FISCAL POLICY IMPLICATIONS OF THE CURRENT ECONOMIC OUTLOOK HEARINGS BEFORE THE SUBCOMMITTEE ON FISCAL POLICY OF THE JOINT ECONOMIC COMMITTEE CONGRESS OF THE UNITED STATES EIGHTY-FIFTH CONGRESS SECOND SESSION PURSUANT TO Sec. 5 (a) of Public Law 304 (79TH CONGRESS) APRIL 28, 29, 30, AND MAY 1, 1958 Printed for the use of the Joint Economic Committee UNITED STATES GOVERNMENT PRINTING OFFICE 25780 WASHINGTON: 1958 For sale by the Superintendent of Documents, U. S. Government Printing Office Washington 25, D. C. - Price 55 cents JOINT ECONOMIC COMMITTEE (Created pursuant to see. 6 (a) of Pubiic Law 304, 79th Cong.) WRIGHT PATMAN, Representative from Texas, Chairman JOHN J. SPARKMAN, Senator from Alabama, Vice Chairman HOUSE OF REPRESENTATIVES SENATE RICHARD BOLLING, Missouri PAUL H. DOUGLAS, Illinois HALE BOGGS, Louisiana J. WILLIAM FULBRIGHT, Arkansas HENRY S. REUSS, Wisconsin JOSEPH C. O'MAHONEY, Wyoming HENRY 0. TALLE, Iowa RALPH E. FLANDERS, Vermont THOMAS B. CURTIS, Missouri ARTHUR V. WATKINS, Utah CLARENCE E. KILBURN, New York JOHN D. HOBLITZELL, JR., West Virginia RODERICK H. RILEY, Executive Director JOHN W. LxANx, Clerk SUBCOMMITrEE ON FISCAL POLICY Senator PAUL H. DOUGLAS, Chairman Representative HALE BOGGS Senator JOSEPH C. O'MAHONEY Representative THOMAS B. CURTIS Senator JOHN D. HOBLITZELL, JR. NORMAN B. TuRE, Economid HI CONTENTS PANEL DISCUSSIONS AND INDIVIDUAL WITNESSES IN ORDER OF APPEARANCE The economic outlook: Page Prof. V. Lewis Bassie, director, bureau of economics and business research, University of Illinois- 2 William Butler, vice president, Chase Manhattan Bank- 3 Prof. Irwin Friend, Wharton School, University of Pennsylvania ---- 10 Dr. Martin R. Gainsbrugh, chief economist, National Industrial Con- ference Board -12 Nathaniel Goldfinger, research department, American Federation of Labor-Congress of Industrial Organizations -16 Robinson Newcomb, economic consultant Washington, D. C -25 Prof. Paul A. Samuelson, department of economics, Massachusetts Insititute of Technology -29 Myron S. Silbert, vice president, Federated Department Stores -31 Comparative merits and limitations in use of tax, expenditure, and mone- tary actions to arrest recession and contribute to economic expansion: Gerhard Colma chief economist, National Planning Association - _ 54 Prof. James S. Duesenberry, department of economics, Harvard University - 63 Prof. William J. Fellner, department of economics, Yale University_ 66 Joseph A. Livingston, the Bulletin, Philadelphia - _-_-_-_-_67 Theodore 0. Yntema, vice president, Ford Motor Co -71 Alternative approaches to tax reduction: Prof. Roy Blough, graduate school of business, Columbia University 100 Ralph E. Burgess, economist, American Cyanamid Co -102 Prof. Walter W. Heller, department of economics, University of Minnesota ----------------------------------- 105 Everett M. Kassalow, industrial union department, American Federa- tion of Labor-Congress of Industrial Organizations - _-_- _- _ 105 Prof. Richard A. Musgrave, department of economics, University of Michigan -_-_-_110 Sidney Rolfe, C. I. T. Financial Corp113 William W. Tongue, economist, Jewel Tea Co., Inc - 118 Views and recommendations of economic interest and research groups: John C. Lynn, legislative director, American Farm Bureau Federation 142 George G. Hagedorn, associate director of research, National Associa- tion of Manufacturers - _----- -_---- 147 Stanley H. Ruttenberg, director of research, AFL-CIO - 152 Hershel D. Newsom, master, the National Grange - 157 Frazar B. Wilde, chairman, research and policy committee, Committee for Economic Development - 160 Robert R. Nathan, national chairman, Americans for Democratic Action -------- _ 186 John A. Baker, director, legislative services division, National Farmers Union -191 George J. Burger, vice president, National Federation of Independent Business, Inc -_- -_----- 193 STATEMENTS AND EXHIBITS Baker, John A., director, legislative services division, National Farmers Union ------------- 191 Bassie, V. Lewis, director, bureau of economics and business research, University of Illinois- 2 Blough, Prof. Roy, graduate school of business, Columbia University --- 100 III IV aOOTENTS STATEMENTS AND EXHIBITS-Continued Page Burger, George J., vice president, National Federation of Independent Business -193 Open letter to Members of Congress -196 Burgess, Ralph E., economist, American Cyanamid Co -102 Butler, William F., vice president, Chase Manhattan Bank- 3 Colm, Gerhard, chief economist, National Planning Association -54 Budget expenditures outlook, fiscal year 1959 - 89 1954-55 small firms - 7 77 Supplemental statement - 57 Duesenberry, James, department of economics, Harvard University -63 Fellner, William, Yale University -66 Friend, Irwin, professor, economics