the evidence that local units, States and cities, could build houses more rapidly and operate them more cheaply. There is a very big argument about that right now in Los Angeles, as you may know.

Mr. KEYSERLING. We have participated in the consideration of cutting back programs of that kind to far below what would have been contemplated but for the defense emergency. I am prepared to say now that we are highly sympathetic toward that cut-back in this situation.

Mr. PHILLIPS. Would it not seem to you that in time of war, with the evidence that local contractors could build more cheaply and in greater quantity, that that would be the kind of an item that could be omitted from a Federal budget?

Mr. KEYSERLING. There are certain areas in the country, particu larly outlying areas of the country, where defense plant expansion is taking place, where the long-run prospects for housing in the areas do not stimulate private construction.

You are familiar with the situation in the west coast area, for example, during World War II. The bulk of the housing at that time was privately built, but there were particular situations where publicly financed construction of housing was essential to meet the plant needs.

Mr. PHILLIPS. Yes; but that is a separate question that I won't take up here. Some of them are beginning to fall to pieces already.

LEVEL OF BUSINESS INVESTMENT

Now, you spoke of the level of business investment. I want to put on the record the statement that when you figure the level of business investment you figure it again in dollars

Mr. KEYSERLING. Yes; but

Mr. PHILLIPS. And you do not adjust it in comparison with previous levels of business investment on the basis of the value of the dollar at those previous periods?

Mr. KEYSERLING. We do so adjust it. The figures I gave you on business investment are adjusted for changes in the value of the dollar, exactly the same as the figures I gave you on gross national product. When I say that the level of business investment was about 50 percent higher in 1951 than in 1948, it is an adjusted figure, adjusted to changes in the value of the dollar. Our tables and percentages there for business investment, as well as for the total gross national product, are adjusted figures, because the total product is the aggregate of business investment, personal spending, Government outlays, and net foreign investment, and we could not adjust the over-all figure without adjusting the components, because the components add up to the total.

WARTIME AND PEACETIME EXPENDITURES

Mr. PHILLIPS. I have only one more question. You speak of wartime expenditures and peacetime expenditures. In your opinion, is the United States at war at the present time?

Mr. KEYSERLING. I think that is a matter of how a man expresses himself, is it not? One man would say we are at war, and another would say we are not.

Mr. PHILLIPS. I do not know how to interpret your report. I would have to interpret it one way if you felt we were at war; if you

felt this was peace, I would have to interpret it another way. So, in order to interpret your figures, I have to know your opinion of whether the United States is at war.

Mr. KEYSERLING. Well, we are certainly engaged in fighting in Korea, and fighting is war; so we are in a limited war. I do not think we are in a total war, but we are certainly not in a period of total peace. Mr. THOMAS. Thank you very much gentlemen, it is always nice to see you.

TUESDAY JANUARY 29, 1952.

BUREAU OF THE BUDGET

F. J. LAWTON, DIRECTOR

WITNESSES

ELMER B. STAATS, ASSISTANT DIRECTOR

CHARLES B. STAUFFACHER, EXECUTIVE ASSISTANT DIRECTOR ELLEN M. BOZMAN, ACTING BUDGET AND PLANNING OFFICER

Mr. THOMAS. The committee will please come to order. We have with us this morning the Bureau of the Budget. We have our distinguished friends with us, Mr. Lawton, the Director, Mr. Staats, the Assistant Director, Mr. Stauffacher, the Executive Assistant Director, and we are delighted to have a very charming lady with us, Mrs. Bozman.

Mr. Director, if you or any of your colleagues have a statement for us we will be delighted to hear from you.

GENERAL STATEMENT

Mr. LAWTON. Mr. Chairman, I want to point out a few things in connection with this budget request of ours for fiscal year 1953. I will not try to repeat all of the justification, but our request is for $3,850,000, which would support 549 positions, 34 more than we currently have for 1952. This represents in our opinion, the requirement for the next fiscal year in order for the Bureau of the Budget to do

the kind of a job that we believe is necessary in a budget the size of the one we are dealing with this year, and will deal with again probably next year. We recognize that at a time like the present it is a serious matter to ask for an increased appropriation, and we have done so only after full consideration.

