April 30, 1975
Page 12568
Mr. MUSKIE. Mr. President, I was interested in the Senator's historical reference to 1938 and the programs which President Roosevelt sent up that dealt with the budget.
The outlay total for fiscal year 1938 was $6,076 billion, about one-sixtieth of the outlay figure that the Budget Committee brings to the floor, and the deficit was $1.177 billion, or roughly one-sixtieth of the deficit that the Budget Committee has brought to the floor. This is a very interesting historical comparison.
As I look through this table, which is found in the budget document on page 367, I would like to read the deficit totals for 3 years of World War II: 1942, $20 billion plus; 1943, $54 billion plus; 1944, $47 billion plus. Those three war-year deficits are roughly the equivalent of the 1975 deficit added to the deficit figure which the Budget Committee brings to the floor. The deficit figure we project for 1976 is the highest peacetime or wartime deficit in the history of the country.
I am not one to read too much in those figures, but I think, nevertheless, they set a perspective which we should take into account.
Now, Mr. President, I was interested a few moments ago when Senator RANDOLPH expressed the thought that he was going to do what he believed was right, whether or not he was called a spender for doing so. Well, for 2 days Senator BELLMON and I have listened to speakers on this floor call us spenders. The rhethoric got a little bit bloody, at times but, in any case, we have been rather strongly criticized for bringing to the floor the recommendations found in the budget resolution.
Well, now the criticism is coming from another direction. We are being criticized for not spending enough.
Let me restate my view, Mr. President, of this budget process. Senator MONDALE has referred to some of my votes in committee and some of the positions that I took. He challenges me to be consistent with those positions here in the vote on his amendment. 1 feel compelled to make my position clear.
I have this perception of the budget process. The committee is made up of 16 members. For months and weeks we worked toward the committee objective of reaching a consensus as to how much we should spend, what our deficit should be and, at least, a tentative decision as to what the budget priorities ought to be.
I hope we have the feeling that during that process each of us won some and lost some. But what we finally arrived at was an overall target number, not for the 16 functional categories, but for the budget as a whole: $365 billion.
At that point all the votes were in. The committee had voted to send the resolution to the floor. Each member of the Budget Committee then faced this challenge: "Do I go to the floor in support of the new budget process and its discipline or do I go pursuing my own individual priorities."
I felt fairly certain that whatever lead I set the committee members would follow; that if I came to the floor pursuing my priorities every member of the Budget Committee would come to the floor pursuing his priorities, and we would, therefore, not have a joint committee consensus. We would simply have some numbers put together by 16 Senators who would then blend into the 100 Senators who are Members of this body, all fighting all over again as though there were no budget process to influence the final results.
I say to my colleagues – Senator MONDALE on that side of the aisle and Senator DOLE and my good friend from Idaho on the other side – that at some point, at some level, we must agree to adopt a discipline that will give each of us a crack at influencing the total result. This discipline must – when it is completed – bear some rational relationship to the resources available, and to the priorities we ought to be pursuing. Specifically, it must relate to the needs of our people and the ability of our economic system, both fiscal and monetary, to carry the load. We are going to disagree when we get those final results as to whether we were wise, but at least that ought to be the product.
Senator MONDALE says we ought to spend more, just as Senator McCLURE and Senator BUCKLEY said yesterday we ought to spend less, and just as Senator DOLE this afternoon said we ought to spend less.
Senator MONDALE has referred to what I think is an accurate description of the objectives of the Budget Committee, and Iwill repeat them. On page 3 of our committee report on the concurrent resolution, we state:
That the Federal budget for fiscal 1976 should meet four important tests.
First, it should "provide funds for national security, education, health care, pensions, and other established programs which the people of the United States would need regardless of the state of the economy."
We have served that objective by making adjustments which would reflect the inflationary erosion of the funding of those programs.
Now, there are some in this body, and their votes the last 2 days indicate their convictions, who feel that even that is too much if it results in a deficit of the magnitude that the Budget Committee has recommended.
The second objective is that the budget should "provide funds over and above such basic needs to help pull the United States out of its most devastating economic decline since the 1930's." This was the most important priority to which the Budget Committee was committed. Its labors and its result reflect as strong a concern about the problems of the unemployed and their families as that expressed by the distinguished sponsor of the amendment before us.
The third objective is that the budget should "be designed as a first step toward ending the increasingly harsh cycles of inflation and recession which have dominated the U.S. economy for nearly a decade and provide direct help to those Americans whose incomes have been cut off or reduced by the recession."
I submit, Mr. President, those last three objectives out of the four were directed toward the recession and the devastation that it has wrought in the lives of too many American people.
We have undertaken to meet those objectives. These are not just words.
As I said yesterday in opening the debate, $365 billion is a lot of money. The stimulative programs are not just the $4.5 billion that have been described as temporary recovery programs. Surely, no one believes that of the $365 billion in this budget only $4.5 billion has stimulative expansionary effect upon the economy.
I cannot believe any Senator draws that kind of conclusion.
But let me be more selective than the $365 billion. Let me go through this budget to pick out those items in it which are related to the need for jobs and economic stimulation.
With respect to temporary recovery programs we have already referred to the $4.5 billion in outlays which was approved by the Senate last Friday, and last Friday that program was described by its sponsors as providing 1 million jobs.
It was not my program. It originated in the House, endorsed by the Appropriations Committee, and the description of it was that it provided 1 million jobs. It is included in this budget.
Now, the sponsor of the pending amendment suggests that because it has already been done it should not be counted and that we must do something more, because that was done last week. Not a penny of that has been spent as of this moment, not a penny.
Second, there are other stimulative programs in our committee mark over and above the President's budget: first, $1 billion additional highway funds, which were released from the impoundment imposed by President Nixon 2 years ago; in released Hill-Burton funds; second, $100 million; third, $100 million in released clean water funds – a program in which I have a special interest – over and above the level of spending which we had already achieved; fourth, $600 million in EPA, coastal management and other programs in the natural resources, environment and energy function; and fifth, $200 million in District of Columbia Metro.
These five additional stimulative programs would provide $2 billion in addition to the $4.5 billion which provide jobs. Thus, in total, the committee mark includes $6.5 billion in additional job stimulating programs.
The distinguished Senator, chairman of the Public Works Committee, has given the formula, the number of jobs available for these kinds of money.
Let me turn next to the automatic stabilizers, unemployment compensation, food stamps, and so on. That is $15.2 billion. It was enacted after the great depression as an automatic stimulant to the economy to establish automatically a floor below which the economy will not fall. Unless that program was erroneously conceived originally, I assume it still serves an anti-recessionary objective; $15 billion which is pumped automatically into the economy to provide the unemployed with income.
It is a legitimate addition to anybody's list of what this budget does for those who are hurt by unemployment and recession.
Then, there is the tax reduction act, or do we not count that because that was done in March? The benefits of that action have not begun to flow out into the economy yet. No taxpayer, no citizen has gotten a penny of it. The checks begin going out tomorrow. We do not know what the effect will be. Many of us have high hopes that it will help turn the economy around, but the thing has not started.
That is $10.1 billion.
And with the possible extension into the last half of the fiscal year of 4.4, which seems likely, the total of the items I have listed already to $36.2 billion.
Then when we add to that the impact of the tax cuts and the social security rebates, we have $1.9 billion for the social security rebates, the checks for which have not yet gone out, and the fiscal year 1975 impact of the tax reduction act, and those checks have not yet gone out, that is $10.8 billion.
So the total potential stimulus of these items on the budget which I have listed is $48.9 billion. In the year of the "great spender", Franklin Roosevelt, in the 1930's – I can remember the newspaper headlines of those years – the highest outlay figures were $8.4 billion in 1936, $8.8 billion in 1939, and $9.5 in 1940 when spending had begun for the war.
Multiply the stimulus of those years by 60 and the stimulus we are providing is not so far off the mark from one of the big spenders or, at least, one of the historically big spenders.
