May 17, 1957

# MEMORANDUM TO ALL MEMBERS OF SUBPANEL IV

The fourth redraft of the Subpanel IV Report attached has been revised in the light both of drafting committee comments and of suggestions made at the recent meeting of the Overall Panel. In some instances this has resulted in the addition of new elements or in substantial revisions of previous language.

It is proposed to discuss this draft in detail at the Subpanel meeting of May 20th. Among the matters which should be considered is the question of whether the Subpanel judges that, in addition to the general conclusions at the ends of Parts II and III, there should be added either a summary or a list of specific conclusions and recommendations, as suggested by several members of the drafting committee.

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# SUBPANEL IV - U.S.ECONOMIC AND SOCIAL OBJECTIVES AND POLICY
## PART I. INTRODUCTION

United States domestic policy over the next 20 years is the subject of this Report. It does not seek to set forth a full program of domestic policy recommendations. Its basic aim is rather to provide a general framework within which competing domestic policy objectives can be rationally discussed and to outline in broad strokes the interrelationships among competing domestic objectives and policies. It represents an effort to survey domestic policy as a whole, to look for forests rather than trees and to substitute a long view perspective for the fractionated one-problem-at-a-time technique by which we have historically proceeded.

Domestic policy cannot be discussed as though it represented a separate and discrete entity apart from foreign policy. In analyzing and planning national policy we are dealing with a total matrix in which any act in any area produces manifold effects in many others. And every action implies the rejection of an infinitude of other possible actions. Domestic fiscal policy will affect international defense policy; foreign tariff policy will affect domestic economic policy. Policy determinations should therefore be made only in the light of the broadest conceptual framework for decision-making. This Report seeks to develop such a framework.

### A. National Objectives

National policy analysis cannot be made except in reference to pre-selected national objectives. An effort must therefore be made to articulate

*Third draft pages incorporated where no changes were made.

*Third draft based on information where no changes were made.

selected national objectives. An effort must therefore be made toarticulate
National policy analysis cannot be made except in reference to be-
V. National Objectives.

There be made only in the light of the broadest conceptual framework for
will affect domestic economic policy. Policy determinations should there-
fore policy will affect international defense policy, foreign tariff policy
implicate the relation of an infinitude of other possible actions. Domestic
in any area produces manifold effects in many others. And every action
planning national policy we are dealing with a total matrix in which any act
separate and discrete entirely apart from foreign policy. In analyzing and
Domestic policy cannot be discussed as though it represented a
time technique by which we have historically proceeded.

to supplement a long view hereafter for the fractionated one-problem-at-a-
survey domestic policy as a whole, to look for forests rather than trees and
combining domestic objectives and policies. It represents an effort to
discuss and to outline in broad strokes the interrelationships among
work within which competing domestic policy objectives can be rationally
brought recommendations. Its basic aim is rather to provide a general frame-
of this report. It does not seek to set forth a full program of domestic

United States domestic policy over the next 50 years is the subject

PART I. INTRODUCTION

SUBJECTIVE IV - U.S.ECONOMIC AND SOCIAL OBJECTIVES AND POLICY

May 12, 1927

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the broadest national objectives of the United States. They are offered
as being two:

As with any other nation, the foremost general objective of
United States policy is the nation's survival and maintenance of a
satisfactory capacity for self-determined national action. Much of a
nation's effort must be devoted simply to keeping itself alive and relatively
free to move. Defense expenditures are only the most obvious instances
of policy determined on this basis. For a nation to act effectively as a
nation it must have in high degree a combination of many factors --
philosophical conviction, a sense of self-conscious identification,
internal organization, cohesion and discipline, leadership and human and
natural resources. Therefore almost any program (education for example)
could under some circumstances be entitled to top national priority
because of its critical relationship to the general objective of national
survival. On policy decisions affecting this objective the stakes are
very high indeed; wrong action or failure to act in this area is cata-
strophic to the existence of the nation itself.

The second national objective of the United States may, on the
basis of its history and its general philosophy, be described as the de-
velopment, maturation, growth and self-fulfillment of the individual to
the extent of his personal capacity. The emphasis is upon men rather
than Man. While no man lives apart from his community, the particular
concern of United States public philosophy centers upon the growth of the

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individual rather than of the community itself. Several different philosopnic avenues may be taken which will lead to this emphasis upon the importance of the individual as an individual. But basic concurrence in this stress upon the individual may be fairly said to be the central core of America's political philosophy and to give it unity.

Historically, this national viewpoint has been intimately tied to and reflected in our economic and political system. On the economic side it has been taken to imply the basic elements of the economic system we call the free enterprise system. America's contemporary economic structure differs radically from that of the nineteenth century and makes far larger place for the role of government in economic affairs than laissez-faire orthodoxy of that century would have permitted. But it remains the heart of domestic economic philosophy in the United States that the strong presumption is in favor of private decision-making, a free market place and a maximum area of unregulated choice on the part of each individual.

In the political area we have deduced from our emphasis upon the individual the essence of our democratic form of government. It has been our historic faith that this political form maximizes the opportunity of the individual for self-expression. For the same reason the American conception of the democratic process implies far more than majority rule. It implies as well the responsibility of the community and of government to protect the individual as an individual in his word and belief, not only

protect the individual as an individual in his word and belief, not only
implies as well the responsibility of the community, and of government to
the of the democratic processes; implies that there are more than majority rules. It
individual for self-expression. For this same reason the American concept
out history: that this political form maximizes the opportunity of the
individual the essence of our democratic form of government. It has been
need and has been
In the political areas we have deduced from our emphafe upon the
and a maximum area of unregulated choice on the part of each individual.
preemption is in favor of private decision-making, a free market place
of domestic economic philosophy. In the United States that the strong
orthodoxy of that century would have permitted, but it remains the best
place for the role of government in economics, falls then lags behind
radically from that of the unselfish century and makes far larger
cell the free enterprise system. America's contemporary economic structure
it has been taken to imply the basic elements of the economic system we
and reflected in our economic and political system. On the economic side
Historically, this national viewpoint has been intimately tied to
of America's political philosophy, and to give it unity.
this issue upon the individual may be fairly said to be the central core
importance of the individual as an individual. But basic concurrence in
basic avenue may be taken which will lead to this emphasis upon the
individual rather than of the community itself. Several different public-

May 12, 1927

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when he is acting conformably to the majority's view but also when
he is not.*

The preceding paragraphs set a four-sided framework within which
an analysis of problems of domestic policy can be made. They also
permit a more refined statement of the general problem of the Report.

What national policies should and can be pursued which will:

(i) further our general national objective of the development
and fulfillment of the individual within the limitations of:

(ii) maintaining an adequate capacity for national action;

(iii) retaining the essence of the free enterprise system;

(iv) preserving our democratic political processes.

National policy choices which would undermine any of the four elements
of this self imposed framework are, within this analysis, unacceptable.

B. <u>Structure of the Report</u>

This Report seeks basically to perform two functions and is
broken into two major sections.

1. <u>Economic and Social Policy</u>

A cluster of basic policy problems for the United States
centers about each of the four primary factors

* How far this proposition may safely be permitted to be invoked by the
individual who does not himself subscribe to the national objective of
individual freedom and development is the primary philosophical problem
of modern democracy.

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above. While all policy problems are interrelated with
each other, those directly bearing upon the maintenance
of national existence and the preservation of the demo-
cratic process are primarily within the scope of the
Reports of Subpanels II and VI. Following this intro-
ductory Part I, Part II of this Report seeks to focus upon
the other two major policy clusters -- policies directly
related to our economic system and those relating directly
to the development of the individual. These areas may be
in shorthand described as economic policy and social
policy.

Our fantastic economy is the goose which lays
the golden eggs. Upon it is based the nation's political
and military might, the high standard of living of its
inhabitants and the resources with which to make individual
development possible. Stimulation of the nation's historic
economic growth and the maintenance of a satisfactory
degree of economic stability must therefore be a central
theme of national policy planning and of this Report.

The other major focal point of the first part of this
Report is the area of private and public programs such as
health, education and welfare, which directly further and
make possible the development of the individual.

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2. Accommodation of Conflicting Claims Against the
   Nation's Economic Potential

Part III of the Report seeks to compile the cost pro-
jections of the various national programs and policy ob-
jectives under study by <u>all</u> Subpanels of the Special Studies
Project and to match these projections against the projected
resources of the economy. In part this matching job is a
mechanical and arithmetic one. In part, however, it involves
Subpanel IV's recommendations respecting general priorities
of allocation of resources among the competing claims.

Historically we have usually tried to resolve national policy prob-
lems by asking the question whether a particular policy objective is a good
one. But the total resources of any nation are limited and the selection of
any one policy excludes to that extent pursuit of others. Good objectives
have to yield place to better ones. The far more difficult question is how
to accomodate the competing claims against limited resources of different
policy objectives, each one in itself laudable. The nation's total economic
resources may be expected to increase with time. But we can't do everything
at once, and choices must be made.

No amount of study in depth or expertise in particular policy areas
will resolve this problem of accommodation. The most thorough and com-
petent analysis of the complexities of the farm problem, for example,
will help little in resolving the question whether funds should be spent

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towards solution of these problems or should be spent, for instance,
on additional educational facilities. There is no way to tackle this
broader problem of resolving competing claims against the nation's limited
resources except upon the broadest possible base of national viewpoint.
This Report seeks to take such an approach within the framework of the
overall national objectives outlined earlier.

A projection study of this character will not admit of precision.
It does not imply expert judgment in sub-component areas and, when seen
in the retrospect of time, will doubtless be found to contain many mis-
calculations. But it is thought that it is possible through such an
approach to provide a sense of orders of magnitude -- both of available
resources and of the competing claims against those resources. Seen
in this full perspective, an error of $8 billion made in respect of a 1975
projection represents but 1% of the projected GNP for that year.
Estimates can thus be substantially at variance from the facts as we later
learn them to be without seriously impairing their usefulness as guides
to the general magnitude of resources and allocations for the economy
as a whole.

C. Assumptions and Projections

A few assumptions and projections underlying this Report should be
set forth before undertaking the main discussion.

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1. Assumptions

Two arbitrarily taken assumptions have been
made, neither of which is offered as a prediction.

a. **No all-out war.** It is assumed for
purposes of this Report that within the 20-year
period marking the scope of this analysis the
United States will not become engaged in an
all-out war. However, dubious this statement
may be as a prediction, it must be adopted as an
assumption for purposes of planning in the area of
domestic social and economic policy. An all-out
war for survival of the nation would so radically alter
all circumstances as to make analysis of this sort
fruitless.

A continuing state of friction and antagonism
between the United States and the Soviet Union has also
been assumed by Subpanel II in calculating defense
expenditure estimates. To the extent that these es-
timates are used in this Report, this assumption as to
cold war has also been incorporated here.

b. **Substantial continuation of present structure of world community.** It is assumed for purposes of this analysis that within the next 20-year period there will be no major structural changes in the

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independent national sovereignty structure of the
nations in the world community. We may all hope
for, and national policy should work toward, a
smoother working world community on front war and
with greater freedom of movement of goods and men.
But development of a dominant international organization,
of world federalism or of any one nation to a position
of absolute superiority over all others would so
radically affect the latitude of individual nations to
pursue their own national plans independently as to
outmode plans based on the old order and would call for
a whole new kind of national planning based on the new
circumstances of the revamped world structure. Hence
this Report assumes only gradual and not drastic change
in this area.

