these industries first. There is a problem with construction, also which I will mention in a minute.

A second major error in the administration has been to indicate to business and labor in the administered price area, where there is no price competition, such as steel, cement, automobiles, oil and so on, that they can go into the marketplace and get whatever amount is available for their services and for their product and the administration will not require them to stay within economic guidelines that match price increases to increases in production.

Now, that is the so-called jawboning. I think many people do not understand the effect or the power of the Presidency in the area of administering prices, such as steel, to say, "We expect you and the public expects you to stay within growth of production." This is effective in the administered price area. When this is taken away, you get the pressure on prices and also on major labor unions who are operating in this field, who are under intense pressure then by their membership to go out and get what they can. Since the whole level of prices in an industry will rise together, you get a rotating effect of that increase in prices, then an increase in demand for increased wages with both being tacked onto the ultimate price to the consumer, which, in turn, feeds back to the men who are buying the automobiles and they then want an increase in wages and then there occurs increase in prices.

This doesn't always happen in the nonadministered field, but in the administered price field where everybody can raise their prices the same amount at the same time, then the prices going up will follow as night follows day.

For example, the steel producers all raise their prices together. The consumers must pay this price and the consumer of the basic product, who is producing something else, in this case, an automobile manufacturer, will find his costs for his materials are rising. He will then have to raise his prices to meet this cost. Thus you can see how the pressure stays on.

Even when you have people in the nonadministered field, you can have these people caught in the backwash of this surge and they will have to raise their prices, too, because if a producer is making a toaster and the price of steel goes up, he must raise the price of his toaster.

Now, since all of his competitors pay the same price for steel, they will also raise their prices and thus the spiral of inflation continues to go up. No more production takes place, and the price going up will reduce the demand, all right, but it does not lower prices.

The effect of the administration's policy has been devastating to the Seattle district which I represent. Recently Seattle, as well as King and Snohomish Counties, which are the metropolitan counties that surround it, have been declared economically depressed areas by the U.S. Department of Commerce.

We were in a depressed area in the first part of the 1960's, and then we had an economic upswing until 1969. Now, we are back where we were before. Our rate of unemployment is running over 7 percent and going up.

In the construction industry, I was told as of yesterday, our unemployment rate is 40 percent in the building trades.

The construction industry of our area and of the United States as a whole has come to a near halt which, in turn, has affected the

lumber industry. The sale of airplanes has taken a sharp decline, because airlines cannot borrow money to purchase them. This caused Boeing's employment figure to drop 11,000 in 1969; all this production is in the commercial field. The expectation is there will be a loss of another 18,000 jobs in 1970.

The manufacture and sale of maritime equipment has dropped. What we are feeling is a recession, not the threat of one.

The President has indicated an interest in reversing the highinterest rate policy. He recently released Federal matching funds to encourage States and localities to proceed with federally assisted construction. Only a few weeks ago he vetoed the HEW bill, claiming it was inflationary. This bill would have also included funds for construction. Let's face it, they are either both inflationary or both are deflationary.

At the same time that he released money for construction, he did not attempt to give direction to the Federal Reserve Board's Open Market Committee, which establishes monetary policy, to change the supply of

money.

Through this House concurrent resolution, it is our intention to express the opposition of Congress to a high-interest rate policy. A strong statement by Congress in support of this resolution would indicate to the President that we support him in his attempts to reverse this policy.

We ask that this committee pass this resolution and that it be brought to the floor of the House for consideration and passage.

The need for action is immediate and urgent. Extended periods of high interest rates have traditionally resulted in recessions, as witnessed in 1950's. A recession is already occurring in the Pacific Northwest; it is now spreading throughout the rest of the country and I would ask the committee to carefully examine the reports for the first quarter of 1970. I think you will find that even the classic economic definition will indicate a recession is present in the country.

In my opinion the Nixon administration had better begin dealing in a sophisticated way with this sophisticated economy and stop making simple phrases about inflation, or our present recession will deepen into a depression.

Thank you, Mr. Chairman.

Chairman PATMAN. And thank you, Mr. Adams.

Mr. Van Deerlin, you may come around and take a chair, and Mr. Gibbons, you are recognized at this time. After we hear those who want to make statements and we are trying to keep the statements down to about 4 minutes, if we can then the members of the committee will interrogate you.