Mr. President, I have no God-given wisdom as to what is too much and what is too little stimulus for this economy. I have not met an economist in the months since I have been chairman of this committee, or in the years I have been consulting with them, whose judgment as to what is going to happen 6 months ahead is worth very much or is often borne out by events.
That is not to say I do not value their judgment and their advice, but they are not seers.
There is no economist this committee heard last fall – and that was 6 months ago – who predicted a depression of this intensity and extent and duration, not one.
Mr. MONDALE. Oh, yes.
Mr. MUSKIE. I will check it, but I heard no predicting an unemployment rate of 8.7 percent, effectively 10 percent by April 1975.
Mr. MONDALE. Will the Senator yield?
Would the Senator review my colloquy with Mr. Ash?
Mr. MUSKIE. Then I would make an exception. But with that lone, lonely exception, I do not recall any economist predicting an 8.7 percent unemployment rate at this point, or a reduction in gross national product in December of 9 percent at an annual rate, or a reduction in GNP for the first 3 months of this year on the order of 10.5 percent at an annual rate.
Nor did anyone tell me at that time we would have to suffer 5, 6, 7 percent unemployment for the next 4 years. That picture was not painted.
They were good men, good economists, who said that our problem was recession and not inflation and our policies ought to be turned around.
I agreed with them, but not because I saw such a grim picture ahead. That our economy would decline so significantly was certainly not the consensus of those who testified before the committee.
What I am saying, Mr. President, is this: Just as no one had the vision 6 months ago to tell us what the economic situation today would be, no one has the vision today to tell us what it is going to be 5 months from now, in September when the Budget Committee is required by law to send another concurrent resolution to the Senate.
Senator MONDALE's amendment proceeds on the assumption that it is possible to anticipate the effect of the stimulative action already provided for in the budget, and to conclude that it is not enough. It is the assumption of Senator MONDALE's amendment that we can look at what the budget provides and judge that it will not be inflationary in September, whatever happens in between.
My view is this: That this budget process is not something that begins and ends with one piece of paper. It is not something that begins and ends with this budget resolution. It is a process which, when it is in full operation, will begin in November and continue until the following October. It is not magic and its justification, in my judgment, is that it provides the Congress with the flexibility to adjust to developments as they occur.
You do not have to have a crystal ball. All you need is a mechanism that enables you to respond.
So I say to the Senate that what we have in this program to deal with the recession is responsible, it is responsive to the unemployment problem, which is the central problem – we all agree on that – and it provides us the mechanism to do more if we wish.
The extension of the tax cuts into the last half of fiscal 1976, $4.4 billion, an action that everybody predicts will take place is something we can do.
With respect to counter cyclical revenue sharing, we were not able to get the votes in the Budget Committee for that concept, which I think has great merit. I doubt that we would have the votes at this moment. An educational job has to be done. The authorizing committee is going forward with hearings on that proposal, which the Budget Committee endorsed in principle, to fashion another counter cyclical tool, that will be available to us to put in place if the developments in the economy justify it and require it.
Even Senator MONDALE'S amendment undertakes to rest upon the development of un-anticipatable events. Either that or the language is meaningless.
He says if unemployment is 8.5 percent for 3 months prior to the fiscal year certain things with respect to spending will happen.
He must be in some doubt as to whether or not that will happen or he would not have the condition in his amendment.
Then he says if it does not happen before the beginning of the next fiscal year but happens afterwards, another formula would be used. That, too, clearly must be an uncertainty or the language is meaningless.
How those kinds of spending flows are to be triggered by the Treasury or the administration is not described. A budget resolution is not a piece of legislation in the sense that you can fashion the mechanism and the bureaucracy to implement policy. But if those are uncertainties, and I have to assume they are, even in the mind of Senator MONDALE, then I say to the good Senator the place to deal with them is in the Budget Committee.
I have already asked the new Director of the Congressional Budget Office to help us monitor the economy in the interim so that we can move and move quickly. It is just possible that the medicine the Senator's amendment would provide in the event these un-anticipatable contingencies occur would not be the right medicine then.
I would like to touch just one other point raised by Senator MONDALE. That is the question of the tax reform revenues that he undertakes to anticipate.
I share with Senator MONDALE the concern that the Congress, sooner or later, get into the tax reform business. It was one of the issues in the 1972 Presidential primaries. I confronted it everywhere I went. Every candidate ended up that campaign with a tax reform program, none of which has seen the light of day yet and no parts of which have been enacted by the Congress.
Suddenly, to rest our revenue assumptions for 1976 upon the enactment of some of these tax reform proposals that have not been able to generate majority support in the Congress in the 3 or 4 years since 1972 primaries is extremely unrealistic. I think tax reform is something that should be considered in connection with the extension of the tax cuts of $4.4 billion into the last half of fiscal 1976. I assume that that is one of the reasons that that decision is still pending, so that the two can be tied together. I am all for proceeding with that.
What may be a tax reform to me may be a legitimate tax expenditure to the distinguished Presiding Officer. One man's tax loophole is another man's tax protection.
There is over $100 billion in tax expenditures, a great many of which, I believe, would be reestablished by the Congress after examination. A good many others will probably be modified, changed, or eliminated upon comprehensive examination.
But what we are talking about is what can we count on for revenues for the fiscal year beginning July 1. To oppose the enactment of a tax reform package of any consequence that would provide substantial revenues for that period to offset an additional expenditure of $9 billion is, I believe, unrealistic.
I ask unanimous consent to have printed in the RECORD, Mr. President, a memorandum prepared for me by the staff to indicate the difficulty of generating revenues quickly from tax reform. This is a paper that makes some assumptions because at that point we did not have Senator MONDALE's list of proposed tax reforms. It is purely for the purpose of indicating the difficulty of generating revenues quickly out of tax reform.
The memorandum lists seven tax loopholes, the total annual cost of which is almost $10.5 billion. If we were to assume that those could be eliminated totally, the elimination to be effective for some provisions as of October 1 of this year, and effective for others beginning January 1, 1976, the staff's best guess is that the elimination of that $10.5 billion in tax loopholes would not generate more than $1.55 billion in revenues in fiscal year 1976. And that is a generous estimate.
There being no objection, the memorandum was ordered to be printed in the RECORD, as follows:
ESTIMATED FISCAL YEAR 1967 REVENUE GAINS FROM SELECTED PROPOSED TAX REFORMS
The reduced effects of tax reforms on FY 76 revenues compared to the annual revenue costs currently attributed to the existing preferential rules are illustrated by the examples summarized below. The assumptions used to develop the FY 76 impact of these reforms are as follows:
(A) Unless specifically stated otherwise, as appropriate, amendments will apply prospectively only, either to transactions occurring after the tentative decision by the first tax-writing committee to report out the reform has been made public, or with respect to taxable years beginning after December 31 of the year in which the reform is enacted (October 1 has been selected as the tax committee announcement date in the first and third examples below. An earlier announcement date obviously would increase FY 76 revenues; conversely, a later date would decrease FY 76 revenues.)
(B) Based upon recent experience, if a reform increasing corporate taxes is made effective for taxable years beginning after December 31 of the year the reform is enacted, roughly 33 percent of the resulting additional annual corporate tax liabilities would be collected during the first six months of the next calendar year, i.e., the remaining six months of the current fiscal year.
(C) If additional taxes would be collected from individuals through the elimination of a deduction or the inclusion of currently non-withholdable income as taxable income, the increase in payments would not be obtained until the returns were due on April 15 of the year after the calendar year in which the reform would be effective.
