Daniel Moynihan

Mr. MOYNIHAN

Mr. MOYNIHAN. I am happy to yield, Mr. President. I yield, whatever.

Mr. MOYNIHAN. I want to say, Mr. President, that the Senator has made a very important statement. When the painful process, the creative process of the economic system was taking place in the thirties, democracy was under assault the world over, and there were more than a few who had given up on it in this United States, and capitalism was thought to have been discredited forever; free enterprise was thought to be a selfish doctrine put forward by a privileged few, and full employment a nostrum of dreamers, idealists, and probably subversives. Oh, what a time we had, and it was a close-run thing. I joined the Navy 50 years ago last July 1. I joined in the middle of a world war in which the forces we were contending against and with were as opposed to our system as any that ever existed in the world, and it was a close thing. We have been going on about the Enola Gay. May I say to the Presiding Officer that the real issue was, was Hitler going to get that bomb first, because the people working on it here knew the people working on it there. And we knew what we could think up, they could think up. And the British destroying the heavy water plant in Norway may have made the real difference. It was that close. Do you want to go back to that world? We could do it on this floor next Tuesday. I see the distinguished Senator from West Virginia has risen.

Mr. MOYNIHAN. Two days.

Mr. MOYNIHAN. I am happy to yield.

Mr. MOYNIHAN. Mr. President, I yield the floor. Mr. LEAHY addressed the Chair.

Mr. MOYNIHAN. Yes.

Mr. MOYNIHAN. I will be happy to do so.

Mr. MOYNIHAN. Mr. President, I want to express my great appreciation to the Senator from Vermont and my revered colleague, the Senator from West Virginia. If he was not in my classrooms, I have been in his classroom for 18 years. I hope it shows, at least to some extent. I mean to propose to act in the manner that the Senator from West Virginia spoke of earlier Senate's having done because the emperor. We have a Chief Executive and we owe him our counsel, whether he welcomes it or not. Sir, I have to tell you that the Treasury Department analysis of the calamitous potential of this measure, in terms of deepening recessions and leaving us with prolonged periods of unemployment, under utilization, bringing on crises between groups, between regions--the Treasury Department has prepared an analysis of this and that analysis is now in the White House waiting to be cleared or released. I say again, that analysis is now in the White House waiting to be cleared. There is a simple fact hereabouts in this city--it is almost a secret but everybody knows it--which is that there are those who would like to see this issue go away. Pass the amendment, see what happens in 5 year's time or 3 year's time, not in 2 year's time. That would be the most profoundly irresponsible act I can imagine. I say, sir, that we are not asking for anything. Whether it is associated with executive privilege, this is simply the economic analysis that the profession will produce at this time. But we have not heard from the White House. There was one op ed article by Dr. Tyson that was not bad. But we have not heard from the White House what every President since John F. Kennedy has known and understood, that this would strip the Federal Government and particularly the executive branch of those automatic stabilizers which have kept us from plunging and trashing and dropping into ruin in the century that preceded the Employment Act of 1946. Mr. President, I hope I am heard. I will know better by the end of the day. If I have not been heard, I will be on the floor first thing in the morning. I will stay here until it is clear that our request has been refused or what I hope is that it be granted so that we can help the President and avoid a calamity, which may be decided by one or two votes. Finally, Mr. President, I ask unanimous consent that the text of the New York Times article, ``The Pitfalls of a Balanced Budget, Dismantling a Decades-Old System for Softening Recessions,'' be printed in the Record at this point.

Mr. MOYNIHAN. Yes, sir.

Mr. MOYNIHAN. Oh, yes.

Mr. MOYNIHAN

Mr. MOYNIHAN. Mr. President, I rise today, as I have done each week of the 104th Congress, to announce to the Senate that 14 people were killed by gunshot in New York City this past week, bringing the total for 1995 to 89. Mr. President, in an introduction to a published series of editorials on America's gun epidemic, Los Angeles Times editorial writer and research director Molly Selvin, writes: People do kill people--but they can do it more efficiently, more potently and more massively with guns. And guns, these days, are killing more people on the streets and in the homes, schools and workplaces of America than ever before * * * We can let the gun violence continue unabated, or we can do something and do something dramatic, effective, historic. Ms. Selvin is quite correct. It will take dramatic measures to bring an end to the plague of gun violence. But the Senator from New York is compelled to point out that the solution proposed by the editorial series--a near-total ban on ownership and possession of guns--is simply not plausible. We have a two-century supply of guns. Unless abused, guns last almost indefinitely. Even if we could succeed in banning further production and sale of guns, it is unrealistic to think that we could reclaim the 200 million guns already in circulation today. On the other hand, we have a very limited supply of bullets--perhaps only a four-year supply. I have repeatedly attempted to make the case that it is here we should focus our attention. By banning or taxing out of existence those calibers of bullets used most often in crime, the millions of guns already in the hands of criminals would soon be rendered useless. To date, I have had difficulty convincing the Congress and past and present administrations of the merits of ammunition control. But as we sit idly by and watch bullets take the lives of nearly 40,000 Americans each year, I urge my colleagues to consider this sensible approach.

Mr. MOYNIHAN

Mr. MOYNIHAN. Mr. President, as ranking member of the Committee on Finance, I am today joining with the Democratic leader in introducing a bill, at the request of the administration, containing the statutory provisions that implement the middle-income tax cuts contained in the President's fiscal year 1996 budget submission. Secretary Rubin appeared before the Finance Committee last week to testify concerning these proposals. By making statutory language available early in the legislative process, the administration has aided the process of Senate consideration of these provisions. This legislation also will serve to answer many of the questions that the public may have with respect to the President's tax proposals. I want to thank the administration for providing this level of detail in so timely a fashion, and I look forward to working with them on these proposals in the coming months. Mr. President, I ask unanimous consent that the text of the bill and additional material be printed in the Record.

Mr. MOYNIHAN. Mr. President, as ranking member of the Committee on Finance, I am today joining with the Democratic leader in introducing a bill, at the request of the administration, containing the statutory provisions that implement the tax compliance proposals in the President's fiscal year 1996 budget submission. By making statutory language available early in the legislative process, the administration has aided the process of Senate consideration of these provisions. This legislation also will serve to answer many of the questions that the public may have with respect to the President's tax proposals. I want to thank the administration for providing this level of detail in so timely a fashion, and I look forward to working with them on these proposals in the coming months. Mr. President, I ask unanimous consent that the text of the bill and additional material be printed in the Record. be printed in the Record, as follows:

Mr. MOYNIHAN

Mr. MOYNIHAN. Mr. President, I rise today to continue my weekly practice of reporting to the Senate on the death toll by gunshot in New York City. Last week, 7 people were killed by firearms in New York City, bringing this year's total to 75. With over 16,000 murders by gunshot nationally each year, we obviously have a long way to go in our efforts to curb the plague of gun violence. To be sure, we've made some progress, particularly with passage of the Brady law and the recent ban on semiautomatic assault weapons. Unfortunately, there is a powerful lobby working against us. If any one doubts this, they need only look at the most recent congressional elections. The National Rifle Association's $3.2 million campaign to defeat targeted congressional candidates proved successful in 19 of 24 races. We must continue to fight the gun lobby. Efforts at the national level will continue to be difficult, and we must enlist the help of States and localities. Indeed, some States and localities have already taken important steps. Last year, for instance, the city of Chicago became the first in the Nation to ban the sale of all handgun ammunition. In addition, as reported in a New York Times article late last year, police departments in two other cities, Indianapolis and Kansas City, have mounted successful campaigns to rid their streets of guns. Simply by vigorously enforcing infractions of the law that give them the legal basis to search individuals, police in these two cities have confiscated an impressive number of illegal guns. In the first 3 weeks of the program in Indianapolis, special police teams seized an AK-47 rifle, a Mac 10 semiautomatic weapon, a Glock 19 semiautomatic pistol, and a host of other illegal guns. In Kansas City, which has already completed a 6-month gun-interception experiment, gun-related crimes declined by almost 50 percent in the area in which the program was implemented. These are by no means novel approaches. In fact, New York City's Police Commissioner William Bratton adopted similar methods when he headed the city's transit police. In an effort to crack down on the thousands of fare-evaders on the city's subway system each day, Bratton directed sweep teams to apprehend these illegal passengers. As it turns out, 1 in 20 of those passengers carried illegal weapons. The resulting arrests led to a 48-percent decline in subway crimes. I commend the efforts of the cities of Chicago, Indianapolis, and Kansas City to the attention of Senators, and I hope the Senate will consider gun control and ammunition control legislation in the near future.

