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there are some kinds of needs you do not meet privately. In other words, without getting into the school controversy, I do not want all the children in America to go to private schools, I want some of them to go to public schools.
Mr. SCHERER. Does the reduction of unit prices increase markets or consumption?
Mr. KEYSERLING. It certainly does. In that connection, despite the widespread propaganda to the contrary, some of which unfortunately is being embodied in some programs of this administration, in my judgment, we have had in those very mass production industries where there has been so much clamor about inflation, a constant spread between prices and wage cost. In answering your question, if you analyze this, take the steel industry, for example, I commend to you all a book which has just come out by Gardiner Means. He is objective with no ax to grind. It is the most minute examination of some of these big mass production industries, especially steel, that I have ever seen. Anybody who reads it will be impressed with it.
What does it show? It shows what the people who have studied the problem really know, that far from wage costs in steel industries forcing up prices, the prices have advanced so far ahead of the per unit costs, including wage costs, that the break-even point in the industry is about 40 percent. We all know what a break-even point of 40 percent means. It means that, taking the relationship of your prices to costs, you can break even at 40 percent operations.
In other words, your net profit per unit is so high, taking account of the spread between price and costs, that you break even at 40 percent.
This is one of our biggest problems. This is why I am worried, when an industry which breaks even at 40 percent, has convinced the public, and apparently even convinced the administration, that its prices have been forced up by wage rate changes. Therefore I am very much afraid, not speaking just of that industry, that what we are going to get in this country over the next few years is not enough expansion of that part of consumer purchasing power which comes from proper wage changes along with productivity, to meet that part of the consumption demand that matches the rising productivity.
This is in one sense a very conservative viewpoint. Those who hold the philosophy that they want a large and increasing part of demand to come from private rather than public outlays, must ask themselves the question, “Where are you going to get this expansion of private outlays?"
Mr. SCHERER. I read some time ago that, as an example, that every time you reduce the price of a refrigerator $25 that means so many more families were able to buy a refrigerator. If you reduce the price of a house $1,000 that creates a bigger market.
Mr. KEYSERLING. Without verifying the particular figure, this is broadly true. Let me say this: I shudder for the future of my country, when I read some of the things that responsible oflicials are saying about this international economic problem. When I read about how the American market is saturated, and therefore we are going to sell refrigerators and automobiles and steel and all kind of things in France and England and goodness knows where—don't misunderstand me, I am for this trade program; I think it is a great step forward. But is the American market saturated ?
Mr. SCHERER. That is what I was trying to point out, that actually the American market is not saturated, that there is a terrific demand if you get the unit price lowered.
Mr. KEYSERLING. The greatest underdeveloped market in the world for America is in America. I am publishing a study about a week from now, which you will all get copies of, which shows that 77 million Americans still live in what I call poverty or deprivation. You may redefine the terms a little bit. Everybody does not have the same figures, but I use about the same figures adjusted for price change that responsible authorities were using 30 years ago, when I was working on a study of the same subject when I was teaching at Columbia. I will tell you broadly what my figures are.
I would say a multiple-person family now in the United States. in most areas, is living in poverty if its income is less than $1,000 a year. Try it. Anyhow, I come up with a figure of about 38 million Americans living in poverty. Another 39 million live in deprivation, above poverty but below comfort. The average American family income in the United States today, the average, which has nothing to do with the distribution for the multiple-person family is only something like $7,000. That is not a saturation point for the American people. I get so sick when I hear these college professors who get $15,000 a year, plus their consultative emoluments, and some have an income of $30,000 a year- I do not criticize this—talking about the zulluent American society, when less than 8 percent of American families today have incomes above $15,000 a year. There is an almost limitless unsaturated market in the United States, and it extends, of course, to public services. We do not have enough schools, enough public improvements.
We can get some larger markets overseas. I am for this new trade program. The very maximum that you could project, if the trade program were passed, if it worked perfectly, you might get a maximum projection of maybe a $2 or $3 billion net increase in our international trade position per year over the next 5 years, and that is optimum. That is desirable. But to talk about that $2 or $3 billion a year in juxtaposition to a $550 billion American economy which is suffering from a $50 billion domestic production gap, and which needs to lift the domestic demand of the American people by scores of billions a year to get back to full employment, to bring this foreign trade proposal to the center of the stage as a basic cure for the American economic problem, makes me unhappy. This is not talking against the trade program. I am for the trade program.
Mr. SCHERER. What you are saying is that in this country the actual demand for consumer goods is unlimited ?
Mr. KEYSERLING. Not literally unlimited.
