Auto Workers, and Dr. Richard Landry of the U.S. Chamber of Commerce.

We will hear you one at a time. After you have finished we would like to ask each one of you to resume your place at the table so you may be questioned by the committee.

This morning, unfortunately, the House meets at 11. We will ask each witness to file his testimony. It will be made part of the record. Then summarize for 10 minutes, and that way we can get the benefit of some questioning by the committee, which is always very helpful, and we will have the benefit of both your testimony and the answers to our questions.

I don't know how long we can stay, but we will stay as long as we can. We are under a 5-minute rule. There is no way of telling how far we can get in the questioning. So, I ask your cooperation.

Mr. Biemiller, we are delighted to have you. We have had you before and we appreciate your testimony and we shall look forward to hearing you again this morning. You may proceed in your own way.

STATEMENT OF ANDREW J. BIEMILLER, DIRECTOR, DEPARTMENT OF LEGISLATION, AFL-CIO; ACCOMPANIED BY NATHANIEL

GOLDFINGER

Mr. BIEMILLER. Thank you, Mr. Chairman. I think it is perfectly obvious that our testimony was prepared prior to the President's speech yesterday. We don't think that it is necessary to change one word in the testimony. We heard nothing in the President's speech that led us to believe that our analysis of the situation was incorrect.

I think probably we can best summarize our feeling about the President's speech yesterday by reading into the record a short statement which AFL-CIO President Meany made. He said:

The proposed National Commission on Productivity and the Council of Economic Advisers' Inflation Alert may increase public education on economic issues. However, I fail to see how they will curb inflation, reduce unemployment and cut interest rates.

That is an accurate summary of our feelings about the President's speech yesterday.

The CHAIRMAN. Is that part of your statement?

Mr. BIEMILLER. That is President Meany's statement on President Nixon. As I understand it, our prepared statement will be placed in the record as read.

The CHAIRMAN. Yes.

Mr. BIEMILLER. I think that we have made our case very strongly that the country is in a deepening recession; that there is no sign of any letup in this situation. If anything is going to happen, it will deepen and not be running in the direction that we should be running, which is to be cutting interest rates and establishing an expansionary aspect to our economy.

First of all, we compliment this committee for its action of last December in giving the President power to impose selective credit controls. We regret he has not seen fit to do this.

We urge the committee, in addition to the wording you now have in title II, to immediately direct the Federal Reserve Board to institute selective credit controls.

The CHAIRMAN. May I suggest that we give consideration to offering a bill in the hope it will become a law that will automatically reduce interest rates, prime rates, and similar rates, to 7 percent within the next 90 days, a 90-day period after the passage of the law, if it passes, and then 6 percent after that, because the rate was 6 percent when Mr. Nixon came in. We are considering that bill right now, and if we introduce it, we hope it will pass in a reasonable length of time.

Mr. BIEMILLER. While I think that is a very laudable proposal, I still think, though, the question of selective credit controls should be given consideration.

The CHAIRMAN. That is right; this doesn't relate to that at all.

Mr. BIEMILLER. Because the direction that loans have been taking, toward the debentures for conglomerates, for example, for financing Bahama gambling palaces and the like, is just a little on the ridiculous side when we are not able to get any money into housing.

The CHAIRMAN. And strictly trust funds.

Mr. BIEMILLER. We furthermore are strongly behind the proposal which you and other committee members have been pushing, to get money into the housing market, which so badly needs it. Your proposal of taking a fixed amount of the assets of pension funds, foundations, bank reserves, similar groups, is a sound one which we support all the way, and we would hope that you will find a way, with our backing, of reviving that proposal, because we think it is a most important one and we like the development-bank concept.

Our only quarrel with section 2, in addition to what I said, is that we should get to the Federal Reserve Board directly, as well as giving the President standby controls, this is a problem that we recognize can't be solved by this committee directly.

We applaud your proposal for standby controls. We think, incidentally, you don't grant the authority for a long enough period of time. We think it ought to be granted for a full 2 years instead of the 8 months in the bill.

But, beyond that problem, as we see it, what we need are controls right across the board, not just on wages and prices, but also on all profits, dividends, interest, the whole works, a complete economic situation.

The executive council of the AFL-CIO has been asking that something be done along this line since February of 1966. We said at that time, and we have repeated it over and over again, that we are perfectly willing to take our share of any sacrifices that have to be made to solve our economic problems, provided that the sacrifices are on a basis of equality, that everyone shares alike, and we don't think you can do that with just price and wage controls, that you need additional controls right straight across the board on all profits, dividends, interest, rent, and so forth.