## 2. Projections

A variety of projections can be made with reasonable
certainty which throw light upon the probable factual
picture of the U.S. as it will be in 1975. Major
projections include the following:

a. **Population.** The population of the U.S. will increase greatly and may well reach approximately 220 million in 1975. The age distribution within this population total will differ radically from the present distribution, with the major increases taking place at the extremes of the very young and the very old.

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b. **<u>Urbanization.</u>** American society in 1975 will be even more highly urbanized than it is today. The two great currents of population movement in the U.S. are, and will continue to be, from the rural areas to metropolitan areas and from the central cities to the surrounding metropolitan fringe areas. It has been estimated that 90% of the 50 million population increase anticipated in the next two decades will take place in these suburban areas.

Certain other major trend projections may also be made, though with less certainty than those above. To a greater or lesser degree these projections are themselves variable, depending upon national policies pursued and upon the close interrelationship of some of the factors projected. These factors are in some cases discussed in more detail within the Report.

(1) **<u>Technological progress.</u>** It is likely that America's startling rate of technological progress will continue and perhaps accelerate. Indications are that technological advance is moving on an exponential curve. It has been estimated, for example, that our technological command has doubled in the last fifteen years.

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(2) **Labor Supply.** The average work week for labor will have decreased to an average of 35 hours by 1975. This does not mean, of course, that workers will work a 35-hour week schedule. Expensive machinery and plant must be kept on a continuous schedule and flexible schedules geared to maintenance and replacements are clearly desirable and anticipated. The 35-hour week figure reflects merely an average, taking into consideration vacations, holidays, and other time off. This projected average, coupled with increased GNP, the shift in population age distribution toward the non-productive age groups and the training demands of the new technology are expected to create over much of this period a continuing problem of labor distribution and utilization, particularly in the technical and professional fields.

(3) **Growth Rate.** The problem of projecting economic growth is treated in detail within the Report. In a basic sense the growth rate is an end product of the interaction of many components which are discussed separately. At the same time the growth rate itself is a component factor. Detailed projections of Gross National Product (GNP) are set forth in Part III based on the assumption that GNP will continue to increase at its historical rate of 3 -4% per annum. On this basis GNP will have increased from $390 billion in 1955 to $814 billion in 1975 in constant dollars.

(4) **Federal Revenues.** Assuming substantially the present tax structure and general economic stability over the 20-year period in question, it can be expected that federal revenues will increase from $3 - 4 billion

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each year as a result of the projected increase in GNP.

# PART II - ECONOMIC AND SOCIAL POLICY

## A. National Opportunities

Before reviewing the impressive, if not discouraging, array of
domestic problems facing the nation in the next 20 years, some degree

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of balance should be introduced by emphasizing that probably no nation
has ever had the opportunities which lie before the U.S. today.

Within the limits of the imperfectibility of man, America's
opportunities are almost without circumference. On a materialistic level
the nation's resources are second only to those of the Soviet Union, if
that, and its general standard of living and state of production develop-
ment are unique. On an organizational basis, the nation enjoys remark-
able stability, high morale and basic unanimity of political viewpoint.
From an ideological and ethical standpoint the nation is persuaded that
it has worked out a better accommodation in the relationship between the
individual and the community and a better balancing of the interests of
both than any other society in history. We believe that it is possible to
go much farther still toward creation of a healthy democratic social
climate conducive to the development of the individual, and, if we
avoid the mistake and the sin of Messianic arrogance and self-righteous-
ness, we have an opportunity to set a world standard of moral leadership
by the example of our domestic policy. Finally, on a power basis the
U.S. is unique among other nations in its capacity to preserve itself and
to influence others. If the U.S. fails in its national objectives it will
never have the excuse that it entered the contest hampered by unequal
opportunities.

The last rosy paragraph does not, however, offer any justification
whatever for complacency or inertia. The fact is that failure to face up to

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and resolve any one of a series of basic problems which face the nation at the domestic economic and social level could curtail or even destroy the nation's opportunity for a glorious future and for the achievement at new heights of its basic national objectives. Many of these problems surround the area of the nation's economic growth and stability, and we may now turn specifically to that subject.

## B. Economic Growth and Stability

### 1. Definitions

The term "economic growth" is usually taken to refer to the increase of gross national product. While that is a helpful criterion for the assessment of the total national resources that may, at a given time, be devoted to a combination of programs, it is in many ways incomplete. Gross national product, for example, tells us nothing about what the economy is producing -- whether books, bombs or bon bons. It also tells us nothing about the distribution of the economy's product -- whether on an average or on a descriptive basis of who gets how much of what. Thus, taken alone, it does not inform us about the economic standard of living of the people of the nation.

The term "stability" also contains its difficulties. It is in a sense an unfortunate term in that it implies two

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elements which are not to be inferred from its use here. In
a sense, stability is a static conception, antithetical
to growth in itself, and as such is hardly an objective
of policy planning. In addition "stability" bears a flavor
of *status quo* in the patterns of economic reward and in-
centive distribution in the economy at the time in question;
and here again a few would argue that our present patterns
of distribution are ideal.

Recognizing the limitations of the term "growth"
shall be taken, in this Report, to refer to increases in the
gross national product regardless of what is produced or how
it is distributed. "Stability", on the other hand, will be
given a rather specialized and limited meaning as an antonym
to the violent fluctuations of the "business cycle" and to
long run serious inflation or deflation. The term "stability"
as used here, implies nothing about the desirability or
undesirability of shifts in the pattern of distribution of

undesirability of elitism in the pattern of distribution of
as used here, implies nothing about the desirability or
long run serious inflation or deflation. The term "stability"
to the violent fluctuations of the "business cycle" and to
given a rather specialized and limited meaning as an autonym
it is distributed." "Stability," on the other hand, will be
gross national product regardless of what is produced or how
shall be taken, in fine Report, to refer to increases in the
recognizing the limitations of the term "growth"

of distribution are ideal,
and here again a few would arise that our present items
conative distribution in the economy at the time in question
of *attractivity* in the patterns of economic reward and in-
of policy planning. In addition "stability" bears a flavor
to growth in itself, and as such is hardly an objective
a sense, "stability" is a static conception, antithetical
elements which are not to be inferred from its use here. In

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returns within the economy except insofar as such
shifts may be of so drastic a nature as to induce
serious dislocation of the economy as a whole.

2. Why Economic Growth -- and What Rate?

So defined, economic growth and stability
may be set as a major objective of American policy.
Why should this be so?

In the first place, the concept of economic growth
is deeply imbedded in America's concept of itself.

Our history has been in great part shaped by a notable
secular growth pattern. This growth in the 19th Century
was in large part made up of a steady expansion into
the unoccupied frontier lands of the West. In this
Century the growth pattern has been marked more by
increased labor, capital investment and productivity rise than
by geographic expansion. But the habits of thought born

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in the expanding frontier period have carried over with
full force into the 20th Century. Limitless growth and
a rising productivity without ceiling have been a peculi-
arly American conviction.

Additionally, the growth concept is deeply
associated in the American mind with our economic
and political systems. We simply must have economic
growth if we are to have the resources with which to
pursue our most profound social objective -- the
fullest free development of each individual.

Finally, the need for economic growth and
stability also flows, however, from our awareness of
the stark reality of the challenge presented by the Soviet
Union. Though the figures are difficult to interpret,
the U.S.S.R. total economy appears to be growing at
an annual rate well in excess of our current rate
of about 3.6%. If these rates continue, the Soviet
economy will eventually catch up with our own. Apart
from the implications of such a matching from a competing
ideological system in the eyes of the uncommitted portions
of the world, it is obvious that, without a continuing growth,
our capacity to win a war for survival will decline steadily.

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Given the desirability of growth, the case for stability is simple. Apart from the human dislocations caused by radical fluctuations in the business cycle, the overall growth of the economy itself is adversely affected by the process of boom and bust.

Granting that the economy should grow, how far should we go in providing stimulations to its growth -- how much growth is enough? There is some temptation to say that we should match the growth rate of the Soviet Union. But on reflection, this is seen to be an illusory standard. The forced draft growth rate of the Soviet Union has been purchased at the cost of a totalitarian governmental structure which the U.S. could accept, if at all, only in the most dire emergency.

The real task is to set our standards with reference to our own needs and objectives -- not those of the Soviet Union. Soviet growth rates must enter into our calculations to the extent that they are relevent to our program for maintaining an adequate defense and foreign policy structure. Beyond this point, however, we should look to our own objectives and not to the false criterion of the growth rate of our adversary.

of the growth rate of our adversely

look to our own objectives and not to the false criterion
policy structure. Beyond this point, however, we should
program for maintaining an adequate defense and foreign
calculations to the extent that they are relevant to our
Soviet Union. Soviet growth rates must enter into our
to our own needs and objectives -- not those of the

The real task is to set our standards with reference
only in the most dire emergency.

mental structure which the U.S. could accept, if at all,
that been purchased at the cost of a totalitarian government.
The forced draft growth rate of the Soviet Union
standard. But on reflection, this is seen to be an illogical
to say that we should match the growth rate of the Soviet
how much growth is enough? There is some temptation
should we do in providing stimulations to its growth --

overall growth of the economy itself is adversely affected
caused by radical fluctuations in the business cycle, the
for stability is simple. What from the human fluctuations

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What then should be the most desirable rate of growth for the American economy? Within some limits this answer may be defined, however difficult the definition may be to implement.

It may be first stipulated that the economy must be kept sufficiently productive to maintain its own capacity for preserving national survival. Next, there is a clear consensus that the economy should produce at all times an adequate quantity of goods and services to provide for all of the inhabitants of the nation a minimum subsistence standard of living safe from the risks of death by starvation, exposure or widespread disease. It is also agreed today that a minimum subsistence level is an inadequate standard for our social programs. Our goal is to create a social structure in which an equal opportunity is available to all to permit the maximum fulfilment of each individual up to the limit of his own capacity. We must thus have sufficient economic resources to provide health and schooling -- not simply enough to keep our populace alive. We may go one step further. What were once deemed luxuries have become necessities in the public mind and our economic growth must to some extent accommodate this rising expectation. We have also thought it desirable that the productive capacity of the economy be sufficiently great, and its internal distribution pattern so ordered that not only is there enough for all but enough that many members of the community may be in a position to command a standard of living far above even the rising expectations of the community as a whole. It has been our thought that

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this combination of total production and distribution pattern will con-
tinuously operate as an incentive to the industry and application of all.

Finally, we have thought that the determination of the general rate of
growth could be primarily left to the operations of the market place and
the individual decisions of the people.

Perhaps this is all that need be said. So long as government
policy can insure: (i) that our needs for national survival, subsistence
necessities and our primary social objectives for all can be met out of
the economy and (ii) that governmental policy avoids action which itself
puts a lid on growth, then the question of growth rate may be left un-
formed and undetermined to the operations of the market place for
solution.

