April 24, 1979
Page 8411
Mr. MUSKIE. Mr. President, I yield 5 minutes to the distinguished Senator from Texas. Following his remarks, I understand the distinguished Senator from Virginia, Senator BYRD, will offer a CETA amendment, as to which we have agreed to a 1-hour time limitation.
Mr. ROBERT C. BYRD. Mr. President, I make that request, that there be a 1-hour time limitation on the Byrd amendment.
The PRESIDING OFFICER. Is there objection? Without objection, it is so ordered.
Mr. DOMENICI. Mr. President, will the Senator yield for a unanimous consent request?
Mr. BENTSEN. I yield.
Mr. DOMENICI. Mr. President, I ask unanimous consent that Lititia Chambers, of the Committee on Labor and Human Resources, and Jeff Lewis, of the Special Committee on Aging, be granted the privileges of the floor during the remainder of the debate on this matter.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. DOMENICI. I thank my friend from Texas.
Mr. BENTSEN. Mr. President, I rise to state my admiration for the job the chairman and the ranking minority member of the Budget Committee have done in bringing forth this budget resolution, and for the contribution they have made in meeting the responsibility of trying to do a workmanlike job in setting this country on its proper course.
The discussion for the last 2 days has been permeated by concerns about the size of the Federal deficit.
The Joint Economic Committee has reviewed this issue very carefully, and I wish to reiterate some of the views we expressed in our annual report to the Congress.
The most important point was stated early in the JEC's report. Let me quote:
The Joint Economic Committee strongly endorses the adoption of budgetary policies designed to achieve the reduction in the deficit projected by the Administration forfiscal year 1980.
We are firmly committed to reducing the Federal deficit as an essential ingredient in national economic policy. But we must still decide on the proper size for the deficit.
There are two approaches we should use in determining the appropriate size of the deficit. The first is to look at the deficit which results from growth and inflation in the underlying economy. Since the budget responds automatically to changes in these underlying conditions, we have very little short run control over this aspect of the budget deficit.
We begin by making a forecast of economic growth and inflation. The JEC has agreed with the President that there was substantial strength in the U.S. economy in 1978. While his forecast for 1979 is substantially more optimistic both in the aggregate and in the specific components than the forecasts of private economists which we have reviewed, we do not believe it is unrealistic. Nonetheless, because there are so many areas of potential weakness in the economy, the possibility of a mild recession cannot be ruled out.
In choosing its economic assumptions for the concurrent resolution, the SenateBudget Committee has adopted a more pessimistic view of the outlook. As I understand their projections, they include a mild recession in the second half of 1979. Again, I would not call this forecast unrealistic in the light of the very uncertain conditions which prevail in our economy. However, I must point out that the Senate committee's resolution holds the budget deficit to $29 billion despite a mild economic recession. Therefore, the fiscal policy embodied in this resolution is more restrictive than that recommended by the President.
This brings me to the second way that we might view budget deficits. That is to look at the deficit which results from conscious policy decisions. As a matter of policy decision, we believe that a $29 billion deficit for fiscal year 1980 is approximately correct. Both the Joint Economic Committee and the Senate Budget Committee have agreed on the need for a restrictive fiscal policy.
Undoubtedly someone will ask whether this deficit is restrictive enough in view of the current inflation. While we believe that a $29 billion deficit is about right in the current environment, the Joint Economic Committee has stated:
If aggregate demand pressures continue to mount in the months ahead, and if it is determined that these pressures are contributing to our inflation problem, therefore requiring a further policy induced restraint on demand, the additional restraint should come about through a tightening of fiscal policy, not through a tightening of monetary policy. Fiscal policy must shift to the forefront in the fight against inflation.
What we have seen is a decline in consumer purchasing in the first quarter, but we have not decided yet whether that really is from bad weather. The month of February lasted about 6 months this year, so we are going to have to take a look at some of the numbers that will be coming out in the next month or so.
To understand the reasoning behind these recommendations, you must take a broad view of the economy. Sluggish productivity growth is the most important factor contributing to our present economic malaise. We believe that reducing inflation must be the top priority, but in order to make real headway in the fight against inflation, we must reverse our recent disastrous productivity slump.
Last year our increase in productivity was eight-tenths of 1 percent. The Japanese have a productivity increase which is 10 times as high as ours. This year we are forecasting a productivity increase of four tenths of 1 percent, an even further decline.
Widespread compliance with the administration's wage and price standards will take us part of the way toward achieving our goal. Reducing the cost of Government regulation will also be of assistance. But these programs in conjunction with an overall policy of demand restraint may still leave us with an unacceptably high rate of inflation, which, barring some fundamental policy changes, could persist well into the future. A continuation of our past productivity performance will virtually guarantee a continuation of inflation.
