Representative RUMSFELD. For clarification, I would like you to comment on this. Do you believe that business investment in modern efficient machinery leads to more or less employment, and No. 2, to lower or higher wages, and No. 3, to lower or higher prices? Doesn't a low level of business investment result in economic stagnation?

Mr. GOLDFINGER. You have to view business investment in relation to the economy as a whole: you have to look at it in relation to demand, to the demand for goods and services.

Representative RUMSFELD. I am assuming it is prudent investment. Mr. GOLDFINGER. If businessmen invest in new plant and equipment in response to rising demand at a sustainable level, pretty much in line with the rise in demand, such investment is obviously a good thing. It adds to the demand for goods and services from the business sector. It helps to increase the rate of productivity advance. It also helps to reduce unit costs or at least to stabilize unit costs.

However, this economy is replete with a history of booms and busts in capital goods investment. Most recently, we had the capital goods boom of the mid-50's which wound up in the bust of 1958-59 and the stagnation that persisted for years thereafter.

This is wrong. This is the kind of thing which we fear because it is far beyond anything sustainable.

The AFL-CIO is not opposed to business investment. The AFLCIO is for a sustained rise of business investment. Moreover, sir, I believe that in the long run we would have more business investment and a higher rate of productivity, if we were to do this on a sustained basis with business investment moving up steadily in relation to rising demand for goods and services.

Representative RUMSFELD. So in answer to my question, it is that business investment amounts to nothing.

Mr. GOLDFINGER. In itself.

Representative RUMSFELD. Unless it's on a sustained, steady basis. Mr. GOLDFINGER. In relation to the demand for goods and services, yes, sir.

Representative RUMSFELD. Correct me if I am wrong, but from your testimony is it fair to say that your general description of the state of the U.S. labor force in our economy today is unfortunate, poor, and that you are clearly dissatisfied with it from your statement? Is this a reasonable interpretation?

Mr. GOLDFINGER. Let me try to restate my point here.

Representative RUMSFELD. You gave a great number of statistics. Mr. GOLDFINGER. Yes.

Representative RUMSFELD. Showing how they have not kept pace. Mr. GOLDFINGER. Let me restate what I was trying to say. In the first place, I pointed out that as a result of the expansion of recent years, the real volume of national output rose. Employment increased by about 22 percent a year. Unemployment dropped by eight-tenths of 1 percent a year.

Representative RUMSFELD. Mr. Goldfinger, I followed your testi

mony.

Mr. GOLDFINGER. But all of this is on the plus side. What we are saying and what I tried to say very strongly is that the vast majority of wage and salary earners did receive gains and improvements during this period of expansion but they received less than a fair share of the gains.

Representative RUMSFELD. I see.

Mr. GOLDFINGER. It was business and wealthy families and investors who received the lion's share of the benefits of the expansion in

recent years.

Representative RUMSFELD. Let me turn my first question around and ask it with respect to human investment. How do you evaluate the contribution of public training programs toward reducing unemployment? Do you look with favor, for example, on a tax credit for business investment in additional worker training?

Mr. GOLDFINGER. No; I do not think that a tax credit to business for training is necessary. Training expenses of business are now accounted for as a cost of doing business. I see no reason to give business an additional bonanza, and shift income distribution again in favor of business and away from the rest of the population for things which business is already doing to some extent and should be doing.

Representative RUMSFELD. Do you feel that business investment for the training of people, so that they can develop the skills that they will need to become employable would shift it away from the rest of the population?

Mr. GOLDFINGER. Yes, because such a tax credit is another loophole added onto the vast number of loopholes in the tax structure which add to the income of business. This proposal is, as I see it, an additional business subsidy.

Representative RUMSFELD. And yet you indicated your sentiment which I share, of a general dissatisfaction with the Council's seeming acceptance of a 4-percent unemployment rate, correct?

Mr. GOLDFINGER. Yes, absolutely.

Representative RUMSFELD. I certainly share this. It seems to me that one of the ways we can come to grips with this problem is to try to stimulate the private sector to undertake greater training of individuals that apparently the business sector, the private sector, today feels is not economically feasible.

Mr. GOLDFINGER. In my opinion, sir, the greatest incentive to business for training is a high level of demand for labor. When labor markets get tight, companies increase and improve their training programs on their own.

