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Since the development of general systems accounting will take a long time, partial steps could be taken more quickly to redress the imbalance and distortion created by National Planning's overemphasis on quantitative economic data. In the United States, the Council's monthly “Economic Indicators” could be supplemented by a monthly “Social Indicators.” This would merely require an interdepartmental extension of the valuable "Health, Education, and Welfare Indicators," developed in recent years by the Department of Health, Education, and Welfare. Still more significant would be an annual social report by the President. Together with his Economic Report and budget message, such a social report would enable a President to fulfill more comprehensively his constitutional role of reporting to Congress on the state of the Union.
Like any well-worn word, “planning” has meant many things to many people. The various uses of the term become most confusing when we move from private and local government planning to National Government planning. The confusion is compounded when we move from nationwide Government planning for a single Government activity (such as highway construction) to National Government planning that tries to affect, directly or indirectly, many kinds of Government and/or non-Government activity.
In the managerial sense, the planning process is interrelated with the other managerial processes of decision making and communication in activating plans, evaluating plans, and adjusting them in the light of new circumstances. Taken together, these constitute the managerial process of trying to get results. It is this broad managerial process that people have in mind when they think of a successfully planned operation, rather than a helter-skelter one, or when they attack some kinds of planning as a "road to serfdom.".
In the modern world every nation-state is committed to some degree of government responsibility for the management of national economic change. Whether this be called planning, programing or national policymaking is rather irrelevant. The important thing is the managerial concept.
For those who still think of management in the old-fashioned, quasi-authoritarian sense of strong and detailed control, the term "guidance” may seem more appropriate at the national level. Moreover, since "economic planning" involves action to change certain elements in the structure and performance of a social system, the most appropriate term is "system guidance.'
The future development of system guidance concepts, tied up with system accounting, can help abolish material poverty throughout the world, extend affluence and enrich the quality of life. In passing, it will also provide economists and other social scientists with new and greater opportunities for creative self-development on hehalf of human interests broader than their own.
WASHINGTON, D.C., October 1, 1965. The EDITOR, CHALLENGE, New York, N.Y.
Sir: In his interesting article on "Planning: Let's Not Leave It to the Economists” Bertram Gross says: "I do not recall that any_American economist has yet reported on one of the most fascinating aspects of French national planning; namely, that there is not a single professional economist in the Commissariat du Plan.' I believe here is a misunderstanding about the term “professional economist.” Staff members of the Commissariat are civil servants exactly as the staff members were of the original Council of Economic Advisers from 1946 to 1952 in this country. Many of these French civil servants have, as their American counterparts had, academic (professional training in economics. However, as I understand it, there are on the staff of the Commissariat no economists on leave from academic positions. Such "academic” economists do serve, however, on the various committees of the Commissariat. Thus, in the American usage of the term there are professional economists on the staff of the Commissariat itself but no academicians.
GERHARD COLM. Senator CLARK. Let me make this observation and get you to comment on it. It seems to me that the subject area on which this subcommittee must concentrate to do its job is much wider than the title of the subcommittee would indicate.
Really, when we think of what is needed we must call on a number of disciplines—history, government, economics, and politics—which are quite related. Would you agree with that?
Dr. COLM. Yes, I thoroughly agree with that.
Senator CLARK. Have I left anything out, any of the major disciplines which are required for national economic and manpower planning?
Dr. Colm. Perhaps there is one other aspect which is very important. Ours is a mixed economy.
Senator CLARK. A pluralistic society.
Dr. Colm. The Government controls, if I take the broadest definition of Federal-State-local, and has a direct influence on perhaps 30 percent of our economic activities. The Employment Act makes it the duty of the Government to be concerned not with 30 percent, but with 100 percent, and the effect that the 30 percent has on the total goes through the private sector, that is, the Government action influences the action of consumers, labor, and particularly business management.
So I think in a way we have also to be concerned with business management, labor attitudes, and consumer psychology.
Senator CLARK. I think this is true and quite important. I understand you would also like to make some comments which are not covered in your prepared statement.
