Dr. BURNS. Yes; but there is an element of inequity there. Suppose that you and I have identical checking deposits at a bank, but that you write very few checks, whereas I write many checks. I am a burden to the bank, and you are not. I ought to be charged a good deal more than you are.

If you and I received the same interest on our deposits, but you were charged for the 5 checks that you wrote, and I was charged for the 25 that I wrote, the arrangement would be fair. I think it would add to equity within our banking system.

However, we must be very careful. We must not impose costs on banks which would injure their profitability. We must keep our banks in a safe and sound condition. Therefore, if we go to a nationwide basis, I would limit NOW accounts to individuals, and exclude business firms.

I would provide a period of a year or two which banks could carry out their planning systematically and rationally. I would lower the 5 percent interest ceiling that now exists on NOW accounts in New England. And to ease the strain on banks further, I would favor paying interest on required reserves.

Mr. WYLIE. Thank you.

On page 11 you say we are still at the mercy of a few oil-exporting countries. How much of our economy is really beyond our power to control because it is beyond our own market forces, or involves some problem with economic forces outside the United States?

That is a tough question, I know, but you refer to the fact that we are still at the mercy of a few oil-exporting countries, and I am interested in knowing just how much we are at their mercy, in your opinion.

Dr. BURNS. This is the glaring, the outstanding example. Others of much lesser importance certainly exist. Aluminum is a case, and coffee is possibly another. And there are still others. But oil is far more important than any other outside influence along these lines.

Mr. WYLIE. My time has nearly expired. Just one more question. Near the top of page 7 you state, "Our imports will also be increasing as the domestic economy begins to expand."

What should our policy be with respect to the importation of products that compete intensely with our own domestic industry? For example, Italian shoes or Japanese television sets?

Dr. BURNS. I think that the policy that this country has pursued, a liberal commercial policy, should definitely be continued. If we start imposing restrictions on other countries, retaliation will follow, and internatonal trade will shrink, and I think all countries around the world would suffer.

In addition to economic damage, political difficulties will multiply. I think we will have a better world if we move toward freer trade rather than toward more restrictions on international commerce. Mr. WYLIE. Thank you, Mr. Chairman.

The CHAIRMAN. Mr. Hubbard.

Mr. HUBBARD. Thank you, Dr. Burns. I join with the other members of the committee in expressing appreciation to you for appearing before us today. Certainly I agree with you as to your comments regard

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ing our country's deficit spending, and also agree with you concerning the continuance of the independence of the Fed, as do most of my constituents.

In looking over your report- I am trying to find some things to differ with you-and I notice on page 5 you have said, "The difficulties imposed on many American families by the bitterly cold winter will be long remembered, but I do not expect large or lasting effects on the performance of the economy during 1977."

My district in Kentucky has been hard hit for sure by the cold weather and the shortage of gas, and plants are closing in my district and some will not reopen until next summer. Also, the food cost and fuel bills of my constituents are going higher and higher. And nationwide, the estimate is that it will be $15 billion for food costs and fuel bills increased because of the cold weather and the natural gas shortage.

Aren't you a wee bit too optimistic in your comment on page 5 when you say that the bitterly cold winter will be remembered, but you don't expect any large or lasting effects on the economy?

Dr. BURNS. I may be too optimistic. That is my best judgment, as of now.

Mr. HUBBARD. This next question, your M, growth target of 42 to 612 percent implies that the Fed will buy $6 billion to $8 billion of Treasury securities this year.

Since your target has not changed since last fall, I gather the administration's fiscal package won't change your contribution, or the Fed's contribution to financing the deficit this year. Chairman Burns. what effect will this have on the impact of the administration's tax rebate plan?

Dr. BURNS. This is such a difficult subject. I see no reason why our monetary policies should change significantly. We have promoted an expansion in the economy. Confidence is gradually returning. There is a great deal that the administration can do to strengthen confidence. If confidence is strengthened, the existing stock of money is more than sufficient to finance a huge expansion, Money will turn over faster. People will put idle balances to use. As of the present time I see no reason why we should change our monetary policy because of this fiscal package.