The function of economic growth should, however, be kept in
clear perspective. Although we tend sometimes to elevate it to the
level of an ultimate objective, it is in reality a means rather than an
end. As such, it must be weighed against its cost as measured by our
ultimate national objectives. For example, the world's elevation of
a material standard of living as a central national objective makes good
enough sense in a hunger economy, but it may be seriously questioned
whether a continuously rising material standard of living continues to
be an adequate national objective in an economy of abundance. If we
can attain an economic growth rate adequate to sustain national survival,
to support our social program objectives and to provide a satisfactory

to support our social program objectives and to provide a satisfactory
can attain an economic growth rate adequate to sustain national survival,
be an adequate national objective in an economy of abundance. If we
whether a continuously rising material standard of living continues to
enough sense in a number economy, but it may be seriously questioned
a material standard of living as a central national objective makes good
ultimate national objectives. For example, the world's elevation of
end. As such, it must be weighed against its cost as measured by our
level of an ultimate objective, it is in reality a means rather than an
clear perspective. Although we tend sometimes to elevate it to the
The function of economic growth should, however, be kept in
solution.

formed and undetermined to the operations of the market place for
but a lift on growth, then the question of growth rate may be left un-
the economy and (ii) that governmental policy avoids action which itself
necessities and our primary social objectives for all can be met out of
policy can take (i) that our needs for national survival, independence
perhap this is all that need be said. So long as government
the individual decisions of the people.

growth could be primarily left to the operations of the market place and
finally, we have thought that the determination of the general rate of
tinously operates as an incentive to the industry and application of all
the combination of total production and distribution pattern will con-

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material standard of living for all, it may well be that the benefits of additional leisure or of activities which are not "productive" in the economist's sense will be found to serve our objective of fulfilling the life of the individual far better than a continued pursuit of a higher and higher material living standard.

Finally the matter of allocation of economic growth is directly relevant to consideration of what our growth rate should be. For example, economic growth rates tell us nothing about national capacity for survival, particularly in an era of lightning atomic war. We must also consider what allocation of economic resources has been made.

If, in fact, defense expenditures ought to be $50 billion in 1959 and we were willing to devote 12.5% of our GNP to this end, our growth rate would be "sufficient" from the standpoint of national survival even if it were negative and our 1959 GNP should be only $400 billion.

But if we are willing to allocate only 10% of GNP to defense, our rate of economic growth would not be "sufficient" unless GNP had climbed to $500 billion by 1959. If the nation is not willing to allocate its resources to the programs required for the nation's survival and its ultimate social objectives and insists upon improvident tax reductions and indulgences in overpowered and overchromed automobiles, we are running a real risk of suffering the fate of the Sybarites regardless of our rate of economic growth. The problem therefore is not simply one of the economic growth rate.

## economic growth rate.

rate of economic growth. The problem therefore is not simply one of the running a real risk of suffering the fate of the Suburbs regardless of our and influences in overpowered and overpowered autocracies, we are ultimate social objectives and install upon unbovied tax reductions resources to the programmes required for the nation's survival and its $200,000,000,000. If the nation is not willing to allocate its of economic growth would not be "sufficient" unless GNP had climbed to But if we are willing to allocate only 10% of GNP to defense, our rate it it were negative and our 1929 GNP should be only $400,000,000, would be "sufficient" from the standpoint of national survival even were willing to devote 15.5% of our GNP to this end, our growth rate It, in fact, defense expenditures ought to be $200,000,000 in 1929 and we also consider what allocation of economic resources has been made. survival, particularly in an era of lightning atomic war. We must economic growth rates tell us nothing about national capacity for relevant to consideration of what our growth rate should be. For example, Finally the matter of allocation of economic growth is directly higher and higher material living standard.

the life of the individual far better than a continued pursuit of a economist's aim will be found to serve our objective of fulfilling additional leisure or of activities which are not "productive" in the material standard of living for all, it may well be that the benefits of

- 20 -

May 12, 1927
(Monthly Draft)
IV - Report

IV - Report
(Fourth Draft)

May 15, 1957

- 21 -

It is also whether we will have the discipline, morale, patience and leadership required to allocate our resources intelligently.

### 3. Factors in Economic Growth and Stability

Economic growth and stability cannot be discussed in a single package for it is a function of many variables. In an integrated economy like that of the United States, serious dislocation in respect of any one of these variables could set off a chain reaction which would not only impede economic growth but could turn it into a negative rate. Briefly discussed below are some of the major factors which directly relate to the end product we call economic growth. They are here reviewed to emphasize the relationship which each bears to the other and to the total, not to elaborate in detail the particular problems which afflict each of these components.

It is generally assumed in this analysis that a high or full employment economy is here to stay and that no political administration, regardless of party, will be able to afford to retreat from a general commitment to maintenance of high employment conditions.

#### a. <u>Entrepreneurial spirit.</u>
It is likely that the single most important factor in the growth of the economy is the entrepreneurial spirit of progress and development which has characterized most of American industry. The private citizen's confidence in the future and refusal to recognize anything as impossible -- this is the essential ingredient in the maintenance of a healthy free

best.

few signs of the sorts of disruptions that had depressed the
Economic of the country in the early 1930's.

### PROTECTIONS OF CNT

a period beyond 1932 of baneful results at this time,
to protect, particularly on the domestic side, combating policy problems for
recognized as being highly tentative and it has been concluded that some
the present to 1938. Protections even over this period must be, of course,
jections over this range of time, this past III is limited to the period from
is a 50-year period, and much of the discussion in past II dealt with pro-
Altogether the general term of years to which this Report is referred.

American people will make the final decision.

men can, and will, differ and on which only the political voice of the

belligerents involves, or concerns, past policy choices on which reasonable

and the problem of accommodating the cost claims of combating

of magnitude. Many steambuses must be made to make this sort of force

the following bases must be viewed only as an indication of general order

If must be strongly emphasized that the force which emerges in

Subsistence against the projected potential of the economy.

of the enablistad costs of the policies recommended by the states.

This Report may now run to its second major task --- the matching

of claims.

## ADDENDUM OF COMPLETING LOTTERY

### CLAIMS

PART III

31

May 12, 1938

((Continued))
IV - Report

IV - Report

(Fourth Draft) 1957

May 15, 1957

The post-war period has been one of substantial economic growth: after adjusting for price changes, the physical volume of total national production has been rising along a general growth trend of 4% per annum (compared with an average of 3% per year in the 1870 - 1930 period). The record of the past decade is also one of general economic stability. The nation has suffered only two mild recessions since World War II and, until recently at least, the inflation experienced could be attributed to the effects of the war.

The preceding part of this Report has reviewed in some detail the major components which directly affect the nation's rate of economic growth. As was indicated, there are problem areas relating to several of these components. Nonetheless on the basis of our general national experience and the import of present trends, insofar as we can judge them, it does not seem unwarrantedly optimistic to say that over the next 10 - 20 years we should be able to move ahead along a long term growth trend of 3% - 4% per year with no more than moderate cyclical fluctuations. This conclusion, of course, does not represent a forecast. It represents an attainable goal which, with reasonable intelligence in handling the factors contributing to economic growth, we should be able to achieve.

