THE PROBLEM OF TIMING: ANTIRECESSION VERSUS PROROSPERITY MEASURES From the viewpoint of timing, too many current proposals fail to recognize that we have an immense chronic problem which has not been solved nor even effectively reduced the long-term chronic retreat from maximum employment and production. This is not basically a cyclical problem, and the substantially outmoded idea that we should place major reliance upon countercyclical measures, as represented by the request for standby capital improvements and standby authority to reduce taxes, is in my view essentially misdirected. A great nation which has so fully recognized in words that our rate of economic growth is still so far too low, and that our unused productive resources are still far too high, should not be concentrating upon planning what it is going to do when unemployment starts to rise again. The hour then will be even later than it is now. The very process of assembling projects which can be quickly started and quickly finished will involve much waste and ineffeciency, and by emphasis upon these criteria will involve much neglect of the greatest priorities of our national needs.

To illustrate, the greatest priorities of our national public needs in the field of capital improvement relate to education, urban renewal, and homebuilding, and certain aspects of mass transportation, and none of these needs would receive central attention under short-term improvised programs if and when we have another recession. It is no answer to say that the proposals now before you include advance planning. We assuredly need advance planning, but it should be advance planning on a truly long-term basis to do the right things first and foremost, and not advance planning to repeat the errors of the past.

NEED FOR A LONG-RANGE AMERICAN ECONOMIC PERFORMANCE BUDGET

A clear mandate as to where our efforts should concentrate, beginning now, is written into the Employment Act of 1946. In the form of what I have called an American economic performance budget, the President with the aid of the Council of Economic Advisers, and in consultation with the functioning groups in the private economy, should develop and present to the Congress long range and consistent quantifications of the requirements for sustained maximum employment and production, and for meeting the great priorities of our national needs. Every basic national economic policy-taxation, monetary policy, social security policy, housing policy, public works policy, international trade policy, and all other major economic programs-should be geared instrumentally to these long-range objectives. The types of projects embodied in the proposals now before this committee would necessarily be included.

Instead of aiming for quick turns and starts, geared to anticyclical policy, we should be aiming toward a positive proprosperity program, constantly building into the structure the factors of stability and strength which are part of such an effort. The long-range levels of public spending, and of capital improvements, should be based upon long-range estimates of what portion of our total national production, measured against maximum employment and production, we decide as a nation to devote to these purposes. If in fact we do not achieve maximum employment and production, these public outlays would automatically rise as a portion of total economic activity, and therefore would serve as automatic stabilizers and stimulants. They could be lifted still further, if need be. Similarly, the national tax policy should be on a long-range basis, and should be adjusted to a tax take consistent with a balanced budget or a slight surplus at maximum employment and production, with due regard also for a distribution of the tax burden in accord with the requirements of economic equilibrium and economic justice. With this kind of long-range tax policy, appropriate deficits in the Federal budget would occur whenever we are far short of maximum resource use. Instead of this, we now have a budgetary policy and a tax policy which are aimed at the surpluses when idle plant and manpower are very high, and this approach is both wrong and self-defeating.

SPECIFIC RECOMMENDATIONS REGARDING THE THREE PENDING PROPOSALS These comments provide some workable guides, I submit, in evaluating the three proposals now before this committee.

With respect to the public works coordination and acceleration bill (H.R. 10113) and the standby capital improvements bill (H.R. 10318), these proposals seem to me to embody the defects in principle and approach which I have al

ready detailed. They are, to a considerable degree, plans for emergency improvisation. They assume that we should be doing later what we should be starting now. They do not accent in proper proportions the priorities of our nationwide needs for capital improvements, and this accent is not provided adequately in any other official proposals. They would sidestep some of the greatest needs, and would indeed generate pressures to defer meeting these needs on the ground that we are doing something else.

