I was trying to think of such a service today. The only thing I could think of offhand was salt, which was not directly in question in the Commission's report. I could not think of any others. So if there happens to be any salt farm in the country, perhaps that might be a case in point.

The following comments are presented as considerations bearing on a more constructive approach of water policy.

1. POWER POLICY

The biggest change in the relative cost structures of public and private power enterprises since prewar is usually said to be the great increase in the rate of the corporate income tax to its present level of 52 percent. Public projects do not pay this tax. It is alleged that this constitutes undue prejudice against private ownership. This contention should be viewed in the light of the following:

(a) Existing Federal power enterprises are overwhelmingly hydroelectric. Assuming for the moment that income tax payments are on a parity with other costs, this means that hydro development is discriminated against as compared with thermal power because hydro involves a higher capital investment per unit of annual output, hence a higher ratio of capital to total costs, hence a higher ratio of income taxes to total costs. A wide range of hydro projects could not return a normal yield after full payment of income taxes, but could return such a yield after partial payment of income taxes.

(b) If income taxes are a cost, they are unusual in one important respect: they increase as prices and net profits rise. This is not the way other costs behave.

(c) As the task force report points out in various places, the United States entered World War II with a wide margin of excess electrical generating capacity. This disappeared during the war, and has not reappeared since. Private utilities cannot be expected to create excess capacity, nor can their customers be expected to pay for it. In an industry with rapidly expanding demand, there seems little danger of long-run loss from building ahead of demand unless atomic power is much nearer than most experts seem to think. Electric power is one of the most versatile sinews of war. Hydroelectric power has the peculiar strategic disadvantage that it takes a very long time to create, and the peculiar advantage that, once created, very little manpower or equipment is needed to maintain the flow during an emergency when manpower and equipment are scarce. The profit criterion for power development must be modified by the fact that peacetime profit is no substitute for reasonably adequate power when it is really needed.

(d) Practically all the task force reports, as well as most other attempts to glimpse the future, appear to asume endless national prosperity. Let us hope that we have entered a new era. If so, we have already been in it for almost 15 years, which is the longest consecutive period of low unemployment and active demand for capital goods in the history of the United States. Any responsible forecasting of Government expenditure in the important capital investment area of water resources, however, should at least pay some attention to the following:

(i) Another depression is still a possibility, however remote.

(ii) If it should occur, pressure on the Federal Government to do something will be strong. In depressed conditions, neither private nor State nor local budgets can stand much additional strain.

(iii) With present high Federal tax levels, a cut in taxes would immediately place incomes in the hands of consumers and businessmen and tend to stabilize the economy. The trouble with very extensive tax cuts, however, is that they may be very hard to cancel if inflationary dangers appear.

(iv) Depressions have a particularly serious effect on just those industries whose products are most in demand for large Federal projects.

(v) The Federal Government cannot spend money on projects throughout the economy which can be economically self-supporting once prosperity returns without competing with private enterprise at numberless points.

(vi) Leaf-raking projects may be good for the morale of the unemployed, but they add nothing to the national wealth.

(vii) Federal multipurpose-water-use projects may provide the best possible compromise, under these conditions, between the rather different objectives of restoring national prosperity, increasing national wealth by as much as possible in the process, and not interfering unduly with private enterprise.

2. FLOOD-CONTROL POLICY

This involves the unemployment point and to some degree the strategic point already mentioned-note the difficulties which would have arisen if the recent New England road and railroad disasters had occurred during a period of emergency.

In addition, flood control creates no problem of interfering with private enterprise. It does create a very serious problem of appropriate allocation of costs as between immediate local beneficiaries and larger governmental units, especially since some property damage from floods will inevitably be the result of ill-advised location in the absence of appropriate zoning regulations.