The balance of this part of the Report, therefore, will be based on the

["The balance of this part of the Report, therefore, will be based on the factors contributing to economic growth; we should be able to achieve this goal which, with reasonable influence in handling the split debt which, with reasonable influence in handling the debt, would have a direct and important effect on the national economy. The factors which will be most effective in achieving this goal are, first, that we can have a stable and strong national economy, and, second, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, third, that we can have a stable and strong national financial system, and, fourth, that we can have a stable and strong national economic system. The factors which will be most effective in achieving this goal are, fifth, that we can have a stable and strong national economic system, and, sixth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, seventh, that we can have a stable and strong national economic system, and, eighth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, ninth, that we can have a stable and strong national economic system, and, tenth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, eleventh, that we can have a stable and strong national economic system, and, twelfth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twelfth, that we can have a stable and strong national economic system, and, thirteenth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirteenth, that we can have a stable and strong national economic system, and, fourteenth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, fourteenth, that we can have a stable and strong national economic system, and, fifteenth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, fifteenth, that we can have a stable and strong national economic system, and, sixteenth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, sixteenth, that we can have a stable and strong national economic system, and, seventeenth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, seventeenth, that we can have a stable and strong national economic system, and, eighteenth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, eighteenth, that we can have a stable and strong national economic system, and, nineteenth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, nineteenth, that we can have a stable and strong national economic system, and, twentieth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twentieth, that we can have a stable and strong national economic system, and, twenty-first, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-first, that we can have a stable and strong national economic system, and, twenty-second, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-second, that we can have a stable and strong national economic system, and, twenty-third, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-third, that we can have a stable and strong national economic system, and, twenty-fourth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-fourth, that we can have a stable and strong national economic system, and, twenty-fifth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-fifth, that we can have a stable and strong national economic system, and, twenty-sixth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-sixth, that we can have a stable and strong national economic system, and, twenty-seventh, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-seventh, that we can have a stable and strong national economic system, and, twenty-eighth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-eighth, that we can have a stable and strong national economic system, and, twenty-ninth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-ninth, that we can have a stable and strong national economic system, and, thirty-first, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-first, that we can have a stable and strong national economic system, and, thirty-second, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-second, that we can have a stable and strong national economic system, and, thirty-third, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-third, that we can have a stable and strong national economic system, and, thirty-fourth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-fourth, that we can have a stable and strong national economic system, and, thirty-fifth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-fifth, that we can have a stable and strong national economic system, and, thirty-sixth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-sixth, that we can have a stable and strong national economic system, and, thirty-seventh, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-seventh, that we can have a stable and strong national economic system, and, thirty-eighth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-eighth, that we can have a stable and strong national economic system, and, thirty-ninth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-ninth, that we can have a stable and strong national economic system, and, thirty-twelfth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirteenth, that we can have a stable and strong national economic system, and, fourteenth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, fourteenth, that we can have a stable and strong national economic system, and, fifteenth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, fifteenth, that we can have a stable and strong national economic system, and, sixteenth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, sixteenth, that we can have a stable and strong national economic system, and, seventeenth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, seventeenth, that we can have a stable and strong national economic system, and, eighteenth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, eighteenth, that we can have a stable and strong national economic system, and, nineteenth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, nineteenth, that we can have a stable and strong national economic system, and, twenty-first, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-first, that we can have a stable and strong national economic system, and, twenty-second, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-second, that we can have a stable and strong national economic system, and, twenty-third, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-third, that we can have a stable and strong national economic system, and, twenty-fourth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-fourth, that we can have a stable and strong national economic system, and, twenty-fifth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-fifth, that we can have a stable and strong national economic system, and, twenty-sixth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-sixth, that we can have a stable and strong national economic system, and, twenty-seventh, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-seventh, that we can have a stable and strong national economic system, and, twenty-eighth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-eighth, that we can have a stable and strong national economic system, and, twenty-ninth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-ninth, that we can have a stable and strong national economic system, and, thirty-first, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-first, that we can have a stable and strong national economic system, and, thirty-second, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-second, that we can have a stable and strong national economic system, and, thirty-third, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-third, that we can have a stable and strong national economic system, and, thirty-fourth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-fourth, that we can have a stable and strong national economic system, and, thirty-fifth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-fifth, that we can have a stable and strong national economic system, and, thirty-sixth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-sixth, that we can have a stable and strong national economic system, and, thirty-seventh, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-seventh, that we can have a stable and strong national economic system, and, thirty-eighth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-eighth, that we can have a stable and strong national economic system, and, thirty-ninth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-ninth, that we can have a stable and strong national economic system, and, thirty-twelfth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirteenth, that we can have a stable and strong national economic system, and, fourteenth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, fourteenth, that we can have a stable and strong national economic system, and, fifteenth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, fifteenth, that we can have a stable and strong national economic system, and, sixteenth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, sixteenth, that we can have a stable and strong national economic system, and, seventeenth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, seventeenth, that we can have a stable and strong national economic system, and, eighteenth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, eighteenth, that we can have a stable and strong national economic system, and, nineteenth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, nineteenth, that we can have a stable and strong national economic system, and, twenty-first, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-first, that we can have a stable and strong national economic system, and, twenty-second, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-second, that we can have a stable and strong national economic system, and, twenty-third, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-third, that we can have a stable and strong national economic system, and, twenty-fourth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-fourth, that we can have a stable and strong national economic system, and, twenty-fifth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-fifth, that we can have a stable and strong national economic system, and, twenty-sixth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-sixth, that we can have a stable and strong national economic system, and, twenty-seventh, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-seventh, that we can have a stable and strong national economic system, and, twenty-eighth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-eighth, that we can have a stable and strong national economic system, and, twenty-ninth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-ninth, that we can have a stable and strong national economic system, and, thirty-first, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-first, that we can have a stable and strong national economic system, and, thirty-second, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-second, that we can have a stable and strong national economic system, and, thirty-third, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-third, that we can have a stable and strong national economic system, and, thirty-fourth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-fourth, that we can have a stable and strong national economic system, and, thirty-fifth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-fifth, that we can have a stable and strong national economic system, and, thirty-sixth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-sixth, that we can have a stable and strong national economic system, and, thirty-seventh, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-seventh, that we can have a stable and strong national economic system, and, thirty-eighth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-eighth, that we can have a stable and strong national economic system, and, thirty-ninth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-ninth, that we can have a stable and strong national economic system, and, thirty-twelfth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirteenth, that we can have a stable and strong national economic system, and, fourteenth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, fourteenth, that we can have a stable and strong national economic system, and, fifteenth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, fifteenth, that we can have a stable and strong national economic system, and, sixteenth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, sixteenth, that we can have a stable and strong national economic system, and, seventeenth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, seventeenth, that we can have a stable and strong national economic system, and, eighteenth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, eighteenth, that we can have a stable and strong national economic system, and, nineteenth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, nineteenth, that we can have a stable and strong national economic system, and, twenty-first, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-first, that we can have a stable and strong national economic system, and, twenty-second, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-second, that we can have a stable and strong national economic system, and, twenty-third, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-third, that we can have a stable and strong national economic system, and, twenty-fourth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-fourth, that we can have a stable and strong national economic system, and, twenty-fifth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-fifth, that we can have a stable and strong national economic system, and, twenty-sixth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-sixth, that we can have a stable and strong national economic system, and, twenty-seventh, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-seventh, that we can have a stable and strong national economic system, and, twenty-eighth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-eighth, that we can have a stable and strong national economic system, and, twenty-ninth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-ninth, that we can have a stable and strong national economic system, and, thirty-first, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-first, that we can have a stable and strong national economic system, and, thirty-second, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-second, that we can have a stable and strong national economic system, and, thirty-third, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-third, that we can have a stable and strong national economic system, and, thirty-fourth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-fourth, that we can have a stable and strong national economic system, and, thirty-fifth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-fifth, that we can have a stable and strong national economic system, and, thirty-sixth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-sixth, that we can have a stable and strong national economic system, and, thirty-seventh, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-seventh, that we can have a stable and strong national economic system, and, thirty-eighth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-eighth, that we can have a stable and strong national economic system, and, thirty-ninth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirty-ninth, that we can have a stable and strong national economic system, and, thirty-twelfth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, thirteenth, that we can have a stable and strong national economic system, and, fourteenth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, fourteenth, that we can have a stable and strong national economic system, and, fifteenth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, fifteenth, that we can have a stable and strong national economic system, and, sixteenth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, sixteenth, that we can have a stable and strong national economic system, and, seventeenth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, seventeenth, that we can have a stable and strong national economic system, and, eighteenth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, eighteenth, that we can have a stable and strong national economic system, and, nineteenth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, nineteenth, that we can have a stable and strong national economic system, and, twenty-first, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-first, that we can have a stable and strong national economic system, and, twenty-second, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-second, that we can have a stable and strong national economic system, and, twenty-third, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-third, that we can have a stable and strong national economic system, and, twenty-fourth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-fourth, that we can have a stable and strong national economic system, and, twenty-fifth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-fifth, that we can have a stable and strong national economic system, and, twenty-sixth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-sixth, that we can have a stable and strong national economic system, and, twenty-seventh, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-seventh, that we can have a stable and strong national economic system, and, twenty-eighth, that we can have a stable and strong national financial system. The factors which will be most effective in achieving this goal are, twenty-eighth, that we can have a stable and strong national economic system

IV - Report
(Fourth Draft)

May 15, 1957

93

general assumption that the growth rate will be on the order of
3% - 4% and alternative figures representing a 3% growth rate and
a 4% growth rate will be used. Converting these percentages
into figures the overall economic potential through 1965 is of
the following order and magnitude.

<table><thead><tr><th></th><th colspan="5">Billions of Dollars</th></tr><tr><th></th><th>1957</th><th>1958</th><th>1960</th><th>1965</th><th>1975</th></tr></thead><tbody><tr><th>GNP 4% growth</th><td>432</td><td>449</td><td>486</td><td>591</td><td>814</td></tr><tr><th>GNP 3% growth</th><td>432</td><td>445</td><td>472</td><td>546.9</td><td></td></tr></tbody></table>

It may be helpful to lend a concrete meaning to these figures
to look at the annual rates of increase. Taking the 4% growth
trend as an example, a growth rate of this dimension currently
means an increase of $17 billion a year in total output. By 1965
the annual growth rate will be up to $24 billion a year. In the
1957 - 1965 period we will have available a "growth margin"
totalling $159 billion at the 4% rate, or about $115 billion at a 3%
rate, to meet the increasing demands of our economy.

## B. Demands on the Economy

The essence of the problem we face is how best to allocate
the nation's total production including this growth margin among
competing demands. The next step, therefore, must be to attempt to
draw up the requirements which may be anticipated and to set up

draw up the requirements which may be anticipated and to set up
competing demands. The next step, therefore, must be to attempt to
get the nation's total production including this growth within a limit
The essence of the problem we face is how best to allocate

## Demand for Growth

rates to meet the increasing demands of our economy, totalling $128 billion at the 4% rate, or about $112 billion at a 3% 1923 - 1933 period we will have available a "growth margin". The annual growth rate will be up to $84 billion a year. In the means an increase of $11 billion a year in total output. By 1933 trend as an example, a growth rate of this dimension currently to look at the annual rates of increase. Taking the 4% growth It may be helpful to find a concrete meaning to these figures.

GDP 3% growth 453 448 432 340.9
GDP 4% growth 423 449 436 241 814
1923 1928 1930 1932 1933

## Billions of Dollars

the following order and measure, the following order and measure,
times figures the overall economic potential through 1933 is of
a 4% growth rate will be used. Converting these percentages
3% - 4% and additional figures representing a 3% growth rate and
the general assumption that the growth rate will be on the order of

IV - Report
(Bank Report)
may 13, 1933)

93

IV - Report
(Fourth Draft)

May 15, 1957

some general dimensions on which those with expert knowledge
in specific fields would agree. Most of the figures which follow
are drawn from the recommendations of other Subpanels. The
projected claims required for private investment, consumer ex-
penditures and government expenditures for social programs,
however, have been developed by Subpanel IV and the expert
papers presented to it. In most cases the estimated figures which
follow are on the low side in that they show what would have to
be done to meet "minimum needs" as visualized by the Subpanels
which considered the policy area in question.

1. Private Investment

Business investment in new plant and equipment is
a key element in economic growth. The assumption here is that we
shall have to go on plowing back about the same proportion of GNP
into business investment as we have recently (thus the attached
tables assume that 10.7% of GNP goes into new plant and equipment
and 0.7% into enlarging business inventories). That volume of
business investment is regarded as necessary if we are to achieve
a 4% annual growth in GNP.

To house our growing population adequately we would
have to increase the share of private residential construction in
GNP from 3.4% now to 4.2% in 1965. This estimate provides for an

GMB from 3.4% now to 4.8% in 1983. This estimate provides for an
have to increase the amount of the residual construction in

To house our growing population adequately, we would
require an annual growing GMB of 4.8% annual growth rate.
Business investment is required at least to achieve
and 0.8X into expanding business inventories). That volume of
tenders a commitment of 10.5% of GMB proceeds into new plant and equipment
into business investment as we have recently (since the attached
 shall have to do on blowing back about the same proportion of GMB
a key element in economic growth). The assumption here is that we
Business investment in new plant and equipment is

I. Private Investment

which considered the battery area in question,
be done to meet "minimum needs" as outlined by the Subpanels
follow are on the low at least in that they show what would have to
be presented to us. In most cases the estimated figures which
however, have been developed by Subpanel IV and the expert
bonds and government expenditures for social programs,
protected claims required for private investment, consumer ex-
ample drawn from the recommendations of other Subpanels. This
in a specific field would agree. Most of the figures which follow
some general dimensions, on which those with exact figures

May 12, 1983
(Cornell Draft)

U. K. Report

IV - Report
(Fourth Draft)

May 15, 1957

increase in single family homes in line with the trend in family
formation plus an estimate of $3 billion a year for private invest-
ment in urban renewal projects (which would be supplemented by
$1 - 1 1/2 billion of government expenditures). The urban renewal
figures are based on the 20th Century Fund's estimates that it
would cost around $100 billion to bring our urban housing up to
reasonably satisfactory standards. It is assumed here that we
would take 20 - 25 years to do this (to do it in the next decade
as many experts recommend would involve roughly a doubling of
the annual outlay).

Private foreign investment is projected to rise to
$3 billion in 1965 or 50% above the 1957 figure. However, the
current year's total is distorted by the back-wash of the Suez shut-
down. 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 greater.

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

In all, private investment is projected as taking
17 1/2% of GNP in 1965 versus about 16% now.

