Another assignment to the Council, contemplated by

the Administration, is analysis of market conditions to :: serve as an early warning system of potential bottlenecks, shortages and other inflationary pressures in individual industries. This too is a desirable function for the Council and is something that the economy needs.

The

Our Associations endorse the passage of S. 1542, and we hope as well that Congress will address itself to other means for reducing the present level of inflation. Administration has made other anti-inflation proposals, including the promotion of voluntary discussions between management and labor on productivity and other issues. Unfortunately, the Congress has not done all that it could or should to support the efforts to contain inflation.

The Administration hopes to drop the current level of inflation by 2 percentage points over the next 2 1/2 years. Our Associations would like to see the annual rate of inflation reduced to no more than 3 percent by 1979. The most effective way of accomplishing this is to quiet inflationary expectations in the public mind that arise as long as huge annual federal budget deficits are incurred in a routine way. The public has come to associate large federal budgets deficits with inflation.

A stance

of fiscal prudence on the part of both the Administration and Congress would go a long way toward dampening inflationary expectations.

At the same time the private sector

would be encouraged to invest more in new plant and equipment, thereby creating the job openings for a constantly

rising work force.

As one final point, our Associations believe it would be highly undesirable to subject the Federal Reserve Board to political or private pressures to alter its guidelines for the creation of money, so as to accomodate the views of extreme theorists and parties with strong prejudices for expansion or contraction of the money supply. There is, of course, plenty of room for discussion, but we must leave to the Board's final decision any alteration in the rates of expansion or contraction of our money supply. Our currency today is totally fiat; an excessive expansion of the currency immediately affects the value of the dollar. The Federal Reserve Board should be expected to expand the money supply, as the recovery proceeds, in a non-inflationary

manner.

On behalf of the members of the National Retired Teachers Association and the American Association of Retired Persons, we thank the Chairman and the Members of the

Committee for this opportunity to present our views.

It was requested that the colloquy between Mr. Bosworth and Senator Proxmire during Mr. Bosworth's nomination hearing be inserted in the record at this point:

The committee met at 9:30 a.m., in room 5302, Dirksen Senate Office Building, Senator William Proxmire, chairman of the committee, presiding.

The CHAIRMAN. The committee will come to order.

Mr. Bosworth, will you rise and raise your right hand? Do you swear the testimony you are about to give will be the truth, the whole truth, and nothing but the truth?

Mr. BOSWORTH. I do.

The CHAIRMAN. OK. Be seated.

Do you have any statement you would like to make in connection with your nomination?

Mr. BoswoRTH. No.

The CHAIRMAN. Let me ask just a few routine questions first. Have you been cleared by the White House counsel on any conflict of interest?

Mr. BOSWORTH. Yes, I have.

The CHAIRMAN. Do you agree that you will testify before appropriate committees of Congress if requested to do so?

Mr. BOSWORTH. Yes.

The CHAIRMAN. Now you testified before this committee about inflation and the job of the Council on Wage and Price Stabilization last December.

Mr. BOSWORTH. That's right.

The CHAIRMAN. At that time you said there were no simple solutions to the inflationary problem, that you had become increasingly pessimistic over the years. What's the most important thing in your judgment that the Council can do to decrease inflation? Let's face it, we live in an economy with an inflationary bias. Does that mean there's not a great deal that can be done under the present

circumstances.

Mr. BOSWORTH. I wouldn't be quite that negative, but reflecting what I said last December, I don't think that there is a single thing, unless it is to insure that the Council highlights the inflation cost implications every time a decision comes up both in the public and private sector. That activity will require some degree of independence between the Council and the administration, and an expansion of its comments on bills and other actions that come before the Congress.

The Council's primary concern is inflation; unless the issue of inflation is raised as a primary concern in every decision I remain very doubtful that you can get the inflation decelerated. I think this is going to mean some painful choices, both in some bills before Congress and some action that the administration wants to take and very frequently in the private sector as well.

If we are to get the rate of inflation down, it is going to have to be almost a dominant consideration in public and private decisions for the next couple of years.

The CHAIRMAN. You say a degree of independence. What do you mean? A degree of independence of the Council from the President, from the various agencies of Government, from business and labor?

Mr. BOSWORTH. I think almost inevitably in any one of these issues that comes up, whether it be milk price supports, minimum wage or whatever, that there are conflicting claims, and the problem of inflation is only one of the issues that gets raised.

