with perfect efficiency. In any case, it should be remembered that some output— however small-is better than no output. And no output is what we get with our current system of high unemployment and millions of people who would like to work but are forced to be idle.

The income flows produced by HR 50 have several desirable effects. They obviously alleviate the private problems of millions of individuals who are out of work, but they also serve as a source of fiscal stimulus to increase the production of the rest of economy. While the exact effects depend upon wage levels that are to be paid, every dollar spent in the public part of the program will basically generate two dollars worth of private job opportunities. HR 50 would also serve as a mechanism for substantially improving the minimum wage law. While most estimates indicate that the number of people unemployed by the minimum wage laws is small, HR 50 would bring this number to zero. Whatever the effects of minimum wages on private employment, they would be offset in public employment. As a result the minimum wage legislation that is now in place would become more effective as a result of HR 50.

STATEMENT OF LESTER C. THUROW, PROFESSOR OF ECONOMICS AND MANAGEMENT, MASSACHUSETTS INSTITUTE OF TECHNOLOGY, CAMBRIDGE, MASS.

Mr. THUROW. I have submitted my testimony. I will briefly sum

marize it.

In looking at H.R. 50 before you look at the economic effects you want to look at essentially an ethical or a moral problem. As I look at our society it seems to me that it is definitely a work ethic society in that we tell each other that the only legitimate way to earn income is through work. If you say that the only legitimate way to earn income is through work it seems to me that you have a moral responsibility to essentially provide that work.

It is a little like saying that if you are ethical you have to go to church. Then they lock the church door and don't let anybody in. If we are going to say that it is only ethical to earn income through work then we have got to provide general work for anybody who wants it. I think the real argument for this bill is really an ethical argument. On the other hand I think there would be some good economic effects

too.

The objections that people make to a bill like this are basically misplaced. One objection to a full employment bill is that we wouldn't be able to control inflation as well or as poorly as we do now. It seems to me this is just a misstatement if you want to recreate the great depression you can stop prices from rising but at an enormous cost. The best example is the automobile industry. Automobile prices did go down. The only problem is you had unemployment of 50 percent in the industry before the price actually came down. You have to tolerate a large amount of unemployment to get a very small impact on inflation. This bill would take a certain ability away from policymakers, the ability to create recessions. But I regard that as a good thing and not a bad thing.

It would force us to do a little more forward planning. If you look at the inflation that actually occurred in 1973 and 1974 a lot of it occurred in the materials industry because these industries had gotten to 100 percent of capacity while the rest of the economy was still down around 80 percent of capacity.

possible for everybody to live up to our ethical principles. Most of the unemployed want to earn their income in an ethical way through work, but there is no work to be had. The situation is basically similar to saying that one must go to church to be ethical but then locking the church doors. As a result, I regard H.R. 50 as integral and absolutely necessary to allow our society to live up to the ethical principles which it preaches. I would argue that H.R. 50, or something like it, should be passed or we should give up our moralizing about the virtues of earning income through work.

The economic impacts of H.R. 50 flow from three factors. First, those put back to work under the bill will produce goods and services that are not now being produced. This will lead to a rise in the real standard of living of every American family not just those put back to work under its provisions. Second, the extra incomes earned by those who are put to work will serve as an extra source of demand for those goods and services that are now being produced. This will raise private employment and the income of those now working in the private sector. Third, government policy planners will have to fight inflation with policies other than a general recession or depression.

Since inflationary worries are at the heart of many of the objectives to guaranteed work bills, let me focus my comments on that issue first. There is no doubt that if you are willing to create a large enough recession or depression you can retard the rate of price increase. The only problem is that a very large recession or depression seems to be necessary to reduce the rate of inflation by even small amounts. The auto industry is a perfect example of the problem. Prices were cut, but only when a very large fraction of the industry was unemployed. The basic question is whether the gain in terms of a little less inflation was worth the huge cost in terms of output foregone and families without earnings. If you just look at the simple dollar benefits the costs clearly exceed the benefits by a large margin. This is especially true when you are dealing with a commodity inflation, the current problem, rather than a general problem of excess demand. Cutting demand cannot affect prices in the area where they are going up, it can only reduce the rate of inflation by forcing prices to fall in other areas that are affected by the reductions in demand. As a result huge increases in unemployment are necessary to gain very small improvements in the rate of inflation. Thus, economic analysis would not support recessions as a cost-effective way of controlling inflation. I would argue that stripping economic policymakers of their ability to create recessions is a desirable property of HR 50 and not an undesirable property. They simply must be forced to find a more effective way of controlling inflation.

