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However, these total figures for government expenditures are not yet
net claims against the resources of the economy. They include transfer
expenditures, such as social insurance, which do not result in the appropri-
ation of resources in exchange for payments. Projecting these transfer pay-
ments on the basis of past trends, we arrive at the following estimates:

<table><thead><tr><th></th><th colspan="3" style="text-align: center;">Actual Billions of Dollars Projected</th></tr><tr><th></th><th style="text-align: center;">1957</th><th style="text-align: center;">1960</th><th style="text-align: center;">1965</th></tr></thead><tbody><tr><td>Government Cash Expenditures</td><td style="text-align: right;">112.3</td><td style="text-align: right;">134.4</td><td style="text-align: right;">168.8</td></tr><tr><td><u>less</u> transfer payments</td><td style="text-align: right;">25.9</td><td style="text-align: right;">30.3</td><td style="text-align: right;">38.6</td></tr><tr><td>Government Demands for Goods and Services</td><td style="text-align: right;">86.4</td><td style="text-align: right;">104.1</td><td style="text-align: right;">130.2</td></tr></tbody></table>

On this calculation government programs would by 1965 rise more than 50 per cent over their 1957 level. The percentage they take from the GNP (which in terms of this analysis is the most meaningful measurement) would increase by only ____ per cent from ____ per cent of the GNP in 1957 to ____ per cent of the GNP in 1965. It must also be considered in relation to other claims in the economy, specifically investment and consumption.

## Private Investment

Business investment in new plant and equipment is the key element in economic growth. Over the past decade our 4 per cent growth rate has been accompanied by -- and has largely sprung from -- an investment of an average of 10.7 per cent of GNP into plant and equipment and other investments and

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0.7 per cent into enlarged business inventories. We regard this volume of gross business investment as the necessary minimum for a 4 per cent average annual growth in GNP. This investment figure, it should be noted, includes items such as depreciation, which make it considerably larger than the *net* expenditures for new plant and equipment -- the heart of the expansion process -- with which we illustrated our growth potential in the opening section of this Report.

Moreover, if we are to house our growing population adequately, we shall have to increase the share of private residential construction in GNP from 3.4 per cent in 1957 to 4.1 per cent in 1965 or from $17.6 billion to $24.0 billion. This estimate provides for an increase in single family homes in line with recent trend plus an estimate of $3 billion a year for *private* investment in urban renewal projects (which as indicated above, would be supplemented by at least $1 billion of government expenditures).

Private foreign investment is projected to rise to $3 billion in 1965 or 50 per cent above the 1957 figure. However, the 1957 total is distorted by the consequences of the Suez shutdown. If this adjustment is made, the projection calls for a doubling of private foreign investment by 1965. Granted the proper incentives in the form of tax abatement, the increase could be even greater.

The figures for "Other Private Investment" cover schools, hospitals, churches and other private institutions. It is assumed that such expenditures will rise 75 per cent by 1965 to cover needs in these areas.

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This gross flow of investment is divided, as we have seen, into many channels -- plant and equipment and the replacement of depreciated machinery and factories, residential and institutional housing, and foreign capital outlays. It represents a first "claim" against our economy if business is to continue to act as the growing edge of our economy. In addition, this general magnitude of investment seems to be in balance with the probable future flow of savings, although as we shall see, some encouragement of consumer saving may be needed to balance the savings-investment equilibrium in years of very high economic activity.

This now enables us to make our first allocation of economic product for the future:

Billions of Dollars

<table><thead><tr><th></th><th>Actual<br>1957</th><th>Projected<br>1960</th><th>Projected<br>1965</th></tr></thead><tbody><tr><td>GNP (4% growth rate)</td><td>434</td><td>488</td><td>594</td></tr><tr><td>Private Investment</td><td>67.0</td><td>75.5</td><td>91.5</td></tr><tr><td>Business</td><td>49.4</td><td>55.5</td><td>67.5</td></tr><tr><td>Housing and other</td><td>17.6</td><td>20.0</td><td>24.0</td></tr><tr><td>Leaving available for<br>other uses<br>(in round numbers)</td><td>367</td><td>412</td><td>502</td></tr></tbody></table>

