October 13, 1978
Page 36776
Mr. MUSKIE. Mr. President, I am proud to join Senator HUMPHREY in sponsoring this amendment. We have had long years of association together in joint ventures, one of which, in 1968, I shall never forget; and I shall never forget the economic numbers that the economy was favored with in that year.
The unemployment rate was around 3.5 percent. and the inflation rate was about 4.5 percent; and we faced criticism wherever we campaigned that that was not good enough. I suspect all of us would gladly exchange today's numbers for those numbers of 1968. But in any case, that is a bit of nostalgia, and I think our fellow Senator is right. That is what prompted me to join her in this amendment.
As I understand the pending bill, it will mandate that we achieve 3 percent unemployment by 1983 and 0 percent inflation by 1988. No one in this Chamber would disagree with those as objectives and goals. Moreover, we wish we could enjoy either one of them, as of last week, or last year, or 5 years ago.
But the question of achieving that rate of inflation and setting it as a goal are two separate things.
Senator HUMPHREY'S amendment reads in part as follows:
Reduction the rate of inflation, as set forth pursuant to section 3(e) of this Act, to not more than 3 per centum at the earliest possible time: Provided, That this objective shall in no way qualify or alter the goals and timetables for the reduction of unemployment or the goal of full employment and shall be pursued in a manner that reinforces rather than conflicts with those goals and timetables. For purposes of this subsection, the first Economic Report shall be the Report issued in the first calendar year after enactment of the Full Employment and Balanced Growth Act of 1978.
Upon achievement of the 3 and 4 per centum goals specified in subsection (b) (1), each succeeding Economic Report shall have the goal of achieving as soon as practicable and maintaining thereafter full employment and a balanced budget.
Upon achievement of the 3 per centum goal specified in subsection (b) (2), each succeeding Economic Report shall have the goal of further reducing the rate of inflation: Provided, That this objective shall in no way qualify or alter the goals and timetables for the reduction of unemployment or the goal of full employment and shall be pursued in a manner that reinforces rather than conflicts with those goals and timetables."
Mr. President, I think the debate we had earlier on the Proxmire amendment, which undertook to establish the Government's outlay share of the gross national product, highlights the difficulty of achieving particular inflation goals in particular years. It was repeated over and over again in support of the Proxmire amendment that all he was shooting for was something that the Senate Budget Committee had already established as a goal in the Budget Committee's report on the Second Concurrent Budget Resolution, and that was true: that for 1983, we had established the goal of an outlay GNP share of 19.9 percent.
If that is a valid target for 1983, what did that projection show for potential unemployment in that year? It showed unemployment at 4.5 percent, following the underlying economic plan of the
budget resolution — 4.5 percent in 1983, not the 4 percent that we are talking about in Humphrey-Hawkins for 1981, but 4.5 percent in 1983.
What did those projections say about inflation? Inflation — that is, the rate of change of the Consumer Price Index — in 1983 would be 5.9 percent. Not 0 percent, not 3 percent, but 5.9 percent.
Those three figures, Mr. President, have identified the difficulties of achieving the maximum with respect to unemployment, inflation, and the government share of the GNP in accordance with pre-established goals.
The Proxmire amendment was argued in terms of the outlay share of the GNP, and this report was cited as authority for the reasonableness of that goal. Yet here we are, faced with a target in the bill of 3 percent unemployment in 1983, when this same report, following the moderate economic plan which established 19.9 percent goal for the outlay share of GNP, tells us that 5.9 percent inflation is the best we can expect to achieve in 1983.
With those kinds of interrelationships, Mr. President, what sense does it make for us, in 1978, to say that at one and the same time, in one and the same year, we are going to get 19.9 percent outlay GNP, we are going to get 4 percent unemployment or better, and we are going to get 3 percent inflation or better, when sensible economic projections tell us that is not possible?
To me, this demonstrates the difficulty and the irrationality of trying at this point to tie dates, unemployment rates, and inflation rates.
The Humphrey-Muskie amendment establishes 3 percent as a desirable goal at the earliest possible date, and we all prayerfully hope for it; we all certainly will prayerfully work for it. Why can we not do it more simply than that? Well, because not all the factors influencing the inflation rate are under our control or even under the Government's control. Budget deficits are an influence, depending upon the state of the economy. We are achieving that point in the expansion when continued Government deficits are a definite threat of inflation.
