though it is not possible to bring under one roof all the activities that have an impact on urban affairs, it is possible to achieve considerable consolidation. It is time to consider, for example, whether the production and financing aspects of housing could not be brought more closely together. And here new relations between the Federal Home Loan Bank Board and HUD should, it seems to me, be properly explored. So far as the local delivery service is concerned, existing institutions can be used to much better capacity. About a month ago I joined the board of a relatively small Federal savings and loan association in the Boston metropolitan region. I did so partly because, after 3 years locked up in Washington, I wanted to see how some of the national programs and ideas actually worked at street level. But also, this particular association is committed to developing housing for the poor in the areas where I work and teach. The first impression has been encouraging. There is evidence of a willingness to use Federal subsidy programs, to work with people, to make staff available for public service purposes, to conceive of new marketing strategies-and that represents real progress. And despite the feeling perhaps, of some of my colleagues in that association, that willingness, is hopefully not unique.

Fundamentally, Mr. Chairman, the need to honor our urban commitments transcends current legislative proposals. More appropriations for present programs, more inducements for investment in housing are our immediate needs. We must provide full funding of the programs that were designed to meet the 1968 goals. It is the appropriation process and the budget process of the U.S. Government which are now on trial. One changes priorities only through changes in these processes.

A final word about the concept of a development bank. This seems to parallel in many ways the Urbank concept put forward in the closing day of the Johnson administration. There is no question that major funds will have to be found to provide for the community facilities required for new housing and a better environment. Today, a strained market that offers issues with too short a maturity and too high a cost seriously affects every public municipal authority, as I can testify in the field of metropolitan transportation. The need is for a dependable, single, focal point where financing for community facilities can be available.

In short, the fundamental requirement today is to change our national priorities by providing for more money, not for more goals. That can, and should, come from increased public spending in lieu of alternative marginal expenditures by the private sector. We do not face a guns or butter issue today, but snowmobiles versus housing and education versus overseas vacations. In the estimates of future needs and resources for the 1970's, the requirement of $160 billion plus for housing and community development may seem large, yet it is large only when treated in absolute terms. In fact, with the growth of our GNP to a trillion and a half dollars, a shift of perhaps 2 percent in our allocations will suffice. The need to spend more for the vital necessities of our communities raises less a specter of inflation than it does the acknowledgment of past national failure and the determination to realize our goals now and in the future.

of homebuyers, business corporations, and state and local governments argues that borrowing demands will remain high in relation to the available supply of funds.

The year 1969 has witnessed a rise in interest rates to the highest levels in many decades throughout every sector of the money and capital markets. The demand and supply forecasts outlined above point to a continuation of high interest rates in 1970 relative to recent years, but not to further advances from present levels. As the policies of fiscal and monetary restraint take effect in further slowing economic activity during the course of 1970, market interest rates may well retreat from their present record highs, particularly in the latter part of the year. However, any decline in long-term interest rates is expected to be moderate, probably within a range of 1 to 1-1/2 percentage points, in the face of the backlog of deferred borrowing demands, the presence of a deeply embedded inflationary psychology, and the expectation that a renewed upturn in the economy may take place within a fairly short period.

The conditions distress me most:

So far as national priorities are concerned, there is a disturbing national tendency to replace goals instead of fulfilling them. In this instance to shift emphasis in 1970 from the priorities of urban development established only 2 years ago to a new area focussing on the natural environment. This unhappy trait fringes on environmental escapism.

So far as mobilizing resources are concerned, there is not only an apparent unwillingness to consider important new approaches, but also reluctance to use existing institutions and delivery systems to their fullest capacity, that is program slack.

These are the two underlying causes that seem to be at the root of our difficulties.

As to the present desperate situation, your committee has already documented fully the hostile environment in which the processes of urban development now function. Tight money, high interests, industrial deficiencies, technological lags, have combined to make the 1969 output of 1.46 million units a bad year. We lag behind the Japanese, the Dutch, the Swedes, the Soviets and the French in production. Without the dramatic changes in governmental financial operations, made possible by the 1968 Act, as well as the increases in the volume of subsidized housing, the situation would have been even worse. As Saul Klaman put it last December:

"The bitter, yet hardly new, lesson of 1969 is that absent effective fiscal policy, when economic restraint is essential, mortgage and housing markets will be clobbered. When monetary restraint fills the economic policy gap over an extended period of time, there are no special market techniques, new instruments or fancy institutional arrangements which can long insulate the residential sector of the economy."