In actuality, these figures are somewhat flexible. A considerable amount of the expenditures listed under "housing and other" may not be required for growth in any single year. Over the longer period of this Report,

required for growth in any single year. Over the former period of this Report, amount of the expenditures stated under "housing and other" may not be

<table><thead><tr><th></th><th colspan="3" style="text-align: center;">Billions of Dollars</th></tr><tr><th></th><th style="text-align: center;">Actual<br>1987</th><th style="text-align: center;">Projected<br>1969</th><th style="text-align: center;">Projected<br>1963</th></tr></thead><tbody><tr><td>(in round numbers)</td><td></td><td></td><td></td></tr><tr><td>other taxes</td><td style="text-align: right;">367</td><td style="text-align: right;">415</td><td style="text-align: right;">205</td></tr><tr><td>leaving available for</td><td></td><td></td><td></td></tr><tr><td>housing and other</td><td style="text-align: right;">17.8</td><td style="text-align: right;">30.0</td><td style="text-align: right;">24.0</td></tr><tr><td>business</td><td style="text-align: right;">48.4</td><td style="text-align: right;">23.2</td><td style="text-align: right;">87.2</td></tr><tr><td>Private Investment</td><td style="text-align: right;">67.0</td><td style="text-align: right;">32.2</td><td style="text-align: right;">81.2</td></tr><tr><td>GNP (4% growth rate)</td><td style="text-align: right;">434</td><td style="text-align: right;">438</td><td style="text-align: right;">204</td></tr></tbody></table>

for the future:

This now enables us to make our that allocation of economic product very high economic activity.

And may be needed to balance the savings-investment equilibrium in years of of savings, although as we shall see, some encouragement of consumer sev- ing to act as the growing edge of our economy. In addition, this general idea. It represents a first "claim" against our economy if business is to con- and theories, residential and institutional housing, and foreign capital out- channels -- plant and equipment and the replacement of depreciated machinery. This gross flow of investment is divided, as we have seen, into many

January 31, 1928

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however, the steady addition to our housing plant is probably as necessary
for a growing economy as the other items. We shall therefore treat the total
investment claim as "fixed" and concern ourselves with the disposition of
the remainder of our economic product.

## Consumer Requirements

How may consumer requirements be projected? In a controlled economy,
or in a state of national emergency, the consumer may be considered as the
residual claimant against the economy -- he receives what is left over after
the requirements of investment and government expenditures have been met.
In our economy, on the other hand, consumer decisions about spending and
saving play a significant, even a decisive role. A steadily rising flow of
consumer outlays is not only a result of growth, but a vital stimulus to fur-
ther growth. In recent years consumer expenditures have been rising at an
average annual rate of 4 per cent.

Of course there is no hard and fast requirement that consumption must
continue to increase at this rate. The figure simply provides a datum for a
calculation of the general *rate* of improvement of material standards of living
which the American public has come to accept as normal. Obviously con-
sumption could be kept at its 1957 levels without hardship by an appropriate
combination of heavily increased consumption taxes and increased savings. But
such a holding-down of consumption against its natural propensity to rise

and a holding-down of consumption against its natural propensity to save and a combination of heavily indebted consumer taxes and increased savings. But assumption could be kept at the same levels without hardship by an appropriate calculation of the general rate of improvement of material standards of living continue to moderate at that rate. The finance smoothly provides a defray for aOf course there is no hard and fast requirement that consumption must average annual rate of 4 per cent.

In recent years consumer expenditures have been rising at an
速率 growth. In recent years consumer expenditures have been rising at an
consumer outlay is not only a result of growth, but a vital stimulus to the
saving play a significant, even a decisive role. A steadily rising flow of
In our economy, on the other hand, consumer decisions about spending of
the requirements of investment and government expenditures have been met
realistic statement against the economy -- he receives what is left over after
or in a state of national emergency, the consumer may be considered as the
way may consumer requirements be protected. In a controlled economy,

Consumer Requirements

How may consumer, requirements be protected? In a controlled economy,

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January 31, 1928
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involves a host of exceedingly difficult problems. A substantial reduction in the rate of growth of per capita consumption unless offset by large public investments would have far reaching and serious implications for private investment, much of which is geared to a continuing steady growth in consumer expenditures.

