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of a "rule of law." Just as we developed management by objective, let's develop Government regulation on the basis of "performance." Establish standards that must be met but do not dictate specific methods that must be used to meet those standards. That is a very crucial point. Industrial polluters would, let's say, pay a fine if their effluents exceed the established standards. Don't insist on specifying the specific methods to be used, but do insist on the standards of performance.

Another illustration relates to construction. Specify performance standards. This can be done for function, for safety, for quantity, and for environmental pollution, but leave the means to meet these standards flexible. Don't freeze requirements into a "specifications cost." Don't perpetuate established methods, materials and design. In summary, don't inhibit or prohibit innovation. Innovation and the "better mousetrap" is what releases human ingenuity and what makes the market place viable, and best for the consuming public.

Such performance standards would seem to apply generally acrossthe-board to product quality and safety, environmental pollution, manufacturing health and safety standards, accounting standards, medical service, legal performances, and the like. That is one-half of the approach, and I say let us establish regulation by rule and not by specific requirement, specific terms or whatever.

The other side of Government regulation and control of the economy relates to the size of Federal expenditures, uncontrollable deficit financing, and incessant efforts to politicize income redistribution patterns.

This facet of Government regulation and control is more difficult to get into perspective. However, some crucial points can be made. Total Government spending-Federal, State, and local-from calendar year 1950 to 1974 jumped from $61 billion to $505 billion, more than one-third of GNP.

In 1975, the Federal Government spent $299 billion or about 21 percent of GNP. State and local governments spent $206 billion, or about 15 percent of GNP.

In its penchant for redistributing income, more than half, $158 billion, of Federal spending consisted of transfer payments to individuals and grants-in-aid to State and local governments.

Preliminary data for calendar 1975 also indicate a $72 billion deficit which prompts the question "are we engaging in revenue sharing or deficit sharing?"

What is disturbing, in particular, is that in a time of impending capital shortage, the Federal Government absorbed $72 billion of the estimated $88 billion personal savings, or 82 percent through its own fiscal laxity. This contributes to over-extension of bank created credit, inflation, deterioration of the dollar's purchasing power, and an emphasis on consumption at the expense of capital investment. Government is a user of savings which should be flowing back into our industrial capacity.

As recently as 1955 Federal transfer payments to people amounted to 5.8 percent of earned income. Today such transfer payments are estimated at 22 percent of earned income. The deadening impact such redistribution has on work attitudes and work incentives is clear.

Federal tax policies which allow insufficient depreciation allowances to replace capital equipment and plant at much higher, inflated prices constitute essentially a tax on capital. This is economically devastating to productivity, to real income creation, to the job market, and to our competitiveness in world markets.

In summary: The conclusion is clear that Government is the largest single purchaser of all the odds and ends used in and produced by the economy. Every day as a regulator and as the single largest customer, governments affect the economic lives of 213 million Americans in countless ways that even you and I fail to comprehend even though our professional study is continuous.

While there is too little time to discourse on the basic problem of how to reinstitute a viable and dynamic market economy, the only alternative I subscribe to is that which moves our Nation away from detailed controls, detailed state planning, and detailed intervention by government in economic production and income distribution. patterns.

We can best implement the mandate of the Employment Act of 1946-to promote maximum employment, production, and purchasing power by adapting to a post-industrial economy through the widespread adoption of employee stock ownership plans.

Through ESOP programing, using market-oriented corporate policies and philosophy of finance, capital ownership can be broadened, income flows argumented and stabilized, productivity improved, capital shortages overcome through equity ownership expension, market forces strengthened and balanced, and inflation minimized. The ESOP paradigm is a contemporary approach to a full employment policy, full production, and maintenance of viable purchasing power without inflation. I urge that ESOP programing be thoroughly studied, appraised, and encouraged by the U.S. Congress.

Thank you.

Senator NUNN. Thank you very much, Professor Green.

On that later point, I recently talked to Senator Long about this particular subject. I read your article about it, and that stimulated my interest.

I think that basically what you are saying is we have to give more people a stake in the free entersprise system that has made the Nation great.

For a long number of years almost everyone in this country had some knowledge of our economy, either they had relatives in a store, or they had a farm themselves, or they knew someone closely associated with small business. Now, well over a half of our people, probably over 60 percent either work for big government, big business, or some other big enterprise that has no direct relationship with the free enterprise system. What you are saying about stock ownership, and the diversifying of ownership is that we basically need to give the average person in this country more of a stake in the economy and more understanding of what makes it tick,

Professor GREEN. That is very important.

We are broadening the ownership base, if we do that no one loses, everyone gains. People would receive income on the basis of the contribution they make, and not due to the political clout they exercise.

