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decisions to be made in connection with the fiscal 1967 Federal budget to be submitted next January are of such towering importance, I list above some goals for the Federal budget, both on a per capita basis related to total population and on an aggregate dollar basis, taking the fiscal 1966 Federal budget as the point of departure.

This proposed Federal budget does not rely too heavily upon Federal action. In a properly growing economy, the proposed Federal outlays would be 15.4 percent of total national production in calendar 1970, and 14.2 percent in calendar 1975, compared with an average of 16.3 percent during the fiscal years 1954-66. Jly proposals contemplate that the annual rate of Federal outlays for goods and services be lifted to a 1975 level about $42 billion above the 1964 level, and that over the same period of time the annual rate of State and local outlays for goods and services be lifted about $32 billion, While I urge an increase in 1975 over 1964 of about $74 billion in the annual rate of outlays for goods and services by governments at all levels, there is projected an increase of almost $98 billion in gross private investment (including net foreign), and an increase of $317 billion in private consumer expenditures, adding up to an increase of about $489 billion in the annual rate of total national production.

Any further tax reduction should concentrate upon enlarging the after-tax incomes of low- and middle-income people, through much higher exemption credits in the personal income tax structure, and reduction of Federal excise taxes on necessities, not luxuries. The policies of the Federal Reserve Board should be drastically revised, toward a more liberal money supply and lower interest rates. Conventional-type public works should receive at least $1 billion a year of additional Federal support. Federal minimum wage legislation should be greatly improved, both as to coverage and standards. With Federal aid, unemployment insurance should be made available to all who need it, with average benefit payments at least half the average full-time working wage. Old-age insurance benefits should be doubled within 5 years, and financed increasingly through general taxation. An entirely new farm program should be enacted, geared toward income rather than price parity, with help directed toward those who need it most, and with much more stress upon expansion of consumption both at home and through enlarged exports to the half of the world which still goes hungry. Developmental programs for the distressed areas should, with appropriate modifications, be lifted to the comprehensiveness which distinguished the TVA. And we need vast readjustments in price-wage-profit-investment relationships throughout the private sector. Toward this, some public guidelines" more realistic than the current one could emerge under the discipline of an American Economic Performance Budget such as I describe.

Not in detail but in outline, these are the standards to which one may hope the President's experts will turn, as they prepare for 1966 and the years following.

Senator CLARK. I wonder if you would give us your views.

Dr. COLM. First, Senator, I would like to mention that in the same issue of Challenge magazine in which Bert Gross'article was published there is also published a debate between Leon Keyserling and myself about this issue.

Senator CLARK. I will have it printed in the record at this point. Then you can summarize your conclusions as a result of that debate.

(The debate referred to follows:)

(From Challenge, September October 1965)


Debate between Dr. Leon H. Keyserling and Dr. Gerhard Colm

During the past 30 years five successive national administrations have felt it necessary to define as precisely as possible where we are as a society and where we want to go. But standing between the definition of goals and their implementation has always been the overriding question-simple to state, but difficult to resolveCan we afford what we want?

Question. Mr. Keyserling, as an economic consultant, as president of the Conerence on Economic Progress, and as a former Chairman of the Council of Economic Advisers during the Truman administration, you have been among those eager to set high economic goals for our society. You have also played a leading role in advocating policies to attain such goals. Let me ask you, first, what are our national goals What kinds of things are the people asking for from our society?

KEYSERLING. Although I realize that as a nation we also have spiritual and moral goals which have an important bearing on economic life, I shall confine myself to our economic goals, and more specifically to those economic goals enacted into law by the Employment Act of 1946. This act imposed upon the President the responsibility to declare needed levels of employment, production, and purchasing power, consistent with maximum performance. These economic goals are determined by the President of the United States and by Congress, and not by Leon Keyserling or by my good friend Gerhard Colm. They are, I believe, the great national goals of most moment to 195 million Americans.

Question. Dr. Colm, as economist for the National Planning Association, you have for many years been quantifying available resources and providing models of the way such resources might be allocated to attain specific goals. Do you agree with Mr. Keyserling's definition of our national goals?

