is the essential ingredient in the maintenance of a healthy race
the future and refusal to recognize anything as impossible -- this
most of American industry. The private citizen's confidence in
spirit of progress and development which has characterized
important factor in the growth of the economy is the entrepreneurial
 spirit of the entrepreneur spirit. It is likely that the single most
 commitment to maintenance of high employment conditions.

regardless of party, will be able to afford to retrench from a general
employment economy is here to stay and that no political administration,
If it is generally assumed in this analysis that a high or full
each of these components.

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

3. <u>Factors in Economic Growth and Stability</u>

required to allocate our resources intelligently.

It is also whether we will have the discipline, morale, patience and leadership

May 12, 1947
(Fourth Draft)
IV - Report

IV - Report

(Third Draft)

May 2, 1957

- 22 -

enterprise economy. If this attitude is lost or stultified, there is no
alternative but governmental assumption of full responsibility for the
economy. The present level of this developmental enterprise spirit is
fortunately of high order, as evidenced by the startling increases in
business expenditures for expansion, research and development in the
period following World War II. Given a general framework in which the
American economy places its basic reliance upon the workings of a free
enterprise system to provide the steady economic growth which the
nation requires, it is apparent that a major consideration in making
governmental policy decisions must be the impact of those decisions upon
the confidence and developmental spirit of the individuals who comprise
the business community. There must constantly be kept in perspective
the risk that in pursuing otherwise laudable objectives government may
so far extend itself either directly or by regulation or taxes as to smother
this vital force of entrepreneurial spirit.

This is no cry of alarm and no re-echoing of the arguments of
the 1930's. We have learned much about the appropriate roles of
government and business since that time, and the business community, as
a whole, has come to accept governmental activity of many kinds which,
by the economic philosophy of the 1920's, would have been unthinkable.
Our robust economy of the 1950's is itself a refutation of the dire predic-
tions of devastation which some voiced in respect of the New Deal.

tions of deviation which some voiced in respect of the New Deal.
Our robust economy of the 1930's is itself a reputation of the dire predic-
by the economic philosophy of the 1920's, would have been unthinkable.
A whole, has come to accept governmental activity of many kinds which,
government and business since that time, and the business community, as
the 1930's. We have learned much about the appropriate roles of

this vital force of entrepreneurial spirit.
So far extend itself either directly or by regulation or taxes as to another
the risk that in pursuing otherwise landable objectives a government may
the business community. There must constantly be kept in perspective
the confidence and developmental spirit of the individuals who comprise
governmental policy decisions must be the impact of those decisions upon
nation requires, if it is apparent that a major consideration in making
enterprise system to provide the steady economic growth which the
American economy places its basic reliance upon the workings of a free
period following World War II. Given a general framework in which the
business expenditures for expansion, research and development in the
fortunately of high order, as evidenced by the starting increases in
economy. The present level of this developmental enterprise spirit is
alternative put governmental assumption of full responsibility for the
enterprise economy. If this attitude is lost or stultified, there is no

May 3, 1937
(Third Draft)
IV - Report

IV - Report
(Third Draft)

May 2, 1957

- 23 -

But the fact that the extreme voices who opposed the New Deal have been found to have been unduly pessimistic does not mean that the entrepreneurial element which they were ultimately seeking to defend has been demonstrated to be indestructible. It is almost a matter of definition to say that if we are to rely upon an entrepreneurial free market economy to provide the economic growth which the nation requires, there is a point beyond which further governmental inroads upon the area left open to that system will result in its withering. Within the framework of the national objectives outlined in this paper, therefore, it follows that constant and close attention must be paid to the balance point between the role of government and the role of private business and that a major concern in national policy determination must be to maintain a satisfactory working balance between these two components.

b. **Investment and savings rate.** One of the most critical factors in economic growth is the savings and investment rate. There is a basis for some concern in the state of the economy today in respect of this factor.

Analysis of the data on savings and investment patterns is exceedingly complex. The term "savings" is itself a slippery one since, for the economy as a whole, certain kinds of taxes are themselves "savings". In addition the form of savings may shift from time to time. For example, the workers' bank deposit nest egg has been supplemented in part by the union pension fund; but both are "savings". Moreover the distinction

union pension fund; but both are "savings". Moreover the distribution
the workers' bank deposit next year has been supplemented in part by the
in addition the form of savings may shift from time to time. For example,
economy, as a whole, certain kinds of taxes are themselves "savings".
indly complex. The form "savings" itself a slightly one since, for the
Analysis of the data on savings and investment patterns is exceed-
this factor.

a basis for some concern in the state of the economy today in respect of
factors in economic growth is the savings and investment rate. There is
p. investment and savings rate. One of the most critical

working balance between these two components.
concern in national policy determination must be to maintain a satisfactory
the role of government and the role of private business and that a major
constant and close attention must be paid to the balance point between
national objectives outlined in this paper, therefore, it follows that
so that a system will result in its withering. Within the framework of the
point beyond which further governmentalارد upon the area left open
to provide the economic growth which the nation requires, there is a
to say that if we are to rely upon an entrepreneurial free market economy
been demonstrated to be indeterminable. It is almost a matter of definition
entrepreneurial element which they were ultimately seeking to delimit has
have been found to have been unduly pessimistic does not mean that the
But the fact that the extreme voices who opposed the New Deal

May 2, 1925
(Third Draft)
IV - Report

IV - Report
(Third Draft)

May 2, 1957

- 24 -

between capital investment and consumer purchases is a hazy one.

For example, for the economy as a whole, private investment in automobiles may be seen as a capital investment form, chosen as an alternative to large expenditures for mass public transportation facilities.

Prospects for overall industrial investment are probably generally good. It is true that the rate of private consumer indebtedness is soaring, that segments of the nation's existing capital plant have been allowed to deteriorate or not been modernized (as in the case of our central city structures and our railroads) and that, judging by currently high interest rates and other evidence, there is a general tightness of capital at the present time. On the other hand, there is considerable evidence that savings rates are, on a long-range secular basis, adequate to sustain the investment required to maintain our present rate of economic growth. And increases in business expenditures for expansion, research and development in the period following World War II have been remarkable, particularly in the case of large companies which are in a position to plow back earnings into capital investment. Perhaps of even greater significance than the total investment rate in industry is the fact that investment programs are increasingly designed well in advance and are increasingly adhered to regardless of general economic and market fluctuations. There is optimism that this factor will prove to be a powerful impediment to cyclical fluctuations.

There is no doubt that this factor will prove to be a
increasingly adhered to regardless of general economic and market
investment programs are increasingly constrained well in advance and are
significance than the total investment rate in industry is the fact that
to blow back earnings into capital investment. Perhaps of even greater
able, particularly in the case of large companies which are in a position
and development in the period following World War II have been remarkable
growth. And increases in business expenditures for expansion, research
to sustain the investment required to maintain our present rate of economic
evidence that savings rates are, on a long-range secular basis, adequate
capital at the present time. On the other hand, there is considerable
high interest rates and other evidence, there is a general tightness of
central city structures and our railroads) and that, judging by currently
allowed to deteriorate or not been modernised (as in the case of our
acquiring, that segments of the nation's existing capital plant have been
good. It is true that the rate of private consumer indebtedness is

Projections for overall industrial investment are properly generally
five to large expenditures for mass public transportation facilities.

mobiles may be seen as a capital investment form, chosen as an alterna-
For example, for the economy as a whole, private investment in auto-
between capital investment and consumer purchases is a fussy one.

- 34 -

May 2, 1947
(Third Draft)
IV - Report

IV - Report
(Fourth Draft)

May 15, 1957

- 25 -

Despite the generally favorable investment picture for industry as a whole, there are indications of investment shortages in the area of small business. This problem is discussed later in this Report where the position of small business, as a whole, is considered.

Unfortunately, the generally favorable industrial investment prospect is not matched by the investment picture in the area of community facilities. There is no doubt that if we are to maintain our present rate of economic development and to provide adequate community facilities for our increasing population we shall need vast investments of capital in these facilities which do not now seem to be forthcoming. This problem is considered in further detail in another section of this Report.

The impact of the tax structure upon savings and investment rates is treated in the section dealing generally with monetary and fiscal policy.

c. **Manpower and skills.** Entrepreneurial spirit and capital will not alone produce economic growth. Indeed, in an ultimate sense nothing will produce economic growth except men. No component of the nation is as important as its manpower and the skills which that manpower can bring to bear.

The projections are that in the area of manpower and skills the nation faces a very real problem, particularly in the next 10 years. Demographic projections indicate a declining percentage of the total population as productive workers. Automation and the new technology call increasingly for highly skilled workers. Pressures toward shorter average

IV - Report
(Third Draft)

May 2, 1957

- 26 -

work weeks are expected to increase. Even more serious are the nation's
projectable shortages in high talent manpower -- technicians, managers,
professional men, teachers and scientists, not to mention government
civilian and military service personnel.

Of vital concern in this area is the problem of providing adequate
incentives for young people to enter upon socially - needed careers of
this nature, to undergo the long years of training required and to be willing
to work a 70-hour week at a time when the vast majority of the population
will be able to live comfortably by working a 35-hour week. The real
key to any program is the people who conceive and run it. The data
currently available to us to explain the motivations and incentives
which determine career choices is remarkably limited. It is increasingly
recognized that economic return alone is but one of many possible in-
centive mechanisms affecting career choice. A most worthwhile subject
for empiric psychological research would be an investigation into the
reasons why some men and women do choose the long and difficult career
and an inquiry into what kinds of incentive programs providing different
kinds of rewards, challenges and satisfactions can be devised to attract
high talent manpower into the nation's most badly needed occupations.

Most of the general problem of manpower and skills relates
directly to the subject of Subpanel V dealing particularly with education.
In the more economic context of this Report however, a variety of
suggestions may be made looking toward improvement of the manpower and

suggestions may be made looking toward improvement of the manpower and
in the more economic context of this Report however, a variety of
directly to the subject of Sub单元 V dealing particularly with education.

Most of the general problem of manpower and skills relates
high talent manpower into the nation's most badly needed occupations.
kind of rewards, challenges and satisfactions can be devised to attract
and an industry into what kinds of incentive programmes providing different
reasons why some men and women do choose the long and difficult career
for entire behavioural research would be an investigation into the
creative mechanisms affecting career choice. A most worthwhile subject
recognized that economic return alone is but one of many possible in-
which determines career choice is remarkably limited. It is increasingly
currently available to us to explain the motivations and incentives
key to any program to the people who conceive and run it. The data
will be able to give comfortably by working a 20-hour week. The rest
to work a 20-hour week at a time when the vast majority of the population
this nature, to undergo the long years of training required and to be willing
incentives for young people to enter upon socially - needed careers of

Of vital concern in this area is the problem of providing adequate
civilian and military service personnel.

professional men, teachers and scientists, not to mention government
projectable shortages in high talent manpower -- technicians, managers,
work weeks are expected to increase. Pass more serious are the nation's

May 8, 1927

(Third Draft)

IV - Report

- 26 -

IV - Report
(Third Draft)

May 2, 1957

- 27 -

skill situation. One critical need is for trained occupational counselors to direct potential skills into useful channels. It is estimated that two out of every three children now in our over-populated farm areas will find their occupations outside agriculture; training programs in agricultural areas are required which will simultaneously train the two for industrial or other non-agricultural occupations and train the third to be a more efficient farmer. Our last remaining pool of substantially unused labor, our Negro, Puerto Rican and Mexican ethnic groups and our excess farm labor, cannot be drawn upon effectively until and unless it is retrained for the new industrial occupations.

Free manpower mobility is vitally important and there are many possible avenues of approach for improving it. On the general labor scene, a nationwide program of labor information could do much to operate as a clearing house and increase the mobility of labor to move where it is needed. The possibility of a program for the payment of moving expenses to facilitate this process deserves consideration. From this standpoint, present compensation patterns provide a basis of concern. Employee pension, welfare and guaranteed annual wage programs which do not provide for reasonably early vesting tend to induce labor to remain with one employer and thereby adversely affect the free flow of manpower resources. The same phenomenon is observed at executive levels, with programs such as stock options and pensions restricting transfers.

as stock options and bonuses restricting transfers.