Fiscal year 1976 gain in millions
Elimination of DISC – $1,300 million annual cost/elimination effective for exports made after 10/1/75, the assumed tax committee decision date $846
Eliminate bad debt reserve for financial institutions in excess of actual experience – $980 million annual cost/ effective for taxable years beginning after 12/31/75 $327
Eliminate deduction for non-business, state gasoline taxes – $850 million annual cost/effective for taxes paid after 10/1/75, the assumed tax committeee decision date $213
Eliminate ADR – a rough estimate is that $500 million is lost for assets depreciated under ADR in each annual classic/effective for property placed in service after 12/31/75:$167
Tax capital gains at death – $5400 million annual cost. Phase-ins which have proposed in various reform proposals: (a) (minimal) Corman bill treatment, no tax at death, but rather eliminate stepped up basis (b) 1963 – President Kennedy proposal: after a three year grace period, tax all gains – (c) (minimal) $0
Treasury proposal: tax appreciation with respect to transfers occurring after date of enactment, but only to the extent of appreciation occuring after that date. $0
Require withholding at source for dividend and interest income – Failure to do so currently estimated to have $1,000 million annual revenue cost/ reform would require new widespread collection procedures probably too difficult to implement for FY 76 collections and therefore an effective date postponed into at least calendar year 78 (probably) $0
Eliminate $100 dividend exclusion – $360 million annual cost/effective for taxable years beginning after enactment sometime in 1975 (individuals are virtually all calendar years taxpayers) $0
Mr. MUSKIE. May I say, finally, that if and when we are able to generate such revenues through tax reforms the benefits would accrue to the committees budget as well as to the Senator's amendment. They would accrue to the Congress as a whole, either for the purposes of cutting other taxes, extending the $4.4 billion in taxes already pending, or funding additional programs to meet the recession if unfolding events in the econmy justify that course. So the tax reform route is one way of adding flexibility for dealing with changing economic conditions. I am all for that. I am simply saying that the difficulty of enacting tax reform is documented by the failures of the last 3 years, and, secondly, getting quick revenue out of it is a very "iffy" proposition.
Members ought not to vote for the Mondale amendment on the assumption that $2.5 billion of additional revenues from tax reform is likely to be realized in fiscal year 1976.
With that, Mr. President, I have tried to cover the principal points.
Mr. MONDALE. Will the Senator yield?
Mr. MUSKIE. I would be happy to yield.
Mr. MONDALE. There are several sponsors of my amendment, Senator HUMPHREY, of the Joint Economic Committee; Senator JAVITS, the ranking member of that committee, and Senator BENTSEN, who would like to speak on this amendment. I understand we are out of time.
Mr. MUSKIE. May I say to the Senator that this time is no problem, so far as I am concerned, if we could just have some indication of how much time is needed.
I have no desire to be inflexible.
Mr. MONDALE. My colleague would like 30 minutes; Senator BENTSEN would like 5 minutes. Let us say 20 minutes for the Senator from New York. I would like 5 minutes. May we have an hour?
Mr. BENTSEN. Let me have 10 minutes.
Mr. MUSKIE. I will be happy to yield an hour to the distinguished Senator from Minnesota.
Mr. MONDALE. Could we have an hour and a half?
Mr. MUSKIE. I would like to finish this bill today, if possible. I understand that another amendment is in the wings.
Mr. HUMPHREY. We can amend the amendment, otherwise. On the basis of amending the amendment, we start anew. I do not want to do that, but there is a need for some of us to express ourselves.
Mr. MUSKIE. I can stay here the remainder of the week, if that is the desire, but I would like to give a clear signal to the other Members of the Senate. If the Senator would like to give them a clear signal that we are not going to vote today, I will join him.
Mr. MONDALE. I would like to vote today. If we can agree on a time, I am willing to do so. We think at the outset that we need an hour and a half. We may need less than that.
Mr. MUSKIE. Mr. President, I yield the Senator an hour and a half on the bill. How much time do I have on the amendment?
The PRESIDING OFFICER. Twenty-five minutes.
Mr. MUSKIE. I yield the Senator from Minnesota 25 minutes on the amendment, in order to use up that time.
I have no desire to use any more of that time myself.
I yield the Senator another hour and 5 minutes on the bill.
Mr. MONDALE. Mr. President, I wish to respond briefly to the Senator from Maine.
The PRESIDING OFFICER. On whose time?
Mr. MONDALE. I yield myself 5 minutes.
The PRESIDING OFFICER. The Senator is not speaking on the Senator from Maine's time?
Mr. MONDALE. I think the Senator from Maine yielded me an hour and a half to control.
Mr. MUSKIE. Yes; 25 minutes on the amendment and 1 hour and 5 minutes on the bill.
The PRESIDING OFFICER. The Senator from Minnesota is recognized.
Mr. MUSKIE. Mr. President, I ask the Senator whether we can agree on 5 o'clock as a time to vote on the amendment – not later than 5.
Mr. MONDALE. That is fine.
Mr. MUSKIE. That would give us a half hour on this side.
Mr. President, I ask unanimous consent that the vote on this amendment take place not later than 5 o'clock this afternoon.
The PRESIDING OFFICER. Is there objection? The Chair hears none, and it is so ordered.
Mr. MONDALE. Mr. President, I do not wish to be misunderstood. I think the basic work of this committee is superb. The process we have commenced is one of the most exciting, hopeful things I have seen in the 10 years I have been in the U.S. Senate. I believe that the priorities we have established in the basic budget are basically sound. I think we are spending a little more than we should on the Defense budget and are spending a little less than we should on some of the human services.
I voted to report this resolution because I think it is basically sound. I am pleased to be a member of the committee, and I commend its membership and the chairman for the work it has done.
It is true that other items in this budget provide employment in the basic programs, but it is also true that, even given the jobs which ongoing, basic programs provide, we are in the deepest recession since the Great Depression; virtually every economist predicts that unemployment will become worse, not better. There is very little disagreement among the economists, so far as I know, about the bleak picture for unemploy ment in the next several years.
The President's own budget predicts unbelievably high unemployment through the end of this decade. Data Resources and some of the other computer analysis organizations say that unemployment will rise to more than 9 percent. Of course, the official statistics grossly underestimate the unemployment, because discouraged workers are not counted – there are more than a million of them – because the underemployed are not calculated in that regard. I think that the number of true unemployed is perhaps well in excess of 10 percent today, and everyone I know of in the field of economics predicts that it is going to go higher.
So that so far as we can responsibly predict, even with the budget spending that provides employment, to which the Senator from Maine refers, we are in a bleak, tragic, persistent, and long-term period of recession and unemployment.
That is what the counter cyclical budget is intended to deal with – to provide jobs during the period we are in this trough, and under the terms that the program tapers off and expires as we move toward full employment.
By the terms of this amendment, the aid provided for employment expires after we have had two consecutive months of unemployment below 6 percent. This is a very cautious amendment. Many others have urged far more stimulation than is recommended here.
The other argument is, "Let us wait and see what happens." That does not provide jobs. That does not help us pull our way out of the recession. By the time we get to the September reconciliation period, this legislative session, for all practical purposes will be over. That is why I believe that in terms of sheer justice, this counter cyclical job-producing authority is needed at this time.
Mr. President, in yesterday's Wall Street Journal – a journal not known for its left-wing, anarchistic point of view – was an article entitled, "As Recovery Comes, It Won't Mean Jobs For Many Unemployed." In a thorough, in-depth evaluation, it points out the serious, continuing nature of our unemployment problem. I ask unanimous consent to have the article printed in the RECORD.
There being no objection, the article was ordered to be printed in the RECORD as follows:
[From the Wall Street Journal, Apr. 29, 1975]
AFTER THE TURN: AS RECOVERY COMES IT WON'T MEAN JOBS FOR MANY UNEMPLOYED — DEPTH OF RECESSION CITED; ANALYSTS FEAR POLITICAL SOCIAL, ECONOMIC EFFECTS; "A PIG & BOA CONSTRICTOR"
(By James P. Cannon)
(NOTE.-The U.S. economy is suffering the worst recession since the Depression of the 1930s. What caused such a severe slump? What are the prospects for recovery? What will a recovery mean for unemployment and inflation? How can economic stability be restored? This is the second in a series of artitles examining these questions.)