Accordingly, as President Nixon observed on January 21, we face a "Crisis situation" in "the housing of our people."

Yet just as we are forced to take sober assessment of our our short falls from the goals the act specified; to explore the reasons for our failure; to test the capacity of our institutions to produce; to see what promises we can fulfillthe public spotlight moves to another act.

It is not yet three years since the nation endured its domestic Pearl Harbor capsuled in the disorders of Newark and Detroit in August, 1967. At that time, the "crisis of the city" helped spark not only the 1968 housing legislation, but the Urban Coalition, the 1968 Civil Rights Act and a rash of Special supplements in magazines and newspapers, by radio editorial and television documentary, that city-building was the nation's greatest need.

Yet scarcely have we buckled down to work, when the "crisis of the environment" is upon us and off we ride into a new round of "priority" speeches, legislative proposals and policy experiments. Fortune magazine that two years ago pledged business' commitment to urban affairs, sounds in this February's issue, the call to a new national mission for the seventies: the environment. Its last editorial says flately:

...

"Now that environmental anxieties have coalesced, they will be a permanent part of the American awareness. Unless we demonstrate quite soon that we can improve our environment record, U.S. society will become paralyzed with shame and self-doubt."

We establish, then, a new set of goals for a new future before we begin to realize the goals of the very recent past. Forever mobilizing our resources to change objectives, we may never have to allocate them at all-and so, evading discipline, work, and costs, we embrace environmental escapism.

Mr. Chairman, let me be sure my remarks are not misinterpreted. I advocate no parochial, exclusive concentration of policy and program attention upon the central city, the ghetto or housing production. Throughout its early years, HUD emphasized metropolitan development through comprehensive planning; increased national support for regional councils of government; emphasized the necessity of good design and worked hand in hand with conservation and beauty programs. Our metropolitan development administration, under Assistant Secretary Charles Haar, was a center of program innovation. We acted as well as planned to the extent that occasionally some observers accused us of excessive zeal. Such was the case when we took planning seriously in Montgomery County. Maryland, and against opposition suspended our grants-in-aid program until adequate attention was paid to the county's own planning process.

of savings away from thrift institutions, as individual savers continue to be attracted by the higher yields available on Treasury bills, Federal agency issues, and corporate bonds. Of course, the funds lost to savings institutions in this way are not lost to the capital market as a whole, since these savings show up as direct investments by individuals in other sectors of the market.

Funds provided by U.S. investment accounts are expected to decline from $10 billion supplied last year to $6 billion estimated for 1970. Trust funds such as the social security fund and the unemployment insurance fund invest their accumulated reserves in U.S. Government securities, typically in the form of Treasury issues. In 1969, these trust funds provided major support to the financing of the public debt increase. In 1970, the investment funds supplied through the growth of U.S. trust funds is expected to be lower, primarily reflecting a smaller buildup in social security reserves as monthly benefits are increased. Funds available to the money and capital markets from nonfinancial corporations are expected to decline from $13 billion last year to $9 billion in 1970, reflecting a liquidity squeeze on business corporationswhich will reduce their ability to invest in Treasury bills and open market paper and also reflecting a slower pace of net credit extensions to unincorporated business.

In contrast to these expected declines in 1970, three types of financial institutions are expected to supply a greater volume of funds than in 1969, largely because their asset growth reflects longer term, contractual savings flows. These are the life insurance companies, the noninsured pension funds, and the State and local government retirement funds, which are estimated to supply about $22 billion collectively in 1970, nearly $1 billion more than last year. Figures for each of these are shown in table 1.

An even greater increase is expected from commercial banks, which are estimated to supply $15 billion in bank credit against a modest $8 billion in 1969. This estimate for commercial bank credit expansion involves a judgment that economic conditions will permit Federal Reserve policy to become less restrictive in the course of 1970 and allow a somewhat more rapid expansion of bank credit in the latter half of the year. Still another source of increased funds is expected to be the Federal loan agencies, particularly those in the housing and mortgage field such as FNMA and GNMA. These agencies are estimated to supply $7 billion in 1970, against almost $6 billion last year. Table 1 also shows the amounts estimated for 1970 from fire and casualty insurance companies and from foreign investors, which are expected to be close to the amounts supplied last year.