Hence, for purposes of comparison the following table illustrates alternate total claims for consumer expenditures against the economy. First it is assumed that consumer expenditures continue to grow at 4 per cent, second that they grow only 3 per cent. These figures include the projected increase in population over the period in question.

<table><thead><tr><th rowspan="2">Year</th><th colspan="2">Consumer Expenditures<br>Assuming</th><th rowspan="2">Millions</th><th colspan="2">Consumer Expenditures<br>Per Capita Assuming</th></tr><tr><th>4% Per<br>Annum<br>Increase<br>(Billions of dollars)</th><th>3% Per<br>Annum<br>Increase</th><th>4% Per<br>Annum<br>Increase<br>(Dollars)</th><th>3% Per<br>Annum<br>Increase</th></tr></thead><tbody><tr><td>1957 (a)</td><td>280.9</td><td>280.9</td><td>170</td><td>1645</td><td>1645</td></tr><tr><td>1960</td><td>315.7</td><td>307.</td><td>178</td><td>1760</td><td>1716</td></tr><tr><td>1965</td><td>384.2</td><td>355.</td><td>191</td><td>1986</td><td>1848</td></tr></tbody></table>

(a) Actual

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If we now deduct from our previous figures a realistic projection of
consumer outlays rising at 4 per cent a year we have the following results:

Billions of Dollars

<table><thead><tr><th></th><th>Actual<br>1957</th><th>Projected<br>1960</th><th>Projected<br>1965</th></tr></thead><tbody><tr><td>GNP (4% growth rate)</td><td>434</td><td>488</td><td>594</td></tr><tr><td>less private investment<br>available for other uses</td><td><u>67</u><br>367</td><td><u>76</u><br>412</td><td><u>92</u><br>502</td></tr><tr><td>less consumption at 4%<br>growth rate</td><td><u>281</u></td><td><u>316</u></td><td><u>384</u></td></tr><tr><td>Net available for<br>government programs</td><td>86</td><td>96</td><td>118</td></tr></tbody></table>

We have now allocated the product of our economy to its business and consumer sectors -- with the understanding that the consumer figure is somewhat *flexible* and we are accordingly ready to match our remaining available resources with the demands produced by government expenditures.

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C. Can We Accommodate All Claims?

We can now recapitulate our entire survey:

<table><thead><tr><th></th><th colspan="3" style="text-align: center;">Actual Billions of Dollars Projected</th></tr><tr><th></th><th style="text-align: center;">1957</th><th style="text-align: center;">1960</th><th style="text-align: center;">1965</th></tr></thead><tbody><tr><td>GNP available (4% growth rate)</td><td style="text-align: right;">434</td><td style="text-align: right;">488</td><td style="text-align: right;">594</td></tr><tr><td>less private investment needs and<br>consumption at 4% annual rise</td><td style="text-align: right;">67</td><td style="text-align: right;">76</td><td style="text-align: right;">92</td></tr><tr><td>Resources not claimed by private<br>sectors</td><td style="text-align: right;">281</td><td style="text-align: right;">316</td><td style="text-align: right;">384</td></tr><tr><td></td><td style="text-align: right;">86</td><td style="text-align: right;">96</td><td style="text-align: right;">118</td></tr><tr><td>Government Demands for Goods and<br>Services (round numbers)</td><td style="text-align: right;">86</td><td style="text-align: right;">104</td><td style="text-align: right;">130</td></tr><tr><td>Margin of Deficit ()</td><td style="text-align: right;">0</td><td style="text-align: right;">(8)</td><td style="text-align: right;">(12)</td></tr></tbody></table>

The conclusion is obvious. Under our assumptions we are not quite able to accommodate the requirements which a minimum forecast of government responsibilities and of business investment and consumption trends indicate. If we enlarge the government expenditure claim to include many desirable as well as necessitous obligations -- such as urban rehabilitation -- the stringencies of our future economic potential are still more obvious.

If we are not able to effect certain economies, such as the $4-5 billion savings in veterans and agriculture payments, the gap is more difficult yet.