The nation's economists are nearly unanimous in predicting that the recession will "bottom out" soon and a recovery will get started this summer or fall.
Their reasons: Federal tax rebates and withholding cuts will start pumping billions of dollars into the economy next month; inflation is cooling, which means less erosion of consumer purchasing power; businesses are rapidly selling excess inventories, so factory production will increase; the stock market's rise and an improvement in consumer confidence also point toward a recovery.
But what the economists mean by a recovery may be of little immediate benefit to the laid-off construction worker, the housewife unable to find a part-time job, or the June college graduate with no prospect of employment. For many such people, the end of the recession may be a long way off.
"There is a tendency to think that the recovery means a prompt return to full employment, and that is wrong," says Leif H. Olsen, senior vice president and economist at First National City Bank in New York.
"What I stress is that the turnaround economists talk about is a statistical phenomenon. For the country as a whole, we will be operating at low rates of capacity and high unemployment for some time," Mr. Olsen predicts.
HERE'S THE RUB
Consider a fairly typical recovery forecast as an illustration. Otto Eckstein, a former White House economic adviser who heads the economic research firm of Data Resources Inc., predicts that "some kind of an early turnaround is virtually inevitable" because tax cuts will spur consumer spending. His forecast – more optimistic than some – shows the economy resuming a 2 % annual growth rate this quarter after falling at a record 10.4% in the first quarter. Then the recovery will produce healthy growth rates of 7.4 % in the third quarter and 5.9 % in the fourth period, he predicts.
That's a pleasing-looking "statistical phenomenon," all right, but what does it mean for unemployment: That's the rub. The Data Resources computers calculate that, after peaking at 9.3% this summer, the jobless rate will drift down so slowly that it will still be 7.9 % at the end of 1976 and will average 7.5% for 1977.
The problem is that the current recession is so deep that even a healthy recovery wouldn't restore economic activity to the pre-slump level until late 1976. Meantime, the working-age population keeps growing. Economists figure that it takes growth rates of around 4% a year just to absorb normal labor-force expansion, so actually whittling down the jobless rate – now at a post- Depression high of 8.7% of the work force – requires rapid and sustained economic expansion.
THE ECONOMISTS' DOUBT
Many economists and businessmen doubt the U.S. economy will grow fast enough to drop unemployment back to a more normal 4 % to 5 % range in the foreseeable future. "I don't think we will have either the capital or the energy resources to propel the economic growth" needed to achieve that, says R. Heath Larry, vice chairman of U.S. Steel Corp. "I think we will have a continuing high level of unemployment" for the next decade, he adds.
Economist Michael Evans, president of Chase Econometric Associates Inc., predicts that for the rest of the decade, at least, 6% will become a new jobless-rate plateau for the US
This means the U.S. probably faces the longest spell of high unemployment since before World War II. Even in the 1957-58 recession, the worst in postwar years until now, unemployment was at 7 % or higher only for eight months. Many economists now see another two years at 7%-plus joblessees, and the Ford administration's January budget projections had unemployment holding that high until mid-1978.
UNSETTLING EFFECTS
A long-term drought, economists and other analysts say, would have deeply unsettling effects:
In terms of job scarcity, women, blacks and young people will be hardest hit; they will form a huge pool of "discouraged" workforce dropouts not measured by unemployment rates.
Competition for promotion will intensify, especially in the swelling ranks of well-educated workers aged 25 to 34, the postwar baby-boom generation.
A glut of college graduates will have harder job hunting in the next few years, and many may have to accept unchallenging or boring jobs for which they are overqualified.
Conflicts between black and white, male and female, and young and old workers over jobs and promotions may increase.
Even harder to predict than the economic implications are the social and political consequencies of years of high unemployment. "I think we could be in for some serious social and political trouble before we are through with this," worries Gardner Ackley, a former White House economist now teaching at the University of Michigan. "The situation presents opportunity for populist politicians to really make inroads against the moderate leadership of both parties by playing upon people's dissatisfactions," he figures, mentioning Alabama's Gov. George Wallace and former California Gov. Ronald Reagan by name.
Black leaders are concerned that high joblessness will stall black economic progress. "I'm not predicting riots in the streets," stresses Andrew Brimmer, a former Federal Reserve Board governor, "but I am talking about economic stagnation." Mr. Brimmer, currently an economics professor at Harvard University, contends that the slow recovery path projected by administration officials implies a 10% to 11% black jobless rate in 1980 and says that "this means absolutely no improvement in the job status of blacks over the rest of the decade."
The Urban Institute, a Washington-based research outfit, recently completed a study of the recession's likely impact on job-market conditions for various worker groups. The institute's economists concluded that "virtually every major demographic group (will) suffer job losses, with the groups already worst off in the labor market being hit hardest."
The study compares prospective employment conditions in 1976 – using the Ford administration's projected average jobless rate of 7.9% – with employment conditions at a "normal" 4.9% rate. A leading conclusion is that much of the recession's impact won't show up in the unemployment figures because many discouraged job seekers will drop out of the labor market and thus won't be counted as unemployed.
This phenomenon already is evident. The Labor Department has been collecting data since 1967 on the number of "discouraged workers" who have given up looking for jobs. Up until this year, the total fluctuated between 550,000 and 850,000. But in the first quarter of this year, as the recession deepened, the discouraged-worker total jumped to a record 1.1 million, 73% higher than in the third quarter of 1974.
The Urban Institute economists count 4.3 million "recession victims" in 1976, including 2.8 million more unemployed than a normal jobless rate would produce, and 1.5 million discouraged workers. The uneven impact of the recession on various groups is illustrated in the following figures, comparing recession-level unemployment with normal unemployment, including the discouraged-worker effect:
For white males in the prime working ages of 25 to 59 years, the jobless rate rises to 4.6% from a normal 2.1%, but there is only a small dropout of 55,000 discouraged workers.
For white women aged 25 to 59, a category that includes millions of wives who want to work, the recession jobless rate rises even less – to 5.2% from 3.8%. But there is a massive dropout of 1.2 million discouraged women who give up the job search.
For black teen-age males, the jobless rate jumps to nearly 36% from a normal 23%; that is more than double the white teen-age male rate of 17%, which rises much less. The discouragement effect also is much higher among black teenagers.
"Women and blacks have made important gains in the job market in recent years," the study says, but "a long and deep recession can wipe out their hard-fought-for improvements. ... Where jobs are scarce, these groups will tend to be left cut."
There is another threatening aspect to the buildup of a vast pool of 1.5 million or more discouraged workers. When an economic recovery begins and they hear that chances of finding a job are improving, most of these "hidden unemployed" will start looking again. Their reentry into the work force then will tend to retard the decline in unemployment figures, economists say.
Other underlying trends that might have created difficulties even without a recession may lead to real trouble because of high joblessness. Key among these is the enormous bulge of young workers trying to begin and develop careers in a difficult economic environment.
Between 1970 and 1980, according to Labor Department figures, the number of people aged 25 to 34 in the work force will swell 51%, to 26.8 million from 17.7 million. These are the postwar babies, who will make up one-fourth of all U.S. workers by the end of this decade.
Arnold R. Weber, formerly assistant secretary of labor for manpower and now provost of Carnegie-Mellon University in Pittsburgh, says these workers face "ferocious competition on the career ladder" because of their sheer numbers. In typically colorful imagery, Mr. Weber says this bulge of ambitious, well-trained young people will move through the labor force "like a pig through a boa constrictor." The task of "digesting" this bulge, he believes, will be made more difficult by the demands of blacks, women and other minorities for good white-collar jobs. The typical would-be junior executive – the college-educated white male – will find not only 10 others just like himself competing for a promotion but also a couple of blacks, a couple of women and perhaps a Chicano or an Indian, Mr. Weber says.
He speculates that the consequences of this competition could include a "backlash" against programs to hire and promote more minorities and women, and a "pressure to push older workers out" of jobs by mandatory early retirement.
