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this test, and he became pretty well known and was invited by Congress, and he gave the Congress this paper for about 2 hours about how to change these districts, and when he got all through the chairman of the committee said, "Now, Professor, this is all very interesting, but what I would like to know is what are you talking about? After all, we don't understand what you are talking about.
He said, “Now, you make believe we are a bunch of college sophomores and go through this all over again," and he did go through it all over again.
Apparently none of them had any mathematics, and he was having difficulty. He said he thought he finally put it across. These were Members of the House of Representatives, mind you. He turned to me, and he said "I assumed that they were all college freshmen, and it got over."
Senator Benton. I will retract my word "students," on the strength of your story.
Senator BRICKER. We can use him out in Ohio, if he has a formulaMr. HARRIS. This is much more fun, Senator.
Senator BRICKER. You can't reapportion on a mathematical basis, I can assure you.
Mr. HARRIS. I might say, as far as I am concerned, this is much more fun.
I have one other point. I am not for one minute assuming that you can carry through a large mobilization program without some inflation, because you have to have some rise in prices in order to offer an adequate incentive to get people into the right place, into the right town, the right factory, and all that sort of thing, but I am not saying that you have to have an inflation which is 12 percent a year. That is too much.
Let me point out that in the war years, when we had outlays for war about 2.5 times as much as at the present time, our average inflation per year was only 5 percent. In other words, if you compare the 12 percent and the 5 percent, and allow for the differences in the amount of war investment in these two periods, we are doing only one-tenth as well so far as we did in World War II on the inflation front.
Senator BENTON. What was the percentage?
Mr. HARRIS. Our price increase during the war was 5 percent a year. It is at the rate of 12 percent for the first 8 or 9 months since Korea started, and, as a matter of fact, we have a budgetary surplus, and war expenditures are about 50 percent as high, and if you allow for all of these factors, the net result is that our report is, so far, about onetenth as effective as it was in World War II, and that is not a very good record.
Senator CAPEHART. In all fairness to those running the program at the moment, they didn't get started until the first of the year.
Mr. Harris. That is perfectly true, and I think they are going to improve, and that is why I am here, primarily.
Senator BRICKER. More important than that, they didn't have two hundred and sixty million-some-odd-dollars debt.
Mr. Harris. I think I argued with you about debt before when I was here.
Senator BENTON. Didn't we hold prices better than 5 percent a year in the closing years of the war?
ability of goods, is not disposed to save, means that fiscal policy has an even greater task to perform than in the last emergency.
I mention the need of increased savings, and I mentioned how you might increase savings and cut out investment.
On taxation, I suggest that the tax program is too weak. The $6 billion to $7 billion program now being considered is inadequate to stop inflation once spending on Government contracts begins to be felt. We ought to have higher income taxes, profit taxes, and selective
It is significant that we have had a large inflation despite the fact that the Government is actually running a surplus.
Now, on public spending, I agree absolutely with what Senator Bricker and Senator Douglas have said about the problem, the need of cutting down Government spending. This is no time to waste money, but I also want to point out that it is a very difficult thing to cut public spending. This is no news to any Senator. The point I want to make is that if you can cut public spending, it would have to be done largely in roughly 75 or 85 percent of the budget, which is relatively fixed, and the difficulty is the great increase in cost of all sorts of items.
Let me point out that an infantry division's initial equipment cost $19,000,000 in World War II, and costs $80,000,000 today. These all suggest another point, namely that if you reduce Federal outlays, for example, through reduction of CCC outlays and mortgage investments, that you do contribute to the fight against inflation, but you do not improve the budgetary situation, because these are simply a reduction of investment on the part of the Government, and did not really represent a reduction of spending, or reduction of the deficit.
I also would like to urge this committee to make clear in their report, if I may, the great importance of making clear to State and local governments the large part that they can play in bringing down total spending
During the postwar years they increased their spending from $8 billion to $16 billion a year, in a period when the Federal tax burden only fell by $4 billion a year. In other words, the Federal Government reduces the burden on the taxpayer and State and local governments increase the burden.
