Speech of Hon. Patsy T. Mink of Hawaii in the US House of Representatives
Wednesday, March 1, 1972
Mr. Speaker, one of my Hawaii constituents, Dr. John H. G. Pierson, has proposed a method to resolve the unemployment-inflation problem by amending the Employment Act of 1946.
His statement, “Completing the Employment Act,” offers a most provocative approach to one of the most urgent problems facing the Government.
Dr. Pierson, who has a Ph. D. in economics from Yale, served for many years as an economist and a policy adviser in the U.S. Department of Labor the foreign aid program, and the United Nations. He has published three books and numerous articles about full employment. In this article he puts his proposal into the language of legislation.
COMPLETING THE EMPLOYMENT ACT
(By John H. G. Pierson)
In the twenty-six years since the Employment Act of 1946 was signed into law, the country has experienced five recessions.
Even when business has prospered, the central aim of this Act — useful employment opportunities for all those able, willing and seeking to work — has seldom been brought within sight, let alone achieved. Only for three years, in the Korea war boom, has the official unemployment estimate averaged below 3.5 percent of the civilian labor force (dropping to 2.9 percent in 1953 and to 2.5 percent, in seasonally adjusted figures, that May and June). In as many as eleven years it has stood above 5 percent (rising to 6.8 percent in 1958 and to 7.5 percent that July). Earlier bench marks, not entirely comparable, were 24.9 percent unemployment in 1933 and 1.2 percent in 1944 under wartime price controls.
In the long absence of recessions after 1961 the unemployment rate finally dropped to 3.5 percent for 1969 (touching 3.3 percent momentarily early that year), but the statistics somewhat overstate the actual improvement since stricter definitions of unemployment were used as from 1965 and 1967. Then in 1970 the jobless percentage jumped to 4.9, and in 1971 it hovered around, and averaged just under, 6 percent.
Six percent unemployment now means more than 5 million persons. Even 4 percent sometimes treated as though it were an acceptable, goal’ would still leave some 31/2 million persons in this country looking for work and unable to find any. Moreover the published unemployment total understates the real extent of involuntary idleness at virtually all times and especially during recessions. One reason among several is that some persons who want to work full-time can only get part-time jobs. Some others eventually become too discouraged to keep on looking and are then no longer counted as part of the labor force; and so — except for less frequent and less reliable estimating — they slip through the statistical net altogether.
A list of the legislative measures enacted or proposed since 1946 to try to cope better with our national economic problems would be long indeed. Many amendments have been offered to the Employment Act itself, keyed mainly to three objectives: (1) Repeated efforts have been made from the outset to have the Act not only promote employment but also restrain inflationary price increases; (2) Lately, since about 1960, it has often been urged that this law should concern itself with our balance of payments as well; (3) There have also been attempts to go back to the more formal kind of “national full employment budget” planning which was originally suggested in 1945-46 but rejected by Congress at that time.
No amendments other than technical or housekeeping ones have ever been adopted, however, and some of the reasons are easily imagined. Many proposals were addressed to section 2, the Declaration of Policy. — Why load the Act with further policy objectives when its first objective was still not being achieved? Again, the “national full employment budget” concept was originally framed in a way that automatically aroused strong opposition by failing to safeguard the private enterprise interest. And all else aside, tinkering with an Act so broad in scope would have seemed like opening Pandora’s box. — Where would the modifications end if once begun?
But are the reasons for standing pat still good enough? The need to have our economy function properly is as great as ever. The quarter-century record of failure of the Employment Act as written is more obvious today than before because of the length and peculiarities of the present slump. Indeed we now have not only the doctrine that full employment and price stability cannot be achieved simultaneously but the experience of the simultaneous non-achievement of both. Meanwhile in engineering, for example, scientifically-minded practical people are every day making progress by simply asking “what would be the conditions under which X” (some desired result) “would be achieved?” and then proceeding to construct those very conditions. Certainly the question must be raised whether the arguments against changing the Act are still convincing.
