THE 1969 ECONOMIC REPORT OF THE PRESIDENT FRIDAY, JANUARY 17, 1969 CONGRESS OF THE UNITED STATES, The Joint Economic Committee met, pursuant to notice, at 10 a.m., in room S-407, the Capitol, Hon. Wright Patman (chairman of the joint committee) presiding. Present: Representatives Patman, Bolling, Griffiths, Moorhead, Widnall, and Rumsfeld; and Senators Proxmire, Javits, and Percy. Also present: John R. Stark, executive director and Douglas C. Frechtling (minority). Chairman PATMAN. The committee will please come to order. Today the Joint Economic Committee begins its annual review of the state of the economy and the programs designed to achieve the objectives of the Employment Act of 1946. We have just received from the outgoing administration their budget proposals for the coming fiscal year and their Economic Report. It is important that we take this opportunity to hear from them in regard to these and related matters. In greeting you gentlemen this morning-the top three officials of the Government so far as public economic policy is concerned-I want to take the opportunity to commend you for your record in office. We have been fortunate to have men of your outstanding abilities and character in the key economic posts of the Government and I want you to know that we are most appreciative of your assistance on numerous occasions. There is a great deal of material to cover and we are well aware that this is just about the last day we will have the opportunity to review it with you as representatives of the administration. For that reason it seems appropriate for the three of you to appear together so that we can more easily discuss question with you. After you have made your statements we will have questions from the members of the committee. The Senator from New York, Mr. Javits, the Joint Economic Committee's ranking minority member, would like to make a statement. Senator Javits, you may proceed. (1) STATEMENT OF HON. JACOB K. JAVITS, A U.S. SENATOR FROM THE STATE OF NEW YORK, AND THE RANKING MINORITY MEMBER OF THE JOINT ECONOMIC COMMITTEE Senator JAVITS. First, gentlemen-first, Mr. Chairman, may I thank the Chair for its indulgence in allowing me to make a brief statement. Second, may I say to these three top officers of our Government that you represent in your own person here this morning the very embodiment of what gives our country such great stability. as you are in the economic field the expression of the smoothness of transition from the present to a new administration. Our chairman has worked out the hearing question so that within a period of 30 days, roughly, the country will have the benefit of your views and your experience as well as the initial bow of the new administration through what it says about your Economic Report. Thus, the American people will have the best of both worlds in the whole fiscal field. I think this is a tremendous tribute to you and to our Government and to what makes it go-which are people like yourself. I would like to express as an American and as a Senator my appreciation for that. I have a few remarks on the Economic Report and the budget message. The outgoing Democratic administration in both these messages, recounts our economy's enviable record of achievement over the last 5 years. It is true that we are participating in the longest economic expansion in our Nation's history, that our growth in economic potential and production has been enormous and that overall unemployment has been pushed to record low levels. Although some may argue that the Vietnam war has helped fuel our prosperity and inflate our employment total, none will dispute the fact that we now have the means to insure balanced economic growth and prosperity, if only we will use them properly. But we must not allow ourselves to become lulled into any idea that we are to have permanent prosperity by the euphoric enumeration of the economic milestones we have passed during the last several years, for there are grave dangers facing us now. I would like to refer briefly to them. Overstimulated economic growth has produced a price inflation foreign to us for so many years. Over the 12 months of 1968, consumers have watched prices rise at a rate greater than 412 percent-more than any year since the Korean war. Wage increases have become commonplace yet the average worker with three dependents finds his real spendable earnings reduced to levels below 1 year ago—while his dollar earnings have increased almost $4 a week, his real spendable earnings have declined 36 cents. An overall unemployment rate at its post-Korean war low masks the fact that not all are participating equally in our high employment economy. Nonwhite workers and teenagers have consistently faced unemployment rates substantially higher than the total and the spiraling welfare rolls-and we can certainly testify to that in New York City-testify that economic growth has not reached the poor. Further, many of those who are employed receive an income less than adequate to take care of their families' needs, especially even their elementary education and health needs. A grave problem that we must confront squarely is our country's balance-of-payments position. While it is true that we have achieved in 1968 an apparent balance for the first time in many years, this was achieved only by leaning on the crutch of capital controls and window dressing such as special official foreign purchases of U.S. Government securities. We cannot let this obscure the fact that our trade balance, for many years the source of strength in our international accounts, has deteriorated alarmingly. The longer we continue to prop up our balance-of-payments accounts with accounting gimmicks to provide an arithmetic balance, the more damaging will become the underlying weaknesses and the more difficult will be true improvement in our position. While great strides have been made in improving the operation of the international monetary system, the three crises of 1968 are proof that we have a long way to go. On the domestic front, it seems to me that we are fast approaching the end of an era. Solutions that may have been relevant to an earlier day are inappropriate to an incredibly changing world. Our neglected cities, deteriorating welfare system, the mounting financial problems of our State and local governments and obviously ineffective agricultural price policies are living testimonials to this. We have discovered that passing landmark economic and social legislation could be the relatively easier part of improving the quality of American life. Making the programs work-and avoiding harmful side effects that could nullify the benefits-is infinitely more difficult and calls for a strength of will and devotion to achieving success and willingness to sacrifice, as in paying necessary taxes, we have not seen yet. New approaches are needed placing heavier reliance on the private sector, on States, and on local governments to utilize far more effectively the allocated Federal resources. The 1970 budget is still woefully out of tune with the country's