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future, I am encouraged that such a kind of cooperation in long-range planning is possible in our social and economic system. We have been experimenting at the NPA for more than 10 years with efforts to set long-range economic objectives and consider in cooperation with the users of such projections what the significance of reaching these targets would be for various branches of industry. We have been using more or less sophisticated techniques for breaking down the economy into various branches of activities, but step by step we are consulting with the potential users of projections as to the plausibility of our estimates. I think hereby a certain degree of confidence can evolve. Of course, we could only make guesses at what the Government might do under various circumstances. Such projections would carry greater conviction if the Government spells out authoritatively its programs in greater detail. I realize that this is not a thing that can be accomplished overnight, but we should realize that over the 20 years of experience with the Employment Act and with setting objectives and formulating policies for reaching these objectives, great progress in the technique and in the acceptance of this whole approach in the community has been made.
I also believe that particularly for business itself it is very beneficial that computations are made which indicate what the effect of a desirable development of economic activities in general would have on the various branches of industry. Just as business is using the census data for market research, these kinds of projections could serve what I might call a dynamic kind of market research; namely, as a guide in predicting future markets. I recognize, of course, that there are always different possible alternatives in economic development depending on international developments and also on the kind of national policies which we will have at some future time. Therefore, it is important that such computations are made under alternative assumptions indicating to the users the degree of uncertainty with which they have to deal. Nobody can relieve business of that degree of uncertainty and the risks involved in the investment policy. But the kind of projection work to which I am referring would give the users information which they need for evaluating the risks and chances involved in their future action.
I believe in the need for this work not only in the interests of business; but if business is guided by reasonable expectations of future markets, economic growth itself will be supported and fluctuations reduced. If both the private and public sectors play a role in the achievement of these plans, we could worry much less about short-term fluctuations, recessions, depressions.
Actually, in emphasizing the need for long-range planning I do not want to underestimate the need for being ready to meet short-term fluctuations. We cannot always assume that long-range projections are accurate, that the right policy recommendations are made to Congress, and that Congress will always act promptly on such recommendations. We must also count on the possibility that at times enterprises wish to beat the gun and in anticipation of future market expansion may invest faster than conditions warrant or at other times may underinvest because of lack of confidence. Therefore, I would not count that by relying on long-term planning we could be complacent about short-term fluctuations. The Government must be ready to counteract fluctuations in the private sector and also must be ready to correct errors that may have been made in the long-range planning and the policy implementation of long-range planning.
8. What is and should be the role of ihe Council of Economic Advisers and the Joint Economic Committee in achieving the purposes of the Employment Act of 1946?
I believe that both the Council of Economic Advisers and the Joint Economic Committee which were set up under the Employment Act of 1946 have been very effective and have made for themselves a place in the whole organization of government. Nevertheless, there are certainly important problems left.
(a) The Council of Economic Advisers: Perhaps my main criticism of the Council of Economic Advisers is that they have been too busy. Because economic problems have played such a major role in domestic and international affairs and because the various Presidents of the postwar period were very lucky in attracting high caliber people to the Council of Economic Advisers, they have been used in general as the economic agents for the President, not only in the implementation of the Employment Act but also very often for the day-to-day advice as it was needed for current national and international policies and negotiations. In order to relieve the Council of the burden of day-to-day work in one period the President had in the White House an assistant for economic affairs. Recently this job has been abolished because it was feared that it would reduce the close contact between the President and his Council of Economic Advisers. Frankly, I do not know what the right answer is, but perhaps more of the day-to-day work should
be delegated to high officials in the departments, such as Commerce, in order to permit the Council to devote more time to the longer range planning and longrange policy consideration.
On the level of the Executive Office of the President there should be a closer coordination between the Economic Report, the Manpower Report, and reports from the Office of Science and Technology. I believe that the proposed amendments make a very important suggestion in emphasizing the need “to establish a manpower utilization policy.” Similarly, I think the report should also point out the scientific and technological developments that have taken place and those which may occur during the period covered by the projections. This should be the basis for possible policy recommendations to the extent that they have a direct impact on economic growth, employment, and international competitiveness.