The same phenomenon is observed at executive levels, with problems such as employer and thereby adversely affect the free flow of manpower resources.

reasonably early vesting tend to induce labor to remain with one
welfare and guaranteed annual wage programs which do not provide for
present combination patterns provide a basis of concern. Employee pension,
to facilitate this process deserves consideration. From this standpoint,
needed. The possibility of a program for the payment of moving expenses
clearing house and increase the mobility of labor to move where it is
a nationwide program of labor information could do much to operate as a
possible avenues of approach for improving it. On the general labor scene,

free manpower mobility is vitally important and there are many
free labor scene.

labor, cannot be drawn upon effectively until and unless it is retained
our Negro, Puerto Rican and Mexican ethnic groups and our excess labor
efficient labor. Our last remaining pool of subattainably unskilled labor,
or other non-industrial occupations and train the third to be a more
areas are required which will simultaneously train the two for industrial
their occupations outside agriculture; training programs in agricultural
out of every three children now in our over-populated farm areas will find
to direct potential skills into useful channels, it is estimated that two
skill situation. One critical need is for trained occupational cornerstones

- 37 -

May 2, 1927
(Third Draft)
IV - Report

IV - Report
(Fourth Draft)

May 15, 1957

- 28 -

Further, though one may recognize the genuine seasonal and technological cyclical problems which have inspired restrictive labor union admission, apprenticeship and make-work practices in some industries, particularly in a high employment economy and in a time of an increasing national labor shortage these restrictions are not justifiable and should be curtailed.

Rehabilitation of physically or mentally incapacitated workers represents a possible and fruitful avenue for increasing the available manpower supply. Still another line of approach is re-examination of the concept of retirement at age 65 built into our social security legislation and most private pension systems. Many workers who retire at 65 do so involuntarily and while productivity on the average drops after this age and there are genuine problems involved in making effective use of older workers, there is no doubt that substantial resources in usable, experienced and active manpower are made idle by present inflexible policies.

In connection with the manpower problem the far-reaching implications of automation must be considered. These processes call increasingly for highly trained technicians and put an increasing premium on youthful and adaptable labor with the capacity to acquire the new skills demanded. If the economy is to attain its optimum growth and vitality, we shall have to improve our vocational training, private and public, to provide the necessary technicians and skilled labor force. Whether under the projected manpower circumstances the United States can afford to continue its present generally restrictive immigration policy is a very real question.

restractive immigration policy is a very real question. Circumstances in the United States can afford to continue its present generally
technicians and skilled labor force. Whether under the protected manpower
improves our vocational training, private and public, to provide the necessary
the economy is to attain its optimum growth and vitality, we shall have to
adequate labor with the capacity to absorb the new skills demanded. It
for highly trained technicians and but an increasing premium on beautiful and
tions of automation must be considered. These processes call increasingly
In connection with the manpower problem the far-reaching implications
are made use of by present inflexible policies.

 doubt that substantial resources in usable, experienced and active manpower
 problems involved in making effective use of older workers, there is no
 productivity on the average drops after this age and there are genuine
 systems. Many workers who retire at 65 do so involuntarily and while
 at age 65 built into our social security legislation and most private pension
 still another line of approach is re-examination of the concept of retirement
 a possible and fruitful avenue for increasing the available manpower supply.
Rehabilitation of physically or mentally incapacitated workers requires
be omitted.

national labor shortage these restrictions are not inestimable and should
particularly in a high employment economy and in a time of an increasing
admission, apprenticeship and make-work practices in some industries,
technological cyclical problems which have inspired restrictive labor union
further, though one may recognize the genuine seasonal and

May 12, 1927
(Present Draft)
IV - Report

IV - Report
(Third Draft)

May 2, 1957

- 29 -

Altogether, training and allocation of skilled manpower is
probably the single most worrisome problem in our prospects for continuing
economic growth and stability. We are not handling this job well. It is
essential to our economic growth. It calls for intense application.

d. **Natural resources and energy.** But even entrepreneurial
drive, capital and manpower are not enough taken together to provide for
a steady and increasing economic growth. A modern industrial machine
requires enormous quantities of natural resources. When it is deprived
of them, as was Japan toward the end of World War II, it grinds to a
shuddering halt. Of direct relevance, therefore, to the problem of
economic growth is the general problem of adequate natural resources and
raw materials availability.

This subject is enormously complex and frequently grossly over-simplified. Given an appropriate political structure and sufficient motivation it is probable that it would be within the power of our presently foreseeable technology to provide adequately for the needs of many times the present world's population out of the air, the sea and granite. Each day we learn more about the use of substitute materials, the re-use of scrap materials, the refinement of raw grade materials. Moreover, materials which are projected to be in acute supply may, in an economy of new technology become quite suddenly unimportant. One thinks, for example, of the alarm felt at the end of the last century as the important whaling industry faced a rapid and steady decline in its natural resource.

whaling industry faced a rapid and steady decline in its natural resource
example, of the alarm felt at the end of the last century as the important
of new technology become due suddenly unimportant. One thinks, for
materials which are projected to be in acute supply may, in an economy
scrap materials, the retirement of raw grade materials. Moreover,
day we learn more about the use of substitute materials, the re-use of
the present world's population out of the arc, the sea and granite. Each
foreseeable technology to provide adequately for the needs of many times
motivation it is probable that it would be within the power of our presently
simplified.

This subject is enormously complex and frequently grossly over-
raw materials availability.

economic growth is the general problem of adequate natural resources and
shrouding hair. Of direct relevance, therefore, to the problem of
of them, as was Japan toward the end of World War II, it brings to a
requires enormous quantities of natural resources. When it is deprived
of a steady and increasing economic growth. A modern industrial machine
drive, capital and manpower are not enough taken together to provide for
d. Natural resources and energy. But even entrepreneurial
essential to our economic growth. It calls for intense application,
economic growth and stability. We are not handling this job well. It is
propably the single most worksome problem in our prospects for continuing
Vitoeother, training and allocation of skilled manpower is

May 8, 1957
(Third Draft)
IV - Report

IV - Report
(Third Draft)

May 2, 1957

- 30 -

To use a more modern instance, it is not at all impossible that large
scale breakthroughs in the development of new energy sources, atomic,
chemical or solar, may obsolete our present concern over fuel oil
resources.

Nonetheless it would be the height of improvidence to ignore the
central necessity of adequate resources and to embark upon thoughtless
exploitation without regard to considerations of conservation and respon-
sible resources management. This is true even where it may be assumed
that existing technology can assure us of adequate supplies from low
grade raw materials through additional refinement processes. This
avenue inevitably involves greater costs and capital commitments from
the economy as a whole and as such requires a diversion of economic
resources which otherwise could be used to further economic growth in
other areas. Thus even in a nation so favored in respect of natural re-
sources as the United States, the problem of raw materials remains a
central one in considering overall economic growth.

Projections on America's natural resources for the next 20 years
are, in general, optimistic. In many basic materials such as coal, our
supplies are substantially unlimited. There is no foreseeable shortage of
usable farm land. The prospect is for continuing food and fibre production
capacity in excess of our needs. In respect of some other resources, we
do not apparently face absolute limitations so much as we face steadily
increasing costs of production and refinement. Domestic resources of

["underlying costs of production and retirement. Domestic resources of\n\nundue attention should be used to ensure that the resources are\n\nadequately available to meet current and future production\n\nneeds. In general, the resources are in general, undivided. In many basic materials such as coal, oil,\n\nprojections on America's natural resources for the next 30 years\n\ncan be used to determine overall economic growth.", "Projections on America's natural resources for the next 30 years\ncan be used to determine overall economic growth.\n\nSources as of the United States, the problem of raw materials remains a\n\nother area. Thus even in a nation so favored in respect of national resources which otherwise could be used to further economic growth in the economy as a whole and as such requires a diversion of economic\n\ninvestment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. 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Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. 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Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. 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Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. Thus raw materials through additional refinement processes, this\ncan be used to further economic growth in the economy as a whole and as such requires a diversion of economic investment to other uses. 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IV - Report
(Third Draft)

May 2, 1957

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iron ore are a case in point. In still other areas the prospect is for adequate resources if, but only if, we husband and manage them properly. Here our forests provide an instance -- although even assuming proper management, it is probable that we shall face substantial shortages of saw timber within the next 20 years. In the case of a relatively few resources -- mostly the rare metals-- we may be sure that we will not have enough for our economy, and that other means must be found for obtaining these resources. Cobalt, nickel and manganese are examples.

The general picture for energy is a developmental problem rather than a resource problem. Apart from our virtually unlimited coal reserves, we yet have large untapped potential hydro-electric resources. New chemical fuels such as the borax derivative, hical, are at hand. And, of course, close on the horizon is the prospect of unlimited atomic energy. Cost projections on atomic energy remain uncertain, but there is reason to believe that within 10 to 15 years atomically generated electricity in coal-less areas like New England will be competitively priced with coal generated electricity.

Oil is a special problem, intimately and increasingly related to political fortuities. Our basic dilemma in our oil policy is whether to exploit fully our own resources and thus free ourselves of the hazards of the international oil situation but at the cost of consuming our own reserves or whether, on the other hand, to rely increasingly on imports

reserves or whether, on the other hand, to rely increasingly on imports of the international oil situation put at the cost of consuming our own explicit fully out own resources and thus free ourselves of the hazards of the pastures political constituencies. Our basic dilemma in our oil policy is whether to prize with coal generated electricity.

electricity in cost-less areas like New England will be competitively
its reason to believe that within 10 to 12 years atomically generated
energy. Coal projections on atomic energy remain uncertain, put there
And, of course, close on the horizon is the prospect of unlimited atomic
New chemical fuels such as the borax derivative, 'hired,' are at hand.
reserves, we yet have large untabbed potential hydro-electric resources.
rather than a resource problem. Want from our virtually unlimited coal
The general picture for energy is a developmental problem.

are examples.
be found for obtaining these resources. Copalt, nickel and manganese
that we will not have enough for our economy, and that other means must
of a relatively few resources -- mostly the rare metals -- we may be able
essential shortages of saw timber within the next 50 years. In the case
assuming proper management, it is probable that we shall face and-
properly. Here our forests provide an instance -- although even
adequate resources if, put only if, we internand and manage them
now ore are a case in point. In still other areas the prospect is for

MAY 5, 1927
(Third Draft)
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(Fourth Draft)

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at the cost of retarding the exploration and development of our domestic resources. In view of the unique chemical properties of irreplaceable oil resources, it is probable that in the long run more of our oil should be reserved for industrial uses other than fuel and increased imports should be permitted.

Water, the resource which in most of the country we have been accustomed to think of as unlimited, may be the first of our resources to become seriously scarce. Some areas of the country, of course, have always had a water shortage, but even in areas which have historically had plenty of water, we can begin to expect difficulty if present patterns of use continue to be extended. In a sense, of course, there is no water shortage; the problem is simply one of economics and organization. If we had to and were willing to pay the cost, we could pipe Great Lakes water to Los Angeles and we could produce water from the sea. But the cost would be fantastic.

Our most serious problems will arise in respect of water for irrigation uses and water for industrial and domestic use in the giant metropolitan areas of tomorrow. Our pattern of water use controls is in many areas outmoded and chaotic and the problems of pollution and temperature control in urban areas are becoming acute. These problems are soluble but the amount of capital and effort which will have to be devoted to the water facilities systems of tomorrow are of a very great magnitude. We have fallen far behind in the development of this resource. Investment of substantial quantities of capital in different sorts of water facilities

substantial quantities of capital in different sorts of water facilities fallen short in the development of this resource. Investment of facilities systems of tomorrow are of a very great magnitude. We have the amount of capital and effort which will have to be devoted to the water control in urban areas are becoming acute. These problems are soluble but areas outmoded and chaotic and the problems of pollution and temperature political areas of tomorrow. Our pattern of water use controls is in many respects less efficient and domestic use in the city metro-

Our most serious problems will arise in respect of water for it-
produce water from the sea. But the cost would be fantastic.
pay the cost. We could pipe Great Lakes water to Los Angeles and we could
simply one of economics and organization. If we had to and were willing to
extend. In a sense, of course, there is no water shortage; the problem is
we can begin to exhaust difficulty if present patterns of use continue to be
water shortage, but even in areas which have historically had plenty of water,
specially source. Some areas of the country, of course, have always had a
situation to think of as unlimited, may be the first of our resources to become
water, the resource which in most of the country we have been ac-
be permitted.

reserved for industrial uses other than fuel and increased imports should
oil resources, it is probable that in the long run more of our oil should be
reasons. In view of the unique chemical properties of irreplaceable
at the cost of retarding the exploration and development of our domestic

May 12, 1937

(Cath. Draft)

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IV - Report
(Third Draft)

May 2, 1957

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should occupy a high priority over the next 20 years.