Subject to what I said at the beginning of my testimony, to the effect that I would prefer to see immediate enactment of some combination of H.R. 10113 and H.R. 10318 unless something better can be done now, I urge that something better be attempted. I urge a brief and succinct piece of legislation, as an amendment to the Employment Act, calling for the development of a long-range "American economic performance budget" such as I have described. This would set in immediate motion a range of planning efforts better suited to meet our economic needs. It would also be better for the Federal budget in the long run. It would put in motion the kind of planning, the kind of movement toward a great national purpose, which the worldwide competition in which we are now engaged makes so vital. It would provide perspectives which would be of incalculable value to the Congress in its consideration of all basic economic legislation. It would insure against taking one step forward and one step backward. Turning now to the $600 million proposal, I also favor its immediate enactment, if nothing better is feasible now. But outlays in this amount, over a period of about a year and a half, would be a mere bagatelle, and a relatively inefficient one at that. Nor do I agree that the concentration of projects under this proposal in the somewhat less than 1,000 localities which either fall within so-called redevelopment areas or which for 12 months have had so-called substantial unemployment, is desirable. Unemployment is far too high on a nationwide basis. The President in his letter transmitting this proposal on March 26, 1962, said that unemployment is 33 percent higher in these localities, representing 38 percent of our total population, than the average of unemployment in the rest of the country. But by the same token, it is mathematically true that unemployment averages only about 25 percent lower-and is much too high-in all the rest of the country than in the localities which would be designated as requiring undivided attention.

Moreover, the $600 million proposal, for reasons already given, does not in my judgment correctly balance the competing national needs for various types of capital improvements-it cannot, when put on an emergency basis with speed of start and speed of completion a primary criterion. Many projects which would take longer to complete would help just as much with the immediate unemployment problem, and certainly help much more with the real problem which has become chronic. In other words, we are simply not geared now to a high enough level of public outlays for capital improvements over the long run.

Beyond all this, concentration of effort upon a highly selected number of localities misreads in my view the character of the unemployment problem. And I would think that experience thus far with the area redevelopment program would indicate that, unless we deal effectively with the whole nationwide economic environment, efforts to help selected localities are gravely handicapped; and even insofar as these efforts product local results, they tend to rob Peter to pay Paul by transferring the unemployment problem from one locality to another. Therefore, I recommend that the immediate authority to proceed on a $600 million basis be lifted to $2 billion, in order words that the standby proposal be made immediate. I also recommend that this program may be made applicable throughout the Nation generally, perhaps with a quarter of the total amount limited for use in those localities to which the proposal is now pointed. None of this authorization should be predicated upon a worsening of the current unemployment picture, nor should it be accompanied by a time limitation. If the Employment Act of 1946 is to be truly effectuated, the authority should remain in effect at least until nationwide unemployment is reduced to 4 percent, or preferably 32 percent, of the civilian labor force. This would leave a sufficient margin above the less than 3 percent nationwide unemployment rate which would really be consistent with maximum employment. To achieve more flexibility in the choice of worthwhile projects, the requirement for completion within a specified time should be removed. It is unfortunate but true that we will not be out of the woods for a long time to come. In any event, over the next decade we need a much higher level of total public capital improvements than are now being planned.

If the need for immediate acceleration of expansionary economic efforts were not now so urgent, I would be hesitant about making this $2 billion immediate proposal, because it may seem to run counter to some of the basic problems which I have set forth above, namely, appropriate allocation of capital development outlays among various priorities of need, such as education, housing, health facilities, urban area transport, etc. But in addition to the urgency of need for vast economic expansionary efforts, my $2 billion immediate proposal is accompanied by my proposal for the other planning legislation which I have suggested above in order to establish better foundations for optimum economic development on a long-range basis (which at best would take some time to put into effect even if this planning operation were started now). And this longrange planning effort, if adopted and put promptly into effect, would gradually correct any aberrations which might result from the $2 billion immediate effort which I urge and urge even if the long-range planning effort is not now enacted.

TRAINING WORKERS FOR WHAT?

Finally, I want to say a word about the worker training and retraining program enacted by the Congress at this session. I regard this program as highly desirable. Yet, it indicates, I believe, some of the illogic and inconsistencies in our current economic approaches as a whole. The training and retraining effort is predicated upon the assumption that there will be jobs of new types for which prospective workers need to be prepared. The $600 million proposal, in its present form, is predicated upon the assumption that no retraining will be required, because unemployment in the construction industry is much higher than the nationwide average of unemployment. But in view of the new technology and automation, how long will this remain true? What we really need urgently is a long-range program which commences to adjust the skills of the labor force to the consequences of the new technology and automation, to chang ing consumer tastes, and to the long-range goods and services needs of the country. It is not enough to have a program which adjusts the products undertaken to where biggest labor surpluses happen to be just now. If we limit ourselves to this latter approach, we would create one more long-range maladjustment for every short-range maladjustment that we tackle.

