Again I say, with the advice and consent of this committee, we have absorbed the increased workload due to the defense program without an increase in staff. We are making many services available to other agencies of the Government in an advisory capacity which we believe, and I think they believe, we can do more cheaply with our central staff than if they try to duplicate it separately in each one of the other agencies. Our work for the President, our work in cooperation with the defense agencies, and our work in cooperation with the specialized agencies, has naturally mounted, because in the defense emergency the economic problems and policies with which the Government has to wrestle are much greater than they are in normal peacetime. But, as I have said, we have a staff which is 12 percent smaller than we had in 1948, the first year of our full operation. We are not asking for any increase in personnel for the coming fiscal year. Mr. Chairman, that really summarizes the situation. Mr. THOMAS. That is very short and very much to the point. ACTIVITIES AND PROBLEMS OF THE COUNCIL Before we take a quick look at your budget, tell us something about some of your activities, some of your problems and some of the headaches you are anticipating. Mr. KEYSERLING. Well, we have headaches aplenty. First of all, as the advisory body to the President, who is in charge of the executive branch of the Government, we deal with those types of economic problems which come before the Government as a whole. There is probably no better term to describe our organization than the one given to it by the Congress, the Council of Economic Advisers. I sometimes call it a general economic staff, in the sense that we try to evaluate, integrate, and relate to one another the vast range of important economic policies with which the Government has to deal. sometimes call it an over-all operation in the field of economic policy, responsive to the full need, as against specialized agencies, each concentrating upon its own program. We try to look at the whole picture in relationship to the many different problems, and to have them fit together in a consistent policy. This means that we advise the President on major aspects of economic policy, whether in the field of fiscal matters, matters of resource development, or matters of regulation-the whole composite-and all of that fits together in the economic reports which the President sends to the Congress. In the course of doing this we, necessarily, work with the various economic agencies, and advise them from the viewpoint of a general economic staff as to how the specialized problems that they have to deal with can be handled more effectively by being related to the overall situation. We also analyze economic trends of a factual character, and we make estimates of future economic trends. PROSPECTS FOR FUTURE INFLATION Mr. THOMAS. Mr. Keyserling, let me ask you one question: Assuming that the tax rate remains the same and the present control laws continue to exist as they do today, what are the prospects for future inflation, and how much, say, within the foreseeable future, within a period of 2 or 3 years? Mr. KEYSERLING. The estimate contained in the President's economic report is that, with tax rates remaining the same, and allowing for further growth in revenue based on the productive growth of the economy, there will be a budget deficit of an estimated $8 billion in the fiscal year 1952, which ends the middle of this calendar year, which would be succeeded by a deficit approaching twice that amount in the fiscal year 1953. That is based upon an estimate of revenues of $63 billion and expenditures of $71 billion for the fiscal year 1952; and under the President's budget, of course depending upon what Congress does, expenditures of approximately $85 billion and $71 billion in revenues in the fiscal year 1953. A growth in the deficit of from the neighborhood of $8 billion to $12 billion to $14 billion is definitely an inflationary factor, because the Government is spending more money than it is taking in, and it is keeping away from the hands of people who are earning income in the production of goods those goods which they cannot buy because the Government is buying them, mainly for defense. A deficit means that you have two sources of income covering one supply of goods, and that is an inflationary factor. To answer your question as to just how big an inflationary factor, we have always regarded a deficit as an important inflationary factor but not the sole one. For example, in 1947 and 1948 you had a Federal surplus, but nonetheless a substantially rising price level. In the last three quarters of this year, there was more of a deficit, and nonetheless a fairly stable price level. We think that, if the wage and price controls are kept in good shape, and if credit controls are well used, and if the very high rate of voluntary savings which has maintained during the latter part of last year continues, then it ought to be possible, even with a deficit, to maintain the relative price stability that has lasted since February of last year. Of course, this is not to say that it is desirable to have a deficit. The more that we can do toward reducing the size of the deficit further, the more we move toward removing one inflationary factor. We never make exact estimates of just how much prices might rise over the next year. We would hope that relative price stability could be maintained. Mr. THOMAS. Thank you, Mr. Keyserling. That is very interesting, and I am afraid that it is all too true that we are going to have some more. OBLIGATIONS BY OBJECTS Mr. Reporter, will you please insert table 2 at this point in the record. (The matter referred to is as follows:) TABLE 2.