Before you do that, however, I would like to get your reactions to an article by Dr. Leon Keyserling, which appeared in the June 12 issue of the New Republic entitled “The Great Society—A New Kind of Balance Sheet Is Needed." The article is an attempted refutation of a study prepared by one of your colleagues, Dr. Leonard Lecht.
Dr. Colm. That was under my general supervision. I share in the responsibility for that study. The pamphlet to which Dr. Keyserling referred is a brief summary of a study by Dr. Lecht which will be published early next year.
Senator CLARK. He is the director of the National Goals Project of the National Planning Association. The study is entitled “The Dollar Cost of Our National Goals." Its conclusion, which is pretty well buttressed by statistics, is that our economy does not have the capability of achieving, by 1975, all the goals which were set forth in the 1961 report of President Eisenhower's Commission on National Goals.
(The article referred to follows:)
(From the New Republic, June 12, 1965)
THE GREAT SOCIETY—A New KIND OF BALANCE SHEET IS NEEDED
(By Leon H. Keyserling) 1 President Johnson has instructed his top experts to begin work on a legislative program for 1966, uninhibited by considerations of cost or politics. They are to look at what our resources permit and what the Nation needs. But even as the President is initiating what could become a great planning effort, a source long dedicated to planning has blown retreat, in a study prepared by Dr. Leonard A. Lecht, director of the National Goals Project of the National Planning Association and entitled “The Dollar Cost of Our National Goals."
The study starts with 15 national objectives originally set forth qualitatively in a 1961 report of President Eisenhower's Commission on National Goals. To these it adds President Kennedy's aim "to put men on the moon and bring them back.” It then quantifies the "costs” of these 16 goals, and concludes that their
Leon H. Keyserling was Chairman of President Truman's Council of Economic Advisers, and is now President of the Conference on Economic Progress.
achievement by 1975 would "cost" in that year about $1,131 billion, or $150 billion more than the $981 billion gross national product which the study sets as a target for that year. To lift GNP higher, the study says, would impose “severe strains on our social and economic institutions,” require a much greater degree of decisionmaking vested in the Federal Government than most Americans have been willing to accept in peacetime,” and, in all probability, involve such unpopular measures as a longer workweek and price and wage controls.
I disagree and shall try to explain why.
Goals or needs” are not absolutes; they vary with our productive capabilities, which in turn are greatly affected by the "needs" we serve. Thus, “needs" and capabilities are two sides of a balance sheet interacting upon one another in the very process of formulating them. When the NPA study adds up the disconnected estimates of specialists in a dozen or more fields, and then tells the American people they are beyond our productive potentials, it reduces national goalmaking to a burlesque. By this method, one might just as easily find that our “needs' by 1975 will exceed our potentials, not by $150 billion, but by $300 billion or even $3 trillion.
In any event, the study's GNP target of $981 million by 1975 assumes an average annual GNP growth rate of only 4 percent and unemployment averaging 4 percent. This contrasts with the 2.9 percent unemployment rate which I and many others equate with maximum employment, and even this lower figure is much higher than unemployment in other advanced industrial nations. As to growth, the President's 1965 Economic Report depicts, during recent years, an average annual advance of 3.5 percent in productivity, and indicates between now and 1970 an average yearly increase of 1.7 percent in the civilian labor force. Just to absorb these two factors, we need an annual GNP growth of 5.2 percent (not the NPA's 4 percent), which might be reduced to about 5 percent by some gradual reduction in the working week. Moreover, in view of the excessive unemployment now, we need for a couple of years an average annual GNP growth of 8 to 9 percent to restore reasonably full resource use by 1967.
Weighing these considerations, I arrive at a 1975 GNP target of about $1,100 billion, or about $119 billion higher than the NPA's. This difference would cover about 80 percent of the $150 billion worth of programs which the NPA study says we must forgo. And the other 20 percent could be covered by a more desirable distribution of GNP than the study projects. In view of the new technology, the study allocates too large a portion of GNP to private investment in plant and equipment. The study also implies too rapid a rate of expansion of consumption by those who already enjoy opulence.
