at his own home, a comfortable split-level on a side street and watches television. Some evenings he goes to Hartford's jai alai fronton, pays $1.25 for general admission standing room and slips blithely into the plus seats in the uncrowded $5 seat section right in front of the court.

PRESSURE FROM PARENTS

Although his lifestyle isn't exciting, it's certainly comfortable. He's able to indulge his penchant for imported German Hofbrau beer. And he has enough friends with cars and places to go that he isn't trapped in one place. He says the most unpleasant element of unemployment is being nagged by his parents. "They say 'go to work, everybody works'. I say 'everybody's miserable.'".

Mr. Rinaldi's lifestyle may soon change. His parents have begun actively pressuring him to start doing something, and recently they began charging him $20 a week for room and board. Mark now intends to take some electronics courses, and he also talks of getting at least a part-time job, which would put an end to his unemployment compensation.

Mrs. Rinaldi, who works for the state as a purchasing agent, thinks Mark's lack of enthusiasm for work stems from the nature of the jobs he has held. "With better jobs he might have gotten a better impression" of the job market, she says. Her husband declined to be interviewed.

For his part, Mark says bluntly that if his parents ease up he'd gladly continue drawing unemployment until his benefits run out next summer. He also says that if he saw a good chance to make a lot of money, he'd jump at it. "I've learned the trail of the green is elusive," and a shot at riches would be worth some work, he says. But even then the job wouldn't be an end in itself. "I'm only interested in making a quick million and retiring," he wisecracks.

Mr. GONZALEZ. Mr. Pattison.

Mr. PATTISON. I would be very interested in hearing Mr. Francis' remarks, and I would like to use my time to have you respond to Mr. Rousselot's question, if you could do that.

Mr. FRANCIS. I will take a look at it, and I may still want to write an answer, because I think this is a very interesting subject, and I say what I am about to say with, I think, about as big a heart as there is in this room, because I don't want to see anyone in this country go hungry, go cold, because they can't find a job.

But I think we have some problems in the unemployment area that were pointed out in the articles, and I think the system of unemployment compensation that we have developed piece by piece over a long period of time lends itself to this kind of development. And so as a first shot, I would

Mr. ROUSSELOT. These are two examples that I have given?

Mr. FRANCIS. Yes.

And I think there is an opportunity for the Congress to take a look at the whole unemployment compensation program with a mind toward helping those people who need it, and then maybe taking care of some of the people who don't need it in some other way.

I think you will find it not unusual to see a retired man who has worked a long period for a company with an excellent retirement program, at age 65 go on retirement, go on social security, and take 26 weeks of unemployment; this has always seemed a bit inconsistent to

me.

Now, I think that the Congress, in looking at this whole program, needs also to concern itself substantially with another group, and this largely is our younger workers, many of whom have never learned the work ethic, never learned that people do get up and go to work, and indeed, many have come out of high school with an ability that hardly

permits them to read and write and makes them almost unemployable. And this is covering a little ground that was touched on earlier. But it seems to me that some kind of a program to educate these people into the work force, so to speak, should be a part of a review of our whole unemployment program. You can find, I think, some demographic studies that indicate that this country in 15 years could be short of labor, certainly short of skilled labor. And I think this makes it increasingly important that we come to grips with the structural problem of unemployment. Not try to solve it through creating money or other macroeconomic demand management programs, but with programs that can hopefully bring these people back into our employable group. And I believe that I have got enough confidence in the future that this country will be able to absorb them as we go on. Let's cut out those that should not be counted as unemployed and go about the job of correcting the true employment problem we have got.

Mr. PATTISON. Would you, therefore, because of what you just said about the teenagers, would you feel that basically that is a problem, regardless of whose fault it is, that our society to some extent has imposed upon our teenagers, I mean for one reason or another the teenager is unable to read or write, or reads or writes very poorly and is poorly motivated and therefore, obviously, we are not going to allow that teenager to starve, and so we have to have some part of the educational system-we have to recognize as part of the educational system that we have to do something different than what we've been doing up to now?

Mr. FRANCIS. I think we do.