To some extent HR 50 would aid in this task since economic policymakers would be forced to look more carefully at the balance between demand and supply of not only labor but materials. Had such planning existed in the past we might have been able to avoid some of the inflation in industrial supplies that occurred in 1973 and 1974. Some industries were at capacity operations while the rest of the economy was operating far below capacity without economic policymakers being aware of the problem until it was too late to do anything about it. The planning necessary to implement HR 50 would have made this surprise impossible.

Guaranteed jobs are often opposed on the grounds that they are 'make work' rather than 'real work.' Several economic comments should be made about this argument. First there is abundant evidence that there are many jobs that could be usefully done in our society that are not now being done. Anyone with eyesight and common sense can quickly name numerous such possibilities, but the President's Automation Commission also more formally discovered millions of such jobs in its report in the mid-1960s. Nothing that has happened since then would lead anyone to believe that any of these jobs have disappeared in the last decade. Second, even if the 'make work' charge were true the correct answer is 'so what?' 'Make work' is better than 'no work'. WPA leaf raking is often mentioned as a bad example of what a guaranteed job program would turn into. This ignores all of the very productive projects that the WPA did undertake (based on my walks around various towns and cities, I sometimes think that no one would have sidewalks without the WPA). It is also subject to the rejoiner, "If leaf raking is so stupid why does every suburbanite do it."

I would also remind you that the simple fact that our economy does not now do these jobs does not mean that they are inherently low productivity jobs. The jobs that are done depend upon the initial distribution of income or economic resources. If you start with a mal-distribution of economic resources you are going to get a mal-distribution of job opportunities even if your economy works

with perfect efficiency. In any case, it should be remembered that some outputhowever small-is better than no output. And no output is what we get with our current system of high unemployment and millions of people who would like to work but are forced to be idle.

The income flows produced by HR 50 have several desirable effects. They obviously alleviate the private problems of millions of individuals who are out of work, but they also serve as a source of fiscal stimulus to increase the production of the rest of economy. While the exact effects depend upon wage levels that are to be paid, every dollar spent in the public part of the program will basically generate two dollars worth of private job opportunities. HR 50 would also serve as a mechanism for substantially improving the minimum wage law. While most estimates indicate that the number of people unemployed by the minimum wage laws is small, HR 50 would bring this number to zero. Whatever the effects of minimum wages on private employment, they would be offset in public employment. As a result the minimum wage legislation that is now in place would become more effective as a result of HR 50.

STATEMENT OF LESTER C. THUROW, PROFESSOR OF ECONOMICS AND MANAGEMENT, MASSACHUSETTS INSTITUTE OF TECHNOLOGY, CAMBRIDGE, MASS.

Mr. THUROW. I have submitted my testimony. I will briefly summarize it.

In looking at H.R. 50 before you look at the economic effects you want to look at essentially an ethical or a moral problem. As I look at our society it seems to me that it is definitely a work ethic society in that we tell each other that the only legitimate way to earn income is through work. If you say that the only legitimate way to earn income is through work it seems to me that have a moral responsibility to essentially provide that work.

you

It is a little like saying that if you are ethical you have to go to church. Then they lock the church door and don't let anybody in. If we are going to say that it is only ethical to earn income through work then we have got to provide general work for anybody who wants it. I think the real argument for this bill is really an ethical argument. On the other hand I think there would be some good economic effects

too.

The objections that people make to a bill like this are basically misplaced. One objection to a full employment bill is that we wouldn't be able to control inflation as well or as poorly as we do now. It seems to me this is just a misstatement if you want to recreate the great depression you can stop prices from rising but at an enormous cost. The best example is the automobile industry. Automobile prices did go down. The only problem is you had unemployment of 50 percent in the industry before the price actually came down. You have to tolerate a large amount of unemployment to get a very small impact on inflation. This bill would take a certain ability away from policymakers, the ability to create recessions. But I regard that as a good thing and not a bad thing.

It would force us to do a little more forward planning. If you look at the inflation that actually occurred in 1973 and 1974 a lot of it occurred in the materials industry because these industries had gotten to 100 percent of capacity while the rest of the economy was still down around 80 percent of capacity.

That came as a surprise to policymakers. But I would be willing to venture that if they had been under a mandate to plan for full employment they would have had to plan for full employment in the materials sense and wouldn't have gotten us into the crunch of 1973 and 1974 for materials.

Another objection to it is that these jobs would be "make work" and not "real work." All you have to do is look around you. You see lots of useful jobs that could be done. In the 1960's the President's Automation discovered millions of such jobs that could be done.

Anyway, "make work" is better than "no work." People always come back to WPA leaf raking. Sometimes when I walk around cities I think there wouldn't be any sidewalks if it weren't for WPA. If leaf raking is so stupid, why does every suburbanite do it? The answer is that it may not be the most productive thing in the world. But it does have certain good effects. That is why most of us do it sooner or later.

