The Great Society; 7; The Sizzling Economy

- Now, as for spending too much money on other people, I don't think this is true either. I think that we have to spend more of course. You can't rebuild cities for nothing. You can't rehouse people for nothing. - The problem is not to spend more money as Mr. Keyserling wants to do, but to spend the money that the government spends more efficiently, more effectively for our objective, which is to relieve suffering and improve the conditions of the poor. - Now I think in many of the programs that we're talking about today, they're not ideal. We know that. We're all mature individuals. We've been through all sorts of programs, problems, organizations. And we're aware of the fact that everything that becomes big becomes difficult, complex to handle. The real question is whether in the final analysis you have done much more that is good than you have created injustices.

- Good evening. I'm Austin Kiplinger, editor of the Kiplinger Washington Letter. Tonight I'm going to be your moderator for a discussion of some of the problems inherent in this sizzling economy of ours and the Great Society. [patriotic music] National Educational Television presents the Great Society. This program examines the sizzling economy. - It may be worth noting that while average incomes in the United States have been steadily rising, we still have some problems with poverty in this country. We still have some need for improvement in our cities and in the areas surrounding them from the point of view of livability. We still need to satisfy the wants of a rapidly expanding population that's reaching toward 200 million people. And of course we have obligations of all kinds both at home and abroad.

Therefore, the question or questions before us involve what kind of government economic policy is most appropriate for all of these needs. Our panel tonight consists of three eminent economists, Dr. Milton Friedman, Professor of Economics at the University of Chicago, and President-elect of the American Economics Association, Dr. Leon Keyserling, consulting economist and attorney, and former Chairman under President Harry Truman of the Council of Economic Advisors, Dr. Herbert Striner, Director of Program Development of the Upjohn Institute for Employment Research, and formerly Director of Urban Studies and Senior Economist of the Stanford Research Institute. Now gentlemen, to get things rolling, I'd like to ask each one of you a perhaps simple question with a perhaps not so simple answer, and Dr. Friedman may I lead off with you and ask you, what's the best way to raise the income level of the poor? Give them money.

How do you do that? Well, if you really just want to raise the income level of the poor, you have to talk about whether you're thinking in terms of a short period or a long period. The best way over a long period, as the history of the U.S. has demonstrated, is through having an active effective efficient private economy which provides more and better jobs. This has been the history of the United States over the last 100 years. On the other hand, if you're speaking about a short-term problem, about the problem of the needs of individuals who temporarily or at the moment are indigent, well then it seems to me the best way to help them out is to give them some money. - May I follow with a question of how to carry this out. If you were advising the President today, how would you suggest that he raise this income level and how would you give them money? Well, the proposal I've been in favor of for a long time is something which is called the negative income tax. It would be a substitute for our present programs of aid to dependent children directly leave and so on, which seemed to me very inefficient in achieving the objective of helping

people out without at the same time imposing too many controls on them. The alternative I happen to favor would be to link an income maintenance plan with our regular income tax. The idea would be that if individuals have incomes below the level at which no person does not pay a tax, the exemption level under the income tax, then he would be entitled to receive a subsidy equal to some fraction, some percentage of the difference between his income and the income as specified by the exemption level. I emphasize fraction because I think this proposal, which in my opinion has a great deal of merit, can be completely destroyed if you talk in terms of filling the hole of that gap. - Well, I agree that people are poor because they don't have enough money not to be poor, and therefore you have to raise their incomes, I think, there are two ways of doing it. One way is to enable as many of them as possible to earn a decent American standard of living

by work. The second way is to pay to those who cannot possibly be brought into that functioning economic stream, a decent American income based upon the principle that the nation is rich enough to do this, and that it would help us to do it. As to the two ways of doing this, I think we've come to the point where we should do two things. I think the federal government should recognize the basic minimal civilized responsibility to provide jobs plus training programs for every American who does not and cannot have a job in private enterprise and at state and local levels. This would not be bonfires or pyramid building. They would be put to work in the public sector, building some of the things we most need and are not now getting, and they'd be a very high product mix of semi-skilled jobs, which is what these people need. Superimposed upon this genuine full employment program, which we've never had except in wartime, I would have a complementary program, not in place of it, but superimposed upon it, of