-Changes in obligations by objects, fiscal years 1951, 1952, and 1953 1 This is a consolidated presentation. It includes funds derived from regular appropriations, a $27,000 defense production allocation during 1951, and a $24,000 defense production appropriation during 1952. This is the total cost of pay raises as a result of the recent pay-raise legislation. However, since $1,200 will be absorbed from other funds, only $17,800 is being requested in the pay-raise supplemental for 1952. Mr. THOMAS. You were given a deficiency last year of $24,000, were you not? Mr. KEYSERLING. Yes, sir. Mr. THOMAS. So that we gave you a total for personal services for 1952 of $294,700 against a request for $301,100 for 1953? Mr. KEYSERLING. Yes; that represents the $6,000 that I mentioned. Mr. THOMAS. $6,400. Mr. KEYSERLING. Yes, sir. Mr. THOMAS. Your other objects plus your salaries bring you up to $349,000 for 1953 against $341,800 last year, an over-all increase of $7,200. PAY INCREASE COSTS What did the Pay Act increase cost you last year? Mr. THOMAS. Will you have to come in for a deficiency sometime during the fiscal year 1952 for that $17,800, or will you absorb it? Mr. KEYSERLING. I would have to check on that. Of course, the figure that we are asking for now is the over-all figure, inclusive, for 1953. Mr. THOMAS. $17,800 is being requested in a pay-raise supplemental for 1952, so you did not absorb it. (The following information was later submitted for the record:) The Pay Act is estimated to cost us $19,000 for the current fiscal year 1952, of which $17,800 is being requested as a supplemental and $1,200 has already been absorbed from Defense Production Act funds, which were available for obligation until October 8, 1951. This $1,200 was used for retroactive increases for employees paid out of the DPA funds. On October 8, the cut-off date for obligating DPA funds, the Council still had unobligated $3,300 of these funds. Mr. THOMAS. I notice an increase in your other objects, an increase of $1,900 in travel, and also an increase in printing and binding, and supplies and materials. Those increases are the result of normal increases in price? Mr. KEYSERLING. Yes, sir; not the result of increased activity. POSITIONS Mr. THOMAS. You had 39 positions in 1952, and that is all you are seeking in 1953? Mr. KEYSERLING. Yes, sir. WORK PERFORMED FOR OTHER AGENCIES Mr. THOMAS. You are doing quite a bit of work for other agencies; are you not? Mr. KEYSERLING. Yes, sir; we are doing a good deal of work helping them. I would not want to intimate by saying for them that it is work that they ought to do. I believe it is work that we can do more cheaply than they can. Mr. THOMAS. Do you pay out any of your funds for work done by other agencies for you and, conversely, do you get the other agencies to reimburse you for work done for them? Mr. KEYSERLING. We receive nothing from other agencies. OTHER CONTRACTUAL SERVICES The only thing we have been paying out since the beginning of operations is a small sum paid to the Bureau of the Budget, which handles a portion of our administrative work, and some other small payments for charts, and so forth. Mr. THOMAS. That is under other contractual services. How much does Mr. Lawton charge you? Mr. KEYSERLING. $6,600, Mr. Chairman. Now, we do make some small payments to other agencies for chart work which they do for our reports. Mr. THOMAS. $380 is to be transferred to the Public Health Service, $200 for miscellaneous duplicating by other agencies, and $100 for clipping services. Mr. KEYSERLING. When I answered your question, I was thinking that you were referring to whether we paid other agencies when they rendered services to us, or got paid for advice we give to them. We do have a few nominal charges for charts and health services, and so forth. PRESIDENT'S EMERGENCY FUND Mr. THOMAS. Do you get any funds out of the President's emergency fund? Mr. KEYSERLING. NO. REAL PRODUCTION IS REAL SOURCE OF WEALTH Mr. YATES. Mr. Keyserling, frequently we hear the statement made that the United States is on the brink of bankruptcy. What is your opinion of that? Mr. KEYSERLING. I do not think that we are. I think that a nation which, far more than any other nation in the world's history, moves on each year to much higher levels of real production, which is the real source of wealth, is in a very strong position. Of course, we are carrying very heavy burdens, and we all wish that the world situation was better so that they could be much lighter. But a nation whose national income and national output, on a uniform price level, has been rising 5, 6, or 7 percent a year, or even more, and which is fully using its manpower and resources in the production of an enormous quantity of goods and services is, I believe, very strong economically. One of the strong factors in the economy that may interest the committee is that last year, despite the great expenditure on the security program, private business investment for increasing our productive strength was about 50 percent higher in real terms than it was in 1948. This means that, despite the security drain, the available resources left over for use by private industry, plant, equipment and tools, was higher than ever before in our history, and that is very significant, because that is the real source of our productive strength. I do not think that a nation in which private enterprise was investing last year at the annual rate of about $55 billion is in bad shape economically. ADDITIONAL TAXATION UPON THE FACTORS OF INVESTMENT Mr. YATES. I suppose I am asking you to use a crystal ball on this, but how will the passage of the Revenue Act of 1951 and the President's request for additional taxes bear upon the factors of investment such as you have described? Mr. KEYSERLING. As to the 1951 bill, although the full impact of that taxation has not been felt, it has been what you might call discernable. I mean that business and industry know now what the impact of the 1951 bill is. In the calendar year 1951, we had this extremely high level of business investment, and based upon business plans for the first three quarters of 1952, or the first half year at least, it is well revealed now that business and industry are continuing at as high level as the scarcity of some materials will permit. In other words, the limiting factor on the over-all investments in 1952 will be the limitation of materials and labor supply, not the desire for funds on the part of business. The over-all investment in plant and equipment, and further building up of production strength, will be very high in 1952. This does not mean that taxes are not a burden, as they are always, and if other things were equal it would be desirable that taxes be lower. But taking into account the desirability of financing as much of the outlay as it is possible to finance on a pay-as-we-go basis, considering that along with the high national debt and the other considerations involved, we find the level of business investment so high as to indicate that the tax burden is consistent with a strong and growing economy. The level of consumer supplies, which means what people bought after payment of taxes, was, in most basic respects, at or near an alltime high in 1951, so with the security drain, and with most of that reflected by taxes, although there was some deficit, nonetheless the level of supply for business and consumer purposes was very high. Off the record. (Discussion off the record.) |