October 8, 1968
Page 30127
A REPUBLICAN VOTE IS A VOTE FOR A RECESSION
HON. FRANK ANNUNZIO OF ILLINOIS IN THE HOUSE OF REPRESENTATIVES
Tuesday, October 8, 1968
Mr. ANNUNZIO. Mr. Speaker, on October 2, the distinguished democratic candidate for Vice President of the United States, Senator EDMUND MUSKIE addressed the American Bankers Association at the Conrad Hilton Hotel in Chicago. Senator MUSKIE presented what I feel was an outstanding address and dealt at length with one of the important issues of the day, our economy.
In less than a month, the American people will not only be voting for a President but will also be voting to determine the economic future of this country. I think it is important that the record be made clear as to which party stands for economic progress and which party stands for an economic program that could throw this country into another recession. Senator MUSKIE's speech clearly pins the labels on the proper party. In part, Senator MUSKIE said:
We have had four recessions in the 22 years since World War II. Three occurred in the Republican years. The Kennedy-Johnson years have given us seven years of uninterrupted economic expansion.
When Mr. Nixon left office in 1961, his Administration left a stagnant economy with a 7 percent unemployment rate. In no year from 1954-60 was the average rate below 4 percent. Now after 7 years of the Kennedy-Johnson-Humphrey Administrations, the unemployment rate is down to 3.5 percent and it has been below 4 percent since 1965.
In the seven years from 1953-60, the real output of the economy grew by only 19 percent. By 1960 the gap between what we could produce and what we were producing was over 850 billion in 1967 prices. From 1961 to 1968, real output has risen 45 percent in a period of steady expansion -- a record in American history.
During the Nixon years, less than 4½ million jobs were added to the economy with an increase in unemployment of about 2 million. Since 1961 we have added 10½ million jobs, reducing unemployment by 2 million.
After-tax income per person rose less than $180 in the Nixon years; it has gone up more than $650 since 1961. After-tax corporate profits rose only $3 billion in the Nixon years; they have risen $19 billion since 1961.
The lesson from this record should be clear. Starting in 1961, despite the serious foreign and domestic problems besetting the country, the Democratic Administrations have greatly reduced unemployment and increased production and real income.
Mr. Speaker, not only has the Democratic Party guided this Nation to its most prosperous level in history but the party's presidential candidate, Vice President HUMPHREY is proposing new methods to increase that prosperity such as the National Urban Development Bank or the so-called Marshall plan for American cities. This is a dynamic new program that would not only help all localities but would reduce the costs of bond and debt obligations of our American communities and thus enable more money to go into improvements rather than into interest payments.
Because Senator MUSKIE's address to the bankers so correctly outlines the plan of economic progress of the Humphrey-Muskie team, I am including a copy of his address in my remarks so that anyone reading these remarks will see that a vote for the Republican ticket is a vote for a recession:
EXCERPTS FOR REMARKS BY SENATOR EDMUND S. MUSKIE TO THE AMERICAN BANKERS' ASSOCIATION, CHICAGO, ILL., OCTOBER 2, 1968
In this year's election we will be setting our Nation's course for at least the next four years.
Your professional concerns are with the effect of that course on economic conditions in our country and abroad.
Your individual concerns are with the kind of society we will have -- the quality of life we will enjoy, or suffer.
Both concerns underlie the challenges of social justice, of poverty in the midst of affluence, and of order in conflict with dissent. They are also tied to the challenge to improve the quality of life for all Americans: To control air and water pollution;
To make our cities and towns livable;
To meet the needs of transportation, education, housing, and conservation.
The key challenges of the 1968 campaign are trust and confidence–
Trust and confidence in the men who aspire to lead the Nation; and
Trust and confidence in our political and economic systems, and their capacity to meet the needs of our society.
No one should underestimate the doubts which have been expressed on both counts. One question posed by all these challenges is this: can we adequately finance the public and private investments in ways which will strengthen the political and social fabric of America?
We can, if we maintain a dynamic and expanding economy.
We can, if we are willing to invest the fruits of that economy in our society.
In campaign terms the question is: which candidate and party are best qualified to maintain full-employment prosperity?
Which candidate and party are most likely to encourage sound investments in our society?
To judge which party can best meet these challenges, let's look at the economic record of the last sixteen years.
We have had four recessions in the 22 years since World War II.. Three occurred in the Republican years. The Kennedy-Johnson years have given us seven years of uninterrupted economic expansion.