I recognize the danger that putting the Economic Report, the Manpower Report, and a Report on Science and Technology all into the same book may lead to a colorless unification because then every aspect will be reviewed and "cleared” to be sure that they are in accord witń the President's program. In the past it has been sometimes useful that there were nuances of different emphasis, for instance in the Economic Report on the one hand and the Manpower Report on the other. Such a colorless unification might be avoided or mitigated if there is one strictly coordinated report by the President which coversythe economic aspects, manpower aspects, technological aspects, and possibly also resource and social aspects. In addition there might be separate reports on each of the topics which are submitted by the President to Congress without necessarily completely reflecting final decisions and final commitments by the President but may inciude topics for consideration and debate.
(b) The Joint Economic Committee: I am greatly impressed by the work done by the Joint Economic Committee and by the great influence the Joint Economic Committee had on lifting the level of congressional debate on economic subjects. The Joint Economic Committee is an advisory group and its influence cannot be measured by the lack of legislative actions which it has initiated or by the number of reports which it has published. Its influence is to a very large extent imponderable, but nevertheless I believe of greatest significance.
I do believe that the Joint Economic Committee could have still greater influence on the various legislative committees and on Congress as a whole. I am particularly interested in the proposal in the amendments that the standing committees of both Houses should hear as witnesses on relevant legislation the chairman and ranking minority member of the Joint Economic Committee. I wish this would become a practice adopted with respect to really important legislation of substantial economic impact. However, this is another point where I as a layman am very doubtful that it would be appropriate to incorporate this proposal into a basic statute.
I referred before to the need to have measures in readiness for counteracting actual or imminent short-term fluctuations in economic activities. I believe it would be desirable to consider what kind of tax measures should be taken in case prompt action appears desirable. For the expenditure side, I wish Congress would consider contingency appropriations for suitable public works and related projects of the Federal Government or of grants for regional, State, and local programs which could be stepped up in case of need. I am personally not convinced that complete delegation of power to the executive branch for variation in taxes or expenditures is politically feasible and necessary. However, I do believe that a legislative mechanism for prompt action could and should be devised. One such possibility would be that either on the President's recommendation or on the initiative of the Joint Economic Committee a joint resolution would be adopted which, so to speak, triggers the authority of the President to use a predetermined tax change or to make available contingency appropriations. I recognize that this would give the Joint Economic Committee for the first time a limited legislative function.
In general, I am in favor of permitting great scope for the Joint Economic Committee to determine its own work. Under the American system the legislature is to some extent in a position to take the initiative where the executive branch lags. I think it is desirable that the Joint Economic Committee is in a position, for instance, to initiate studies which perhaps should have been undertaken by the executive branch. A complete, entirely rational, division of labor may not be the most efficient organization, measured by the end result.
9. Is there a need for an additional planning or advisory body composed of representatives of the public to aid in achieving the goal of full employmenti
The Employment Act as passed in 1946 authorized the Council of Economic Advisers to establish various advisory committees of business, labor, agriculture, consumers, and State and local government. The proposed amendments make the establishment of a National Economic Advisory Council mandatory. On the basis of the experience with various advisory committees to the President or to various departments, I am not so sure that I would not prefer a less formal organization as it could be established under the existing authority of the Employment Act. Only I wish that more effective use had been made of this authorization. The difficulty with a group of something like 20 members is that there always will be the same representatives of business, labor, farmers, etc. They will be more or less the spokesmen for the various organizations. It might be useful that they have one forum for a common purpose, in this case giving advice to the Council of Economic Advisers, which brings them together and tests their different views of pending economic problems. However, a less formal organizational framework gives the possibility of bringing occasionally fresh blood into these advisory groups; namely, besides the official spokesmen, selecting people from the organizations who take possibly a point of view differing somewhat from the “organization line." I can see advantages on both sides, but I am not convinced that the proposed advisory council would be effective, except perhaps in lieu of the several councils which ady exist.