The Answer to this must depend at least partly on whether amendments can be framed that will once and for all complete the Employment Act — make it do what it should, ideally speaking, have done from the start. Can it be strengthened to guarantee jobs to able job-seekers, while at the same time staying clear of irrelevant matters? (To keep full employment from itself causing inflation is of course anything but irrelevant.) Can these things, moreover, be done without prejudging the handling of the touchy public- versus private-sector issue; or changing the traditional relationship between the President and the Congress (as by expecting Congress to rubber-stamp a Presidential spending program or to give the President unduly wide discretionary powers); or interfering in the legitimate concerns of Congressional committees?
It is here submitted that all this is possible, and textual amendments to the Act are offered below to illustrate how. Much the most important amendment and the key to the others is the addition of a new final section 6 to vest appropriate responsibilities in Congress as a whole. However, for the sake of clarity, this discussion will proceed straight through the Act from the beginning.
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First, however, a word is needed about what is really at stake, because the arguments over the full-employment issue are often pitched on altogether too narrow ground. In briefest summary:
(1) Involuntary unemployment is destructive of personality.
2) An assurance of continuous prosperity and full employment would weaken the antisocial (usually inflationary) compulsions of business, labor, farmer, and other interest groups.
(3) Racial peace seems impossible in this country without universal job opportunity — the present lack of which is also partly responsible for the alienation of youth, not to speak of the helpless bitterness of many older people.
(4) Getting rid of poverty would be greatly simplified as a result of the cash-income effects of continuous full employment (more paid labor; less chance of exploiting labor by paying substandard wages).
(5) The extra wealth (GNP) which would be created under those full-activity conditions — the staggering amount now wasted through avoidable nonproduction — is needed to help finance programs to meet the problems of the cities, backward rural areas, and the environment generally, including again problems of poverty but not limited to them.
(6) Internationally, that extra wealth would confirm our ability to extend more generous aid to the world’s less developed countries.
(7) More (and more fundamental) than that, confidence in our ability to maintain a market adequate for our own full-employment prosperity through domestic policy would substantially deflate our fear of imports and our exaggerated preoccupation with. export markets and export surpluses; thus it would enable us to be a “good neighbor” that encourages and helps the less developed countries to shift “from aid to trade” as they become ready for it.
Section 1 of “AN ACT to declare a national policy on employment, production, and purchasing power, and for other purposes” (60 Stat. 23) (Public Law 304-79th Congress) (approved February 20, 1946) merely states that the short title is “Employment Act of 1946.”
Section 2 is the “Declaration of Policy.” This has received so much attention that it will be quoted here in full, with proposed additions to the text italicized (as also subsequently) and proposed deletions placed within square brackets:
“Sec. 2. The Congress hereby declares that it is the continuing policy and responsibility of the Federal Government to use all practicable means consistent with its needs and obligations and other essential considerations of national policy, with the assistance and cooperation of industry, agriculture, labor, and State and local governments, to coordinate and utilize all its plans, functions, and resources for the purpose of creating and maintaining, in a manner calculated to foster and promote free competitive enterprise and the general welfare, conditions under which there will be [afforded] the assurance of useful employment opportunities, including self-employment, for those able, willing, and seeking to work and to promote maximum employment, production, and purchasing power; and opportunities for training, to improve employability; and healthy growth of production, with full, non-inflationary employment and purchasing power.”
(1) It is necessary to include an assurance of employment opportunity, since that is the heart of the matter. (The rather profuse introductory language of this Declaration might perhaps be pruned a little too without sacrificing vital safeguards, but that is not essential, and the changes suggested here are purposely held to a minimum.)
(2) The concept of “maximum employment . . .” has been a false lead from the beginning. Maximum purchasing power is Inflationary. Maximum employment is either inflationary or simply weak (“let’s do the best we can”). And maximum production is now more than ever open to challenge as a national objective, both psychologically and ecologically. Hence there is much to be said for rewording the final clause.
(3) The Employment Act is not the place where training programs should be spelled out. As far as policy is concerned, however, there is or should be a national purpose not only to provide employment opportunities for all those able, willing, and seeking to work but also to fight against so-called unemployability; that is, to help anyone, “willing” and “seeking” but not as yet “able,” to overcome his or her inability. Hence the end of this Declaration could well refer to that issue too, as here suggested.
