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CHRONIC CAPITAL DEFICIENCY MEANS CHRONIC UNEMPLOYMENT

A chronic aspect of the unemployment problem is presented by the longrun downtrend in capital formation. In a monumental study of capital in the American economy Dr. Simon Kuznets has shown that capital formation has been declining over a long period in relation to gross national product. His summary of this trend is as follows: 2

"With gross capital formation a stable or declining proportion of gross national product and the ratio of capital consumption to gross capital formation rising appreciably, the ratio of net capital formation to national income (net national product) shows a distinct downward trend. For volumes in constant prices, the share declines from 14.6 percent in 1869–88 to 11.2 percent in 1909–28 and to 7 percent in 1946–55; in current prices the movement is from 13 percent in 1869–88 to 11 percent in 1909–28 and to 8.7 percent in 1946–55.”

Dr. Kuznets rejects the view that the relative decline of net capital formation has been due to a lack of investment opportunities. He says that the alternative approach, which emphasizes the supply of savings, seems more plausible and more fruitful as an analytical lead, especially when consideration is given to the large stock of new knowledge awaiting productive exploitation here at home and the wide investment opportunities abroad.

He offers two explanations for the declining relationship of savings to national income. One is the preference for consumption and the other is the damage done by the kind of taxation used to support large budgets. These factors are to some extent interactive. The desire to live better is entirely natural and proper. The better life through a rising living standard is the ultimate purpose of investment and production. But the futility of trying to get ahead financially under the present Federal tax system tends to the attitude of "eat, drink, and be merry.".

THE CONSTRUCTIVE ANSWER IS COMPOSITE-BUT NON-FEDERAL

The NAM rejects the proposed antirecession standby authority as inadequate in effect, inappropriate as to method, and irrelevant as to basic analysis. Instead the association offers comments and suggestions for a more constructive and fruitful approach:

1. Not a welfare problem.--The economic problem of unemployment is not to be solved by confusing it with, or dealing with it as, a welfare problem which is essentially what is done in this proposal and the companion proposal of the President on unemployment compensation. (Although this subject is not covered in H.R. 10317, the proposed "strengthening and making permanent" of certain features of unemployment compensation deserves brief comment here. The function of unemployment compensation is to provide a certain level of worker income in emergency situations, not to support him through an indefinite period. The higher the payment and the longer the period, the less is the incentive to seek, or accept, employment. The outcome would be that employers who could not afford to keep low-efficiency workers on the payroll would be taxed the more heavily to support them in idleness.)

2. Non-Federal collaborative action.-New or improved worker skills are always required to keep up with changing methods of production and the different kinds of equipment made available by general progress as well as technological advance. From the standpoint of these ever-changing requirements, those counted as unemployed fall into two groups:

(a) Persons capable through training to become eligible for employment under the new conditions :

(h) Persons so lacking in mental capacity, dexterity, emotional stability, or determination as to be incapable of acquiring the proficiency through training to hold a job at good wages. (Some, perhaps many, of these are kept out of jobs which they could perform because neither special skill nor intensive training is required, by the Federal minimum wage law. The higher the rate of this minimum is set, the more unemployment of this

sort it is likely to create.) Those who are not emplovable, for any reason, contribute to the so-called hard core of unemployment. Yet, they are not really a part of the labor force. Their inclusion in it distorts the statistics and creates a false impression regarding a condition which is enough of a problem when correctly gaged.

2 Simon Kuznets, "Capital in the American Economy," pp. 396, 397. National Bureau of Economic Research, 1961.

Although the training, or retraining, of workers in the new skills and occupations requires extensive collaborative action, it does not call for Federal prográming or underwriting. It must begin with those individuals who are energetic and ambitious enough to want such improvement. Resistance to the innovations which increase output and reduce unit costs is extremely shortsighted. This action includes industry cooperation, such as is now being provided on a growing scale, because inplant training is no doubt the most efficient way of inculcating new or different skills. Any insistence, under Federal law or union contract, that full-scale wages be paid to trainees during the training period is a gratuitous obstacle. Non-Federal collaborative action requires, also, educational programs which offer sound vocational training and guidance for those who do not want to enter college, and some of the brightest high school graduates do not. State and community employment services must be so organized and managed as to establish the best possible contacts between those seeking work and those employers who need more workers.

In all of this there is no real, constructive place for Federal action, which would be more costly than beneficial. The unemployed are individuals, people living in specific communities, not statistical units in a total. Most of them must find jobs in their home communities since, for many reasons, wholesale migrations to and fro across the country are neither feasible nor functional. The local businesses and industries, the local schools, and the local employment services are best equipped to discover the facts and are far more competent than a Federal bureau to deal with them effectively,

3. Basic need is a better economic climate.--A better environment should be created for the profit motive, which is the main driving force in a private, free enterprise economy. This is what the Employment Act of 1946 intends, as the Government's role in promoting the conditions under which the free private enterprise system can best achieve the objectives of maximum production, employment, and income. The efforts to realize profit or to avoid loss—since ours is a profit-and-loss economy-lead to new products, new plants, new processes, and new jobs. The quest for profit and the desire to avoid loss, in combination, allocate the available productive resources of the Nation into the channels where these results appear to be most fully attainable.