Weather control seems to be increasingly a reasonable prediction, the implication of which we have not yet begun to grasp.

We are seriously handicapped in our efforts to develop and pursue a sound national water policy, as all studies agree, by the divided and unco-ordinated administrative structure of the federal agencies dealing with different aspects of the water problem, primarily irrigation, flood control, navigation and power. Though we may despair politically of achieving it, this Report would add its voice to that of many others who have pleaded for a unified federal water resource agency charged with general responsibility for accommodating and balancing all federal water programs.

Our outdoor recreational areas and scenery are not often thought of as natural resources. In fact, however, they are in considerable danger of decline, overuse and destruction in view of the sharply increasing demand for these resources arising from the concentration of population in metropolitan areas.

All in all, there is probably little basis for fearing that our population will outrun our natural resources within the next 20 years, though there is some expert opinion current today that our material living standards may hit a ceiling imposed by this factor. Our problems in this area are primarily organizational and financial: to co-ordinate private, local, state and federal developmental and conservation.

private, local, state and federal developmental and conservation
in this area are broadly organizational and financial; to co-ordinate
living standards may hit a ceiling imposed by this factor. Our problems
though there is some expert opinion today that our material
population will entail our natural resources within the next 50 years,
VII in all, there is probably little scope for learning that our
population in metropolitan areas.

ing demand for these resources arising from the concentration of
gender of decline, overuse and destination in view of the abnormally increas-
ing of a natural resource. In fact, however, they are in considerable

Our outdoor recreational areas and scenery are not often thought
water programmes.

with general responsibility for accommodating and balancing all federal
who have pledged for a unified federal water resource agency charged
of achieving it, this Report would add its voice to that of many others
flood control, navigation and power. Though we may doubt politically
desiring with different aspects of the water problem, primarily irrigation,
and unco-ordinated administrative structure of the federal agencies
butane a sound national water policy, as all studies agree, by the divided

We are seriously handicapped in our efforts to develop and
the implication of which we have not yet begun to grasp.

Weather control seems to be increasingly a reasonable prediction,
should occur a high priority over the next 50 years.

May 5, 1923
(Third Draft)
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(Fourth Draft)

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programs, to work out new and integrated organizational techniques for adminis-
tering these programs and to persuade the public of the necessity for substantial
investments in the interest of preserving and intelligently using our national
natural resources. Our record in this area to date has been spotty at best,
but there is considerable evidence of an increasing public awareness of the
importance of the problem as a whole.

e. **Control of the business cycle.** The Employment Act of 1946 declared that it is the continuing policy and responsibility of the Federal Government to create and maintain "conditions under which there will be afforded useful employment opportunities, including self-employment, for those able, willing, and seeking to work, and to promote maximum employment, production and purchasing power." Thus, we have adopted as a national objective the control of the business cycle in the sense that we wish to keep fluctuations in production and employment within tolerable proportions and maintain a stable price level. In short, our goal is to avoid both inflation and deflation.

The Federal Government has an imposing array of powers which can be
brought to bear on the problem of stabilizing the economy. The most important
of them are:

**Monetary policy** -- Controlling the supply of money and credit and the price of it, primarily through the operations of the Federal Reserve System.

**Fiscal policy** -- Varying the level of government spending and taxing to produce a surplus when inflation threatens and to allow a deficit to

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(Fourth Draft)

May 15, 1957

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appear (through operation of the "built-in stabilizers") when the business
curve turns down.

In the period since 1946 we have been generally successful in avoiding
deflation. We have had only two mild recessions -- one in 1949 and the other
in 1953-54. In both cases, government fiscal and monetary policies operated
to cushion the decline and create conditions that favored an upturn in the
private economy. While we have not as yet had a severe test of anti-deflation
policies, we have made progress in learning how to deal with deflation.

We should, however, be concerned about our ability to deal with future
deflationary problems, which could be much more severe than anything we
have experienced in the past decade. Specifically, there are two areas that
would appear to merit careful and objective study to see if we might not
take steps in the near future to strengthen our ability to cope with deflation:

One is to carry out a thorough and objective review of our financial
structure to make sure that it will contribute most effectively to our future
prosperity and growth;

The other is to consider carefully what might be done to increase the
degree of built-in stability in our fiscal system. Thus, measures like
Canada's policy of varying depreciation allowance according to the stage
of the business cycle deserve study.

In contrast to our record in combatting deflation in the post-war period,
our record in avoiding inflation leaves much to be desired. The consumer
price index is now more than 40% above its level in 1946, and the advance

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(Fourth Draft)

May 15, 1957

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in the past year has been close to 4%. Much of this inflation was associated
with the aftermath effects of World War II and the Korean War. And, in fact,
the overall price level was stable from the middle of 1952 to the middle of
last year.

However, the record of the past decade, and particularly that of the
past year, shows that we face major problems in avoiding inflation in periods
of general prosperity. While this is an heroic oversimplification of a most
complex process, it might be said that our inflationary problem in prosperous
times arises from two main sources:

1) Wage rates tend to rise faster than the increase in the economy's productivity, thus creating what has been termed a "cost-push" on prices;

2) Investment demand tends to increase more rapidly than the growth in savings, thus creating demands for an expansion in the volume of credit.

In theory, both these problems can be handled by the use of the
appropriate fiscal and monetary policies. A tight money policy plus a Federal
cash surplus could exercise the restraint necessary to hold down wage
increases and credit expansion to levels the economy could sustain without
inflation.

Thus the major difficulty does not appear to be a lack of weapons
to combat inflation. It lies rather, in the political repercussions of using
existing weapons aggressively. What is wanted is a broader understanding

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(Fourth Draft)

May 15, 1957

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of the seriousness of the inflationary problem and of the need for a bi-partisan
approach in developing broad public support for measures that will contain
inflationary forces.

There is no question but what the nation must maintain a stable price
level in the years ahead. Continued inflation would lead to distortions in
our economy of the sort that led to the boom and bust pattern of the past.
Moreover, persistent inflation undercuts the incentives for saving and pro-
ductive investment, thus interfering with the economy's ability to grow. Thus,
top priority among economic problems must be given to programs and policies
designed to contain inflationary forces.

The general subject of fiscal and monetary policies is discussed
further in Subsection II B 3 g.

f. <u>Technological advance</u>. One factor in the prospects for economic
growth is clear. Our rate of technological advance must be maintained or
accelerated. Without it, we surely shall not be able to maintain an adequate
growth rate of the economy as a whole. Further, if we do not continue to
move ahead in this field we face a sure loss of position in the world struggle
with the Soviet Union and in time a collapse of our capacity to maintain our
national existence. If for no other reason than this, we must take steps to
insure our technological advance.

Introduce our technological advances.

Introduce our technological advances. It for no other reason, than this, we must take steps to maintain our national existence. If for no other reason, than this, we must take steps to maintain our technological advance. Our rate of technological advance must be maintained or accelerated. Without it, we surely shall not be able to maintain an adequate growth in clear. Our rate of technological advance must be maintained or accelerated. If we do not continue to grow at the same rate as a whole, further, if we do not continue to maintain our technological advance, we face a sure loss of position in the world among the technological advanced. Our rate of technological advance must be maintained or accelerated. Without it, we surely shall not be able to maintain an adequate growth in clear. Our rate of technological advance must be maintained or accelerated. If we do not continue to grow at the same rate as a whole, further, if we do not continue to maintain our technological advance, we face a sure loss of position in the world among the technological advanced.

The general subject of fiscal and monetary policies is discussed in the chapter in Section II. B. 3. 4.

There is no question but what the nation must maintain a stable price
inflationary forces.

Inflation in developing poor developing public support for measures that will contain
of the seriousness of the inflationary problem and of the need for a pit-bateman
inflationary forces.

May 13, 1923
(Touch Draft)
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(Fourth Draft)

May 15, 1957

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The problem has several dimensions. There is first the need for
the fundamental psychological attitude of curiosity, experimentation and
development conducive to an improving technology. Though evidence is

The problem has several dimensions. There is first the need for
development conducive to an improving technology. Through evidence is
the fundamental hayekian attitude of curiosity, experimentation and

May 13, 1962
(Bound Draft)
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(Third Draft)

May 2, 1957

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difficult to marshal, it appears that the American cultural climate is
satisfactory in respect of this kind of "progress". The second requirement
is money. Here the picture is less good, though not disheartening.

Industrial investment in programs for research and development has been
rising steadily and at a high rate. Governmental expenditures for
military research and development are of a high magnitude, though many
feel not high enough. Funds for basic research -- in the long run the
most important area of work -- are more restricted, though not yet in
critical supply. Finally there is the need for scientific personnel. It is
in this resource that the situation approaches national emergency as we
fall steadily behind the Soviet Union.

Programs for military research and for scientific education fall
respectively within the provinces of Subpanels II and V. Several
comments in this area may be made in this Report, however.

The importance of technological advance to the problem of the
business cycle is coming to be increasingly understood. A steady rate
of technological improvement not only adds to growth but contributes
a stabilizing influence as well. The similar stabilizing impact of long-
range investment of industry in research and development programs
has already been noted.

Apart from problems of national survival, continued technological
advance is demanded by at least three other circumstances. The chronic
labor shortage outlined earlier is the first; with manpower short and demand

labor statistics outlined earlier in the first part; with manpower short and demand
advance is demanded by at least three other circumstances. The chronic
labor problems of national survival, conditioned technological

press already been noted.

range investment of industry in research and development programs
a stabilising influence as well. The shallist stabilising impact of long-
of technological improvement of only able to grow but contributes
business cycle is coming to be increasingly understood. A steady rate
The importance of technological advance to the problem of the
comment in this area may be made in this Report, however.

respectively, within the provinces of Sapporo, II and V. Several

programs for military research and for scientific education fell
fall already behind the Soviet Union.

in this resource that the situation approaches national emergency as we
critical supply. Finally there is the need for scientific personnel. It is
most important area of work -- are more restricted, though not yet in
feel not high enough, funds for basic research -- in the long run the
military research and development are of a high magnitude, though many
rising steadily and at a high rate. Governmental expenditures for
industrial investment in programs for research and development has been
in money. Here the figure is less good, though not dissimilarning,
satisfactory in respect of this kind of "progress." The second requirement
is difficult to materialize, it appears that the American cultural climate is

May 8, 1958
(Turbo Press)

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(Third Draft)

May 2, 1957

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rising, our machines must be taught to produce more. The pressure on raw materials resources is the second; rich though we are, we must anticipate an increasing need for new refining and extraction processes utilizing low grade raw materials and for development of substitute materials to replace materials exhausted or grown too costly. The hazard of inflation in a full employment economy is the third; inflation is the price we shall pay if productivity loses its race with rising costs.

Government policy must be continually alert to the vital significance of technological advance in the United States economy. Apart from military and educational programs discussed in other Subpanel reports, policy must be shaped to give very high priority to this objective.

Special tax treatment of funds spent for basic research and development is a possibility deserving serious consideration. Expansion of the activities and resources of the National Science Foundation in the field of basic research is another. A major review of our patent laws is in order to determine whether they are performing adequately their function of providing incentives to technological advance. And, though the general record of American labor has been remarkably good in its acceptance of technological change, restrictive practices such as those in some of the building trades must be curtailed and their spread prevented. Finally, though some progress has been made in removing the mystery surrounding atomic energy, efforts should be increased to expand the interchange of information in the field and to open the area to the normal forces of free development.

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Research and technology should not be limited to hardware.

It is commonplace to state that our physical sciences have far outstripped the progress which has been made in the social sciences dealing with human relations and behavior. The need for continuing research of a basic nature and for the development of new and effective techniques is as great in the areas of employee - management relations, managerial and organizational methods and communications as it is in the physical sciences.

And the same may be said of the workings of the economy, where we need to know far more about marketing, sales and distribution than our economists are presently able to tell us. There is no way to find out what we need to know except through diligent and basic research and research of this nature should enjoy a far higher priority than it now does.

g. Special areas of the economy.