Let us turn to matters of fundamental emphasis. Today, we are confronted by enormous idleness of manpower and other productive resources; and few competent analysts would say that current and prospective programs will bring us much closer to full use of our resources in the foreseeable future. Under these circumstances the NPA warning is like rushing to slow down a train which is hardly making the grade.
The study also warns that we had better be careful, lest some attempt to go too far or too fast toward the Great Society results in too much planning and other activity by the Federal Government. For a “national planning” group to denigrate, if ever so softly, the role of the Government seems to me to cap error with irony. It is as if there were no such thing as the Employment Act of 1946, which requires for its proper implementation that goals and capabilities of the kinds treated in the NPA study be set forth annually by the President and examined by the Congress.
Current euphoria about "the longest uninterrupted upward movement in our history” seems to me to ignore some hard facts, the most important being: We have made no striking progress toward solving our chronically deficient economic growth rate. Indeed, a hardly noticed sentence in the 1965 Annual Report of the Council of Economic Advisers admits that the current upward movement has been unusual in length but not in progress toward restoring reasonably full resource use. “Recovering" for so long means that we have not achieved anything near full recovery; we have been "stretching out” high-level stagnation.
Unemployment today, officially stated at around 5 percent of the civilian labor force, is two-thirds higher than it ought to be. But this 5-percent figure itself tends to mislead. Since unemployment hits different people at different times of the year, a 5-percent average means that about a fifth of the workers are out of work on the average for about 3 months in the year and thus lose a quarter of their regular annual income. The 5-percent average also means a Negro unemployment rate about twice as high as among whites—and 15 to 20 percent among voung people just entering the labor market. Nor is the average really 5 percent. Taking account of the full-time equivalent of part-time unemployment, and the concealed unemployment resulting from those not actively looking for work because of the scarcity of job opportunity, the true level of unemployment now is certainly in excess of 8 percent.
Aside from the human tragedy of unemployment, is the public aware of its other costs? Unemployment from 1953 to 1964 cost the United States about $590 billion in lost production, measured in 1963 dollars. The gap between actual production and potential maximum production is now about $80 billion (annual rate).
And let no one now think we are coming out of the woods. The unemployment rate today is lower than at the trough of our most recent recession, in 1961, but it is much higher than at the crest of any previous recovery movement since 1953. Thus, there has been no significant interruption of the chronic trend toward rising unemployment. In its January report, the Council of Economic Advisers forecast a 1964-65 economic growth rate of about 4 percent (contrasted with the 8 to 9 percent needed for about 2 years to restore maximum employment), and it forecast unemployment averaging about the same this year as last. In May, an important group of business analysts forecast almost no further expansion in 1965. In the next year or two, the jobless rate is likely to be higher than now.
Getting, unemployment down and the growth rate up depends upon bringing consumption into line with our burgeoning productive powers. Even in purely economic terms, this requires that we reduce rapidly the glaring disparities between the 40 percent or so of our people who live in poverty or deprivation, and the 5 to 7 percent who live in "affluence"; and part of this task is to strike a better balance between production of luxury goods and production in the public sector (schools, health care, recreation, transportation, resource development). The wars against poverty and low economic growth and unemployment are really one; their fragmentation is a main reason why we are faltering on all three fronts.
Manpower training, retraining, and education while desirable, have been given altogether too high a priority. All experience shows that a high enough level of aggregate demand (not obtained by training individuals) quickly reduces unemployment to minimum levels, educates many people on the job, and tells us what to train others for. Similarly, the antipoverty war under the Economic Opportunity Act attributes far too much poverty to personal characteristics of the poor requiring corrective treatment, rather than to systemic defaults in our general economic performance and programs. There are only three ways to get more income to the poor: (a) reduce unemployment to minimum levels, (b) enlarge the incomes of those employed but receiving substandard pay, and (c) allocate larger shares of the national income to those who cannot be employed, like most of our older people and women with small children but without husbands. These three tasks, requiring not only many private adjustments but also greatly expanded public services, are only lightly touched by the Economic Opportunity Act, and inadequately dealt with under other programs.