The PRESIDING OFFICER. Without objection, the Senator is granted an additional 3 minutes.
Mr. BENTSEN. The point I am making is that deficit financing, of course, contributes to inflation. But I think even more important a contribution is the loss of productivity in this country and the long term substantive changes that we are going to have to make in order to increase that productivity.
The connection between the productivity problem and inflation is much more complicated and fundamental than is frequently recognized. For example, the evidence is mounting that inflation significantly retards capital formation. This is largely the result of the way we treat depreciation allowances in the corporate tax structure, and we believe that increased capital formation is one of the keys to increasing American productivity.
One of the things we ought to look at is the fact that this Nation is putting the smallest percentage of its GNP back into capital formation and the modernizing of capital production in this country than any other nation in the world. The country next to us in that regard is England, and we have seen some of the kinds of problems that they are experiencing.
Because increased capacity is of such fundamental importance in improving productivity and restoring the American economy to a high-employment, noninflationary path, a change in the mix between fiscal and monetary policy is required. A somewhat tighter fiscal and an easier monetary policy will make a positive contribution to the capital growth which we consider desirable.
Let me stress two aspects of this shift to a tighter fiscal, easier monetary stance. First, this is a long term policy designed to increase the productive capacity of the American economy. It will not produce results overnight. But the problems that our economy faces today are not problems which developed overnight, and we must take a long view of the situation if we are to come up with solutions which will work.
We did not get into this problem of stagflation overnight. I can remember when the word "stagflation" was coined. That was back in 1973 and 1974, so this problem has been with us for some time.
Second, in order to raise the rate of capital formation, we must insure that the growth of the economy is not interrupted by a recession. New capacity will not be installed if there is no reasonable assurance that it will be regularly used. Therefore, while we stress the longer term supply side of the economy, we cannot ignore the shorter term demand considerations.
In summary, Mr. President, I want to commend the Budget Committee for doing a tough job very well. While we may not agree on every detail, it is clear that the JEC and the Senate Budget Committee are agreed on the underlying principle that fiscal restraint is the proper course of action. I am confident that as we pursue this joint goal, the American people will benefit from it.
Mr. BELLMON. Mr. President, I yield myself 1 minute to respond to the Senator from Texas.
I should like simply to thank the distinguished chairman of the Joint Economic Committee and to say that the report which the committee issued in a very timely way this year was most helpful to us in the Budget Committee as we considered this first concurrent resolution. In the years I have served on the Budget Committee, this is the first time we have had a Joint Economic Committee report in which the members were all able to get together and give us their more or less unanimous view on the important economic issues the country faces. I believe this is a great credit to their new chairman.
This record has helped a great deal to put the problems that underly our economic situation in proper perspective and also, I think, helped us to understand better what has caused inflation and what it is going to take to bring it under control.
Mr. BENTSEN. I thank the distinguished Senator.
Mr. BELLMON. The fact is that I think we all realize that establishing a responsible fiscal policy is not a job for just one committee of Congress, it is a job for all of Congress. Certainly, the Joint Economic Committee has made a valuable contribution and has proved to be a valuable ally in this fight. I thank the Senator for what he has done.
Mr. BENTSEN. I thank the ranking minority member on the Budget Committee for his very responsible role in this matter.
Mr. JAVITS. Will the Senator yield to me?
The PRESIDING OFFICER. Under the previous order, Senator HARRY F.BYRD, JR., was to be recognized.
Mr. JAVITS. Will the Senator yield me just half a minute?
Mr. BELLMON. I yield a minute on the bill.
Mr. JAVITS. Mr. President, I thank the distinguished Senator. I think I am the ranking member of the Joint Economic Committee. I should like to acknowledge the fact that the system which we have worked out with the Budget Committee in which they would take into consideration the report of the Joint Economic Committee now appears to be working. This is very gratifying to me. I too, believe it is heavily attributable to the fine leadership which Senator BENTSEN has given, and, also, to the leadership of BUD BROWN, who is, this time, the House cochairman, and to our abilityto reconcile our views. I think that is very helpful to the country as it is to the Budget Committee.
Mr. BENTSEN. I thank the Senator from New York.
Mr. MUSKIE. Will the Senator yield me a minute to express my appreciation to the distinguished Senator from Texas for the leadership he has provided to the Joint Economic Committee and for his appearance with the co-chairman on the House side, Representative BROWN, before the Budget Committee? I think that discussion was one of the better ones we have had over the years between our two committees. It reflects the solid, responsible approach that the distinguished and knowledgeable, may I say, Senator has always taken to economic matters and budget matters. His leadership has been most helpful to us. I want to say thank you.
Mr. BENTSEN. The chairman is a generous friend. I appreciate his comments.