Colm. I agree with Leon that we are not concerned with the particular goals of any individual or organization and that we should confine ourselves to the economic aspects of our national goals. There may be some people who believe that education, health, national defense or space exploration do not have an economic aspect. I think they are wrong, for such goals cannot be realized without using resources, and any objective that requires resources for its realization has an economic aspect. Pursuit of these goals uses resources and contributes to their development. However, I think we must make a very clear distinction between achievement goals, which emphasize the different (mainly noneconomic) purposes for which the resources are used, and performance goals, which emphasize the level of activities (full employment) and the growth of these resources. These two types of goals are very closely related, but we should not mix them up. The Employment Act was primarily concerned with the performance of the American economy, and it is only recently that we have become concerned with the use of resources for various private and public purposes.

Questioner. Mr. Keyserling, is this distinction useful?

KEYSERLING. Not in full. I quite agree with Gerhard's broad definition of an economic goal as anything that requires national resources. But I don't see how we can get maximum production, employment and purchasing power unless we also concern ourselves with the way in which this production, employment and purchasing power is being allocated. I think that what we really need is a national economic performance budget which relates our education, health, resource development, social security, etc., programs with our economic growth and employment policies in such a way that the President and Congress and through them the American people can make an informed judgment.

Colm. Of course we all agree that how we use our money has something to do with how much money we have. But it leads to confusion not to distinguish between the income we earn and the purposes for which we spend our money. As any accountant will recognize, there are two sides to the ledger of any budget. All that I am suggesting is that we look at both sides.

Questioner. But you two gentlemen would agree, however we we define our goals, that they are more easily attained in a rapidly growing economy than in a sluggish economy. Are you satisfied with our current rate of economic growth? Colm. I am satisfied with the rate of growth that we have recently had.

i am not satisfied that our future growth will be adequate. For the last 4 years our annual rate of growth has been around 442 percent, which certainly compares favorably with our 50-year historical growth rate of around 3 percent. cannot assume that we can maintain the recent pace without some very basic changes in our economic policies.

Questioner. Mr. Keyserling, I know you are not as sanguine about our growth performance.

KEYSERLING. No; I am not. I don't feel that we have had anywhere near a satisfactory growth rate for any appreciable length of time since the end of the Korean war in 1953, when the economy ceased to be supported by the galvanizing stimulus of a limited war. It is true, as Dr. Colm points out, that our growth

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rate has averaged around 492 percent during the last 4 years, although the average for the entire post-Korea period has been closer to 312 percent. But even this most recent 412 percent growth rate is, I believe, shockingly inadequate.

Questioner. "Shockingly inadequateare strong words. Could you spell out your reasons for feeling so strongly?

KEYSERLING. A growth rate that is not carrying us even close to maximum employment, as envisaged by the Employment Act, cannot be regarded as satisfactory. We still have an unemployment rate of between 492 and 5 percent. This is three times as high as in most other great industrial nations, and 60 percent higher than I think it ought to be in the United States. Furthermore, an unemployment rate of 5 percent does not mean that 5 people out of 100 are unemployed for a whole year. It does mean that perhaps as many as 20 people out of 100 do become unemployed for appreciable periods of time during the course of the year, although at any one time only 5 out of 100 are unemployed when the monthly survey is taken. And then, as we all know, a 5-percent unemployment rate means, according to our most recent estimates, a 10-percent unemployment rate among Negroes and a 15- to 20-percent unemployment rate among young people seeking their first job in our economy. In his most recent Economic Report, moreover, the President himself admits that there are an additional 1 million people who would come into the labor force immediately if unemployment were reduced even to 4 percent. Taking all these things into account, it is, I think, remarkably clear that a rate of growth that leaves us with such a disgraceful level of unemployment is much too low.

Questioner. Dr. Colm, you are obviously not satisfied with our current unemployment rate either. Why, then, do you regard the 442 percent growth of the past 4 years as satisfactory

Colm. Of course I am not satisfied with the high level of unemployment. We have not yet reached a level of unemployment that I would regard as socially tolerable. But the speed with which we have been reducing unemployment during the last 4 years is encouraging, especially if we consider the entirely unprecedented influx of new entrants into the labor force—the result of the high birth rate of the immediate postwar years—which our economic system was not prepared to absorb. I wish we could do better, and perhaps we should aim at something better. But if we take into account all of our other objectives-national security, price stability, and so on-then I would say that a continuing growth rate of 4 to 472 percent, while not perfect, is probably all that can be hoped for.