Much in point are the tax reductions of 1962 (by administrative action) and of 1964 (by legislation) having an annual value of about $13 billion. More than half of this $13 billion cut, according to my calculations, was designed to increase saving for investment purposes by corporations and relatively high-income individuals. Since savings for this purpose were already ample, this part of the tax reduction has been diverted substantially to frozen savings, to bidding up stock prices, and to investments overseas which have complicated our balance-ofpayments and gold problem. The smaller part, which flowed into immediate stimulation of personal consumption, should have been almost the whole.
But even if most of the tax reduction flowed into immediate spending at home, this would make a relatively little dent upon the problem of creating the 22-27 million new jobs which will be needed over the next decade to take care of population expansion and those displaced by automation. No feasible expansion in the demand for the kinds of products bought with tax reduction money is likely to outrun the advances in productivity and technology in the industries which turn out these products. The only way to create these millions of new jobs is to shift much more of our total production toward unmet national needs--needs so great that appropriate expansion of output in these areas would far outrun the technological advances. These areas manifestly call for more public spending instead of more tax reduction.
Il-conceived tax reductions at an annual rate of about $13 billion may have stimulated the economy some and prolonged the upturn. But $13 billion thrown into the streets, to be scrambled for by the first comers, would have done this for a while, and might even have distributed the proceeds better. The real question is how much more good could have been done—and can still be done by alternative policies. Largely in exchange for these tax reductions, Federal budget outlays per capita, measured in 1963 dollars, fell to $476.06 as proposed for fiscal 1966, compared with $482.37 in fiscal 1965, and $558.19 in fiscal 1954. Measured in ratio to total national production, total Federal budget outlays declined from 18.72 percent in fiscal 1954 to 16.32 percent in fiscal 1964, and 15.25 percent in fiscal 1965. The ratio has been still lower in fiscal 1966; and, in exchange for another $4 billion of excise tax reduction over the next few years, and promises of other tax concessions to come, a continuing tight rein on Federal spending is in prospect. This mix of fiscal policy may yield some sort of consensus, but the price paid is far too high.
THE MONEY SUPPLY
Next to tax reduction, the most important economic weapon employed since 1953 is the monetary policy, and its use has been inept. The unduly low rate of expansion of the money supply has been a major factor in repressing growth and enlarging unemployment. During the past decade or so, upward-spiraling interest rates have transferred more than $50 billion away from ordinary consumers and small producers who could have used this money most beneficially (to themselves and the whole economy), and away from the Government budgets which could have used the money to war against poverty, and toward financial institutions and others who have not needed such additional income. Taking tax policies and money policy together, $10–12 billion a year is now being misdirected. This would be enough to pay for an effective offensive against unemployment, poverty, and low economic growth, for several years ahead.
Using an American Economic Performance Budget which reconciles all of our productive capabilities and “needs” (on the manpower side, the income side and the product side), I set forth on the next page what we can achieve by 1975. As I have used this Performance Budget for almost two decades, I have been able to test and revise it in terms of actual developments.
The main targets for 1975, in my judgment, should include the virtual liquidation of poverty in the United States; a decent home for almost all families; a substantial rebuilding of our urban areas and mass transportation systems; education within the reach of practically all, up to the limits of their capabilities and ambitions; health services, in line with the advance of medical science and available to practically all at costs within their means; public assistance programs with income “floors" below which no families should be permitted to remain; labor and manpower programs to train and relocate those who need them; and natural resource development compatible with the needs of a growing population and rapid population shifts. This is not Utopia; much would remain to be done in 1975, but in terms of the standards of that year, not the standards of 1965.
Goals for the Federal budget (actual, fiscal 1966; goals, calendar 1970 and 1975)
1 Excluding the Economic Opportunity Act, for which the $1,346,000,000 item in the fiscal 1966 budget should be doubled within a few years.
3 Including also agriculture, veterans, commerce, interest, General Government, etc.
Because the Federal budget is the most powerful single economic instrument we have for meeting a large portion of our national needs and for galvanizing action at other levels of government and in the private sector, and because the