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After all this they found out they could produce, through proper land conservation methods and through fertilization, to the hilt. Mr. HELLER. Not to mention hybrid corn.

Mr. JENSEN. Hybrid corn and hybrid wheat. Now their production per man in the last 20 years has increased something over 22

times.

Mr. GORDON. If we had a rate of increase of productivity in manufacturing anywhere close to what we have had in agriculture, our international economic position would be a good deal stronger than it is today.

Mr. JONAS. I don't know that your conclusion necessarily follows. If you have an increase in productivity you have to sell the stuff, do you not?

Mr. GORDON. I was thinking of the effect on our international economic position, where we have had a problem in many branches of manufacturing of U.S. export prices going up more rapidly than the similar prices of exports of other countries.

For example, the chairman mentioned the case of Germany. Recently German wages have been going up faster than U.S. wages. The difference is that the rate of productivity has gone up so much more rapidly that they have been able to absorb the wage increases into a stable price structure.

Mr. JONAS. You are forgetting they started from a much lower base than we did.

Mr. GORDON. They did.

Mr. JONAS. Even with the increased labor cost they are better off. Mr. TOBIN. Their wages are rising much faster now. What you mentioned is happening in continental Europe. They are taking out their productivity gains in higher standards of living and higher

wages.

Mr. JONAS. But that is happening in countries where the living standards are already high. I was talking about low-standard-ofliving countries, outside of Western Europe.

Mr. TOBIN. It is happening in Japan, too.

DEFENSE AND DISARMAMENT ECONOMICS

Mr. JONAS. I had a question, Dr. Heller, on your section concerning defense and disarmament economics. Of course, we have worried about that problem for several years. What will happen to the economy of this country if you did become fortunate enough to have a decade of no tensions and no cold wars? I think we should be doing some planning and studying of that problem.

However, in view of very recent events it would seem to be not quite as important right now. I see nothing of that sort in the offing in view of the President's speech the other night and his messages asking for increased defense spending. I see nothing in the foreseeable future to indicate we will have that problem to face; do you? I wish I were wrong about that.

Mr. HELLER. You will notice the title is "Defense and Disarmament." We are trying to cover both fronts on this score.

Actually the analysis of what happens to the economy when you gear up the Defense Establishment and what happens to the economy

when you wind down the Defense Establishment have a great deal in common. Much of the analysis of impacts on different industries, different regions, and different States, is similar for these two problems. That is why the two are brought together.

Mr. JONAS. With a prospective increase in defense spending of $4 to $5 billion a year we should worry about whether we can keep inflation from running wild rather than worrying so much about unemployment. I think that will take care of itself.

Mr. HELLER. Mr. Jonas, if I may go off the record a moment and address myself to this question.

(Discussion off the record.)

Mr. HELLER. In connection with the staff work underlving the decisions made on the Berlin military buildup, the Council was asked to make exhaustive analyses of what the impact on the domestic economy would be of the various levels of military capability buildups which might be undertaken.

In that connection we examined the experience in 1950, at the time of the Korean conflict, and compared that with the state of the economy and the possible demands on the economy in 1961 in connection with the Berlin crisis.

This effort drew on virtually our entire staff. It was a very intensive effort. We examined the price, wage, and production controls in 1950-51. We certainly want to avoid direct controls, but we wanted the President to be briefed on the possibilities which might develop if the program were a good deal bigger than it turned out to be.

We examined the various monetary and fiscal actions taken in 195051 and compared the situation then with the potential situation now. We examined manpower supplies of 1950 and 1951, in comparison with the situation today.

Then we examined the impact by economic sectors of both the Korean conflict and of the demands which might be made on the economy today by a mobilization effort.

All of this was designed to keep our powder dry on the economic front for various military developments that might occur.

It so happened that the judgment on the military side was that a program very much at the lower end of the range was sufficient to meet the needs at the present time, and as a consequence some of the more drastic measures to maintain price stability, and so forth, which had to be examined in a full-scale investigation, did not have to be invoked.

Mr. JONAS. Is it your conviction that we can maintain price stability and not have any more inflation with the additional billions requested for defense and civilian activities? Do you predict we can hold the line on prices?

Mr. HELLER. Barring developments in the military situation which might touch off scare-buying, the current prospects on holding the line on prices in the months ahead are excellent. We have a record so far this year of highly stable prices, lesser wage increases than we have had in other periods, a highly competitive situation, and a lot of slack in the economy.

Mr. JONAS. That is natural when you are coming out of a recession, is it not?

Mr. HELLER. It is, but the productive capacity of the economy is great enough so that we have a very substantial amount of unused capacity in industry almost across the board, and the unemployment level has hung at about 7 percent of the labor force in the last 8 months.

ADDITIONAL DEFENSE SPENDING AND COST OF LIVING

Mr. JONAS. I would not expect to hold you to it and do not want a firm prediction, but I was anxious to hear you say that it is your considered judgment we can spend these additional billions without having a corresponding increase in cost of living.

Mr. THOMAS. Tie it down with definite figures.

Mr. JONAS. We had an add-on right here the other day of a half billion dollars in space.

Mr. THOMAS. Start with the $5 billion figure and go up to $10 and $15 billion.

Mr. JONAS. Considering the present spending programs which have been authorized by Congress, or those programs which are now pending, including increases for space, defense, and all the other programs, and assuming that they will amount to an increase in spending in this fiscal year of $5 billion, you said you think the economy can absorb that, or ride with it, without an increase in the cost of living?

Mr. HELLER. Sir, let me just say on that that we were working with actual fiscal 1962 expenditures of $2.7 billion under the proposed Berlin military buildup. As far as other new programs are concerned, the total increase might round off to $3 to $32 billion of actual expenditures for the year.