In the remarkably integrated economy of the United States sickness in one economic area may radically affect the whole organism. It is a serious mistake from the standpoint of overall economic growth to assume that the economy as a whole is not concerned with segments of economic instability or blight, however localized they may appear at a particular time to be. While many others might be cited, three illustrative instances may be given of economic segments which are of vital concern to the economy as a whole and which show prospects of particular difficulties of their own. Each of these three illustrative segments of the economy bears directly upon the overall national objective of emphasis upon the well-being of the

the overall national objective of eliminate upon the well-being of
these three illustrative segments of the economy per se directly upon,
and which show products of particular difficulties of their own. Each of,
economic segments which are of vital concern to the economy as a whole,
others might be cited, three illustrative instances may be given of
however realised they may affect at a particular time to be. While mainly
whole is not concerned with segments of economic instability or direct,
atmosphere of overall economic growth to assume that the economy as a
radically affects the whole organism. It is a serious mistake from the
interrelated economy of the United States that in one economic area may
be Special areas of the economy. In the remarkably

research of the future should enjoy a far higher priority than it now does.
What we need to know is except through diligent and basic research and
the same may be said of the work of the economy, where we need
organisational methods and communications as it is in the physical sciences,
first in the area of employee - management relations, management and
basic nature and for the development of new and effective techniques in the
human relations and behavior. The need for continuing research on,
due to the areas which have been made in the social sciences dealing with
the common place to state that our physical sciences have far outstripped
research and technology, should not be limited to hardware.

May 5, 1928

(Third Draft)

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individual. They are agriculture, providing food, the housing industry, providing shelter, and the general area of small business closely related to the ideal of the free and independent citizen making his own choices for himself.

(1) Small business

The Subpanel felt strongly the desirability of maintaining an economic atmosphere favorable to the formation and development of small business enterprises. The case for the small business may be easily rested on purely economic grounds; many economic activities seem to be most efficiently conducted in this form and we are all in debt to the special venturesomeness which the small enterprise has displayed. But apart from his economic significance the small businessman represents in addition a reflection of the overall American ideal and objective of the independent self-sufficient individual.

To date, the small businessman has shown a noteworthy capacity for adjustment and survival. Current trends indicate a weakening position of the small manufacturer, particularly in the hard goods area, but in the soft goods, retail and service areas, he still seems in general to be getting along satisfactorily. Nonetheless, he has real problems. Two of these, investment capital and maintenance of free competition, are directly relevant to determination of national economic policy.

The capital problem is the most critical. In the present and projected high employment economy, capital is short and inflationary pressures

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are to be feared. But when in response the Federal Reserve tightens up on general credit, what evidence there is indicates that the impact is on the whole greater upon the small business enterprise than upon the larger one. The larger business has more opportunity to draw upon its own self-generated profits for capital investment and the banks and other major credit sources not surprisingly tend to commit their funds in times of capital shortage to the generally more secure prospects of the larger enterprise.

Moreover though, the general projection of industrial capital investment appears favorable, there is considerable evidence that the situation is tight in the small business area, in part as a result of high personal income tax rates. An unfortunate result of high personal income tax rates is that they likely siphon off the very dollars which would have been available for investment in badly needed speculative and enterprise ventures. Altogether, there is considerable support for the argument that the high tax, short capital, strong union, high-employment economy which America now has and envisions for the future will work to the disadvantage of the small businessman, relative to other segments of the economy.

Several policy possibilities deserve serious thought in this connection in view of the importance of small business to the nation's objectives. In the tax field, with no substantial impact upon total revenues, personal income taxes might be offset to the extent that income

["revenues, personal income taxes, which he offered to the extent that income\nobjectives, in the field of, with no substantial number of, upon total\nconnection in area of importance of small business to the nation's\nseveral policy, policies, policies, policies

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is invested in small enterprise. In addition, it has been suggested that the federal reserve could do much to help small business by making use of its powers, now largely dormant, to make direct loans to small business. While no specific recommendations for action are made, the difficult and complex problem of financing small business deserves further special consideration.

On the matter of free competition, it is of critical importance to the operation of a free enterprise economy that new enterprises should be able to enter fields which show profitable prospects and not be excluded from entry by trade restraints. Government anti-trust policy is thus an important component in general government economic policy, and perhaps particularly so for the small venture enterprise. The valid small business claim to free entry, however, does not legitimize restrictive practices of its own which insulate inefficient small businesses from the forces of competition.

## (2) Agriculture

The second area of the national economy which deserves special comment is the area of agriculture. Agriculture is today an industry and an

comment in the case of small businesses, a standard is set in industry and on
the second area of the national economy, which deserves special

### (3) Applicable

own which financial aid facilities small businesses from the force of competition, claim to free entry, however, does not guarantee competitive practices of its pertinently so for the small volume enterprise. The valid small business enterprise label does not confer any privilege or advantage in general government economic policy, and benefits from entry by trade restrictions. Government anti-trust policy is thus an able to enter fields which allow profitable practices and not be excluded the operation of a free enterprise economy that new enterprises should be of consequence to the matter of free competition, it is of central importance to

complex problem of financing small businesses deserves further attention. While no specific recommendations for action are made, the dilution and the federal reserve could do much to help small businesses by making use of the powers, now inherently command, to make direct loans to small businesses, and the label of small business would be of benefit to the small business community. It is not the intention of the authors to undertake a comprehensive

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integral part of the whole economy. It is not a way of life or a special
compartmented activity existing apart from the rest of the economy.
The economy as a whole cannot grow in an efficient balanced way if
the agricultural industry is ill and if the resources committed to it are
not being put to good use. And the plight of the individual, frequently
self-employed farmers, cannot be ignored consistently with the nation's
overall objective of concern for the furthest development of the
individual.

Agriculture is an industry with special problems. Its economic
uniqueness derives largely from its long turnover period and its
reliance upon presently uncontrollable natural factors, primarily climate.
Our present and projectable farm problems are basically two: reduction
of widespread underemployment on submarginal farms; and improvement
of production techniques on better grade farms capable of being
competitive. To date we have insisted on treating the two problems with
one medicine, with the result that we have been curing neither.

one medicine, with the result that we have been owing neither competitive. To date we have initiated on passing the two problems with of production techniques on best trade terms capable of being of widespread unemployment and improvement of working conditions and the like. We have also introduced a number of other problems, one of which is the present condition of the workman, and the like, primarily climate, and the like, which we have long further period and its unpopularity generally now. We have also introduced a number of other problems, one of which is the present condition of the workman, and the like, primarily climate, and the like, which we have long further period and its unpopularity generally now. We have also introduced a number of other problems, one of which is the present condition of the workman, and the like, primarily climate, and the like, which we have long further period and its unpopularity generally now. We have also introduced a number of other problems, one of which is the present condition of the workman, and the like, primarily climate, and the like, which we have long further period and its unpopularity generally now.

Anticlimax is an industry with a special problem. Its economic individual.

The ultimate objective of an atom for the best development of the self-employed atom, cannot be reached consistently with the nation's not being but to good use. And the right of the individual, adequately the individual industry, is left and if the resources committed to it are The economy as a whole cannot show if an efficient balanced way is not being made of the resources committed to it. The economy as a whole cannot show if an efficient balanced way is not being made of the resources committed to it are the individual industry, is left and if the resources committed to it are The economy as a whole cannot show if an efficient balanced way is not being made of the resources committed to it are the individual industry, is left and if the resources committed to it are

May 2, 1923
(Third Draft)
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There are today in the United States about 5,000,000 farm families. Yet, projections are that about 2,000,000 families, working good-grade family-sized farms with modern techniques could provide abundantly for the anticipated food and fiber requirements of the nation, could do so at competitive world prices and, except in case of disaster conditions from drought, flood and major depression, could do so at a profit. To effect this result, government policy for this efficient segment of the farm economy should be pointed toward technological research, education in efficient farm techniques, restoration of a free competitive price market, and provision of capital for the machinery and fertilizers required for efficient farming. Subsidy and price support programs are not needed for these farmers and direct government aid should be limited to disaster conditions.

On the other hand, the low income farmer's problem is essentially a problem of unemployment, brought about by the presence on farms of the excess 3,000,000 families who are trying without capital or modern techniques to work small acreages of submarginal lands which at best could not be competitive. Farm price supports are a disguised and inefficient form of dole for these farms, and do nothing to solve the basic problem. Agricultural education will not solve this problem and technological improvements invariably benefit the better land more than they do submarginal land and increase rather than reduce the disparity between them.

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However politically unpalatable it may be, there is no solution to the underemployment problem represented by this submarginal farm group except to get them and the poor lands they farm out of agriculture. The practical and political problems in bringing about such a transition are not to be underestimated, but the general outlines of a many sided policy approach to the problem can be clearly seen.

Education of the excess farm population for new vocations is the first and basic need, with vocational guidance to open up the possibilities of new pursuits. Most of this excess rural labor pool being wasted in a time of labor shortage is trained only for manual labor. And the education needed is far more than a matter of basic literacy or simple mechanical skills. It also involves basic psychological preparation for adjustment to an industrial job and for those who move to the city, an urban society.

There is little advantage in simply moving the welfare problem from the country to the city.

Coordinate with educational programs, there are needed other programs designed to make the transfer of employment economically feasible and to withdraw submarginal farm lands permanently from agricultural use. Here is a proper and effective place for use of the presently inconstructive soil bank concept and for extension of the national forest preserve program. A fortunate coincidence of four separate national policy objectives occurs here. Return of these inadequate lands to forest preserve would provide the

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owners with a cash stake enabling them to transfer location to self-supporting
jobs, would add to the usable labor supply, would for the first time bring under
adequate management additional badly needed forest resources and would add
to the nation's diminishing resources of open park green areas. A billion
dollars spend on such a program is estimated to be enough to buy up most of
the submarginal land now being used unproductively in agriculture. Over the
period of years necessary to carry out such a constructive program, far more
than this amount could be saved out of the abandonment of the present ineffective
and unconstructive price support program.

The farm welfare problem calls for simultaneous attack on a broad
front. The trend toward industrial decentralization into rural areas shows
promise of bringing new employment opportunities to excess farm labor and
with less social dislocation than transfer of the labor to the city. It should
be encouraged. A labor information service such as that discussed earlier
would help. Orientation and housing assistance at the urban terminus of the
rural immigrant's transfer is a problem area in which we are doing substantially
nothing. The thorny American problem of race relations is deeply involved,
for many of the affected people are Negro.

It is fortunate for purposes of this portion of this Report that it takes a
20-year view. Analysis of the farm problem is one thing; translation of that
analysis into action is quite another. The political problems are of course
enormous. Vast organizational

enormous. Very organizational

analysis into action is quite another. The political problems are of course
50-year view. Analysis of the farm problem is one thing; institutional of that

If it is to be possible for purchases of this sort to be made that it takes a
for many of the affected beeches are Neuro.

nothing. The thorny American problem of race relations is deeply involved.
nationalistic transfer is a problem area in which we are doing substantially
would help. Orientation and housing assistance at the urban termination of the
be encouraged. A labor information service such as that discussed earlier
with less social dislocation than transfer of the labor to the city. It should
promote of bringing new employment opportunities to exceed farm labor and
front. The trend toward industrial decentralization into rural areas shows
The farm welfare problem calls for ameliorative attack on a broad
and unconstructive price support program.

than this amount could be saved out of the abandonment of the present reflective
period of years necessarily to carry out such a constructive program, far more
the substantial land now being used unproductively in agriculture. Over the
dollars spent on such a program is estimated to be enough to pay up most of
the nation a eliminating resources of open bank green areas. A billion
adequate management additional rapidly needed for these resources and would add
lands, would add to the usable labor supply, would for the first time bring under
owners with a cash stroke enabling them to transfer location to self-supporting

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(Hillman Draft)

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and political interests are at stake and committed to substantially the status quo; present approaches to the farm problem have become institutionalized and concepts such as "parity" are deeply imbedded in public thinking on the matter; and since the source of the farm problem is basic dislocation, it is inevitable that real solutions will inevitably require equally basic relocations and will generate deep resistances.