So we do have the obligation of undertaking to control budget deficits. I think the record this year demonstrates that we have done remarkably well considering the pessimism with which many of us approached that challenge. We must do better. The Budget Committee is committed to doing better. But to try to pick the year and the date at one and the same time to meet all three of these goals is unrealistic in the extreme.
Mr. President, it is particularly difficult to set and achieve inflation goals because inflation is affected by many factors over which we have no control.
OPEC is one example. What will OPEC do with prices? We know they quadrupled energy prices 4 years ago. We know they have considered raising prices still more in the intervening period. We know that the declining value of the dollar is undoubtedly an incentive for them either to base their prices on other currencies than the dollar or to raise their prices. So OPEC action on oil prices is a key factor in the inflation outlook that we cannot predict or control.
Farm prices are another example. We have learned over the last 4 or 5 years the effect that farm prices have on the rate of inflation.
Weather, both here and in other parts of the globe, affects crops which in turn have a major impact on inflation. Yet, weather is another factor over which we have no control.
To pretend to the American people that we can pass a law today that will achieve3 percent inflation by 1983 and zero percent inflation by 1988 is to hold out expectations that we have no basis for believing. Maybe for dreaming, but not for believing that we can achieve these rates by that date.
The committee projections that I have already discussed indicate that inflation will slow to a rate below 6 percent, but the best that we can expect by 1983 is 5.9 percent. That is not the goal we would like to achieve. It may not be a sufficiently ambitious goal. But it is a realistic goal.
Right now, no one knows — no one knows — how we could reach a 3-percent goal without, of course, having a deep and long depression. A good goal for the present is to get inflation below 6 percent and to keep it below 6 percent as we move toward our unemployment goal.
I have often been asked, because I am chairman of the Budget Committee and I am supposed to have all the answers, "Senator, why can we not do better than 6 percent?"
Well, the economists tell me, and I have to depend upon economists — theoretically, I am a lawyer, but I have forgotten how to be a good lawyer again, and I am not sure that I am even a good Senator
Mr. SARBANES. If the Senator will yield, I will not speak of him as a lawyer, although I have no doubt he is first-rate in that area but clearly the Senator is extraordinarily able as a U.S. Senator.
Mr. MUSKIE. I thank the Senator.
What I have heard from the economists about inflation is this, that for the last 2 or 3 years at least we have had what they refer to as underlying inflation. That underlying inflation comes from the inclination of people, all people, to recover the income they lost to last year's inflation. Everybody wants to do that, whether he or she is a social security beneficiary, a Senator trying to live on a Senator's salary in high-cost Washington, or lower middle income people back home in my State working in the textile mills and shoe factories. Everybody would like to recover the loss attributable to last year's inflation. In many cases they are able to recover that loss because their income is indexed. Social security benefits are indexed; other Government programs are indexed.
But even with respect to programs that are not indexed, people still, in labor-management contracts or in the prices they set for their goods, try to recover last year's loss of income attributable to erosion.
The net effect of all of that effort, which is almost universal, is a guarantee, almost a guarantee, of 6 to 6.5 percent inflation even if we have ample crops, even if OPEC does not increase energy prices, even if there is not some sudden surge of price increases due to some unanticipated event. We have been getting 6 to 6.5 percent inflation that nobody, no economist who has come before our committee, has an answer to.
If we tell people that their attempt to recover last year's loss attributable to inflation in itself contributes to inflation, they are aghast. "How can it possibly be inflationary for me to recover what I lost to inflation last year?" Yet the fact is if all of us recovered what we lost to inflation last year, this year's inflation would be running at a minimum of 6 to 6.5 percent. That is what we call underlying inflation, and it is a serious problem.
Then when you have special circumstances coming in, like food prices this year, then inflation begins to jump above the underlying inflation. We are up to 6,7, 8, and there are those who say we are close to double-digit inflation again because of unexpected events which have triggered higher inflationary pressures.
Well, with that kind of a situation, we have an enormous problem. It may well be that the President, as he develops wage-price guidelines, will find a way to get each of us in on the fight against inflation. It may be that we may have to get wage and price controls.
