They have directed me to report back in May that steps have been taken. The initiative will not be taken by any other country. We are the real benefactor here in the short run. In the long run all NATO countries are the benefactors because we may some day say we are quite willing to take the budget impact of this but we can't stand balance-of-payments impact. And we know the bulk of the spending is going to be in Europe. Secretary BARR. That will indeed be correct after the Vietnam conflict is terminated. Senator PERCY. I will send to your office today one suggested proposal. If the Treasury Department can undertake immediately to consider this proposal, I will then in the transition period take it up with the incoming Secretary of the Treasury to see if we can't move forward rapidly and have something concrete to suggest by May when NATO meets again. Secretary BARR. May I suggest, Senator Percy, that it is my understanding that Prof. Richard Cooper of Yale University, is coming down to assist Mr. Kissinger in this foreign policy area. It has been my experience that Professor Cooper-would you agree, Mr. Okunhas done as much work in this area as anyone. He is young and imaginative in this area. Mr. OKUN. A Yale faculty member. [Laughter.] Secretary BARR. No commercial plugs, please. But I would suggest, sir, that you are getting the right man. Mr. Kissinger is bringing in the right man, the best man I know outside of Mr. Okun to attack this problem. Senator PERCY. Mr. Chairman, could I make just one last comment? I am very sorry I wasn't here for the full testimony on this Economic Report. I would just like to register the fact that I am concerned about the new budget. I think there have been some items slashed out of it that are going to be dangerous in their impact on the country, one of them being, I think, the whole area of health. In the President's state of the Union message another program has been talked about. Yet we have a totally inadequate base for sustaining the existing programs that we have. We have a lot of work ahead of us, I think, to look into this to see whether or not the surplus is really a genuine surplus or whether we have turned the crank awfully tight and we simply aren't going to be able to live with those figures and we would be foolish to think that we can Secretary BARR. Senator Percy, this budget was peculiar. Most Presidents, when they are leaving office, don't really agonize about their last budget because they will not be around to work with it. President Johnson really did have to agonize on it and all of us did because we had to have a budget that was responsible and realistic. We also had to try to make our best estimates as to what the Congress would do to these proposals, not because we are going to be around to implement them, but because we were recommending that the surtax be extended. We had to have a credible budget to support the recommendation that the surtax be extended and a surplus be maintained. I don't know how well we did, Senator Percy, but we did do our best to be responsible, to be realistic, and also to try to figure out what you gentlemen are going to do to that budget down here in the Congress. Mr. ZWICK. Let me just add two comments, Senator Percy. One; it is a tight budget, no doubt about that. I think we can demonstrate that fact in a number of different ways. Two; there is always the issue of how you set your priorities. I just would not want to let the record be left without indicating that we did increase significantly health expenditures by 12 percent, and that is clearly more than the budget on the average went up. Whether 12 percent is enough or too little or too much is a matter of legitimate concern and debate, but certainly health expenditures did go up in this budget. Senator PERCY. Thank you. Senator PROXMIRE. Mrs. Griffiths? Representative GRIFFITHS. Thank you very much, Mr. Chairman. I would like to say to you, Mr. Secretary, that I think one of the problems of being a high appointive official is that you have first to convince your friends that you are competent to hold the job—and I can remember when President Kennedy first put you in the Cabinet, I thought he had run out of potential appointees rather quickly. [Laughter.] At any rate, I would like to say to you today, that you convinced me. Secretary BARR. Thank you. Representative GRIFFITHS. I think you have done a marvelous job and I would like to say to you that I treasure as one of the really best statements ever made by a high appointive official your statement last year before, I believe, a Senate committee-that if you gave $5 billion to Wilbur Cohen, it would take him quite a little while to spend it, but if you gave it to the Defense Department, in 2 weeks they wouldn't know where it has gone. I agree. [Laughter.] Secretary BARR. That caused me a little trouble, Mrs. Griffiths. [Laughter.] Representative GRIFFITHS. I liked it and I agree with it and I think it took great courage to say it, and I think you were right, absolutely right. And I notice that in this Economic Report there is a statement that total package procurement, a major procurement innovation of the 1960's, has extended competition and permitted more fixed-price contracts. Well, it is an innovation and it does have a sort of fixed price. But I would like to show you-Senator Proxmire and I examined one of these yesterday afternoon-how this thing operates. The contract extended for 6 years. That is 2 years bevond the term of a President. That is twice the tour of duty of a military officer in the Pentagon. That is approximately the tour of duty of a Senator. It is three times the tour of duty of a Congressman. There will be nobody