Mr. MOYNIHAN

Mr. MOYNIHAN. Mr. President, it is with great pleasure that I rise today to recognize the achievements of Air Force Lieutenant Colonel Eileen Marie Collins, a native of Elmira, NY. On Friday, February 3, Lt. Col. Collins became the first woman to pilot a NASA space shuttle. As pilot on the Discovery, Col. Collins' main duty was to operate and maintain the engines, battery-powered hydraulic system, and electrical system. As we all saw, the Discovery rendezvoused with the Russian space station Mir, another historic achievement on this flight. The Discovery's 8-day flight is the first of eight missions NASA hopes to carry out this year. Colonel Collins began taking flying lessons at the age of 19 while studying mathematics and science at Corning Community College, in Corning, NY. She holds a bachelor of arts degree in mathematics and economics from Syracuse University. After graduating in 1979 from Air Force undergraduate pilot training at Vance Air Force Base in Oklahoma, she became an instructor on T-38 and C-141 aircraft. From 1986 to 1989 she taught mathematics at the Air Force Academy and continued as a flight instructor. It was in 1990, while she was attending the Air Force Test Pilot School at Edwards Air Force Base in California, that NASA selected her to be an astronaut. Now Colonel Collins joins the ranks of other astronauts from New York such as Mario Runco, Jr., and Ronald J. Grabe. I congratulate her for this great milestone in her career, and wish her success in all future endeavors.

Mr. MOYNIHAN

Mr. MOYNIHAN. Mr. President, I am pleased to be an original cosponsor of the Professional Baseball Antitrust Reform Act of 1995, a bill drafted by the distinguished chairman of the Judiciary Committee, Senator Hatch. I hope in--and settlement of--the professional baseball strike that has gone on for 6 long months now. This bill is designed to be a partial repeal of major league baseball's antitrust exemption. It would leave the exemption in place as it pertains to minor league baseball and the ability of major league baseball to control the relocation of franchises. On January 4, 1995, the first day of the 104th Congress, I introduced my own legislation on this subject. My bill, S. 15, the National Pastime Preservation Act of 1995, would apply the antitrust laws to major league baseball without the exceptions suggested by my friend from Utah. In 1922, the Supreme Court of the United States, in Federal Baseball Club versus National League, held that ``exhibitions of base ball'' were not interstate commerce and thus were exempt from the antitrust laws. Fifty years later, in Flood versus Kuhn in 1972, the Court acknowledged that in fact baseball is a business engaged in interstate commerce, but declined to reverse Federal Baseball, citing a half century of congressional inaction on the matter. Clearly baseball is a business engaged in interstate commerce, and should be subject to the antitrust laws to the same extent that all other businesses are. But the greater point is that the strike must be settled through good-faith bargaining between the parties. I will support this and any other effort that will move the parties forward toward a collective bargaining agreement--and the resumption of baseball in America as soon as possible. I thank my friend from Utah for inviting me to cosponsor this legislation, and hope other Senators agree with us that the time has come to act.

Mr. MOYNIHAN

Mr. MOYNIHAN. I thank my friend. (Mr. GRAMS assumed the chair.)

Mr. MOYNIHAN. Mr. President, I would like to speak for approximately 10 minutes to make a point in support of the Senator from Nevada.