A related problem is posed by the millions of college graduates who will enter the labor market during the next few years. The recession and the prospects for slow recovery worsen their job chances.
"The late 1970s could very well bring a glut of college graduates with advanced degrees," reports Morgan Guaranty Trust Co.'s monthly survey. "What seems to be building up," adds the New York City bank's publication, "is a broad surfeit or trained individuals similar to the situation currently faced by elementary-school teachers and by engineers a few years back. Job dissatisfaction resulting from workers having to take jobs which they regard as below their potential and level of training thus looms as a possibility."
The anxiety and disillusionment already are setting in, says Mr. Weber of CarnegieMellon. Today's college students "are far more anxious" about their future than students of earlier years. "It is a switch from the psychology of abundance and opportunity to the psychology of scarcity," he concludes. "There is a gearing-down of expectation, a feeling that the student just might not get what he wants."
Mr. MONDALE. Mr. President, on the matter of taxes, I believe that the Senator from Maine is correct historically about tax reform, but I do not think he is right about this time. After 25 years of talking about repealing the oil depletion allowance, we repealed most of it. There is a different House and a different Senate, partly because the Senator from Maine went around the country and helped elect it. There is a Congress that now believes in tax reform. One of the most hopeful expectations of the whole budget process is that we will throw tax expenditures in alongside other expenditures in the overall calculation of our priority process.
Mr. MUSKIE. Mr. President, will the Senator yield?
Mr. MONDALE. I yield.
Mr. MUSKIE. I agree with the Senator that the climate has improved. I think we may have lost some of the muscle by including the oil depletion allowance in the tax cut bill, which has already passed, because that was a powerful force with respect to climbing oil profits and the energy crisis. I share the Senator's belief that perhaps the time is ripe, and I certainly hope so. He knows that I will join him in those efforts.
Mr. MONDALE. I agree completely. We have discussed often – it is a matter of record – our hope that at long last Congress will follow through on this. I offered the DISC proposal.
For example, Senator HUMPHREY has introduced a bill that would raise $5.7 billion through tax reform. Senator BIDEN has a bill that would raise $3.5 billion. Senator BENTSEN has a bill that would raise $3.1 billion. Senator HASKELL has a bill that would raise $20 billion. There are many proposals for quick change, and most of them are issues we have debated time and time again. With a different mood in Congress and, incidentally, with the change in our rules on making filibusters more difficult, I think the time has come to tell those of us in the Finance Committee and the Ways and Means Committee, "Let's get moving."
It is better to repeal the Western Hemispheric corporate preference rate and change such things as the disgraceful treatment of minimum tax and use that money to hire the unemployed than go to a meeting of unemployed people who are unable to care for their families and say, "We're sorry; we didn't have time to pick up that revenue, even though those preferences are justified."
For all of these reasons, I think the Senator from Maine was right when he voted with me in the committee.
Mr. EAGLETON. Mr. President.
Mr. HUMPHREY. Mr. President.
The PRESIDING OFFICER (Mr. HELMS). The Senator from Minnesota is recognized.
Mr. MUSKIE. I am happy to yield 5 minutes.
Mr. HUMPHREY. I shall withhold, Mr. President, if I may have the right to reclaim the floor after the Senator from Missouri has finished.
Mr. EAGLETON. I thank my colleague from Minnesota. I appreciate it. I shall be brief.
I wish to ask a series of short questions of the Senator from Maine with respect to the pending amendment. As a prelude to those questions, I make this brief statement.
I think the Senator from Maine would agree that there is still great uncertainty over the future direction of our economy. Some of the signs are favorable. Consumer prices, which were rising at a 17-percent rate just 6 months ago, are now down to about 4 percent. The prime interest rate has dropped from its high of 12 percent to about 7½. And some revival of consumer confidence has been reflected in the stock market, which has gone up 30 percent since December.
But, on the other hand, some signs are pointing to a deeper slump. The leading indicators are still falling, and the expected resurgence in automobiles and housing has not materialized, and
unemployment continues to climb.
As I understand it, the Budget Committee made the best estimates it could, and devised a set of targets appropriate to those estimates. But things could turn out to be either better or worse than
the committee estimated; such is the nature of our economic situation.
Thus my first question: Does the Committee on the Budget intend to monitor the progress of the economy, with a view toward reporting a new set of recommendations to the Senate should events invalidate the committee proposals before us now?
Mr. MUSKIE. Yes, the committee does, indeed.
May I make the point that we are not limited to a second concurrent resolution in September to change our estimates of the economy. We could report out a new concurrent resolution next week or next month, or at any time that a monitoring of the economy indicates the need to do so.
I have written today to Dr. Rivlin, the director of the new Congressional Budget Office, to solicit her assistance in monitoring the economy and in developing programs that will be more precisely geared to the economy and the need for stimulation, but that might die out later. I think that the monitoring function is a very, very important part of our responsibility.
Mr. EAGLETON. I think the Senator is eminently correct, because between now and September, should conditions change, the Committee on the Budget could then come forward with a new set of budget recommendations.
My next question is, would it also be possible to accommodate some of the additional anti-recession programs within the committee's current ceilings – cutting or postponing some of the base-level permanent programs – should a reordering of the priorities prove to be wise?
Mr. MUSKIE. That is clearly an option. As I pointed out earlier, the distinguished sponsor of the pending amendment, Senator MONDALE, voted for a $90 billion ceiling on defense. The committee as a whole adopted a $91.2 billion ceiling. There is $1.2 billion that I am sure Senator MONDALE would divert to a countercyclical recovery program. These kinds of priority judgments will be made by Senators from now on.
It is my hope that they will make balancing decisions. That is, if they want to spend more for recovery programs, they will accept the discipline of cutting somewhere else. Within that framework, there is ample opportunity, I say to the Senator.
Mr. EAGLETON. Moreover, it would seem to me that the various legislative committees should continue to propose the programs suggested in connection with the amendment before us. We then would have the option of incorporating them into the second concurrent resolution in the fall should they be necessary. So defeat of this amendment would not mean that we are prevented from passing the programs suggested, only that we must reconcile what we do over the summer come next fall. Is that not correct?
Mr. MUSKIE.. The Senator has expressed the philosophy of the act right on all fours. May I say that one of the primary candidates for a program that might be applied quickly in a countercyclical way is countercyclical fiscal assistance to State and local governments. That is a project that is well underway. Senator HUMPREY has joined with me and Senator BROCK in sponsoring it. It has been referred to committee. We have held some hearings in the Intergovernmental Relations Subcommittee already, and so it is beginning to build some steam.
That program is something that can be put into action quickly. The Committee on the Budget has endorsed it in principle. That fits the philosophy the Senator has expressed.
Mr. EAGLETON. In other words, a vote against the Mondale amendment is not necessarily a vote against the programs which the Senator from Minnesota associates with his amendment.
Mr. MUSKIE. The Senator is absolutely correct.
Mr. EAGLETON. I thank my colleague from Maine. I thank my colleague from Minnesota.
Mr. MONDALE. If the Senator will yield for a minute, that is true, because all we are doing in the contemplation of the law here is putting on an overall spending ceiling. But if the Senator will look at what we propose by way of countercyclical revenue sharing in the $4.5 billion figure, he will find that we specifically voted to knock out all money for countercyclical spending for aid to State and local governments. We voted in a way to exclude all money for health insurance for the unemployed. We voted to knock out all additional money for public service employment and public works.
Mr. MUSKIE. Will the Senator yield?
Mr. MONDALE. In just a moment.
When we come out on the floor and ask for more than is recommended in the countercyclical items set forth on page 39 under the separate category of temporary recovery programs, I have no doubt that we are going to be greeted by howls and catcalls as great spenders. It is true that we might be able to get it anyway, but we are going to have the additional burden of arguing that we are breaking faith with the ceilings contained in here.