a guaranteed annual income for the old, for the disabled, for the incurably sick, for the heads of broken families in the form of mothers who can't work, gradually substituting for the rag bag, inadequate system of welfare payments of a thousand different kinds, one single national concept of guaranteed income to supplement guaranteed jobs. And the $700 billion economy, which over the next ten years, is going to produce on the average about $200 billion more of goods and services per year than in 1965, this is really entirely a moral problem, entirely a religious problem. It's not an economic problem at all. We've got the means to do it, we could do it easily. If as a nation we value this objective highly enough, value it more highly than the scores of billions of dollars that we waste, getting to the Moon, for superfluous consumption and the investment that feeds it, there's plenty of room in the economy. The question is whether there's room enough in the minds and brains and hearts of the American

people and their government. - Your point is that it would be a redistribution, a change of the flow of economic activity rather than an actual addition to it. - Well it would be both because I happen to believe that improved income distribution is at the very foundation of a more productive economy. - I'm going to take the ball for a moment and throw it in the direction of Dr. Striner and ask him again the same question, what method or combination of methods would you prefer to raise the income level of the poor? - I don't object to adding to the annual income of the poor but I'm reminded of an old adage that you feed a starving man a fish and you feed him for a day. You teach him how to fish, how to use the tackle, you feed him for life. I'm afraid that if we were to use the negative income tax as our chief weapon in this arsenal that we have at our command, we might add, for example, to a family of two under 65 in an urban area currently making $2,000 a year, about another $500 to $1,000 by means of

these offsets. I doubt that this is what we really have in mind in terms of moving people up over the poverty barrier. I think that we really have a problem that goes beyond the techniques and the concerns we've had in the past. To begin with, I don't agree with Professor Friedman that these programs we've had in the past have failed. I don't think they've ever had a chance. As a matter of fact, the situation has grown worse in many of our so-called social welfare programs. You take, for example, unemployment insurance. In 1939, the unemployment benefits received by an unemployed individual approximated 45 percent of his wage, his last wage. At the present time, because of the fact that our increases in unemployment benefits have not kept pace with changes in our economy, our society, the same individual, if you were alive now and unemployed, would be getting about 32 percent of his last earned wage. Let me throw one other series of figures out.

We think we're big spenders over here, the last of the big spenders. If you total all of the social welfare benefits that we pay out in this country, it takes up about 7 percent of our gross national product. The total of the goods and services our economy is producing. In France and West Germany at the present time, this same ratio is about 22 percent. Now, there are some differences in programs, of course. But by and large, if we use about the same comparable items, we find that we support about one-third of the types of payments that are paid out in most of the... - Is that because we are doing less or because our economy is so productive that it simply overpowers the cost of the welfare benefit? - No, I think we have a problem in facing up to the fact that if we really want to wage a war against poverty, we have to do more than go out on limited sorties and skirmishes. I don't think that there was ever a real commitment to the sort of war that is necessary to deal with 35 to 40 million people who are in this poverty category. You see, one of the problems of just thinking of money as a means of doing this is that

many of the people who are poor and are untrained are also people that we have to work with in terms of psychological, physical, medical problems. Information, many of these people don't read well, aren't too well educated and if we gave them the money, there'd be some question, of course, as to what they would do with the money. - Now we're talking about education, I take it. - Oh yes, indeed, but I'm talking about something else, if I may, one more moment. We found an interesting program in the South to educate tenant farmers failed completely. The reason at first wasn't very obvious until we actually went down into the country and talked with them and we found that you can't get a tenant farmer to take training because the day he leaves to take training, he's thrown out of his house so that this thing we call education when you're talking about tenant farmers in the South must also include public housing. - I must confess that I regard the remarks of both of these gentlemen as rather demagogic, if I may say so.

They are appealing to one's hearts, which is a very good thing to do, but I would like to inject a bit of mind. First, the basic fact is that the American citizen has a far higher standard of life than a citizen of France or the other countries who Mr. Striner was quoting. This is, it is not an accident that that is the case. It is largely because the American economy for the last 100 years has had the most effective war on poverty and the most effective machine for eliminating poverty that any country has ever had. Indeed, our great claim to fame is that we have taken in, we have imported poor people by the millions from all over Western Europe, from these countries who Mr. Striner is quoting to. And we, I say we, I mean the American economy, the American society through a free enterprise system, through giving them an opportunity to express their own initiative, has enabled them to improve their condition and the conditions of their children steadily over the generations. If we look at the remaining pockets of poverty and problems that we have, we have to ask why.