with any responsibility for the prices in this contract. Not at all. This is not the way to go. The way to go is to break these into component parts, into simpler items over which someone has some control and for which somebody has some responsibility. This type of contract is for all practical purposes a retainer contract to the industry to which it is offered. We will never arrive at the goal toward which I think both you and I would like to strive. That is to reduce the prices paid in the Defense Department. Now, they have proved through the years that they really aren't capable of buying even screws, nuts, and bolts. Time after time it has been proved that they have paid too much and each time it has, they have said, well, of course, that is the ony instance, the only instance. Now, anybody that knows anything about purchasing knows that this isn't true. This contract could be repealed, this type of contract form should be repealed by this Congress if necessary. This contract is foolish. I hope the next time you come back, Mr. Secretary, you are made Secretary of Defense and we cut down on the price they are paying for these items. Thank you. Secretary BARR. Mrs. Griffiths, I have the greatest respect in the world for you and I think that the Congress and the country took a great step forward when they put a woman on the tax-writing committee, but, for goodness' sake, Mrs. Griffiths, don't wish Secretary of Defense on me. [Laughter.] I would even prefer to be Secretary of Agriculture first. [Laughter.] Senator PROXMIRE. Senator Javits? Senator JAVITS. There is one thing, Mr. Zwick, that I would like to ask you. I know you gentlemen have other engagements, so I will be very brief. I must apologize for leaving you but we had Ambassador Lodge before us in the Foreign Relations Committee, and I am sure you will agree that this was a very urgent priority for all of us. I gather you took some exception to my feeling that this administration had not realy set an order of priorities and pointed to the trend in the Federal budget outlays to demonstrate that fact. Now, would you say that there was that there was some deliberate decision on priorities, Mr. Zwick, and if so, what was it? Mr. Zwick. Yes. I think there clearly was a deliberate decision on priorities, and it is reflected in the two charts I discussed earlier, the 6-year budget chart which shows that we doubled our expenditures on major social programs or increased them by 123 percent-when the overall budget went up 67 percent, which clearly reflects a set of priorities. That 6-year chart is very consistent with the chart which shows the changes between 1969 and 1970. Now, I will say two other things very quickly. One, we can all have an opinion as to whether we have gone far enough, or too far; whether we have the right amount, the right mix. Obviously, this is a matter of great difficulty and of diverse opinion. The only point I was really trying to make is if you look at a special analysis which we have on "Aid to State and Local Governments," you will find that they have gone up 150 percent since 1964. They have a big $4.2 billion increase in fiscal 1970 over 1969. And we have also shifted dramatically from 55 percent of those aids going to urban areas in 1964 to 67 percent in the 1970 budget. Now, it turns out that that happens to be equal to the proportion of people living in urban areas. And in addition we have Urban De velopment Bank and other proposals to funnel funds into the urban area. Now, I am not saying that therefore all the needs of urban areas have been met. Far from that, Senator Javits. I am not arguing that point. I just want the record to show that there has been a shift toward urban areas and a concern on the part of this administration for urban areas, no more than that. Senator JAVITS. Of course, the big argument about what you say with respect to this administration has been that expenditures, for example, for farm price supports, highways, that is public works, have continued at a high level during the course of the war, while our urban problems and needs have not received a high enough priority and adequate funds. I would like to ask unanimous consent to include in the record at this point a recent editorial from the New York Times of yesterday, January 16, entitled, "Unbalanced Budget Priorities." Senator PROXMIRE. Without objection, that will be printed in the record. (Editorial mentioned follows:) [From the New York Times, Jan. 16, 1969] UNBALANCED BUDGET PRIORITIES President Johnson's last budget is fiscally balanced, but woefully unbalanced in terms of social priorities. Government expenditures are likely to be matched by revenues in the coming fiscal year, a relationship highly desirable for an economy gripped by inflation. But too little money is allocated to the cities with their explosive human problems while too much is funneled into Federal programs that fulfill less urgent needs-programs with claims based on inertia, tradition and the political influence of narrow interest groups. In one respect, however, the budget is outstanding. Thanks to the reforms initiated by President Johnson and formulated under the direction of David M. Kennedy, Mr. Nixon's Treasury Secretary-designate, the budget for the fiscal year 1970 is virtually free of the gimmickry that was used to overstate revenues and understate expenditures in former years. Within the limits inherent in any attempt to look eighteen months into the economic future, the budget represents the most objective and authentic projection in many years. Mr. Johnson forecasts a $2.4-billion surplus for the current fiscal year and $3.4billion surplus for the year ending June 30, 1970. These