tioned whether it was worthwhile. One of my colleagues said: "Well, people questioned the expenditure to finance the experiments by Alexander Graham Bell and the telegraph." I replied: "That cost $40,000, and there is quite a difference between $40,000 and $20 billion." My time is up. Now I simply want to say that a little critical judgment is needed on these measures. The public, the business community, the political world, is just carried away with the fascination of these subjects, and yet we ignore the human beings who live here in the United States of America, 20 million of whom live in abject poverty and 35 to 40 million living in poverty. You can easily shift your sense of values from the human value to the spectacular mechanical value. What profits a civilization if it has 20 million people in abject poverty and sends one man to the moon? Thank you. Chairman PATMAN. Mr. Reuss? Mr. REUSS. Because of the time, I would just like to ask three questions and have you answer them for the record. Mr. SCHULTZE. Yes, sir. Mr. REUSS. The first question proceeds from Senator Douglas' line of inquiry about the moonshot and the supersonic transport plane, for both of which there are multi-billion-dollar items in the budget. Using the new techniques of systems analysis and cost-benefit studies which are so much in your mind, would you file, for the record, the application of that technique to the direct benefits and side benefits of the moonshot and the direct benefits and the side benefits of SST, quantifying this to the limits of your ability and the new science of systems analysis. Mr. SCHULTZE. May I interject, please, Mr. Reuss? Mr. REUSS. Yes. Mr. SCHULTZE. You may recall that this is a new system which is just going into effect and which we hope, by this summer and next fall, will have a number of results for us. Whether we can clearly supply for the record a statement of how this would be applied, we clearly can't give you some nice, quantifiable results. Mr. REUSS. Do the best you can, because we are embarked upon these multibillion-dollar programs and I certainly don't want to address myself to them without the benefits of new science of cost effect and systems analysis. In that connection, does your analysis of the SST take into account what Senator Douglas said about the difficulties of getting from the airport to the center of the city once you have flown across the Atlantic in 3 hours? And would you comment, also, on the fact that in this budget there is not one penny for research into new methods of withincity urban transportation? Mr. SCHULTZE. That last part is not correct. I don't know the number. I will furnish it for the record. We do have such research in this. It is small compared to the SST, I realize. (The material which follows was subsequently supplied as promised:) SYSTEMS ANALYSIS AND THE MANNED LUNAR LANDING No cost-benefit analysis of the manned lunar landing program was done because, at the time it was made, the decision to undertake the program was not susceptible to effective systems analysis. Too many intangibles were involved. The kind of factors considered in arriving at the decision to undertake the program included but was not limited to those cited below. The difficulty of quantifying most of them is apparent. (1) The effect on domestic public opinion of conceding the unique capability of manned space operations to a Communist world power. (2) The effect of such a concession on the opinion of the public and the leaders of the uncommitted countries. (3) The possibility that manned space operating capability could be used at some future date for purposes of military offense or defense. (4) The contribution to science by the experiments conducted. (5) The contribution to the advancement of technology by the research and development effort involved. (6) The effect of different target dates on the total cost and on the annual cost of the project. I would like to add that although the basic decision on whether or not to have a manned moon program at all necessarily had to be decided on the basis of many intangible and unquantifiable factors, once that decision was made there was, and is, great scope for systems analysis on the specific programs for getting there. ANALYSIS OF THE SUPERSONIC TRANSPORT DEVELOPMENT PROGRAM The program to develop a safe and profitable supersonic aircraft was formally proposed to the Congress by President Kennedy in 1963. Prior to that time extensive research conducted by the industry with some Government support had established that this major advance in air transportation was feasible and potentially profitable to manufacturers and the airlines. In his letter to the Congress of June 14, 1963, President Kennedy stated that"Our determination that the national interest requires such a program is based on a number of factors of varying weight and importance: "A successful supersonic transport can be an efficient productive commercial vehicle which provides swift travel for the passenger and shows promise of developing a market which will prove profitable to the manufacturer and operator. "It will advance the frontiers of technical knowledge-not as a byproduct of military procurement, but in the pursuit of commercial objectives. "It will maintain the historic U.S. leadership in aircraft development. "It will enable this country to demonstrate the technological accomplishments which can be achieved under a democratic, free enterprise system. "Its manufacture and operation will expand our international trade. "It will strengthen the U.S. aircraft manufacturing industry-a valuable national asset-and provide employment to thousands of Americans." President Johnson has carried forward the program for essentially these same reasons. As he noted in his budget