I was a price administrator in the Korean war for 1½ years; controls worked for a short time. But inevitably after controls end there is another surge of inflation. We may need that kind of a shock. I am not advocating it. But to get to 3 percent inflation by 1983, and putting that as a national goal against which we must balance these others, could well be counterproductive, as I see it.
So I think it is much wiser to adopt the Humphrey formulation in which we definitely set 3 percent or better inflation as a national goal and not pick the exact date, but try to pick the earliest date possible. That gives us flexibility in our budget process. It gives us flexibility in the Senate when we want to influence monetary policy, or whatever, to get an earlier result. We can do that. But to try to put these kinds of figures into these kinds of specific dates I think is really to raise expectation beyond what is realistic.
The difference between myself and my good friend from Wisconsin really seems to be a matter of means rather than objectives. I never challenge his motivation on means. I know he has his own reasons for his position.
I guess it is about time I yielded so he could give us his reasons.
Mr. PROXMIRE. I thank my good friend from Maine.
Mr. President, I yield myself such time as I may require. I shall not take very long in this.
Mr. President, this amendment, instead of providing that we shall reach a 3 percent inflation goal by 1983, says we shall reach the 3 percent inflation goal at the earliest possible time.
Meaning when? It means not in 1983. Does it mean 1993, the year 2000, 100 years from now? It does not mean anything. It is like saying I intend to take off 10 pounds, but when? I am going to stop smoking, but I am not going to tell you when I am going to do it.
If you have a goal without a timetable, it has absolutely no meaning whatsoever; it is just like rhetoric. You might as well say we are going to try to hold down prices, but we will not tell you how much.
To show the effect of this amendment, I challenge the supporters of this bill to apply the same language to what the Senator from Maine suggested — unemployment. Let us make the unemployment goal 4 percent but not set the date. Can you imagine the reaction of labor and the coalition to that? They would be outraged. They would think it was the worst betrayal they ever heard of. And they would be right, because it would not mean anything. A 4-percent goal sometime out in the distant future, whenever we get around to it, would be something that they cannot possibly support.
Mr. HATCH. Will the Senator yield on that point?
Mr. PROXMIRE. I shall in just a minute.
What is wrong with a 3-percent goal by 1983? The Senator from Maine has made a very strong case that economists say you cannot achieve it. I think those economists simply have not looked at the figures. The fact is that in every year from 1959 to 1967, we were below 3 percent inflation. Were those years of recession? They were the years of the longest continuing expansion and growth this economy has ever had — ever had. Continuous.
What was unemployment during that period? It declined consistently.
Was it below 4 percent? You bet it was.
In 1964, it was 3.8 percent. In 1965, 3.6 percent. In 1966, it was 3.5 percent.
So here we had growth, which we want to achieve, we had inflation below 3 percent, we had unemployment below 4 percent. What we are asking is simply to be able to work toward that historical record we have already achieved.
Mr. President, this is an issue which is overwhelmingly supported by the American people. Every poll — every poll, whether it is Gallup, Harris, your own questionnaire — indicates that the majority of the people feel the most important question facing this country today is not unemployment, which has been improving, but inflation. People are deeply worried about inflation. The latest poll says the majority of the American people feel that is the most important. George Meany, 3 weeks ago, said inflation was the most important economic problem facing this country today.
Mr. President, if we adopt this amendment, will it hurt our progress toward achieving the unemployment goal? I have worked this out and I have talked to Leon Keyserling, who is the author of the Employment Act of 1946. He agrees that the tradeoff is taken care of here.
We provide that policies and programs for reducing the rate in inflation shall be designed so as not to impede achievement of the goals and timetables for the reduction of unemployment. The goal of full employment shall be pursued in a manner that reinforces rather than conflicts with those goals.
Mr. President, we have provided here that the priorities shall be for unemployment to be reduced first. That is what we provide in the bill. But we also provide that there shall be a numerical goal that the President of the United States has to meet when he recommends policies to the Congress, that Congress has to meet when we adopt policies to reduce unemployment.
Mr. President, for all that has been said about how we are doing well, this is one area where we are doing very poorly indeed. We have reduced unemployment somewhat. We have had a reasonable growth in this country in the last few years. But inflation is a raging, serious problem. What we have done so far has not begun to meet the seriousness of the inflation that we suffer. We obviously need to adopt policies that will do so.