Mr. MOYNIHAN. Mr. President, I am happy to have this opportunity to make a point which I will summarize first, which is that the analyses of the effect of the balanced budget amendment that have been prepared in the Department of Treasury, for example, have typically been static estimates of the reduction of Government programs and Government transfers that would be required to reach a balanced budget by the year 2002. I think the familiar figure is about $1.2 trillion, and we will get that much less in the way of highway funds and this much less in the way of some other program. I would like to introduce not a new thought but a parallel--and in my view, much more important--point which is that we put in jeopardy with a balanced budget amendment everything we have learned in the 60 years since the Great Depression about Government's capacity, through fiscal policy and monetary policy, to restrain the business cycle and put the economy on a steady path of economic growth. The Senator from Nevada speaks of the Social Security trust funds. They are in surplus. In 1977 we moved from a pay-as-you-go system which was purely intergenerational. Persons paid into system and moneys were received by people who had left the system, or retired. We went to a partially funded basis in anticipation of the baby boom retirement. We put in place a surplus which would--just to give a sense of the dimension--would buy the New York Stock Exchange. But we have not saved it. It was used to run or pay down the public debt, which translates into an increase in investment. We have used it for general fund purposes as the Senator from Nevada has said. All should be on notice that that surplus, that cash surplus, runs out in the year 2012. Thereafter, the increasing portions of the Social Security payments will have to be brought out of the economy generally, not from the payroll tax. The year 2012 is not that far in the distance. I would be closer to 2012 than I would be from the time that I entered the U.S. Senate. Therefore, the great issue is to maintain the economic growth of the past four decades, which marks a great change in our understanding of this subject. How to maintain more or less steady growth without the panics and depressions that have preceded it for a century and brought the great crisis of capitalism as it was understood to be in the 1930's. Here is a chart with one of the most remarkable bits of line drawings we will ever see. Here is the real growth, percent change of real GDP-- which is gross domestic product--from 1890 up to 1945. Look at that graph. Up, down; up, down; up, down. Three distinct times in that 60- year period there is a drop in GDP of 5 percent; twice there is a drop of 10 percent; once a drop of 15-percent. That 15-percent drop was the 1930's. If you liked the 1930's, you would like what came out of the 1930's--war. World war, with horrors still shaping citizens. It was thought, what could be done? Classical economics taught us that markets clear, prices change, and we always get the full use of resources. In the 1930's, an economics developed that we associate with John Maynard Keynes, however, he is not the only one that said, ``No, no, you can have an equilibrium with large proportions of capacity in the work force and capital unused.'' That was the great insight of the 1930's. And now, Mr. President, if I may say, I speak about what I saw. I came to this city in the Kennedy administration. I became Assistant Secretary of Labor for Policy Planning and Research. The Bureau of Labor Statistics provided the data on which our economic policies were based. We had in 1958 the first real recession in the postwar period. Unemployment reached 6.8 percent. Then a recovery began in 1959 and 1960. Then it stalled, and President Kennedy came in and unemployment was 6.7 percent. What to do. The analysis, and a correct one, which followed through three Presidencies, was that the revenues of the Federal Government were greater than its outlays. We kept running a surplus. In consequence, you had fiscal drag. You never reached full employment. The Kennedy advisers thought of anything that came to mind. They moved the annual dividend on the veterans' affairs life insurance up one-quarter, which brought $300 to our household. Then inspired, they doubled the dividend, which actually brought us enough money to reach $1,000, which was a downpayment on the farm we still live in at Pindar's Corner in New York. Walter Heller, with the aid of Joseph Pechman at the Brookings Institution, thought about revenue sharing; if we could give money to the States, they would spend it, and you would not have the fiscal drag of surpluses. President Johnson's people ascribed to this approach to fiscal policy and followed it pretty much. They did not quite deal with the inflationary aspects brought on by spending in the Vietnam war. President Nixon had to bring that down, but then he had to stimulate it up again. George Shultz, one of the great public men of our age, as the first Director of the Office of Management and Budget, put in place a balanced full employment budget which he defined as one in which actual outlays did not exceed revenues that would come in at full employment. We built in a deficit to increase employment. It is a little arcane but not so arcane. Your average high school graduate can understand it. It is just if you have been out of high school a long time, it is a little harder. Look at that performance--up, down; up, down; up, down; prices, panic, depression, and since 1945, a steady growth. This represents real growth, increases in GDP each year, a little tick in 1958, a little tick in 1961, another tick in 1979. The only real recession was 1982, when GDP dropped about 2 percent. Otherwise, steady growth. A great achievement in social learning. I it directly in jeopardy with this amendment. A balanced budget, for 12 months; if you think about it, it is an agricultural cycle. We do not live on an agricultural cycle, Mr. President. We live on a 5-year cycle, or something like that. I would like to go back to the Smoot-Hawley tariff, which was another idea on this floor in 1930. At that time, 1,028 economists pleaded with Herbert Hoover not to sign that bill. He signed it. Within a year, the British had gone off free trade into imperial preference. The Japanese went to the Greater East Asian Prosperity Sphere. In 1933, with unemployment at 25 percent, Adolf Hitler became Chancellor of Germany in a free election within the Parliament. This is what we climbed out of in the way of knowledge and what we are plunging back into in our ignorance. In 1979, I asked Charles Schultze, then Chairman of the Council of Economic Advisers, would he run the 1975 recession on a computer down at the Council with a balanced budget amendment. He wrote me that the computer blew up--GDP dropped 12 percent. Just now, Dr. David Podoff, the former chief economist of the Committee on Finance--and now minority chief economist--who studied under Robert Solow, Paul Samuelson, and Franco Modigliani, three Nobel laureates, simulated a drop in the 1995 economy if some--I use a big term--exogenous shock came along, oil prices doubled, Mexico defaulted--you can name a lot of things--and unemployment went up by 3 percentage points. Using Okun's law, as to what a rise of 1 percentage point in the unemployment means, a drop of about 2.5 percent in GDP, he comes up with a new equilibrium of 18 percent below GDP's potential because of this amendment. Unemployment 12 percent. The last time we had 12 percent unemployment was 1937. That is why, just as the economists tried to warn in 1930, last week Robert Solow of MIT came here with other economists, and read a statement opposing the balanced budget amendment that he and Paul Samuelson, both Nobel laureates, had written. The petition--circulated by Mr. Jeffrey Faux made a number of points about this proposal. But No. 2 is this: Even if economic forecasting could be done with pinpoint accuracy-- As the Senator from Nevada knows, it cannot be done and as he was saying-- requiring balanced budgets in each fiscal year, regardless of prevailing economic circumstances, is bad public policy. The Federal Government, unlike State and local governments or individual households, has a special responsibility to finance its operations in a way that helps balance economic activity in the entire economy. When the private economy is in recession, a constitutional requirement that would force cuts in public spending or tax increases could worsen the economic downturn, causing greater losses of jobs, production, and income. Mr. President, we know this, we have shown it, we have done it, and they will curse this generation in times come if we ever inflict this abomination on the Constitution of the United States. We will not have the resources to pay Social Security benefits. The economy will be stuck at 80 percent of capacity, 15 percent unemployment--whatever it will be. It will not get better because there will be no way for it to get better. The courts will dither and the monetary authorities at the the Federal Reserve will ask what is its capacity. You could cripple the American economy. Just to get reelected? No, Mr. President, there are things more important than getting reelected. I hope we understand what is at issue: Social Security and the American economy and the extraordinary achievement of economic understanding of the last half century. Nothing less, Mr. President, and we will ignore this to our disgrace if it should pass. I yield the floor, and I thank my friend from Nevada for allowing me to speak. Mr. REID addressed the Chair.

Mr. MOYNIHAN

Mr. MOYNIHAN. Mr. President, this will be the third and last of the papers I have presented to the Senate in opposition to House Joint Resolution 1, Proposing an amendment to the Constitution of the United States to require a balanced budget. In the first paper I described the development of fiscal policy in postwar America, following the huge swings of the Great Depression and the Second World War. I described an economic profession growing in understanding and reach. I made the point that I saw this happen. In 1961, I joined the Kennedy administration. I became Assistant Secretary of Labor for policy planning and research. Unemployment that year reached 6.7 percent, the second highest it had been since annual rates were first recorded in 1948. There was a sense of emergency. But also a confidence that we knew what to do. The Federal Government was running a surplus. The result was fiscal drag. We would contrive to spend more and tax less, so as to stimulate the economy toward full employment. We did and it worked. By 1966, unemployment dropped to 3.8 percent and by 1969, it reached 3.5 percent. A level, incidentally, never reached since. Those were heady days. In 1965, in an article in ``The Public Interest'' entitled, ``The Professionalization of Reform,'' I noted that the Council of Economic Advisers forecast for GNP for 1964 was off by only $400 million in a total of $623 billion, while the unemployment forecast was on the nose. Recalling events that followed World War II, I noted that in 1964 the unemployment rate in West Germany was 0.4 percent, and not much higher in the rest of Western Europe. Indeed, unprecedented low levels for peacetime. There had been some social learning. In the first year of the Nixon administration, contractionary fiscal policies were put in place designed to cool off an overheated economy following the buildup for the Vietnam war. Then in 1972 expansionary policies put in place by then-Director of OMB George P. Shultz stimulated the economy following the 1970-71 recession--the first In truth, the record is extraordinary. The great issue of the 19th century--the economic swings accompanied by vast unemployment--the issue which gave rise to the radical totalitarian movements that were to prove the agony of the 20th century--that issue has been resolved. A chart prepared by the Joint Economic Committee illustrates this with great clarity. Between 1890 and 1945, real growth in the economy dropped by 5 percent on three occasions, dropped by 10 percent on two occasions, and on two other occasions dropped almost 15 percent. Since 1945, there have been four tiny declines, and only one serious one, that of the recession of 1982, say 2 to 3 percent. Hardly worth noting in the pre-war economy. We had ``fine tuned,'' as the phrase went. The contractionary policies of 1969 were, in retrospect, a little too large; while the expansionary policy of 1972 came a little too late. But the theories seemed sound and the timing likely to improve. Both theory and practice centered on the problem of underconsumption and the avoidance of what was seen as the problem of persistent cyclical surpluses in the Federal budget. Then came the Reagan Revolution. Earlier doctrines were succeeded by supply side economics. To say again, I saw this happen. Huge deficits appeared which were not cyclical, and which were of no possible use. To the contrary, just yesterday at the Finance Committee, Matthew P. Pink, president of the Investment Company Institute testified: Government statistics show that personal saving as a percent of disposable personal income has tumbled over the last decade--from a high of 8.0 percent in 1984, to a low of 4.0 percent in 1993. If government deficits are factored in, the situation appears even more bleak: since the 1960s, ``net national saving'' has dropped from more than 8 percent to less than 2 percent today. In 1984, the Council of Economic Advisers, then headed by Martin Feldstein, the eminent Harvard economist, now head of the National Bureau of Economic Research, reported the grim news that a structural as against cyclical deficit had appeared and was not going away: Reducing the Budget Deficit Despite the dramatic reduction in the share of national income taken by government domestic spending and the fundamental improvement in the character of our tax system, the Nation still faces the serious potential problem of a long string of huge budget deficits. Vigorous economic growth can eliminate the cyclical component of the deficit. But without legislative action, the structural component is likely to grow just as fast as the cyclical one shrinks. The Administration's economic projections imply that the budget deficit will remain roughly $200 billion a year--or about 5 percent of GNP--for the rest of the decade unless there is legislative action to reduce spending or raise revenue. Deficits of that size would represent a serious potential threat to the health of the American economy in the second half of this decade and in the more distant future. deficit projection The cyclical component of the budget deficit is the party of the deficit that occurs because the unemployment rate exceeds the inflation threshold level of unemployment, i.e., the minimum level of unemployment that can be sustained without raising the rate of inflation. This excess unemployment raises the deficit by depressing tax revenues and by increasing outlays on unemployment benefits and other cyclically sensitive programs. The remaining part of the budget deficit, known as the structural component, is the amount of the deficit that would remain even if the unemployment rate were at the inflation threshold level. The Administration estimates that the inflation threshold level of unemployment is now 6.5 percent and will decline in the coming years as the relative number of inexperienced workers declines and as the Administration's employment policies are enacted and take effect. Table I-2 presents the cyclical and structural components of the budget deficit for 1980 through 1989. The 1983 deficit of $195 billion was divided about evenly between the cyclical and structural components. Because of the lower level of unemployment projected for 1984, a much larger share of the current year's deficit is structural. The projected deficit of $187 billion includes a cyclical component of $49 billion and a structural component of $138 billion. By 1989, the entire projected budget deficit is structural.