US 1/2% of GNP in 1933 versus 16% now.

in these areas.

assumed that such expenditures will rise 10% by 1962 to cover needs
of socialists, Communists, and other private institutions. If so,

The figures for "Other private investment" cover

incentives in the form of tax abatement, the increase could be greater,
gainsting of private foreign investment by 1962. Granted the proper
down. If this adjustment is made, the protection calls for a
current year's total is distorted by the backwash of the past and sub-
23 billion in 1962 or 20% above the 1932 figures. However, the
private foreign investment is protected to the same

the annual average).

as many experts recommend would involve seriously a withholding of
would take 20 - 32 years to do this (to do it in the next decade
reasonably satisfactorily standards). It is assumed here that we
would cost around $100 billion to print our urban housing up to
figures are based on the 30th Century Fund's estimate that it
$1 - 11% billion of government expenditures). The urban renewal
ment in urban renewal protects (which would be supplemented by
toformation plus an estimate of $3 billion a year for private invest-
increase in single family homes in line with the trend in family

May 19, 1932

(Fortune Daily... IV - Report

IV - Report
(Fourth Draft)

May 15, 1957

The current rate of investment seems consistent with an increase of almost 3% per year in productivity, i.e. output per man-hour.

(The 4% per annum growth in GNP is made up of an increase of about 3% in output per man-hour and a rise of about 1% in the number of people at work). Personal savings have been about 7% of personal income after taxes and total gross national savings have run to about 28% of GNP.

In general, savings seem to be in balance with the current rate of investment.

## 2. Consumer Requirements

How may consumer requirements be projected? In a controlled economy, or a state of national emergency, the consumer may be left completely as the residual claimant against the economy; he gets what is left over after the business investment and government slices have been removed. In other periods, however, consumer decisions about spending and saving play perhaps the most significant role in a private enterprise economy. In making a projection, therefore, assuming for the moment no governmental action to change consumption patterns, about all that can be done is to look at past trends and see what happens as they are extended into the future. In recent years consumer expenditures (which stood at $ billion in 195 ) have been rising about 4% per year, or about in line with the growth in GNP. In other words, about 2/3 of the $17 billion current annual growth in GNP is being taken up by consumers.

["| Year | Increase in Amount | Amount | Per 4% Per 3% Per No Increase |\n|---|---|---|---|\n| 1922 | 384.5 | 384.5 | 191 |\n| 1923 | 385.1 | 385.1 | 191 |\n| 1924 | 385.3 | 385.3 | 191 |\n| 1925 | 385.8 | 385.8 | 191 |\n| 1926 | 386.0 | 386.0 | 191 |\n| 1927 | 386.2 | 386.2 | 191 |\n| 1928 | 386.5 | 386.5 | 191 |\n| 1929 | 386.8 | 386.8 | 191 |\n| 1930 | 387.0 | 387.0 | 191 |\n| 1931 | 387.2 | 387.2 | 191 |\n| 1932 | 387.5 | 387.5 | 191 |\n| 1933 | 387.8 | 387.8 | 191 |\n| 1934 | 388.0 | 388.0 | 191 |\n| 1935 | 388.2 | 388.2 | 191 |\n| 1936 | 388.5 | 388.5 | 191 |\n| 1937 | 388.8 | 388.8 | 191 |\n| 1938 | 389.0 | 389.0 | 191 |\n| 1939 | 389.2 | 389.2 | 191 |\n| 1940 | 389.5 | 389.5 | 191 |\n| 1941 | 389.8 | 389.8 | 191 |\n| 1942 | 390.0 | 390.0 | 191 |\n| 1943 | 390.2 | 390.2 | 191 |\n| 1944 | 390.5 | 390.5 | 191 |\n| 1945 | 390.8 | 390.8 | 191 |\n| 1946 | 391.0 | 391.0 | 191 |\n| 1947 | 391.2 | 391.2 | 191 |\n| 1948 | 391.5 | 391.5 | 191 |\n| 1949 | 391.8 | 391.8 | 191 |\n| 1950 | 392.0 | 392.0 | 191 |\n| 1951 | 392.2 | 392.2 | 191 |\n| 1952 | 392.5 | 392.5 | 191 |\n| 1953 | 392.8 | 392.8 | 191 |\n| 1954 | 393.0 | 393.0 | 191 |\n| 1955 | 393.2 | 393.2 | 191 |\n| 1956 | 393.5 | 393.5 | 191 |\n| 1957 | 393.8 | 393.8 | 191 |\n| 1958 | 394.0 | 394.0 | 191 |\n| 1959 | 394.2 | 394.2 | 191 |\n| 1960 | 394.5 | 394.5 | 191 |\n| 1961 | 394.8 | 394.8 | 191 |\n| 1962 | 395.0 | 395.0 | 191 |\n| 1963 | 395.2 | 395.2 | 191 |\n| 1964 | 395.5 | 395.5 | 191 |\n| 1965 | 395.8 | 395.8 | 191 |\n| 1966 | 396.0 | 396.0 | 191 |\n| 1967 | 396.2 | 396.2 | 191 |\n| 1968 | 396.5 | 396.5 | 191 |\n| 1969 | 396.8 | 396.8 | 191 |\n| 1970 | 397.0 | 397.0 | 191 |\n| 1971 | 397.2 | 397.2 | 191 |\n| 1972 | 397.5 | 397.5 | 191 |\n| 1973 | 397.8 | 397.8 | 191 |\n| 1974 | 398.0 | 398.0 | 191 |\n| 1975 | 398.2 | 398.2 | 191 |\n| 1976 | 398.5 | 398.5 | 191 |\n| 1977 | 398.8 | 398.8 | 191 |\n| 1978 | 399.0 | 399.0 | 191 |\n| 1979 | 399.2 | 399.2 | 191 |\n| 1980 | 399.5 | 399.5 | 191 |\n| 1981 | 399.8 | 399.8 | 191 |\n| 1982 | 399.0 | 399.0 | 191 |\n| 1983 | 399.2 | 399.2 | 191 |\n| 1984 | 399.5 | 399.5 | 191 |\n| 1985 | 399.8 | 399.8 | 191 |\n| 1986 | 400.0 | 400.0 | 191 |\n| 1987 | 400.2 | 400.2 | 191 |\n| 1988 | 400.5 | 400.5 | 191 |\n| 1989 | 400.8 | 400.8 | 191 |\n| 1990 | 401.0 | 401.0 | 191 |\n| 1991 | 401.2 | 401.2 | 191 |\n| 1992 | 401.5 | 401.5 | 191 |\n| 1993 | 401.8 | 401.8 | 191 |\n| 1994 | 402.0 | 402.0 | 191 |\n| 1995 | 402.2 | 402.2 | 191 |\n| 1996 | 402.5 | 402.5 | 191 |\n| 1997 | 402.8 | 402.8 | 191 |\n| 1998 | 403.0 | 403.0 | 191 |\n| 1999 | 403.2 | 403.2 | 191 |\n| 2000 | 403.5 | 403.5 | 191 |\n| 2001 | 403.8 | 403.8 | 191 |\n| 2002 | 404.0 | 404.0 | 191 |\n| 2003 | 404.2 | 404.2 | 191 |\n| 2004 | 404.5 | 404.5 | 191 |\n| 2005 | 404.8 | 404.8 | 191 |\n| 2006 | 405.0 | 405.0 | 191 |\n| 2007 | 405.2 | 405.2 | 191 |\n| 2008 | 405.5 | 405.5 | 191 |\n| 2009 | 405.8 | 405.8 | 191 |\n| 2010 | 406.0 | 406.0 | 191 |\n| 2011 | 406.2 | 406.2 | 191 |\n| 2012 | 406.5 | 406.5 | 191 |\n| 2013 | 406.8 | 406.8 | 191 |\n| 2014 | 407.0 | 407.0 | 191 |\n| 2015 | 407.2 | 407.2 | 191 |\n| 2016 | 407.5 | 407.5 | 191 |\n| 2017 | 407.8 | 407.8 | 191 |\n| 2018 | 408.0 | 408.0 | 191 |\n| 2019 | 408.2 | 408.2 | 191 |\n| 2020 | 408.5 | 408.5 | 191 |\n| 2021 | 408.8 | 408.8 | 191 |\n| 2022 | 409.0 | 409.0 | 191 |\n| 2023 | 409.2 | 409.2 | 191 |\n| 2024 | 409.5 | 409.5 | 191 |\n| 2025 | 409.8 | 409.8 | 191 |\n| 2026 | 410.0 | 410.0 | 191 |\n| 2027 | 410.2 | 410.2 | 191 |\n| 2028 | 410.5 | 410.5 | 191 |\n| 2029 | 410.8 | 410.8 | 191 |\n| 2030 | 411.0 | 411.0 | 191 |\n| 2031 | 411.2 | 411.2 | 191 |\n| 2032 | 411.5 | 411.5 | 191 |\n| 2033 | 411.8 | 411.8 | 191 |\n| 2034 | 412.0 | 412.0 | 191 |\n| 2035 | 412.2 | 412.2 | 191 |\n| 2036 | 412.5 | 412.5 | 191 |\n| 2037 | 412.8 | 412.8 | 191 |\n| 2038 | 413.0 | 413.0 | 191 |\n| 2039 | 413.2 | 413.2 | 191 |\n| 2040 | 413.5 | 413.5 | 191 |\n| 2041 | 413.8 | 413.8 | 191 |\n| 2042 | 414.0 | 414.0 | 191 |\n| 2043 | 414.2 | 414.2 | 191 |\n| 2044 | 414.5 | 414.5 | 191 |\n| 2045 | 414.8 | 414.8 | 191 |\n| 2046 | 415.0 | 415.0 | 191 |\n| 2047 | 415.2 | 415.2 | 191 |\n| 2048 | 415.5 | 415.5 | 191 |\n| 2049 | 415.8 | 415.8 | 191 |\n| 2050 | 416.0 | 416.0 | 191 |\n| 2051 | 416.2 | 416.2 | 191 |\n| 2052 | 416.5 | 416.5 | 191 |\n| 2053 | 416.8 | 416.8 | 191 |\n| 2054 | 417.0 | 417.0 | 191 |\n| 2055 | 417.2 | 417.2 | 191 |\n| 2056 | 417.5 | 417.5 | 191 |\n| 2057 | 417.8 | 417.8 | 191 |\n| 2058 | 418.0 | 418.0 | 191 |\n| 2059 | 418.2 | 418.2 | 191 |\n| 2060 | 418.5 | 418.5 | 191 |\n| 2061 | 418.8 | 418.8 | 191 |\n| 2062 | 419.0 | 419.0 | 191 |\n| 2063 | 419.2 | 419.2 | 191 |\n| 2064 | 419.5 | 419.5 | 191 |\n| 2065 | 419.8 | 419.8 | 191 |\n| 2066 | 420.0 | 420.0 | 191 |\n| 2067 | 420.2 | 420.2 | 191 |\n| 2068 | 420.5 | 420.5 | 191 |\n| 2069 | 420.8 | 420.8 | 191 |\n| 2070 | 421.0 | 421.0 | 191 |\n| 2071 | 421.2 | 421.2 | 191 |\n| 2072 | 421.5 | 421.5 | 191 |\n| 2073 | 421.8 | 421.8 | 191 |\n| 2074 | 422.0 | 422.0 | 191 |\n| 2075 | 422.2 | 422.2 | 191 |\n| 2076 | 422.5 | 422.5 | 191 |\n| 2077 | 422.8 | 422.8 | 191 |\n| 2078 | 423.0 | 423.0 | 191 |\n| 2079 | 423.2 | 423.2 | 191 |\n| 2080 | 423.5 | 423.5 | 191 |\n| 2081 | 423.8 | 423.8 | 191 |\n| 2082 | 424.0 | 424.0 | 191 |\n| 2083 | 424.2 | 424.2 | 191 |\n| 2084 | 424.5 | 424.5 | 191 |\n| 2085 | 424.8 | 424.8 | 191 |\n| 2086 | 425.0 | 425.0 | 191 |\n| 2087 | 425.2 | 425.2 | 191 |\n| 2088 | 425.5 | 425.5 | 191 |\n| 2089 | 425.8 | 425.8 | 191 |\n| 2090 | 426.0 | 426.0 | 191 |\n| 2091 | 426.2 | 426.2 | 191 |\n| 2092 | 426.5 | 426.5 | 191 |\n| 2093 | 426.8 | 426.8 | 191 |\n| 2094 | 427.0 | 427.0 | 191 |\n| 2095 | 427.2 | 427.2 | 191 |\n| 2096 | 427.5 | 427.5 | 191 |\n| 2097 | 427.8 | 427.8 | 191 |\n| 2098 | 428.0 | 428.0 | 191 |\n| 2099 | 428.2 | 428.2 | 191 |\n| 2100 | 428.5 | 428.5 | 191 |\n| 2101 | 428.8 | 428.8 | 191 |\n| 2102 | 429.0 | 429.0 | 191 |\n| 2103 | 429.2 | 429.2 | 191 |\n| 2104 | 429.5 | 429.5 | 191 |\n| 2105 | 430.0 | 430.0 | 191 |\n| 2106 | 430.2 | 430.2 | 191 |\n| 2107 | 430.5 | 430.5 | 191 |\n| 2108 | 430.8 | 430.8 | 191 |\n| 2109 | 431.0 | 431.0 | 191 |\n| 2110 | 431.2 | 431.2 | 191 |\n| 2111 | 431.5 | 431.5 | 191 |\n| 2112 | 431.8 | 431.8 | 191 |\n| 2113 | 432.0 | 432.0 | 191 |\n| 2114 | 432.2 | 432.2 | 191 |\n| 2115 | 432.5 | 432.5 | 191 |\n| 2116 | 432.8 | 432.8 | 191 |\n| 2117 | 433.0 | 433.0 | 191 |\n| 2118 | 433.2 | 433.2 | 191 |\n| 2119 | 433.5 | 433.5 | 191 |\n| 2120 | 433.8 | 433.8 | 191 |\n| 2121 | 434.0 | 434.0 | 191 |\n| 2122 | 434.2 | 434.2 | 191 |\n| 2123 | 434.5 | 434.5 | 191 |\n| 2124 | 434.8 | 434.8 | 191 |\n| 2125 | 435.0 | 435.0 | 191 |\n| 2126 | 435.2 | 435.2 | 191 |\n| 2127 | 435.5 | 435.5 | 191 |\n| 2128 | 435.8 | 435.8 | 191 |\n| 2129 | 436.0 | 436.0 | 191 |\n| 2130 | 436.2 | 436.2 | 1