Capital gains is another area that we certainly want to see curbs put on.

Now, we are not at all entranced with the concept that develops in some areas of reviving the guidelines. We think that would be a mistake. We hope this committee won't go down that primrose path. Our experience with the guidelines has been very disappointing. What it boils down to is that some workers get caught; very few employers pay any attention to it as far as prices are concerned, and as a result

an inequitable situation develops. And that is what is really at the basis of our present difficulties.

From 1960 to 1965, prices were rising, workers' wages did not go up as fast as profits went up; and our present inflation is, in our opinion, primarily a profit inflation and one that should be recognized as such. It is not by any means a classical inflation.

The Nixon administration has been trying to give us an exercise in classical economic theory, and that is why we are having economic problems. This classical economic theory doesn't apply in the modern day and age whatsoever. They have not paid any attention to the really basic problem, which is a drop in the income, a drop in business activity.

The last index on utilization of industrial plants is 79% percent, a very, very low average, indeed, and as a result, we say that in addition to the standby controls that we want you to give the President, and hope that he will use them wisely and well, that it is time to also recognize that there are fiscal problems and that a minimum, for example, that the Federal Government should be fully funding, all authorizations in the social and economic spheres for housing, for education, for pollution control, for all of the other problems that we have in front of us.

Some noble efforts have been made in that direction, but we still think that there is a long way to go and that we are not the least bit scared about so-called budget deficits. What bothers us is the deficit. in the national economy as a whole, and the way that it affects workers and their families at the present time.

Workers' take home pay today is lower than it was in 1965. We think this is a result of inflation and so on and we think this tells you a tremendous story, and this is the reason that we agree we are in a critical nicture where we would think that we were justified, as 4 years ago, and just as iustified today in saving that standby controls should be available and should be utilized by the President when he sees an economic situation rough enough.

Now, since we only have a few more minutes, I would like to ask my colleague, Nathaniel Goldfinger, director of our research department, to make any addition to the summary that I have made of our remarks. The CHAIRMAN. You are recognized, Mr. Goldfinger.

STATEMENT OF NATHANIEL GOLDFINGER, DIRECTOR, DEPARTMENT OF RESEARCH, AFL-CIO

Mr. GOLDFINGER. Thank you, Mr. Chairman. As Mr. Biemiller said. we are very much concerned about the downward drift in the economy The dangers that we see are not only a deepening recession and continuing inflation at present, but a situation that may get considerably worse, and also the threat of economic stagnation and widespread unemployment after the present recession runs its course.

Mr. Chairman. we see no signs whatsoever, in terms of the ad ministration's economic policies, of an intent on the part of the ad ministration to move rapidly to full employment and maximum pro duction of goods and services.

The concentration on the part of the administration on the develop ing budget deficit in fiscal 1970 and fiscal 1971, we think, represent Neanderthal thinking. There is no reason in terms of any kind of sen

sible economic concept to demand and to seek a balanced budget or a budget surplus in a period of recession; the fact that the budget is quite definitely developing into a deficit is not because of rising Government expenditures for housing, antipollution programs and urban development, but rather because receipts are declining as a result of the administration's tight squeeze on the economy. We insist, as Mr. Biemiller said, on the importance, not only of curbing inflation, not only in halting the continuing deterioration of the economic situation, but also engaging in an expansionary economic policy that will return this economy toward full employment and maximum production of goods and services as rapidly as possible.

The CHAIRMAN. Do you have a statement, in addition to that, Mr. Goldfinger?

Mr. GOLDFINGER. No. The statement that Mr. Biemiller submitted is the AFL-CIO statement.

Mr. BIEMILLER. May I add one additional word?

The CHAIRMAN. Certainly.

Mr. BIEMILLER. You will recall that you and I with a number of other people in 1946 had the pleasure of putting through the Congress the Employment Act of 1946.

The CHAIRMAN. H.R. 2204.

Mr. BIEMILLER. Which I still think is one of the best laws ever passed by the Congress. There is just one thing wrong with it: The Congress hasn't implemented that law. And this is what we are really talking about this morning, to take that basic document that you were the prime mover on, and which we did pass, and I hope that maybe we could see our way clear at long last to begin to use that law more efficiently.

The other thing I want to request is that we can append at the end of our prepared statement a report of the Economic Policy Committee of the AFL-CIO Executive Council on the wage guideline policy on February 26, 1966, and a statement on the national economy by the AFL-CIO Executive Council on May 12, 1970.