And if our growth rate does not realize the four per cent goal we have set for it, the accommodation of these claims will be entirely impossible. Should

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our economy expand at what might otherwise be considered the very adequate pace of three per cent a year, our projection for 1965 would look as follows:

<table><thead><tr><th></th><th>Billions of Dollars</th></tr></thead><tbody><tr><td>Gross National Product Available</td><td>550</td></tr><tr><td>Private Investment</td><td>85</td></tr><tr><td>Consumer requirements (at 4% growth)</td><td>384</td></tr><tr><td>Resources not privately claimed</td><td>81</td></tr><tr><td>Government Demands</td><td>130</td></tr><tr><td>Deficit</td><td>49</td></tr></tbody></table>

The first basic conclusion which emerges from our analysis is the absolute necessity of a continued high rate of growth. A four per cent rate of growth will enable us to accommodate essentially all the claims outlined in this Report -- if not immediately at least over a time span of between 10-15 years. (The projected deficit of $12 billion in goods and services required by 1965 would be only 2 per cent of the projected total demands.) This rate of growth will thus come extremely close to meeting our most vitally required (but not all our desirable) government programs; it will make possible a rapidly rising level of living standards, and it will permit us to come close to balancing our budget without much additional taxation.

However, even with a 4 per cent rate of growth there will be reason for concern. The economy, even then, will so barely contain the demands

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made upon it that any faltering in the rate of growth would quickly turn a small
deficit into a severe one. At best we will be pressing against the margin of
our capacities for at least the next ten years. The threat of inflation will be
ever present and vigorous anti-inflation measures remain imperative. On the
financial side, the likelihood that some new types of taxes will be needed --
to avoid badly unbalanced (and therefore inflationary) budgets -- heightens
the urgency of our recommendations for reform of the existing tax structure.
Only in this way can we hope to provide adequate incentives for private
investment, and still finance our requirements for government programs.

The future then, even at an optimum rate of growth, will make heavy
demands on our ability to make choices. While we can envisage an era of
well-being far beyond our present level, it will not come about automatically.
We will be able to achieve much immediately and a great deal more over a
period of time; we cannot achieve all our goals simultaneously. Even with
a 4 per cent rate of growth, it will be impossible to engage in the necessary
defense program, foreign aid expenditures, domestic expenditures for public
services and social welfare, increase consumption at the rate of 4 per cent
and investment at the rate of 10 per cent, all at once. All the goals outlined
in this Report are achievable within a twenty-year period. But over the
immediate future the challenge will be to our ability to make choices and to
our self-restraint. We must decide between the essential and the desirable;

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between our necessities and our aspirations. We must relate wages more effectively to productivity and prices more effectively to the market. To seek to do too much may erode the economy. Not to do enough would belie the prospects of our future.

This is by no means a call for austerity. We accept the statement of Panel II of the need for heavy defense expenditures and we agree that they must continue to be the first charge on our resources, overriding normal budgetary considerations. But even with the defense expenditures outlined above we can still provide many of the public assets and social services described as essential or desirable by the other Panels. And consumption can still increase substantially. But we may have to decide between a slightly slower rate of increase of consumption or a slower rate of increase of public assets or social welfare programs. The nature of the sacrifice in either case is a relative one. It does not mean giving up something. It involves foregoing some minor potential gain in consumption or public assets or social welfare for the sake of national security.

For example, if consumption rises by only 3 per cent a year it will, by 1965, have increased, from today, $280.9 billion to 355 billion or an increase of ____ per cent. At the same time, per capita consumption would grow from $1,645 in 1957 to $1,848 in 1965, or an increase of ____ per cent. This substantial advance would nevertheless free another $29.2 billion for the public sector or more than double the estimated deficit in goods and services of $12 billion by 1965. Similarly, in the current situation when national security must

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have greatest priority, we should scrutinize new programs in such fields as public works to determine whether their rate could not be postponed until a rapid build-up of military strength has been achieved. In any case the backlog of badly needed public assets indicates that we do not "need" military expenditures to sustain our economy as some of our critics claim; that on the contrary these hold us back to some extent from more constructive tasks.

To be sure a growth rate of 4 per cent is an optimistic assumption.

But even if our growth rate should temporarily falter, the prospects of our economy are not nearly as tight as a mechanical statistical approach would indicate. If we choose wisely -- and most of the choices, it must be repeated, involve only a sacrifice of a potential gain or the temporary deferral of a claim--we will be able to realize all of the aspirations described in this report by 1975. Everything depends on the courage and vision of our leadership and the wisdom and self-restraint of our people.