STATEMENT of the NATIONAL RETIRED TEACHERS ASSOCIATION and the AMERICAN ASSOCIATION OF RETIRED PERSONS On behalf of our over 11 million elderly members, our Associations are compelled to register strong objection to the lack of effective action to reduce substantially the persistent and historically high annual rate of inflation. Not only does there seem to prevail, both in and out of government, a willingness to accept a 5 to 6 percent "hard core" annual inflation rate, but rates of these magnitudes are even expected and planned for. We believe it is self evident that the elderly suffer greater losses from price inflation than those who are in. the labor force. The reason why is that the income of the elderly has large fixed components or components which tend to rise only slowly following general advances in prices, whereas the wages of workers tend to rise along with inflation. However, the worker does not completely escape either. The real after-tax buying power of the worker with three dependents in February 1977 was below the 1965 /1 level. We agree with Treasury Secretary Blumenthal's recent description of inflation and its consequences in his April 20th testimony before the Subcommittee on Economic /1 Testimony by Andrew J. Biemiller, April 22, 1977 before the Subcommitte of Economic Stabilization of the House Committee on Banking, Finance and Urban Affairs. Stabilization of the House Committee on Banking, Finance and Urban Affairs. Inflation is a cruel and regressive tax. Infla tion is a social blight, not only an impedi- Disregarding in-kind income the Census Bureau estimated that there were 5.5 million persons age 65 and older during 1975 who were living below the "near poverty" level. That was nearly one-fourth of all persons 65 years and older /2 that time. at A recent Congressional Budget Office Study of poverty has estimated that only 6 percent of the 65 and over group were below the subsistence-based, defined level of poverty in fiscal 1976 after counting all cash and in-kind benefits 13 including Medicare and Medicaid assistance. If this estimate is accepted, we must face the fact that the majority /2 "Income and Poverty among the Elderly: 1975." (HEW April 1977) /3 Congressional Budget Office Background Paper No. 17, Poverty Status of Families under Alternative Definitions of Income, Table 6. of the elderly today look to the Federal government to keep them out of poverty through social insurance programs and various kinds of in-kind and cash transfer income. Our Associations believe that the majority of people are provident and do attempt to save for their old age. The fact that so many of the elderly must look today to the Federal government for assistance is not due to the improvidence of the average American, but rather to public policy which discourages work effort by the elderly and fosters dependency. and to inflation. The creeping inflation of the early post-war period was replaced in the mid-1960's by galloping inflation. Measured by the Consumer Price Index, price inflation over the decade 1966-1976 averaged about 6.1 percent annually. Savings assets denominated in dollars, such as government bonds and savings deposits with banks or savings and loans associations, erode rapidly at such inflation rates, because the after-tax interest income fails to make up the annual inflation losses in purchasing power. The average The inflation "tax" is indeed a cruel one. American has had great faith in the value of the U.S. dollar. He simply did not believe that his country's leaders would allow the U.S. dollar to go. the way of the French franc or British pound. But the average American has been mistaken. The country's leaders have let the U.S. dollar diminish with the advice and blessing of many, if not most U.S. economists. The "stagflation" of the depression from which we have been emerging has proved one of the most widely held economic theories of inflation to be nothing short of ridiculous. It has been held that aggregate demand could be safely stimulated by government spending without inflation as long as the country was operating at less than capacity, with respect /4 The inflation rates of to both manpower and plant. 1974, 1975 and 1976, which were 12.2, 7.4, and 4.8 percent have demonstrated that we can have rising rates of inflation during periods when the country's capacity to produce is under-utilized and when unemployment is rising. The fact that must be faced is that the United States has been suffering from a new and persistent inflation not from This new economic disease classic termporary inflation. Persistent inflation rates of 6 to 6 1/2 percent, from which we have recently been suffering, are intolerable in the long run, not only beause they mean economic ruin for the elderly and the programs on which they depend for income support and health care protection, but also because such rates will destroy the propensity of the individual to save and will inhibit the entreprenuer from risking capital in a future that is beyond his calculation. - Creeping inflation rates were justified after the last war as rates needed to stimulate the economy to achieve steady growth about 4 percent a year for ever. Then stagflation arrived. Persistent inflation rates of 6 to 6 1/2 percent can never be justified, if growth rates for GNP over the next 4 or 5 years are only at annual rates of 3 1/2 percent, an estimate thought to be reasonable by W. W. Heller. As the United States shifts into a "service economy" and faces higher costs for its energy, an expected annual GNP growth rate /5 of 3 1/2 percent may prove to be optimistic. The present levels of persistent inflation are intolerably high. But one of the difficulties in dealing effectively with these rates is the human preference for attributing our troubles to what economists call external shocks, rather than to our own acts, which we may find difficult to change. The ancient Greeks attributed lightening to the acts of the gods, who, annoyed at humans, threw bolts down on them from Mt. Olympus. Charles L. Schultze, Chairman,of the Council of Economic Advisors explains that "Inflation can also be initiated by shocks and disruptions in supplies. Worldwide crop shortages in 1972 and 1973, a quintupling of OPEC oil prices, and devaluations of the U.S. dollar provided a massive /5 Walter W. Heller, "Productivity and GNP Potential," |