Mr. SCHERER. Am I correcte in saying that we inrease the demand and markets as we lower unit prices of commodities?
Mr. KEYSERLING. That is one way of doing it. I am not a panacea man. That is why I am for the kind of planning I am talking about.
There is not one panacea. Henry George had a panacea of the single tax. He was wrong.
Mr. SCHERER. I can only think of one at one time.
Mr. KEYSERLING. If you said you could straighten out everything by price reduction
Mr. SCHERER. I do not say "straighten out.” That is one of the major factors. If this tie cost me $2.50 instead of $5 I might have three ties instead of one.
Mr. KEYSERLING. Yes. The factors that national economic policy has to deal with are also important.
Let me illustrate: If the basic pragmatic observation shows you that investment in producer facilities has been lagging behind demand, and that therefore you have the kind of inflation which comes from too much demand relative to productive power, then you would naturally want to shift your tax system so as to give more incentives to investment and less incentives to consumption. If on the other hand, a pragmatic examination of the situation shows, as I submit it has recurrently over the last 9 years, that your investment in productive facilities has outrun effective demand, then you would want to vary your tax system progressively on the side of helping the consumer, which I think is what we should do now.
This applies to money policy, it applies to works policy, it applies to housing, it applies to everything. Therefore, unless you have this unifying perspective, this unifying perspective of why we are doing what we are doing, we cannot make very good judgment as to what to do.
I am the last one to say—I think I have had a little practical experience in 30 years—I am the last one to say that until we get this beautiful improvement that Keyserling is talking about, we should not do anything because he has shown us we may be wrong.
We always may be wrong. There are some things we have to do now, because we cannot wait to do anything until we improve our tools. We have to do both at the same time. That is why I think it is absolutely consistent to talk about the need for an immediate expansion of public outlays for useful works projects, even while saying, "Let's move on the other front at the same time and improve our planning methodology.”
Mr. BALDWIN. Mr. Chaiman.
Mr. BALDWIN. I want to congratulate Dr. Keyserling for this very challenging presentation he has made. I would like to ask, Mr. Chairman, when the hearings are printed I trust we will be able to have the reproduction of these charts put in those printed hearings!
Mr. BLATNIK. Yes. That is in order. We will have available for the staff copies of the charts. They will be included. It has been so ordered already.
Mr. BALDWIN. Thank you.
Mr. BLATNIK. Are there further comments or questions? If not, Mr. Keyserling, we are deeply indebted to you. We appreciate the special effort and the time you have given for the convenience and for the assistance of the committee in consideration of this legislation.
Mr. SCHERER. One thing I have learned is that economists disagree almost as much as we lawyers do.
Mr. BLATNIK. I have a series of statements which we will have put in the record at this point. You may read them if you so desire. They are from Senators and House Members.
Mr. BALDWIN. I make a motion that any statements by House Members or Senators you may have received be inserted.
Mr. BLATNIK. We have a letter from the steelworkers, a letter from the Governor of Tennessee, and the National Society of Professional Engineers. Let the record show Congressman Dingell would have been here. His mother is seriously ill.
(The statements previously referred to follow :)
TESTIMONY OF Gov. BUFORD ELLINGTON OF TENNESSEE Mr. Chairman and members of the committee: I appreciate this opportunity to comment on the proposal to enable the President to take quick and effective action to stimulate the economy through acceleration of public works under circumstances set forth in H.R. 10317.
The effect of widespread unemployment on our economy has been noted in other testimony before this committee. Widespread and continuing unemployment is a personal tragedly to those able and willing to work, but who cannot find jobs. Widespread and continuing unemployment in turn spreads like a disease through the economic structure causing widening waves of unemploy. ment of a secondary nature due to lack of purchasing power, loss of markets, and a blunting of private capital investment processes. Finally, and not to be overlooked, is the impact on government, not only through increased load to prevent suffering, but also through lost tax revenues. Thereby, the means by which government itself can operate and meet the needs of people are seriously weakened.
Government at the State and local level is sufficiently pressed for funds of a noncapital nature-operating expenditures for schools, welfare, protecting the public health, and advancing the day-to-day operations of government generally. It is often hard to supply both these daily needs and make major capital expenditures in public works. There has, undoubtedly, developed quite a backlog in need for capital expenditure, both in terms of new plant and extensions and in terms of deferred maintenance and replacement of obsolete or obsolescent public works.