The CHAIRMAN. Without objection, it will be placed in the record at this point.

(The prepared statement of Mr. Biemiller with the attachments referred to follow :)

PREPARED STATEMENT OF ANDREW J. BIEMILLER, DIRECTOR, DEPARTMENT OF LEGISLATION, AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS

There is little doubt about the need to adopt Title I of H.R. 17880 to amend the Defense Production Act of 1950 and to extend its life to June 30, 1972.

The substantive issue before this Committee, as I see it, concerns Title II, Cost of Living Stabilization. This section of the bill addresses itself to the present economic situation-a combination of deepening recession and continuing inflation.

The record of recent months is a clear demonstration of the bankruptcy of the Administration's economic policies.

The present course of economic trends spells a continuing rise of unemployment and declining buying power for millions of workers in the coming months, as weekly working hours are cut and rapidly rising consumer prices erode the value of shrinking paychecks and retiree pensions.

Moreover, there is a danger that this deterioration may begin to feed on itself. The decline in the real volume of business sales can create widespread inventory reductions, with cancellations of orders for goods, further production cutbacks and additional layoffs.

The Administration is not only permitting this downward drift to continue— holding to the "game-plan," as Administration spokesmen playfully call their disastrous policies. The Administration also shows no signs, whatsoever, that it is prepared to rapidly return the economy to high employment, when the present recession is over. The Council of Economic Advisers' report of February 1970 states: "Projected available output is assumed to be below potential from 1970 until 1972, as a result of policies to slow inflation. . .”

The Administration's "game-plan," therefore, involves continuing high unemployment through both 1970 and 1971. And since this "game-plan" has failed to predict the seriousness of the present deterioration, there can be no confidence, at all, in the prediction that the economy will somehow achieve high employment even two long years from now.

The dangers to the national economy and the welfare of the American people from the Administration's economic policies include not merely a deepening recession that may get considerably worse, but also the threat of economic stagnation and widespread unemployment, after the recession runs its course.

The need to halt the present deteriorating drift and to get the American economy on to a sound course is urgent.

However, Title II-which provides the President-with temporary, standby authority to stabilize prices, rents, wages and salaries-deals with only part of the dangerous economic drift.

Therefore, I urge the Committee to broaden and strengthen Title II.

The first objective of Title II should be the establishment of selective credit controls—to put an end to the banks' rationing of credit by establising government priorities and controls.

This Committee played a key role in the adoption of a bill, last December, which grants the President broad authority to curb the specific causes of credit-inflation, while expanding credit for housing, needed facilities and business operations. The President has failed to use this authority.

The government's only selective measure, in these months of combined recession and inflation, was the reduction of margin requirements for purchases in the stock markets to stimulate increased speculation. At a time when available credit, at reasonable interest rates, must be channeled to where it is urgently needed, the Federal Reserve's only action has been to respond to the needs of stock market speculators.

The AFL-CIO urges the Committee to amend Title II to direct the Federal Reserve system to establish selective credit controls, interest-rate ceilings on specific types of loans and the allocation of credit to where it will do the most good for balanced, economic growth and increasing employment.

The AFL-CIO also urges the Committee to further amend Title II:

1. To direct the Executive Branch to examine the price-raising ability of the dominant corporations in key industries and to adopt measures and/or recommend legislation to curb such price-raising ability of the major corporations in administered-price industries.

2. To direct the Executive Branch to study the specific causes of soaring pressures on living costs, such as physicians' fees, hospital charges, housing costs and auto insurance rates, and to develop practical measures to dampen these pressures.

Such measures are of top-priority importance in attempting to stabilize living costs, the objective of Title II.

Title II states that "the President is authorized to issue such orders and regulations as he may deem appropriate to stabilize prices, rents, wages and salaries at levels not less than those prevailing on May 25, 1970. Such orders and regulations may provide for the making of such adjustments as may be deemed necessary to prevent gross inequities. . . The authority to issue and enforce orders and regulations under this title expires at midnight, February 28, 1971. . .

This Title should be amended to request the Congress to adopt an accompanying tax mechanism on profits, dividends and capital gains for genuine, over-all and equitable stabilization measures-to be put into effect, if the President determines that they are necessary after the establishment of selective credit controls.

Title II should also be amended to provide such standby authority for the life of the Defense Production Act, to June 30, 1972, rather than a February 1971 termination date.

These recommendations are necessitated by eighteen months of the Administration's blunderbuss economic policies which have brought America the worst combination of developments: the most severe inflation in 20 years, the highest