This is very important. If we go on down the road using politicized income distribution, we will move into a socialist state.

Senator NUNN. There are people interested in this.

Senator Long has made several different speeches on this.

I will be following it with interest, and I have a lot of questions I could ask. This has been an excellent beginning, and I very much appreciate your testimony.

Congressman LEVITAS. Thank you, Senator, Professor Green, your testimony was very provocative.

I might say as far as ESOP is concerned, after listening to Mr. Kelso and Senator Long, I have subscribed to the proposition that this is perhaps the most expeditious capital formation method we can envision in the next few years, and I hope our tax laws will increasingly be revised to encourage ESOP ownership.

I was fascinated by your statement, on the first page of your testimony, in which you linked the need for political freedom and economic freedom, these two go hand in hand, and thev cannot long remain separate, and this is one of the fears that socialism and communism has, the fact that they go hand in hand.

I think it is not coincidental, the Declaration of Independence occurred in the same year that Adam Smith in 1776 wrote his "Wealth of Nations," and I think those two things do go hand in hand.

I have two specific questions, Professor, on page 4 of your testimony, in talking about this $2,000 capital costs, just made by OMB, I have not seen that report yet.

I have seen some summaries of it.

Do you know whether or not this took into account the cost benefits which offset the cost of the regulations, for example, let us take the mandated bumper on automobiles, the impact.

Was any benefit given to the reduction in insurance premiums as a result of that?

Professor GREEN. As I recall the report I saw, no.

It was not included here, and they did not do that at that point. That might temper somewhat

Congressman LEVITAS. For example, some of the environmental regulations, the clear-air requirements which are very costly for business, I would imagine that someone eventually will classify what is lost through the reduction of the respiratory, although I have a cold today, but there are some cost benefits.

Professor GREEN. I would rather have the standards established, and let the entrepreneur, the firms, the businessman decide how best to meet those standards.

I think it is important to do it that way.

Congressman LEVITAS. The effect of some bureaucrats saying this is the only way you can do it, and there may be many, many ways of accomplishing the result of a much better and least costly, is I think an excellent proposal, and one that I certainly would hope that the regulators will emplement, either voluntarily, or at the urging of the Congress.

Professor GREEN. May I make one statement. We had a hearing last December 12 and 13, before the Joint Economic Committee on the ESOP program. I have a paper in this hearing, and perhaps you would like to read it.

There should be a complete picture of the ESOP program-
Senator NUNN. You are saying you had the hearings when?
Professor GREEN. December 12 and 13 in Washington.
Senator NUNN. I will ask the staff to get us a copy of it.

I have read some of your articles, and I have some of Kelso's too.
Professor GREEN This would be a good package.

Senator NUNN. Thank you for your testimony. I appreciate it.
Professor GREEN. Would you like to have the cartoon?
Senator NUNN. Thank you very much.

Professor GREEN. Thank you.

[The information referred to in Mr. Green's testimony follows:]

[From the Wall St. Journal, Feb. 10, 1976]

REVIEW & OUTLOOK: BORED BY THE BANK FLAP

"I hold in my hand a list of 28 American banks that are in trouble through having made bad loans," says one of the great liberal newspapers of the land. "I hold in my hand a list of umpteen other banks that have made risky loans to X, Y and Z," says another of the great liberal newspapers of the land. Congressional committees hold investigations. Presidential candidates fulminate. Bank reform legislation is drawn up to deal with the situation.

Until now, we have not commented on this latest sport. Frankly, we've been bored by it. The "troubled bank" story is last year's story and the story of 1974, when it really looked dicey as to whether the banks had sufficient capital to get through the squeeze. (See for example, "Bank Soundness" in these columns, November 24, 1974.) The reason the liberals in Congress and on the great liberal newspapers of the land were not then wringing their hands is not hard to recall. They were then worried about the faltering economy and were exhorting the banks to make bad loans.

The banks, you'll recall, were told they had to be socially responsible. The liberal commentators fumed that banks were actually refusing to lend money to "redlined" neighborhoods. The New York banks were being vilified and picketed for their hesitation in buying Mayor Beame's municipal bonds and taxanticipation notes. House Banking Chairman Henry Reuss, for gosh sakes, was pushing credit allocation legislation that would have required the banks to make loans to suit his tastes. Mass transit projects seemed to be the favorite idea. Wouldn't it be swell if everyone had a Metro like Washington, D.C.?

