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# VIII - THE PROBLEM OF NATIONAL PRIORITIES

To govern, it has been said, is to choose. No more difficult task confronts us than choosing among the desirable courses of action. It requires an estimate of available resources. It includes a projection of trends. It involves above all an intangible quality: the criteria by which the choice is made and therefore our values as a nation.

It would be presumptuous to seek to establish within the framework of this report the precise national priorities over the next fifteen years. All that can be attempted is to project the orders of magnitude of the available Gross National Product, to indicate the most pressing claims against it and to give the broad outlines of accommodating them.

## A. The Prospects For Our Gross National Product

For the past decade our Gross National Product has grown at the average rate of 4 per cent a year, compared with a general growth trend of 3 per cent a year in the period 1870-1930. Although accompanied by a degree of inflation averaging about 1.5 per cent a year (much of which was associated with the Korean War), our recent rise in output has been the longest and most impressive sustained economic effort our economy has ever displayed.

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If we act effectively there is no reason why we cannot look forward to a continuation of a growth rate of 3-4 per cent per year over the next decade and beyond. If the problems are formidable, we have also found the impetus of our economy tremendous. Thus we begin with a potential economic volume of the following magnitude:

<table><thead><tr><th></th><th colspan="4" style="text-align: center;">Billions of Dollars</th><th style="text-align: center;">Projected *</th></tr><tr><th></th><th style="text-align: center;">Actual</th><th></th><th></th><th></th><th></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><th style="text-align: center;">1975</th><th></th></tr></thead><tbody><tr><th scope="row">GNP 4% growth</th><td style="text-align: center;">434</td><td style="text-align: center;">488</td><td style="text-align: center;">594</td><td style="text-align: center;">879</td><td></td></tr><tr><th scope="row">GNP 3% growth</th><td style="text-align: center;">434</td><td style="text-align: center;">474</td><td style="text-align: center;">550</td><td style="text-align: center;">739</td><td></td></tr></tbody></table>

In order to give concrete meaning to these figures it may be helpful to translate them into annual rates of increase, keeping in mind that we are talking of an average and not of an assured performance. Temporary recessions, though they should be avoided, are quite consistent with a high average rate of growth. Thus at a 4 per cent growth rate we will experience an average increase of $17 billion a year in total output in 1958. By 1965 the annual average increment would be up to $24 billion a year. Over the entire 1957-1965 period we would have available a "growth margin" totalling $160 billion. At 3 per cent a year our growth margin would equal $116 billion. These margins represent the added capacity which is available to us to

* In this and all subsequent tables it is assumed that the 1957 price level will be maintained. Thus our dollar figures are indicative of real changes in output.

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satisfy the demands of a growing population, a rising standard of living, and
the increased burdens placed on our government, on the national, state and
local level.

## B. How Shall We Utilize Our Output in 1965?

This raises the problem of how best to divide the nation's total pro-
duction, including its growth margin, among competing demands. It is, there-
fore, necessary to attempt to draw up the requirements which may be antici-
pated for the United States in 1965. Many of the figures which follow are
drawn from the recommendations of other Panels and represent their con-
sidered "claims" against our total available resources. The projected claims
required for government expenditures for social programs, private investment
and consumer expenditures were developed by Panel IV.

Government Programs

The following recapitulation seeks to combine the conclusions of other
panels and our own respecting urgent Government expenditures. The listing
makes no effort to accommodate these recommended programs to the scale of
the nation's economic potential. It is merely a totalling of these claims.

<u>Total National Security Expenditures</u>* would have to rise by nearly $2.8
<u>each</u>
billion / year between now and 1965 to meet stated requirements. This would

* For full development of these figures, see Report of Panel II:
"International Security: The Military Aspect," published by Doubleday and
Company.

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result in a necessary "security budget" of $68.4 billion in 1965. In terms of percentages of the Gross National Product security expenditures would rise only from the current 8 per cent of the GNP to 11 1/2 per cent compared to the ________ % the USSR devotes to military expenditures. The increases by departments follow:

**Defense Department** spending would rise from $39.5 billion in 1957 to $56.6 billion in 1965. These increases are held to be essential to catch up in the race to develop missiles, to maintain our security in the interim, and to keep us ahead in military technology.

**Civil Defense** expenditures would increase from $0.4 billion in 1957 to $1.2 billion in 1965. If the decision to build fall-out shelters should be made, expenditures of $5-6 billion a year for 4-5 years would be involved (estimates in the table below do not cover the costs of such shelters).

**Military Aid** would increase by $1.6 billion (from $2.4 billion in 1957 to $4 billion in 1965) to cover the cost of equipping allied forces with new weapons.

**Atomic Energy** expenditures would continue to rise while **stockpile** purchases would be ended.

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_Economic Aid_ which now runs to about $1.6 billion a year (of which half to two-thirds goes for "Defense Support"), would rise by $1 1/2 billion, or as rapidly as it could be effectively used by recipient nations.

_Total Welfare_ expenditures can be expected to rise from present levels of $28.5 billions to $53.6 billions by 1965. Many of the figures for government welfare requirements have been developed in the course of this Report, and will be only briefly summarized here. Most of the increase lies in Social Insurance and will take place automatically under existing legislation. Increases for health and education programs proposed by our Panel are itemized on the following table.

_Public Works_ expenditures can be expected to rise from $13 billions today to $22.9 billions in 1965. This is a minimum estimate, following the lines of our earlier consideration of the question.

_Other_ expenses include the necessarily growing item of interest, and also cover the costs of administration and operation which have been calculated at a conservative rate of increase to cover expanded activities. This category also makes allowance for projected economies, as recommended by this Report -- in agricultural support payments and in non-service veterans' disability payments.

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It should be noted that these figures for total government cash expenditures are in excess of the tax receipts which can be expected from a growing economy without increases in tax rates, or the inauguration of new taxes. The comparisons for 1957-1965 (which assume an increase of about $5 billion a year in tax receipts from present sources) are given below:

Government Expenditure Requirements
Compared to Revenues

<table><thead><tr><th rowspan="2"></th><th colspan="3">Billions of Dollars</th></tr><tr><th>Actual<br>1957</th><th>Projected<br>1960</th><th>Projected<br>1965</th></tr></thead><tbody><tr><td>Government Cash Expenditures</td><td>112.3</td><td>134.4</td><td>168.8</td></tr><tr><td>Revenues</td><td>113.2</td><td>127.3</td><td>154.8</td></tr><tr><td>Surplus (Deficit)</td><td>.9</td><td>(7.1)</td><td>(14.0)</td></tr></tbody></table>

The projected scale of government expenditures could not be met by the yields of our existing tax structure. This finding reinforces our earlier conclusion that a **large-scale** reduction of tax rates is clearly not warranted. In fact, the potential deficits for 1960 and 1965 suggest that possible new sources of tax revenue should be studied. The projected governmental expenditures assume of course, a continuation of present international tensions. Should the international situation make possible a substantial reduction of armaments we could accommodate **all** other programs recommended by the various Panels **and** a tax reduction.