FULL EMPLOYMENT AND BALANCED GROWTH ACT OF 1978 HEARINGS BEFORE THE COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS UNITED STATES SENATE NINETY-FIFTH CONGRESS SECOND SESSION ON Amendment No. 1703 TO S. 50 TO ESTABLISH AND TRANSLATE INTO PRACTICAL REALITY THE RIGHT OF ALL ADULT AMERICANS ABLE, WILLING, AND SEEKING TO WORK TO FULL OPPORTUNITY FOR USEFUL PAID EMPLOYMENT AT FAIR RATES OF COMPENSATION; TO COMBINE FULL EMPLOYMENT, PRODUCTION, AND PURCHAS­ ING POWER GOALS WITH PROPER ATTENTION TO BALANCED GROWTH AND NATIONAL PRIORITIES; TO MANDATE SUCH NATIONAL ECONOMIC POLICIES AND PROGRAMS AS ARE NEC­ ESSARY TO ACHIEVE FULL EMPLOYMENT, PRODUCTION, AND PURCHASING POWER, TO RESTRAIN INFLATION; AND TO PROVIDE EXPLICIT MACHINERY FOR THE DEVELOPMENT AND IMPLEMENTATION OF SUCH ECONOMIC POLICIES AND PROGRAMS, AND FOR OTHER PURPOSES MAY 8, 9, AND 10, 1978 Printed for the use of the Committee on Banking, Housing, and Urban Affairs U.S. GOVERNMENT PRINTING OFFICE 30-464 O WASHINGTON : 1978 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS WILLIAM PROXMIREi, Wisconsin, Chairman JOHN SPARKMAN, Alabama EDWARD W. BROOKE, Massachusetts HARRISON A. WILLIAMS, J r ., New Jersey JOHN TOWER, Texas THOMAS J. McINTYRE, New Hampshire JAKE GARN, Utah ALAN CRANSTON, California H. JOHN HEINZ III, Pennsylvania ADLAI E. STEVENSON, Illinois RICHARD G. LUGAR, Indiana ROBERT MORGAN, North Carolina HARRISON SCHMITT, New Mexico DONALD W. RIEGLE, J r ., Michigan PAUL S. SARBANES, Maryland K e n n e t h A. M c L e a n , Staff Director J e r e m i a h S. B u c k l e y , Minority Staff Director S t e v e n M . R o b e r t s , Chief Economist P a u l F r e e d e n b e r g , Minority Professional Staff Member (II) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis CONTENTS Page Amendment No. 1703 to S.50_____________________________________________ 277 L ist of W itnesses MONDAY, MAY 8 Joseph L. Fisher, Representative in Congress from the State of Virginia. _ 4 Andrew F. Brimmer, president, Brimmer & Co., Inc______________________ 13 Jack Carlson, chief economist, Chamber of Commerce of the United States___________________________________________________________________ 41 Leon H. Keyserling________________________________________________________ 66 Robert Nathan, president, Robert R. Nathan Associates, Inc____________ 97 TUESDAY, MAY 9 Mike Gravel, United States Senator from the State of Alaska 169 F. Ray Marshall, Secretary, Department of Labor 180 Charles L. Schultze, Chairman, President’s Council of Economic Advisors- 184 Jake Garn, United States Senator from the State of Utah 197 J. Charles Partee, Member, Board of Governors, Federal Reserve System. 211 WEDNESDAY MAY 10 Lewis W. Foy, chairman, National Planning and Employment Task Force, the Business Roundtable, accompanied by Richard Schubert, vice presi­ dent, public affairs, Bethlehem Steel Corp.; and Malcolm Lovell, president, Rubber Manufacturers Association__________________________ 229 Hugh P. Donaghue, vice president and assistant to the chief executive officer, Control Data Corp.; accompanied by Sherman R. Abrahamson, special assistant to the chief executive officer___________________________ 237 George Hagedorn, vice president and chief economist, National Associa­ tion of Manufacturers___________________________________________________ 241 Arnold A. Saltzman, chairman of the board, Seagrave Corp______________ 253 A dditional Statements and D ata American Paper Institute, Inc.: Letter from Norma Pace, senior vice president and chief economist. __ 318 Statement prepared for the record____________________________________ 322 Associated Builders and Contractors, Inc., statement prepared for the record____________________________________________________________________ 330 Brimmer, Andrew F., president, Brimmer and Company, Inc., economic and financial consultants: Excerpt from testimdny before Senate Banking Committee, hearing on M ay 4, 1976_____________________________________________________ 36 Remarks before the General Session on Structural Unemployment, White House Conference on Balanced National Growth and Economic Development, January 30, 1978_________________________ 107 Federal Reserve System, letter from Governor Partee with suggestions for possible means to stimulate investment in productive plant and equipment_______________________________________________________________ 220 Humphrey, Muriel, U.S. Senator from the State of Minnesota, letter and statement received for the record_______________________________________ 8 Kendrick, Dr. John W., reprint of paper titled “ Definitional and Method­ ological Problems With Key Concepts Incorporated in the Full Employ­ ment and Balanced Growth