STATEMENT OF THE COUNCIL OF ECONOMIC ADVISERS ON PUBLIC WORKS FUNCTIONS (Originally submitted to Senate Appropriations Subcommittee on General Government Matters, on June 19, 1961)

Under the previous administration, the Coordinator of Public Works Planning and his staff were a part of the White House Office and were paid from the Special Projects Fund available to the President. On January 23, 1961, President Kennedy transferred to the Bureau of the Budget and the Council of Economic Advisers the functions theretofore performed by the Coordinator. The President also transferred to the Budget Bureau the staff of the Office of the Coordinator and the funds budgeted for that Office. Subsequently, the Budget Bureau transferred to the Council the sum of $25,000 drawn from the funds budgeted for the Office of the Coordinator. However, none of the members of the Coordinator's staff were transferred to the Council.

In the Council's amended budget request for 1962, the public works functions acquired by transfer from the Coordinator's Office were lumped together with other functions in the area of natural resources studies which the President directed the Council to undertake in his message to Congress of February 23. For these two functions together, the Council budgeted an amount for salaries of approximatkely $49,000. It should be emphasized that the proposed functions in the field of natural resources studies, which the President assigned to the Council in his message of February 23, are functions quite different in nature from those previously performed in the public works field by the Office of the Coordinator for Public Works Planning.

The recent report of the House Appropriations Committee refers to the understanding "that the public works planning activities will remain in 'Special Projects.'" Pursuant to this understanding, the Council wishes to reduce its budget request to reflect the elimination of financial provision for public works studies. Of the $49,000 budgeted for work in the field of public works and natural resources studies, approximately 40 percent was intended for use in the public works area. Accordingly, we have reduced the sum requested for salaries by $20,000, and the sum requested for personnel benefits by $1,000.

5.

4. Apportionments (not applicable).

Total apportionments and reserves (not applicable).

13. Actual obligations last 3 months (not applicable).

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GENERAL STATEMENT

Mr. HELLER. First, I would like to summarize the request for the supplemental appropriation. We are respectfully requesting a supplemental appropriation of $177,000 for the Council of Economic Advisers. This sum would be used to add nine professional and four secretarial positions to the Council staff.

Mr. THOMAS. You have 31 jobs now and are seeking 13 more, a total of 44. Out of your 13 new ones, you have 9 professional and 4 clerical?

Mr. HELLER. That is right.

Mr. THOMAS. You had in your regular bill an appropriation of $414,000 and you want to increase it by this $177,000?

Mr. HELLER. Yes, sir.

Mr. THOMAS. What is the justification and the need for it?

Mr. HELLER. I would like to discuss that under three headings: first, the broader role and responsibility which the President has assigned to the Council; secondly, some of the specific problems——

Mr. THOMAS. He has given you an armful, has he not?

Mr. HELLER. We think so. We would be happy if you thought so,

too.

Mr. THOMAS. What about getting into this international business? That certainly is a man-sized job and a new job.

Mr. HELLER. It certainly is. Until convertibility of currencies developed in 1958 and until we ran a long and large deficit and began to lose gold, we were able to conduct our domestic policies pretty much as if we were a closed economy, without too much regard to the international financial and trade consequences. This is no longer possible.

BACKGROUND OF DR. HELLER

Mr. THOMAS. Doctor, before you get started too deeply, tell us something about yourself. What is your background, for the record? Mr. HELLER. My own background is partly academic, partly governmental. I got my doctorate at the University of Wisconsin back in 1941. I served 4 years with the U.S. Treasury, mostly on tax matters. I have been at the University of Minnesota since 1946 in the school of business administration there and was chairman of the department of economics in the school of business until I came down here last January.

There are two or three other points the committee might be interested in. I served with General Clay in military government in 1947 and 1948 during the Berlin crisis-not the last Berlin crisis, there is always a Berlin crisis but during the airlift-and at the time of the currency reform. I was here in Washington again in 1951 with the Treasury working on the Korean war tax program. I have frequently served as a consultant both to Government and to private business.

Mr. THOMAS. That is quite a distinguished record. How old are you, may I ask?

Mr. HELLER. 45.

Mr. THOMAS. I thought you were about my age, about 39. That is what you look like. That is splendid. You certainly have accomplished a whole lot in a few short years. Congratulations. Please excuse the interruption. Go ahead.

Mr. HELLER. I was going to discuss briefly under three headings our justification-the broader role and increased responsibilities the President has assigned us; secondly, some of the specific jobs we have been asked to take on; and thirdly, some specific illustrations of our Council activities.

I am sure you are aware of the regular duties of the Council in preparing the annual report and the Economic Indicators. We advise the President on employment, price stability, growth, etc. I thought maybe I should highlight some of the things that are not so self-evident.

ENLARGED ROLE OF THE COUNCIL

First, as to the enlarged role of the Council, the President stated at the time of my appointment in December

I expect the Council of Economic Advisers to take its place as a key element within the Presidential office. I believe we can make a major contribution to the successful organization of the Presidency and by revitalizing the Council we shall fill a major gap in the staff services of the President.

President Kennedy asked me—

to find ways and means of providing us with the best possible staff assistance and advice in major fields of economic and social policy with which the administration will be concerned.

Following up this conception of the Council, the President dropped the position of Special Assistant on Economic Problems in the White House, together with a part-time assistant and two secretaries. Also, he asked the Council to take on new responsibilities in such specific fields as the economics of defense and disarmament, natural resources, international economics, consumer problems, and methods of accelerating economic growth and stepping up research and technological advance in industry. He asked us also to develop close relations with the country's many private centers for policy and research in economic problems, though shortage of staff has severely limited our activities on this front so far.