But it is important that the Council's views on inflationary costs are made known, expressed, and not shunted aside in the decisionmaking process. I think in the past the Council has done a good job in trying to measure the inflationary impact of a lot of Government operations. But I don't find a great deal of evidence that in the past Government policy has been very responsive to those problems. In many cases, the decisions are made about the same as they would be if one ignored the Council.

The CHAIRMAN. There's such a myriad of actions by the Government that have inflationary effect and it just seems that the Council picks and chooses wherever there may be some kind of a political weak spot where they can move in. I don't see them taking on oil very much.

Mr. BOSWORTH. I think that's true. In the past, the Council has not had the time or opportunity to consider every issue that's come up, but one solution would be to devote more of the Council's efforts to working with the individual agencies to improve their own evaluation of the inflationary consequences of their actions and to set up procedures whereby they themselves, rather than the Council, can interject the inflation implications.

The CHAIRMAN. It's not as if the Council starts off now this month or last month. It's an agency that's been in effect for a considerable period of time.

Mr. BOSWORTH. Right.

The CHAIRMAN. And it just doesn't seem-I don't want to be unfair to it-it just doesn't seem to have done a great deal to stem inflation. Let me ask your opinion on two questions I have about the structure of the Council.

First, now that the chairman of the Council of Economic Advisers is also chairman of the Council on Wage and Price Stability, we have one person responsible for both macropolicies and microeconomic policies. Is that good, and can one person really be an idea generator in both areas?

Mr. BOSWORTH. Yes; I would think so, because it's very important that those two policies be coordinated and, in particular, a lot of the microeconomic policies that one would favor doing are only made possible in a specific macroeconomic environment.

I think, for example, in periods where you've got very high levels of unemployment it's very difficult to fight off the pressures for trade restrictions and other such measures. And in those industries where unemployment is a problem as a result of the increasing imports and other issues it would be desirable to be able to emphasize other microeconomic policies which will be creating employment and more job opportunities for those people. So I think it's very important that the two sides of the policy be very closely interrelated to one another.

The CHAIRMAN. Isn't there some danger that the micropolicies are likely to be overwhelmed and forgotten because of the far greater interest and concern with overall macropolicies?

Mr. BOSWORTH. I think that will depend upon the individuals, Senator. I don't believe that Charles Schultze, for example, is overwhelmed by the macroeconomic policies. Rather, I think that there is a belief that in the area of inflation, there's little that can be done on the macroeconomic side. So that tends to reemphazize from his point of view the importance of microeconomics. I believe that macroeconomic policies should be focused on reducing unemployment and microeconomic efforts should be directed at moderating the inflation problem. I don't find those two policies in conflict with one another. The CHAIRMAN. As I understand it, what you've got on the Council is a group of agencies that have a concern with inflation but also have a concern with policies that tend to promote inflation. That is, they favor some policies not because they promote inflation but because that's an unfortunate side effect. I'm talking about the Secretary of the Treasury, the Labor Department, the Commerce Department, and HUD. You don't have the Secretary of Agriculture in there, do you? Mr. BOSWORTH. No.

The CHAIRMAN. So that's one of the reasons you come out against price support for the Wisconsin dairy farmers? The farmer is forgotten on your Council.

Mr. BOSWORTH. I'm not sure why the Secretary of Agriculture is not on the Council. I was a little surprised.

The CHAIRMAN. It's certainly a very vital economic Agency and one that has a front and center role on inflation, but he's just left off. Mr. BOSWORTH. Yes; I think that the concerns of consumers about inflation are dominated by food prices and there's a great deal that can be done within the Department of Agriculture. I do not know why the Secretary of Agriculture has been left off, but I would have preferred that he be on. I think it would make it easier for the Council on Wage and Price Stability to have regular relationships with the Department of Agriculture to talk about the situation.

The CHAIRMAN. But to look at it from the other side, you do have the Labor Department Secretary, the Commerce Department Secretary, HUD and so forth, and their policies, as you say, may have inflationary effects, unfortunate side effects

Now does that tend to limit the type of initiatives the staff can take with regard to both analyzing impact of regulations promulgated by those agencies and policies having to do with the sectors of the economy they have general responsibility for? Would it be better if the cabinet officers were not members of the Council?

Mr. BOSWORTH. I guess I would have emphasized not so much that the Council members were representatives of the special interest agencies, which is to some extent true, but that they are the major people