combating high unemployment and at the same time giving business the investment tax credit which would stimulate further development.

What is your reaction to that?

Dr. COLES. I would favor it. I think it would work maybe-maybe 10 percent is not enough, I don't know, but I think some type of inducement of this sort is going to be necessary in order to bring forth the investment in structures.

And indeed wasn't this a part of one of the iterations of the new urban initiatives?

Senator SASSER. Yes, I think that is true.

Dr. COLES. One of the earlier iterations had this in it, as I recall.

INDUSTRIAL EXPANSION

Dr. GARRISON. Senator, I see one difficulty with that line of reasoning. I don't think you can separtate the economic problems of the urban north, let's say, from the rural and small town south. I think that in the long run, although this may be precious little consolation to the present urban dweller, it seems to me that the major source of opportunity for black people is likely to be in the industrial expansion in the rural and small town south, so that they don't have to migrate. And we have already seen some evidence of this, I believe. So I am not sure that this sort of operational twist would be in the long run interest of black people.

A COMMON INTEREST

Senator SASSER. I think, Dr. Garrison, that Secretary Harris has given some indication that she might agree with the statement you just made, and also the statement you made earlier about the socalled Sun Belt areas and the older northern cities being tied together with a common interest.

REHABILITATION

Some days ago, Secretary Harris presented an article which was published in the Washington Post, in which she made this statement, in discussing rehabilitating older cities, and I quote:

Given the cities' vast capital investment in existing buildings and transit systems, utilities, and water and sewer lines, it makes cold economic sense to reinvest and restore the cities. If for no other reason than for this practical one, our cities deserve our attention and support. Moreover we should not forget that cities in all sections of the country show signs of this distress. Included among the cities identified as facing the possibility of irremedial deterioration are Atlanta, Miami, El Paso, Birmingham and Nashville, all in the Sun Belt.

So there is some agreement with what you are saying.

Well, Dr. Haskew, and gentlemen, we are very much in your debt for appearing here today. We appreciate very much your remarks and your opinions, and they will be—and have been-duly noted. The staff of the Budget Committee may have further questions to propound to you in writing at a later date. And if they should be forthcoming, I would hope that you would respond to them in a timely fashion. Thank you very much for appearing today.

Thank you.

Prepared Statement of Ned Davis

On behalf of the Nashville Area Taxpayers Association, I welcome this opportunity to make a statement about what we believe is a grave national mistake. We have been warned that those who do not learn the lessons of history will be condemned to relive its mistakes.

Thomas Jefferson understood the mistakes of the past when he said, "I place economy among the first and most important virtues, and public debt as the greatest of dangers."

As shown on the following chart, the nation has in recent years wasted its liquidity, made thrift a vice and adopted a policy of guns and butter budget deficits. Liquidity works like a shock absorber on a car. When we run into inevitable bumps on the financial road, our shock absorber-liquidity—enables us to move smoothly ahead. When we lose our shock absorber (like now), we face the danger of an economic crash.

Deep in their guts, the American people know that deficit spending is wrong and dangerous. As President Franklin D. Roosevelt said, "Let us have the courage to stop borrowing to meet continuing deficits. Revenues must cover expenditures by

one means or another. Any government, like any family, can for a year spend a little more than it earns. But you and I know that a continuation of that habit means the poorhouse." A recent Gallup Poll indicated that 78 percent of the American people are in favor of an amendment that would limit budget deficits except in national emergencies.

The reason that this measure has such widespread support is that the policies of guns and butter deficits over the last 12 years have been found to be a failure. As shown on the table below, our policy of more deficits, faster money growth and more government has led to higher inflation and higher interest rates. But the sad irony is that hyper-stimulation has filed to achieve better growth. The growth of GNP during the guns and butter era is lower than during the "old time religion" era where we practiced fiscal responsibility. And the cruelest thing of all is that the people who are least able to afford a bankrupt guns and butter policy-poor people are the very ones who have suffered the most. Unemployment has been much worse during guns and butter deficits than during the old time religion period when we mostly balanced the budget.

"We used to think that you could just spend your way out of a recess.on and increase eployment by cutting taxes and boosting government spending. I tell you in all candor that that option no longer easts and that insofar as it ever did exist, it only worked by injecting a bigger & se of inflation into the economy, followed by a higher level of unemployment. This is the history of the past 20 years." -British Prime Minister Callahan

Deficits are like heroin. You need bigger and bigger doses to produce the same high. And like heroin, deficits can destroy our society. Let us get off this deadly drug now and restore integrity to our currency. As John Maynard Keynes told us "Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved an important part of the wealth of their citizens ⚫. Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency."

The chart shows how budget deficits not only debauch the currency and inflate prices and interest rates, but they also lead to higher unemployment. The poor can no longer afford a policy which creates both inflation and unemployment. The rate

of unemployment in this nation is a disgrace and the 35-40 percent unemployment among black youth, in our opinion, largely caused by government policies, is a national "time bomb."

BALANCED FEDERAL BUDGET

Specifically, the Nashville Area Taxpayers Association urges our Senators and Representatives to join over 100 of their colleagues in the House and Senate in supporting House Joint Resolution 130 and Senate Joint Resolution 51. These resolutions propose the Constitutional amendment that will require a balanced Federal budget except in time of emergency. Already 21 out of a necessary 34 of the state legislatures including Tennessee have passed resolutions calling for a U.S. Constitutional Convention to draw up an amendment requiring a balanced Federal Budget. Like coming off heroin, there will be some withdrawal pain. Senators will have to be profiles in courage to stop growing Federal debt. But we owe it to our children's future to take the necessary action. And either we will do it voluntarily or have it forced upon us by an economic collapse that history shows inevitably follows excessive debt creation.

UNEMPLOYMENT RAISES DEFICIT

Senator SASSER. Mr. Davis, our economists tell us that for every 1 percent unemployment, it raises the Federal deficit by about $20 billion. The only way to balance the budget, as it appears to us at this juncture, without serious, grave economic repercussions, would be to return to full employment.

Now, if we cut Federal spending to balance the budget, the argument is made that this in and of itself will dramatically slow the recovery, and would be recessionary in nature. It would increase unemployment, which is already at an unacceptable level and is costing us over $100 billion a year.

So do you, as a representative of the Nashville Area Taxpayers Association, have any advice on this situation that we find ourselves in?

GOVERNMENT CROWDING OUT

Mr. DAVIS. NO; I do not believe there are any easy answers, but I would say this, business is not-business investment is considerably below where it would normally be. It is my opinion the reason for this is that to finance the Federal budget deficits, we are having to have considerably higher interest rates than would ordinarily be the case. Right now interest runs 81⁄2 percent for the best corporations, and 10 percent for the lesser corporations, long-term money. If the Government would get out of the market, they are crowding out the private borrowers, I believe we could get interest rates down. If we can have 6 percent long-term rates, a lot of businesses would find very profitable investments that they just plain can't work the figures on at 81⁄2 to 10 percent.

WOULD PUT JOBS IN PRIVATE SECTOR

I think if the Government would get out of the way and interest rates would drop, I think you would find that business would be very anxious to invest. That, of course, would put jobs-would put people to work in the private sector, and there is a number of countries in the world, Norway, Germany, Japan, Switzerland, that have largely balanced budgets and strong currency and virtually no unemployment. At the present time in Germany the long-term interest rate has fallen 2 percent, and their rate of inflation is