10. Given prospective rates of labor force growth and productivity increase, what levels of economic growth will be necessary to maintain full employment in the American economy?
This is a matter of great controversy: Required rates of growth compatible with the growth in the labor force and increases in productivity have been estimated anywhere between 344 percent and 6, 7, or even 8 percent per year. The crucial point is the estimate of increase in productivity. The computations of our own organization lead me to believe that a rate of economic growth of about 444 percent per year would be adequate once we have reduced unemployment to a tolerable level.
11. What problems do you see in the achievement and maintenance of these grouth rates?
As I said before, the achievement and maintenance of sustained adequate rates of growth depends both on confidence existing in the private sector and on the contribution made by fiscal policy and Government programs. One of the problems is that as soon as we are achieving adequate rates of growth there is a danger of complacency which takes these achievements for granted. We have often been acting too much under the threat of actual existence of emergencies rather than by long-term foresight. I believe that the biggest problem is one of education, not only education in management and labor skills and so on, but education of the decision makers inside and outside the Government for a deeper understanding of the forces that are required for a satisfactory functioning of our social and economic system.
12. Have changes of a structural nature occurred since the enactment of the Employment Act of 1946 that make it possible to achieve lower rates of unemployment without encountering serious inflation?
13. To what extent are the problems of (a) balance of payments, (b) international liquidity, and (c) the changing structure of world competition, obstacles to the achievement of full employment in the United States? How can they be overcome?
I believe behind this question is the deeper concern that in the long run it would be very difficult to achieve and maintain full employment and reasonable price stability in the United States unless the rest of the world also makes great progress in the same direction. I believe it is very wise that the Charter of the United Nations provides that the fiscal and economic policies any nation pursues in the interests of full employment must be of the nature that they promote and not hinder parallel development in other nations. Under conditions as they are today I do believe that considerations of the balance of payments and world competition must influence not the objectives which we choose to pursue but the methods by which we are pursuing these objectives. A credit policy in support of economic growth cannot entirely overlook the effects of such credit policy on the balance of payments. We therefore place greater emphasis on fiscal measures than on monetary policy than would otherwise be desirable. Provision for adequate liquidity in monetary means in support of world trade without resort to restraining measures is in the interest of economic growth and full employment for all countries.
14. To what extent is the short supply of skilled manpower, in both the private and public sectors of the economy, obstacles to the achievement of full employment?
Short supply of skilled manpower in both the private and public sectors of the economy is a serious obstacle to the achievement of full employment. This makes the program in support of education and training all the more important.
There is one problem which is not specifically mentioned in the list of issues in the amendments. Although the amendments (section 3 in amending section 2) add the promotion of “reasonable price stability” to the objectives of the act, I do not believe it spells out the implementation of this objective. It certainly is implied that “maximum purchasing power” requires a demand sufficient to buy the potentially produced goods and services but not so large as to generate "demand-pull” inflation. The reference to “competitive enterprise" (same paragraph) may be regarded as giving an antitrust policy its place in a fullemployment policy.
Some years ago Senator Clark in the Senate and Congressman Reuss in the House sponsored an amendment to deal also with possible “cost-push” inflation. It is true that we have achieved in recent years a pretty good record of price stability. I attribute that in part to national and international competition for markets by industry and to self-restraint in union demands. It is due in part to the possibility of persuading the partners in collective bargaining, especially the unions, to accept wage rate increases whic are compatible with the President's guidelines. In part it is probably due to the high priority unions have been giving to job security at the costs of more modest claims on wage rates. The experience of the last few years, encouraging as it is, should not lead to complacency concerning the "cost-push" problem.
