transportation system, to the railroads of this country, and obviously there is something that can be done. But we have gotten this computer now that knows how to write checks faster than the human ever dreamed possible So we have what I call the computer economic policy to just put in the names and run out the checks instead of putting people to work. My personal view is the work should be mostly in the private sector, but every single recession compels management, of course, to tighten up. After every recession the level of unemployment is just a little higher. It takes a little longer to employ these people. So I'm not going to be content with just a conventional argument and a conventional response that it takes times. People die in time. I know it takes time to turn a private economy around but that is why we have a government. I don't want the Government to take over the private economy because it can't run it; it can't even run the Post Office. But I do think the Government can take over a certain amount of emergency public works and job programs such as public service jobs. This recession has left in its path a dreadful aftermath. Many people have experienced an economic disaster. I just came back from Rhode Island and I want my colleagues to know this. I went up there to make a speech. In the talk I said: "You know, we have 8.3 percent unemployment." And a fellow jumped up in the audience and said: "What is wrong with you, Senator Humphrey? We have 12-12 percent unemployment in Rhode Island, and the Government knocked off 10 percent of our entire payroll up here with one fell swoop removing the bases. So we have 12-12 percent." You know I was out in Los Angeles. The Mayor of Los Angeles comes up and testifies. I am reading one of those Government documents we have around here and I said to the Mayor: "Mr. Mayor, I want to read you what the official report of unemployment here is and it is 8.3 percent." Mayor Bradley looked right at me and said: "Senator, don't come out here and talk like that." He said: "We have 11 percent unemployment in Los Angeles." Now this is the sort of thing that I want us to get at. Frankly when I look at these reports, they don't get at it. I know the administration is worried. I don't try to put any bad motives on any of you. But it doesn't act. As far as I can see, the administration's economic report does not have a single suggestion for dealing with inflation. The only suggestion is hoping that it is going to come down. Let me be specific. In fact, I think some of the suggestions will raise prices. The recommended social security and unemployment insurance tax increases would be inflationary. There isn't any other way you can interpret it. When you put an additional unemployment insurance tax on a merchant or manufacturer or a social security tax on anybody, that adds to the cost. Next, the deregulation of natural gas prices will be inflationary. There is a lot of difference between an increased price and total deregulation, which is to let the market work its will regardless of the consequences. Perhaps these measures are necessary despite their inflationary impact. I'm sure you will make a case for that. I'm not personally at all convinced that they are. But I recognize that there are arguments on both sides. However, if these inflationary measures are necessary, surely they should be offset by some kind of anti-inflation policy. It is rather shocking that this administration, which talks so much about inflation; this administration which predicts a 26-percent rise in corporate profits this year; this administration which points out so correctly that 1976 is the heavy year of the collective bargaining cycle has no policy proposals whatsoever for dealing with inflation. I am amazed. The Council on Wage and Price Stability created by the President at the time of the summit meetings in 1974 is not even mentioned in the Economic Report. It is just like the Council of Wage Price Stability has been eliminated from the face of the earth. I wish to announce this morning, so that the public will not be in doubt about this, that the Council on Wage and Price Stability has not been eliminated. There is a line item in the budget for it. It does exist. It has offices right here in Washington. I want all of you who are taking these notes to make that clear to the public. The phone is answered if you call them up. They put out some helpful studies. I think they may be trying to do a good job of helping to fight inflation. I do have a suggestion. I suggest that the President get on the telephone to the Director of his Council on Wage and Price Stability, Mr. Moskow, and discuss with him that 1976 is a crucial and important collective bargaining year and that rapidly rising prices may invite demands for large wage increases. Industrial prices at this moment are rising far more rapidly that they should during this early stage of recovery. I suggest the President tell Mr. Moskow that he will have full Presidential backing for any efforts the Council undertakes to restrain price increases and to moderate wage increases if they are excessive. I suggest the President tell Mr. Moskow to make full use of his subpena power, which is totally unused. It is brand new as far as they are concerned and hasn't even been taken out of cellophane. It has never been used as if nothing has been happening in this country. I want to make it clear I'm not an advocate of price and wage controls. I say that, and I mean it. But there is a great deal the Government can do with present legislative authority that would be extremely helpful. Stronger action by the Council on Wage and Price Stability is only one element in the coordinated attack. The year 1976 is going to be a test year, a moment of truth during which we discover whether reductions in the rate of inflation can be achieved or whether we are stuck indefinitely with a continuing inflation rate of 6 or 7 percent. Frankly, I didn't expect this administration to recommend much in the way of employment policy. When a budget comes down here that cuts manpower programs 27 percent and its total public works program is for Federal prisons and its increase in the budget is 15 percent in the Pentagon, I tell you gentlemen, the priorities are cockeyed. I'm only saying to you what I have said to others because there is no sense to try to travel with two scenarios. It doesn't work. I don't believe that a budget policy that recommends a 20-percent reduction in its manpower policy, $1 billion less in nutrition programs, an 11-percent reduction in education, is a policy that gets at either recession or inflation. I have spoken very frankly and I expect you to do the same. We are all grownup people. There is nothing personal: It is just a matter |