And in large part we have these because of bad government programs. And Mr. Striner and Mr. Keyserling are talking about government undertaking the responsibility for training people and make them employed. What about assigning government some of the responsibility which it deserves for making people unemployed? Why, why is Appalachia a depressed area? Because the government supported and stimulated John L. Lewis when he raised the wages of coal miners so high that he put most of them out of work. Why do we have a high rate of unemployment among teenage Negroes? Because the government has put on a minimum wage rate, which confusing wage rates with income has said to these youngsters, you may not get a job, you must be unemployed. Again, if we turn to the welfare programs that both these gentlemen have been speaking of, Mr. Striner spoke of 7% of our national income, let me put that in numbers. The federal, state, and local governments are spending over $50 billion a year on a class of programs designed to promote welfare.

Now the problem is not that we're not spending enough money, we're spending too much money. The problem is that most of that money is going to people who by no stretch of the imagination can be regarded as poor. - The real difference is not in the concept of spending, but what you spend it for. And it is very strange that these people who regard every dollar of additional private money spent as a proof of the strength and growth of America regard every dollar of public money spent as a movement backward. Now I don't see any basic reason why a dollar spent to improve the income of a poor person through public channels is less productive than a dollar which adds to the income of a rich person through private channels, call it demagogic if you will. I don't see where a public dollar spent to put a poor family out of a slum and into a better home is any more wasteful than a dollar spent to build another hotel at Miami Beach. I think this is a sound construct of American philosophy and so far is the government not being able to create jobs.

Why don't you read American history instead of waving the flag about America. When the government really wanted to create jobs during World War II because it believed a philosopher said "war brings out the worst in us and the best in us." When the government really knew that we needed jobs to survive, the government did create jobs and every woman and every young person and every deferred farmer of whom it was said they are too colored to have a job. They are too untrained to have a job. They are too uneducated to have a job. They need to be processed in a personal way. When America really felt that it needed jobs, that it couldn't afford to squander human resources, these same people marched into the factories and they did a good job. Why? Because they were wanted. - The problem at issue is not one of objectives but it means. Mr. Keyserling tries... not tries, questions, motives he talks about why is it worse to give a dollar to a poor man than to a rich man. It isn't. That's absurd. The point is that when the government sets out on a program which Mr. Keyserling says will give money to poor, it turns out to give money to the rich.

The fact is that most of the welfare programs that government has undertaken under the stimulus of people like Mr. Keyserling have not had the effects that he wants. The dispute between him and me is not over our objectives. We would both like to see that less-advantaged people in this community made better off. We would both like to see the services available to them increase. We would like to see their incomes higher. The question is what is the most effective means for doing so? Is the more effective means to encourage the self-help initiative resources of the community to encourage the private economy, or is the most effective way to call in big brother government? Now most of the answer to that has to be given in the record and that's why I tried to take up a particular program and I would be prepared to take up one after another. Mr. Keyserling talks about housing poor people. If you look at our actual public housing urban redevelopment program, its actual effect, not its intention, but its actual effect has been to make the housing conditions of the

poor worse not better. The number of dwelling units torn down has been greater than the new number built. So what I am saying to Mr. Keyserling and Mr. Striner is we are all in agreement on our objectives. The question is what's the most appropriate means? - May I just jump in for one moment? I think it's important to stop at this moment before we go on because if we don't we're likely to have an error of omission. Professor Friedman makes a number of statements which are as a matter of fact not factually true. He talks about the minimum wage rate, the relationship between minimum wage rates and unemployment of teenagers as though we actually know what this relationship is. - It would be a shame if this were the case but it so happens that the evidence especially for Negro teenagers is clear and unambiguous. - But the evidence suggests the opposite because you're talking theory and I'm looking at the tables. - So am I? - The fact is that during every period in American history when we had high and massive and catastrophic unemployment there were no minimum wage laws.