As the recent catastrophes in southern New England indicate, the need for flood control only becomes really apparent after much of the damage it could have prevented has already been done. This has a very direct bearing on the allocation of costs: Communities and whole regions are already under the double strain of private and public replacement of destroyed property and would, if assessed the full cost of flood-control works, have to bear a further heavy financial burden. This is a desperate local predicament which cannot be solved by telling New Englanders that:

It has been demonstrated that flood damages can be greatly reduced by providing a flood-warning service (Task Force Report, vol. I, p. 142).

It also cannot be solved by the constant repetition, throughout the Commission findings and the task force report, that Federal aid should be given only in cases of vaguely defined national interest or national benefit or value. By the criterion of national benefit, no Federal expenditures on flood control could ever be justified, since different river systems drain different areas, and some of the population lives on high ground.

Finally, a word on the "efficiency" aspects of the Commission recommendations. These contain two themes which are completely incompatible with efficiency: (1) An insistence that Federal projects return their receipts to the Treasury and cover costs through congressional appropriations. This is an unbusinesslike proposal. (2) A proper insistence on the present unnecessary division of responsibility for water-resource development among various Federal entities, combined with an inconsistent tendency to recommend the establishment of all kinds of mixed and ad hoc bodies representing various Government levels and even Government bodies and private corporations or individuals, for all kinds of vaguely defined purposes. The report does suggest development by drainage areas, which gives an inkling of a possible organizational pattern. But the proposed solution for too many cooks appears to be still more cooks, each responsible to a different employer.

Mr. JONES. Thank you very much, Doctor.

I would like to go back to page 2, in the last paragraph on the page, of your statement, in which you estimate that projects economically justified would make a return of 25 percent or 10 percent, at the least, as being the type of project which the Federal Government should

sponsor.

Dr. NELSON. Yes. That is the Commission's estimate and not mine. Mr. JONES. And you have taken that from the Commission's report? Dr. NELSON. I will give you the exact reference here. It is the Task Force Report on Water Resources and Power, volume I, page 110. I will read the relevant paragraphs.

Mr. JONES. Volume I?

Dr. NELSON. Volume I, page 110. It is at the end of the section entitled "Principles To Be Applied in Determining Economic Justification of Water Resources and Power Projects and Programs."

I hate to be unduly professional about this, but no economist had any hand in preparing these economic criteria.

Mr. JONES. On page 4 of your statement, subparagraph b, would you like to elaborate on your statement contained in that section?

Dr. NELSON. Well, I played around with that on the way down in terms of this 25 percent figure we were just talking about. If you added 52 percent to 25 percent it would mean a Federal project would have to show not just 25 percent but over 50 percent. In other words, not just a net profit of 25 percent but presumably a 52 percent income tax on top of the net profit.

Mr. JONES. That is in the sale of properties belonging to the Federal Government.

Dr. NELSON. Yes. This is still talking about the Government. Mr. JONES. Let me ask you this: Suppose today or tomorrow Westover Field was declared surplus to the needs of the armed service, and suppose that the installations sell for 25 percent more than the Federal investment. Do you think that the sale of that property, even though it is for an amount in excess of the cost, means that there should be some imposition of the Federal income tax in some way or other?

Dr. NELSON. In that case it might be a capital gains tax. It would obviously be an absurd proposition. For one thing, in that kind of a proposition it is simply transferring it from one pocket to the other, and I do not see what it accomplishes.

Mr. JONES. Let us take a project like the McNary Dam, or even one built back in the thirties. That dam increased in value two and one-half times over the original cost. Nowhere in the report of the Hoover Commission Task Force, nor in the Commission's report, does it point to what great national assets they are, and what great value there is in the increased value of the ownership of that property. Dr. NELSON. That is right.

Mr. JONES. Why do you think the Commission overlooked bringing that out?

Dr. NELSON. Frankly, I think this whole section could have been written much more simply all in one sentence: "We do not believe in Federal power." Then they ran into a difficulty that that would have required as a first recommendation the sale of the Hoover Dam, which would not have sounded very good.

Mr. JONES. You know, we changed the name of that dam to Hoover Dam.