In my own State of Tennessee, there are 62 communities without sewage disposal plants and needing facilities of this kind. Of these, 24 presently have no sewage collector system and, therefore, would need to start from scratch as far as construction is concerned. Of these 62 communities, 9 have plans sufficiently advanced so that they could be under construction within 3 months. An additional 40 probably could be under construction within 6 months and the re mainder could be under construction within 1 year. The usual construction period for installations of this kind would run from 9 months to 12 months, de pending somewhat on the season of the year in which construction would be undertaken. In the aggregate, the public works backlog represented by the particular category is in the neighborhood of $30 million in Tennessee.
It is impossible to present an equally detailed figure on municipal water systems at this time. Careful estimates by qualified engineering personnel sug. gest a backlog of around $45 million. This would include items such as the needed expansions of water treatment plants, extension of distribution mains, enlargement or replacement of obsolescent items, and related work.
In the field of streets and roads, there is a backlog of need whose extent depends only on which definition or standard is chosen as a means of measurement. Much of Tennessee's urban growth has taken place since the Great De pression and since WPA and PWA assistance in bettering local public works. As a consequence, much of the network of streets and suburban roads (other than major thoroughfares assisted with State or Federal funds) has come into being against a backdrop of rising costs and pyramiding demands on the local governments. Despite Tennessee's sharing with the counties and municipalities of its gasoline tax collections, many of the streets and roads—perhaps 2,000 miles of them-are in need of resurfacing, widening, supplying with curbs and gutters, or similar work. Much of this work could be undertaken in short order, especially since it could be quickly organized in the form of many locally sponsored projects.
In our public schools, we have a need of approximately 3,000 classrooms to meet currently overcrowded conditions and to replace substandard facilities. Further, it has been estimated that we can anticipate a net increase of some 100,000 students in grades 1 through 12 in Tennessee during this decade.
These are indicative of identified or identifiable, sound, worthwhile public works which are needed and which could be undertaken in Tennessee in short order if the circumstances arose. Also, we have official planning agencies in more than 150 municipalities and counties across the State, all of which are in touch with our State planning agency and through this vehicle local public works proposals could be quickly reviewed, soundly replanned, if necessary, and so carried out as to contribute to the development of the community rather than be in conflict with any other official plans or projects.
The safeguards written in H.R. 10317 pertaining to predicating capitalimprovement acceleration on national unemployment data should allay the fears of those apprehensive lest the President make unwise use of such powers. The limitations on duration of the capital improvement acceleration period would bring the matter of extension back to the legislative branch for decision-an arrangement fully compatible with our tradition of checks and balances. The provisions in the bill for emergency assistance to non-Federal agencies in assuming their share of such capital improvements programs would appear to fit all or most situations which might arise.
Finally, the proposed program could, in the event of an emergency, dovetail nicely with existing programs in achieving desirable objectives. In some of the most depressed areas, ARA, for example, is able to give certain assistance in the way of extending utilities and certain other categories of assistance in the locating of industries which mean jobs in the locality. In communities with minimal public works at present, substantial capital improvements need to be made which are not and were not intended to be aided through the ARA program. In such communities, if the Standby Capital Improvements Act were ever evoked, it could be of especial benefit in aiding and accelerating the broader program of local public works.
The enactment of H.R. 10317 would greatly benefit the 42 depressed areas of Tennessee. These areas are currently eligible for the ARA program, and would also be eligible for the proposed capital-improvements program. This legislation along with the ARA program would do much to spur the economic recovery of the depressed areas, the State of Tennessee, and the Nation.
CITY OF DETROIT,
April 6, 1962. Hon CHARLES A. BUCKLEY, Public Works Committee, House of Representatives, Washington, D.C.
DEAR SIR: Herewith transmitting to you the following resolution unanimously adopted by the common council of the city of Detroit, on April 3, 1962, supporting proposed Federal legislation for a public works program:
(By Councilman Connor) Whereas President Kennedy has recommended to the Congress enactment of an emergency public works program to be used for the alleviation of unemployment in areas showing consistently higher unemployment than the national average; and
Whereas the Congress has under consideration legislation directed to this same problem, particularly the Blatnik bill; and
Whereas the unemployment problem is one of the most important, if not the most important problem facing the city of Detroit and the State of Michigan as shown by our high percentage which has consistently averaged approximately twice the national figures ; Now, therefore, be it
Resolved, That this common council goes on record favoring enactment of the President's program and this type of emergency public works program, and that copies of this resolution be sent to the Public Works Committee of the House of Representatives and to the members of the Michigan congressional delegation.
Adopted as follows:
Yeas—Councilmen Brickley, Patrick, Ravitz, Rogell, Van Antwerp, Wierzbicki, and President Pro Tempore Connor-7. Nays-None. Respectfully yours,
THOMAS D. LEADBETTER, City Clerk.