Ford Broadcasts, 1965-1966: 12237637

Read from the scan by GLM-OCR; expect the odd misread word.

Now, why don't you discuss, or why don't you advocate cutting spending as well as raising taxes?

MR. ACKLEY: Mr. Fertig, at the moment I am not advocating either, raising taxes or cutting expenditures. But clearly, if additional restrictions were required, if we were clear that it were, we would have to look at both sides of the budget, both the expenditure side and the tax side.

I would like to point out, however, that the expenditure side has been pretty strongly restrained and that it would be quite difficult, without severe sacrifice of important national objectives, to make major further reductions on the side of spending. That is why, I would suppose, if it were determined that additional fiscal restraint were necessary that the primary action probably would be on the side of taxes.

MR. FERTIG: Isn't our spending this year for non-defense higher than last year, and isn't it considerably higher than two years ago, and do you not project even higher non-defense spending next year? So why not cut spending instead of raising taxes?

MR. FERTIG: We are spending more dollars, aren't we?

MR. ACKLEY: The non-defense portion of the budget actually, of course, has been kept under extremely tight control and the fiscal '67 budget shows an increase, other than for Vietnam, of only $600,000,000, and the history of the civilian part of the budget, except for a few very uncontrollable items such as interest and veterans' payments, and so forth, has been indeed held very tightly.

I think some numbers here might be relevant and interesting. The budget, the Administrative budget in fiscal year 1965 represented 14.9 percent of our gross national product. If you exclude the additional Vietnam expenditures, that goes to 14.5 percent in fiscal 1966, and 13.7 percent in fiscal 1967, a declining portion. Even if you include the total Vietnam expenditures, it goes from 14.9 percent of the GNP in fiscal year 1965, to 15.2 percent in both 1966 and 1967. I would point out that that is lower than in almost any other post-war year.

MR. ACKLEY: We are spending more dollars, but we have a very much larger economy.

MR. FERTIG: May I ask one other question, Mr. Ackley? Price pressures are very great today-as you would acknowledge over the last few months they have been. The rate of increase in the wholesale price index is very steep, and so is the consumer price index.

If Mr. McChesney Martin in the Federal Reserve had not restricted the money supply a little as it has done, if it hadn't raised interest rates, wouldn't that price pressure be even greater

today, and are you against using monetary policy that way?

MR ACKLEY: In the first place, I would certainly say that the restrictive measures that have been taken by the Federal Reserve have contributed in moderating demand, and therefore pressures on prices.

The change in the budget in the new tax law, which goes into effect very shortly, is an additional restraint. Together, they accomplish a very considerable shift in the restraint from stimulus previously to restraint today.

I have no objection of any kind to using monetary policy as part of the total economic stabilization arsenal. Our only objection on the December action of the Federal Reserve System had to do with the fact that we would have preferred to have had that decision delayed until January, until we knew and they knew what the budget was going to be for the coming year, till we could have decided together what combination of fiscal and monetary restraints was appropriate. That is the extent and nature of our objection to the action that was taken last December.

I think that in fact the coordination which had previously existed between our monetary and our fiscal policies will again and-is being re-established, and I trust that instances of our disagreement over procedures will in the future be less important.

MR. KIPLINGER: Dr. Ackley, you have indicated in some of your earlier responses that the government, the Administration, was still standing by its earlier estimates as to the size of the economy and the rate of price increase, something less than three percent in prices and $722 billion of GNP.

Yet a great many of your economists and a great many people inside and outside government have already upped their estimates on the size of the GNP and on the rate of price increases. Isn't it about time the government dropped this pose of wishful thinking and adjust some of these sights up a little?

MR. ACKLEY: I didn't indicate I think on this program that I was still standing by the $722 billion GNP forecast that we made in January. We are in the process, as we always do once a quarter, of reviewing our forecast and will undoubtedly have another one.

As you may recall, the Government Council's official government forecast is not made public more than once a year. We have one for our own internal purposes.

I think that probably most of the news, most of the additional information that we had since last—late December and early January is in the direction of pushing that forecast up. Certainly not as much as some recent forecasts I have seen, but I would agree that that is the direction of any revision we might wish to make.