When Mr. Nixon left office in 1961, his administration left a stagnant economy with a 7 percent unemployment rate. In no year from 1954-60 was the average rate below 4 percent. Now after 7 years of the Kennedy-Johnson-Humphrey administrations, the unemployment rate is down to 3.5 percent and it has been below 4 percent since 1965.
In the seven years from 1953-60, the real output of the economy grew by only 19 percent. By 1960 the gap between what we could produce and what we were producing was over $50 billion in 1967 prices. From 1961 to 1968, real output has risen 45 percent in a period of steady expansion -- a record in American history.
During the Nixon years, less than 4½ million jobs were added to the economy with an increase in unemployment of about 2 million. Since 1961 we have added 10½ million jobs, reducing unemployment by 2 million.
After-tax income per person rose less than $180 in the Nixon years; it has gone up more than $650 since 1961. After-tax corporate profits rose only $3 billion in the Nixon years; they have risen $19 billion since 1961.
The lesson from this record should be clear. Starting in 1961, despite the serious foreign and domestic problems besetting the country, the Democratic administrations have greatly reduced unemployment and increased production and real income.
THE PROBLEM OF INFLATION
From 1961 to 1965 the nation had a record of excellent price stability -- the wholesale price index rose only 2 percent and the consumer price index increased only 5½ percent -- while the unemployment rate was gradually reduced from 7 present to 4 percent. Then the sudden increase in demand due to the unexpected increase in Vietnam war expenditures started prices rising.
Inflation is a tough problem. No one has the simple answer to keeling price increases down while we maintain full employment. The Republicans had about the same rate of inflation from 1953-60 as the Democrats have had since 1961, but they had inflation with unemployment rising by about 2½ percent.
Recent rates of inflation must be slowed down. First of all, we must be willing to follow a responsible monetary and fiscal policy. This means raising taxes when necessary as well as reducing them when desirable. If the surtax had been passed when it was asked for -- in early 1967 -- the economy would be better balanced with a slower rate of inflation now.
But we cannot sacrifice full employment for price stability. That cost is too high. A one percent increase in the unemployment rate means over 700,000 men thrown out of work, with all the attendant personal misery and social unrest.
We must reduce inflationary pressure, supplementing monetary and fiscal policy –
By raising the rate of increase in productivity through better job-training, inducements to labor mobility, and an emphasis on investment for modernization of plant and equipment, and
By maintaining and increasing competition in the economy.
But these remedies take time, and even with the best of fiscal policies, the present wage-price spiral will not end tomorrow. We must have the cooperation of labor and business in a mutual effort to reduce the rate of inflation now.
Vice President Humphrey has suggested a vehicle for that effort in his proposal to convene a conference on wage-price policy, composed of business and labor leaders, government officials, and public members, permanently staffed and meeting in the President's executive office.
Another area of concern is the balance-of-payments.
As you know, the problem is one of liquidity, not solvency. Many of our dollars have gone abroad to buy long-term assets -- companies, factories, stocks, bonds. U.S. liquid reserves have been falling and foreign liquid claims on the U.S. have been rising. At the same time, U.S. total assets abroad rose from $70 billion in 1960 to about $115 billion in 1967, while total liabilities went from $45 billion in 1960 to only $65 billion in 1967.
The U.S. is strong and solvent internationally. The only possible problem is a liquidity shortage.
In the early 1960's the administration was faced with the problem of a large balance of payments deficit -- $3.4 billion in Mr. Nixon's last year, 1960 -- and unemployment was still around 6 percent.
Tightening up on fiscal policy would have raised unemployment -- a clearly unacceptable alternative. Restricting trade would have thwarted the Kennedy round negotiations and invited retaliation -- another unacceptable result. The Kennedy administration reluctantly asked for first the interest equalization tax and then voluntary controls on capital flows.
These steps reduced the deficits from 1964 to 1966, but the sudden expansion of the Vietnam war, with its foreign exchange costs and inflationary pressure, caused an unexpected deterioration in 1967. Reluctantly, the administration made the voluntary program compulsory in January 1968.
The combined effects of the controls, European recovery from the 1966-67 recession, and the surtax cooling off U.S. inflation, seem to be moving the balance of payments into surplus this year.
Make no mistake. We have not once and for all solved these problems. We have proved that we can deal successfully with them if we have the will.
But we have not yet fully shaped the financing techniques to mobilize our great capital market and to harness its resources -- To rebuild our cities;
To provide adequate housing for all American citizens;
To educate and train our youth;
To provide urgently needed transportation facilities;
To clean up our water and our air;
And to eradicate poverty in the next decade.
The Vietnam conflict has absorbed resources which might otherwise be devoted to some of these urgent domestic tasks.