And I think, for instance, the minimum wage that was mentioned by Dr. Brunner should be looked at, and perhaps these kids should be excluded. Regardless of what is done with the minimum wage, we should give them a chance to work for somebody at a level of compensation that they can actually earn while they are in the training program. If that is not the answer, then there may be some kind of a program of subsidization to help these kids reach the point where they can indeed earn the minimum wage.

Mr. PATTISON. To some extent this may go outside of your economic area, but to what extent would you think that a program, a restructuring of the educational system whereby young people would move into the work areas early and then back into education and then out into the work area and back into education over a much more spreadout period of time so that those young people might possibly acquire some motivation, to what extent could this be done-and that would be a rather radical restructuring of our educational system.

Mr. FRANCIS. Some of that, as you know, has been done and done with some success. I personally have been through the experience of using high school students for half the day: School half day, work half day; and it worked out very well. It kept them in school and for many it meant they were prepared to move on into full-time work when they finished.

Mr. GONZALEZ. Mr. Pattison, I regret to say your time has expired. If you wish to add to your statement in the written transcript that you will receive, of course, that is possible, if the gentleman wishes to receive a more complete reply to that last question.

Mr. Hyde?

Mr. HYDE. Thank you, Mr. Chairman. A very brief question on the problem Mr. Rousselot asked. I do believe that our approach on unemployment is, at least as we analyze the statistics, is primitive. We don't really diagnose where, what, and how these elements of the unemployment statistics are created and what to do about them. We immediately rush into a public works jobs program or public service jobs, even worse. I have got constituents who are on unemployment compensation. One man is a lithographer. He's employable, wants to work, there are jobs out there, but unless he gets a job as a lithographer, he loses his pension rights with his union. This is true with other unions.

The role of the minimum wage, we are going to raise that in this Congress. That's going to harm the unemployment situation.

Well, there are jobs available, and there are people who will not get matched with those jobs and will continue to get unemployment compensation, and we really ought to analyze the problem and be determined to do something about it, even though it is politically inexpedient, which really brings me to my main question.

I listened to Professor Samuelson-and he is gone now-talk about, really the Fed ought to be more responsive to Congress. I really disagree with that. I might rather apply that to the U.S. Supreme Court, but there is a sharp division there. But as a politician and as one who observes the political process, I am convinced that politicians congenitally are interested only in the short-term solution. Everyone wants to go to Heaven, nobody wants to die. When you preach discipline, you're not going to get elected. But somebody in that economic atmosphere has got to not only preach discipline but implement discipline somewhere along the line. And if it's left to the politicians, I'm concerned about the health of the economy.

Look at energy. We have not had the guts to talk about how to really solve the problem. Instead, we continue to import more and more in the face of a devastatingly tragic situation. If they ever turn the spigot off, we will be in World War III like that, if we can get our planes off the ground.

So to say that the sensitive and often difficult mechanisms of monetary policy ought to respond to the shifting political winds that we in Congress are subject to, I think, is a mistake. I'm not thrilled about shorter terms for Governors. I'm not sure making them coterminus with the President is good, because I think our Founding Fathers knew something about human nature when they made the judiciary independent of Congress and the political winds, and to me, I think there is wisdom in making those people who set out monetary policy independent of politics.

Now, that is not to say they should be on Mount Olympus. I don't think they are. I think they come down here. I think they talk to us. They are subject to pressure and criticism in the media and from Congress, like everyone else is. But for goodness sake, I would hate to see the hotline go from the distinguished and compassionate chairman of this committee, of whose fan club I am a charter member, or Senator Proximire, and have them jump to the crack of the whip, because I think our views of the situation are necessarily more political than maybe the wisdom that the good of the country calls for.

Now, that's not a question; that's a statement. And I would love to hear your comments on it.

Dr. TOBIN. I will make a short comment. First of all, I don't think that Professor Samuelson meant, or that anybody means, that day-today or month-to-month monetary policy should be made by this committee, much less by Congress as a whole. That can't be done.

However, the choices that are made by the Federal Reserve as to monetary policy, just like the choices that are made by the Congress and the executive in regard to fiscal policy, do determine extremely important outcomes for the society as a whole. I think it's fair to say that monetary policy is one of the most important aspects of public policy that one can imagine. It affects the rate of inflation, it affects the rate of unemployment, it affects the rate of economic growth, it affects the composition of national output as between investment and consumption.