Mr. HUBBARD. This question, too

Dr. BURNS. Let me just add this. If the President's objective, which is to energize the economy, to enhance confidence, were realized, the turnover of money would rise and would be sufficient, or more than sufficient, to finance not only the kind of growth that the President has projected, but even faster growth. That is my best judgment. Mr. HUBBARD. Thank you, Dr. Burns.

Yesterday, Michael Blumenthal, President Carter's new Treasury Secretary, appeared before us. Are you aware that he endorsed the continuance of the independence of the Fed?

Dr. BURNS. Yes. And let me say that the support that I have gotten from the new members of this administration has been very heartening to me.

Mr. HUBBARD. And a last question. By saying that the Treasury must go out and borrow the funds to cover the tax rebate-and I

believe you said that-are you saying actually that the Federal Reserve will not finance any part of it, or were you a little too general in your comments that the Treasury would have to go out and borrow the funds to cover the tax rebate?

Dr. BURNS. I see no reason at all why the Federal Reserve should finance any part of it. We will supply reserves to our banks to enable them to expand credit, to enable the money supply to grow at a moderate rate, as I specified. That means that in the absence of changes. in reserve requirements, something like $6 billion or $7 billion of Treasury securities would be purchased by the Federal Reserve. But that is simply a mechanism for keeping reserves on a smoothly growing, moderately upward trend, so the banks can perform their necessary function in financing the Nation's business.

Mr. HUBBARD. Thank you, Mr. Chairman. My time has expired. The CHAIRMAN. Mr. Tsongas.

Mr. TSONGAS. Mr. Chairman, I sat through a number of your briefings in these 2 years plus, and I must say that they are becoming decreasingly outrageous to me.

Dr. BURNS. Something might be wrong with one or the other of us. Mr. TSONGAS. I was thinking about being sent to the countryside to be reeducated.

We have talked about the President's economic package and its magnitude. What I would like to talk about-and you said you did not feel it was necessary, that the magnitude was unnecessary. Let's talk about the mix of that package, if we could.

The package includes the components of the tax rebate, which you have commented upon, the public works component, CETA, the countercyclical revenue sharing, and the two incentives to the business community as the basic parts of the program.

Looking in terms of objectives and goals. I think there are four that have been touched upon, three of which you have discussed in your paper. One is economic activity and stimulating that activity. Second, you sustain the growth as opposed to the stop-go method. Third, which I was very pleased to see, the revitalization of the urban centers, which I think is critical if the country is going to survive. And fourth, one you did not mention but which I would add, is that the package be targeted, that the approach really goes to those stricken areas or those areas of unemployment. The example that you were getting to, it doesn't do any good to send $50 to Houston and $50 to Buffalo; their problems are really quite different.

But within those goals, the question I would like you to answer is, how would you define the mix? Hypothetically, if you were to put together a $31 billion economic stimulus package. Within those goals and within the mechanisms that we described earlier, how would you put it together?

Dr. BURNS. I will try to answer your question to the best of my ability. But with your permission, I would like to rephrase your question. Let me not call it an economic stimulus package, but let me call it a fiscal package that will have as its consequence, at least in the short run, an increase in the deficit. If you accept that redefinition of your question, I am ready to proceed.

Mr. TSONGAS. I am neither surprised nor outraged. So you may continue.

Dr. BURNS. I have no great quarrel with the President's proposal with regard to public works. I have no great quarrel with regard to public service employment, although I think the benefits of that program, as it has been administered, have been greatly exaggerated. The cost is very high per individual. Furthermore, individuals are hired by State and local governments, and to a large degree they simply replace other local government employees. But I would not quarrel with some expansion, smaller than the President has recommended, in that program.

The President asked for a small increase in revenue sharing on a countercyclical basis. I can't say that the figure previously voted by the Congress is right and that this figure is wrong. I don't quarrel with the change in the standard deduction, which would reduce taxes for low-income individuals and individuals of modest means. I think that the tax reduction for business is smaller than I would have it.

And I think I would move in another direction. I'm not smart enough to know that one firm, just because it buys a little more machinery or adds a few more employees, ought to receive a larger tax credit than another. What I think is important in the business world is a strengthening of confidence all around. I believe the climate of business thinking in our country would be changed by a permanent reduction in the corporate tax rate, applicable to all regardless of the activity that they are engaged in and larger than proposed by the President.