At the same time, you must recall, the liberals were screaming at Arthur Burns to gun the money supply faster. In the current sport, which The Economist of London calls "bashing at the American Banks," there has not been one word in all the newspaper stories and all the congressional testimony that makes the connection between an increase in the money supply and bad bank loans to X, Y and Z. Members of the congressional banking committees, if not the great liberal newspapers of the land, are supposed to know of this connection:

1. The Fed increases the money supply by monetizing debt, i.e., buying interestbearing bonds from the banks with printing-press money. 2. The banks have more cash as a result. 3. The supply of good customers wanting to finance profitable projects has not increased. 4. The banks are losing money by sitting on cash. 5. They make loans to riskier customers. 6. They form Real Estate Investment Trusts. 7. They throw money at anyone who doesn't look like an out-andout burglar. 8. A Go-Go Era is born. 9. Roaring inflation develops, followed by 10. Collapse.

It is thus deliciously clear why the liberals have had to wait until recovery seems to be underway before they decide to talk about a year-old story. By now, we are all supposed to have forgotten their prescriptions when the banks really wer ein trouble, so they can piously proclaim how much more prudent they would have been than those reckless bankers.

The liberals are still after Arthur Burns to gun the money supply. But they want the banking laws reformed so that for every bank lending officer there is a government bank regulator, who will be wise and prudent in seeing to it that monetized debt goes, not into those awful REITs, but into socially desirable projects, like Big MAC bonds and New York State TANS.

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We're bored by it all. It's too transparent. The liberals have learned a thing or two in the last few years, but so have we all. When Mr. Reuss tried to ram his credit allocation legislation through the veto-proof Democratic Congress last year he was almost laughed off Capitol Hill. He's not going to do any better with a phony hoorah about troubled banks and a "moderate" approach to bank reform.

We don't need any new banking laws and regulations. Bank lending officers and loan committees don't need bank examiners at their elbows to tell them X is socially desirable and Y is not. The important thing is that Arthur Burns doesn't forget what he's learned and start pumping out printing-press cash. With or without further "reform," the banks will be as sound as a dollar.

THE CAPTAINS OF VIDEO

One unexpected spin-off of government giantism has been the pleasing advent of court fights pitting government agencies against each other. Maybe the system is evolving new checks and balances.

One of the juiciest such battles has the FCC on one side and the Justice Department giving a helping hand to cable TV operators on the other. The cable TV people sued because they didn't like FCC rules.

Justice doesn't like them either, and for good reason. It's hard to imagine any clearer case of a federal agency interfering with market competition, even though such cases abound. The FCC has complex restrictions on cable and pay TV film and sports programming. For example, cable operators can show any film distributors will let them have in the three years after its release, but for seven years after that they can only show the film if it is also being offered by conventional broadcasters.

It doesn't take much imagination to see that the many effects of this rule is to give protection to broadcasters, who feel, for mysterious reasons, that the FCC has a public duty to preserve their access to programming.

While the court is on the subject, it might do well to examine the legal theory that has extended the FCC's mandate from the public airways to the control of programming circulated by private cable. The unsoundness of that principle is the biggest issue of all.

DREAMING THE IMPOSSIBLE DREAM

A recent story in this newspaper about the rapid rise in malpractice judgments against attorneys and the consequent rise in malpractice insurance premiums propelled us somewhere over the rainbow into a delicious reverie about a possible result. Suppose that the attorneys followed the lead of doctors in Los Angeles and other parts of the country and protested the higher premiums by engaging in a work slowdown, or better yet, a strike?

What would life be like if the great law firms and the solo practitioner stayed home, clogging the golf courses and tennis courts of America? It would be Paradise Regained. The normal intercourse of life would flow smoothly, unchecked by the law's and the lawyer's limitless capacity to complicate and tangle things. Disputes would have to be resolved by common sense and mutual trust, rather than on the basis of who could hire the fastest gun. The wheels of commerce would turn more swiftly as people without special training in obfuscation and logic-chopping made clear and understandable agreements. Individuals with disagreements would have to rely on their own capacities for reconciliation and forgiveness instead of the brutalities of specially trained gladiators. The pleasant consequences are virtually limitless, and include not having to pay huge legal fees.

But lawyers are a clever group. They know better than to go on strike, no matter what the provocation. They know that people would learn, all too soon, that things worked perfectly well, or even better, without them. Oh well. It's nice to dream.

Senator NUNN. Our next witnesses are Mr. Allan McGarity, president, Harmony Blue Granite Co., Elberton, Ga., and Mr. Albert S. Norman, international representative Granite Cutters, International Association of America. They are accompanied by Stewart Smith. Gentlemen, we are glad to have you, and we will be glad to have you all come up. You can introduce any other people that you have, and proceed inany way that you feel best.

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