Section 3 deals with the “Economic Report of the President.” Additional language is proposed for the first subsection in order to give special emphasis to certain recommendations, not now debarred but not explicitly required either, which the Economic Report definitely needs to include:
“Sec. 3. (a) The President shall transmit to the Congress not later than January 20 of each year an economic report (hereinafter called the ‘Economic Report’) setting forth
(1) the levels of employment, production, and purchasing power obtaining in the United States and such levels needed to carry out the policy declared in section 2, including specifically the minimum and maximum levels of employment recommended in the light of that policy, and the minimum and maximum rates of aggregate personal consumption expenditures deemed consistent with that policy in view of the program of Federal Government purchases of goods and services recommended to be undertaken and the anticipated other demands on the national product;
(2) current and foreseeable trends in the levels of employment, production, and purchasing power;
(3) a review of the economic program of the Federal Government and a review of economic conditions affecting employment in the United States or any considerable portion thereof during the preceding year and of their effect upon employment, production, and purchasing power; and
(4) a program for carrying out the policy declared in section 2, together with such recommendations for legislation as he may deem necessary or desirable.”
(1) The proposed minimum level of employment (in terms, presumably, of the seasonally adjusted monthly national total reported by the Department of Labor) would reflect the President’s view of the correct statistical definition of full employment for the year ahead. This quantity would be derived by estimating the civilian labor force and subtracting the amount of unemployment that seemed to the President reasonable in the light of production shifts, manpower policies, and labor mobility at the time (the allowance for “necessary frictional unemployment”). Apart from labor-force growth due to the changing size and agecomposition of the population, an effective full-employment policy would no doubt also bring into the picture at the beginning many persons previously not even on record as wanting to work. No need, however, to attempt the impossible. In the transition period from our present excessive unemployment, the President could if he thought best propose moving up to full employment by stages and reaching it in, for example, the second quarter of the second year.
(2) A maximum limit on employment is needed too, as a safeguard against inflation. (Purely as illustration, if the President in some year proposed a minimum of 86.5 million jobs, he might also state that anything above 87.8 million jobs would represent overemployment — too tight a situation in the labor market, with too much upward pressure on pay scales and on total income payments.)
(3) Key importance attaches to also setting limits to personal consumption expenditures (as compiled quarterly, at seasonally adjusted annual rates, by the Department of Commerce), and to deriving this target in the manner indicated. In the first place, since the President would of course state that any expansion or contraction of his recommended government program would imply an opposite change in needed consumer spending, this approach would eliminate the fear that a government commitment to serve as “employer of last resort” might lead to a degree of expansion of the public sector that was unacceptable to Congress. Such a government commitment — such underwriting of the job market — would still be essential, of course; and some consequent manipulation of the level of employment on public works and services would result, in compensation for net “error” in estimating other forms of demand and the employment-generating effect of a given demand. But there would be no inherent one-way bias toward government expansion, no greater probability (if the mid-point between the employment floor and ceiling were aimed at to begin with) of a need to accelerate public works and services than of a need to decelerate them. Hence this approach would remove a basic obstacle to the solution of the problem of making continuous full employment possible in practice.
This approach would also greatly help to remove the second basic obstacle, which is the fear of inflation. While that subject can, best be viewed in a comprehensive way at a later point, it is evident that a firm ceiling on consumer spending (mentioned here, explained in due course) would act as a powerful brake against inflationary demand spirals, especially when coupled with the proposed ceiling on employment.
To return to the computations envisaged. First of all, all the statistical series needed are continuously available. Second, while all the components of gross national expenditures, or GNP, would be used for deriving the needed consumer spending, there is no proposal here that the GNP itself or any of its components except consumer spending should have lower and upper limits set. The suggested procedures do not imply control over private investment decisions, for instance. (Given the permanently high final-product markets implied by the policy, private domestic investment could be expected to continue reasonably high also, with its cyclical swings damped down considerably. In estimating it for the purposes here in view, there might be advantages in choosing a mid-point figure on the diminished investment cycle rather than an actual forecast figure. This would look toward having fluctuations in private construction offset by opposite ex post fluctuations of public works rather than by opposite ex ante fluctuations of private consumer spending.)