estimates are predicated on such uncertain factors as smaller outlays for farm price supports and the passage of revenue measures which Congress has in the past rejected. But the precise size of the surpluses or deficits is of secondary importance in a period when inflation inevitably distorts both the expenditure and receipt sides of the budgetary ledger. What is important is that the 1969 and 1979 budgets are likely to be roughly in balance, thus obviating further Treasury borrowing and a more inflationary monetary policy. Under the current circumstances which could be radically altered by success in negotiating an end of the war in Vietnam or by changing business conditions— a budgetary balance requires the extention of the 10 per cent income tax surcharge beyond its June 30 expiration date. Fortunately, both President Johnson and President-elect Nixon are in essential agreement on this issue. Defense programs account for more than half of the total of $195.3 billion in expenditures budgeted for 1970. Because of the bombing halt and fewer heavy construction projects, outlays for the war in Vietnam are expected to decline by $3.5 billion. But over-all defense outlays will go up anyway. Included in the $5 billion of increases outside of Vietnam are more funds for the production and deployment of the Sentinel antiballistic missile system. That project is supposed to provide a defense against a possible Chinese attack, but its more certain and disquieting impact will be an escalation of the nuclear arms race with the Soviet Union. Funds which are freed by virtue of a cessation of hostilities in Vietnam should be transferred to urban renewal and antipoverty programs, not siphoned off for military hardware that will actually increase American insecurity by spurring a new competition in instruments of mass destruction. The imbalance in the setting of national priorities is not limited to the defense budget. Two-thirds of all Americans live in urban areas, and in recent years urban areas accounted for more than 80 percent of the national population growth. Yet those facts of life find no rational reflection in the budget. The total outlays for "community development and housing"-a group of programs that encompasses urban renewal-are estimated at $2.3 billion in fiscal 1969 and less than $2.8 billion in 1970. In the same years the expenditures on "farm income stabilization"-the farm price-support programs that raise the cost of food and clothing to the poor-are estimated at $4.5 and $3.9 billion respectively. A visitor from outer space might read the budget and conclude that ours is still a rural society. Among the other misallocations are the $219 million to be spent in the year ahead on the supersonic air transport and the nearly $9 billion for highways. Neither sum is justified when outlays for urban mass transportation are limited to $400 million. It is commonplace to point to political obstacles whenever it is suggested that radical changes in budgetary priorities are required. But unless those barriers are surmounted, the social imbalance in the Federal budget will have even more disruptive consequences than would a lack of control on the fiscal side. The test for the incoming Nixon Administration will be to reorder the priorities and address itself at once to the ill-met needs of the cities. Mr. ZwICK. May I just make one comment. On farm price supports, for example, I did a calculation last year on the 1967, 1968, and 1969 budgets. If you take the three last Eisenhower budgets, and the 1967, 1968, and 1969 budgets, you will find that the growth in those programs was much smaller than the tremendous growth in the social and urban programs. I am still not saying that is necessarily the right mix. I am just saying there have been shifts and I thought that New York Times editorial missed that point. Obviously, they haven't had a chance to read the special analyses. (The following was later submitted by the Budget Director :) With the approval of the Joint Economic Committee, I would like to have inserted in the record the following letter, which I have sent to the Editor of the New York Times concerning the editorial of January 16 entitled "Unbalanced Budget Priorities." BUREAU OF THE BUDGET, THE EDITOR, The New York Times, SIR: I was dismayed by the inaccuracies and lack of sophistication in your lead editorial of January 16, entitled "Unbalanced Budget Priorities." My heart was warmed-as would any Budget Director's be-by your assessment that President Johnson's 1970 budget "represents the most objective and authentic projection in many years." And, of course, there are always understandable differences in judgment. But the readers of the Times have the right to expect the same accuracy on the editorial page as they have become accustomed to on the news pages. Most of the judgments in this editorial are based on careless disregard for readily available facts in articles that appear elsewhere in the very same edition of the Times. The editorial focused on the amount of resources which the Federal Government is channeling to urban areas. The President's Budget Message contains an entire section labeled “Aids to Urban Areas," reprinted in the same edition of the Times on page 20. However, the editorial writer appears to have read only the first paragraph. After reporting correctly that the number of people living in metropolitan areas is almost two-thirds of our population and that more than 80% of our population growth between 1960 and 1966 did occur in such areas, the quality of reporting deteriorates. Outlays for the functional grouping "community development and housing," as used in the editorial, clearly fall short of all Govern |