Even more fundamental, however, is the fact that we must work out our solution to these relocations in a democratic and voluntary way. In the Soviet Union, excess manpower resources in one area could be transferred by edict to other areas and other jobs in the interest of "efficiency". For us, it is unthinkable to shove citizens about like automata, whatever might be gained in this kind of "efficiency". We believe, of course, that not only is our way preferable in that it treats human beings with dignity and respect, but that in the long view, it is also far more efficient as well. But it does take time. It will take years of educational effort to redirect our national farm policy in a constructive direction, and still more years gradually to develop and carry out the needed programs in that direction. But it is already late to begin.

### (3) Housing

The third specialized segment of the economy which may be used as an illustration of the relationship of a part to the whole of the economy is the area of housing. It deserves special mention for several reasons.

is the area of production. If every social production for several reasons, as an illustration of the relationship of a part to the whole of the economy, the third scheduled department of the economy which may be seen

(c) How much

direction. But it is generally to be begun.

More areas, usually to decrease and vary, our life needs programs in that

that not only is our way preferable if that it meets human needs with

might be gained in this kind of efficiency. We believe of course,

as, it is undoubtably to above citiizens about automation, whatever

py elicit to other areas and others to do in the interest of efficiency. For

Soviet Union, excess manual resources in one area would be transferred

solution to these locations in a demographic and voluntarily way. In the

together equality, periodic locations, and will generate deep resources.

is basic dislocation. It is individual industrial solutions with nearly

public thinking on the matter and advance the source of the farm problem

etions fixed and concepts known as productivity, are deeply imbedded in

states prior to present abbreviations to the farm problem have become in-

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In the first place, shelter, like food, is of peculiarly direct social
significance and provision of adequate housing at moderate rentals is one
of the most elemental requirements which the economy as a whole must be
in a position to provide. Further, and precisely for this reason, housing
has been the subject of continuing and extensive legislative action for
some time and is today an accepted area for direct governmental action.
Indeed, governmental programs such as the FHA and urban renewal,
originally viewed with suspicion as governmental intrusions into the area
of private business, have come to be recognized as useful and stabilizing
influences in the economy and strong stimuli to the vitality of the concepts
of private capital and initiative. Finally, the housing industry itself is a
large industry involving millions of people and there are signs that the
industry itself has basic and continuing problems. Although improved in
recent years, perhaps the major problem of the housing industry is that it
has probably shared less in the technological revolution of the last 50 years
than any other major American industry. In organizational structure, selling
techniques, mechanical methods, union attitudes, regulatory controls
(building and zoning requirements), materials use and training methods, this
industry is retarded. There is clearly a close constriction in the flow of
the economy through this channel, as demonstrated by the unusually high
jump in building costs which has occurred in the present high employment
economy. What can be done through government

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policy to free up this stiff joint in the economy should be the main focus
of discussion on housing problems. But it hasn't been.

Aggravated by the rise in building costs, the problem of capital for
housing construction has been the main center of government consideration.
But our efforts to encourage housing financing at low cost have proved, in
a time of capital shortage, to have made it harder rather than easier for
builders to obtain the required capital. It may be that the present artificial
ceilings on FHA and VA mortgages should be removed entirely. Whatever
line of solution might be developed, it appears that here, as in the case
of small business discussed earlier, present policies are not working very
well and special adjustments in our overall credit restriction policy may
be called for to meet the peculiar circumstances of the housing market and
industry.

The specialized problems of urban decay and programs for urban
revitalization which lie beyond the reach of the processes of free enterprise are
discussed in further detail later in this Report.

From any standpoint, provision of adequate housing is a must for
the nation's inhabitants. And maintenance of a healthy building industry
is a factor in the equation of general economic health.

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(4) <u>Depressed Industries</u>

Some reference, however small, should be made to the problem of
individually weak industries and localized depressed areas. The railroads
may be offered as an instance of an industry which is of vital importance
to the whole economy but which has long been in a period of declining
revenues, and deteriorating unreplaced capital investment. Even in industries
less obviously related directly to the total economy, however, an isolationist
approach cannot be justified when seen from the standpoint of the national
need for economic growth in an era of high employment and capital commitment.
Sometimes the sick industry itself can be put back on its feet. But in other
cases what is needed is helpful and transitional machinery which will transfer
the skilled manpower, labor and capital investment committed to that industry
to other areas of the economy where all of these are in short supply.

As the pace of technology quickens and the rate of obsolescence
rises with it, the problems of adjustment will increase. If government
policy is to be directed toward increasing growth and development for the
good of all, it must accept some responsibility for the disastrous impact
of that development upon localized segments of the economy. And the
answer must be found in relocation and reallocation of resources -- not
in subsidies, by tariffs or otherwise, for the obsolescent industry. This

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problem will increase with time and will require far more imaginative
programs than have been developed so far.

h. General Fiscal and Monetary Policy

(1) **Monetary Policy.** Aspects of the general problem of monetary policy have been discussed earlier in this Report in sub-sections I B 3 e and II B 3 g (1). But certain general observations are in order. The point was made in an earlier subsection that monetary and fiscal policies constitute our main weapons against the ups and downs of the business cycle and that they should be used aggressively to maintain a stable price level. The purpose of this section is to discuss the relationships between monetary and fiscal policy and economic growth.

In general we believe that the wise and responsible use of monetary
and fiscal policies to avoid both inflation and deflation will make a major
contribution to the maintenance of a healthy, growing economy. As a
general rule, broad, over-all measures are to be preferred as against specific
controls. However, we assume that one of the subjects which would be
studied by a special Monetary Commission would be whether specific
controls in such fields as installment and mortgage credit are necessary
and desirable. In addition, it is possible that we may need to consider
special measures to encourage the required capital investment in needed
community facilities in periods of tight money.

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(2) Fiscal Policy

Some hard and exceedingly important things need to be said, and
said again, in the area of government tax policy.

First, and most important, on the basis of an overall review
of needed domestic programs and estimates provided by the Reports of
other Subpanels dealing with international policy and defense, the prospects
are that the national government will continue to need revenues of the
same order of magnitude as a percentage of GNP as it now collects.
Population is growing. New concepts of governmental responsibility are
now deeply rooted. Governmental administrative costs will inevitably
increase into size. According to the Report of Subpanel II, defense
expenditures may be expected to go up, not down. In these circumstances,
substantial tax reductions cannot be anticipated for at least the next
five years. This fact must be faced up to realistically.

Second, governmental budgets and revenues should not be viewed
as though we were dealing with a static economy

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and a static population. Current controversy over the 1958 $70 billion
dollar budget is a case in point. But budgetary and revenue figures cannot
be treated as absolute numbers without reference to the size and product-
ivity of the nation as they exist at the time of the fiscal program involved.
The size of the budget and revenue structure must be appraised in the light
of the economy to which they will be applied, not to a more limited economy
which has passed into history.

Third, it is absolutely essential that matters of tax policy be as-
sessed within an overall framework of the impact of taxes upon the economy
as a whole. The importance of federal revenue and fiscal policy as a de-
terminant factor in the total economy must be stressed. It is believed that
the tax system works as a powerful built-in counterweight to cyclical
fluctuations, though we have done little to work out coordinating machinery
which will prevent a lagging and rigid tax structure from cancelling out the
salutary effects of our flexible monetary regulation. On the other hand,
there is considerable evidence that our present tax system bears down too
hard on the incentives that encourage individuals to put forth their best
efforts as producers and to invest their savings in new and risk-taking enter-
prises. In addition there is some fear that the pressures of the tax system
have worked to undermine the morality and law-abiding character of the
American tax-payer because of the use and availability of the tax exemptions
and "deductions." The fact is that there has been very little competent

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research done on the impact of our present tax system on savings, investment and the general growth and well-being of the economy. That our present economy is flourishing, and that so far our tax structure does not seem to have shriveled the entrepreneurial spirit, does not mean that it cannot be done. Nothing could be more short-sighted than to permit enthusiasm for expanded governmental programs, however, justified they may seem to be, to drive taxes up to a point where the economy itself is stifled and ceases to grow.

Fourth, in respect of the general tax structure itself, while no alternative system has been suggested which would be equally productive, some reforms are needed. Three primary suggestions might be made as guides to any specific changes.

In view of the probably adverse effect of the income tax upon speculative investment and the need of the national economy for such equity investment, an offset to the tax should be made available where funds are in fact invested as equity capital, particularly in new enterprises. The revenue losses entailed in the proposal would be relatively small and the gains to the growth and economy as a whole would probably be substantial. Second, the present broad base of the income tax is sound and should be retained as a general taxing principle. Third, and closely related to the same point, adjustments in the tax structure, when made, should point toward equal taxation of equal incomes, however gained, and

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toward changes in rates and not toward increasing of old exemptions or
creation of new ones. Toward this end, an overall serious study of present
tax provisions should be made to assess the actual effect of and need for
special exemptions such as the depletion allowance for extractive
industries.

Fifth, a major area for tax reform lies not at the Federal level but
at the local level. Local taxing units today face drastic revenue shortages
and it is expected that these shortages will become more severe. In the
case of some of our central cities the situation approaches bankruptcy.
The classical revenue resort of the municipalities --- an increase in real
property taxes --- has passed the point of diminishing returns. Further
increases serve only to drive retail and other business units out of the
central city, increase the abandonment of central city structures and add to
spreading blight.

The financial plight of local government units is of great importance
in considering projected social welfare and public facilities programs,
for the reason that many of these programs have classically been and should
be within the province of local governmental units. At the present time,
the aggregate of state and local governmental budgets exceeds that of
the Federal Government (if direct federal defense expenditures are deducted);

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yet it is estimated that state and local governmental units must in some
way increase their budgets and revenues by an additional one-third within
the next ten years. It is not accident that pressures are mounting for
federal aid to education and federal aid to road building. Unless ways are
found to provide the additional revenue through more imaginative and
efficiently administered state and local tax systems than our present re-
gressive excise tax and real estate structure, we will face the virtual
certainty -- and it must be recognized as such -- that the Federal Govern-
ment will respond to increasing political pressures and step in to provide
the needed funds for the social welfare and community facilities programs
which are required.

Within the framework of our historical federal system maximizing
the advantages of local government autonomy, a steadily increasing
reliance of state and local governmental units upon federal assistance is
clearly undesirable. And in view of the mass psychological risks which
we face in a society of larger and larger power combinations, discussed later
in this Report, the need for viable and vigorous local governmental units
in which the individual can have a sense of real participation becomes all
the greater. The problem of local revenues is made acute by the total
administrative and economic chaos which exists in the relations of local
tax structures with each other and with the Federal tax structure.

tax authorities with each other and with the federal tax authorities.

The problem of local revenue is made more by the fact that the greater
the incentive and economic动力 which exists in the relations of local
governments with each other and with the federal tax authorities, the
more difficult it is to collect the necessary tax revenue.

With the framework of our federal tax system in mind, we must maximize
the needs of the social welfare and community. The community program
will require to increase political revenues and assets in order to provide
safety and order and to recognize a sound and stable government.
This program must be based on a stable and secure tax system.

Unless we have a stable and secure tax system, our present re-
quirements will require to increase political revenues and assets in order to provide
safety and order and to recognize a sound and stable government.
This program must be based on a stable and secure tax system.

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August 27

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Much greater attention must be directed to the problem of integrating the Federal tax structure and state and local taxing systems into a coordinated whole. Not only could more revenue be collected more efficiently but the hazards to interstate business developments arising from present day local-tax mine fields could be sharply reduced.

### C. Social Programs and Public Facilities to Promote the General Welfare.

Attention may now be turned to the area of social programs and objectives and to their claims against the nation's economic resources.

#### 1. Introductory.

A major shift has occurred in our thinking about social welfare programs. This shift involves an increasing recognition of what may be called the economically and socially creative uses and effect of such programs. Our present social welfare programs were born primarily out of depression psychology and a historical tradition of emergency relief for the stricken individual. But, more or less to our astonishment, we have learned that these programs have themselves contributed greatly to the stability of the economy. Examples are legion. The counter-cyclical effects of unemployment compensation, for example, are now quite widely recognized. The similar effect of distributed purchasing power through the social security system is another case in point. Expenditures for programs like vocational rehabilitation are investments which pay an immediate and large return in additional labor

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resources and, contrary to many predictions, the welfare programs have not only not undermined patterns of thrift, they have provided an incentive to save to many who for the first time foresee the practical possibility of a dignified retirement.