This much having been said, the technical estimating procedure may be clarified, at least in outline. Other things (specifically, the sum of State and local government purchases of goods and services, gross private or business domestic investment, and net exports of goods and services) being equal, the needed total of (a) private consumer spending and (b) Federal Government spending for goods and services would remain constant too. (“Needed” here translates into required for a full-employment level of GNP, at a given level of prices.) In point of fact, other things cannot be expected to be quite equal if the ratio of (a) to (b) changes. In particular, certain common types of government spending yield more employment, dollar for dollar, than does more private consumer spending. A substantial program of public service employment would, moreover, have the great advantage that it would help to ease the disproportionately high unemployment among less-skilled and less-educated workers. But differences such as these can all be roughly estimated, just as can the other components of the GNP. Thus, the President would add his optional items to the relatively fixed or unavoidable ones already there and would state what total volume of purchases of goods and services he wanted the Federal Government itself to undertake. He would then specify the level of private consumer spending that in his view would be required to be associated with that much Federal Government spending in order to have, at the price level which he anticipated, an aggregate market capable of sustaining full employment as he had defined it. And no doubt he would also suggest — without needing to have the law say so — a scale of variations of the consumer component that would be appropriate in case Congress introduced variations of the government component.
Here also appears the third major advantage from pegging consumer spending. An increase of net exports has often been sought in the past as a solution for or our unemployment, even though other countries might suffer from the action we took. The proposed approach would turn the problem around, calling for an expansion of the domestic market (via larger consumer spending) when the foreign market (net exports) was projected as declining. Consequently this approach would allay fears of a shortage of markets in the overall sense, and so would help us to maintain a liberal foreign-trade policy based on the widest interpretation of national self-interest.
(4) Part (4) of the subsection asks the President to set forth his program and, if necessary or desirable, recommend new legislation. Although the text here probably needs no formal amplification, the President would clearly be concerned — under this proposal — not only with legislative and administrative measures directly or indirectly affecting the performance of the economy on a continuing basis (welfare reform and antitrust action, for instance) but also with special compensatory measures. The latter would be for use only when that might prove necessary to keep total employment, total personal consumption expenditures, or both from straying outside their specified limits. The subject of contingent, compensatory measures is, however, reserved for later discussion.
Not to overlook the regional aspect of the employment problem — the President’s program would certainly not limit itself to questions of national averages. Also dealt with in his recommendations would naturally be the continuing special needs of the country’s Appalachias, as well as any unusually severe local job shortages of a more temporary nature brought about, say, by technological change or import competition.
No comment is required on the remainder of section 3. Subsection (b) authorizes the President also to transmit supplementary reports to Congress. Subsection (c) states that the Economic Report and any supplements shall be referred by Congress to its Joint Economic Committee.
Section 4 of the Act deals at some length, in six subsections, with the “Council of Economic Advisers to the President.” The functions of this three-member Council, established in the Executive Office of the President, are essentially those implied by its title.
Section 5, the last one as the Act now stands, brings us to the “Joint Economic Committee.” Here again the text deals largely with matters outside the scope of the present analysis, such as the Committee’s composition (ten Senators and ten Members Of the House of Representatives, with the majority party represented by six members in each case), the holding of hearings, the appointment of experts, consultants, and other assistants, the procurement of printing and binding, the authorization of necessary appropriations, and so on. Subsection (b), however, one of the five subsections, is concerned with the vital issue of what happens to the President’s Economic Report, and here a brief amendment needs to be incorporated, consequential on what comes later. With the proposed addition, this subsection would read:
“(b) It shall be the function of the joint committee —
(1) to make a continuing study of matters relating to the Economic Report;
(2) to study means of coordinating programs in order to further the policy of this Act; and
(3) as a guide to the several committees of the Congress dealing with legislation relating to the Economic Report, not later than March 1, of each year (beginning with the year 1947) to file a report with the Senate and the House of Representatives containing its findings and recommendations with respect to each of the main recommendations made by the President in the Economic Report, together with a draft Joint Resolution for the consideration of the Congress as provided for in section 6; and from time to time to make such other reports and recommendations to the Senate and House of Representatives as it deems advisable.”
(1) The process which the Act has caused the President and his advisers to initiate each year by preparing the Economic Report should no longer be allowed to disappear in thin air at the end. Rather, if there is to be the practical possibility of assuring continuous full employment, it is essential that Congress as a whole should also assume appropriate responsibilities. Everything hinges on that.