Mr. MOYNIHAN

Mr. MOYNIHAN. Mr. President, on Monday I spoke to the Senate at some length describing the economic policies of the Kennedy, Johnson, and Nixon administrations which were directed to the problems associated with persistent budget surpluses. It will no doubt surprise many persons now proposing to amend the Constitution so as to deal with the problem of persistent budget deficits to learn that only a few decades ago our tendencies appeared to be just the opposite of those of the last decade or so. On Monday, I spoke to the long tradition that democracies were inherently disposed to vote themselves largess, a majority would abuse its responsibilities in one way or the other. But, in fact, two centuries of the American experience has not produced that, save for this particular time. It happened that, this morning, our hugely gifted Secretary of the Treasury, Mr. Robert Rubin, came before the Finance Committee with the President's budget and he showed the effect of the deficit reduction program which we put in place in this floor in moments of high drama in July, 1993, when we provided $500 billion in deficit reductions which, in turn, brought about a lowering of the deficit premium that had been riding on top of interest rates, such that in the end we had a cumulative effect of about $625 billion in deficit reduction. That effect could be shown right here. This is Secretary Rubin's chart. It says, ``Spending on Government programs is less than taxes for the first time since the 1960's.'' A large event. Now, when he says spending on Government programs, that is all Government programs excepting payment on the debt, which is not a program but a requirement. With that provision, in 1994 to 1995, we will have a budget surplus of a little less than 1 percent, six-tenths of 1 percent, but a surplus for the period. Now, that is in blue, as the distinguished Presiding Officer can see, as are these two blue bars over on the left side of the chart, which is the surplus of 1962 to 1965 under Presidents Kennedy and Johnson; 1966 to 1969, and that is President Johnson; and there was a slight surplus and then a slight deficit in the period 1970 to 1973 under President Nixon. Our Government then ran surpluses, which its principal financial officer considered to be a major problem to the economy, that being an obstacle to full employment, which, under the Employment Act of 1946, was to be the largest economic goal of the country. On Monday, I cited the Office of Management and Budget's explanation of the budget for fiscal 1973. This was written by George P. Schultz, then director of the newly established OMB, George Shultz, who was later a most eminent Secretary of the Treasury and Secretary of State. He stated as such: Budget policy. The full-employment budget concept is central to the budget policy of this Administration. Except in emergency conditions, expenditures should not exceed the level at which the budget would be balanced under conditions of full employment. Which is to say he had built a deficit into the budget which was the difference between outlays and that would equal revenues at full employment and the actual revenues which came in from less than full employment. We were coping with surpluses, a lag in the revenues that come into the Government in the upward slope of the business cycle, and our disposition to spend, if you will, those revenues here in the Congress. And once again this surplus in revenues as against programs has appeared. It comes miraculously, if you will, but not accidentally. That seems an oxymoron. But I do now know how many really believe that what we did in 1993 would have this result. But it has done, and there it is. And my purpose in all this has been plain enough. I make the point that there is nothing inherent in American democracy that suggests we amend our basic and abiding law to deal with the fugitive tendencies of a given moment. These are the tendencies, Mr. President. And, again, by sheer happenstance, I prepared these remarks to be given this afternoon. This morning the Secretary of the Treasury presented us this chart which shows us these tendencies. Right here goes the deficit of the period from the late 1970's to the early 1990's. I rise today to provide documentation as to how a series of one-time events of the 1980's led to our present fiscal disorders even as events in the 1990's point to a way out of them; and, again, to state I prepared these remarks before I saw this chart. And, indeed, there you see that emergent surplus. On January 26, at the request of Chairman Bob Packwood, the Congressional Budget Office, in the person of Director Robert D. Reischauer, presented the Finance Committee with data comparing current economic forecast and budget projections with those made by CBO before the enactment of the Economic Recovery Tax Act of 1981, ERTA as it is generally known. Here is Dr. Reischauer's testimony. Unlike the current ``Economic and Budget Outlook'', CBO's budget reports issued before enactment of the 1981 tax cuts routinely projected that a continuation of current tax and spending laws would lead to large budget surpluses. CBO also warned that such levels of taxes and spending would act as a drag on the economy. Mr. President, that is a direct continuation, that view, of the view that went from Walter Heller, as chairman of the Council of Economic Advisers in 1961 under President Kennedy, to Arthur Okun, as chairman under President Johnson, to Herbert Stein, as chairman under President Nixon, and budget directors such as Kermit Gordon and George Shultz. They saw the problems of the American Government very much in terms of persisting surpluses that depressed economic growth. I continue Dr. Reischauer's testimony: The primary reason for those projections was that high inflation was expected to drive up revenues dramatically. Because key features of the Federal individual income tax were not automatically adjusted for inflation, periods of high inflation--such as the late 1970s and early 1980s-- pushed individuals into higher tax rate brackets and caused revenues to increase rapidly. In response, policymakers cut taxes every few years on an ad hoc basis--five times in the 1970s, for instance. Again, to try to reach back to a period which we seem to have forgot--and, in fairness, probably no more than a fifth of the Members of the House right now and somewhat more of the Senate were here in the 1970's who could remember that--but we cut taxes five times in the 1970's just to keep the surplus from growing too large. Note the continuity of the problems faced by our analysts at the outset of the 1980's with those faced at the outset of the 1960's. The Federal Government was running an unacceptable surplus; a sure remedy was to cut taxes. Dr. Reischauer continued: Illustrating this dilemma, in its February 1980 report Five-Year Budget Projections: Fiscal Years 1981-1985, CBO projected that revenues collected under current tax law would climb from about 21 percent of GNP in 1981 to 24 percent by 1985. Simple arithmetic pointed to enormous surpluses in the out-years. For example, current-law revenues exceeded outlays by a projected $98 billion for 1984 and $178 billion for 1985. Similarly, in its July 1981 report Baseline Budget Projections: Fiscal Years 1982-1986, CBO projected budget surpluses of between $148 billion and $209 billion for 1986, depending on the economic assumptions used. In the same report, CBO estimated that the 1981 tax cuts and other policies that were called for in May 1981 budget resolution would generate a balanced budget or a small deficit, roughly $50 billion by 1984--again, depending on the economic assumptions employed. That budget background led to the 1981 tax cuts. Given the best information available at reasonably thought that significant budget surpluses loomed under current law. Analysts differed, however, on whether the 1981 tax cuts would put the government on a balanced-budget footing or would lead to small budget deficits. The Economic Recovery Tax Act of 1981 passed the Senate by an overwhelming 67-to-8 vote. I voted for it with the same measure of confidence that had led me to support earlier tax cuts. This was a familiar situation; well enough understood. So I and others thought. We were ruinously wrong. At a hearing of the Finance Committee on January 31, Dale Jorgenson, professor of economics at Harvard University, called the 1981 tax cut a fiscal disaster because the Federal Government stopped raising the revenue it needed. In an instant, deficits, not surpluses, because our problem. For certain, two things happened--beyond the bidding war that accompanied the enactment of ERTA, with Democratic Members of Congress seeking to outdo the new Republican administration. The first is the action of the Federal Reserve designed to bring down the double-digit inflation of the late 1970's. In a not unfamiliar sequence, the Fed brought down the economy with it. A deep, deep recession commenced. In 1982, the unemployment rate reached 9.7 percent, the highest rate recorded since the Employment Act of 1946. Revenues fell off precipitously, largely the result of recession, but more steeply owing to the 1981 rate cut. Now to a second, and to my view, more important event. Beginning in the 1970's a body of opinion developed, principally within the Republican Party, which held that Government at the Federal level had become so large as to be unacceptably intrusive, even oppressive. There is a continuity here. All those years trying to spend down surpluses had indeed brought about a great increase in the size of Government. Of a sudden, deficits, if sizeable enough, gained a new utility. They could be used to reduce the size of Government. This was a powerful idea. Indeed, in July 1980, I contributed an article to the New York Times which argued that, the Republicans had become the party of ideas and thus that ``could be the onset of the transformation of American politics.'' I argued: Not by chance, but by dint of sustained and often complex argument there is a movement to turn Republicans into Populists, a party of the People arrayed against a Democratic party of the State. This is the clue to the across-the-board Republican tax-cut proposal now being offered more or less daily in the Senate by Dole of Kansas, Armstrong of Colorado and their increasingly confident cohorts. * * * * * The Republicans' dominant idea, at least for the moment, seems to be that the social controls of modern government have become tyrannical or, at the very least, exorbitantly expensive. This oppression--so the strategic analysis goes-- is made possible by taxation, such that cutting taxes becomes an objective in its own right, business cycles notwithstanding. Similarly, ``supply-side'' economics speaks to the people as producers, as against the Government as consumer. Within the Republican Party this is put forth as populism and argued for as such * * *. Asked by a commentator whether an across-the-board tax could rally lead to the needed increase in savings, a Republican Senator replied that he took for granted that the people would know what to do with their own money. Then came the revolution. Some 4 months after I wrote that article, a new Republican President was elected, himself much committed to this view, and his White House staff fair to obsessed with it. They welcomed deficits for reasons wholly at odds with their Democratic, or for that matter, Republican predecessors. From the early 1980's, I found myself often on this Senate floor, and on several occasions in print, making the point that in the Reagan White House and Office of Management and Budget, a huge gamble was being made. A crisis was being created by bringing about deficits intended to force the Congress to cut back certain programs. I encountered great difficulty getting this idea across. No one believed what I was saying. The intentional nature of the Reagan deficits was not understood or admitted at the time, nor has it been very widely acknowledged since. Yet it did happen, and it has been well documented. In a television speech 16 days after his inauguration, President Reagan clearly stated it: There were always those who told us that taxes couldn't be cut until spending was reduced. Well, you know we can lecture our children about extravagance until we run out of voice and breath. Or we can cut their extravagance by simply reducing their allowance. The person principally involved, Mr. David