Mr. President, the Senator from Utah wanted me to yield.
Mr. HATCH. Yes, I did.
Mr. PROXMIRE. Does he want me to yield time or yield for a question?
Mr. HATCH. Perhaps the Senator will yield some time, and I shall take some time on this and make some points to follow up on his statement.
Mr. PROXMIRE. I yield 5 minutes.
Mr. HATCH. I am very grateful to the distinguished Senator from Wisconsin. Mr. President, I am very concerned with this amendment, because literally, this amendment, if it is voted up, takes away one of the most important aspects of the work that has been done for the last 3½ days — I might add work that I have put an awful lot of time and sweat and pain into.
If we stop and think about it, if it is only right to do away with the timetables on inflation which put some balance into this bill, then why do we not do away with the timetables on unemployment and those goals? Why do we not be fair both ways? Because everybody knows that that is what this bill is involved with.
There are some of us who want the bill to work, but work realistically. I, for one, want there to be a vote on this bill. There are too many people who deserve to have a vote, who are anguished over this bill, and who feel that it will do them some good — and it may, especially if we keep the spirit of what we have been working on the last few days.
I do not see how we can with this amendment. I am not sure that I can see how we can if we do not keep this provision in this bill.
The vote on the other amendment has taken away the limitation on Federal spending as a percentage of gross national product. I am willing to abide by the will of the Senate with regard to that, even though I am tremendously disappointed that that has been taken away because I think it is a very realistic and fine amendment and approach to this bill.
Last evening, I talked with almost every important person who wants this bill and some today, and not one said they could not live with this provision in this leadership amendment. In fact, they all said they could live with that. They all complained to me about the limitation on spending as a percentage of gross national product because they felt if that were allowed in this bill, that would be used against certain programs they would like to have next year or the year after, or sometime in the future.
But not one said they could not live with this provision as it is stated in toto in the leadership amendment which has, as I said before, taken an awful lot of sweat and pain and work by the people to whom I pay tribute, those who did sweat and pain and work on this. What little I can contribute, I did my best to contribute.
If we are going to just treat cavalierly the concept that we should have inflation goals in this bill, which has been a bottom-line approach to this whole debate, to this whole consideration of having a time limit on this agreement, then I think it is wrong. I think we ought to well think it through.
I do not want to take any more time. I am just terribly disappointed with this amendment under the circumstances. I ask my colleagues to honor the work that a number of us did in putting this amendment in this leadership amendment. That is all I can ask for. I hope that my colleagues on the floor will recognize what we have tried to do and that they will give us some credit for doing it by voting this amendment down and then retaining, thereby retaining, the language that has taken so much effort and so much compromise on the part of all of us to obtain.
The PRESIDING OFFICER (Mr. HODGES) . The Senator's time has expired.
Mr. HATCH. I yield the Senator from Indiana 10 minutes.
Mr. LUGAR. I thank the distinguished Senator.
Mr. President, let me review for just a moment what some of us hope might come from this act and why we believe that it might be important.
I stress the word "might" because there are three elements that are very important as the President takes a look at our economy. They include jobs for every American who wants to work. They include Federal spending. They include inflation.
My colleagues will note we have knocked out the Federal spending limitation with what some of us believe are simply bland assurances. Although we have been specific on jobs, we can only hope for the best with regard to Federal spending.
As the distinguished Senator from Wisconsin has pointed out, of all the elements in the Humphrey-Hawkins bill, Federal spending is the one over which we do have control and it has been the one in which this Congress has not exercised the control that it should. We all bear responsibility for that and the American people want us to cut it out.
They want spending limited, and they are sending that message loud and clear.
Our colleague from New York (Mr. MOYNIHAN) pointed out so well this morning when he said, "proposition 13 is a debate on how much of the wealth in this country ought to be utilized by Government as opposed to private individuals who are trying to make choices for themselves."
The public is voting for us as individuals, not for us as public servants to spend more.
Yes, even in this body today, we have said we know proposition 13 is out there somewhere, but we do not recognize it in a central act of economic planning which we are prescribing for the Nation, for the President, for ourselves. So be it. But we come now to the third element, and that is inflation.
The distinguished Senator from Maine has said it well. Economists are baffled about inflation. They are not certain how we can control it.