(2) A procedural problem arises at this point because the Joint Economic Committee, in spite of what the law says about its powers to recommend, is not regarded as having the authority to recommend “legislative” action to Congress as a whole. Logically speaking, this Committee, with its detailed understanding of the subject, is clearly the one to prepare the annual draft joint resolution. As an interim measure it might if necessary work with one or more of the other, legislative committees in preparing the resolution for submission to Congress as a whole.
We come now to the decisive amendment that would complete the Employment Act by making provision for nearly all the action required to assure continuous full employment from that time on. This proposed new Section 6 would presumably be entitled “Congressional Action on the Report of the Joint Economic Committee,” and could for brevity be phrased approximately as follows:
“Sec. 6. As soon as practicable after the filing of the report of the Joint Economic Committee, the Congress shall by joint resolution of the Senate and the House of Representatives set forth its decisions with respect to
(a) the minimum and maximum acceptable levels of employment throughout the year in question;
(b) the minimum and maximum acceptable rates of aggregate personal consumption expenditures throughout the year;
(c) the preventive action to be taken by the President if employment should at any time tend to fall below its minimum, or rise above its maximum, acceptable level as defined in (a) ; and
(d) the preventive action to be taken by the President in case personal consumption expenditures should at any time tend to fall below their minimum, or rise above their maximum, acceptable rates as defined in (b).
(1) In adopting this amendment Congress would obviously not be comitting future Congresses on the substance of their decisions on the four indicated subjects but only on always reaching some definite decisions on them.
(2) Congress would always have the option to agree with or differ from the President on the minimum and maximum acceptable levels of employment, or in other words on what “full employment” should mean for operating purposes. It might take a different view, for example, of the size of the labor force (the Joint Economic Committee has the help of its own staff experts); or of how much frictional unemployment was acceptable (the President might have considered, say, 3 percent unemployment as tantamount to full employment, whereas Congress preferred 3.5 percent, or 2.5 percent); or of how wide a gap should be allowed between minimum and maximum limits.
(3) The decision on acceptable rates of aggregate personal consumption expenditures would above all settle the public-versus private-sector issue in the way Congress wanted it settled at the time. Suppose that in some year the President’s program if adopted would go so far in reordering the country’s priorities as to increase not only the overall emphasis on social welfare fields (health, education, low-cost housing, anti-pollution, and so on) but also the percentage of GNP represented by the government’s own purchases of goods and services. The majority in Congress might agree — or go even farther. On the other hand, perhaps the majority would favor maintaining the existing GNP ratios instead. Thus, to illustrate, Congress might some year decide that the acceptable limits to consumer spending would be $765 billion and $780 billion, whereas the President, having different GNP proportions (more heavily weighted on the government side) in mind, had recommended a range of only $745-760 billion.
(4) While decisions under proposed clause 6(b) would thus clearly imply a certain general view of the government’s economic role, they would not tie the hands of the Committees on Appropriations, let alone exert any refined degree of control over the elusive question of how much the Federal Government would in fact spend before the year was out. As already noted, the purpose of the pre-announced limits to consumer spending would be quite different: first, to separate the “big government” issue from the full-employment issue; second, to provide, by way of the maximum limit set, a brake against any inflationary upward spending spiral; and third, to make it possible to accept a reduction in our traditional export surplus — since our ability to maintain adequate total markets for domestic output would remain unaffected.
(5) Fundamental to proposed clauses (c) and (d) is that both provide for action that would be made contingent on the showing Of the chosen indicators and mandatory in application when one or both of those indicators began to move outside the Congressionally predetermined range. In other words, as far as these compensatory adjustments are concerned (other sorts of economic legislation are dealt with just below), Congress would begin making the rules in advance and would have a more basic policy-making role.
(6) Under clause (c) Congress would be writing the specifications for a government commitment to serve as employer of last resort. Broadly speaking, that commitment would necessarily entail contingent accelerations and decelerations of public works and services. What would be up for decision would be such things as the exact content of that category for the purpose in hand (with reference, for example, to Federally financed State and local government projects and perhaps private non-profit projects); how to secure an adequate, ready reserve shelf of suitable projects; and the best formula for apportioning accelerations and decelerations by States.