They have been doing this throughout American history. I see no reason for any kind of direct subsidy. I do think that there are problems

Representative RUMSFELD. The point is that throughout American history we have not been able to really come to grips with the problems of structural unemployment and the hard-core unemployed, the very group that you were expressing concern about in your statement, and it seems to me that this proposal has the advantage that throughout history we have not had it, and we still have this hard-core group, and if we are going to really come to grips with it certainly this proposal might be an approach to solving the problem.

Mr. GOLDFINGER. Well, I fail to see why a subsidy for business is necessary to solve the problem.

Representative RUMSFELD. The fact that we have never done it before isn't a very good answer to why we shouldn't do it now, I don't think.

Mr. GOLDFINGER. The important thing is that a subsidy is involved for things which business is already doing. Business is training peo

ple, and as the labor market gets tight, business training of personnel increases. I think that the best incentive, the soundest incentive, for the training of people arises from tight labor markets and the rising demand for goods and services.

Furthermore, we do have a program, a Federal Government program, of training workers.

Representative RUMSFELD. And it is a good one.

Mr. GOLDFINGER. It is a good one. It is moving ahead slowly, but fairly surely.

Representative RUMSFELD. And it not solving the problem.

Mr. GOLDFINGER. Well, this is a serious problem.

Representative RUMSFELD. I favor vocational education. I favor manpower training and development. But we still have this basic fact that you and I and a great many people in this country are concerned that we still have a continuing level of hard-core unemployed.

Mr. GOLDFINGER. Well, one way to solve the problem of hard-core unemployment, an essential way, is to increase the demand for employment. You don't increase the demand for employment simply by training people.

You can have 100,000 trained Ph. D's and if there is no demand for Ph. D.'s, they may remain unemployed. I mean the education system

Representative RUMSFELD. Are you suggesting that the fact that these people lack skills is not one of the reasons they are unemployed?

Mr. GOLDFINGER. I am suggesting that at the current level of economic activity, you may be able to redistribute unemployment through retraining alone. However, it's a game of musical chairs. You would still wind up pretty much at the same level of unemployment as we have today. The way to reduce unemployment primarily is to increase jobs.

Certainly there is an underlying need for increased education, which is a longrun process. Certainly there is a continuing need for training and for improving skills and for upgrading. But the basic need is to increase jobs. That is the way to increase employment and to reduce unemployment.

And I would suggest, sir, that this is the best incentive to private business.

Representative RUMSFELD. I am glad to have your comments. My time is up. Mr. Chariman, I would like to just make one closing comment. President Johnson has proposed that the Department of Commerce and the Department of Labor be merged. And I would be curious to know if Dr. Madden of the Chamber of Commerce and Mr. Goldfinger of the AFL-CIO would anticipate, in the event this merger does in fact occur, that you two gentlemen would be coming before congressional committees in the future with a merged statement?

Mr. GOLDFINGER. Much as I like Dr. Madden as a friend, I hope not. Chairman PROXMIRE. Congressman Reuss?

Representative REUSS. Mr. Chairman, I was fascinated by your attempt to bring about a great consensus among the three very able witnesses from labor, business, and the banking community, and I think you had established from all three of our witnesses that not one of them would favor the Congress now enacting a 6-percent across-the-board surtax on individual and corporate income effective July 1.

Is it not also true that each one of you gentlemen sees certain soft spots in the economic situation today which you believe should be of concern to this committee? I think that is inherent in all of your testimony. Have I misquoted anybody?

Mr. SPRINKEL. Sir, not only that, but softer than any time since the recession of 60–61.

Representative REUSS. Having pointed out that second area of agreement, let me pass on to a third. I think that each of you believes that in the period ahead, monetary policy, and the creation of the money supply should not be as extremely restrictive as it was for most of last year.

Mr. MADDEN. Indeed.

Mr. SPRINKEL. Yes, sir.

Representative REUSS. I hear assents and see nods of agreement on

that.

Mr. GOLDFINGER. I would go a little further, sir. I think that the Joint Economic Committee could well get into the entire issue of monetary policy along the lines which Dr. Sprinkel indicated and which I briefly indicated in my paper-and that is the danger of an aggregate monetary policy which depresses one sector of the economy, as happened last year, when residential construction was knocked in the head by the blunt instrument of monetary policy.