Stockman, who was President Reagan's Director of the Office of Management and Budget, wrote a memoir of his time in Washington entitled, ``The Triumph of Politics.'' He described in detail what happened and how it went wrong: how the Reagan Revolution--as based on the immutability of the Laffer curve--had failed. According to Stockman, President Reagan's top economic advisers knew from the very beginning that supply-side economics would not and could not work. That superb journalist and historian, Haynes Johnson, wrote of this in his wonderful book, ``Sleepwalking Through History: America Through the Reagan Years,'' published in 1991. Johnson writes that the Reagan team saw: * * * the implicit failure of supply-side theory as an opportunity, not a problem * * *. [The] secret solution was to let the federal budget deficits rise, thus leaving Congress no alternative but to cut domestic programs. I will simply quote a footnote on page 111, where Johnson says of this Senator: [Stockman's] former mentor Moynihan was the first to charge that the Reagan Administration ``consciously and deliberately brought about'' higher deficits to force congressional domestic cuts. Moynihan was denounced and then proven correct, except that the cuts to achieve balanced budgets were never made and the deficits ballooned even higher. David Stockman writes in his book, ``If I had to pinpoint the moment when I ceased to believe that the Reagan Revolution was possible, September 11, 1981 * * * would be it.'' It was then that Stockman realized that no huge spending cuts would ever come. He pleaded with the President and his colleagues in the Cabinet to do something. But nothing was done. The President had claimed he would use his pen to veto big spending appropriations bills. But of the reality, Stockman wrote: * * * the President's pen remained in his pocket. He did not veto a single appropriations bill * * *. Come to think of it, he did use his pen--to sign them * * *. The 1983 deficit had * * * already come in at $208 billion. The case for a major tax increase was overwhelming, unassailable, inescapable, and self-evident. Not to raise taxes when all other avenues were closed was a willful act of ignorance and grotesque irresponsibility. In the entire twentieth-century fiscal history of the Nation, there has been nothing to rival it. And so, President Reagan became the biggest spender of them all. By the mid-1980's the Reagan transportation budget in constant dollars topped Jimmy Carter's best year by 15 percent, Johnson's by about 40 percent, and Kennedy's by 50 percent. Big Government? That was something for the speechwriters to fight as long as they didn't mention any names * * *. Spending continued largely unabated in all cases. I recall George Will speaking to a group of businessmen at breakfast in about 1984 and saying, ``I have a door prize of a toaster for anyone who can name one program that President Reagan promised to cut during his 1984 Presidential campaign.'' Everyone in the room started looking around at his or her neighbor, clearly wondering, ``Why can't I remember one?'' Whereupon Mr. Will came to their rescue, ``Don't feel bad about your memory. There was none.'' They created a crisis. We indulged ourselves, in the early 1980's, in a fantasy of young men who perhaps had too much power and too little experience in the real world. They thought they could play with fire, create a crisis. Well, the fire spread, and the numbers--the damages-- are well known to all of us. On January 20, 1981, the Federal debt stood at $940.5 billion, which was no great cause for concern. Eight years later, it was $2.86 trillion. What had taken our Nation nearly two centuries to amass had been tripled in just 8 years. By the end of 1992, it was just over $4 trillion. On December 31, 1983, I published an article in the New Republic entitled, projected 8-year growth is $1.64 trillion, bringing us to a total debt, by 1989, of $2.58 trillion.'' As it turned out, the total debt in 1989 was $2.86 trillion. Not bad shooting. Four years later it was a little over $4 trillion. I have spoken of two events of the 1980's. First, the tax cuts of 1981 followed by the severe recession of 1982. Next, the development within the incumbent administration of a grand strategy of using deficits to bring about a reduction in the size of Government, followed by a disinclination to cut specific programs. Mr. Stockman's memoirs provide graphic examples of this latter development, including the celebrated counsel he gave the President on how much to cut them. Let me in passing mention a possible third event which led in part to the great increase in debt during the 1980's. This was recently alluded to by Lawrence J. Korb in an article in the Washington Post. Mr. Korb, now at the Brookings Institution, contends that ``the Reagan buildup'' of the military was part of a deliberate strategy of engaging the Soviet Union in an arms race that would leave them bankrupt. The buildup, Mr. Korb continues: * * * was based not on military need but upon a strategy of bankrupting the Soviet Union. If the Reagan administration had budgeted only for military purposes, the 1985 budget would have been some $80 billion less. The 1995 defense budget is still at about 85 percent of its average Cold War level, and actually higher [even in inflation adjusted dollars] than it was in 1955 [under Eisenhower] and in 1975 [under Nixon], when the Soviet Empire and Soviet Union were alive and well. It is difficult to have been in Washington in those times and not to have been aware of such thinking in the environs of the White House. For the first 4 years of the Reagan administration, I was vice chairman of the Senate Select Committee on Intelligence, and one heard such thoughts. By this time, I was convinced that the Soviet Union would soon break up along ethnic lines and largely in consequence of ethnic conflict, and so was perhaps more attentive than some. Certainly, Raymond L. Garthoff, in his study, ``The Great Transition, American-Soviet Relations and the End of the Cold War'' [Brookings, 1994] holds to the view that something of this sort took place. He writes: A final element in President Reagan's personal view was that not only was the Soviet system ideologically bankrupt and therefore vulnerable, but that it was also stretched to the utmost by Soviet military efforts and therefore unable to compete in an intensified arms race. As he put it in a talk with some editors, ``They cannot vastly increase their military productivity because they've already got their people on a starvation diet . . . if we show them [we have] the will and determination to go forward with a military buildup . . . they then have to weigh, do they want to meet us realistically on a program of disarmament or do they want to face a legitimate arms race in which we're racing. But up until now, we've been making unilateral concessions, allowing ours to deteriorate, and they've been building the greatest military machine the world has ever seen. But now they're going to be faced with [the fact] that we could go forward with an arms race and they can't keep up.'' The Soviet system was indeed under growing strain, as would become increasingly evident throughout the 1980s. But most of the premises underlying Reagan's viewpoint were highly questionable: that the United States had not also been active in the arms competition and had been making unilateral concessions, that the Soviet Union was unable to match adequately a further American buildup, and that the Soviet Union would respond to such a buildup by accepting disarmament proposals that the United States would regard as ``realistic'' (that is, would favor the United States more than the SALT II Treaty that had been produced under the strategic arms limitations talks [SALT] conducted by the three preceding administrations but not ratified). But whatever their merit, they represented the thinking of the new president and his administration. Just how much this thinking deepened the deficits of the 1980's is difficult to assess. It is now more a matter for historians. But it can hardly have helped. And so we come to a compound irony. The great struggles over the nature of the American economic system that dated from the Progressive Era to the New Deal ended in a quiet acceptance of the private enterprise economy so long as government could pursue policies that produced relatively full employment. Hardly a revolutionary notion, but surely an honorable undertaking. Even so, for the first time, it disposed American government toward deficit financing. Nothing huge; nothing unmanageable; but real. In 1965, in the first article in the first issue of The Public Interest entitled, ``The Professionalization of Reform,'' I set forth the now somewhat embarrassing proposition that Keynesian economics in combination with the statistical feats such as those of the National Bureau of Economic Research, founded by Wesley C. Mitchell at Columbia University, invested us with unimagined powers for social good. I was not entirely wrong. Governments promise full employment--and then produce it. (in 1964 unemployment, adjusted to conform more or less to United States' definitions, was 2.9 percent in Italy, 2.5 percent in France and Britain, and 0.4 percent in Germany. Consider the contrast with post-World War I.) Governments undertake to expand their economy at a steady rate--and do so. (In 1961 the members of the Organization for Economic Cooperation and Development, which grew out of the Marshall Plan, undertook to increase their output by 50 percent during the decade of the 1960's. The United States at all events is right on schedule.) The ability to predict events, as against controlling them, has developed even more impressively--the Council of Economic Advisers' forecast of GNP for 1964 was off by only $400 million in a total of $623 billion; the unemployment forecast was on the nose. And yet I did not entirely see--did not at all see--the serpent lurking in that lovely garden. The singular nature of the new situation in which the Federal government finds itself is that the immediate supply of resources available for social purposes might actually outrun the immediate demand of established programs. Federal expenditures under existing programs rise at a fairly predictable rate. But, under conditions of economic growth, revenues rise faster. This has given birth to the phenomenon of the ``fiscal drag''--the idea that unless the Federal Government disposes of this annual increment, either by cutting taxes or adding programs, the money taken out of circulation by taxes will slow down economic growth, and could, of course, at a certain point stop it altogether. Which is to say, deficit spending as public policy. How that would have troubled FDR. On election night of 1936, he was at Hyde Park surrounded by friends and overwhelmed by the electoral returns. The New Deal was triumphant. And so, as Alan Brinkley notes in his forthcoming study, ``The End of Reform: New Deal Liberalism in Recession and War,'' a few days later, boarding a train to return to Washington, he told well-wishers, ``Now I'm going back * * * to do what they call balance the budget and fulfill the first promise of the campaign,'' which in 1932 had been to balance the budget. In much this manner, the great struggle with the Marxist-Leninist vision of the future, and its concrete embodiment in the Soviet Union, ended with the most assertively conservative administration of the post-New Deal, assertively opposed to deficit spending of any kind, more or less clandestinely pursuing just the opposite course. And yet, may we not agree that both these tendencies are now abated, if not altogether spent? A post-Keynesian economics is no longer as confident of fiscal policy as was an earlier generation. A post-cold- war foreign policy has no need to concern itself with bankrupting the Soviet Union: the region is quite bankrupt enough, and indeed, receives American aid. Can we not then look upon our present debt much as the Truman and Eisenhower administrations looked upon the debt incurred during World War II. Pay it off and get on with the affairs of the Nation. World War II, and the cold war were fought, in a legitimate sense, to defend the Constitution of the United States against all enemies, foreign and domestic. It would be awful if in this moment of victory we should choose to mutilate the basic law of the land for which so much was sacrificed.