Dr. NELSON. And I think that would have made it sound even worse, because of the battle involved in changing the name to Hoover. I notice they were extremely gingerly about their handling of the Hoover Dam in here. As it turned out, that was the only dam set up on proper lines and set up largely on a proper basis. It may have been coincidental.

Mr. JONES. Coincidental or accidental?

Dr. NELSON. There was always that possibility.

Mr. BOLAND. On page 5, Dr. Nelson, on the subheading "Flood control policy," you say:

These involve the unemployment point **

Dr. NELSON. Yes. That should read:

This involves the unemployment point ***.

Mr. BOLAND. Yes. In what way would it do that?

Dr. NELSON. Again it is a matter of what could have been done to avoid these things during the thirties and was not done. Granted, it is crying over spilled water.

Mr. BOLAND. We should not wait until a depression to start these? Dr. NELSON. NO. There is a scale of urgency on these things. As we have seen lately, there are extremely urgent projects and you cannot wait for a depression on them. There are some projects where they may be marginal, but it is certainly better than letting people sit around doing nothing.

Mr. BOLAND. What is your attitude on flood insurance? You did not discuss it here.

Dr. NELSON. I have not studied it carefully and therefore would hate to give an opinion. However, I do think the principle of flood insurance would tend to meet one problem, which is the problem of people living in areas especially subject to floods. In other words, if presumably the rates were regulated to some degree on location

Mr. BOLAND. It would almost take care of your zoning problem. Dr. NELSON. Yes. To a considerable degree it would, and it would take care of two problems at once, because your zoning cannot be perfect, as we have seen lately. In other words, all sorts of areas which were not considered dangerous went down the river, and flood insurance would give protection for that.

Mr. BOLAND. In your opinion would the adoption of the Hoover Commission recommendation in respect to flood control provide an adequate flood-control program for New England?

Dr. NELSON. It is hard for me to figure out what the recommendations are and therefore the answer is obvious that it would not. There is something in here about 50 percent benefits, which it is hard to believe.

Mr. BOLAND. You have read the task force report?

Dr. NELSON. Yes.

Mr. BOLAND. In conjunction with the recommendations of the Hoover Commission would you say there seems to be an attempt on the part of the Commission and the task force to get the Federal Government a little further away from flood-control appropriations? Dr. NELSON. I think that is a very mild statement of what is proposed.

Mr. BOLAND. I think you have given this committee a very excellent statement and one that should be considered by those who are responsible for an adequate flood-control program in New England. That includes those who have been injured by the floods and the chambers of commerce who seem to think that perhaps the Federal Government should not move in on flood control.

I congratulate you for the statement you have presented to this committee. Thank you.

Mr. JONES. I want to echo the sentiments of Mr. Boland. Thank you very much, Doctor.

Mr. Walter G. White, chairman of the New Hampshire Water Resources Board, representing Governor Dwinell, of New Hampshire. How are you, Mr. White?

STATEMENT OF WALTER G. WHITE, CHAIRMAN, NEW HAMPSHIRE WATER RESOURCES BOARD, REPRESENTING GOVERNOR DWINELL OF NEW HAMPSHIRE

Mr. WHITE. Pretty good, sir.

Mr. JONES. You know, in every court you are entitled to counsel. Since your name has been used, Mr. White, if you want to select counsel, you go right ahead.

Mr. WHITE. I appreciate that. I think I will get fair treatment in this court.

Mr. JONES. Will you be seated, please, sir?

Mr. WHITE. I might. I have been seated for 2 days. Perhaps I would like to stand a little bit.

Mr. JONES. You are welcome to stand.

Mr. WHITE. I do not want to give you any false impression. I have been sitting in the jury box, but not as the judge or the jury. My hearing is a little impaired and the acoustics of this hall are not too good, so I wanted to be sure that I could hear everything that was said.

I am here at the request of my Governor, Governor Dwinell, of New Hampshire. The request came rather late and I had other commitments that had to be discharged. I had no opportunity to prepare a statement that he could view and agree in, so probably what I say here today will have to be construed more or less as my opinion as to what I believe the State of New Hampshire desires.