Act of 1978” _______________________________ 233 (in) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis IV Labor Department, supplemental statement on fiscal substitution in PSE Page programs________________________________________________________________ 200 Machinery and Allied Products Institute: Comments on the new administration-endorsed Humphrey-Hawkins compromise_________________________________________________________ 340 Letter from Charles W. Stewart, president____________________________ 335 List of studies dealing with capital formation, “real profits/’ and the impact of inflation and related accounting and tax issues___________ 361 Reprints of papers by George Terborgh, economic consultant: Changing Theories of fiscal Policy------------------------------------------------ 375 Corporate Earning Power in the Seventies: A Disaster_____ ____ 363 Inflation and Profits______________________________________________ 352 Mohay, Kurt, research analyst, National Association of Manufacturers, paper titled “ The Conflict Between the Humphrey-Hawkins Full Em­ ployment Goal and the Noninflationary Rate of Unemployment’’_____ 248 CHARTS AND TABLES Administration proposal, personal tax cuts in 1979 excluding social secuity (FICA) tax changes_____________________________________________________ 90 Administration proposal, personal tax cuts in 1979 including social security (FICA) tax increases____________________________________________________ 91 Adjusted and unadjusted after-tax profits from the domestic operations of nonfinancial corporations, 1947-76______________________________________ 366 Adjusted domestic after-tax profits of nonfinancial corporations as a per­ centage of their adjusted domestic net worth____________________________ 368 Adjusted domestic after-tax profits of nonfinancial corporations as a per­ centage of their domestic gross products________________________________ 368 Adjusted profits and retained earnings of nonfinancial corporations in 1972 dollars___________________________________________________________________ 358 Adjusted retained earnings of nonfinancial corporations___________________ 357 Adjustment of reported profits of nonfinancial corporations_______________ 356 Allocation of tax cuts, 1962-65: Investment and consumption purposes____ 92 Black and working age population in selected central cities, 1960 and 1970- _ 147 Changes in black and working age population as percentage of total pop­ ulation in selected central cities, 1960-70_______________________________ 149 Changes in central city’s share of population, manufacturing employment, and money income in selected metropolitan areas, 1960-73_____________ 146 Changes in inflation because of the Carter administration’s proposals and congressional enactment of legislation during 1977_______________________ 56 Changes in the civilian labor force, employment and unemployment by color, sex, and age, March 1975 to December 1977______________________ 136 Changing work hours of married men and women_________________________ 48 Comparative growth rates, 1961-77________________________________________ 85 Comparison of the current double-declining balance depreciation of non­ financial corporations with the depreciation allowed them for income tax purposes_____________________________________________________________ 355 Cost of departures from full economy, 1953-77_____________________________ 80 Earnings coverage of net interest payments, nonfinancial corporations_____ 372 Economic impact of the Carter administration’s proposals and congressional enactment of legislation during 1977____________________________________ 53 Economic impact of Carter administration’s tax proposals, fourth quarter, 1977 through fourth quarter, 1980_______________________________________ 135 Economic impact of Humphrey-Hawkins employment objectives by 1983__ 51 Effective tax rates on the pre-tax profits of nonfinancial corporations as reported and as adjusted________________________________________________ 359 Employed and unemployed as a proportion of total population____________ 46 Employment during economic recoveries__________________________________ 45 Employment of United States and other industrial countries during economic recoveries______________________________________________________ 45 Estimated division— Proposed tax cut between cuts for investment pur­ poses and cuts for consumption purposes_______________________________ 93 Estimates of fiscal substitution in PSE programs________________________ _ 204 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis V Excess interest costs in the Federal budget, 1965-77 contrasted with Page other costs for selected budget