needs, and one of the greatest challenges of the new administration and the 91st Congress will be a reordering of our national priorities and enactment of legislation and appropriations based on agreed priorities. While proposed defense expenditures continue to rise, funds allocated for the crisis of the cities remain grossly inadequate. The fiscal year 1970 budget suggests that more than twice as much will be spent on farm price supports than on community development and housing; that more than twice as much will be spent on interstate highways than on urban mass transit, and that we are to spend no more in the coming year on water pollution than in the previous 2 years. The loan guarantee program to encourage the construction of academic facilities for higher education is proposed to be used as a replacement for, rather than as a supplement to, Federal grants and loans. While the President advocates higher education for all, the budget cuts back on National Defense Education Act loans for low income students. And I could go on and on. The great failure of economic policy in the 1960's was the delayed implementation of a substantial measure of fiscal restraint--the failure to increase Federal income taxes in time to head off serious price inflation. The President's Economic Report blames the Congress for a tardy response to the administration's request for tax action, but I respectfully submit that no real administration muscle was used in the drive for it. I would also remind the administration that long before it began to support a tax surcharge, the minority members of this committee warned that fiscal restraint was essential to maintain and moderate economic expansion. While the administration manipulated the time stream of Government revenues, pressured labor and business to comply with wage-price guidelines and secured the suspension of the 7 percent tax credit-a device to stimulate the expansion and growth of our productive capacity-we continued to point out that these makeshift measures merely postponed the day of judgment. Further, had the administration vigorously campaigned for the tax surcharge it proposed and willingly considered the reservations we in Congress expressed, we could have avoided the terrible legacy of accelerated inflation left for the new administration. But what remains unfinished by the old administration is a challenge to the new. Where the President's Economic Report looks longingly at past achievements and that is their warranty-we must be concerned with the future. Where the old administration recites the successes of economic policy, we must examine and rectify its failures. For it is not in past achievement that the future can be secured, but only by what we do here and now and in the coming months and years. Thank you so much, Mr. Chairman. Chairman PATMAN. Mr. Barr, you are recognized. You may proceed, sir. Joseph W. Barr, Secretary of the Treasury. We are glad to have you. STATEMENT OF HON. JOSEPH W. BARR, SECRETARY OF THE TREASURY Secretary BARR. Thank you, Mr. Chairman. With your indulgence, Mr. Chairman, I would like to say just a few personal words, sir. Mr. Chairman, you have served in this Congress for many, many years and you have done many great things, but I cannot think that anything you have done in your career is as crucially important as your work with the late Senator Taft in establishing this committee and in establishing the Council of Economic Advisers to serve the President of the United States. I have been an insider and outsider, Mr. Chairman, as you know. I have been on both ends of Pennsylvania Avenue. This is a prestigious committee that attracts some of the best minds in the Congress. The Council of Economic Advisers, almost since its inception, has attracted some of the best minds in this country. Mr. Burns, Mr. Saulnier, Mr. Heller, Mr. Ackley, and now my distinguished colleague, Mr. Okun. These men may disagree but their degree of professionalism, Mr. Chairman, is superb. I will submit, sir, that in your long career there is nothing that you have done for this country that has had a more lasting benefit. Now, Mr. Chairman, on a slightly more personal note, you may be dismayed to read in the papers this morning that I am going to leave the Treasury and move across the street and become a banker. [Laughter.] Mr. Chairman, in my own defense-I served with you, sir, and I think you will admit the record shows that I am not a very good politician. I was promptly defeated after my first term in office and I go to banking secure in the knowledge, Mr. Chairman, that you are going to keep me honest. [Laughter.] Senator JAVITS. Mr. Chairman, may I on behalf of the minority, welcome the chairman to his present post and join with Secretary Barr in the satisfaction we all derive from this great committee and what it is able to accomplish guiding our people and our Government, and express my personal thanks, and I know every member of the minority feels the same way, to Representative Patman for his unfailing courtesy. Chairman PATMAN. Thank you, Senator. Senator JAVITS. And also while I have got the floor, briefly I want to again thank our own colleague, Senator Proxmire, for his very gifted incumbency and the tact and kindness with which he conducted the chair during the past 2 years. Senator PROXMIRE. Thank you very much. Secretary BARR. Mr. Chairman, may I warn you that if this sounds a bit more like a stump speech than a statement by the Secretary of the Treasury, that is precisely what it is intended to be. With that warning, let me plunge in. First of all, Mr. Chairman, what I will say now is not in my formal statement. After I was defeated in the Congress and I joined the Treasury with Secretary Dillon under President Kennedy, there was one fire that really burned in my belly and that was to do something about the economic slack that prevaded this country. I thought we could do more in order to use our productive capacity, our labor, and our savings more efficiently. Mr. Chairman, that agenda item is finished. We are doing all we can and probably more. Mr. Zwick and Mr. Okun later will inform you that we are perhaps trying to do too much today. So the agenda item on which I came in is behind us. The new agenda item, the one in which I ask your support for the new Secretary-designate, is to help cool off this economy, to bring our prices back into a more adequate relationship without throwing the country into a tailspin. Now, gentlemen and Mrs. Griffiths, this is a tricky business, and I do not want to sound too nonpartisan here today, but it is going to take the best judgment of all of you and the new administration to accomplish this extremely difficult task. Now, what are the agenda items that I, after a decade of public service, would like to call to your attention-the unfinished items that I would like to call to your attention. First of all, Mr. Chairman, I think the greatest unfinished agenda item is that we have not been able to do more on tax reform. Mr. Chairman and members of the Joint Economic Committee, I will haz |