Now this is a far more undebatable fact than your construction of the Department of Labor Studies contrary to how they are constructed by those who made them. - This is... - Just a minute. You talked for a long time. We had no minimum wage laws when we were faced with massive unemployment in the United States. - Interesting. Since we have had minimum wage laws and particularly in those sections of the country where the minimum wage laws had been most affected because there were the most people who needed them. We have had the most rapid rate of industrial growth, the most rapid rate of social improvement of anywhere in the United States. - But there's many a 20-year period in American history which shows as rapid an improvement in the well-being of the ordinary citizen of the United States as the past 20 years. It's not exceptional in that respect. It's only because our memories go back to the true catastrophe of the 30s which of course Mr. Keyserling was right. It was a catastrophe, it was a catastrophe produced in my opinion by unwise monetary policies of the monetary authorities but whatever may have been the reason, that certainly was a catastrophe.

[crosstalk] - Well speaking of the monetary policy, do you mean by that the government did not tighten up soon enough... - Oh, no. in its money policy? No, no. - It produced the Depression by tightening up too much. - Too much too late, perhaps. - No, no. Too soon. The quantity of money in the United States was permitted to fall by a third from 1929 to 1933. - Well, now would you say that the tightening of money this year? - There has been none. Money has been eased. The quantity of money has been growing since last August at a faster rate than it had earlier. - Some of the businessmen I talked to wouldn't necessarily agree with that, but that's - Because they're using a different definition of tightness and one which is relevant from their particular point of view, but is not relevant from the nation as a whole. - You would agree that the interest rate has risen. - That's because of the easy money policy. That is limited. - What would you have the government do today? Would you have them tighten money further? I'm going to ask each of you gentlemen to speak to this. Would you have it tighten money further?

Would you have it ease money conditions, or would you have it continue a neutral policy as you would say it is? - Well, the government, you are asking me when did I last beat my wife? Because as you say, have the government tighten money further, the fact of the matter is that the government and the Federal Reserve authorities have been easing the money, the behavior of money over the last eight or nine months, when they should have been doing the opposite. So I would certainly be in favor of... - You would speak for some tightening. - The present rate of growth of the quantity of money is between seven and eight percent per year, and I would be in favor of reducing that rate of growth and the quantity of money to something like five percent a year. - How would you feel about that, Dr. Keyserling? - Well, I don't agree with what Dr. Friedman said either about what has been done or what should have been done. As one who has never met a payroll, I agree with a businessman on this. I think there has been a tightening of money. I think there's a sharp insufficiency of credit in many areas, and I think that the rising interest rates which impose a terrible toll upon those who need to borrow money most is in itself a tightening.

What I would do now is to follow a much more selective policy because I don't think that a great nation can be guided by an aggregate policy which says we want to tighten or loosen. I think housing should be expedited. I think business investment in plant and equipment for the moment should be slowed down. I think some people should pay more for what they get and many should pay far less, getting back to the matter of values. So I would hope we could move gradually to a more selective money policy, which managed our national credit policies on a more selective basis in terms of values as a nation. - Whenever you have a period of expansion and interest rates rise, there tends to be a relative shift of credit away from housing and toward other areas. This has been a very good thing because it means that housing, then whenever you've had a slowdown, housing has come in and taken up part of the slack so that housing has served as a countercyclical or anti-cyclical industry in the post-war period. - I think what you're seeing here is an interesting illustration.

The difference between the economist-hyphen observer and the economist-hyphen activist. Now Professor Friedman likes to observe the aggregates and patterns of behavior as though it were in some sort of an aquarium while Mr. Keyserling with whom I must admit my sympathies is more interested in the problem of providing the housing and the facilities and observing that there will be costs, but attempting to move the costs into other areas where his own values says that they can be borne with somewhat greater equity. - I like the way you say his own values because of course this is part of what always comes up is that you and he'd have a strong tendency to stop to choose the reason of values of the economy. - Economics is never valueless. I think America is a rich economy and like a rich family rather than a poor family. The choices a rich family has to make are based not on needs but on values. And being a rich economy, the big question really, unfortunately it's not debated, is not whether we have room enough to do as much as we would like to of everything.