PRESENT STAFF STRETCHED TO LIMIT

Currently we have a smaller staff than for any of the postwar years since 1946, while at the same time we have a harder job to perform, and a more diversified one in the sense that the expenditures are made in many more fields than they were made a few years ago.

We have stretched our present staff to the limit in an attempt to examine the increased spending in the Military programs, both within and outside of this country and in the foreign-aid programs.

EXAMINATION

OF

EXPENDITURES OUTSIDE CONTINENTAL UNITED

STATES

However, we have not been able to give anything like adequate on the spot attention or examination to expenditures that are outside the continental limits of the United States. We have had only a few staff members overseas from time to time on special missions. We had three people assigned to General McNarney's staff and Mr. Harriman's staff in connection with its operation of the Advisory Committee to the NATO. We attempted to do a costing study of the amount of military force that NATO countries were providing for the build-up in the unified force that is in Europe.

We have also had one or two people with committees that have made rather hurried examinations of the supply situation. They were able to bring back indications of problems, but with only a day here and two days there, they had not much opportunity really to dig into these problems. I am referring to some of the people who went with the Bonner subcommittee.

MUCH MORE INTENSIVE WORK NEEDED

We need to do a lot more intensive work, as I have said, on the military supply and procurement activities, and to take a look at both the organization and the methods used by the military services in connection with their supply problems.

MEDICAL INVENTORIES

We currently are working on one examination of medical inventories and medical supply depots, with the idea of a consolidation, at least in the continental United States so that shipments to overseas garrisons and troops fighting in Korea can be accomplished without duplication and with considerably less effort and better scheduling than is now the case.

MORE INTENSIVE REVIEW OF BUDGET OF DEPARTMENT OF DEFENSE

There is a need also for making a more intensive review of the budget estimates of the Defense Department.

This year we were handicapped in part by reason of the late passage of the Appropriation Act, in that the opportunity of developing our findings for the current year was not available until October, and we had to compress our efforts within a very short period of time.

For the types of activity I have so far mentioned we are asking for 29 of the 34 positions. With our staff so supplemented, we are certain that we can make a showing of economy, at least in the reduction of requests that come before the committee and, probably, in the spending of funds that have been appropriated and allotted.

The particular activities that we want to cover specifically are the ones we have listed in our justification on page 7. There are 12 of them that I would like to read here.

First, encouragement of use by the Department of Defense of better inventory control both on raw material and finished items which would definitely affect net requirements for budgetary purposes.

Second, more thorough investigation of the pricing policies and formulas used in pricing estimated requirements.

Third, more careful investigation of the factors used by the three services in determining total requirements for military-end items of equipment; that is, allowances for spares, for distribution, for replacements, and so forth.

Fourth, more intensive analysis of the standards for construction at military installations, including military housing, with a view to eliminating frills and minimizing cost.

Fifth, intensification of the study of use of warehousing space to obtain better utilization of existing facilities and to minimize requirements for new construction.

Sixth, continuation and extension of a current study of military procurement from the vendor's point of view. In this project the Bureau is attempting, by interviews with the contractors, to formulate specific recommendations for improvement in the military procurement and contracting practices which can be brought back for discussion with the Department of Defense and incorporated into their system where improvements can be demonstrated.

Seventh, intensification of investigation of tables of equipment allowances.

Eighth, investigation of feasibility of maintenance of special service units, such as photography, printing, and so forth, at all levels of the military service.

Ninth, examination of the internal-management system by which the Department of Defense controls establishment of requirements, inventory, and stock levels, distribution systems, and so forth, so that the individual defects discovered by the inspection activities may, wherever possible, be eliminated throughout the total system. Tenth, more intensive examination of the probable cost levels involved in maintaining the present military structure over future periods under varying assumptions of modernization and replace

ment costs.

Eleventh, examination of the systems used by the Department of Defense to control manpower requirements and check utilization of both civilian and military personnel.

Twelfth, the examination at first hand of budgetary requirements for United States military programs overseas and for foreign military and economic-assistance programs.