(7) Under clause (d) Congress would have a wide range of options. It might, for example, decide that, when and if adjusting aggregate personal consumption expenditures should prove necessary, this would be done by temporarily reducing or increasing personal income taxes-and (on the “up” side, at least) by taking some other fiscal action that would comparably benefit low-income groups not liable for income tax. Or, if welfare reform had led to adoption of a plan guaranteeing a minimum income to all families and single individuals as a matter of right, and of a negative income tax as the pay-out mechanism for this, then Congress might decide that the income tax itself (positive and negative) should be the vehicle for all the necessary adjustments. The allowances or negative taxes would in that case be raised, and the positive income taxes lowered, when necessary to increase consumer spending, and conversely the positive income taxes would be raised, and the allowances lowered (but never below their base level), when necessary to decrease it. On the other hand, Congressional economic advisers might consider that variations in consumers’ saving could still — even in the absence of booms and slumps — partly frustrate any effort to control their spending by merely controlling their disposable income. In that case Congress might decide on a more direct procedure.
(8) For example, Congress could enact a Federal sales tax/sales bonus which would be put on a standby basis to be used only for lowering or raising consumer spending to hold that aggregate within the stipulated limits. As a bonus, when spending was running too low, it would work like a (universal) stamp plan: all buyers of goods and services at retail would during pay-out periods receive stamps convertible (unlike food stamps) into cash at a bank or post-office if promptly presented. As a tax, it would automatically lower the amount of consumer expenditure received net of tax by business, that being then designated the amount required to be held below the established ceiling. Consumer spending could thus beyond any doubt be restrained to any desired extent, any “stubbornness” in spending or saving propensities (and any reluctance to regulate consumer credit) to the contrary withstanding; or alternatively, it could be given a very powerful incentive for expansion. (This fiscal device was first proposed in my communication “On Underwriting Consumption and Employment” published in The American Economic Review in September, 1955.)
(9) To see, finally, how this proposed unified action by Congress as a whole would mesh with the normal functioning of the Congressional committee system, let us suppose, for example, that the House Ways and Means Committee took up again the general subject of tax reform. While such tax changes as Congress ultimately adopted would no doubt alter the distribution of the tax burden and probably also the level of tax revenue, neither the target-fixing under section 6 (b) nor the choosing of a contingent compensatory formula under section 6(d) would be affected What almost certainly would be affected is the actual (preadjustment) rate of consumer spending and its likelihood of falling within the acceptable range “of its own accord”; — and hence also the likelihood that the President would actually have to apply the contingent adjustment measures provided for under 6(d).
(10) Incidentally, there would be some presumption that by a kind of feedback effect any unduly large or frequent need to take either type of compensatory action (to adjust consumer spending or to adjust employment) would lead to the sponsorship and passage of improved legislation relating to distribution of income, enforcement of competition and/or regulation of monopoly, or other factors strategically affecting the self-balancing capacity of the economy.
The above-described actions required to effectuate this proposal — first, the enactment of certain amendments to the Employment Act; second, the annual sequences of steps by the Council of Economic Advisers, the President, the Joint Economic Committee, and Congress as a whole-would of course need to be supported by operational actions. The proposed approach is broadly describable as Economic Performance Insurance, and the country in taking out that kind of insurance policy could expect to see an “automatic” response to the key signals. But it is important to realize that this “automaticity” could not eliminate the need for decisions at the operating level. On the contrary, Judgment would be called for not only in the recurrent formulation of terms and procedures but also in the execution process.
The agencies to be designated by the President to operate under this law need not, it would seem, be specified in the Employment Act. The only two statistical indicators required to serve as primary action signals are currently prepared by the Departments of Labor and Commerce, as already noted. Perhaps the Labor Department would also be given broad responsibility over accelerations and decelerations of public works and services. Meanwhile the Internal Revenue Service would have a major part to play in administering the contingent adjustments in consumer spending or disposable income, but would work, presumably, in close collaboration with the Department of Health, Education, and Welfare and other agencies of the Executive Branch.
Timing would present the big challenge. Postponing all action until the employment level or the rate of consumer spending was already too high or too low to be “acceptable” would breach the continuity of the system before correction could take hold. Then again, after any correction was made, the question would arise as to just how soon 206 (at what point within the acceptable per performance range) the use of the compensatory device should be terminated.