Mr. MOYNIHAN

Mr. MOYNIHAN. Mr. President, I know my distinguished friend, the chairman of the Committee on Banking and Urban Affairs, has an important statement he wishes to make. I know it is not directly on our subject, but I know it is important. I want to hear him. I am sure the Senate will as well. I am happy to yield my place to him at this point.

Mr. MOYNIHAN. Mr. President, I would like to speak briefly to the amendment that has been offered by my good friend and colleague, the Senator from Nevada, Senator Reid, which states that receipts, including attributable interest and outlays of the Federal old age and survivors insurance trust fund and the Federal disability insurance fund, shall not be counted as receipts or outlays for the purposes of this article--that being the proposed amendment to the Constitution. In what I hope will not be the outcome of this debate, which is to say the Senate approving such an amendment to the Constitution, at the very least, the Reid provision provides hope for the Social Security system. It is a slim prospect, given the extraordinary fiscal turmoil and tumult, that will follow the adoption of this proposed amendment to the Constitution. But it does declare the interest of the Congress and then of the States in the preservation of Social Security, an issue which becomes--in my time in the Senate, I have seen one fully-agreed- upon, solidly financed, well-administered program, the most successful social program in the 20th century go from being a given to being a problem and to being problematic. We refer to it as an entitlement. I make the point that the very able majority leader of the House, Mr. Armey, corrects us all when he says it is a ``fiduciary responsibility'' of the Federal Government, which is to say these funds are not ours to dispose of as we will. We hold them in trust. They are called trust funds. The revenue stream will continue in surplus--cash surplus--until the year 2012, as we now expect. We can add a year, plus or minus; there is that possibility. Social Security began as a pay-as-you-go system in the depth of the 1930 depression. That you take more out of the economy than you put in seemed to be unwise and it would have been, and we had difficult consequences even so. The 1937 recession was probably, in part, triggered by the 1935 payroll tax. But in any event, near a half-century goes by and the Social Security amendments of 1937. Seeing the peculiar demography of the baby boomers and their eventual retirement, that great increase in births that followed the long, slow level of the 1930's and the Second World War, we put in place a partially funded system. I was a member of the Finance Committee. I was a member of the committee on conference. We put in place, Mr. President, a cash surplus which, over the period, would extend--to give you a sense of the proportion, it would buy the New York Stock Exchange. It still flows in cash surplus and will for the better part of 15 to 20 years, in prospect. So great praise and thanks to the Senator from Nevada for his effort in this regard--reserving always the point that I would like to make at some time that the amendment itself is a huge mistake that I hope we will not make. Mr. HOLLINGS addressed the Chair.