They say guaranteed jobs won't be productive jobs. If you start with a maldistribution of economic resources you are going to have a maldistribution of jobs. Just because a job is instrinsically a lowproductivity job doesn't mean it can't be useful.

This would substantially improve the minimum wage law. It would do away with the argument about how many people are unemployed as a result of minimum wages. With a bill like this that number is zero. I think the big problem with this bill as it now stands is that the mechanism for bringing these jobs about in terms of appropriations isn't adequately spelled out. It is easy to imagine passing the bill and then doing nothing to implement it.

Mr. HAWKINS. Thank you, Professor Thurow.

We will go to the next witness now, Prof. Barry Bluestone from Boston College.

[Prepared statement of Barry Bluestone and Bennett Harrison follows:]

PREPARED STATEMENT OF BARRY BLUESTONE AND BENNETT HARRISON

Abstract

1. H.R. 50 commits the federal government to the principle of full employment as a right of citizenship. We agree.

2. It mandates a federal capacity to forecast private and non-federal public employment growth, analyze the impact of alternative federal budgets, and "fold in" the proposals of local planning councils, to arrive at an estimate of total U.S. employment which can be matched against labor force forecasts to arrive at a predicted unemployment rate. The budget level and mix, and the grants to the planning councils, can then be adjusted to lower that unemployment rate. In our opinions, this use of the federal budget as an explicit instrument of employment policy is both feasible and highly desirable.

3. It "beefs up" and integrates the government's job placement and unemployment insurance functions. This we find to be among the bill's weakest and least well-thought-out parts.

4. Statement of principle ("a job is a right of citizenship") and the endorsement of the use of the federal budget as a tool for economic/employment planning are fine, as far as they go, but they do not constitute a system for implementing a full employment program: for actually "fueling" those federal budgets and providing capital to the local councils. On this score, the bill has three major deficiencies:

(a) it is addressed mainly toward cyclical "last-resort” unemployment, when the long-term structural underemployment problem is at least as serious.

with perfect efficiency. In any case, it should be remembered that some outputhowever small-is better than no output. And no output is what we get with our current system of high unemployment and millions of people who would like to work but are forced to be idle.

The income flows produced by HR 50 have several desirable effects. They obviously alleviate the private problems of millions of individuals who are out of work, but they also serve as a source of fiscal stimulus to increase the production of the rest of economy. While the exact effects depend upon wage levels that are to be paid, every dollar spent in the public part of the program will basically generate two dollars worth of private job opportunities. HR 50 would also serve as a mechanism for substantially improving the minimum wage law. While most estimates indicate that the number of people unemployed by the minimum wage laws is small, HR 50 would bring this number to zero. Whatever the effects of minimum wages on private employment, they would be offset in public employment. As a result the minimum wage legislation that is now in place would become more effective as a result of HR 50.

STATEMENT OF LESTER C. THUROW, PROFESSOR OF ECONOMICS AND MANAGEMENT, MASSACHUSETTS INSTITUTE OF TECHNOLOGY, CAMBRIDGE, MASS.

Mr. THUROW. I have submitted my testimony. I will briefly summarize it.

In looking at H.R. 50 before you look at the economic effects you want to look at essentially an ethical or a moral problem. As I look at our society it seems to me that it is definitely a work ethic society in that we tell each other that the only legitimate way to earn income is through work. If you say that the only legitimate way to earn income is through work it seems to me that you have a moral responsibility to essentially provide that work.

It is a little like saying that if you are ethical you have to go to church. Then they lock the church door and don't let anybody in. If we are going to say that it is only ethical to earn income through work then we have got to provide general work for anybody who wants it. I think the real argument for this bill is really an ethical argument. On the other hand I think there would be some good economic effects too.

The objections that people make to a bill like this are basically misplaced. One objection to a full employment bill is that we wouldn't be able to control inflation as well or as poorly as we do now. It seems to me this is just a misstatement if you want to recreate the great depression you can stop prices from rising but at an enormous cost. The best example is the automobile industry. Automobile prices did go down. The only problem is you had unemployment of 50 percent in the industry before the price actually came down. You have to tolerate a large amount of unemployment to get a very small impact on inflation. This bill would take a certain ability away from policymakers, the ability to create recessions. But I regard that as a good thing and not a bad thing.

It would force us to do a little more forward planning. If you look at the inflation that actually occurred in 1973 and 1974 a lot of it occurred in the materials industry because these industries had gotten to 100 percent of capacity while the rest of the economy was still down around 80 percent of capacity.