In fact, the distinguished Senator from Minnesota has listed the distinguished economists who are uncertain whether zero inflation is possible. Some would say 3 percent inflation might be very difficult.
But I would simply say to my colleagues that the gist of this bill must say clearly to working Americans that if we have jobs for all people, we had better make certain the wages they earn are worth something.
What a cruel hoax, to have a full-employment bill and to give the impression that somehow a job in an economy in which inflation runs at 10 percent annually, compounded forever, somehow is going to work out to economic success, stability, and happiness for those individuals. That is nonsense.
Some will say, and I would be among them, that the goal of 3 percent inflation may very well be impossible. It may very well be that not only would the permission given the President to alter the goal be necessary, it may almost be a fact of life as time goes on.
One redeeming feature of the American scene is the demographics, which means simply that young people coming into the economy in coming years will be fewer in number, and perhaps the whole situation will do well to solve itself, if we do not bungle it in Government.
It is conceivable that the private economy, without harassment by Government, might employ individuals and bring a lower standard of unemployment. But inflation is not going to cure itself that easily.
We have as a central focus in front of us today, whether we are serious, truly serious, in government about inflation.
It is so easy to say that rising expectations of inflation fuel inflation. It is easy to say the OPEC nations must have been responsible, that bankers do not know what to do, that someone seeing 10-percent inflation will ask for an 11-percent raise. All these things are true and are totally to the mark on what we are trying to take a look at here, and also to anything that can be done by the Federal Government to contribute to the demise of inflation.
What we are saying is, "Not very much," as a matter of fact. But we are saying that we anticipate it is going to be the same old stuff. It is going on and on. Therefore, rather than clutter up a bill on economic planning with inflation, let us have a pious sentiment that full employment ought to come about in the country and hope that will happen. This bill suggests that we do not even make certain that happens in a particular year, because we admit that if we cannot control our own spending, and cannot attack inflation, it is very unlikely we shall do much about employment, either.
Either this bill means something, or it is a hoax, and I would say we are coming down to the bottom line on this amendment.
If this body is unable or unwilling to set a goal on inflation that is equally as rigorous as on jobs, in my judgment, this bill will not make a whole lot of difference to anybody, and that is a sad comment.
It has been made already by many Americans, a shell of a bill, a hoax.
Some of us have tried to turn it into a bill that means something, and it could mean something if we said that 3-percent inflation by 1983 and zero by 1988 shall be our goal, in the same way we say zero unemployment shall be our goal by 1983 with 3 percent in frictional unemployment.
That is a parallel course.
Both may be unattainable, but both are dreams worth pursuing.
I trust the chairman of the Budget Committee, the distinguished Senator from Maine, because he does have, with the distinguished Senator from Oklahoma, a track record of 4 years of maybe doing better than the guideline earlier in this draft on spending.
Maybe we must rely upon that track record, which is a strong one. But the track record on inflation—
Mr. MUSKIE. Will the Senator yield?
Mr. LUGAR. I am happy to.
Mr. MUSKIE. It is a little ironic my track record is held up as a promise for the future, yet my own evaluation of that track record is not accepted as worth very much.
I just have not found it possible, and the committee report to which I referred indicated it is not possible, to set a specific date for all these goals that ought to be achieved at one and the same time. It just is not possible.
I can juggle one ball in the air, and maybe if I am rested I can juggle two, but when you give me three, they all fall to the ground.
I guess, in a sense, I prefer to rest on the budget process to achieve what we need to achieve. We all know that we need to get down to 4 percent or 4½ percent unemployment, or better, if we can. We need to get down to 3 percent or better inflation. We need to get Government spending down to 20 percent, or even 19 percent. We all know that.
I think, frankly, that together, and it had to be together, we have made remarkable progress, especially this year. I was disappointed before this year, somewhat. But we have made remarkable progress.
If we are to set some goals, I would like, to the extent possible, to make it sufficiently realistic so that we do not raise expectations beyond what we, ourselves, believe can be achieved.
I am not sure how far apart the Senator and I are; but with respect to the difficulty of achieving all this, I think he and I are probably looking at the same goals.
I just wanted to make those observations. I am not an ideologue in this whole field at all.
I am sorry if I have used up too much of the Senator's time.