message, significant progress has been made by the engine and airframe manufacturers in solving the difficult technical problems involved in producing an SST. Moreover, studies by the manufacturers, the Federal Aviation Agency, and the Department of Commerce have indicated that there is a high probability that the plane can be commercially profitable. Admittedly, there are many problems yet to be overcome, and we will not know with certainty whether the project will be a success until the plane flies. balancing the very substantial tangible and intangible benefits to the Nation of an SST against these uncertainties, the President, with the full concurrence of his advisers, decided that the program should proceed. But Both Presidents Kennedy and Johnson have made it clear that the SST program must be and is essentially a commercial undertaking. The ultimate test of its success will be in the marketplace. Federal participation can only be justified because of the unique benefits the aircraft will bring to the Nation as a whole and because the substantial costs involved are well beyond the capacity of the industry to finance. For these reasons, the SST program is without any real precedent, and cannot be compared with other major Government investment or research and development programs. The Federal Government fully intends to recoup its investment in making possible this major advance in air transportation. URBAN TRANSPORTATION RESEARCH It is not possible to fully separate demonstration and research expenditures on urban transportation problems, because both types of activities are intermingled. However, the following amounts are included in the 1967 budget for this area of research and demonstration: High speed ground transportation research.. New obligational Department of Housing and Urban Development: Urban transportation demonstration grants - Total... $24.0 8. 1 10. 0 42. 1 Mr. REUSS. Yes. Make sure, however, that the $5 million or so tagged for research isn't, in fact, being spent on demonstration grants for the same old subway cars and the same old buses and trolleys as we now have. My second question has to do with the price-wage field and a bill that I have introduced, which I know is on your desk. It would let the Joint Economic Committee and the Congress in on both reviewing the guideposts and, at the behest of the Council of Economic Advisers, holding hearings on breaches of the guideposts, once adopted, which would threaten the national economic security. I would like your position on that, whether you are for it or against it with your reasons. And, thirdly, I would like your views on the following propositions. Would it not be good sense, in view of the inevitable time that it takes Congress to pass a tax bill and in view of the possibility of inflationary situations developing within the months and year to come, for the administration to forward to Congress and the Congress to enact tentatively a tax increase bill of an anti-inflationary nature with its effective date to be delayed until such time as Congress by joint resolution directs that it be put into effect? The idea is that this would avoid the months of detailed hearings that the money committees of the two Houses of Congress would have to go through. Thank you very much. (The following comments were subsequently supplied by the Bureau of the Budget:) COMMENT ON BY CONGRESSMAN REUSS' BILL ON WAGE-PRICE GUIDEPOSTS The administration has been very gratified by the general and voluntary compliance of business and labor with the informal wage and price guideposts. Responsible action of workers and management consistent with these guideposts has contributed significantly to the unprecedented record of price stability we have enjoyed over the past 5 years. The administration feels that continued voluntary compliance with these guideposts would provide adequate restraint against possible inflationary pressures in the current economic situation. Considerable investigation and discussion of alternative measures for the guideposts was given before reaching the policy recommended for 1966 in the Annual Report of the Council of Economic Advisers. The administration feels more experience with the present formula must be accumulated before there can be serious consideration of any legislation to make one or another approach formal. Such legislation is not now necessary and might well jeopardize the record of responsible restraint we have experienced up to now. One of the major values of wage-price guideposts is to provide a basis for evaluating proposed wage agreements and price changes. In fact, the guideposts have been used several times in the past year to modify wage settlements and price changes which would have breached the guideposts. Congressional hearings on breaches in the guideposts, therefore, would take place only after they had already occurred. As has been indicated in both the Economic Report and in testimony before this committee, it would be difficult to create a simple formula, which accurately reflects all the factors influencing changes in productivity. It is still too early to predict, for example, whether the productivity gains of the past few years will be sustainable, or to tell precisely how the benefits from such gains should be distributed. COMMENT ON PROPOSAL FOR PREENACTMENT OF TAX INCREASE The administration's fiscal policy program this year proposes that certain excise tax reductions be reinstituted and that other tax measures be adopted which will raise tax revenues by $1.2 billion and $4.8 billion in fiscal 1966 and 1967, respectively. Under present economic conditions and given the current uncertainties concerning the cost of our Vietnam defense commitment, these revenue-raising proposals are deemed to be adequate both for