But when these resources become available, we will still have the problem of channeling them into the areas in which they are most needed.
In part, this is a matter of national priorities. In large measure, it is a financial problem.
How can we find the means for financing all of these great and important tasks without overburdening our financial structure? This is the new challenge before us.
Let me talk about its dimensions. It can be measured in terms of public debt.
At present there are $120 billion of State and local government securities outstanding. About $15 billion in new obligations are being issued every year. If our State and local governments merely carry forward their present capital expenditure programs, we can expect State and local government debt to increase by two-thirds in the next ten years.
If we take into account new requirements in housing, in mass transit, in airways and airports, in water and air pollution control, in education, in health, and other State and local concerns.
If we take into account the budgetary pressures that will face the next President of the United States, State and local Government debt will rise 2½ times in the next ten years.
Such a vast growth in State and local government debt, raises serious questions about the ability of our capital market to absorb such a high level of State and municipal securities without sharp increases in interest rates. This would compound the already serious financial problems of State and local governments.
This is not the only question.
The relative roles of the Federal Government, of State and local governments, of private enterprise, and of community action groups can now be seen only in general outline. But there is one basic element -- the need for a soundly conceived financial plan, which would combine the efforts of the three levels of government and private enterprise in a common partnership.
One of our efforts to develop new, imaginative and effective methods for financing capital investments was the participation sales act of 1966, which made financing more accessible, and at lower rates of interest, for a variety of Federal loan programs.
There were two basic reasons for that act: First, impatience with the obsolete rules then applying to the budget of the United States; and, second, a desire to bring more private lenders into high risk, but socially important lending programs. The act had the added advantage of unburdening the budget from charges on it that would result if these loans were held by a Federal agency.
You can imagine what your own bank's income statement would look like if you treated an increase in your loans as an expense. That was the rule that applied to the Federal budget.
Controversy over the participation sales act was a major reason far the appointment of the distinguished Commission on Budget Concepts under the chairmanship of Mr. David Kennedy.
The Commission's report resulted in a major reform in the Federal budget -- the unified budget.
The Participation Sales Act, and the concept of a pool of loans and a standard market instrument which it embodied, has been an inspiration and stimulus to imaginative proposals in other areas.
Here I refer to the provisions of the Housing and Urban Development Act of 1968, which authorizes private lenders to issue federally guaranteed participation certificates in pools of FHA and VA mortgages. This should enable housing to compete more effectively with other uses of funds in periods of credit restraint.
Governor Mitchell of the Federal Reserve Board has also suggested the use of a standard market instrument issued against a pool of loans to help channel additional bank funds into regions of our country in which such funds are in chronic short supply.
The participation sales technique may also be applicable to the financing of State and local government expenditures.
Another proposal to ease the municipal bond market was the administration's proposal in this session of Congress to provide the financing for anti-pollution programs through federally subsidized taxable municipal bonds.
The recommendation foundered because of a fear that this would be a first step in eliminating entirely the Federal income tax exemption for all State and municipal borrowings. That exemption has been regarded as a charter of fiscal independence from the Federal Government. State and local governments did not want that charter breached.
There is a sound way to overcome that problem.
Vice President Humphrey has proposed a National Urban Development Bank to help finance a Marshall plan for American cities.
The Bank and its regional affiliates would fund non-profit neighborhood development corporations;
Guarantee loans made by private lenders for inner-city and metropolitan-wide development;
Offer loans to inner-city businessmen whose opportunities are limited by lack of financing:
Fund quasi-public housing development corporations.
In addition to supporting private development, the bank could also purchase obligations of state and local governments to finance important federally-supported programs. It could purchase these obligations at rates comparable to the rates on tax-exempt municipal obligations, the difference between its lending rate and its borrowing rate would be met by federal appropriations.
I see a development bank offering these advantages over traditional financing of state and local government programs:
(1) It would broaden the market for municipal obligations;
(2) It could open new channels of communication and new means for coordinating federal assistance to state and local governments; and,
(3) The bank could maintain and strengthen the ultimate fiscal independence of state and local governments.
This would give renewed strength to our federal system -- it would aid these jurisdictions to meet their responsibilities on their terms and not simply on terms laid down by the federal government.
This, I believe, is an important path to be explored. It may, in turn, open up other avenues of federal-state-local partnership to meet the vast and growing financial demand for new public facilities and social welfare projects.
As leaders of our financial community, you must serve the Nation with your influence and your help. We have needs that we must not, we dare not, fail to meet.
If we do fail to meet them, the republic may not survive. For in President Kennedy's words
"If a free society cannot help the many who are poor, it cannot save the few who are rich."