After all, consumer spending has behaved quite reasonably in this expansion

Mr. TSONGAS. Mr. Chairman, let me interrupt you. I am not getting an answer. I wondered, since my time has expired, whether, for the record, you could submit to the committee again a $31 billion deficit stimulative package in specifics, because the issue before the Congress is going to be how much public works, how much tax cut, how much countercyclical revenue sharing, and we would like to have an answer or at least some guidane from you in that respect, which I think would be very helpful.

Dr. BURNS. Well, I must be honest with you. I will be glad to supply an answer for the record. I will say what I have said now in more words, perhaps, but I doubt that I can add very much. But I will still try.

[Dr. Burns submitted the following material for inclusion in the record at this point:]

At the outset, let me reiterate my statement at the hearings that the economy appears to be improving on its own and it is not clear to me that it requires stimulation at this time.

If fiscal action is to be taken, I would recommend a smaller package than $31 billion unless signs emerge of a serious deterioration in economic activity. By adding to an already swollen deficit, a package of that size could affect interest rates adversely, and add to concerns about a resurgence of inflation.

Next, and assuming again that fiscal action is to be taken, I feel that the package adopted should be heavily weighted toward tax relief, preferably of a permanent nature. As I have indicated, the proposed $50 tax rebates or gifts would be inefficient because their effects would be ephemeral.

In providing tax relief to individuals, I would support the President's proposal for enlarging the standard deduction. This would prove especially beneficial to families with low and moderate incomes, and is therefore quite appropriate, particularly in a time of inflation. But I also would favor a general cut in personal income tax rates.

I am aware of the arguments put forth in support of the investment tax credit and employment tax credit and recognize that they may have some validity. But I would much prefer to take the approach of a simple, permanent reduction in the corporate tax rate. This would be equitable and broadly based, and therefore, in my view, it would serve well the important objective of strengthening confidence throughout our business community.

As for the outlay side of a package, I might begin by saying that I have no serious quarrel with the President's proposals. I would, however, prefer a different approach; that is, in particular, I would cut down on the size of public service employment, which has not proved an efficient way of expanding jobs. Finally, I would place my emphasis on programs which I think would attack the problem of structural unemployment in a more efficient manner. Among other measures. I would favor reducing the minimum wages for teenagers, develop job banks to bring together individuals seeking jobs and employers seeking to fill jobs, inaugurate comprehensive statistics on job vacancies, and stimulate the formation of productivity councils on a plant-by-plant basis.

The CHAIRMAN. Mr. McKinney.

Mr. MCKINNEY. Mr. Chairman, may I say at the start that I'm delighted to be here again myself, and I am delighted to see you here. Mr. Lance was quoted, recently by saying in the press, "If it ain't broke, don't fix it." I guess you don't figure it's broke.

Dr. BURNS. No, I don't think it's broke.

Mr. MCKINNEY. There have been many Congresses faced with many complex, different ideas toward moving the economy ahead. I'd rather use that term than say "stimulating." I guess they come in three very different categories. One category would be tax reduction where you are confronted with the two opposing ideas, across the board or spot tax reductions for the general public.

Another one would come in the category of public employment, where you are confronted with the different ideas and different people who advocate just simple public employment, or those who advocate public works.

I guess the third general category that we discussed is business incentive. There we are confronted with those who would advocate tax incentives for business to invest in capital, equipment, and those who would advocate a tax incentive program for business to employ more people.

I was just wondering, since I find one of my greatest pleasures in this job listening to you, if you would like to discuss those three different categories and where you feel our emphasis should be in each

one.

Dr. BURNS. I start with the diagnosis of the economy. I find that consumer spending has been advancing quite satisfactorily. Homebuilding has been rising. The lagging sector in our economy has been business spending on new plants and equipment. And I ask myself the question, why has this kind of spending lagged in our country? And then I look around and I find that the same thing has occurred in practically every industrial country around the world.

That suggests it doesn't prove that a common cause has been operating within industrial economies. Therefore, I come to the question, what may this common cause be? I think the common cause is that