Questioner. Mr. Keyserling, what is your reaction to this assessment of our growth potential?

KEYSERLING. I couldn't disagree more profoundly with my good friend Gerhard Colm. I fail to see how a growth rate that does not offer specific and definite prospects for reducing unemployment to not more than 3 percent within a very short period of time-say within about 2 years—can be regarded as tolerable. This is the central question. I believe that our most important economic goal as a nation, even transcending education, health, slum clearance, and all the other things our economy needs so badly, is to remove the curse of unemployment from so many millions of people. For a man not to be unemployed is more important than his being able to swim safely in an unpolluted Potomac River. And for a young person seeking his first job from the American economic system to be told, "You are not wanted,” is more damaging to our social fabric than all the billboards that mar our highways.

Questioner. And what growth rate would we need to bring unemployment to within tolerable limits?

KEYSERLING. The President and his economic advisers have given us some clue. In his recent manpower and economic reports, the President has said that the average annual rate of productivity increase in recent years has been around 34 percent, and I believe that it will continue to increase in accordance with recent trends. The President has also told us that the civilian labor force will be increasing at an average annual rate of 1.7 percent in the foreseeable future. Now, if you add the 3.5 percent and the 1.7 percent you get 5.2 percent. Allowing for some reduction in working hours in accordance with long-range historical trends, we arrive at an annual growth rate of about 5 percent as necessary to absorb our annual increases in productivity and labor force. This rate would prevent unemployment from rising, and it surely is neither excessive nor unprecedented. We were able to average 9 percent annually during the war, and we averaged about 412 percent during 1922–29. Of course, since we are now far below full employment, we shall need a growth rate of between 8 and 9 percent during the next 2 years just to return us to maximum employment before we level off at the 5 percent needed thereafter.

Colm. I do not believe that a needed and feasible growth rate of 8 to 9 percent for the next 2 years and of 5 percent thereafter follows from the information given in the President's report. We had an increase in productivity in the private sector of the economy of 3.5 percent in recent years. These were years of recovery from a recession, a time when business firms always expand production and sales without a proportionate increase in their labor force. What annual gain in productivity can be expected once a high rate of operation has been reached is an entirely different question. Of course, there will be continuing technological advances making for productivity increases. But there will be other tendencies slowing down the increase in productivity. Some important technological advances, moreover, will not be reflected in our statistics at all. I believe that the productivity gains of the future can be substantially higher than the 2.5 percent rate of the last 50 years, but they will be less than the 3.5 percent of the recovery period. Simply extrapolating data of the last 4 years does not give us a reliable guide for the future.

KEYSERLING. I recognize differences of competent opinion as to the likely rate of productivity growth in the future. My own estimates are not mere extrapolations. My own studies convince me that, in the long run, productivity advance tends to accelerate, provided there is reasonably full use of our resources. Such full use, in my view, acts to quicken productivity growth.

Questioner. Dr. Colm, do you believe that our 474 percent growth rate of recent years could, in fact, reduce unemploument to 8 percent in 2 years?


Colm. I am afraid not. While I share Leon's social judgment about the evils of unemployment, especially among young people trying to get into the labor force for the first time, I don't see how we could get unemployment down to 3 percent within 2 years without adopting crash programs or initiating drastic tax reductions that we could not sustain without running into the worst possible public reaction. I'm afraid we have to look at a somewhat longer period of time before we can hope to bring unemployment down to satisfactory levels. This does not mean, of course, that everything should not be done to give young people who don't find normal employment useful occupations, or to provide them with new skills in school, even though this does not immediately find them a job.

Questioner. While you gentlemen disagree on what constitutes a "socially tolerable" rate of growth, you are both quite pessimistic about our ability to sustain even a 414 percent rate if we maintain current policies. Dr. Colm, what must we do just to maintain the 432 percent rate of the last 4 years?