the achievement of steady economic growth and for the avoidance of inflationary price rises. There is more than the usual amount of uncertainty in the economic outlook this year. However, the President has stated that he will not hesitate to ask for further taxes if these are required. It might well be desirable for the staffs and members of the relevant committees of the Congress to consider alternative tax measures which might be proposed and quickly enacted should economic or budget conditions warrant it, and the criteria that govern the choices among the alternatives. It would, however, be premature for the administration to propose or for the Congress to enact at this time specific standby tax measures which might turn out to be inappropriate or ineffective for the economic circumstances as they develop. Chairman PATMAN. Let's see what the pleasure of the committee is. Both the House and the Senate are in session. Do you have further questions? Senator PROXMIRE. Yes, I do. There is one program I would like to inquire about. Chairman PATMAN. If it is not too troublesome will you preside? Senator PROXMIRE. Yes, sir. Chairman PATMAN. Tomorrow morning we have Secretary Fowler here at 10 o'clock. We will recess when you have finished for today until 10 o'clock tomorrow morning in this same room. Senator PROXMIRE (presiding). First, Mr. Schultze, I wholeheartedly agree with your emphasis in your statement on the importance of education in terms of increasing productivity and I would like to ask you if it isn't true that this antipoverty program and the money we are spending in the antipoverty program, the money we are spending on manpower training, and so forth, is the very thing that can forestall inflation in 1967, 1968, and so forth. One bottleneck that can increase the cost of living is the shortage of skilled labor and trained labor and is exactly what the antipoverty program, and manpower training, tries to overcome in various ways. Mr. SCHULTZE. I fully agree, Senator. Senator PROXMIRE. So that rather than inflationary action by spending in this area, we are creating a situation in which inflation is less likely. Mr. SCHULTZE. It helps to make the interim target of 4 percent too high-helps, essentially, to get to a situation in which unemployment can be lower. Senator PROXMIRE. And the experience we have had in the last year tends to confirm that in the final instance many people thought we couldn't get down 4 percent without rampant inflation. Mr. SCHULTZE. That is right; exactly. Senator PROXMIRE. You had a new element that I hadn't recognized-on health. But the expenditures for health, you argue, by prolonging life and by eliminating illness and so forth, or at least shortening the period of illness, has also increased our productivity. Mr. SCHULTZE. Correct, by a substantial amount. Senator PROXMIRE. At the same time, it would seem to me that in view of the great emphasis on longevity, and people living beyond the age of 65 and the very large increase in numbers of people in that classification, that they would tend to have a greater effect on demand, inasmuch as the retired people by and large are consumers and not producers, and we are doing our best to give them an income so they can be satisfactory consumers and lead a satisfactory life. Mr. SCHULTZE. You are quite right. The older your population is on the average other things being equal-the lower the saving rate will tend to be and the higher the consumption rate. The other side of this is that to the extent that you can make these people healthy, you may reduce the demand for medical services. I mean this thing can work back on itself so that you don't need the highly skilled medical services in the same proportion. Senator PROXMIRE. Then the other point I wanted to ask about briefly before I go into the school milk program was what has happened in terms of approaching the optimum factory capacity? Now you were saying we are 89 percent. The Council has a very excellent analysis of the machinery industry. They point out that the machinery industry not only is approaching their preferred operation, now at 87 percent of capacity compared to 90 percent preferred, but they are going to add this year another 8 percent to their capacity. Mr. SCHULTZE. Right. Senator PROXMIRE. This means that rather than there being only 2 percent away from it now, if they are going to have the preferred level of operation they are going to have to expand their production by some 10 or 12 percent. Mr. SCHULTZE. That is right. In manufacturing as a whole, for example, next year we will add about 6 percent to capacity, which certainly will help on the inflationary side. Senator PROXMIRE. One of the most puzzling decisions to me that the administration has made in recent years is their decision not only to refuse to permit the school milk program to go ahead on the basis that Congress decided it should when they appropriated $103 million, but their decision to virtually kill the program in coming years. This is a conservative program, a well-established program, an accepted program, not criticized by the NAM, the chamber of commerce, or other groups. It is a program that makes all the sense in the world because you have a surplus product here that is otherwise going to be stored away under price support programs. The Government is going to save very little by cutting back on this program because they are just going to have to turn around under the 75-percent price-support situation and buy the milk and store it and waste it. I just can't understand the reasoning behind this. Mr. SCHULTZE. I hesitate to get myself in a position of arguing with someone who knows so much about it, but let me try at least some of the reasons that went into it. Let me assure you that it was |