IV - Report
(Fourth Draft)

May 15, 1957

It is to be stressed that the figures listed above do no more than
set general limits within which the magnitude of consumer expenditures
can be appraised. In arithmetic terms a constriction of consumption could
be brought about by an appropriate combination of increased taxes and
increased savings. But in real life, any substantial attempt to place a
squeeze on consumption involves a host of exceedingly difficult problems.
A substantial reduction in the rate of growth of per capita consumption would
require a good sized increase in taxes of the sort bearing down on consumers,
would have far reaching implications for general economic growth and private
investment, much of which is geared to a growth in consumer expenditures
more or less in line with recent trends, and would probably require a marked
reduction in the rate of increase in wage and salary payments and it might
well require direct price controls. In other words, consumer expenditures
are an integral part of the whole economy and it is false to assume that private
consumption may be left entirely as the residual claimant to the economy's
potential. Any serious attempt to squeeze consumption to support increased
expenditures for governmental programs and for private investment could, if
carried very far, sharply complicate the problems of maintaining a steady
growth in the free enterprise economy and avoiding inflation and deflation in
the process.

3. <u>Government Programs</u>

The following recapitulation seeks to combine the burden of expert
testimony presented to Subpanel IV and the other Subpanels respecting urgent
needs for greater Government spending to keep the nation secure and to

99

IV - Report
(Fourth Draft)

May 15, 1957

support the expanded welfare and public works programs called for by a
developing economy. The listing which immediately follows 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. The following
paragraphs will outline the nature and costs of these programs.

<u>Total National Security Expenditures</u> would have to rise $2.7 billion
each year between now and 1965 to meet stated requirements.

<u>Defense Department</u> spending would go up from $38 billion in 1957
to $52 billion in 1965, including $24 billion for Air, $13 billion for Navy, and
$15 billion for the Army. These increases are held to be essential to cover
the fabulous cost of those fantastic new weapons, as well as to keep us
ahead of the Russians.

<u>Civil Defense</u> expenditures would increase from $0.4 billion in 1957
to $2.4 billion in 1965 to cover the government's share of the $32 billion
program prepared by ODM.

<u>Military Aid</u> 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.

<u>Atomic Energy</u> expenditures would continue to rise while <u>stockpile</u>
purchases would be ended.

<u>Economic Aid</u> now runs to about $1.6 billion a year (of which 1/2 to
2/3 goes for "Defense Support"). To stimulate economic growth in the

2/3 does not for "Defense Support." To eliminate economic growth in the
Economic Aid from route to about $1.6 billion a year (of which 1/3 to
b purchases would be added.

Atomic Energy expenditures would continue to rise while stockpile
methane.

to $4 billion in 1983 to cover the cost of equipping lifted forces with new

Military Aid would increase by $1.6 billion (from $3.4 billion in 1982
billion prebated by ODM...

to $2.4 billion in 1983 to cover the government's share of the $3.3 billion

Civil Defense expenditures would increase from $0.4 billion in 1982
upped to the Kratons.

the tabular cost of those fantastic new weapons, as well as to keep us
$12 billion for the Army. These increases are held to be essential to cover
to $22 billion in 1983, including $34 billion for Vin, $13 billion for Navy, and
Defense Department spending would be up from $33 billion in 1982
each year between now and 1985 to meet stated reductions.

Total National Security Expenditures would have to rise $3.7 billion
paragraph will outline the sum and costs of these programs.

economic potential. It is merely a totaling of those claims. The following
to accommodate these recommended programs to the scale of the nation's
developing economy. The training which immediately follows makes no effort
support the advanced welfare and public works programs called for by a

May 18, 1982
(Fourth Draft)

99

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IV - Report
(Fourth Draft)

May 15, 1957

100

underdeveloped areas, we need to increase our development aid and technical assistance by $1-1/2 billion as rapidly as it can be used effectively.

**Welfare Expenditures,** reflect the expanded program of social insurance presented to Subpanel IV involving limited liberalization of benefit payments, extension of coverage and broadening of disability provisions. About $1.9 billion of the indicated $3.1 billion annual increase will take place automatically under existing legislation.

**Health and Medical Care** projections assume that the private economy continues to carry the major burden of financing medical care.

**Public Works** expenditures would go up steadily from $13 billion in 1957 to $22.4 billion in 1965, with major increases in all categories. The figures for water supply and "Other" in the table would cover the expenditures necessary to develop our water and other resources as set forth in Papers.

**Other Government Expenditures** reflect recommendations of the Subpanels in showing a decline in Veterans' expenditures and farm program expenditures.

Following is a compilation of the estimated cost requirements of the totality of recommended and anticipated programs:

IV - Report
(Fourth Draft)

May 15, 1957

101

**Welfare Expenditures**, reflect the expanded program of social insurance presented to Subpanel IV involving limited liberalization of benefit payments, extension of coverage and broadening of disability provisions. About $1.9 billion of the indicated $3.1 billion annual increase will take place automatically under existing legislation.

**Public Works** expenditures would go up steadily from $13 billion in 1957 to $22.4 billion in 1965, with major increases in all categories. The figures for water supply and "Other" in the table would cover the expenditures necessary to develop our urban water and sewage systems, and to accelerate somewhat our recreational, conservational and flood control projects, but would not provide for full development of water resources, as listed in Paper IV-14.

102

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GOVERNMENT COST "REQUIREMENTS"

billions of dollars - calendar years

<table><thead><tr><th></th><th>1957</th><th>1958</th><th>1960</th><th>1965</th></tr></thead><tbody><tr><td>Total National Security</td><td>$ 44.0</td><td>$ 46.5</td><td>$ 52.0</td><td>$ 65.5*</td></tr><tr><td>Defense Department</td><td>36.6</td><td>38.6</td><td>42.4</td><td>52.0</td></tr><tr><td>Civil Defense</td><td>0.4</td><td>0.7</td><td>0.8</td><td>2.4</td></tr><tr><td>Military Aid</td><td>2.4</td><td>2.6</td><td>3.0</td><td>4.0</td></tr><tr><td>Atomic Energy</td><td>2.0</td><td>2.1</td><td>2.2</td><td>2.6</td></tr><tr><td>Stockpile</td><td>0.6</td><td>0.0</td><td>0.0</td><td>0.0</td></tr><tr><td>Economic Aid</td><td>1.6</td><td>2.0</td><td>3.0</td><td>3.5</td></tr><tr><td>Other</td><td>0.4</td><td>0.5</td><td>0.6</td><td>1.0</td></tr><tr><td>Total Welfare</td><td>28.5</td><td>31.8</td><td>38.4</td><td>53.6</td></tr><tr><td>Social Insurance</td><td>15.5</td><td>17.3</td><td>21.0</td><td>29.0</td></tr><tr><td>Education</td><td>9.2</td><td>10.3</td><td>12.5</td><td>18.0</td></tr><tr><td>Health, Medical Care and Other</td><td>3.8</td><td>4.2</td><td>4.9</td><td>6.6</td></tr><tr><td>Public Works</td><td>13.0</td><td>14.2</td><td>18.8</td><td>22.9</td></tr><tr><td>Roads</td><td>5.6</td><td>6.0</td><td>9.0</td><td>10.0</td></tr><tr><td>Schools</td><td>2.7</td><td>3.0</td><td>3.5</td><td>4.0</td></tr><tr><td>Hospitals</td><td>0.3</td><td>0.5</td><td>0.9</td><td>1.9</td></tr><tr><td>Water Supply and Sewers</td><td>1.5</td><td>1.6</td><td>1.9</td><td>2.5</td></tr><tr><td>Other</td><td>2.9</td><td>3.1</td><td>3.5</td><td>4.5</td></tr><tr><td>Other</td><td>24.5</td><td>23.6</td><td>21.8</td><td>23.9</td></tr><tr><td>Farm</td><td>4.8</td><td>4.0</td><td>2.0</td><td>2.0</td></tr><tr><td>Veterans</td><td>4.7</td><td>4.0</td><td>3.0</td><td>3.0</td></tr><tr><td>Interest</td><td>5.7</td><td>5.9</td><td>6.3</td><td>6.6</td></tr><tr><td>Administration and Operation</td><td>9.3</td><td>9.7</td><td>10.5</td><td>12.3</td></tr><tr><td>Total Government Cash Expenditures</td><td>110.0</td><td>116.1</td><td>131.0</td><td>165.9</td></tr><tr><td>Government Purchases of Goods & Services ($ billions)</td><td>84.1</td><td>88.9</td><td>100.7</td><td>127.3</td></tr><tr><td>Transfer Payments ($ billions)</td><td>25.9</td><td>27.2</td><td>30.3</td><td>38.6</td></tr></tbody></table>

* Revised estimates now under consideration by Subpanel II may reduce the total 1965 requirements by as much as $7 billion, with corresponding changes in annual incremental increases.

