GOALS FOR ECONOMIC PERFORMANCE, INCLUDING RESIDENTIAL CONSTRUCTION Manifestly, these imbalances have been very closely related to tremendously deficient investment in housing and related urban construction, as I have detailed earlier in this testimony. If both private and public investment in housing and related urban construction had been very much higher, this per se would have gone a long way toward mitigating the stagnation and recession which have come upon us. Taking all of these factors into account, chart 21 indicates the magnitudes of the job ahead of us, starting with the base year 1968. From that base year, employment needs to be up 7.3 percent by 1972, and 15.2 percent by 1977. The true level of unemployment needs to be down 2.1 million by 1972, and 2.2 million by 1977. Total national production, measured in fiscal 1969 dollars, needs to be up an estimated $229 billion by 1972, and more than $525 billion by 1977. Indicating its immense role, investment in residential structures should rise from $4.9 billion in 1968 to $23.7 billion in 1972, and $42.6 billion in 1977. I turn next to the basic changes required in national economic policies, if we are to reverse the unfavorable trends during recent years, whether measured by growth or by attention to our most pressing domestic priorities. NEEDED INCREASES IN PUBLIC INVESTMENT IN HOUSING AND COMMUNITY DEVELOPMENT Manifestly, one important aspect of the solution to these problems must reside in very massive increases in public investment, and in this manifestly the Federal Government must take the lead. Consistent with my budgeting of overall longrange goals for the economy, both on the production side and on the employment side, both range on the income side and on the product side, I have set forth in chart 22 a model long-budget for the Federal Government. It not only shows how much we need to increase various types of Federal outlays in accord with priority needs, but also reveals that, in the long-run, we can do this without increasing the size of the Federal Budget relative to total national production, if—and only if we restore and maintain maximum production and employment. Shrinking the size of the Federal Budget, relative to the size of the national economy, in the vain hope of promoting economic growth or fighting inflation, is entirely selfdefeating, as our experience during recent years so vividly reveals. In my model Federal Budget, outlays for housing and community development are projected to rise from $2.8 billion in fiscal 1969 to $5.5 billion in calendar 1972, and $9.0 billion in calendar 1977. Per capita, these outlays would rise from $13.72 to $39.34. In ratio to a properly-expanding total national production, they would use from 0.31 percent to 0.64 percent. THE INSIDIOUS MONETARY POLICY An erroneous fiscal policy has been accompanied by an even more erroneous monetary policy. The prevalent monetary policy since 1952 has been so obsessed with the problem of restraining inflation that it has, as I have already indicated, caused us to forfeit almost a trillion dollars in total national production since 1952, measured in 1967 dollars, and to neglect the greatest priorities of our domestic needs. The truth is that it is technically possible for economic growth and social progress, or the reverse, to occur under either a rising or stable or falling price level. A moderately rising price level, if caused by programs which advance social justice and meet our great domestic priorities, would be fully acceptable, and of mutual benefit. But thẹ kind of inflation we have had in recent years, and have now in even more virulent form, generated deliberately by stunting economic growth, denying social justice, and neglecting our great domestic priorities, is both intolerable and stupid. It is stupid, not only from the viewpoint of ultimate values, but also from the viewpoint of pure economics. For the cumulative weight of experience since 1953 has demonstrated conclusively that we have had the least price inflation when the economy was growing relatively rapidly, and when unemployment was being reduced greatly, such as during 1961-1966. As shown on chart 23, we have had the most price inflation during recessionary periods, such as 1957-1958, and. above all, during the past 3 years when the economy has moved into intensifying stagnation and now into recession. The only workable economic program is one which incorporates the limited problem of restraining inflation within the ambit of a long-range and unified program for growth, priorities, and justice. CHART 21 GOALS FOR THE US. ECONOMY, 1972 & 1977 PROJECTED FROM LEVELS IN 1968 The single projections relate to goals of such high priority that they should not be reduced even if only CHART 22 GOALS FOR A FEDERAL BUDGET, 1972 AND 1977, GEARED TO ECONOMIC GROWTH & PRIORITY NEEDS 1969, fiscal year; goals for 1972 and 1977, calendar years 2 Administration's