If, in the President's judgment, a temporary price-wage freeze would facilitate the introduction of a comprehensive guidepost policy, Congress has given the President clear authority to impose such a freeze.

Much valuable time has already been lost. As the Chairman of the Federal Reserve Board told this Committee:

*** I think a wage and price review board, had it been instituted a year or two ago, would have been more effective than it is likely to be today*** but I will still try it. I think the effort is worth making. Then, we know where we stand.

As a result of this delay in establishing an effective incomes policy, an important lesson has been learned. There is now widespread recognition that incomes policy must be a regular part of overall economic policy. Business, labor and the public are ready to support such a policy because they recognize its necessity. There should be no further delay.

SUPPLEMENTAL VIEWS OF VICE CHAIRMAN PATMAN

Because of my duties as Chairman of the House Banking and Currency and Defense Production Committees, I have been unable to attend the Midyear Review hearings. I am, however, in complete agreement with the findings of the review and, in an overall sense, I endorse its recommendations to reduce unemployment and dampen inflation.

The need for decisive action along these lines recommended in the review is of critical importance. In my estimation, the Nation is much closer to a depression than it is to achieving a full employment economy and significantly reducing inflation.

The suggestion that the Federal Government adopt a system of grant payments to State and local governments to compensate for lost tax revenues during periods of high unemployment obviously raises questions regarding implementation. Are such compensation payments to be on a no-strings-attached basis? If not, what requirements will be imposed on the expenditure of grant money by State and local governments? Should a system of priority investment areas be established? The questions do not reflect a negative attitude toward compensating grants. Rather, they are being stated to indicate the need for thorough study of the entire concept as it goes to the responsibility of Congress and the Administration regarding expenditure of such funds.

Doubling the level of expenditures for emergency public service employment and immediate release of impounded housing and urban development funds, as recommended in the review, constitute effective ways of providing short-range economic improvements. At the very least, these recommendations should be immediately executed. At the same time it should be recognized that long-range approaches to unemployment and the lack of adequate funds at reasonable cost for priority areas of the economy should be devised. Compensating grants may be one approach. Creation of a national financial institution to serve such priority areas as public works and facilities, location of new industry and business and improvement of existing business and industry to provide job training and employment opportunities in chronically depressed urban and rural areas, and the funding of low and moderate income housing can be another method of helping to provide vital financial resources for these sectors, which are the constant victim of cyclical downturns in the economy.

It is my conviction that such a vehicle-a National Development Bank-must be established to serve as a source of credit for public works and facilities, small and medium size businesses and industries and to produce low and moderate income housing when loans for such purposes are not available from conventional lending institutions or are being made available at unreasonable interest rates. Certainly the Nation's economic history of the past 31⁄2 years had dramatized

the necessity for a Development Bank which could provide credit at reasonable cost through direct loans for both the public and private

sectors.

The need for a Development Bank is constant, regardless of whether we achieve a full employment economy on a national basis or not. With or without a full employment economy, depressed urban and rural areas will continue to exist and require special effort. For the most part, the private financial industry has failed to meet the requirements of such areas and, without a new mechanism to provide incentive, they will not make an effective commitment to this problem. in the future.

Despite improved market conditions, State and local governments continue to face the prospect of finding themselves virtually unable to sell their bonds because the yields are not high enough to be competitive under tight money-high interest rate conditions. Moreover, the penalty imposed by high interest-tight money conditions is one that will be shouldered by generations of taxpayers. For example, a 20-year, $2 million bond issue carrying an interest rate of 5 percent will have a total cost of $3.1 million. But a bond issue of the same size and maturity carrying an S percent interest rate, which was paid during the tight money period of 1969-70, will have a total cost of more than $4 million-more than double the funds actually raised for investment in public works and facilities.

