GOALS FOR THE ECONOMY AND FOR THE FEDERAL BUDGET My chart 13 shows the interrelated and consistent goals for the economy which I have developed for 1972 and 1980, projected from levels in fourth quarter 1970. It should be noted that some of the dollar figures are different from those shown on my chart 4, but this is only because chart 4 is developed in fiscal 1972 dollars, while chart 7 is developed in calendar 1969 dollars. My chart 14, to which I have already referred briefly in another connection, shows my goals for the Federal budget for 1972 and 1980, subdivided into the various important categories. It shows my findings as to needed outlays in each category, in total dollars, in relationship to estimated total national production, and on a per capita basis. It contrasts these goals with the President's proposed Federal budget for fiscal 1972. My chart 15 shows that the Federal budget which I propose would, in a properly expanding U.S. economy to which such a budget would contribute, result in total Federal outlays coming to 23 percent of total national production in calendar 1980, compared with an actual annual average of 20.6 percent during fiscal 1966–71. This is a very slight shift in the ratios, compared with the imperative nature of our neglected public needs. Moreover, due to the impact which such a Federal budget would have upon the acceleration of real economic growth, the private sector of the economy, and other sectors aside from the Federal budget, would be immensely better off than if a deficient Federal budget contributed to deficient business opportunity, deficient employment, and deficient economic growth. This is well illustrated by the material shown on the bottom half of my earlier chart 3. And it is especially true of public works, which are so greatly needed, and which have so large a multiplier effect upon other lines of economic activity, both private and public. My chart 16 shows that my proposed Federal budget does not drastically change the relationships among public outlays, private business investment, and private consumer outlays. My goals thus maintain and preserve what we might call the traditional nature of the American economic system. THE PERNICIOUS POLICY OF TIGHT MONEY AND EXCESSIVE INTEREST RATES Before concluding, I want to say a word about the pernicious policy of tight money and rising or excessive interest rates. Although interest rates have declined considerably during recent months, they are still unconscionably high. They still inhibit State and local borrowings, and even Federal borrowings, for public works, housing, and community development. And the same Federal Reserve Board philosophy which has reduced interest rates slightly only in the face of severe economic stagnation and recession caused in large measure by the unconscionable monetary policy, will lead to higher interest rates again when the economy begins to move forward even a substantial part of the way toward full employment and full production. This is shown by my chart 20, referred to again at a later stage of my testimony. My chart 17 shows that average interest rates on total public and private debts in the U.S. economy increased 110.1 percent from 1952 to 1970. This increase was at an average annual rate of 4.5 percent, or very much higher than the average annual increase in the cost of living during this period as measured by the Consumer Price Index. The same chart shows that the additional interest costs imposed by these rising interest rates aggregated $407.3 billion during 1952-70, and that these additional interest costs imposed by the lifting of interest rates come to about $65 billion in 1970 alone. This immense cost of rising interest rates aggravated inflation, aggravated unemployment, helped to bring on economic stagnation and recession, redistributed income in a very regressive direction, thwarted an immense amount of public works, housing, urban renewal, and other essential public programs, increased the size of the Federal deficit tremendously, helped to bring on the crisis in State and local financing, and served no useful purpose. My chart 24 shows that the excessive interest costs in the Federal budget alone, by which I mean the additional costs due to rising interest rates from a 1952 base, averaged annually $4.2 billion in the Federal budget during 1962-70, and came to $8.2 billion in the Federal budget in 1970 alone. This $8.2 billion of excessive interest costs in 1970 compared with proposed outlays in the President's fiscal 1972 budget of only $4.5 billion for housing and community development, $2.5 billion for manpower programs, and $6.3 billion for education. This shows how much each of these vital programs could have been increased by using the money in the Federal budget which was used in such damaging fashion to pay the excessive interest charges. A $1 billion average annual increase in Federal outlays for public works for 2 years would come to only one-eighth annually of the $8.2 billion of excessive interest costs in the Federal budget in 1970, which are much higher by now. My chart 19 shows that a small fraction of these excessive interest costs could have lifted every American family living in poverty out of the poverty cellar in each of the years from 1953 forward. My chart 20 shows how the prevalent monetary policy has recurrently brought on economic stagnation and recession, and that, far from curbing inflation, it has actually accelerated the inflation during the years of stagnation and recession. The lesson of this chart is the same as the lesson of my chart 12, earlier discussed. IMPLICATIONS FOR PUBLIC WORKS All that I have said in this testimony demonstrates not only the imperative need for the accelerated public works program by all sensible tests, but also shows how we can afford it and cannot afford to do without it, in terms of the entire problem of employment and economic growth. My entire testimony also shows that the accelerated public works program must be made part of a complete reconsideration and reconstruction of all of our basic national economic policies and programs, for all of these policies and programs are interrelated, and improvements in no one sector alone can be more than a panacea if we do not look at the situation as a whole and remedy the situation as a whole. The CHAIRMAN. Any further questions to my left or right? We again thank you most kindly for the most valuable and helpful testimony from an expert in economics. We are deeply indebted to you members were unable to be here, but it is important, and we felt, as a committee, and I certainly did as chairman, it important that we have testimony from an expert in economics. We are deeply indebted to you for the special effort and excellent contribution which you have again made, so essential to the success of this most worthwhile and effective way to use a little bit of money to pay people to work instead of being unemployed. I have no further questions at this time. We shall continue to keep in touch with you. If there are no further questions or comments on either side, we express our deepest appreciation and thanks to you. Could we keep in touch with you and see what charts we can get in black and white Mr. KEYSERLING. That is right. I appreciate the continuing helpfulness of the chairman over the years and the attention and interest of other members of the committee. What I would like to do is-I covered most of the high spots in my charts, and some I did not, and I would like to translate them into black and white, and when I edit my testimony, I will put them in the record as amplification. The CHAIRMAN. Excellent. Thank you very much, Dr. Keyserling. Mr. KEYSERLING. Thank you. (Mr. Keyserling's 20 charts, as referred to follow :) Chart 1 BASIC U.S. ECONOMIC TRENDS,1953- 4th Q 1970 TO ADEQUATE GROWTH HAS NOT BEEN RESTORED In deriving these percentages, the Civilian Labor Force is estimated as the officially reported Civilian Labor Force augmented by concealed unemployment. Thus,some of the percentage figures on full-time unemployment vary very slightly from the official reports, which do not take account of the augmented labor force. Full-time unemployment of 2.9% and true unemployment of 4.1% would be consistent with maximum employment. All data relate to persons 16 years of age and older. Components may not add to total, owing to rounding. Basic Data: Dept. of Commerce; Dept. of Labor |