Also, the only way we can do it is to take money from regular ongoing programs. Where are we going to get it? If we are going to take it out of the Defense budget, I would like to help, but we know we are not going to get it.
Would we like to take it away from food stamps or education or health, or put a cap on social security? We went through all of that. It is not easy to move any money out of those regular programs that are already in place.
So I think for all of those reasons, while the Senator from Maine is theoretically correct, in fact, the answer is no; there is not a dime in here. The Senator from Maine fought for money for countercyclical measures in this budget. I fought along with him. I think he is right. And we were defeated. But do not think we did not think about it.
Mr. HUMPHREY. Mr. President, will the Senator yield?
Mr. MUSKIE. I am happy to yield on my own time.
Mr. MONDALE. I yield on my time.
Mr. MUSKIE. No. 1, I do not notice the two Senators from Minnesota being very inhibited by the howls of anguish to which the Senator has referred. We have come here with a target outlays proposal and a deficit proposal. They are seeking to change it, which is their right. I do not know that they are inhibited particularly from doing so.
So this argument that, well, if the Budget Committee puts it in that blue book, somehow, that deprives them of their options is a little unrealistic.
Second, with respect to countercyclical revenue sharing, I asked that we not charge that $4 billion for that program against the $4.5 billion of recovery programs. There was no vote that it should not come from somewhere else. That is a decision that is left to Congress. We did not, as a committee, say it should come from nowhere else. I simply volunteered to take it away from the $4.5 billion, because that number was so small that it did not seem to serve any useful purpose to try to cover that, too. But that option is still available.
As I say, it is certainly available if we need additional countercyclical assistance.
One final point, because I do not want the RECORD to be misleading: We did not, to the best of my recollection, vote on health insurance for the unemployed. The only reference to that was included in a letter from Senator MAGNUSON to the committee, in which he urged a $31 billion outlay figure for that function. In his letter, he included health insurance for the unemployed in his list of new initiatives which he wanted to be considered. I do not believe the committee voted on it.
Mr. BELLMON. Mr. President, I yield myself 5 minutes.
The PRESIDING OFFICER. The Senator from Minnesota has the floor.
Mr. HUMPHREY. Mr. President, may I accommodate the Senator from Oklahoma?
Mr. BELLMON. I shall ask for the time later.
Mr. HUMPHREY. I thank the Senator.
Mr. President, I suppose the Senate has been going through an exercise here that can really be said to be of some historic importance. It is, without a doubt, the first time that there has been such an in-depth, prolonged, and, I think, solidly constructive debate over the overall fiscal policy of the Government, and it surely represents, in my mind, an approach that we should take.
The only regrettable thing about it is that we do not know what the monetary policy of the Government will be. And let me say very quickly and very definitely that all of the best-laid plans of the best of men will go down the drain unless there is an accommodating monetary policy to this budget policy. So let us just start out by knowing that what we are talking about here is two-thirds of the equation. We are talking about outlays on the one hand and revenues on the other. We are not talking about, nor has there been any full discussion of, nor does there seem to be any way that we can do much about, as of yet, the credit, the interest, and the money supply policy.
If there is one lesson that this Senator has learned this year, after intensive work as chairman of the Joint Economic Committee, it is that no matter how well we plan and design in Congress or in the executive branch to combat inflation and recession, to provide jobs, to add stimulus to the economy, all of it will be for naught, all of it will go down the drain, unless there is a coordinated policy or a complementary policy on the part of the Federal Reserve System.
Let this not be forgotten. We are here arguing only about a part of the total economic policies of this country. We are arguing about the differences between the two Houses of Congress on the one hand, and on the other hand, the difference between the President's proposal and the Senate proposal, and we have no way of knowing at all what the Federal Reserve System is going to do in terms of credit, money supply, or interest rates.
The PRESIDING OFFICER. The Senate will be in order.
Mr. HUMPHREY. Until we know that, there will be very little assurance as to the results of what we seek to do.
This is yet to be properly understood by Members of Congress, the public, and regrettably, may I say, some of those whom we look to educate the public, the members of the media.
The Federal Reserve System sits out there like a holy sanctuary, to be untouched, while we work down here in the pits of reality.
I want to repeat what I have said before: It is imperative that the Federal Reserve System join the team – the team of the executive and the legislative, the team of budget policy and tax policy, or there is not going to be any recovery. Or, if there is a temporary recovery, it can be scuttled overnight, as it has been on three different occasions, by the action of the Federal Reserve Board. I shall come back to repeat this message next year, unless that Board cooperates, and I shall be right.
Mr. President, I have heard it said here today that some of us did not have any prediction as to what is going to come. That is partly true and partly not. When the Joint Economic Committee issued its report in December predicting 7.5 percent unemployment, and some of us felt it would be much higher – the report, by the way, was unanimous, by all the House Members and the Senate Members, Democrats and Republicans – that report was accused, condemned, and repressed as being doomsaying, extravagant, exaggerated, and a host of other descriptive adjectives.
I have heard it said that we did not propose a tax reduction. I proposed a $10 billion tax reduction bill in Congress in June of 1974. We proposed a tax reduction bill in Congress in September of $20 billion.
Why? I served as a member of the Planning Committee for the President's Economic Summit Conference, and in the moments that I had for summation in that conference, I said that we needed a tax reduction bill then to combat recession. I took a position contrary to that of the administration officials at that time that the problem facing America was not simply inflation, which I expected to subside, as it has, but mounting unemployment and growing recession.
My distinguished colleague from Minnesota, in December of 1974, in his discussion with Roy Ash, the then Director of the Office of Management and Budget said that unemployment would most likely reach 8 percent or more. He claims no gifts of prophecy, but he does have good sense.
Mr. President, the big issue before us is whether or not the budget that we have here, insofar as Congress can do anything about the economy, will have sufficient stimulative effect to be able to get the country out of the recession slump and moving up on to the high road of growth, employment, and expanded productivity. That is what it is all about.
We have had before the Budget Committee, as the distinguished Senator from Maine has indicated, many witnesses. Many of those same witnesses have been before other committees of Congress, including the Committee on Banking, Housing and Urban Affairs and the Joint Economic Committee. And most of those who come before us, Mr. President, warn us that unless we do enough we are going to have a slump that will continue, and one that will continue to drag down this economy at unbelievable cost.
Let me raise my voice here in warning that if we do not do enough, there will be people who will say, "You see, deficit spending does not work."
They remind me of the person who has to take an antibiotic, and the doctor says, "Take two, four times a day, for 10 days."
The patient says, "Oh, those antibiotics are expensive, and these druggists are having an economic ripoff. I am not going to take two, four times a day. The doctor and the druggist are in cahoots, as we call it back home – so what I will do is take two in the morning, skip the one at noon, take two later in the evening, and one at night."
In other words, instead of taking two four times a day, which is eight, he takes six, and he says, "I saved, because each pill cost a dollar; therefore, I saved $2 a day," only to find out that he continues to have his infection, on and on and on.
Mr. President, regrettably that happens in medicine, and regrettably that is what can happen in the economy. It is better that we do enough, even on the safe side of doing too much, than that we do too little. I think it is important at this stage that we remember what the distinguished late President Franklin D. Roosevelt said was the duty of Government. He said that the duty of Government is not to see that those who already have too much shall have more, but rather that those who have too little shall have enough.
He also said that we should try, and it does not succeed, we should try again. That is what we are attempting to do here, in a most difficult situation.
We have a unique situation. For the first time in the history of this country, we have both inflation and recession at the same time.
It is as if the person had appendicitis and the appendix has burst, the patient may very well suffer peritonitis or gangrene but, at the same time, the patient has high blood pressure and fever, and the doctors are arguing, "Should we bring down the fever first, get the blood pressure down," and that is what one doctor says, and the other one says, "No, what we have got to do is operate now." The other doctor says, "If you do so, the patient will die."