The principal areas in which Government policy can do most to improve the economic climate are taxation, labor, and the budget.

The most sensible approach to tax rate reform and to the correction of other bad features of the Federal tax system is that set out in H.R. 2030 and H.R. 2031. These bills are before the Ways and Means Committee. They should be considered and approved instead of the administration's tax program-a serious defect of which is that it increases tax burdens at some points as an offset to tax reductions at other points. Its contribution to net capital formation is likely to be nil. In contrast, the bills mentioned above would reduce tax burdens for all, including both corporations and individuals.

Federal labor policy permits actions by labor unions which, if engaged in hy employers, would be subject to prosecution as conspiracies in restraint of trade. Collective bargaining is not an effort by both sides to ascertain what wages would be in a free labor market, but rather a process of pressuring employers to choose between the wage demands or an industrywide strike. The result, as noted above, is to increase unemployment to the extent that wages plus fringe benefits exceerd the productivity of marginal workers.

Federal budget policy has been characterized, especially in recent years, by a steady increase of spending for purposes not connected with national defense. This policr has carrier the budget expenditure estimates for 1963 to the third highest level in our history, being exceeded only by that of the war vears 1.944 and 1945. The justifications offered for the expansion of nondefense spending are that we can afford it and that urgent needs require it-such as in this case, the unemployed.

The unfounded economic doctrine back of proposals for social-benefit spending is the contention that Government spending induces economic growth. Government spending, in this view, increases economic product and, presumably, the more Government spends, the more the product is increased. Here is the basis of the argument that we can afford to spend more as GNP rises. In his economic message the President said : 3

"With support from increased Government expenditures and other Government policies, the momentum of the recovery is expected to raise GNP to $570 billion for 1962 as a whole."

3 Economic Report, 1962, p. 12.

The fallacy of this position is that Government purchases of goods and serv. ices do not create product. They are acquisitions of goods being produced in the private economy. Government procurement orders cannot be filled unless there exists somewhere plant, equipment, inventory, and personnel capable of producing the goods specified. Government spending is essentially a kind of consumption expenditure. It does not create capital but is dependent upon already created capital. The taxes required to support a high-level budget prevent the saving and investment essential to the creation of more capital. The extension of Government activities and expenditures—the growth of Government, does not promote, but is at the expense of, economic growth.

What is needed for greater economic growth and greater employment potential is not the acceleration of public works or other Government spending, but a bettering of the economic climate which will permit the forward advance of the private sector-not the public sector.

SUMMARY AND CONCLUSION

In discussing the proposal for standby authority to accelerate public works, the NAM has consciously not dealt in detail with the legislative particulars of the bills before this committee. Our opposition is based on broader grounds than the refinement of mechanics.

Briefly reviewed, these have been our points :

(1) Unemployment stems from a variety of causes. An accelerated public works program is incompetent to correct these causes.

(2) More public employment is not a long-term constructive answer to the unemployment we have. We need a more fruitful private sector in the economy, where greater use of capital will mean greater employment opportunities. Socalled excess capacity does not mean an excess of capital. We have been subject to a deficiency, not an excess of capital.

(3) The primary causes of a declining rate of net capital formation are Gorernment policies, mainly in regard to taxes, labor, and the budget, which impede saving and investment. Reform of these policies must deal with fundamentals, not with symptoms or stopgaps.

(4) The proposed standby authority to initiate emergency public works spending would be inappropriate and ineffective because

(a) It assumes that more Government spending is the infallible remedy for economic problems;

(b) It would not deal with the basic causes of unemployment;
(c) It would not contribute to capital formation ;

(d) It would not enlist prompt, extensive State and local participation ; and

(e) It would do the bulk of the spending after recovery had set in. (5) The proposal invites the Congress to relinquish legislative prerogative to the Executive.

The problems of unemployment, recession, productivity, and economic growth are matters of great concern to the business community as well as to the Gov. ernment. Businessmen are fully as eager to find correct answers to these questions as are the economists and Government officials. The stake of businessmen in correct solutions is as great as that of the unemployed, for their profits and their ability to stay in business-their employment-are involved. The private economy is the area in which must occur the “maximum employment" of those who are “able, willing, and seeking to work." The role of Government is not to provide employment by adding to the public payroll. Rather its role, as indicated in the Employment Act of 1946, is to promote the conditions under which the private economy can best perform its function. This means that Government should keep out of the way of, rather than interfere with, the private economy. It means reliance on "free competitive enterprise" rather than on burdensome taxation, excessive regulation, deficit spending, special preference to groups or sections through price supports, subsidized credit, and competition with taxpaying citizens.

PROPOSAL TO REINSTATE CIVILIAN CONSERVATION CORPS FOR THE UNEMPLOYED

ERIE, PA. February 2, 1962. Hon. CARROLL D. KEARNS, Congressman from Pennsylvania, Washington, D.C.