STATEMENT OF HON. SAM GIBBONS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF FLORIDA

Mr. GIBBONS. Mr. Chairman, that suits my format, because I want to talk with the committee about the economic policy that the Nixon administration has foisted on the public.

Either those who are the authors of the high-interest policy fail to understand our economic system and our tax system, or else this is the biggest fraud that has ever been passed off on the American public. Let me illustrate. This system of high interest rates plays right into

the hands of those who have the highest income, who have the greatest amount of economic resources, and the greatest amount of wealth, and it most penalizes those who have struggling businesses or have small businesses.

If a businessman finds himself in the 70-percent tax bracket, then 70 cents out of every dollar that he borrows is deductible from his income tax; 70 percent of all the interest he pays is deductible from his income tax, and therefore he only has to pass on to the consumer a smaller proportion of the economic cost of his product than does a person who is in a lower tax bracket.

Therefore, the person who is making a higher amount of income finds it easier to borrow money, and if you think of borrowing money and high interest rates as a method of rationing money, this system gives the biggest ration of money to those who have the least need for it and deprives most of those who have the most need for it.

It sets the highest price interest on the people who have the greatest need for money, and the lowest price interest on those who have the least need for money.

The average American corporation, big corporation, making a fine profit, will find itself in a 50-percent tax bracket. Half of the money that it borrows-half of the cost of its borrowing money can be written off and Uncle Sam pays the cost of it, in a deduction from its income taxes. But take a small corporate business, struggling along or having a tough time with its product, it probably can only deduct in the 26-percent bracket. If it has a tough year with no profit and really needs to borrow money to get along, it can't deduct any of its interest cost from its tax, and therefore it pays the whole tax on the whole interest cost rather than being able to pass it back to the Government.

So, the high interest policies, coupled with our income tax system are counterproductive to building a small business; they are counterproductive to all our economic enterprises; and they are penalizing those who most need help and are helping those who least need it.

The same, of course, is true for the young person trying to buy a home. That young person generally has so little income that he takes the standard deduction and gets no benefit at all from his interest payments on his mortgage loan; but a person with a very high income tax can deduct as much as 70 percent of that interest cost from his income tax and, in effect, get the Government or the taxpayers to pay his interest cost, and that's the kind of counterproductive cycle we're in.

I think all of you will remember last year we were talking about those 154 taxpayers who had incomes of more than $200,000 in 1967 and paid no income tax; and you perhaps wondered how they got out of all taxes.

Last year in the Ways and Means Committee when we looked at these people's income tax we found that the greatest reason for their not paying income tax was the high interest deductions. They took full advantage of this outline that I have just talked to you about, of being able to reduce their income tax by writing off their interest costs, and in fact, 74 of those 154 taxpayers were able to reduce their tax to zero because they made maximum use of being able to write off interest cost. Again, in 1968 various individual taxpayers were able collectively to deduct $18.5 billion in interest as deductions from their income tax;

and in 1966, the last year we have figures for, corporations deducted $31.3 billion in interest from their taxes.

Now, this high interest philosophy is just making the rich richer and the poor poorer, as the American economy goes along. It is motivation by which corporate mergers are put over, because the interest is all deductible from your income tax and that is the reason why we are in the mess we are in.

Now, I will repeat, as I said in the beginning, either the people who dreamed up this way of rationing capital and rationing interest costs didn't understand the American economic system or they foisted on us the worst kind of deal imaginable.

Chairman PATMAN. Thank you, Mr. Gibbons.

(The prepared statement of Mr. Gibbons follows:)

PREPARED STATEMENT OF HON. SAM GIBBONS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF FLORIDA

You gentlemen, who spend most of your time in this committee on fiscal matters of great complexity and equally great importance, know much more than most of us in the Congress about interest rates.

Yet, both as a member of the Ways and Means Committee and as a congressman, I felt compelled to appear here and speak briefly my own notions about the problem.

It needs no economic analysis to know that we are suffering from the highest interest rates in 100 years and with no discernible drop in sight.

The question is why?

My answers will not purport to be exhaustive but I hope they will be pertinent. Overall, I believe the general disinclination of the present Nixon administration to apply any restraint whatsoever to the activity of banks in making investment loans and to the industrial and manufacturing seekers of those loans is a prime factor in this record high interest rate.