At present the seasonally adjusted monthly employment totals are published some three weeks after the statistical survey — in the early days of the next month; and preliminary quarterly personal consumption expenditures data, at seasonally adjusted annual rates, are published seven weeks or a little less after the end of each quarter. Those time intervals could perhaps be shortened somewhat; in any case, government experts with access to the data can certainly see trends emerging before the results are published. Nevertheless, there must also be considered the further time lag between ordering a compensatory measure instituted and having it put into effect. For example, an immediate acceleration of public works and services is hardly possible on a geographically widespread basis. In signing a $1 billion appropriation bill to create emergency public service jobs President Nixon said on August 9, 1971 that the first group of unemployed should be at the new jobs by Labor Day — nearly a month later. Of course, we neither have nor have had anything approaching either an adequate reserve shelf of public works and services or an adequate system of getting ready to use it; to remedy those deficiencies would be a major project to be undertaken concurrently with amending the Employment Act itself.
The best answer to problems of timing would thus probably combine at least the following three elements:
(1) Congress might agree that employment and consumer spending could without prejudice be at “unacceptable” levels briefly — say, for a single reporting period.
(2) Substantial effort and expense should be undertaken to build up an adequate reserve shelf on a nationwide basis, and also to give local organizations the capacity for swift action in carrying out Washington directives in regard both to “last resort” employment and to the fiscal means chosen for adjusting consumer spending.
(3) The Federal agencies in charge should probably issue an “alert” before employment or consumer spending actually went beyond an upper or lower limit, if it seriously threatened to do so. Their staff economists would thus be expected to use a fairly wide range of data and forecasting procedures. Moreover some wrong guesses would inevitably occur, so that some expense would be Incurred throughout the country in mobilizing forces to meet contingencies that failed to materialize. Reimbursing such expenses would simply be, then, one of the financial costs of maintaining a full-employment system.
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A concluding word about inflation. If full employment were, as so often alleged, bound to generate inflation, amending the Employment Act to give it real teeth might have little point. But two recent developments have brought that gloomy thesis into the most serious question — first, the ample demonstration that inflation now tends to occur even without full employment, and second, the not unrelated shift of informed public opinion into favoring an incomes policy of some kind to help maintain price stability. Thus full employment need no longer carry such burdens as do not, properly speaking, belong to it.
More than that, however, it is here submitted that a program of guaranteed full employment along the lines suggested would not only not feed inflation but actually be the best cure for inflation. This is asserted for two reasons in combination. First, the ceilings on employment and on consumer spending that would be imposed under this approach would choke off upward demand spirals almost entirely. That is the built-in “mechanical” aspect. It would limit “demand pull” directly, as already emphasized, and indirectly it would also moderate the wage-demand side of the “cost push” by holding down the prices that make up the worker’s cost of living. Second, there is the psychological point that cannot be proved but that should appeal to common sense-a point that would arise from the very fact of the government’s readiness to commit itself in this unprecedented way. An agreement on the part of the government to assure a total market adequate for business prosperity, and to assure continuous full employment for labor, should be enough to persuade business and labor leaders to agree to abide by some reasonable set of price and wage guidelines.
Those who blame inflation on the incurable wickedness of Big Business or Big Labor or both often seem unaware of how far the behavior of both has been caused by the malfunctioning of our economy — its cyclical instability combined with secular weakness — the inevitability of which is precisely what needs to be denied. Once the government stood ready to assure continuously adequate total demand for products and for workers, (1) all businesses would have more chance to spread their overhead costs and hold prices down; (2) management in areas of administered pricing could logically give up planning for extra profits in boom times to cushion losses in future slumps; and (3) union leaders would feel less pressure to demand extreme hourly wage rates on the one hand, or annual pay guarantees on the other, to fortify their members against the return of unemployment.
To put this in context — as these words are being written, the country is deep in President Nixon’s economic Phase II. Whether this experiment with a Wage Board and a Price Commission will, be followed soon by selective permanent legal controls or by some other incomes policy is impossible to say. But what the government commitments proposed in this article would in any case contribute, when it comes to resolving the ultimate hard-core part of the “cost push” phenomenon, is to open the door as wide as possible to achieving essential results by voluntary cooperation.