All those matters influence the lives of people all over the country. All involve value judgments about priorities. For example, we have heard disagreement today from this panel in regard to the relative importance to the country in the next few years of reducing unemployment and of reducing inflation.

There may not be a long-term trade-off between the two, but there can't be any doubt that there is an important shortrun trade-off between the two. And there is another trade-off between trying to reduce inflation by incomes policies of various kinds as against trying to reduce it by holding the economy down for a long period of time with low rates of monetary growth.

Those are all inevitably political questions. And the institutions of representative democracy cannot avoid taking a position on them, a position which must be compelling to the agents who carry out the day-to-day and month-to-month operations. I don't think you can avoid your responsibilities in that regard by letting a group of experts on Constitution Avenue decide those strategic points.

Mr. HYDE. We do it with the Supreme Court, though.

Dr. TOBIN. I'm very happy with the Constitution of the United States, and with the division of the responsibilities among the three branches of Government. But the founding fathers did not set up the Federal Reserve system. They did not decide that the coinage was a responsibility of the judiciary. They did say it was the responsibility of the Congress.

Mr. HYDE. Sir, my time is up. But I just want to comment. The philosophical underpinning, though, for setting up an independent branch of government did not terminate, it seems to me, the validity of that with setting up the Supreme Court.

I wish we had more time. I would like to hear the other gentlemen's comments.

The CHAIRMAN. We all suffer from a lack of time.

Mr. Vento?

Mr. VENTO. Well, Mr. Chairman, gentlemen, I've enjoyed listening today. I think it's been very helpful.

I know the time is short, but I have a number of questions that I think will be brief, or I hope will be. But I'm a teacher, incidentally, of background, and I want to assure you we do our best and the difference in high school achievement is due to the fact that today we

probably deal with over 90 percent, whereas some of the things you may compare it to were 60 percent. And there are programs that do permit entry level to the work force with skills and utilization that do not require minimum wage.

But in any case, let's go back to the main thing. One of the things that plagued me yesterday was the opposition, I guess, of Mr. Burns to the $50 rebate program. Yet his endorsement of, for instance, other forms of tax cuts and I ask the question whether or not the $50 rebate question, whether or not that wouldn't be filtered through the economy and provide a long-term stimulus?

And I'm just kind of interested in what your reaction might be to his response, and to our consideration of that at this time.

Mr. FRANCIS. I tend to agree with the chairman that this one-shot $50 rebate will not have a longstanding influence of the kind we would like to see.

Dr. BRUNNER. May I comment on the stimulus package. These proposals form a good example of the "fine tuning approach" discussed in my opening statement. The political reasons and pressures encouraging such policies are easily understandable. We should also recognize on the other hand that such policies contribute little to their intended goal and produce over the longer run serious problems for our economy.

One way to assess the effect of tax policies is to examine their impact on monetary velocity based on private expenditures. This impact depends crucially on the nature of the tax policies. A permanent change in tax rates will induce larger movements on velocity than transitory tax changes. A comparison of the periods 1964-65 and 1968-69 confirms this conclusion. Velocity changes were increased over a few quarters, with a substantial lag however, by the permanent reduction in tax rates. The transitory tax increase of 1968 produced on the other hand little effect on velocity. Velocity changes were barely affected in 1968 and actually rose for a few quarters in early 1969. There are good analytical and empirical reasons in my judgment why we should not expect any useful effect from the current "stimulus package." This policy approach does produce some bad side effects however. It creates problems for the execution of monetary policy by the Fed. The large and sudden burst of financing required by the Treasury in the second quarter confronts the Fed with severe strains. It will be tempted to abandon, at least temporarily, its announced target for monetary growth in order "to support" the Treasury's financial operations. Market participants will necessarily wonder under the circumstances whether this means that the Fed will be more restrictive later this year or whether they should revise their anticipations of inflation next year. This is only one aspect of the increased uncertainty injected into the system by such policies. Moreover, once one accepts a position shifting policies any time, one will always find a reason to do so and usually in the direction of larger expenditures, larger deficits and eventually. in a ratcheting fashion, also larger monetary growth. This was the history of fine-tuning policies in Italy, England, and many Latin American countries. We suffered so far milder forms of this social disease. It is remarkable in this context that Germany has forcefully rejected such policies. One should also