We cannot afford to have this economic patient die. We cannot afford to have this Republic in more trouble. We have to do both things at once – help combat inflation by cutting unnecessary expenditures, while applying our fiscal resources to reverse a major recession and high unemployment.
The Budget Committee has done an excellent job of attacking this problem, and I am not here to condemn them at all, but to praise them.
Its report provides an honest, up-todate, realistic assessment of the fiscal situation. In most respects, the recommendations of the Budget Committee make reasonable good provision for our public needs while, I must say, at the same time eliminating some spending proposals which are either wasteful or of lower priority, and that is what this committee is designed to do.
There is, however, one important respect in which I think the budget resolution can and ought to be improved. We need more temporary fiscal stimulus in fiscal 1976. We need it because the economy is still very weak. We will not get the strong recovery which we must have unless we adopt a fiscal policy which does more to strengthen the economy.
Let me assure my colleagues who are worried about the budget deficit that our chances of getting rid of this large deficit are much better if we adopt an adequately stimulated budget. The deficit we face stems primarily from high unemployment and a lag in production. When we get rid of unemployment, when we stimulate production, when we get personal incomes and corporate profit back up to where they ought to be, we will have the tax receipts which will balance the budget.
Mr. President, the noted Nobel Prize winner, the distinguished Dr. Paul A. Samuelson, in Newsweek of May 5 1975, has a question and answer series in certain questions were posed to him and to which he responded. The question was:
Well, is our deficit too large? You are telling me how I can go about answering this one. I want you, with your expert judgmeet, to answer it for me.
Dr. Samuelson:
All things considered, I think the calendar Year 1975 needs a deficit larger than we have ever had in peacetime. A deficit of 6 percent of GNP would be about $84 billion – frightening to the layman but still 6 percent.
The price level in 1980 will be a bit higher with such a deficit than otherwise. But single mindedly seeking to minimize that price level would logically lead to your favoring continuation of the recession, and even a wish to let it slide into a depression.
A prudent target for annual real GNP growth in the recovery would be at least 6 percent for some time. The rewards justify the risks. A reasoned look at the feasible patterns of experience will show that there is no satisfactory course of action that is without real risks.
I ask unanimous consent that the entire article be printed at this point in the RECORD.
There being no objection, the questions and answers were ordered to be printed in the RECORD, as follows:
QUESTIONS AND ANSWERS
(By Paul A. Samuelson)
Here are my best answers to the questions economists are most often being asked these days.
Q. Is inflation cured?
A. Evidence suggests that now, and by the year's end, the annual inflation rate will have abated from 1974's two-digit rate to around the 4-to-7 per cent annual rate. If luck holds out on world harvests, Mideast peacefulness, and normal productivity trends, next year at this time the inflation rate can hold in this range.
There is no cogent evidence that we are on our way back to steady price levels. And no guarantee that inflation will never re-accelerate.
Q. How stands the recession?
A. The first-quarter GNP numbers are so bad that the experts are more confident than ever that the bottom is near at hand. At even odds, you should bet with the consensus forecasters: Drs. Eckstein of Harvard and DRI; Evans of Chase Econometrics; Klieg of the Wharton model. A swing in six months from $18 billion inventory accumulation to that much decumulation gives hope that inventories are nearing a satisfactory level. This attained, total spending and production should tend upward.
Slower inflation also helps. Final insurance is provided by the tax cuts that are soon on their way.
It is no sure thing that recovery will come before midyear, or be at a satisfactory pace. Housing and autos may not rebound smartly in response to credit ease and fiscal stimulus. Also, historically unemployment rates lag, continuing to rise until real GNP grows at the 4 per cent trend rate. Even if we were now at the recession's trough, unemployment would probably peak out at more than 9 per cent.
Q. Economists no longer disagree?
A. A silly question. Now that we have our tax-cut bill, we naturally divide over whether it's too much of a good thing.
Q. Is the deficit too big? Will it induce an unhealthy, over-rapid expansion? Crowd out investment?
A. One question at a time. And please realize that value judgments as well as objective economic science must be involved in policy decisions. Rep. Shirley Chisholm, who has a minority constituency in New York City, will properly give different optimal responses than a Florida congressman representing a constituency of retired people on fixed pensions. Their respective tolerances for inflation and unemployment risks will differ. And even where they happen to agree on probabilities, they'd disagree on the proper compromise to be selected in the trade-off between more jobs soon and less future inflation.
Here are some key conclusions.
1. The deficit is not "unmanageable"; far from it. The bonds will sell.
2. Each dollar of deficit will not eat up one dollar out of a fixed pool available for private investment. So whatever a "crowding-out effect" means, it does not mean that each extra $10 billion of deficit displaces $10 billion of equipment, construction, and inventory capital formation that would otherwise take place.
3. A deficit is "too large" when it leads to too rapid a rate of production and employment recovery. When it leads to intensification of "demand-pull" price and wage inflation. When the financing of it leads to such a bidding up of interest rates that an inordinate number of capital-formation activities can no longer afford to acquire the credit they require. And the deficit is too large if it forces the Federal Reserve to create more money than is good for the economy in its recovery period.
Q. Well, is our deficit too large? You are telling me how I can go about answering this question. I want you, with your expert judgment, to answer it for me.
A. All things considered, I think the calendar year 1975 needs a deficit larger than we have ever had in peacetime. A deficit of 6 per cent of GNP would be about $84 billion – frightening to the layman but still 6 per cent.
The price level in 1980 will be a bit higher with such a deficit than otherwise. But single
mindedly seeking to minimize that price level would logically lead to your favoring continuation of the recession, and even a wish to let it slide into a depression.
A prudent target for annual real GNP growth in the recovery would be at least 6 per cent for some time. The rewards justify the risks. A reasoned look at the feasible patterns of experience will show that there is no satisfactory course of action that is without real risks.
Mr. HUMPHREY. Mr. President, this afternoon I thought I would just discuss some of the current economic situation and the outlook as I see it for this year and next. I am also going to present some information which we have just received on behalf of the Joint Economic Committee in its efforts to investigate the financial aspects of the budget deficit.
When the Joint Economic Committee reported to the Budget Committee early in March, we warned that the output would fall at least as rapidly in the first quarter of this year as it did the fourth quarter of last. Unfortunately, we were correct.
We further warned that output would likely continue to decline in the second quarter, and again we were correct.
We warned that the unemployment rate was likely to rise somewhere between 9 and 10 percent in the second half of 1975, and remain about 9 percent in the early months of 1976.
Unfortunately, this still appears to be the outlook. In fact, administration spokesmen have now said that they, too, expect unemployment to rise above 9 percent.
The same thing is indicated in the typical private forecasts.
Moreover, recent indicators, such as housing starts, building permits, automobile sales, surveys of consumer buying plans indicate that the economy is still weak, and a strong recovery is by no means assured.
The tax cut, which Congress has now enacted, will help. In fact, it is at least in part because we have enacted this tax cut that we can expect output to rise rather than fall in the latter half of this year.
If major components of the tax cut are extended, as is anticipated, we can also expect that the output will be rising rather than falling in 1976.
But the question is, will it be rising fast enough?
Remember that output has to grow about 4 percent per year just to keep pace with the labor force increase and productivity growth – that is, just to keep the unemployment from rising further.
Obviously, it is not enough just to keep unemployment from rising. We have to get it down.
The Joint Economic Committee recommended last March that we must follow policies designated to make real output grow, not at 4 percent, but at least 8 and 9 percent from late 1975 to the end of 1976 and, Mr. President, I have yet to find anybody who has testified before us who does not say that is essential.
When are we going to start to listen to the facts?
If we want to get unemployment down to 7 percent by the end of next year or early 1977, this is the kind of output growth that is required, and 7 percent unemployment is still a national disgrace.
After careful analysis, I have reluctantly concluded that the fiscal policy recommended currently by the Senate Budget Committee would not give us the output growth which is needed this year and next. The Budget Committee does not think so either because in its report it states that the policy recommended would bring unemployment down to 7.5 percent by the end of next year, and we think this is just not good enough.