Public health programs and medical research have been demonstrated again and again to pay off directly, not only in human dividends which are obvious, but in economic dividends as well. For instance, it is estimated that the current annual cost to our economy from the 653,000 man hours lost because of heart disease disability is over $3 billion in earnings and $400 million in lost Federal income taxes. Over an eight year period, mental illness has cost 7 billion dollars in hospital care, $27 billion in national income lost, and $3.6 billion in Federal income taxes not received. To indicate the extent to which relatively small expenditures in medical research provide an economic return, the history of tuberculosis may be cited. Largely as a result of the discovery and use of streptomycin and the new isoniazid drugs, deaths from tuberculosis have decreased 75% from the end of 1945 through 1955, and 53% between 1951 and 1955, alone. As a direct consequence, tuberculosis hospitals in many areas are being closed or transferred to other uses.

Our range of vision in respect of our social and welfare programs has widened enormously. As indicated earlier, undoubtedly a nation's most valuable asset is its manpower, which is the ultimate source of its economic growth and stability. Without a healthy and vigorous population, there can be no

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satisfactory economic growth, and any expenditure for military equipment is thrown away if there is not a strong population to man the defense establishment. Our social and welfare programs should, therefore, be viewed as an integral part of our national policy, looking toward the strengthening of the economy of the nation.

But these programs are also more than this. Within the framework of the national objectives stated at the beginning of this Report, our social and welfare programs come even closer than our economic programs to being ends in themselves rather than means. For these are the programs that contribute directly to the promotion of a social climate and opportunity for each individual to attain his fulfillment to the extent of his capability. Our education, social security, unemployment compensation, slum clearance, and other general welfare programs are the vehicles through which we provide to the individual the dignity, independence and cultural capacity to arrive at the fulfillment which is our ultimate national objective. It is for this reason, of course, that our social programs should not be limited simply to those who can be made economically productive. No civilized society can deny its obligations to the hopeless paralytic or the mentally retarded or brain-injured child, even though they cannot be helped into full and useful participation in community life. But, seen in the fuller context, our social and welfare programs have a far more important role to play in the fullest development of all the individuals who make up the society than was conceived of in an earlier day, when social programs were generally equated in the public

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mind with charity and pity for the unfortunate.

## 2. Social Welfare Programs of the Future.

Some generalizations about tomorrow's problems of social welfare
may be made initially.

In all likelihood the United States will be facing within the next 20
years a fairly radical redefinition of what the term "social welfare" means.
The term has classically had reference to what were in effect individual relief
programs and we inherit from an earlier day the concept that welfare programs
are usually designed to bail out the individual who has fallen below economic
subsistence standards. It is likely, however, that in the projected economy of
abundance and full employment, there will be rising expectations in respect
of social welfare just as there have been rising expectations in respect of
economic standards of living.

There is considerable evidence that this process is already well
advanced. For example, it is becoming increasingly recognized that there is
a legitimate governmental function in stimulating and sharing leadership in
the development of institutions for providing adequate medical care for the
nation as a whole. And the enormous increase in interest in problems of mental
health which go far beyond classical notions of insanity suggests a yet not
wholly articulated view that to some extent governmental action looking toward
the psychological well-being of the citizenry is also within the permissible
scope of welfare programs.

Whatever the direction and the force of this transition, it has become

["Whatever the direction and force of this translation, it has become\na core of welfare programs.", "The welfare programs are widely subjected to the criticism that they\nbenefit only a few beyond classical notions of inequality and are not\nsufficiently broadened to serve the entire governmental action. In such a\ndecalsate economic environment in stimulating and adjusting forces in\nadvances, for example, it is incoming increasingly recognized that there is\nno reason to believe that the government should provide medical care for\nthe development of institutions for providing adequate social security\nand for the maintenance of a healthy life style. And the ever-increasing\ninfluence of modern economic forces in the development of markets\nand the development of consumerism in modern society, as a result\nof which, of course, beyond classical notions of inequality and the\ninequality of income, etc. is a great problem.", "The social welfare itself has been raised to the level of\neconomic standards of living.", "In all likelihood the United States will be facing within the next 50\nyears a fully industrialized nation of what the social welfare means.\nThe term has classically had reference to what were in effect individual relief\nprograms and we infer from an earlier day the concept that welfare programs\nare usually designed to pay out the individual who has fallen below economic\nstandard and who has fallen below the individual who has fallen below economic\nstandards and who has fallen below

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apparent that increasing governmental responsibility in many areas is the trend. The general movement has been toward expansion of existing governmental facilities and services to accord with new and higher standards and desires. For example, our public health services, which in the past were concerned mainly with elementary sanitation and with immunization against infectious diseases, have expanded to include not only prenatal clinics and tuberculosis hospitals, but also guidance counselling and psychiatric care for the emotionally disturbed. Over a longer period of time, education, formerly a matter of private concern, has become successively an object of solicitude to local, state and federal governments, with the Executive Branch at this moment sponsoring a bill for federal aid to school construction. Some will argue that these expansions have been in part the result of professional pressures but a few will dispute the fact that public sentiment and support for expanded programs continues and is apparently growing.

But the programs referred to above represent only the areas in which governmental action is currently being carried out or may be clearly foreseen. There is considerable likelihood, however, that if we should succeed in solving the basic problems of providing a general material standard of living, as it appears that we shall, we may find that we have elevated ourselves to a plateau where we can see clearly for the first time whole new sets of problems and opportunities which relate directly to the well-being of the citizenry but which reach far beyond current conceptions of appropriate targets for social legislation. In a sense our social welfare programs to date have been

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fighting a rear guard action against disaster. But, within the foreseeable
future, we may be able to focus our attention upon affirmative and creative
programs conducive toward greater individual self-achievement. Perhaps this
point may be most easily seen when we consider the new leisure time which the
productivity of the new technology is anticipated to make available to the
population. We have not yet begun to appreciate what opportunities may be
available to make creative use of this factor or what problems will be generated
if we do not handle them intelligently. In such an economy dogged pursuit
by the individual of more and more material goods may seem pointless. Clearly
there will be additional demands upon education to enable people to accept
and enjoy the potentialities of an economy of abundance. Many must be
educated to find new challenges in the world of the mind and in service
careers. Vastly expanded health and recreational facilities will be required.
More leisure will mean more time for the peculiarly American devotion to
volunteer work in millions of local service organizations. And new local
organizational structures will have to be developed to permit the individual
citizen to have a continuing sense of participation and importance as a
protection against the sense of impersonality of the vast new combines of
government, business and labor which will surround him. Without doubt,
there will be great opportunities for religious and philosophical leadership
to help the individual to continue to find meaning in his life.

The major problem of government, of course, is to anticipate these
problems and the opportunities which they imply and to devise programs

The major problem of government, of course, is to anticipate these
to help the individual to acquire to find meaning in life.

There will be great opportunities for religion and philosophical leadership
Government, business and labor which will surround him. Without doubt,
protection against the sense of responsibility of the vast new combines of
citizens to have a continuing sense of participation and importance of a
organizational attitude will have to be developed to permit the individual
volunteer work in millions of local service organizations. And new tools
More future will mean more time for the security American devotion to
careers. A strictly expanded health and recreational facilities will be needed.
and enjoy the possibilities of an economy of abundance. Many must be
there will be additional demands upon education to enable people to accept
by the individual of more and more material goods may seem pointless. (Clear)
If we do not handle these responsibilities in such an economy based upon
available to make creative use of this factor or what problems will be generated
by population. We have not yet begun to appreciate what opportunities may be
profitable of the new technology is anticipated to make available to the
point may be most easily seen when we consider the new talent time which the
problem of competitive toward the individual self-achievement. Perhaps the
future, we may be able to look upon the attention upon cumulative and creative
texisting a rest and action against disaster, but, within the foreseeable

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of an affirmative nature which will stimulate activity and provide leadership but will not further and further intrude governmental operations into the private life of the citizens. What is needed most of all is imagination and leadership. Extension agents from our land-grant colleges, for example, could do the same sort of constructive work with adults and youth in respect to metropolitan area problems as they are now doing in our agricultural areas. In any event we must stand ready as a society to meet new problems whatever they may be as they arise and not allow our imagination to be stultified by the general welfare concepts handed down to us from an earlier society.

### 3. Education, Health and Welfare

Attention may now be directed to particular programs relating to social welfare:

#### a. Education

The major subject of education lies within the province of Subpanel V. This report, however, contains some reference to the problem particularly in subsection C.2.c. and __________. Financial aspects of the problem are further discussed under subsection D.7.

#### b. Health

The subpanel spent considerable time discussing the prospects of social welfare programs in the health field. Every indication is that this will increasingly be an area for increasing shared leadership of private and governmental organization.

The best prospects for efficient and relatively inexpensive

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solution of the nation's health problems lie in the direction of group practice and prepayment service insurance. Present indemnity insurance plans being sold by insurance companies are the product of the experience of the insurance industry in the fire and casualty insurance fields and is ill-fitted to the medical field. Since the plans contain deductible features, the patient is discouraged from seeking the doctor at the early stage when often it would be most useful and economical to see him, and, on the other hand, the doctor and the patient are provided a great incentive to use hospital space unnecessarily since only then can the patient collect his insurance. Where the substance of a group practice service insurance plan has been tried it has proved successful.

If an adequate standard of physician and hospital care were provided for all under the present structure, the cost would be $50 per person. Under the proposed group practice system the desired standard could probably be provided for $36. Even with these substantial savings obtainable through restructuring of physician and hospital care, medical care at an adequate level for the nation as a whole would require a $6.3 billion increase over present expenditures.

Estimated required expenditures for hospitals and other capital medical facilities are very great. On the basis of these projections it appears likely that the nation must look forward to investing $22 billion for this purpose in the next ten years. But in 1954 we appeared to have been making this investment at a rate of only 35% of the indicated rate.

["making the investment at a rate of only 3% of the indicated rate.\n\nEstimated liquidation expenses for hospitals and other capital\n\npresent expenditures.", "", "Level for the nation as a whole would require a $6.8 billion increase over\nestimating of physicians and hospital care, medical care, and an adequate\nprovision for at least 15% of the estimated annual outstanding amount\nprovided for at least 15%. Even with these substantial savings, medical care\nwill be needed for the nation as a whole for at least 15 years.\n\nIf an adequate arrangement of physicians and hospital care were provided\nfor all under the present attitude, the cost would be $20 per person. Under\nthis assumption, the present annual savings from the desired arrangement could probably be\nbrought down to $10 per person. This would be sufficient to provide for the\nestimates of physicians and hospital care, and, of the other items, the cost\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. 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It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most useful would be the doctor at the early stage, when often it would\nbe discovered that the doctor is ill, and, of the other items, the doctor\nwould be most useful. It would be economic to see him, and, of the other items,\nthe most

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In general, the problem of coping adequately with the health require-
ments of the nation, is a serious one and it will grow more serious. As the
age of distribution of the population moves to the extremes it may be anti-
cipated that medical costs per capita will rise. And, of course, as the
total population increases, demands for medical service will increase. The
medical problem appears at present to lie primarily in the area of private
action and it is not clear what governmental programs would provide incentives
for such an reorganization of medical practice. But as a result of the expanding
conception of governmental responsibility in the area of "social welfare",
increasingly it appears that political forces will press for some form of
governmental action in respect of this problem.

Finally, as suggested earlier, our increasing awareness of the medical
nature of mental disturbances and of their prevalence is leading to sky-
rocketing expenditures for hospitals designed for mental care. Indications
are that this trend will accelerate rather than diminish. In this case, at
least, the role of government, particularly state government, finds full
support in history and governmental responsibility for this category of health
care can surely be anticipated. Estimates are that for mental health
facilities alone the nation may be in for expenditures on the order of
$ _________ in the next _________ years.

c. <u>Welfare Programs</u>

As a generalization, there appears no need for fundamental
changes in our existing welfare programs. In particular cases, however

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revampings and modernizations are in order.

While unemployment compensation programs are economically sound and their coverage should be expanded, preferably on a joint employer-employee basis, this expansion should not proceed until the administrative aspects of the program have been tightened considerably. State employment services require substantial overhauling and coordination and considerable educational effort will be required to bring the business community to rely upon and cooperate more actively with these services.

Our workmen's compensation statutes are by and large quite far out-of-date in their awards schedules and badly administered. There is here presented an area for needed statutory revision.