Manifestably we haven't. The question is whether we have enough to do more of what we need most. And therefore I am very disturbed when everybody is willing to raise taxes to finance a war. I'm not implying that I'm against the war. But nobody is willing to raise taxes to finance any great domestic priority. - Would you have the tax increase put to the Congress now or would you wait till the next time? - In the terms that the economists are now discussing it I would not raise taxes because in terms of the projected level of outlays I think there are enough signs of weakness in the economy so that a tax increase would be destructive. But I would raise taxes on a different ground. The taxes of the price we pay for for civilization. I would raise taxes to get more of our economic activity out of what we need least and more of it into what we need. - In other words, you would regard taxes as a way of paying for programs that you desire rather than as a regulator of the economy. - Yes, because I'm saying that we've forgotten what the federal budget is all about. If you just want the federal budget to stabilize the economy you can have zero expenditure. - I wonder if we could get Dr. Friedman to react to that.

Would you think of tax increases as being a method of regulating or stabilizing the economy or would you take taxes more? - Well, I'm delighted to have a point on which I can agree with. - I thought perhaps you would. - Because I am not in favor of raising taxes now. I am not in favor of trying to use taxes as a sensitive instrument for regulating the economy. It has some effect in that direction, but it's a crude instrument. We don't quite know how to do it. On the other hand, my belief is that the federal government today is spending too much money, not too little, on the non-military programs. It's spending too much money, not because we can't afford to spend it. I agree that we can afford to spend it. It's spending too much money because we're not getting our money's worth for it, because the money is being wasted, because it is not in fact achieving our objectives. I too want the higher values to come first, but I want those higher values as they are manifested in the preferences and tastes of the 200 million people in this country, not necessarily as they come through in the bureaucratic process.

As they may come through well, but most of the time, as I observe what we have been doing, the federal programs intended to promote these good objectives have not had those effects, and that's why people keep on coming back and saying, well, we agree that we haven't done a very good job in most of these in the past. But if only you give us another chance, next time we'll do better. - But you say with the negative income tax. Now that's really a flossy way of trying to convince somebody that you have a new idea. There's no such thing in the world as a negative tax, any more than a negative glass of water. A tax is something levied upon private income for public purposes. What you call a negative tax is merely using the tax reporting structure for the purpose of having the federal government pay certain monies to people whom you think have too little money. That's not a negative tax. That's a welfare payment. And yet the only proposal you have been able to conjure up is a proposal to have the government spend more in this form, and yet you say that you're against the government spending.

I don't get you. - I think we're going to have to leave that particular part of the question for the moment. And I would like to see whether we have any agreement on the general proposition that the economy is not headed downhill in the near future. Does any one of our three panelists feel that we need to inflate or to stimulate the economy for the sake of preventing an economic slump in the near future? - Well, there are some indicators. I noticed today that the Commissioner of BLS, Mr. Ross, indicated that the unemployment rate has moved from 3.7 to 4. - Well, you would think there is at least a possibility. How would you feel, Dr. Keyserling? - Let me put it this way. I don't think that all of the indicators are on the side of continued inflationary pressures. - But on balance you would place them on which side? - I would begin to hedge slightly on the possibilities of inflation continuing. - You would think it may be toppling a little bit toward a deflationary situation. - I think some of the indicators leave me somewhat more ill at ease, than I would have been a month or so ago. - Could we get a quick sense of the panel on that one, Dr. Keyserling, do you feel that...

- I feel that we're placing relatively too much stress on the inflationary dangers, and not enough stress on the signs of weakening. - Dr. Friedman? Inflation and deflation are not some... inflation and unemployment are not necessarily opposites. - We have both at the same time. I think perhaps that's the one thing upon which we have reached a consensus here tonight, and it's a very great pleasure to be able to record at least one agreement. Gentlemen, our time is running out. I hope we have clarified some of the issues. Of course, these are not issues that can be settled either in a half hour or in a decade, because we've been at work at these on these in this country for many years, and probably will be for a long time to come. Thank you all, gentlemen, good night. On this program, the Great Society has examined the sizzling economy. Next week, the last program in the series will present an intimate conversation with one of the prime interpreters of the Great Society, Vice President Hubert Humphrey.

This is NET, the National Educational Television Network. On this program, the Great Society will present an intimate conversation with one of the prime interpreters of the Great Society, Vice President Hubert Humphrey.