As the President said in urging Congress to remove our $345,000 statutory ceiling,

The Council will be unable to discharge its duties without an increase in its personnel budget.

EXPANDED WORK IN RESEARCH AND DEVELOPMENT AND TECHNOLOGY

To provide the committee with a more concrete idea of the expanded work of the Council, it may be useful to indicate a few specifics from the list I mentioned a moment ago.

For example, the expanded work in research and development and technology: Here, in addition to keeping tabs on expanding private research and development efforts and their impact on the economy, we are active participants in the Panel on Civilian Technology chaired by the President's science adviser, Dr. Weisner. This group is seeking ways and means of accelerating research in laggard areas of the economy. For example, it asks such questions as: Why is it that in textiles only about 1 percent of total receipts are spent on research as against some other industries that go as high as 25 percent?

LACK OF RESEARCH BY THE RAILROADS

Mr. THOMAS. What do the railroads spend?

Mr. HELLER. That is a good question to which I do not have an answer offhand.

Mr. GORDON. I would guess that they come pretty close to the bottom of the list in percentage.

Mr. THOMAS. If you will forgive the interruption, our very capable and distinguished friend, whom we all know and respect, Dr. Bronk, down at the National Academy, is in here quite often. The doctor made no bones about it. He stated for the record that one of the prime reasons the railroads were in such bad shape is that for the last 25 or 30 years they have not spent any money on research. The antithesis of that situation was A.T. & T., who spent millions on research in the last 25 or 30 years, and they are at the top of the heap and the railroads are perhaps near the bottom of the heap.

Mr. HELLER. This is a source of serious concern to the President. He is asking a combination of scientific and economic advisers to work on this problem to see whether there are ways and means of stepping up research in these areas without the Government taking over but with the Government playing a stimulative role.

Mr. THOMAS. In order for Dr. Weisner's committee to properly function, then, you would say most of the spadework will have to be done by the Council of Economic Advisers; is that right?

Mr. HELLER. Quite a bit. For example, we have just prepared a couple of analyses, one entitled, "Our Existing Industrial Research and Development Effort," and another one, "Research and Development as Related to the Problem of Unemployment." There are background papers for this panel to work on.

FUNCTION IN THE INTERNATIONAL AREA

THE GOLD PROBLEM

Mr. THOMAS. Detail some of your new functions in contradistinction of the old function that the Council has been carrying out since 1946. What is your international business?

Mr. HELLER. I indicated a moment ago our work here has been greatly intensified by the fact that we are now an open economy, and that we have to adjust domestic policy so that we bring our balance of payments back into a better position in order that we do not lose gold at the rate we were losing it in the past 2 or 3 years.

I think it is fair to say the Council is the only agency where all the different factors that bear on this problem come into focus.

Mr. THOMAS. What can we do to stop this flight of gold?

Mr. HELLER. Several things, Mr. Chairman. For example, the way monetary policy-interest rates, et cetera-is managed will have a very substantial influence on the gold outflow. You have noticed in this recession that the short-term interest rate was never permitted to drop below 2 percent, whereas, in the 1958 recession it dropped to five-eighths of 1 percent. This was in large part done so that shortterm funds-hot money, if you will-would not move out to take advantage of higher interest rates in other countries.

Mr. THOMAS. What part of the volume of money in circulation goes into short-term as against long-term paper?

Mr. HELLER. It is a good question. I do not know whether Mr. Tobin has a better approximation than I.

Mr. THOMAS. What you are doing in interest rates is to try to so adjust as to make investments most attractive here at home rather than going overseas?

Mr. HELLER. Exactly.

Mr. THOMAS. The tendency is to keep the interest rate higher in the United States, is it not?

Mr. TOBIN. What has been tried is to keep the short-term interest rate high. There is $11.5 billion roughly of official short-term balances in dollars held against the United States, and then an additional $7 billion in the short-term private balances held by foreigners which could be directly or indirectly converted into gold.

In addition, our own citizens could any time they please, in this world of convertibility, shift their money to Frankfurt or London or Zurich and put more dollars in the hands of foreign central banks, which can in turn, if they wish to, use the dollars to acquire gold.

In order to keep the incentive for both foreigners and Americans to hold short-term funds in the United States, the short-term rate has been held not very high but in the neighborhood of between 2 and 212 percent for the last year, whereas there has been some effort to push longer term rates down or at least to hold them steady during the recent upswing of business activity.

Mr. THOMAS. What has foreign trade got to do with the situation? Mr. JENSEN. Mr. Chairman.

Mr. THOMAS. Mr. Jensen.

Mr. JENSEN. Mr. Chairman and gentlemen, there is always a cause for every disease. The cause for the flight of gold from Fort Knox has, in my opinion, been brought about by the fact that too many people, too many nations abroad, have lost confidence in the stability of the American dollar. Hence, when they sell us goods, they have been demanding gold instead of dollars.

That condition has been brought about by the fact that we in the United States of America have been spending the taxpayer's dollar like drunken billionaires to the end that we now have a Federal debt that is about to break through the $300 billion mark, and how can we expect people in foreign countries to have faith in the American dollar? Of course, we cannot.

So let me say this. Bob Anderson, when he was Secretary of the Treasury, was brought before the full Committee on Appropriations last year, he and the Budget Director, to explain to the committee just what the fiscal situation was at that time. Bob Anderson had been abroad and had tried to get these other nations to help us out more in foreign aid. I don't think his mission accomplished too much.

I asked Bob Anderson that day if it was not more important than anything else to stop spending our taxpayers' dollars for everything that was not absolutely necessary. His answer in fact was, yes, that was very important.

Now, you gentlemen and every economist in America can work 24 hours a day for 24 years on all of these reasons why our gold takes flight and when you get all through making the study, you will find out one basic fact, and that is that until we stop spending money