IV - Report
(Fourth Draft)

May 15, 1957

105

The sharp conclusion that emerges from this summing up is that the nation's output is likely to fall short of the "requirements" and projections made above on the demand side, even if we succeed in attaining and maintaining a 4% average annual growth in GNP. Rich and productive though we may be we cannot meet all these "requirements" simultaneously. Something has got to give.

## 2. Government Expenditure Claims Compared with Government Revenues.

Not only is it true that the total claims exceed the resources of the economy as a whole, it is also true that the projected government expenditures exceed anticipated government revenues even if it is assumed that existing high tax rates are maintained and that, through the 4% growth of the economy, an increment of $5 billion per year is added to Federal, state and local tax revenues.

The projection in figures is as follows:

### Government Expenditure "Requirements" Compared to Revenues

Assuming 4% GNP Growth Rate

<table><thead><tr><th></th><th>1957</th><th>1958</th><th>1960</th><th>1965</th></tr></thead><tbody><tr><td>Government Cash Expenditures*</td><td>110.0</td><td>116.1</td><td>131.0</td><td>165.9</td></tr><tr><td>Revenues</td><td>113.2</td><td>117.6</td><td>127.3</td><td>154.8</td></tr><tr><td>Surplus (Deficit)</td><td>3.2</td><td>(1.5)</td><td>(3.7)</td><td>(11.1)</td></tr></tbody></table>

* Includes transfer payments of $25.9, 27.2, 30.3 and 38.6 billion respectively in the four years.

IV - Report
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May 15, 1957

106

The conclusion is inescapable that even if it should be decided to pursue all the recommended government programs simultaneously and, to the necessary extent, cut into the area of private investment and consumer expenditures it could not be done without substantial increases in taxes, or, in the alternative, substantial and continuing deficit financing.

D. Accommodation of Claims

The above demonstration, taken together with Part II of this Report makes two things quite clear. First, all the suggested government programs cannot simultaneously be pursued except through substantial diversion from the private investment and consumer expenditures segment of the economy. Second, even if the decision were made to make this diversion, these programs cannot be pursued all together except through the imposition of such additional high taxes and economic controls as to jeopardize the rate of economic growth itself and to undermine the premise of this Report that the substance of our free enterprise system is to be preserved. We are faced, therefore, with the necessity of cutting the cloth to fit, of making some accommodation among the competing policy claims so as to tailor them to the nation's economic resources.

This job can obviously not be done in detail in this Report. If the American people, through their democratic processes, choose to place a higher premium upon one policy objective than another, we are dedicated to

higher premium upon one policy objective than another, we are dedicated to American people, through their democratic processes, choose to place a

Title Job can optionally not be done in detail in this Report. If the

to the nation's economic resources,
some accommodation among the combating policy claims so as to fulfill their
faced, therefore, with the necessity of cutting the cloth to fit, of masking
the audacity of our free enterprise system is to be preserved. We are
of economic growth itself and to undermine the premise of this Report that
such additional high taxes and economic controls as to jeopardize the rate
programs cannot be burdened all together except through the imposition of
Second, even if the decision were made to make this diversion, these
the private investment and consumer expenditures segment of the economy,
cannot simultaneously be burdened except through substantial diversion from
makes two things quite clear. That, all the aforementioned government programs
The above demonstration, taken together with Part II of this Report

D. Accommodation of Claims

or, in the alternative, substantial and continuing default financing,
expenditures it could not be done without substantial increases in taxes,
the necessarily extensive, out into the area of private investment and consumer
burden all the recommended government programs simultaneously and, to
The conclusion is inescapable that even if it should be decided to

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(Count, Draft)

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107

their right to make that choice. It is possible, however, to make some statements about priority of allocation and, for the rest, to point up the magnitude of resources remaining for distribution among the remaining claims after first priority allocations have been met.

The following analysis adopts the optimistic premise that the growth rate of the economy will remain at 4% per annum. This means that the economy is operating at full steam ahead (though not at forced draft) and that, as a correlative, government policies are avoided which will inhibit that growth. For this portion of the discussion, therefore, it is assumed that existing tax rates are not increased.

We may begin by deducting from GNP over the period the estimated private capital investment requirements needed to maintain the 4% growth rate; the remaining available production is then:

GNP Less Private Investment

(Billions of Dollars)

<table><thead><tr><th></th><th>1957</th><th>1958</th><th>1960</th><th>1965</th></tr></thead><tbody><tr><td>GNP</td><td>432</td><td>449</td><td>486</td><td>591</td></tr><tr><td>Private Investment</td><td>67</td><td>74.5</td><td>80.3</td><td>103.4</td></tr><tr><td>GNP Remaining</td><td>365</td><td>374.5</td><td>405.7</td><td>487.6</td></tr></tbody></table>

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We may next deduct from the remaining GNP a figure for consumer expenditures. Any assumption that these expenditures per capita will remain fixed is totally unrealistic and, as indicated earlier, would surely lead to such severe economic dislocation as to make the assumption of the 4% rate of economic growth intself untenable. The figure which will be used, therefore, will be greater than zero but optimistically below the present annual 4% rate. The suggested figure is 3% per year, chosen in an effort to balance a realistic forecast with an optimism as to how much these expenditures can be curtailed in favor of greater savings and socially needed programs without distorting the economy. Deducting consumer expenditures, computed on this basis from the remaining GNP we derive the following:

GNP Less Private Investment
And Consumer Expenditures

(Assuming 3% per annum Increase
In Consumer Expenditures.)

<table><thead><tr><th></th><th>1957</th><th>1958</th><th>1960</th><th>1965</th></tr></thead><tbody><tr><td>GNP Less Private Investment</td><td>365</td><td>374.5</td><td>405.7</td><td>487.6</td></tr><tr><td>Consumer Expenditures</td><td><u>280.9</u></td><td><u>289.3</u></td><td><u>307.</u></td><td><u>355.9</u></td></tr><tr><td>GNP Less Private Investment<br>and Consumer Expenditures</td><td>84.1</td><td>85.2</td><td>92.7</td><td>131.7</td></tr></tbody></table>

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Thus, within the assumptions taken for this analysis, the proportion of GNP available for governmental purchases of goods and services is represented for the years in question by the last four figures given above. Assuming that these amounts are to be dedicated to governmental purchases of goods and services, how shall it be allocated?

It is evident that to a substantial extent, there are items in the projected government requirements which are either already committed, non-controversial or inevitable. While of course projections of these figures must leave some room for the inherent inaccuracies of the crystal ball, their general magnitude is fairly clear. The following is an effort to compile these reasonably certain requirements. This compilation includes cost figures for some programs which are certain to be carried out but the cost dimensions of which are open to major controversy; in these cases the figure given is limited to present commitments or restricted arbitrarily to the level of expenditures now being committed to these programs. In such cases the figures are noted specially.

to the level of expenditures now being committed to these programs. In
the future given is limited to present commitments or restricted specifically
coat dimensions of which are open to major controversy. In these cases
coat figures for some programs which are certain to be carried out but the
complete these reasonably certain requirements. This compilation includes
ball, their general magnitude in terms of. The following is an effort to
leave some room for the inherent inaccuracy of the crystal
non-covariance or invariance. While of course projections of these
protected government requirements which are either already committed,
It is evident that to a somewhat extended extent there are some in the
of acids and acids, now added if he is allocated?

Assuming that these amounts are to be dedicated to governmental purchases
represented for the years in question by the last four figures given above,
of GNP available for governmental purchases of acids and acids is
that, within the assumptions given for this analysis, the proportion

of acids and acids was still at the allocated?

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(Smith and Neph)

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MINIMUM FORESEEABLE GOVERNMENT
PURCHASES FOR GOODS AND SERVICES

<table><thead><tr><th></th><th>1957</th><th>1958</th><th>1960</th><th>1965</th></tr></thead><tbody><tr><td>Cash Expenditures</td><td>110.0</td><td>111.3</td><td>113.8</td><td>124.5</td></tr><tr><td>Less Transfer Payments<br>(6% of GNP)</td><td><u>25.9</u></td><td><u>27.0</u></td><td><u>29.2</u></td><td><u>35.5</u></td></tr><tr><td></td><td>84.1</td><td>84.3</td><td>84.6</td><td>89.0</td></tr></tbody></table>

These claims for government purchases of goods and services
may now be applied against the residuum of the GNP derived earlier
through the deduction of private investment and consumer expenditures
from projected GNP. The results are as follows:

GNP LESS PRIVATE INVESTMENT, CONSUMER
EXPENDITURES AND MINIMUM GOVERNMENT
PURCHASES FOR GOODS AND SERVICES

<table><thead><tr><th></th><th>1957</th><th>1958</th><th>1960</th><th>1965</th></tr></thead><tbody><tr><td>GNP Less Private Investment<br>and Consumer Expenditures</td><td>84.1</td><td>85.2</td><td>92.7</td><td>131.7</td></tr><tr><td>Minimum Government<br>Purchases of Goods and<br>Services</td><td><u>84.1</u></td><td><u>84.3</u></td><td><u>84.6</u></td><td><u>89.0</u></td></tr><tr><td></td><td>-0-</td><td>± .9</td><td>± 8.1</td><td>± 42.7</td></tr></tbody></table>

It is now possible on the basis of this demonstration to draw some
general conclusions. It will be recalled that the assumptions taken for
this derivation were in all cases optimistic and in at least one case
completely unrealistically so. These figures assume a 4% annual rise

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in GNP, an optimistic though attainable rate. They assume only a 3% rise
in consumer expenditure instead of the 4% figure which has obtained since
World War II. They assume an overcoming of the political resistance
to reductions in farm and veteran expenditures, and they assume no
increase in either defense or general welfare expenditures which is
perhaps even more unrealistic. Yet even on the basis of these most
optimistic assumptions it is apparent that we are dealing with a sur-
prisingly narrow margin of leeway in the total economy. In sum, even
within these optimistic assumptions the economy would barely balance in
1958, would have a relatively small area of choice of 8.1 billion dollars
in 1960 and not until 1965 does a substantial leeway of 42.7 billion dollars
appear for dedication to major governmental programs.