Not only has the President failed to act, but he has repeatedly announced that he would not act but rather depend on the so-called economic forces.

If the high prices and interest of our current situation were, in fact, caused by these impersonal economic forces perhaps we could accept them with less complaint. We know, however, that the natural human inclination of bankers and profit-seeking institutions to push profits as high as possible is a significant factor.

Inevitably, without federal dissuasion, moral and legal, excessive demands for investment monies have inflated the interest rates to record heights. Banks have been disinclined to deny their biggest clients new investment money and the larger corporations have not been persuaded that the price spiral will be halted. They have, therefore, bet on more and more inflation and sought more and more loans, pushing interest higher and higher.

I am neither prepared nor qualified to give a theoretical analysis of the causes and cures of inflation: of high prices and high interest rates.

But I do believe that the administration's avowed unwillingness to act, in any strong way, to curb the economic spiral has contributed to it.

It appears plain that interest rates, like prices, aren't going to fall of their own volition.

This resolution does not specifically advise what should be done.

But some facts seem clear. Housing funds are critically short, and a way to redistribute present loan funds or make available new mortgage money in this critical area is needed. We may need new powers to direct lending agencies to divert some of their investment funds to such critical areas.

The present situation in which the oridnary citizen can no longer buy a home because of the high interest rates and the critical shortage of loan funds must be remedied. Not only for the individual buyer's sake but because of the impact on a dormant construction and related industries and the general economy.

The Federal Reserve Board has limited interest rates that may be paid small investors in banks and other lending institutions. It may have to limit how much banks and others may loan and how much it may charge big borrowers as well.

Unhappily, economic analysis is a very inexact art and nobody, including the President's Council of Economic Advisers, seems to function with any degree of certitude.

One thing does seem certain however: The day of non-intervention in the economy, or rather intervention in behalf of the affluent minority only, should be done. We have had the President favoring the banks and bigger businesses by his inaction while at the same time claiming to be letting the economy operate according to its own natural inclinations. It is about time he and his fiscal advisors intervened in behalf of a more sizeable majority even than the silent one he speaks of. On high interest rates and prices, the majority is not silent. It is painfully vociferous and I would hope that such a resolution as this one might make a vocal demand for attention to that majority's voice.

Chairman PATMAN. Mr. Van Deerlin, Mr. White of Texas has joined your group and we will hear from him following your statement. We're trying to keep our statements to 4 minutes or less.

STATEMENT OF HON. LIONEL VAN DEERLIN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Mr. VAN DEERLIN. You will have no problem with me on that score, Mr. Chairman.

I represent a community, Mr. Chairman, which has long been accustomed to a cycle of boom and bust. We were at one time a great Navy town. When that was about all we had in San Diego, and when Congress did not appropriate enough funds for the Navy, or there were decisions at a high level cutting back our naval establishment, the whole community suffered.

Later we began to build airplanes, and we became the home of the Atlas missile. And when we ran out of that cycle of production in the late fifties, we again went down, had one of our low levels in the economy. The whole community addressed itself to this problem, and tried to do something about it. We have worked diligently to achieve a balanced economy, and from a low point of 9 percent unemployment, around 1960, we had come up to where there was only 3.7 percent unemployment just a year ago.

We do not have the kind of economy which should, under normal conditions manage to maintain a reasonably fair level of employment, a reasonably fair level of housing availability, and—even in a fastgrowing part of the country like the great Southwest-we should manage to keep things on a fairly even keel.

Now, with this new trend in the economy, we find that in February the unemployment rate for San Diego County was up again to 4.5 percent, and from February of 1969, that represented almost a full percentage point increase in unemployment. And I should just add that the part of the community that I represent, which is the working district and the area in which the substantial minority population of San Diego County lives, the increase in unemployment is proportionately higher.

The number of jobless was up to 22,500, which is about 5,000 more than we have had just 1 year ago.

Now, it just happens that there are also 18,000 more people working in San Diego County at present, but when you always have this built-in increase in population, you have to keep your net number of jobs going up.

Along with rising unemployment, San Diego has felt the pinch that always goes along with tight money policy: rising costs and rising un

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