Senator BYRD. The next witnesses are Dr. Kenneth R. Biederman and Dr. Kenneth J. Thygerson, National Savings and Loan League and U.S. League of Savings Associations. STATEMENT OF DR. KENNETH J. THYGERSON, CHIEF ECONOMIST AND DIRECTOR OF THE ECONOMICS DEPARTMENT, UNITED STATES LEAGUE OF SAVINGS ASSOCIATIONS Mr. THYGERSON. Mr. Chairman, my name is Kenneth J. Thygerson, Chicago, Ill. I am chief economist and director of the Economics Department of the United States League of Savings Associations. The United States League of Savings Associations appreciates this opportunity to discuss with you the broad subject of capital formation and, in particular, incentives for economic growth. The savings and loan business is concerned primarily with the business of mortgage finance and the ability of our country to adequately house its citizens. Thus, in my comments I would like to address specifically the types of incentives which are needed to encourage economic growth and at the same time assure an adequate supply of capital to house the American people. As you know, during the recent Presidential and congressional campaigns and more recently in testimony by officials of the Carter administration, we have come to grasp the scope of the capital formation needs of our country. Five major national priorities have been outlined by the new administration-full employment, inflation abatement, environment, energy, and housing, particularly the problem of rebuilding the central cities. On pages 2 through 16 of my prepared text I consider broadly the need for high-level capital formation to sustain an acceptable rate of economic growth. To review, we consider in these pages the impact on economic growth and capital formation of first, the fiscal and monetary policy that is the balance of fiscal and monetary stimulus and restraints over the business cycle as we have seen it used over the last decade, in particular, its impact on housing. Second, we review the impact to sustain the large Federal deficits and their impact on inflation and capital formation. Third, we review the impact of the changes, the position of this changing Federal spending. Fourth, we look at the impact of Federal tax expenditures on capital formation, particularly the deductibility of mortgage interest and real estate taxes on housing. Fifth, we look at the impact of Federal mortgage credit programs such as the Federal National Mortgage Association, Federal Home Loan Mortgage Association, the Farmers Home Administration on Government and their impact of increasing mortgage supply. Sixth, the particular savings problems of the first-time homebuyers are looked at. Seventh, we look at the capital needs in housing as they relate to our energy conservation needs and goals. Several of the analyses included in my complete text is supported by two papers, the first entitled "National Fiscal Policy and Housing" and the second, entitled "The Federal Secondary Mortgage Market: Impact on Specialized Mortgage Lenders." I would appreciate it if these could be included in the record. [The documents referred to follow. Oral testimony continues on p. 175.] National Fiscal Policy and Housing by Dennis J. Jacobe and Kenneth J. Thygerson Providing adequate shelter for all Americans is a top social priority in the United States. The 1949 Housing Act called for a decent home and suitable living environment for every American family," a statement that has been reiterated many times since 1949 and in some sense was responsible for the important 1968 Housing and Urban Development Act and subsequent legislation. This paper analyzes the way fiscal policy is used to achieve the nation's housing priorities. Included is a review of the growth of government spending and a study of the impact on housing of the fiscal-monetary policy mix, federal housing outlays, federal tax expenditures, and federal credit programs. Total government spending including federal, state and local units increased from 10% of gross national product (GNP) in 1929 to 33% in 1974. A large share of these expenditures can be attributed directly to the federal government whose outlays accounted for 21% of GNP in 1974. One way this expansion of the federal government has influenced housing is through the fiscal-monetary policy mix. Our analysis of overall stabilization policy disclosed a serious bias in the monetary-fiscal policy mix which has been increasingly adverse to housing in recent years. Large budgetary deficits even after high employment is reached have put undue pressure on monetary policy to correct for the resulting inflation. During periods calling for expansionary policies, the mix has been both favorable and unfavorable to housing although the 1974-75 period suggests that a heavy weighting toward fiscal policy can create demand expansion without bringing about a housing recovery. Another way federal expansion has influenced housing is through budget allocations. A review of federal allocations to housing indicates that although housing has been given a great deal of lip-service as a national priority, the data does not substantiate this claim. Federal outlays for housing totaled less than 1% of GNP in 1974. Further, the impact these outlays do have actually acts to exacerbate the industry's instability. As a result of this instability in This paper was originally prepared for The Housing Stabilization Committee, October, 1975, and then revised. Dennis J. Jacobe, Ph.D., is a staff economist and Kenneth J. Jacobe & Thygerson: National Fiscal Policy and Housing 41 |