I happen sometimes to be an unofficial adviser of Governor Dever, and I can tell you by experience in general State officials do not understand these problems and their function in the whole program of fighting inflation.
Now, as regards income policy, I have said a good deal about that. Let me summarize one paragraph here on page 7. Not only should all increases be limited at the very most to the rise in prices, but I would say in exchange for concessions by labor, businessmen should cooperate in any price control program and submit to higher profits taxation. The farmers should concede a price based on parity at the end of the marketing year. The use of the incentive system of pricing as a means of obtaining additional output.
Now, about improving controls. The price freeze is not functioning too well partly because there is too much money around, and partly because there is an inadequate saving and tax policy, and partly because an experienced staff is not available.
As regards the meat regulation, there is a lot to be said for the meat regulation, but in my humble opinion I believe that the meat regula
tion is not going to work unless two things are done. The first thing that has to be done is to increase taxes, and increase savings. The second thing that has to be done, if the meat regulation is to operate effectively, you have to implement it by rationing.
Now, I am not recommending rationing. I am simply pointing out that with this large amount of purchasing power, with an impending shortage of consumer durable goods, that the result is almost certain to be large black markets in the meat market unless meat price control is implemented by rationing.
I think the OPA in the old days did as much as could possibly be done to control the price of meat. One must not forget that one of the first sources of additional expenditure when you have excess purchasing power is the meat market, and therefore it is very difficult to prevent black markets, especially when you do not have the price of the live animal fixed.
Rent control: I listened to the debate this morning and was very much interested and I want to comment on it, but let me simply say this: Rents are now roughly 25 per cent above prewar, the landlord has other compensations in reduced service, and so forth. His position is not nearly so bad as he sometimes makes it out to be. The rent control measures have not had the effect, as far as we can see, of cutting down the total number of units. As a matter of fact, considering all units, we had close to 1,500,000 units new in 1950.
I would say this, however, that I would not make rent control as rigid as it was in the last war, and I would give the administration the discretion as to where rent controls should be imposed. In other words, only impose it where there is a danger of large rises of prices.
I think on the whole the program was a little rigid in the last war. There ought to be more possibility of adjustment in relation to cost, and as I read your bill, I think you made such provision so it will not be as rigid as we had in the last war.
Now let me summarize the changes that should be made in the monetization. Dollars and cents ceilings are desirable and they should be introduced because they are the most effective ceilings, but anybody who has had experience with price control knows that a large part of the price picture cannot be controlled, in that way, because of the great differences in types of commodities.
I also say that we ought not to embrace the cost-plus principle which on the whole seems to be embraced in Washington today. În World War II there was a good deal done in interpreting the general, fair and equitable provision, which simply said that if your costs rose, and your profits were higher than the 1936–39 level, you have to absorb out of higher profits. The OPS has issued a provision which held that profit above 85 percent of 1946-49—when profits are above 85 percent of 1946–49, then additional costs would be absorbed, but it is my understanding that very much has not been done to implement this.
The musts of price control include effective price control requiring adequate production of low-cost items, because as soon as you have inflation and price control, the businessman tends to move into the high-cost area. Careful definition of commodities and services, and rigorous control all along the line are necessary.
I advised a number of Latin-American countries on price control during the last war, and one of the things we discovered, when they introduced price control all the way from the producer to the retailer they thought they had the problem licked, and then they found consumers began buying cars and selling them way above the ceiling level. It is a very difficult thing to do, but if you want effective price control, you cannot leave an opening in any stage anywhere along the line,
Now, incentive payments and marginal pricing I have discussed already. All I want to say is we should not allow marginal cost to determine prices in the areas where there are large scarcities.
You need an integration of price and supply and demand control. That simply means one way of controlling prices is to keep down the demand for scarce items. That is largely the job of the NPA. I judge from what I know about the present situation, and what I knew about World War II, having worked in both of these organizations, I would say that the cooperation was not as good as it might have been, and I do not believe it is still, but you will not have effective price control unless you have cooperation between these two agencies.
I have said a word about rent control, I will not repeat it here.