Thus far our studies and our advice in this field have been limited to a program of that magnitude. We feel that the economy has enough give to accommodate that kind of a program without inflation during this fiscal year.

Mr. JONAS. What if the increase in spending should be $10 billion? Mr. HELLER. I think the increase in spending of that size would definitely require countermeasures if we were to avoid an impact. This is on the assumption, Mr. Jonas, that it would all be spent in the fiscal year 1962.

Mr. JONAS. How much additional spending do you think we could make without requiring, as you say, countermeasures in order to control prices?

Mr. HELLER. That is a very difficult thing to pin down. So much depends on the speed of recovery from private sources of demand.

As things look now I think one could have had a somewhat larger program without any substantially increased danger of inflation. I hate to pin it down to a specific figure.

Mr. JONAS. Would you be in a position to use a figure as a breaking point, somewhere between $4 billion and $10 billion? What would you say it would be?

Mr. HELLER. The chairman said earlier that he found my predecessors rather unwilling to get very specific about some of these questions. I do not mean to evade your question. I certainly think that somewhere in that range, between 4 and 10, you would find a point where you would have to take countermeasures.

When I say countermeasures I do not, except as a last resort, mean direct controls over prices and wages. I mean a tighter monetary policy and a tighter fiscal policy.

Mr. JENSEN. Higher taxes?
Mr. HELLER. That is right.

Higher taxes to offset the impact of spending. Of course, the very last thing we want would be direct controls over the economy.

Mr. JONAS. I have one other question of a specific nature about this defense and disarmament section.

ADVISORY COMMITTEE TO THE SECRETARY OF DEFENSE

You say that the President has directed the establishment of an advisory committee to the Secretary of Defense, on which you serve, to deal with this problem. Will that committee have a staff or does it serve purely ex officio?

Mr. HELLER. Each of the principals on the Committee designates members of his staff to sit on the Committee and work out some of the specific problems that are involved.

Mr. JONAS. You mean it is not contemplated that the Committee itself will have a staff?

Mr. HELLER. Not a separate staff, no, sir.

Mr. JONAS. Members of the Committee will designate members of their own staffs to do this work?

Mr. HELLER. That is correct, sir.

Mr. JONAS. Will that be the extent of the activity of the economist you want to put in this section?

Mr. HELLER. This was an illustration of a whole range of activities in this area. The example I gave was another phase of this activity. We also are participating in a committee with Mr. McCloy and his agency on the questions of disarmament. The same man is serving on both of these groups.

NEW SECTION FOR PLANNING ON UTILIZATION OF NATURAL RESOURCES

Mr. JONAS. How will the new section on natural resources differ from the work performed by the coordinator of public works functions?

Mr. HELLER. Sir, the work done in General Bragdon's or Mr. Peterson's staff in the White House concerned itself very directly and specifically with public works, and within the field of public works concentrated very heavily on the highway sector. They did not deal with the broad area of natural resources but only with the public works aspect of it.

Mr. JONAS. Could they not deal with this broad field if they were told to?

Mr. HELLER. If the President directed that group, or any other group in the White House, to deal with that subject, yes, sir; they

could.

Mr. JONAS. The President has not eliminated the special projects office. He has merely transferred it to the Bureau of the Budget. Now you want to set up a new division for it which will be over and above the section which has been transferred to the Bureau of the Budget. Is that correct?

Mr. HELLER. Sir, we submitted a separate statement which I believe is part of the submission here.

Mr. JONAS. That is the document from which I am reading.

Mr. HELLER. On the public works functions?

Mr. JONAS. Yes. You made that statement to the Senate committee. Mr. HELLER. In that statement, we explain that the special projects work was concentrated, as I mentioned a while ago, on the public works function, and that this did not include the natural resources function, which is a study over the longer run of the requirements in the natural resources field and the supplies of natural resources. This is a separate function.

Because of the fact that the Congress judged it desirable to maintain this special projects staff on public works in the President's White House appropriation, we adjusted our additional request downward by $21,000. This was the amount we had budgeted for work in the public works field. In other words, since public works are being put back into the special projects staff we took it out of our budget request.

Mr. JONAS. I do not want to belabor this, but I do not see any real difference between public works planning and planning for the utilization of natural resources.

Mr. HELLER. May I ask Mr. Gordon to comment on that.

Mr. GORDON. I think I draw the distinction this way: General Bragdon's office, as Dr. Heller has pointed out, focused quite sharply on public works activity. In addition to studying and advising on the highway program, a large part of their effort was devoted to maintaining a current inventory of public works projects, both on the Federal and State and local levels for many years ahead. This is an effort to bring together in one place knowledge about the status of public works projects, the cost, time to completion, et cetera.

What we regard essentially as the natural resources function is the development of long-range estimates of likely supplies of natural resources, for instance the whole range of minerals, as against what we would regard as the demands for these natural resources brought about by economic growth. In other words, we regard that as an aspect of the economic growth problem, essentially trying to ascertain whether there will be adequate supplies of natural resources to meet the demands of the growing economy.

Mr. JONAS. Do we not already know what our resources in, for example, oil are?

Mr. GORDON. The last comprehensive study of our future needs for mineral resources, that is, estimates of need against future supply, was made by the President's Materials Policy Commission, headed by Mr. Paley, which I think completed its report in 1952. Nothing has been done to keep this up to date.

In our work in this field we obviously would not seek to do the research ourselves. Clearly the material, the data, which will have to be pulled together for this appraisal must come from Agriculture, from Interior, from HEW, and so forth. So we regard our role essentially as laying out the project, guiding it, supervising it, and depending on the people in the agencies for the specialized material they have available.

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