Also there are some problems in terms of the structure of capital markets. There is the need for greater selectivity in the use of monetary policy. Furthermore, you gentlemen know my views on the composition, structure, and so-called independence of the Federal Reserve System, which I also think needs to be modified and changed considerably.

Representative REUSS. I think then there is an area of agreement which we have defined here on these three major points, and something like a great consensus established.

Now with my instinct for the underdog, let me make the administration's case for the tax increase to you, and ask you to comment on it. I will start with Mr. Sprinkel. It is said in behalf of the administration's position that it is necessary to pick up about $5 billion worth of additional revenue in the year starting next July 1, because unless you do that, even though sound monetary policy such as you all three have agreed you want are followed, if you have Uncle Sam coming in for an extra $5 billion of borrowing, this will tend to vitiate the easier money thus obtained.

This seems to me to be a point that has to be considered, and I don't believe, Mr. Sprinkel, it was in the list of pros for the administration's position that you gave. Would you comment on that position?

Mr. SPRINKEL. Yes, two aspects of the one; they have this year laid out in some detail how they visualize the trend in the economy. Namely, it is going to stall some in the first half of the year, we will liquidate some inventories, but by the middle of the year this will be over and we can then have the 6-percent surcharge accompanied by an increase in social security payments, and then by the latter part of the year the economy will be going strong and we can then afford to slug the economy with a sizable increase in social security taxes. That is at least the way I see their layout for the year.

I don't think they can see that clearly. I can't see that clearly. The trends point in the opposite direction at this moment. But let's

look at the increased $5 billion that you are talking about they will have to finance.

Representative REUSS. And if I may interrupt you, for the purposes of this discussion, let's view this as a method of obviating $5 billion of otherwise necessary borrowing.

Mr. SPRINKEL. Yes, sir.

Representative REUSS. Because I realize that Dr. Madden at least would probably say pick up the $5 billion by spending less. But since the administration says "Here is our budget, and here is what we are going to spend," take it on their terms.

Mr. SPRINKEL. Yes, sir; take it on their terms. That portion on their terms but I can't take certain other things on their terms. Let's suppose that instead of the environment that they paint, which may well come about, we have a recession. Then we will have $10, $15, or $20 billion that we have to borrow. That is No. 1, and I think this policy is certainly working toward restraining demand so far as fiscal policy is concerned, rather than helping.

Secondly, and this is really the more fundamental response to your question, I think it is extremely important that we distinguish between the tightness of money and the tightness of monetary policy. These two are not the same thing, although I see them constantly confused.

The tightness of money, as I think most people mean, refers to the price of money, interest rates, and we all learned in Economics I that interest rates are affected both by demand and supply, and that one part of supply is the money that the Federal Reserve provides.

Therefore, the mere fact that the Federal budget must enter on the demand side the $5 billion of which you speak does not mean that monetary policy cannot continue to be relatively expansionary, providing us with the 2-, 3-, 4-percent growth in the money supply that I would like to see provided. So, on either score I just don't agree with that particular position of the administration.

Representative REUSS. Dr. Madden?

Mr. MADDEN. I would share Dr. Sprinkel's views, but would adjust as you might expect I would, that total taxes as I understand it of all levels of government are now taking something like 31 percent of income, and we see in news magazines such as U.S. News & World Report's most recent issue that State and local taxes are likely to rise further, and we finally see some dissatisfaction on the part of the public as reflected in public opinion surveys and dissatisfaction on the part of leaders in Congress, and even in the administration, about the question of the efficiency with which the funds that have been increased so rapidly in the past few years available to the Government are being spent. So, for all these reasons, I reiterate the position you are familiar with, that we should cut spending.

Representative REUSS. Mr. Goldfinger?

Mr. GOLDFINGER. I would like to reiterate, I am not opposed to the tax increase. I have an open mind on this issue.

First, in contrast to my friend, Dr. Madden, I am for-and very strongly for-increases in major essential domestic programs such as Federal aid to education, housing, the rebuilding of our cities, the war on poverty, the antipollution programs, and similar programs which I consider to be very essential. In fact, I consider, as I indicated in the paper, the President's proposals to be very modest in terms