In the social security field, differential benefit levels geared to income are sound, but present ceilings within the statutes work, in fact, to eliminate differential payments as the economy has expanded and inflation has progressed. For this reason these ceilings should be raised. In connection with O.A.S.I., the problem of the appropriate retirement age discussed earlier merits review in view of the projected labor shortage. Governmental programs should act independently of private plans such as GAW. If this is not done, such private programs tend even more to lock workers into the jobs where they have built up substantial rights to the consequent serious loss of labor mobility.

A significant contribution to the general problem of labor shortage can be made through expansion of existing programs for vocational rehabilitation. It is estimated that through such programs and additional funds 200,000

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workers a year could be retrained to the status of self-supporting contributing members of the labor pool. But at present we are rehabilitating no more than 60,000 to 70,000.

4. <u>Metropolitanization and Social Problems</u>

Reference at several places in this report has been made to the main
current of American population movement in the direction of increasing
metropolitanization -- the increasing concentration of population around a
relatively few large metropolitan centers. This process has generated an
almost endless list of problems which will demand solution in the next
twenty years. Some of these problems are political; some are economic;
some are physical; but a fair number may be properly viewed as social
welfare problems. There is great room here for imaginative governmental
leadership, for these problems are of a magnitude beyond the capacity
of any individual to meet.

Foremost among the social welfare problems developing from the
present trend of our metropolitan development is the now familiar process
of urban blight. With the exception of central city areas performing vital
liaison and communication functions calling for sleek skyscrapers, the
physical plant and the invested capital represented by it in the centers of
our cities is being allowed to rot away. Slums of the worst sort fester in
the centers of the cities and inexorably spread toward the fringe, as those
who are in a financial position to do so flee the city and seek refuge in
the Balkanized suburbs which surround it. The city is left with a declining

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revenue base, the complex of delinquency, crime, and disease problems of
the slum areas, and an unbalanced residential population which has been
described as the poor, the very rich, and the childless.

(PAGES 71 - 76 DELETED FROM THIRD DRAFT)

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We have begun an attack on the problem of slum clearance but unfortunately, it is the barest of beginnings. In the first place, the slums are growing far more rapidly than they are being cleared. Secondly, our present process of letting the slums develop, razing the debris and rebuilding is monumentally wasteful and expensive and inexcusable in a time of severe capital and labor shortage. Urban renewal programs, such as the Housing Act of 1954, are desperately needed and should be expanded. Particularly healthy is their emphasis upon the rehabilitation of existing plant and the prevention of slum development before blight has gone too far to be arrested.

The difficulties of efforts toward rebuilding our cities are not to be minimized. A central problem is that in many of the cities the slum areas are in fact ghetto areas for negroes. Efforts toward slum clearance are stymied by the problem of finding new residential locations for the former slum dwellers.

A full scale integrated attack on the slum problem is required if renewal efforts are to work. The urban renewal programs are not in themselves low cost housing programs. They seek to clear blighted areas, most frequently residential, and to devote the land to the most appropriate land use for the community -- which may or may not be residential and may or may not be low cost. Further, the major basic cause of slums is over-density of population. Thus more often than not, well planned slum clear-

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ance programs lead to less total housing, rather than more. Compl-
mentary programs of public housing on a substantial scale must therefore
supplement the slum clearance programs. Current thinking increasingly
is that these developments should be scattered throughout the metropolitan
area and individual units should be kept as small as possible to prevent
the social segregation and stigma attached to large public housing
developments.

Finally, of course, the costs of a real redevelopment and re-
habilitation of our cities are enormous and should not be underestimated.
But unfortunately, the costs of not making the required investments for
adequate housing and slum clearance programs are far greater. This is
true not only in terms of the physical decay of invested plant, actual
abandonment of community facilities no longer usable by the changing
neighborhood, duplication of community facilities in surrounding suburbs,
expense of the additional fire, police and medical protection required for
slum areas and the waste of potential manpower, but also, and far more
importantly, in the frightful human cost imposed upon those condemned
to live in these areas.

When existing rural labor, negro or white, moves into the cities,
it almost invariably finds itself committed to slum dwelling. Thus, the
very segment of the community most badly needing assistance in its

very segment of the community, most badly needing assistance in its
infrastructure, thus being committed to aum dwelling. Thus, the
When existing third sector, neo or white, moves into the cities,
to live in these areas.

Importantly, in the right kind human capital imposed upon those condemned to slum areas and the waste of potential manpower, but also, and far more exorbitant of the additional life, police and medical protection required for neighborhood, publication of community facilities in surrounding areas, abandonment of community facilities, no lender usable by the changed tone not only in terms of the historical decay of invested plant, actual adequate housing and slum clearance programmes are tar getset. This is right instrumentally, the costs of not making the required investments for rehabilitation of all cities are enormous and should not be underestimated.

Finally, of course, the costs of a real redevelopment and redevelopments,

the social segregation and animus attached to large public housing areas and individual units should be kept as small as possible to prevent it that these developments should be acclimated throughout the metropolitan subregion the slum clearance programmes. Current thinking increasingly mental programs of public housing on a substantial scale must therefore cease immediately lead to less total housing, rather than more. Complex-

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transition from an uprooted rural society to a new urban environment
finds itself in that portion of the city in which incentive and opportuni-
ties for a successful adjustment are at their lowest.

As has been suggested earlier in this Report, perhaps the two
most critical problems facing the nation in the next twenty years, center
upon the shortage of an efficient and skilled labor force and upon the
maintenance of psychological balance of the populace in the new mobile
welfare economy. These two problems find their confluence in the
problem of eliminating and preventing our urban slums. The problem calls
for far more attention even than it has yet received and perhaps the
position of first priority in the area of unsolved social welfare problems.

5. <u>Racial and Religious Frictions</u>

Religious and particularly racial frictions have long marred the
American scene. Progress in abating these frictions has been remarkable
in the last fifty years and appears to be accelerating. The Report of
Subpanel IV would not however be complete without a reference to the vital
importance of the particular social problem.

It is enough to say that these frictions represent historical hang-
overs and that they are basically incompatible with the postulated general
national objective of providing for the free and independent development
of each individual as a respected member of the community. But, in
addition, in our desperate competition with the Soviet Union in the field

addition, in our desperate competition with the Soviet Union in the field
of each individual as a rebought member of the community. But, in
national objective of providing for the free and independent development
over and that they areбалently incompatible with the postulated general
it is enough to say that these frictions represent historical land-
importance of the particular social problem.

Subchannel IV would not however be complete without a reference to the vital
in the first fifty years and appears to be accelerating. The Report of
American scene. Protests in sharing these frictions has been remarkable
Religions and particularly racial frictions have long marred the

3. *Racial and Religious Frictions*

position of that priority in the area of unresolved social welfare problems,
for that more attention even than it has yet received and perhaps the
problem of eliminating and preventing our urban slums. The problem calls
for a successful adjustment are at their lowest.

finds itself in that portion of the city in which incentive and opportuni-
ties from an unrooted trust society to a new urban environment

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(Jing Hua)
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of international relations at a time when the great non-white majority
of the world has awakened from its long sleep and strives for new
recognition, the United States simply cannot afford to be cast in the
role of the discriminator on religious or racial lines.

The role of government in the progress which we have made has
been great, but no one would deny that basic revisions in social outlook
cannot simply be legislated. The important thing is that a central aspect
of governmental policy must be an unflagging pressure toward the elimina-
tion of religious and racial discrimination wherever the problem is encounter-
ed and can be affected.

6. Public Facilities

Undoubtedly the most alarming economic problem in the area of
domestic policy over the next twenty years is the problem of providing
adequate public facilities. We have already fallen far behind in this
department. In the school area alone, estimates of presently needed
new construction are $6.2 billion exclusive of the needs of higher
education. Just to keep even with the growing population, we shall need
an additional $9.2 billion in the next fifteen years. Estimated require-
ments for new hospitals are $22 billion over the next ten years. We are
talking now in terms of a federal road building program involving $12.6
billion with matching funds from state and local agencies. With increasing

["b. Public facilities\nUndoubtedly the most alarming economic problem in the state of\nCalifornia is the lack of adequate public facilities. We have already fallen far behind in this\nregard. The state of public buildings is a serious problem. In the school areas alone, estimates of presently needed space are 225 million square feet. In the school department, in the next ten years, we shall need\nnew construction are $2.8 billion exclusive of the needs of higher\neducation. Just to keep even with the growing population, we shall need\n$2.8 billion in the next ten years. Estimated revenue-\nexpansion is $2.8 billion in the next ten years. We are\nexpanding our schools by $2.8 billion over the next ten years. We are\nexpanding our public transportation system by $2.8 billion a year.\nTaking into account the needs of the state and local governments, with increasing\npopulation with growing demands for state and local governments.", "c. Public transportation\nIt is estimated that the state of California needs public transportation to\nsatisfy the needs of the state. The problem of public transportation is one of\neveryday life. It is estimated that the state of California needs public transportation to\nsatisfy the needs of the state. The problem of public transportation is

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population and high metropolitanization, expenditures for parks and other recreational facilities will certainly soar. Our local transportation and parking systems for the new metropolitan communities are already hopelessly overloaded and automobile registrations are projected to double by 1970. Estimates for presently required anti-pollution facilities are on the order of $__________. Though the Subpanel had before it no direct estimates, it is safe to assume that huge demands are inevitable, particularly in the new suburban areas, for new sewage systems, fire and police protection facilities and administrative buildings. The investments which will be required for public housing and slum clearance have already been referred to. The Twentieth Century Fund has come up with the general estimate that the minimum capital investments needed to provide community facilities of the most basic sort (without including programs like slum clearance) are on the order of $200 billion in the next ten years or $20 billion a year. Investments toward these purposes were in fact only $____ in 195____ and $____ in 195____. Though it counters our usual notions of our generally rising standard of living, the fact is that our standard of living in terms of community facilities per person is dropping steadily.

In the earlier discussion referring to savings, investment and general economic growth, an exception to the generally sanguine picture was

general economic growth, an exception to the generally soggy picture was
in the earlier discussion referred to savings, investment and
assurance.

our usual notions of our generally rising standard of living, the fact is that
in fact only 2 ______ in 1923 and 3 ______ in 1924, though it counters
ten years or 350 billion a year. Investments toward these purposes were
programs like a fund clearance) are on the order of $200 billion in the next
proceeds community facilities of the most basic sort (without including
with the general estimate that the minimum capital investments needed to
have already been referred to. The Twentieth Century Fund has come up
investments which will be required for public housing and fund clearance
and police protection facilities and administrative buildings. The
inevitable, particularly in the new suburban areas, for new sewage systems,
if no direct estimates, it is safe to assume that huge demands are

are on the order of 2 ______
though the subchannel had before
double by 1940. Estimates for presently required anti-bullying facilities
necessarily overloaded and automobile registrations are projected to
other recreational facilities will certainly soar. Our local transportation
and parking systems for the new metropolitan communities are already

8\8\9
(Including Subchannel
In - Eastport)

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made for capital investment in community facilities. The reasons for
that exception may now be seen. It is not at all clear where, from existing
savings sources and with existing investment patterns, the required capital
funds for the needed community facilities are to come from. With capital
short, interest rates high and investment funds a target of competing bids
for use, we may well be entering a long term phase in which direct government
control of capital allocation in one form or another will prove absolutely
necessary. The free market may be expected to attract capital to those
areas most likely to be profitable. But if our total savings resources are as
limited as they appear to be while our demands for new facilities required
for maintenance of conditions for national action and to provide the needed
community services for our growing population continue to rise, we shall
have no other alternative than to influence investment patterns in the needed
directions by direct government policy. Possible approaches are innumerable.
Through many techniques, such as housing finance guarantees and municipal
bond tax exemptions, we presently regulate indirectly portions of the invest-
ment market. Given the situation of a full employment economy and a shortage
of savings, we can and should fully expect an extension of new and more
direct governmental methods for affecting the allocation of capital investment
perhaps even by direct licensing requirements. It is suggested that a major
problem calling for searching economic analysis is whether a full employment
economy dedicated in large part to a steadily rising rate of individual

economy dedicated in large part to a steadily maturing rate of individual problem calling for searching economic analysis if whether a full employment benefits even by direct licensing requirements. It is suggested that a major direct governmental methods for affecting the allocation of capital investment of savings, we can and should fully expect an extension of naive and more

broad tax exemptions, we presently regulate indirectly portions of the invest-

through many techniques, such as housing finance guarantees and individual directions by direct government policy. Possible approaches are numerous.