THE ROLE OF HOUSING AND URBAN RENEWAL

To take just one example, if we develop now the kind of long-range "American economic performance budget" which I have described, we would immediately recognize that the largest single opportunity for meeting the challenge of the new technology and automation, while at the same time servicing the top priorities of our national needs, would be through an immense expansion of urban renewal and housing-perhaps at an annual rate almost twice as high as what is now in prospect. But thus far, we seem not even to be thinking in these terms. The same may be said, in varying degrees, about our educational needs and our health needs. Indeed, the kind of long-range analysis which I stress would make it clear that we should be preparing for a gradual shift of a much larger part of our labor force away from the production of goods and toward the production of services.

I hope that what I have said will be of some value to this committee. If it appears that I have strayed far away from the immediate proposals now before you, I submit that this is only because of my profound conviction that we must start to examine the forest as well as the trees. Only thus can we start to move vigorously and successfully in dealing with an economic problem of overwhelming size, a problem intimately relating not only to our own domestic well-being but also to the prospects for freedom throughout the world.

SUMMARY OF TESTIMONY OF LEON H. KEYSERLING BEFORE HOUSE COMMITTEE ON PUBLIC WORKS, FRIDAY MORNING, APRIL 6, 1962

(Mr. Keyserling appeared on behalf of the National Housing Conference, but assumed personal responsibility for the views expressed)

In opening, Mr. Keyserling said:

"I intend to discuss the President's proposal for an immediate $600 million public works program to reduce unemployment in specified areas; the President's proposal embodied in the standby capital improvements bill (H.R. 10318);

and the separate proposal embodied in the public works coordination and acceleration bill (H.R. 10113).

"All three of these proposals represent a most heartening acceleration of public concern about unemployment in particular, and about the entire economic situation in general. I applaud especially the action by the President with respect to the immediate $600 million proposal. It represents great courage and realism in the face of the President's expressed dedication to the objective of a balanced Federal budget in fiscal 1963. I most earnestly urge this committee to act favorably and immediately upon the $600 million proposal, and upon some combination of H.R. 10113 and H.R. 10318, unless the committee should agree with me that much more should be done at this time, and some things perhaps done differently. Having made this much clear, I believe that the measures now before you are woefully short of our palpable and immedite needs as a nation and a people, and equally short of our abundant resources to meet these needs. They reflect an undue complacency which has become prevalent; an inadequate appraisal of the true nature of our economic difficulties and how best to surmount them; too much emergency improvisation and not enough longrange planning; too much reliance on maginot line economics, and not enough adherence to an affirmative and aggressive national policy of sustained maximum employment and production and high economic growth under the Employment Act of 1946."

After reviewing the 1953-61 record of low economic growth and chronically rising idleness of manpower and plant, Mr. Keyserling said:

"The crucial question today is whether the current economic upturn represents a new departure from or another confirmation of the 'long-term chronic retreat from maximum employment and production' since early 1953. I submit that the later is the case. Unemployment was reduced about 50 percent in about the first 12 months of recovery following the 1949 recession. But unemployment was reduced only about 121⁄2 percent, or only one-fourth as much, in the first 12 months following the start of recovery from the most recent recession. By the fundamental test of how far we have moved toward restoration of reasonably full use of our manpower and plant resources, the current recovery is the least satisfactory recovery since World War II."

Mr. Keyserling then discussed needed economic expansion, as follows: "The needed expansions, consistent with restoration of maximum employment and production by the end of 1963, are these: Comparing needed goals for 1963 with actual 1961, employment should be up 53 million, and total production up $96 billion. The whole range of our national economic programs and policies are not well matched to the gigantic economic problems confronting us, as to magnitudes, timing, or scope. To illustrate, the projected Federal budget for fiscal 1963 is too low on the spending side, and the avowed aim toward a $4 billion surplus in the cash budget when we have so much economic slack is unwise and indeed cannot succeed. Instead of needed reductions in general tax rates, especially as they bear upon low-income people, in order to stimulate consumption, we are moving toward the same kind of tax concessions to investment which would repeat the errors of early 1957. Too many current proposals fail to recognize that we have an immense chronic problem which has not been solved nor even effectively reduced-'the long-term chronic retreat from maximum employment and production.' This is not basically a cyclical problem, and the substantially outmoded idea that we should place major reliance upon counter-cyclical measures, as represented by the request for standby capital improvements and standby authority to reduce taxes, is in my view essentially misdirected. A great nation which has so fully recognized in words that our rate of economic growth is still so far too low, and that our unused productive resources are still far too high, should not be concentrating upon planning what it is going to do when unemployment starts to rise again. The hour then will be even later than it is now. The very process of assembling projects which can be quickly started and quickly finished will involve much waste and inefficiency. The greatest priorities of our national public needs in the field of capital improvement relate to education, urban renewal and homebuilding, health services, and certain aspects of mass transportation, and none of these needs would receive central attention under short-term improvised programs if and when we have another recession."