Mr. MOYNIHAN

Mr. MOYNIHAN. Madam President, I rise today to continue my weekly practice of reporting to the Senate on the death toll by gunshot in New York City. Last week, 8 people were killed by firearms in New York City, bringing this year's total to 66.

Mr. MOYNIHAN

Mr. MOYNIHAN. Before the Senator from West Virginia leaves the floor, I hope he will pause long enough for me to congratulate him on his remarks. The Senator from New York joined the U.S. Navy 50 years ago last July 1 and, without having any expectation of it, came to benefit enormously from the GI bill, from veterans' insurance. I shall be remarking this afternoon that during the first year of the Kennedy administration, in an effort to stimulate the economy back from the sharp recession of 1960 that came so quickly on the recession of 1958, the VA issued a double dividend on that $10,000 life insurance we had all signed up for. It was not a lot, but it was enough to enable us to buy our little farm in Delaware County, the last hills in Appalachia which connect us with West Virginia. We live there to this day. I do not think that would be possible under the proposed amendment. I am confident that if it were tried it would be litigated, and that years after the effort was made by Walter Heller and James Tobin and President Kennedy, and such, we might find out we had or did not have such a benefit, but it would not help those who needed it at the time. The prospect of any litigation and leaving the decisions of the Federal Government, taking them out of the Senate Chamber across the park to the Court, or down the avenue to the and he has described it with great clarity and force. I thank him. Mr. President, this week I propose to present three papers to the Senate arguing in opposition to House Joint Resolution 1, ``Proposing an amendment to the Constitution of the United States to require a balanced budget.'' The first of these papers will show that the current deficit is a recent event that marks a sharp departure from fiscal problems of earlier administrations that were directed primarily to the seemingly intractable problem of a persistent full employment surplus, with its accompanying downward pressure on consumer demand. The second of these papers will relate the singular events of the 1980's which led to huge deficits and a correspondingly huge debt. I will show that there is no reason whatever to think we will repeat this behavior, or misbehavior, especially now that the events are better understood. The third paper will explore the folly and danger of writing into the Constitution decrees concerning fiscal policy which would have been inappropriate to a small 18th century republic and would be absurd and potentially destabilizing to a world power in the 21st century. Representative democracy in the United States is fully capable of balancing the Nation's accounts without an amendment to the Constitution. Deficits are not endemic to democracy. As recently as the Nixon administration, the President's economic planners faced a problem of surplus in the national accounts, and thought it wise to create deficits in order to move the economy toward full employment. In those not notably distant years full employment with price stability was the central goal of fiscal policy; this had been indicated by the Employment Act of 1946 which established the Council of Economic Advisers, and became steadily more feasible as economic projections became steadily more reliable. The Nixon administration inherited a difficult economic situation. Contrary to advice from the Council, President Lyndon B. Johnson had been unwilling to raise taxes to pay for the increased outlays occasioned by the Vietnam war. The result was inflation. This was stamped out, but then unemployment rose. It became necessary to stimulate the economy once again by deliberately incurring a deficit. George P. Shultz, then Director of the newly established Office of Management and Budget, explained the policy in the budget of the U.S. Government, fiscal 1973: Budget policy.--The full-employment budget concept is central to the budget policy of this Administration. Except in emergency conditions, expenditures should not exceed the level at which the budget would be balanced under conditions of full employment. The 1973 budget conforms to this guideline. By doing so, it provides necessary stimulus for expansion, but is not inflationary. [Italic in original] George P. Shultz is one of the most admired public men of his generation. His service as Secretary of State in the Reagan administration won the esteem and gratitude of much of the world, along with that of the American people. It is useful to recall that he is by profession an economist, having once been dean of the School of Business at the University of Chicago. He had joined the Nixon administration as Secretary of Labor. He was speaking in terms then readily understood by fellow economists, but not always clear to laymen, such as myself. The key phrase in his policy statement is italicized: * * * expenditures should not exceed the level at which the budget would be balanced under conditions of full employment. Which is to say that in the absence of full employment, as was the case in fiscal year 1973, the Federal Government should deliberately contrive to incur a deficit equal to the difference between the revenues that would actually come in at levels of underemployment and those that would come in at full employment. Far from being inevitable and unavoidable, there were points in the business cycle where a deficit had to be created. Otherwise surpluses would choke off recovery. The contrary thought, that budget deficits will be continuous and uncontrollable is surely the oldest of prejudices against democracy. Which is to say the assertion that a majority will continuously vote itself benefits which the economy cannot sustain. In an earlier age this supposed tendency was seen as a threat to property. Benefits would be obtained by confiscatory taxation--or plain confiscation. Hence, John Locke's prescription for a stable society: the security of ``Life, liberty, and estate.'' In the Declaration of Independence, Thomas Jefferson devised a more felicitous formula: ``Life, liberty, and the pursuit of happiness.'' Yet, there was never any doubt that the security of property was essential to such happiness. In the Federalist No. 10, James Madison address this issue with not the least apology. Ours would be a representative Government, concerned to moderate, if not indeed to control appetites. From this view of the subject, it may be concluded, that a pure Democracy, by which I mean, a Society, consisting of a small number of citizens who assemble and administer Government in person, can admit of no cure for the mischiefs of faction. A common passion or interest will, in almost every case, be felt by a majority of the whole; a communication and concert results from the form of Government itself; and there is nothing to check the inducements to sacrifice the weaker party, or an obnoxious individual. Hence it is, that such Democracies have ever been spectacles of turbulence and contention; have ever been found incompatible with personal security, or the rights of property; and have in general been as short in their lives, as they have been violent in their deaths. Theoretic politicians, who have patronized this species of Government, have erroneously supposed, that by reducing mankind to a perfect equality of their political rights, they would, at the same time, be perfectly equalized and assimilated in their possessions, their opinions, and their passions. In modern times a more common fear has been that the excesses of democracy would debauch the currency through the monetization of debt, which is to say inflation. Indeed, there have been such episodes, albeit relatively rare. Twentieth century democracies have experienced fairly steady price increases. Yet nothing ruinous. Far the greater fact has been the economic growth of the 20th century. Far from inhibiting such growth, democracy is now widely seen as an essential precondition. If democracy caters to wants more than to needs, it has proven itself reasonably capable of satisfying both, not least because we have developed a profession of economics which, if not in any sense perfected or even especially scientific, even so has a lot to show for itself. In the United States, for example, real per capita income has increased fourfold over the course of the 20th century from about $4,300 to $20,500 per person. The historian Alan Brinkley has recorded the development of the idea of Federal spending as a route to prosperity, dating back to the 1890's, particularly for public works to counteract the business cycle. In the 1920's, William Trufant and Waddill Catchings argued for public spending as an antidote to underconsumption, an idea that would come to dominate both theoretic, to use Madison's term, and applied economics. The theoretical approach to underconsumption is much associated with the publication in 1935 of John Maynard Keynes ``the General Theory of Employment Interest and Money.'' That master of the calling, John Kenneth Galbraith, records that by the autumn of 1936, ``the General Theory'' ``reached Harvard with tidal force.'' In a review of Galbraith's autobiography, I have commented there has been no other event like it in the history of the social sciences. The Great Depression, then two-thirds over, had seemingly falsified the central tenet of classical economics, which is that markets clear through the price mechanism--that whatever is offered for sale, including labor, is purchased. There were business cycles, to be sure, but, most important, there was said to be an inherent tendency for the system to return to an equilibrium in which all resources were fully employed. But for 6 years there has been no such return; none was in sight. In ``the General Theory of Employment Interest and Money,'' Keynes demonstrated that there could be unspent savings, and that when this happened prices would