areas most likely to be profitable. But if our total savings resources are at

necessarily. The free market may be expected to attract capital to those

control of capital allocation in one form or another will prove a specialty

tor use, we may well be entering a long term phase in which direct government

short, interest rates high and investment funds a target of competing funds

to the needed community facilities are to come from. With capital

savings sources and with existing investment patterns, the redundant capital

that exemption may now be seen. If it is not all clear where from existing

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2/8/82
(fifth Report)
J. V. Report

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consumption and requiring a continuously rising rate of investment in
research, development, and introduction of new products can provide at the
same time a continuous expansion of needed community facilities. Can a
society badgered daily by mass advertising techniques to replace last year's
"old" consumer items be expected to have its citizens feel that they can afford
to tax themselves more for new schools, vocational guidance counsellors,
hospitals, and urban renewal? What counter measures can be matched against
the onslaught of televised consumer advertising to persuade the public that a
greater proportion of its income must be invested in the long range assets of
the community? The only significant tool developed to date to encourage
such investment is the tax exemption of municipal bonds. We shall surely
need others as well.

used others as well.

such investment is the tax exemption of municipal bonds. We shall annually
the community. The only significant tool developed to date to encourage
the one-fifth of televized consumer advertising to parader the public that a
hospital, and urban renewal? What counter measure can be matched against
to tax themselves more for new schools, occupational guidance consultants,
"old" consumer items be expected to take the citizens feel that they can afford
society paddered daily by mass advertising techniques to replace last year's
same time a continuous expansion of needed community facilities. Can a
research, development, and introduction of new products can provide at the
consumption and:

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M - Repor

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D. <u>CONCLUSIONS</u>

As was stated at the beginning of this Report, almost any problem
could, under particular circumstances, become determinative of the nation's
capacity to survive. One is hesitant, therefore, to select out particular policy
problems as being in a permanent sense of higher priority and criticality
than others. Nonetheless, with this qualification respecting national
survival, on the basis of the general review of projected domestic policy
problems discussed in this Report five stand foremost.

Each of them bears close and fundamental relationship to the nation's
basic national objectives--fullest development of the individual within the
framework of a democratic free enterprise system.

A. <u>Manpower and Skills</u>

Without high talent and skilled manpower trained for and allocated
to the areas of our most serious problems, the best solution to our problems
will not be found. Yet there is considerable evidence that our educational
structure is in a state of difficulty, our total manpower pool may be inadequate
and our incentives and reward distribution system badly misaligned. Solution
of this problem should probably be first on the national agenda.

It will require an attack on many fronts at once and will call for
money, general public education, far more knowledge about the psychology
of incentives, new programs for increasing manpower mobility and use, large
new educational programs and plant, and, particularly in the political arena,

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awakening of public consciousness to the need and importance of high quality
administrative and political leadership. This is a very large order.

## B. Community Facilities

Investment rates and development in the private enterprise segment of the economy have consistently more than kept pace with expectations. On the public facilities side, however, our investment rate, programming and development are today far behind adequate standards and grow farther behind with each day's increase and redistribution of the population. Unless we can summon the will power to make the necessary investments to bring these facilities up to par and to develop and redevelop them in correspondence to the nation's growth, we may find in twenty years that our high personal consumption standard of living has been bought at the cost of a nightmare of congestion, smoke, poor transportation, inadequate recreational facilities, crime, slums and inadequate community services. In this area, for the most part, we know what to do. The solution calls for large sums of money and closer and more rational coordination of federal, state and local revenue and administrative structures. The problem is whether we are willing to spend the money now, make present sacrifices and show the needed political flexibility toddo it. Whatever it costs today, it will cost more to try to catch up tomorrow.

## C. Opportunities of an Economy of Abundance

Our postulated national objective is the fullest development of the
individual. It is within our potential in twenty years to find the nation

### C. <u>Opportunities of an Economy of Abundance</u>

homeworth.

Whatever it costs today, it will cost more to try to catch up with it. Make present facilities and show the needed political flexibility money now, make present facilities and show the needed political flexibility administrative structures. The problem is whether we are willing to spend the closer and more rational coordination of federal, state and local revenue and part, we know what to do. The solution calls for large amounts of money and crime, sin and inadequate community services. In this area, for the most part, the government has been bought at the cost of a nightmare to the nation's growth, we may find in twenty years that our high personal these facilities up to par and to develop and redevelop them in correspondence we can summon the will to make the necessary investments to bring forth with each day's increase and redistribution of the population. Unless and development are today for behind-subordinate standards and grow further On the public facilities side, however, our investment rate, programming of the economy have consistently more than kept pace with expectations.

Investment rates and development in the private enterprises segment

### p. <u>Community Facilities</u>

administrative and political leadership. This is a very large order. The
awakening of public consciousness to the need and importance of high quality

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secure, the economy robust and the economic standard of living unprecedented
We must see to it that imaginative governmental and private health, education
and welfare programs are developed which are geared to the new economy
of the new society. Of most particular importance is the provision to the
individual members of the population of a personal capacity to put to con-
structive and creative use the new leisure time which will be theirs in the
economy of the future.

D. Inflation

To make possible the other objectives which we seek, to maintain
national survival and to provide for the full development of the individual our
economy must grow, It has shown remarkable resilience and strength in the
past by unrestricted taxation, over-regulation or inflation could bring it down
The era of large government is here to stay and no one would turn the clock
backwards. Indeed it appears that we have entered a period of remarkable
general consensus as to relative and cooperating roles of government and
free economy. Without suggesting that this morning's status quo must be
retained, government policy must continuously be shaped to maintain a balan
which does not undermine the operation of the economic system. The empha
should be upon growth rather than stability. And in the new circumstances

should be upon growth rather than stability. And in the new circumstances
which does not undermine the operation of the economic system. The empty
retained, government policy must continuously be adapted to maintain a balance
between the two basic needs of the state and of the private sector.

Without suggesting that this morning's status due to be
free economy. General conditions as to relative and cooperating roles of government and
packagers. Indeed it appears that we have entered a period of remarkable
success of the government to be able to stay and no one would turn the clock
back by unrelieved taxation, over-regulation or inflation could bring it down
economy must grow. It has shown remarkable resilience and endurance in the
national analysis and to provide for the full development of the individual one
To make possible the other objectives which we seek, to maintain
the economy of the future.

## D. Inflation

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of high employment economy and large federal budget, the long-range risk is chronic inflation rather than deflation. If we are to insure ourselves against a run-away inflation disastrous to the economy as a whole. We shall need to learn far more than we now know about the economics of this process and to develop an arsenal of new tools matching those with which we have learned to combat deflation. Until our economists can provide us with better tools, we shall have to use our present tools as best we can to curb this overall inflationary tendency.

E. Governmental Operations

It is evident that adjustment to the new domestic conditions and problems projected for the nation will impose serious strains on existing governmental organization and operations. It may be expected that within the next twenty years more or less far-reaching changes in existing governmental structures and operations will occur.

In the first place we have fortunately moved past the stage when it was thought that, alone of all enterprises, government can be conducted without planning. As the Special Studies Project itself foreshadows, it may be anticipated that the planning process for American government must be and will be greatly expanded in the next generation. Though progress in this direction has currently been made in individual governmental units, we have not yet begun to make much headway in direct planning among different levels and units of government. Coordinated planning of this kind will prove an

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inevitable consequence of the many new programs calling for operational partnership among different levels of government such as water and highway development and urban renewal.

In addition to coordinated planning, coordinated carry-through will be required. Since for the U.S., within the framework of its national objectives and structure, centralization is unacceptable, there is no doubt that new forms of coordinating arrangements among governmental units and governmental levels will have to be developed. Some of these arrangements will be on an Authority basis set by the limits, for example, of a watershed. Others may be regional. Still others will require administrative coordination as in the tax area. Still others may call for refinements of the interstate compact device. A problem concerning direct and responsible attention is congressional reorganization of the internal operations of the separate houses of Congress so as to permit sustained and long-range programming in cooperation with the Executive.

Since, for the U.S., many of the major domestic problems which face us are problems which should be resolved at the state and local level, there is a great need to improve the organization and efficiency of state and local government structures. Many of our state and local problems are deeply political in content and exceedingly difficult to tackle. There is a crying need, and it will get far worse, for example for the development of politically acceptable regional units of metropolitan government which will in some way

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provide for an equitable distribution of governmental income, costs and
services within the entire metropolitan region while preserving to the
constituent municipalities a maximum degree of autonomy.

Finally, of course, though we are accustomed to talk about the
efficiency of government, we are really talking about the efficiency of
people. Nowhere is the nation's need for dedicated and trained high-
talent manpower more badly needed than in the area of government service.
Though government is overwhelmingly the nation's biggest business, and
undoubtedly in the long-run the most important, it does not now attract and
retain our highest talents, either at the administrative or political level.
One might almost say that if we could be sure that our governmental structure
could attract and retain technical and administrative personnel of the highest
competence and political leadership of the greatest imagination and integrity,
the rest of our domestic governmental problems would be adequately met
as they arise.

A focal problem, therefore, is the provision of incentives and the
development of public attitudes which will draw staff administrators and
political leaders of the highest quality into governmental service on a
continuing basis.

And thus, again, this report returns to the central position from which
it commenced--the critical importance of people and of the individual.

And then, again, this report returns to the central position from which
continuing basis.

Political leaders of the highest quality into governmental service on a
development of public attributes which will draw staff administrators and
A local problem, therefore, is the provision of incentives and the
as they arise.

The rest of our domestic governmental problems would be adequately met
competence and political leadership of the greatest administration and integrity,
can attract and retain technical and administrative personnel of the highest
One might almost say, that if we could be sure that our governmental attitude
retain our highest talents, either at the administrative or political level.

Through government is overwhelmingly the nation's biggest business, and
dedicate manpower more fully needed than in the area of government service.
People. Members of the nation's need for dedicated and trained high-
efficiency of government, we are really looking about the efficiency of
liquidity of course, though we are accustomed to talk about the
commitments municipalities a maximum degree of autonomy.

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If the U.S. can work out within its democratic structure a solution
of the problem of providing adequate governmental leadership, the major
difficulties of allocating our limited resources among competing policy
objectives may safely be left for solution to the operation of a responsible
democratic process. To use the language again that has been used earlier
in this report, we have the goods and the resources to cope with our major
problems as they arise and, insofar as we can predict, we will have them
for the next twenty years. The real problem is whether we will have the
discipline, moral, long-range perspective and leadership required to use
these resources intelligently.

* * *

these resources intelligently,
discipline, moral, long-range perspective and leadership required to use
for the next twenty years. The real problem is whether we will have the
problems as they arise and, if not, how we can predict, we will have them
in this report, we have the goods and the resources to cope with our major
democratic process. To use the language again that has been used earlier
objectives may safely be left for solution to the operation of a responsible
difficulty of allocating our limited resources among competing policy
of the problem of providing adequate governmental leadership, the major
in the U.S., can work out within its democratic structure a solution

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IV - Report
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May 15, 1957

PART III

ACCOMMODATION OF COMPETING POLICY
CLAIMS

This Report may now turn to its second major task -- the matching
of the anticipated costs of the policies recommended by the separate
Subpanels against the projected potential of the economy.

It must be strongly emphasized that the picture which emerges in
the following pages must be viewed only as an indication of general orders
of magnitude. Many assumptions must be made to make this sort of fore-
cast at all. And the problem of accommodating the cost claims of competing
policies involves, of course, basic policy choices on which reasonable
men can, and will, differ and on which only the political voice of the
American people will make the final decision.

Although the general term of years to which this Report is related
is a 20-year period, and much of the discussion in Part II dealt with pro-
jections over this range of time, this Part III is limited to the period from
the present to 1965. Projections even over this period must be, of course,
recognized as being highly tentative and it has been concluded that efforts
to project, particularly on the demand side, competing policy programs for
a period beyond 1965 is of dubious value at this time

A. Projections of GNP

Our national economy is today strong and vigorous. There are
few signs of the sorts of distortions that bred depressions in the
past.