and finance, University of Pennsyl- vania -10 Gainsbrugh, Martin R., chief economist, National Industrial Conference Board - 12 Capital goods cycles - 15 Changes in industrial production, 1956-58 - _ 14 Goldfinger, Nathaniel, economist, department of research, AFL-CIO ---- 16 Long decline in manufacturing employment - 25 Nonfarm wage and salary employment - 24 Relatively greater unemployment among men, particularly in ages 20-34 -_- 24 Hagedorn, George G., associate director of research, National Association of Manufacturers -_------_____147 Heller, Prof. Walter W., University of Minnesota - 105 Kassalow, Everett M., industrial union department, AFL-CIO - _ 105 Income taxes: Personal consumption, 1953-54-Seasonally adjusted annual rates - 109 Livingston, J. A., financial editor of Philadelphia Bulletin, and writer of syndicated column, "Business Outlook"-_-_-_-_- ____ 67 Depression safeguard-_ _ _ _ _-_-_-_-____- 70 Lynn, John C., legislative director, American Farm Bureau Federation -- 142 Musgrave, Richard, department of economics, University of Michigan__ 110 Nathan, Robert R., national chairman, Americans for Democratic Action__ 186 Newcomb, Robinson, economic consultant, Washington, D. C-25 Sources of investment funds, selected financial institutions - __ 28 Newsom, Herschel D., master, the National Grange - .157 Pennybacker, Miles, Independent and Small Business Coordinating Com- mittee ----------------------------------- 220 Rolfe Sidney, C. I. T. Financial Corp -113 Consumer and business investment - _-_-_-____ 115 Ruttenberg, Stanley H., director of research, AFL-CIO-- 152 Samuelson, Paul A., professor of economics, Massachusetts Institute of Technology - 29 Silbert, Myron S., vice president, Federated Department Stores, Cincin- nati, Ohio -_ 31 Tongue, William W., economist, Jewell Tea Co., Inc-- 118 Wilde, Frazar B., chairman, research and policy committee, Committee for Economic Development - 160 Antirecession policy for 1958 - 172 Chart presentation - 165 Yntema, Theodore O., vice president, Ford Motor Co-71 FISCAL POLICY IMPLICATIONS OF THE CURRENT ECONOMIC OUTLOOK MONDAY, APRIL 28, 1958 CONGRESS OF THE UNITED STATES, SUBCOMmITTEE ON FISCAL POMCY OF THE JOINT ECONOMIC CoMMTrEr, WahAing trn, D. C. The subcommittee met at 10 a. In., pursuant to notice, in room P-63, the Capitol Building, Hon. Paul H. Douglas (chairman of the sub- committee) presiding. Present: Senators Paul H. Douglas, John D. Hoblitzell, Jr., and Representative Thomas B. Curtis. Also present: Norman B. Ture, staff economist, and Roderick H. Riley, executive director. Senator Douoi~s. On behalf of the subcommittee on fiscal policy I want to welcome you to these hearings on the fiscal policy implica- tions of the current economic outlook. All of us are greatly con- cerned over the recession which began last fall and which has pro- ceeded rapidly since then. I need hardly point out that there has been a wide variety of interpretations placed upon these economic developments, upon economic prospects for the near future and upon the proper course of Federal governmental policy. Unfortunately too much of the public discussion of these problems and issues has been distorted by irrelevant considerations. While I am not in the least adverse to participating in political controversy in other connections, as I am sure you all know, I believe that such controversy should proceed from a clear and objec- tive exposition of facts and issues. This is the purpose of these hearings. We are seeking the facts about the current economic situation of the Nation and a careful appraisal of the prospects for the economy in the remainder of this year and in 1959. We hope that the answers we find during these hearings will be helpful in arriving at a realistic policy for dealing with the recession. This committee and its subcommittees have established, I believe, a reputation for providing a forum in which facts and issues may be set forth without the reservations of entrenched interests and in which opposing viewpoints may be tested with cold and sober anal- ysis rather than with rhetoric. I am confident that those who have bn invited to participate in these hearings will enhance this reputation. The Joint Economic Committee has a continuing responsibility to follow economic developments and to advise Congress on adjustments in public policies which may be desirable for economic stability and growth. I am sure that all members of the subcommittee share my m- 1 2 CURRENT ECONOMIC OUTLOOK terest in seeking such adjustments which also will be consistent with considerations of economy in Government and stability of the price level. We shall be concerned in these hearings with the broad out- lines of fiscal action appropriate to current and foreseeable economic