COLM. Well, I think that fundamentally we are relying on an increase in business outlays, an increase in wages and other incomes, and an increase in spending for consumer goods—that is, on the market process. But if present policies continue, the market process cannot develop its full potentiality. Tax revenues are rising along with rising incomes, so that if we continue the present level of expenditure, we could have a substantial cash surplus by 1966. If that happens, we would be absorbing money into the Treasury without necessarily obtaining the same additional spending by consumers, business or Government-a process that economists have called "fiscal drag.”

Questioner. What can we do about this fiscal drag?

Colm. A number of things. We could embark on a very liberal credit policy, although the use of this weapon is limited (but not entirely foreclosed) by our balance-of-payments problem. We could cut taxes and thus make more money available for consumers to spend. That would lead to expanded production of those things consumers buy in the market, but it would not help us get those things best supplied by the Government such as schools, hospitals, roads, etc. Therefore, I would put the greatest emphasis for the coming years on expanding our economic and social welfare programs, and I would be somewhat cautious about further tax reductions, although I do think that some additional tax cuts (particularly excises) will be possible within the next 5 years, if we can avoid a real escalation of the Vietnam war.

Questioner. Mr. Keyserling, what policies can help us achieve a long-range growth rate of 5 percent?

KEYSERLING. Let me answer this question by first pointing out that I do not attribute the inadequate growth rate of the past (or the danger of a slowdown in the future) to any lack of enterprise on the part of American businessmen. I give them a very high mark in this connection. Nor do I see any basic deficiencies in our economic and social institutions, or in our form of government. The real problem lies in the tendency for our productive capacity to outrun our power to consume. It is this disparity which has been responsible for the three recessions we have had since 1953 and for the next one that I happen to think is coming, although I can't say precisely when. I believe that a drastic change in policy is called for.

Questioner. What kind of change?

KEYSERLING. In recent years we have relied primarily upon huge tax reductions to stimulate growth and cure our unemployment problem. If we include the administrative tax reductions of 1962, the statutory reductions of 1964, the amortization and excise reductions of 1965, these tax reductions, when in full force, have an annual value in the neighborhood of $20 billion.

Colm. But we have also increased cash expenditures by about $30 billion. Thus tax reductions and increases in expenditures have been about equal.

Questioner. Even 80, you would both agree that these tax reductions have stimulated the economy?

KEYSERLING. Of course they have. You could stimulate the economy to some extent by throwing $20 billion a year into the streets and letting the people scramble for it. The question is how well these tax cuts have been planned to meet our national needs and how successful they have been when measured against other practical, alternative policies. From this point of view, I would argue that our tax policies have been wrong because they have allocated too large a part of the reduction-I would say about 60 to 65 percent--to corporate investors or to high income groups on the theory that this tax bonus would induce them to save more for investment purposes. But any honest analysis of funds available for investment-retained earnings, profits, credit availability, casts great doubt upon the need for this type of tax reduction in such huge amounts. Much of the money released by the tax cut has in fact gone into private investments overseas, thus aggravating our balance-of-payment program, or into the stock market, leading to some potentially dangerous inflation of stock values. I therefore agree with Gerhard that we should go very slow on any future tax reductions. And, both from an economic and social point of view, I should like to see any future tax reduction that we do have go to the low income groups by raising personal exemptions from $600 to, say, $1,200.



Questioner. But apart from this, you would concentrate on public expenditures to stimulate the economy. Why?

KEYSERLING. There are three basic reasons. First, we need to expand consumption rather than investment. Public spending does this because it is basically a demand against the productive power of American industry rather than an investment in the means of production. Even when the Government buys steel for national defense or builds roads, it is adding to public consumption, rather than creating new productive facilities, in the sense that plant and equipment investment add to output capacity. Second, insofar as public spending augments the incomes of people, it tends to do so at the lower parts of the income pyramid. Third, public spending has a more direct effect upon employment than private spending. To take the simplest example, a 5-percent increase in private spending for automobiles will not increase employment in the automobile industry if productivity in this industry is increasing by 5 percent a year. If we are going to make any in roads on the problem of finding the 22 to 27 million jobs the Government says we shall be needing in the next 10 years, we shall have to increase spending in those areas of the economy where employment needs are more likely to outrun productivity gains-urban renewal and slum clearance, hospital construction, medical training, educational expansion, conservation, etc. These are also the areas of high priority national needs, and are the most relevant to the war against poverty.

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