not adjust downward to ensure that the same volume of goods would be purchased with the reduced--after saving--purchasing power. Galbraith summarizes: Instead, output and employment fell until reduced profits, increased losses and the need to spend from past savings ensured that all income from current production or its equivalent was thus established, one with a lot of people out of work--the under-employment equilibrium. After an unprecedented period of depression, mounting crisis, and something like intellectual desperation, this had indeed the quality of revelation. However, by the time any considerable portion of the economics profession had converted to Keynesianism, the Second World War had commenced. And so to a considerable irony, Keynesian economics was to be given its first trial not in the conditions of depression for which it had seemed designed but in the very opposite circumstances of a wartime economy, when the central problem was an excess of consumer demand and a shortage of consumer goods production. Yet, in the crucible of war, the new doctrine produced, well, astonishing results. In a series of newspaper articles, Keynes set forth how to maintain price stability, during wartime, and in the United States a new Office of Price Administration did just that. Until, that is, the war ended and wartime controls collapsed. Here are the inflation rates for that period. Percent 1941................................................................9.7 1942................................................................9.3 1943................................................................3.2 1944................................................................2.1 1945................................................................2.3 With the war ended, Congress enacted the Employment Act of 1946. The authors of the legislation, and perhaps especially committee staff, were convinced that this new economics could now be used as originally intended, which is to say to ward off a recurrence of the Great Depression of the 1930's. It was widely assumed that the depression would indeed resume at war's end. Hence, for example, the Interstate Highway Act of 1944, a public works program in the classic New Deal mode. The Employment Act established the annual economic report of the President which steadily became a more detailed and instrumental document. By 1947, for example, we established the current survey methods measuring unemployment on an annual basis, a national statistic previously gathered through a patch-work of survey and administrative data. In 1960, with the election of John F. Kennedy, the new economics was well-established. Kennedy assembled a brilliant Council of Economic Advisers, Walter W. Heller, Kermit Gordon, and James Tobin. Although but little noted at the time, the present Senator from New York became Assistant Secretary of Labor for Policy Planning and Research. What I now report, I saw. I dare to think that what I saw is of great importance in the matter now before the Senate. The unemployment rate had remained remarkably low throughout the post-war period. Then, in 1958 recession struck. The unemployment rate rose to 6.8 percent, two-and-one-half times the 2.9 percent rate of 1953. A recovery followed. But then stalled. By 1961, when the new President took office, it was back up to 6.7 percent. What had happened? In their first annual report to the President, in January 1962, the new Council of Economic Advisers offered a striking explanation. The Federal budget was running a surplus. This was termed ``the full employment surplus.'' Chart 6 in the report, entitled, ``Effect of Level of Economic Activity on Federal Surplus or Deficit,'' showed how this worked. Higher Government expenditures during the 1957- 58 recession helped to reduce the unemployment rate from 6.8 percent in 1958 to 5.5 percent in 1959. But the fiscal 1960 program, the next to last of the Eisenhower administration, and which, according to the Council, was ``The most restrictive program of recent years * * *'' had a large full employment surplus amounting to almost 2 percent of potential gross national product. This surplus came about as follows. As the recovery from the 1958 recession got underway, economic activity grew and so did the revenues of the Federal Government. But Congress would not, or in any event, did not spend the additional revenue. As a result, the recovery stalled. This untoward event was ascribed to ``fiscal drag.'' Accordingly, the President's economic advisers devised a fiscal 1962 program with a built-in deficit, which moved the economy closer to full employment. To say again, the Federal Government had to find ways to prevent a recovery from stalling because of an accumulation of a budget surplus. The President's economists then proceeded to explain their actions and plans to reduce the full employment surplus. The full employment surplus is a measure of the restrictive or expansionary impact of a budget program on over-all demand. * * * * * the budget in 1958-60 The analysis of the budget program in terms of the full employment surplus points to a probable major cause of the incomplete and short-lived nature of the 1958-60 expansion. The most restrictive fiscal program of recent years was the program of 1960. Its full employment surplus exceeded any from 1956 to date . . . The full employment surplus declined sharply as a result of higher expenditures during the 1957-58 recession until it reached an estimated $3 billion in the second half of 1958. Thereafter, it rose gradually through most of 1959 but then increased sharply to about $12\1/2\ billion in 1960. Thus, whereas the Federal budget contributed to stability during the contraction phase of the cycle and during the first year of the expansion, it was altered abruptly in the direction of restraint late in 1959 at a time when high employment had not yet been achieved. * * * * * federal fiscal activity in 1961-62 Immediately upon taking office, the new Administration moved vigorously to use the fiscal powers of the Federal Government to help bring about economic recovery. Federal procurement was accelerated by presidential directive early in February, and tax refunds were also expedited . . . Changes in transfer programs added about $2 billion to the combined total of transfer payments for fiscal years 1961 and 1962. The Veterans Administration advanced the payment of $150 million of veterans' life insurance dividends into the first quarter of calendar year 1961, and then made an extra dividend payment of $218 million at midyear. The Congress promptly adopted a number of measures requested by the President. A Temporary Extended Unemployment Compensation Act was adopted, providing for extension of exhausted benefits and giving the Administration time to develop a comprehensive program for permanent improvement in unemployment compensation. In time, the Council came forward with a proposal for a tax cut, which was enacted in 1964, and Walter Heller hit upon the idea of revenue sharing. If the Congress would not spend the surplus, then surely the Governors would oblige. Those were heady times. I recall visiting the White House mess in the company of that most eminent of public men, Arthur J. Goldberg, then-Secretary of Labor, later an Associate Justice of the Supreme Court and Permanent Representative to the United Nations. Walter Heller was there and recounted in the most precise terms just how much GNP had been lost by congressional delay in the tax cut, just how much would be gained once it was enacted. His projections were perhaps too confident, but his principles were sound, as well as the practice that went with them. That double dividend on G.I. bill life insurance brought our family savings to just the point where we were able to buy the farm near Pindars Corners in Delaware County which has been our home ever since. In the economic report of the President transmitted to Congress in January, 1969, the Council of Economic Advisers, now headed by Arthur M. Okun, could report. The full employment surplus was a particularly enlightening measure of fiscal policy in the early 1960's when the economy was far below its potential. Actual Federal budgets were then in deficit. But after taking account of the large shortfall in tax revenues associated with the gap between potential and actual output, there was a large full employment surplus. It meant that the economy could realize its potential only if private investment far exceeded private saving. By that standard, discretionary fiscal policy was highly restrictive. The vigorous and unbroken expansion of the last 8 years is in dramatic contrast to the 30-month average duration of previous expansions. No longer is the performance of the American economy generally interpreted in terms of stages of the business cycle. No longer do we consider periodic recessions once every 3 or 4 years an inevitable fact of life. As remarked earlier, the Johnson administration left office with too much of a deficit, which had to be reversed. And was. But the 1960's had produced an economics capable of understanding such matters to a degree never previously achieved. An understanding which we are asked to reject altogether by an amendment to the Constitution potentially ruinous. This consensus was stated February 3, in a statement issued by hundreds of such economists. They state: When the private economy is in recession, a constitutional requirement that would force cuts in public spending or tax increases could worsen the economic downturn, causing greater loss of jobs, production, and income. That insight is the great legacy of the economics that emerged from the great depression of the 1930's. It was hard-won knowledge. It is not to be lost in the turbulence and contention that accompanied and now follow a single congressional election. Mr. President, seeing my distinguished friend from California on the floor--she has been waiting patiently to address the Senate--I am happy to yield the floor and I look forward to her remarks.