MY DEAR CONGRESSMAN: I am writing this letter because of the unemployment problem in our State of Pennsylvania. Here in the city of Erie and other parts of the State, we are primarily concerned with that man or woman who is on the rolls of the unemployed because of a shutdown or a layoff, or for some other factor.

These men and women that we write of, have fixed responsibilities such as a family to care for, homes to maintain and many other problems of an aoult citizen. Unemployment is probably one of the greatest enemies of a family man or woman. Should we consider, then, that living on public relief is the future life for these men and women and their families ?

We know that many suggestions have been made and considered, such as retraining, or public works projects, but we know that many of these people will not qualify for training because of overage or not enough education. Contractors who get these public works programs do not hire people on relief, but have their own help.

I am sending you photo copies of some of the many letters that I have received from business and professional people of this city of Erie, and you will note that we are suggesting a works program that many thousands of these unemployed people could qualify to work on; that is, the conservation of our natural resources of forests and waters.

This program that we propose would be similar to the old CCC works project, but instead of considering only young men and young women 16 to 21 years of age who have no fixed responsibilities, we propose that those people with families or in the overage group be given this work.

And again we are not primarily interested in how long it takes to clear and plant an acre of forest land, or how long it takes to build a dam or build a fire road, what we are interested in is how many unemployed people will receive work, and how much money they will take home.

In Pennsylvania we have nearly 2 million acres of forest and parks in which these people could work, therefore we are asking that you as our Representative immediately write a bill and present it at this session of Congress, as we have proposed. Sincerely,

WILLIAM E. BEATMAN.

P.S.-I have also met with many of our county and municipal representatives, and they want you to know that they are also going to support this program.

JOBLESSNESS LABELED TOP U.S. PROBLEM

(By Hugh Fleming, Washington correspondent) WASHINGTON.-Unemployment is the No. 1 domestic problem facing the present session of this Congress, Representative Robert E. Cook, representing northeastern Ohio, said Saturday.

"I believe,” said Cook, “that the national figures are misleading in that there are many segments of the population which are not reflected as far as employment goes, such as those on relief, those over 65.

"Congress should give priority attention to taking legislative steps to build up the strength of America by correcting the chronic unemployment situation in our country.”

The Ohio Congressman said that in this session of the Congress he is also vitally interested in legislation for medical care for the aged under social security, income tax revision that will assist American industries in modernizing their plants, a withholding tax on dividends and interest, a retraining program for the unemployed, an increase in postal rates and, a youth employment training program.

Cook said that pending and proposed foreign aid should be carefully scrutinized by this session so that much of the waste can be eliminated.

"I am in favor of a strong foreign policy, continued assistance to those areas of the world where we are threatened with the encroachment of communism, but I believe that the entire picture of foreign aid should be reviewed so that a second look is given to such countries as Yugoslavia and Poland, who have continued to support the international position of Soviet Russia.”

[From the Erie Morning News, Oct. 20, 1961)

YOUTH CONSERVATION CORPS COULD REDUCE UNEMPLOYMENT

During the last session of Congress Senator Hubert Humphrey introduced a bill to establish a Youth Conservation Corps.

The purpose of the measure is to provide jobs for thousands of our unemployed youth.

The program outlined by Senator Humphrey is similar to that of the former Civilian Conservation Corps, which provided work for a lot of youths a quarter of a century ago planting trees, building forest recreation areas, constructing fire towers, blazing trails and roads in our timberlands, and constructing bridges.

The Nation is still benefiting from that work. And, according to Senator Humphrey, there is still need for a similar national conservation program today.

A recent report from the U.S. Department of Labor reveals an increasing number of jobless youth. Most of these young citizens failed to complete grammar school or high school. The growing technicalities of industrial work adds to the difficulties of finding work for these people.

The Federal Government is prepared to spend millions of dollars to retrain jobless industrial workers. And the experience of these workers aids in simplifying the task. But this program is of no benefit to the younger citizens who are in need of jobs.

Senator Humphrey's proposal for a Youth Conservation Corps appears to be the best solution offered to date.

In our opinion, Congress would be wise to start the machinery for the YCC when it reconvenes next year.

ERIE, PA., June 23, 1961. To Whom It May Concern:

I, as manager of the Better Business Bureau of Greater Erie, Inc., feel that Mr. William Beatman's program on conservation of State lands by reforestation as a district permanent aid to the unemployment situation of those people whose age does not grant permanent employment in industry is very commendable.

I feel a bill such as this should receive immediately priority so Federal funds appropriation could be used to good advantage. Very truly yours,

JAMES L. McCARTNEY, Manager.

LAW OFFICES,

BLASS & PFADT,

Erie, Pa., November 21, 1961. To Whom It May Concern:

This is to certify that I am well acquainted with Mr. William Beatman and feel that his proposition in regard to legislation benefiting reforestation for the improvement of conservation efforts, and providing work for the unemployed in connection therewith, is very commendable. I can only add my words of enthusiasm to his in his efforts to secure this constructive piece of work. Very truly yours,

C. ARTHUR BLASS.

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