4. 3. % of Synthetic Rubber Shipments Made to Tire Industry 45% Reduction in Synthetic Rubber Sales to Tire Industry: 67 6. Value of Synthetic Rubber Consumed by Tire Industry: 445 7. Less Reduction in Synthetic Rubber Availability: (4) 8. Net Shipments of Synthetic Rubber to Tire Industry: (6) - (7) 67 378 9. 10. .'. Value of Shipments of Tire Industry: (5) x (8) + (6) 3896 690 11. Output Multiplier for Tires (Net) 1.06 12. Decline in Shipments in All Other Sectors: (10) x (11) 13. Net Decline in Shipments in All Other Sectors: 731 Note: Every effort has been made to avoid double-counting by including the impact upon a particular final market only once in our estimates. For example, tire sales to the auto industry are excluded because the impact for the auto industry has been calculated elsewhere in this analysis. 27-213 74-6 Chairman REUSS. Your assumed figure for the decline in production of organic chemicals is, I believe, 15 percent? Mr. HEGEMAN. That is correct. Chairman REUSS. You also estimate potential savings of up to 8 to 10 percent per unit of production as a result of conservation efforts. Mr. HEGEMAN. That is in energy uses, not in feedstock uses. I want to distinguish between those two requirements of the chemical industry. Chairman REUSS. Are you able to be any more definite and certain about the possible decline in organic chemical production? You really don't have an estimate at all, you simply plucked the 15 percent out of the air as an assumption? Mr. HEGEMAN. That is correct. Chairman REUSS. Are you able to make any kind of a guess? Mr. HEGEMAN. Under the current conditions of very rapidly changing regulations affecting both feedstocks and fuels particularly the propane program and the mandatory fuel program, both of which are being revised with new regulations to be issued within a week or so-I think it is very difficult to make an intelligent forecast at this time. Perhaps when those programs become more definite it may be possible to develop a forecast. Chairman REUSS. Among the various users of feedstocks, such as agricultural, construction, textiles, furniture, and pharmaceuticals, do you have any suggestions as to their relative importance and what guidance you would give to the allocating authority as between these various uses of feedstocks? Mr. HEGEMAN. Between the uses of petrochemical products downstream? Chairman REUSS. Yes. Mr. HEGEMAN. I have no suggestions to make at this time on allocation programs. That would be allocating products outside of the petrochemical industry and I am not in a position to make suggestions at this time. Those products are not now under allocation, nor is it contemplated to my knowledge. Chairman REUSs. What about the rationing of feedstocks, both petrochemicals as opposed to other uses, and within petrochemicals? Mr. HEGEMAN. I think that the petrochemical industry, because of its impact on the economy, should be given consideration with regard to the various allocation programs that are being developed, and a priority assigned to petrochemicals commensurate with its importance relative to other demands on the fuel system. Chairman REUSs. Do you have any judgments as to its importance relative to other fuel demands? Mr. HEGEMAN. I certainly believe that consumer requirements for gasoline for pleasure driving and similar uses could be curtailed-as in fact they already are-in favor of petrochemical feedstocks. Chairman REUSS. Can you tell us anything about the present investment intentions of the petrochemical industry? Mr. HEGEMAN. Yes. The investment in the petrochemical industry reached a peak in 1966, according to the figures available from the Department of Commerce, through their annual survey. It peaked in terms of purchasing power, and after the actual dollars have been deflated by a construction cost index it indicates investment declined approximately 20 perecnt through 1971. What happened was the industry overbuilt its capacity because the size of plants was shifting significantly, so that much larger scale plants had to be built to be economic. As a result, the industry had surplus capacity in the late 1960's. And, of course, with the economic slowdown in 1970 and 1971, this surplus capacity remained. That was until 1972. Then this year they showed intentions of a rapid increase in new investment. The shortages in the industry did not begin to appear until the early part of this year, at which time the industry began to consider further investment for expansion, and increased its capital spending plans. Chairman