One way of increasing the amount of goods available is to import as much as possible, and that means reduced tariffs and increased exports as much as possible.
I have said a word about subsidies on food. I am not sure we are quite ready for it, but it would be wise to have provision in the bill if this is required.
Senator Moody raised the point about exemption of all kinds of materials, and so forth. I think there is a danger of exempting too many materials on the ground that they are necessary for the Procurement Agency, and giving the Procurement Agency the right to buy goods irrespective of prices paid so far as the price ceiling goes. I think in the last war there was-this was worked out rather carefully, but I still had an impression that the net result was too many exemptions, and when you have a young lieutenant dealing with a first-rate businessman, you can be pretty sure in buying goods that the businessman will do a pretty good job on the young lieutenant.
I am also in favor of the control of public utility prices. I notice the provision in your bill is rather vague and not awfully strong. I am very much impressed by the fact that when you look through the various public utility returns on capital, you find that almost invariably their return in State after State averages 7 persons or more, and has averaged that for a long period of time. These public utilities will pay 3 percent on their bonds, which means very large profits. There is almost no incentive to reduce costs, and I think that there ought to be control of public utilities prices, an important factor in the cost of living, as there is in other items.
Senator BRICKER. The fact is—and I will break in-public utilities are not guaranteed anything, they are limited to a ceiling, and it is not 7 percent in my section of the country. I do not know whether it is over the Nation as a whole, but it is certainly not in my
State. Mr. Harris. Senator Bricker, I did not mean to imply a guarantee. I said in practice that is what really happens. If you look at the returns of public utilities year after year, State after State, it is amazing how few of them get below 7 percent.
Now, the answer is of course that the regulatory commissions in the States are not equal to the job of contending with the public utilities.
Senator BRICKER. Of course that I deny categorically.
Mr. HARRIS. Here is the point I am sure where I am going to be bombarded, but I want to make it anyway, and it is a very important point.
I think one of the criticisms I would like to make of the present mobilization program is that there is too much control by businessmen. I do not think the businessman ought to be base-runner and umpire at the same time. What has happened in our present mobilization program, as far as I can discover, is that an awful lot of businessmen have been pulled in to set prices in their own industries, also to allocate materials in their own industries, and these businessmen, no matter how patriotic, honest and well-intentioned, cannot view the public interest objectively against those of their industries
Senator CAPEHART. Where would you suggest we get them?
It is too much of a burden to put on these men. In setting prices, they are likely to be geared more toward the cost-plus principle than to the stabilization objective. There have been altogether too few squawks from businessmen about price control. Price control without tears is price inflation.
Now, when you look at the distribution of supplies by businessmen, and consider the kind of businessman control you have in the NPA, there is a great danger that the large businessman will get a disproportionate proportion of the contracts, as well as of the raw materials.
Now, Senator I would not say the college professors ought to do it, although I think in many ways the college professor did a pretty good job in the last war.
Senator CAPEHART. But we do not have enough of them, do we?
Mr. HARRIS. I think the professor should be used as the technician, but I think what is important is you have to have somebody in there who does not represent the industry and does not regulate the industry. I think it is a dangerous thing from the viewpoint of the public and from the viewpoint of the businessmen. I am not in any sense impunging the motives or character of these men. I do not take the position that the businessman, because he has been a successful banker, is going to follow the interests of his firm or be unfair to the public, but it is awfully difficult for a businessman in this kind of position to be completely objective.
I would say this, there are an awful lot of able businessmen who come to Washington, and it is also true that corporations get rid of their third vice presidents, they are awfully glad to get rid of by dumping him on the Government when he is about ready to retire, but I think there are a lot of able businessmen, too, and honest busi nessmen, but I simply say that what you have to do in this situation. if a textile-business man is to serve his country, he should not serve in the textile field. I think there are still a number of good public servants. You may even be able to get an occasional college professor, though most of the professors I know associated with me in World War II on the whole are much happier in Cambridge, New Haven, Chicago, and so forth, and of course in a great crisis they would probably come down. But I assure you none of them are looking for these jobs. I do think the college professor, however naive he was