The funds flowing to the capital market from "individuals and others" are an important element of the capital market analysis, not only for their size but also for their variability. For 1970, this flow has been forecast at $15 billion, not far below the amount shown for 1969. In part, this estimate reflects continued disintermediation whereby individuals withdraw from their savings accounts which offer lower deposit rates, in order to invest directly in higher yielding Government Issues and corporate bonds. While the $15 billion estimate is quite high by historical standards, this figure reflects the expectation that total

Properly advanced by thoughtful political leaders these common concerns can in fact build appealing communities. But these themes cannot translate themselves into reality if the just deserved requirements of the minorities we began to help in the 1960's are abandoned and forgotten.

What steps are required to avoid escapism through deception and rhetoric? Clearly the bills now before this committee for consideration point the direction. It is fundamental that we must assure that the functioning of private investment markets provide sufficient resources to the housing industry. Similarly in the public sector we need more subsidies for low cost housing and for community infrastructure. These are the thrusts of H.R. 13694, H.R. 14369, and H.R. 15402 and they are welcomed. Since Professor Thurow can comment better on the technical economic aspects of the legislation, let me make my position a more general one

I regard these hearings not only as an occasion to review the technical provisions of these bills, but also an occasion to make it clear to the American people once again that we are evading our duty. It is not so much more legislation that we need or more debate, as action and production under existing programs. Before we begin the process of enacting new policies we need to be sure that we have fully exploited our existing system and our existing institutions. I believe we can do better taking up slack in:

Policy formulation and resource allocation efforts;

Organizational and financing arrangements for providing presently authorized assistance;

Better use of existing delivery systems for urban housing.

At the policy level housing and urban affairs do not yet receive proper consideration when key monetary and fiscal decisions are made. Throughout his administration Robert Weaver fought aggressively and continually to represent the requirements for the housing industry and to make clear to managers of our fiscal and monetary systems the special vulnerability of housing to strict monetary policy. I think it is fair to say that he made progress. The understanding of members of the Council of Economic Advisors increased appreciably : some viewpoints in some parts of the Treasury underwent mutation; some members of the staff of the Budget Bureau became more sensitive to the impact of their decisions. Indeed, one of the major benefits of the 235 and 236 programs is the improved budgetary posture that has been obtained in the housing field.

But Secretary Weaver and I will be the last to say, I suppose, that we stood at the center of the monetary policy decisions in 1966. In the transition The Commission on Mortgage Interest Rates, on which members of this Committee have served with distinction, did undertake to maintain emphasis on housing finance and the Report of the Kaiser Committee on Urban Housing a year ago provided another eloquent statement of the special disadvantages of the housing industry with respect to access to resources. But it seems clear that continued. vigorous representation of housing and urban interests to assure the availability of resources without pricing the majority of Americans out of the housing market must continue.

Secondly, on the organizational front at the Washington level I think some forward steps can be taken. Indeed my principle concern about the legislation before you is the institutional complexities that are introduced into the process of providing government assistance. When HUD was established, many members of Congress expressed the belief that the Department was too small and included too few programs. Four years hindsight suggest they were right. Although it is not possible to bring all the activities that impact on urban affairs under one roof, considerable consolidation can continue. It is time to consider, for example, whether or not the production and financing aspects of housing could not be brought more closely together. Given the major changes in attitude and performance of savings institutions over the past year consideration ought to be given to bringing closer relations between the Federal Home Loan Bank Board and HUD. It seems to me that the Board now has both the disposition and the resources to make a strong contribution in this area and that this possibility can be carefully explored. I believe, as well that the launching of the National Corporation for Housing Partnership, whose funding appeals on the point of assurance, will be another major positive step at the resource acquisition level. I would hope the lead agency principle would continue to place HUD in a strong operating position with urban social as well as physical programs.

So far as the local delivery system is concerned, existing institutions can properly be used to much better capacity. About a month ago I joined the Board