Therefore, if we adopt the Mondale-Humphrey amendment, our chances of achieving a real vigorous growth of output during next year will be greatly improved. We can realistically hope to get unemployment down to 7 percent by the end of next year. I wish, of course, that it could even be better than that. By conservative estimates the Mondale-Humphrey amendment would increase employment by more than half a million jobs by the end of next year, and that is a lot of jobs, and we need every one of them.
I hope and pray, Mr. President, that the people can look to this Congress to give them back their jobs, and to do it now. We represent the people. We are the only hope of effective governmental action. Therefore, how can we afford to be timid when they are experiencing great personal tragedy?
Now, there is nothing fiscally irresponsible about the Mondale-Humphrey amendment. Our intent is that all the additional funds provided would be spent for emergency job-creating programs. The outlays would not become available unless unemployment remained above 8½ percent over the next 3 months.
Mr. President, how can we justify sitting back here and letting unemployment remain over 8½ percent? That is gross fiscal irresponsibility. That is draining the life blood out of this country.
The outlays would automatically cease under the Mondale-Humphrey amendment as unemployment diminishes. There is nothing in this amendment that would prevent our balancing the budget – indeed, running a surplus once full employment is regained. Indeed, it does not commit us to a long-term drain on the Treasury. It only functions when unemployment is at a disastrous level, and it helps put money in the Treasury.
Our program could be funded, and it would provide, for example, antirecession grants to State and local governments. State and local governments cannot run budget deficits. They must cut back on their services or raise their taxes, and either of these is a disastrous policy in a recession.
This is not a theoretical problem, as we all know; it is not a potential future problem. These things are happening right now in the cities. Cleveland has been forced to lay off 1,100 workers; Detroit, 1,500; Wilmington, Del. has had to reduce its fire department by 11 percent; other city departments have personnel cuts up to 40 percent. One-third of 67 small- and medium-sized cities surveyed by the National League of Cities, have had to cut their payrolls; over half have postponed essential capital expenditures; two-thirds found their revenues falling short of anticipated levels; almost half are expecting to enact some form of tax increase in 1975.
This is why Senator MUSKIE, I, and others are sponsoring legislation which, if passed, would provide emergency aid to State and local governments. The aid would be tied to the unemployment rate.
This program has been strongly supported by the economic experts who have testified before the Joint Economic Committee. The Joint Economic Committee recommended this type of program in the 1970-71 recession, and had we had this program in place at the beginning of the present recession, it would have provided an additional automatic stabilizer which would have kept the recession from becoming so deep.
If this amendment meets the test of need – and it does – and if this amendment meets the test of fiscal responsibility, which it does, why should there be opposition to it?
Well, let us face it, I think some of the opposition springs from fear, fear of the reaction that we will get from our constituents if we support a larger budget deficit.
The only way to overcome fear is understanding and education. First we need to educate ourselves; second, we must educate the public.
Let me lay out some facts about the budget deficit. The Mondale-Humphrey amendment would add an estimated $3.5 billion to the budget deficit.
We propose $2.5 billion of tax reforms.
It has been said that is difficult. I do not think the reforms we propose, such as elimination of DISC, such as a minimum tax, which is required, and one or two others, would be that difficult.
In addition, it is estimated $3 billion would be raised through additional tax receipts, which will come from a higher level of economic activity.
Thus, the $9 billion in proposed additional outlays would add only $3.5 billion to the budget deficit.
Now, Mr. President, the President's deficit, in realistic terms, is about $68 billion, the Senate proposed deficit is $67.2 billion, and our deficit figure would be $70.7 billion.
Mr. President, there have been no economists that have appeared before the Joint Economic Committee, nor has there been any businessman that appeared before the committee, that thought that was an unmanageable deficit.
The only people before that committee who were horrified by that deficit were administration officials.
Might I say, the deficit grows regardless of what Congress does simply because of rising unemployment which, in turn, saps the economic strength of this country and diminishes revenues.
With the Mondale-Humphrey amendment included, the budget deficit in the Senate resolution would be $70.7 billion. This is about $3 billion less than what the House Budget Committee has already recommended.
This entire budget deficit comes from high unemployment.
Mr. President, I ask unanimous consent to have printed in the RECORD a table prepared by the Joint Economic Committee showing a full employment budget, assuming House Budget Committee recommendations.
There being no objection, the table was ordered to be printed in the RECORD, as follows:
[Table omitted]
Mr. MUSKIE. Will the Senator yield?
Mr. HUMPHREY. Yes.
Mr. MUSKIE. I am a little puzzled, the Senator minimizes the difference between the committee's deficit, said it is only $2 or $3 billion, but then states that this difference that is going to create millions of jobs, according to the Senator's argument this afternoon.
The implication–
Mr. HUMPHREY. No.
Mr MUSKIE. The impact on unemployment is going to be enormous, but the difference in deficit
Mr. HUMPHREY. No, Senator, I said about half–
Mr. MUSKIE. or under ours?
Mr. HUMPHREY. No, under the Mondale-Humphrey amendment. Under the Budget Committee's proposal, unemployment at the end of 1976 is going to be over 7 percent.
Mr. MUSKIES. Is going to be 7 percent higher?
Mr. HUMPHREY. We predict it would be above 7 percent.
Mr. MUSKIE. And those predictions are as good as the predictions of last fall which said unemployment would peak at a lower rate than has subsequently developed.
Mr. HUMPHREY. May I say most respectfully to my colleague, in my own judgment I think it would stand a pretty good test. As I said earlier this year, we could expect high rates of unemployment long before Mr. Meany ever said 10 percent on "Face the Nation." The Senator from Minnesota said it in the Joint Economic Committee.
I understand the variables here. All I say is when we put the figures into what we call the models, like Chase Econometrics or Horton, we come back with figures. At best, these are estimates.
There is room for mistakes.
The only point is, there is a slight difference between what the Senator's Budget Committee recommends and what we recommend. Part of the reason that our estimated budget deficit increase is limited to $3.5 billion is that we believe consequent developments will generate more revenue.
Mr. MUSKIE. But that is the point I addressed earlier to which the Senator has not responded, this business of generating additional revenue out of tax reform.
Mr. HUMPHREY. I am talking about just increased economic activity which generates revenue.
Mr. MUSKIE. If the outlays are in the right direction.
Mr. HUMPHREY. Correct.
Mr. MUSKIE. I mean, if, for instance, a significant portion of the outlays are in health insurance for the unemployed, that will not generate those kind of revenues, and the Mondale amendment does not spell out the differences. It recommends health insurance for the unemployed, public service employment, countercyclical revenue sharing, and so on.
The additional revenues that would generate, not applied to health insurance for the unemployed would be $1.5 billion, according to the best advice available to us.
Mr. HUMPHREY. We have problems with our economic advisers.
Mr. MUSKIE. Which is my point.
Mr. HUMPHREY. I do not deny, Senator, there is an uncertainty here.
Mr. MUSKIE. But what gets me is this, I listened all afternoon–
Mr. HUMPHREY. I only say–
The PRESIDING OFFICER. All time of the Senator from Minnesota has expired.
Mr. HUMPHREY. It cannot possibly be.
Will the Senator yield?
Mr. MUSKIE. My time has expired.
Mr. HUMPHREY. The Senator will yield me some time.
Mr. MUSKIE. Mine has expired, I do not have any.
Mr. HUMPHREY. I will take some more from my colleague, another 10 minutes. I am a joint sponsor of the amendment.
Mr. MUSKIE. Can I share some of that time?
Mr. HUMPHREY. Not much.
[Laughter.]
The PRESIDING OFFICER. The Senate will be in order.
Mr. HUMPHREY. I would hold my distinguished friend to the line.
Mr. MUSKIE. Then the Senator should finish what he has to say, and then I will come in.