Mr. Keyserling's specific recommendations regarding the three pending proposals were as follows:

"With respect to the public works coordination and acceleration bill and the standby capital improvements bill, these proposals are, to a considerable degree,

plans for emergency improvisation. They assume that we should be doing later what we should be starting now. They do not accent in proper proportions the priorities of our nationwide needs for capital improvement, and this accent is not provided adequately in any other official proposals. They would sidestep some of the greatest needs, and would indeed generate pressures against meeting these needs on the ground that we are doing something else.

"Subject to the point that I would prefer to see immediate enactment of some combination of these two measures unless something better can be done now, I urge instead an amendment to the Employment Act, calling for the development of a long-range American economic performance budget. This would set in immediate motion the kind of planning, the kind of movement, toward a great national purpose, which the worldwide competition in which we are now engaged makes so vital. It would provide perspectives which would be of incalculable value to the Congress in its consideration of all basic economic legislation. It would insure against taking one step forward and one step backward. "Turning now to the $600 million proposal, I also favor its immediate enactment, if nothing better is feasible now. But outlays in this amount, over a period of about a year and a half, would be a mere bagatelle, and a relatively inefficient one at that. Nor do I think it desirable to concentrate projects under this proposal in the somewhat less than 1,000 localities which either fall within so-called redevelopment areas or which for 12 months have had so-called substantial unemployment. The President in his letter transmitting this proposal on March 26, 1962, said that unemployment is 33 percent higher in these localities, representing 38 percent of our total population, than the average of unemployment in the rest of the country. But by the same token, it is mathematically true that unemployment averages only about 25 percent lower-and is much too high-in all the rest of the country than in the localities which would be designated as requiring undivided attention.

"Moreover, the $600 million proposal, for reasons already given, does not in my judgment correctly balance the competing national needs for various types of capital improvements. Many projects which would take longer to complete would help just as much with the immediate unemployment problem, and certainly help much more with the real problem which has become chronic. Beyond all this, I think that experience thus far with the area redevelopment program indicates that, unless we deal effectively with the whole nationwide economic environment, efforts to help selected localities are gravely handicapped; and even insofar as these efforts produce local results, they tend to rob Peter to pay Paul by transferring the unemployment problem from one locality to another. "Therefore, I recommend that the immediate authority to proceed on a $600 million basis be lifted to $2 billion; in other words that the standby proposal be made immediate, and that this program be made applicable throughout the Nation generally, perhaps with a quarter of the total amount limited for use in those localities to which the proposal is now pointed. None of this authorization should be predicated upon a worsening of the current unemployment picture, nor should it be accompanied by a time limitation. If the Employment Act of 1946 is to be truly effectuated, the authority should remain in effect at least until nationwide unemployment is reduced to 4 percent, or preferably 3% percent, of the civilian labor force. This would leave a sufficient margin above the less than 3 percent nationwide unemployment rate which would really be consistent with maximum employment."

With respect to training and retraining of workers, Mr. Keyserling said: "The training and retraining effort is predicated upon the assumption that there will be jobs of new types for which prospective workers need to be prepared. The $600 million proposal, in its present form, is predicated upon the assumption that no retraining will be required because unemployment in the construction industry is much higher than the nationwide average of unemployment. But in view of the new technology and automation, how long will this remain true? What we really need urgently is a long-range program which commences to adjust the skills of the labor force to the consequences of the new technology and automation, to changing consumer tastes, and to the long-range goods and service needs of the country.

"To take just one example, if we develop now the kind of long-range American economic performance budget which I have described, we would immediately recognize that the largest single opportunity for meeting the challenge of the new technology and automation, while at the same time servicing the top priori ties of our national needs, would be through an immense expansion of urban renewal and housing-perhaps at an annual rate almost twice as high as what is now in prospect."