The need for a National Development Bank is apparent despite lower interest rates and increased availability of funds. As the Midyear Review points out, unemployment remains at an intolerable level and there is no end in sight for the prevailing inflation. Every reasonable effort must be made to create and sustain employment and job training opportunities, especially in those areas in which the rate of joblessness far exceeds the present national level of 6 percent. In some of these areas, like Seattle and Southern California, the problem is characterized by large numbers of jobless engineers and technicians. Utilization of the National Development Bank resources to provide industrial capital in such areas could serve not only to create employment opportunities but technological innovations and diversification of industry as well. In this way, new product areas can be explored and the economic base of these communities can be significantly moved toward stabilization.

Finally, the existence of a National Development Bank can be a permanent bulwark protecting the Nation's low and moderate income housing market. Full recognition should be given to the current high rate of new housing starts. But it should also be recognized that mortgage interest rates have begun to climb back toward the high levels that recently all but crippled the housing industry. If the rate continues to climb, hundreds of thousands of families will find themselves unable to purchase homes. Again, a National Development Bank would stand ready to provide mortgage funds both for the construction of new housing and permanent mortgage financing of new and existing housing for low and moderate income families.

Despite all of its great potential, our free private enterprise system is an imperfect structure which often fails to reach into areas of greatest need. Methods to overcome this fault without damaging the system itself must be adopted.

To a large extent, the National Development Bank concept outlined here resembles the Reconstruction Finance Corporation which played a highly significant role in sustaining the Nation's economy by providing credit at reasonable cost when it was not available from conventional lending institutions. Since the RFC was repealed in 1953, businesses and industries have had to rely far more heavily, if not entirely, on commercial banks to obtain loan funds necessary to remain competitive and otherwise continue operations. Invariably, dependence on large commercial banks, especially the large New York City banks which do not compete with each other in any meaningful way, has made business and industrial entities the victims of exorbitant, usurious interest rates during tight money-high interest rate periods. The devices utilized by large commercial banks to obtain totally unfair profits include demands for unconscionable yields on tax exempt State and municipal bonds. As indicated above, this has frequently resulted in school districts paying the price of two schools in order to finance only one. The cost of such practices ultimately falls on the taxpayer and the consumer.

SUPPLEMENTAL VIEWS OF REPRESENTATIVE REUSS

I heartily agree with the Committee's stress in this report on the need for immediate adoption of a vigorous and comprehensive incomes policy to break the present inflationary psychology that is driving up prices and wages at an inordinately rapid rate despite an unemployment rate which has averaged 6 percent this year. But, I am convinced that it is too late for a mere voluntary or "jaw-boning" approach to work effectively. Imbalances between the various wage rates and prices are now so extensive, and accumulated pressure on business managers and union leaders so strong, that only compulsory guidelines having the force of law can break the spiral of inflationary expectations at this time.

The President should immediately make use of the authority delegated to him by the Congress a year ago to freeze all wages and prices, and to set up a regulatory agency to carry this out.

Such firm action will not only bring a halt to inflation, it will also permit expansion in the dollar volume of demand for goods and services to express itself in real output and employment, rather than in further inflation. It will bring about fuller employment and production in three ways:

1. As I pointed out in the Committee hearings, one of the impediments toward a rapid expansion of output and employment in the economy is the extraordinarily high level of interest rates. These high interest rates reflect to a substantial degree inflationary expectations. A wage and price freeze, by leveling off inflation and killing expectations of further inflation will produce lower interest rates. This will mean more home building, more demand for furnishings for those homes, and more demand for other goods and services where the demand is stimulated by lower interest rates.

2. A large factor responsible for the 6 percent unemployment rate for the past 6 months has been weakness in consumer demand and a high savings rate. I am convinced that stablizing prices will instill consumer confidence, leading to additional consumer purchases and a reduction in the high rate of savings that consumers have maintained over the last year and a half.

3. Stopping inflation will also lead to a higher real level of business investment. During his testimony on June 30, Dr. Arthur F. Burns, Chairman of the Board of Governors of the Federal Reserve System, agreed with the above two points, and added a third:

You spoke of an enhancement of the confidence of consumers. I think that an incomes policy would also serve to enhance the confidence of businessmen and financiers.