Proposed Budget as of Jan 29, 1968. Beginning with fiscal 1969, the Budget includes the immense trust funds, net lending, and other relatively minor new items. Note Goals include Federal contributions of one billion in 1970, and more than two billion in 1977, to the OASDHI to help increase benefit payments to the aged. Projections by Leon H Keyserling. How immoral, aside from being stupid, it is to hear today the paeons of ride that we have succeeded, through strenuous efforts, in bringing economic rowth to a halt, and that we face the prospect of rising unemployment. Yet oday, in the name of combatting inflation, we have vetoes of spending for ducation and health while more than the amounts vetoed were recently doled ut to the affluent in untimely and regressive tax reductions and while the nterest rate paid to huge bank depositors has been lifted to almost twice the nterest rate paid on meager savings. TIGHT MONEY AND RISING INTEREST RATES ARE HIGHLY INFLATIONARY Some of the details on chart 23 are so important that they should be more pecifically detailed at this point in my testimony. During 1952-1955, while he real rate of economic growth averaged annually 3.5 percent, the average nnual increase was only 0.3 percent for consumer prices and only 1.1 percent For industrial prices, while wholesale prices actually declined at an average annual rate of 0.2 percent. Again during 1960-1966, when the average annual rate of real economic growth was 5.1 percent, the average annual rate of increase was only 1.6 percent for consumer prices, 0.8 percent for wholesale prices, and 0.6 percent for industrial prices. But during 1956-1958, which included the largest recession to date since 1952, the average annual rate of real economic growth was only 0.2 percent, while the average annual rate of increase was 3.1 percent for consumer prices, 2.2 percent for wholesale prices, and 1.5 percent for industrial prices. During 1966-1969, where the average annual rate for real economic growth was only 3.4 percent, the average annual increase was 4.1 percent for consumer prices, 2.2 percent for wholesale prices, and 2.5 percent for industrial prices. And as the stagnation became more severe in 1969 and the recession appeared in 1970, we have witnessed great acceleration in the rate of advance of all three types of prices. Administered price inflation, and that caused by severe shortages (as in housing) augment as the economy is stunted. Chart 24 carries the analysis one step further. It demonstrates how the periods of excessively drastic tightening of the money supply, accompanied necessarily by rising interest rates, have contributed to the stunting of real economic growth, even while contributing to the acceleration of price inflation. What this atrocious prevalent monetary policy has done to housing and related urban construction almost beggars description. SOME OF THE COSTS OR RISING INTEREST RATES Chart 25, running through 1967, contains my estimate that, during the period 1953-1967, the excess interest costs involved in rising interest rates during this period have transferred wrongfully and upward more than $106 billion in national income, coming to an average of $2,367.56 for a family of four. The chart also depicts how this $7.1 billion of average annual excess interest costs might have been used to relieve poverty. It is obvious that this situation has gotteni very much worse since 1967, and it is probable that the excess interest costs are now transferring income in the wrong direction at an annual rate close to $15 billion. The excess interest costs in the Federal Budget alone are now running at an annual rate in the neighborhood of $9 billion and getting higher and higher with each refinancing. In February 1970, the Treasury issued obligations at the highest rates in 101 years. TOWARD A RECONSTRUCTED MONETARY POLICY It follows that there can be no sound reconstruction of national economic policies, and no rescue of housing nor vindication of our imperative housing goals, without a prompt and decisive change in national monetary policies. Toward these end, I recommend consideration of the following six-point program: (1) Congress should require by legislation that the Federal Reserve assure an annual rate of expansion in the money supply roughly in accord with the goal for economic growth set forth annually in the President's Economic Report. This would help to keep interest rates within bounds; CHART 23 RELATIVE TRENDS IN ECONOMIC GROWTH PRODUCTION AND EMPLOYMENT Total National Production in Constant Dollars, Average Annual Rates of Change Unemployment as Percent of Civilian Labor Force, Annual Averages* *These annual averages (as differentiated from the annual rates of change) are based on full-time officially reported unemployment measured against the officially reported Civilian Labor Force. Source: Dept. of Labor, Dept. of Commerce, & Federal Reserve System |