I still believe that it would be useful if the President were authorized to establish productivity, price, and wage analysis boards for specific industries of crucial importance. They would spell out the guidelines for the specific industries and appraise price and wage measures in the light of these guidelines. Neither they nor the President would have compulsory power to enforce price and wage agreements in line with the guidelines, but in case of need the reports of these analysis boards could be a basis of either Presidential or congressional action. There may be other more effective and more acceptable means for dealing with the cost-push problem. But I feel that the problem of cost-push, or more broadly what the Europeans call income-price policy, is closely related to a full-employment policy.
In closing, I would like to repeat that I do not wish to judge which of these proposals, if any, require legislation; which are suitable for experimentation with possible incorporation in legislation at a later time; and which are only suitable for adoption as a practice either by Congress or the executive branch. I hope that all the suggestions incorporated in the amendments before the subcommittee will give rise to a constructive debate.
Senator CLARK. I note that in your statement you express some reservations which, to some extent, I must admit I share, as to the desirability of legislating in this area when so much of what needs to
done could be done by administrative action. Unfortunately, at the moment I fear that the administration is unwilling to take such action.
I wonder if you have any views as to the appropriate role of the executive and the legislative in attempting to deal with the critical and quite complicated problems of how our national economy should be guided and to what extent it should be guided by the Federal Government. For example, a number of us in Congress have for some years felt that the method of stating the annual budget is deceptive and not informative. We would like to see the administrative budget somewhat subordinated to other types of budgets such as a cash income and outflow budget.
I have been concerned, for some time, with the need to stress the manpower aspects of our economy. We must deal not only with the gross national product, but must have documents which deal with the employment problems of the country-not only with the unacceptably high unemployment rate, but also with the very real possibility that a shortage of skilled manpower may soon create bottlenecks which will impede our economy and its growth.
There are stirrings in the Labor Department, in the Commerce Department, and in the Council of Economic Advisers, which seem to indicate that because of the rather imaginative thinking of the Kennedy and Johnson administrations, which changed national thinking about economics, we are moving a little bit faster than before.
After that rather rambling preliminary, would you tell us your views on what a legislative committee can and should do to urge the executive to modernize its thinking with respect to the directive given it by the Employment Act of 1946?
STATEMENT OF DR. GERHARD COLM, CHIEF ECONOMIST,
NATIONAL PLANNING ASSOCIATION
Dr. Colm. Senator, I would like first to thank you for the invitation. It was a great pleasure for me to appear before your subcommittee before. I am particularly happy about this occasion. Since I had the privilege of working in the executive branch on the preparation of the position the executive branch would take on this issue in 1944 and 1945, and later in the first years as a staff member in the implementation of the act, I would say if there is any one piece of legislation which is close to my heart, it is this. I am very grateful that I have this opportunity to discuss this, in my opinion, vital issue with you.
Senator, on your question about legislation, I feel frankly more comfortable to discuss the issues, what I think should be done, rather than what is the best means of getting it done.
Senator CLARK. I suppose you think that it is our job and not yours.
Dr. Colm. I do believe that nothing is as helpful as having such amendment as a vehicle for hearings, and I hope the debate will go beyond this subcommittee. I am sure that the occasion of the 20th anniversary of the Employment Act next February will also further such public debate. I am hopefull that out of this debate will emerge a development very much in line with your amendments.
Whether the enactment of these amendments in all detail is desirable is something which is a question somewhat outside my competence. This is a matter of legislative strategy. I think even the discussion will be very helpful. There are certain issues in the amendments which may require legislation; others where I have some doubts, but I don't feel very much at home in discussing what kind of legislation is feasible and required.
Senator Clark. Let me ask you, Dr. Colm, how you would classify your discipline?
Dr. Colm. Senator, I would say my field of specialization is that of a person who provides the tools for planning. I do not regard myself as a planner who makes decisions whether we should go to the moon or be concerned with the common cold. But I think that people who make such decisions should have certain information about the consequences of these decisions for national economic development, for the manpower problem, particularly for skilled manpower where we have bottlenecks. It is, in a way, our job at the National Planning Association to provide the decisionmakers in public and private life