We will return to the significance of the preceding paragraph.
But first the point should be made that the preceding computations are
made in terms of real product of the entire economy and do not deal with
the problem of fitting government expenditures into a matching framework
of government revenues. The projection, viewed from this standpoint
and based on the same assumptions as the preceding derivation is as
follows:

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MINIMUM GOVERNMENT REQUIREMENTS AND
GOVERNMENT CASH RECEIPTS

<table><thead><tr><th></th><th>1957</th><th>1958</th><th>1960</th><th>1965</th></tr></thead><tbody><tr><td>Minimum Government Requirements</td><td>110.0</td><td>111.3</td><td>113.8</td><td>124.5</td></tr><tr><td>Government Cash Receipts</td><td>113.2</td><td>117.6</td><td>127.3</td><td>154.8</td></tr><tr><td>Surplus (Deficit)</td><td>3.2</td><td>6.3</td><td>13.5</td><td>30.3</td></tr></tbody></table>

Viewed therefore from the standpoint of government finances and assuming, as is done here, a maintenance of the general level of taxation, there should be leeway for expansion of governmental expenditures or, in the alternative, tax reductions.

E. <u>Conclusions</u>

1. By far the most important conclusion to be drawn from the preceding analysis is that the American economy, fantastic though it is, is not omnipotent. Indeed as a result of the process of taking a view of the economy as an integrated whole, this is demonstrable. As we are now proceeding, we have very little leeway within which to consider additional programs or expansions of existing programs. This situation will apparently obtain for substantially the next five years.

2. Viewed from the standpoint of GNP, where can we look for economic resources which would permit new or expanded programs if they should be decided to be required.?

should be decided to be rejected.

economic resources which would benefit new or expanded programs if they

S. Message from the Standpoint of GMS, where can we look for
affiliation will subsequently obtain for substantially the next five years.

consider additional programs or expenditures of existing programs. This
we are now proceeding, we have very little leeway within which to

view of the economy as an integrated whole, title is demonstrable. It
is, if not omniscient, indeed as a result of the process of taking a
preceding analysis is that the American economy, fantastic though it

## Conclusions

the aforementioned tax reductions.

there should be leeway for expansion of governmental expenditures etc. in

assuming, as is done here, a maintenance of the general level of taxation.
Viewed therefore from the standpoint of government finance and

| | 1923 | 1924 | 1925 | 1926 |
|:---|:---:|:---:|:---:|:---:|
| **Surplus (Deficit)** | 3.2 | 3.3 | 3.3 | 3.0 |
| **Government Cash Receipts** | 118.3 | 117.2 | 133.3 | 124.3 |
| **Requirements** | | | | |
| Minimum Government | 110.0 | 111.8 | 113.6 | 134.2 |
| | | | | |
| **Gains** | | | | |

## GOVERNMENT CASH RECEIPTS
### MINIMUM GOVERNMENT REQUIREMENTS AND

110

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The alternatives are only two -- either in the area of private investment or in the area of consumer expenditures. While both are of great importance to the continuation of the economy's growth rate and neither could be restricted to a substantial degree without jeopardizing the growth rate, there is doubtless greater latitude for "give" on the consumer side than on the investment side. Without investment in capital plant we cannot maintain our technological progress and continue to increase our productivity. Within some limits however, assuming political feasibility, consumer standards could be held to a lower rate of increase. Since the real squeeze in terms of GNP would develop, on the basis of the above figures, in 1958 and would improve thereafter, such restrictions if imposed would not have to be of long duration. Nor would they have to be of substantial magnitude, unless government programs were radically expanded in the next few years.

The dangers of such an approach are of course obvious. Too much restriction of consumption expenditures would produce a lack of confidence in the economy's growth, an increasing reduction in investment and a resultant decline in the growth rate itself. And the political problems involved in persuading the American public that it needs to tax itself further, or restrict its expenditures by regulation, are obviously very great in the present temper of public opinion. Perhaps, in view of the

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narrow margin of difficulty and its short duration it would be enough to
step up seriously a campaign directed toward further voluntary savings.

3. It should not be assumed that, simply because the above figures indicate a government cash surplus on the basis of the rigid expenditure assumptions taken, new government programs should be developed to use the government "share" of the economy. It should be re-emphasized that these figures assume an optimistic 4% GNP growth rate and a reduction of the post-World War II rate of consumer expenditures. If government programs could be kept in hand, taxes could be reduced to permit further investment and economic growth, while at the same time the government's claim against the economy could be curtailed to permit a more rapid increase in the material standard of living of the people.

4. It is now time to remove the artificial assumptions built into the earlier derivations. The facts are that every projection indicates that defense expenditures will increase rather than be held steady. The estimates from Subpanel II indicate that the increase will be on the order of 2 billion dollars increase per year and 2.5 billion is probably more likely. Equally, the arguments for the necessity and desirability of expanding governmental welfare services, and the political forces tending in this direction are such that at least some expansions in this area are likely in the next 4 or 5 years and virtually certain before 1965. Finally, there can be little real optimism that political resistance to

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curtailing farm and veterans' expenditures can be overcome in the next
3 or 4 years. When all of these factors are put together the pressures
on the economy, seen from a GNP viewpoint, are seen to be severe, as
best illustrated by the earlier table matching the proposed program costs
against GNP.

The fact is that we simply cannot, within the assumptions of this
analysis and a generally unregulated free enterprise economy, pursue all
of these programs simultaneously. We shall have to pick and choose, cut
cost where we can and be patient to await the time when the economy
through its growth will sustain additional programs.

5. As among the many competing policy claimants clamouring for
a share of the small residuum of GNP available to be divided among them,
a few generalizations may be made.

a) The security of the nation must of course come first above
all else including consumer expenditures and even, for short range periods,
capital investment. If a true national emergency situation is postulated
the conditions all change and, with the introduction of capital licensing,
price and wage controls, increased taxes, consumer installment restrictions
and every other tool at our disposal we will of course mobilize the economy
on a forced draft basis. But it must be cautioned that to the extent we
move in this direction by, for example, restricting consumer expenditures
in advance of full emergency, we have that much less leeway for action
when the emergency comes.

When the emergency comes, in advance of full emergency, we have that much less leisure for action. move in safe direction by, for example, restricting consumer expenditures on a forced draft basis. But if we must be conditioned that to the extent we and every other tool of our database we will of course mobilize the economy force and wage controls, increased taxes, consumer installment restrictions, the conditions of all change and, with the introduction of capital funding, capital investment. If a true national emergency situation is permitted all else including consumer expenditures and even, for short range periods, a few generalizations may be made.

a. As among the many competing policy commands diamonting for through its growth will arise additional programmes.

b. As among the small residual of GNP available to be divided among them, a share of the small residual of GNP available to be divided among them, of these programmes simultaneously. We shall have to pick and choose, out of allots and a generally unutilized free enterprise economy, but are all of these programmes simultaneously. We shall have to wait the time when the economy cost where we can and be pertinent to await the time when the economy against GNP.

beat illustrated by the earlier in his marking the proposed program costs on the economy, seen from a GNP viewpoint, are seen to be severe, as 3 or 4 years. When all of these factors are put together the picture is not so encouraging as veterans' expenditures can be overcome in the next

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Assuming, by contrast, that we continue our present state of what
might be called national alarm if not national emergency and that, as this
report assumes, we will preserve intact the essence of our free enterprise
system, we must find ways to maintain national security and still keep
the costs within bounds. Seen in this light, unification and integration
of our armed forces and economies of Defense Department administration
cease to become merely desirable and become essential. We simply must
go even further than we are today in deriving more defense per dollar
spent.

b) There is sometimes the tendency to view expenditures for
health, education and welfare and for public facilities such as roads,
hospitals and playgrounds as being of secondary priority to defense
expenditures. There are situations, of course, in which this is quite
true. In a time of shooting war, concrete needed for port construction
cannot be spared for playgrounds. But what is true in the short-run is
often not true in the long-run. In the long-run the strength of the nation
lies in its people and the responsibility and capacity of defense lies with
them. As has been demonstrated again and again, expenditures in many
welfare areas are more precisely seen as investments paying enormous
dividends not only in human happiness but in economic growth and
increased production rates. This paper has spoken much of investment
in plant and machinery to maintain our economic growth rate. But it would

in plans and machinery to maintain our economic growth rate. But it would
increased production rates. This paper has spoken much of investment
dividends not only in human happiness but in economic growth and
wealth areas are more precisely seen as investments paying enormous
them. As has been demonstrated again and again, expenditures in men-
files in its people and the responsibility and capacity of defense files with
often not true in the long run. In the long run the strength of the nation
cannot be assured for playgrounds. But what is true in the short run is
time. In a time of shooting war, concrete needed for port construction
expenditures. There are situations of course, in which this is due to
clothes and playgrounds as being of secondary priority to defense
health, education and welfare and for public facilities such as roads,
and so on.

b) There is sometimes the tendency to view expenditures for
adequate.

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be the height of folly to place such emphasis here if we fail to make the
necessary investment in our people. Expenditures for health and education
particularly, and for public facilities, slum clearance and other programs
which are required to produce a healthy environment in which to raise a
healthy race, must be considered from any long-range viewpoint as being
of the highest priority even from the standpoint of national security alone.
And this statement says nothing of our even greater long-range need for
improving these programs in line with our ultimate national objective of
developing each individual to the fullest of his capacity.

c) Where, then, may we look to cut back if private investment, consumer expenditures, security costs and general welfare programs offer little hope for paring except on the basis of new alternative efficiencies?

The main answer must be that we must turn to those programs which appear to contribute least to the overall strength of the economy and the society -- regardless of the potentiality of these programs or the potency of the political forces which support them. The most obvious of these is the farm program. As indicated earlier in this Report, to a substantial extent the farm problem is an aspect of a general welfare problem and as such deserves the same priority as other welfare programs. To the extent however that our present farm program represents an unconstructive subsidy rather than a means for ameliorating particular economic dislocation, it should be curtailed. The other major area of federal expenditure in

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which some hope may be seen for retrenchment without serious impact
on the overall economy or society lies in the veterans' program, with
the same consequence with respect to the general welfare aspects.

Other avenues of lesser dollar magnitude exist. The stockpiling
program of raw materials is probably outdated, as a defense measure, even
though it may have some value as an instrument of economic policy. If
we could move further from our probably erroneous concern with the
security aspects of atomic energy, we could more rapidly permit private
industry to develop this area and consequently curtail governmental e
expenditures. Our foreign aid program, while undoubtedly essential, needs
to be carefully reviewed to see that the maximum contribution is made to
the nations to whom the aid is given and that the money, and more
importantly, the manpower and real goods contributed is not frittered away.
And of course there is the general avenue of increasing governmental ad-
ministrative efficiency along the lines recommended by the Hoover
Commission.

6. The final comment is, as it should be, a return to the beginning. Whatever allocations are needed and however they are implemented the premises and ultimate objectives of the nation must not be lost sight of. It is the individual in whom we are interested and not the mass. And programs designed to achieve "efficiencies" cannot be permitted to override. Finally, it is only our vigorous and growing economy which permits

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us to maintain our defense and provides the means to pursue our general
social welfare objectives. That growth must not be stifled by improvident
haste borne upon the demands of the moment.