REUSS. In your regional breakdown of the unemployment effects of petrochemical reductions, the mid-Atlantic region, the EastNorth Central region and the South Atlantic region, as you pointed out, had a much larger share of the declines in employment than occurred elsewhere. Is that because of the concentration of these five regions on textiles and furniture? Mr. HEGMAN. I will ask Mr. Ficcaglia to respond to that. Mr. FICCAGLIA. Principally it is because of the high concentration of both of the petrochemical industries in this area, such as the plastics industry and the paint industry, but also high concentration of many of the final end use markets that you referred to the furniture industry and the upholstery industry, concentrating in these three regions of the Nation. Chairman REUSs. This morning the administration indicated that unemployment next year over today would not exceed-I think the figure was about a million people. Your estimate, if I understand you correctly, suggests that unemployment in petrochemicals alone would exceed this figure. Am I correct in my reading? Mr. HEGEMAN. That is correct. The question remains, however, whether other sectors of the economy could pick up as a result of a decline in the spending by consumers on petrochemical products. If they can, then that would mitigate the unemployment effect associated with the downstream petrochemical industry. If they cannot, then these estimates would stand. Chairman REUSs. Isn't that a rather optimistic assumption that all the rest of the economy would be able to sufficiently increase employment so as to balance out the loss of the petrochemical segment? Mr. HEGEMAN. In the current environment I think that that would be correct, sir. Chairman REUSS. Thank you very much, Mr. Hegeman and Mr. Ficcaglia, for your excellent report and your responsiveness to our quesetions. We are very grateful. The subcommittee will now stand in recess until 10 o'clock tomorrow morning in room S-407 of the Capitol. [Whereupon, at 2:25 p.m., the subcommittee recessed, to reconvene at 10 a.m., Wednesday, December 12, 1973.] ECONOMIC IMPACT OF PETROLEUM SHORTAGES WEDNESDAY, DECEMBER 12, 1973 CONGRESS OF THE UNITED STATES, SUBCOMMITTEE ON INTERNATIONAL ECONOMICS OF THE JOINT ECONOMIC COMMITTEE, Washington, D.C. The subcommittee met, pursuant to recess, at 10 a.m., in room S-407, the Capitol Building, Hon. Henry S. Reuss (chairman of the subcommittee) presiding. Present: Representative Reuss; and Senators Proxmire and Javits. Also present: John R. Stark, executive director; Loughlin F. McHugh, senior economist; Michael J. Runde, administrative assistant; William A. Cox, Sarah Jackson, John R. Karlik, and L. Douglas Lee, professional staff members; Leslie J. Bander, minority economist; George D. Krumbhaar, Jr., minority counsel; and Walter B. Laessig, minority counsel. OPENING STATEMENT OF CHAIRMAN REUSS Chairman REUSS. Good morning. The Subcommittee on International Economics will be in order for a continuation of its hearings on the economic impact of the petroleum shortage. Yesterday we heard a wide range of estimates of how serious the impact on the U.S. economy would be as a result of fuel shortages. The administration witnesses considered the situation quite manageable. They suggested that shortages may not be as great as the President predicted 2 weeks ago, unemployment would not be expected to exceed 6 percent, and higher prices would provide an adequate and efficient means of allocating available supplies. But other witnesses challenged the optimism of this view, suggesting much higher rates of unemployment, bottlenecks causing further shortages, and a severe impact on real income distribution. Such forecasts led the witnesses to recommend immediate rationing, public service employment, and a much greater degree of planning in the allocation of available oil supplies to minimize economic dislocations. This morning we continue our investigation into the impact of shortages on the domestic economy. We will examine more closely the specific policies available to increase immediate energy savings and to provide adequate allocation of available fuels to critical sectors and services in the economy. For example, will rationing by higher prices and taxes, discussed yesterday by the administration, effectively cut gasoline consumption? What measures are available to limit consumer use of natural gas and electricity? What consequences will these measures have on standards of living, including those of the poor? If we must choose among (81) |