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SO 015 165

Mayer, Frederick; LaMott4, Sala.Close Up Special Focus: The 'Economy.-Close Up Foundation, ArlinlitOn, VA..81,21p.; For related docuthents, see SO 015 162-164 and0 015 166. d

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MF01 Plus Postage-. PC Not Available from--EDRS.Anthologies; Capitalism; *Controversial IsSues.(Course Content); Current Events; *Economic Climatal*Economics Education; Employment'Fatterns; glo

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ABSTRACT IY

Designed to parallel five, student seminars televisedover the Cable-Satellite Public Affairs Network (C- SPAN), thishandbook provides an overview of current economic issues for highschool studentS. Selections. cover inflation, the -crisis in Ameticanproductivity, unemployment in the-United StateS, global economicinterdependence, and the role of free enterprise in the 1980'S. Foreach topic, background articles which introduce important terms,concepts, _and basic facts are followed by transcripts of paneldiscussions by five experts in the field. The handbook concludes witha glossary of key. terms.- (LP)

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REST P AVAIL

Today the dews is dominated bythe economy, and most economicnews is diSturbing. Inflation Is drivingprices up, the rate of-industrial pro-ductivitx is down, unemployment re-

rtrmaIns at high levels, the world:_ economic situation seems increas-

ingly unstable. And the economicnew is as confusing as it is disturb-

,' ing. _ome say the problem is too,tr government interference in the

m k`qtplace; others say that businesss caused its own problems. Somey that high Interest rates will being

own the rate of inflation; others sayhat ,high interest rates cause 'rifle-

', tenon Some say that inflation shouldbe orr first priority; others say ourfirst priority should be unemployment.Still others say that we can't fight

-. one without fighting the other..All ofthia_talk can be confusingso manypolicies _have been proposed tOsp vethe various problems_ The challehgefor policymakers and for us ascitizens.is to make sense of all the_talk, and to decide what policies arebesL_

The Close Up Foundatibn's Focuson the Economy televisiOn series ,

enables you to explore these issuesin more depth than they are exploredby the news media This publicationparallels five seminars produced'inWashington, D.C., by the Close UpFoundation and televised over theCable-Satellite Public Affairs Network\(C-SPAN). In the seminars, highschool students, in Washington as'part of the Close Up governrhent ,studies program, question policy-makers and economic experts on im-portant economic,problemS and theirpossible solutions. The five seminarsarentitled: "Inflation: Is It Ind

y evitablen '`Productivity: America's,,. Industrial, Crisis "Unemployment in

America_ Causes and Effects-; The =. --Global Economy: Realities of interde-pendenc; and "Free Eiterprise:What Role for the SO 's?'' These topicsare five of the most importanteconomic issues facing America to-day.

This publication gives you1informa-tion to use in developing your ownideas on these subjects. For each ofthe five topics, a background article _

introduces important terms and con-cepts, and provides pertinent factualinformation With which to evaluatethe television progams. Key terms

_are glOssed at the back: Articles asshort as:these cannot possibly ex -- -.

plain-everything one needs to knowabet topics as diffiaiilt as inflation

-and free enterprise, but they attemptto provide a lucid overview of the sub-ject which will enable you to makesense o otherther information that youreceive. hile the brevity of the for-mat ne ssitates same simplification,the text oes not difk importantissues. To make sense of the corn-

-- plIcated economic picture, some com-,plicated ideas need to be',addressed_..

Following each of the articles isthe CLOSE UP Panel on the Economy,five well-known individuals fro-m differentprofepsions who providebalanced and varied perspectives onthe Issues. Each of the panelmembers was asked to respond tosome basic questions about theeconomy. Note the similarities and 'differences in their answers. Each

-panel member comes from a differentbackground and has his own perspec-tive on the issues. The members ofthe.CLOSE UP-Panel are: - a .

.Gar'Alperowftz Director of the Na;tional. Center for Economic Alter-natives, a liberal public interest groupInterested in economic policy.,-.H. BreWiter Atwater, Jr., Chairman of-the Board and Chief Executive officerof General Mills, InC., onepf the na-

-, tion's largestcorporation!4?.Bill. Frenzel, U.S. Representative _

(Republicad-Minnesota).Carl Levin, U.S. Senator (Democrat-Michigan).Gus Tyler, Assistant. President of theInternational Ladies Garment Workers -Union, a labor union with a history oactive political involvement. -

Int at on Is It Inevitable?Inflation is a continuing rise in the

general price level in simple terms,rising prices. The higher the rate ofInflation, the faster prices are rising.In 1980, the rate of inflation was ap-proximately 13 percent, which meansthat prices were 13 percent higher in1980 than they were p year before.

Inflation has been a fact of life inthe United States for some time. As aresult, the dollar does not buy psmuch today as it once did. It nowcosts over $2.50 to buy the sameamount of goods and services that$1.00 would buy in 1967. Many pea-pie's incomes have not kept pace;they can by less now than they.

could before.Inflation has a number a.f bad ef--

fects. First, people whose incomedoes not rise as fast as the rate of in-flation end up with a lower standardof living. Elderly citizens on fixed in-comes, public employees fromteachers to military-personnel; andnon-unionized employees in theprivate sector all have lost. real id=come in the past few years. Second,high rates of'inflation encOuricie buy-ingion credit and discourage saving.Why save money when it will buy lessta.ter? HbwevergOod as this -philosophy might be for the in-dividual, it is bad for society. If peo-ple save less of their money in institu-tionS like savings and loan born -panics, there is less money to investin new homes, businesses and equip-ment. Finally, and perhaps mostsignificantly, high inflation can leadto political instability. Tile suspicionthat government Is ineffective in deal-ing with inflation can undermine peo-ple's confidence in their government.Causes for Inflation

There is no one cause for inflation.Below are some of the most oftencited reasons .for inflation'

Government Spending - in FiscalYear 1980 (FY 80, the year beginningOctober 1, 1979 and endingSeptember 30, 1980), the U.S govern-ment spent approximately $578.8billion. During the same year, thegovernment tdok In $518 billion intaxes and other revenues, The dif-ference between the two figures, $61billion is the, deficit for FY 80, -

A deficit of this magnitude is cited

CONSUMER PRICE INDEX

$2.60

$2.40

$2.20

$2.00

$1.80

20

$11907 68 69 70 71 72 78 7 75 76 77 76 7

as one of the causes for inflation.When the government spends morethan it takes in, it must borrow themoney to make by the difference.This federal borrowing increases theamount of money In circulation (seebelow) and may drive up interestrates_ While the negative effects of adeficit are generally acknowledaed,economists disagree over the severityof the effects.0 Rapid Growth of the Money Supply-The money supply includes not onlythe amount of money people have intheir hands but , -also the amount ofcredit which is available to them.

-15%

Credit cards and bank loans` aredevices which enable Individuals andbusinesses to spend more moneythan they have_in hand.

Like individuals and businesses,banks also have credit devices whichallow them to receive loans and to in-crease-the amount of money availableto them. Banks borrdw money fromthe-Federal Reserve Banl% TheFederal Reserve Bank loans money towanks at an Interest rate determinedby the Federal Reserve Board. Banksthen loan It to buiinesses and con-sumers at a slightly higher interestrate. When the Federal ReserveBank's`inte-rest rate Is low, bank in-terest rates are low and everyone isencouraged to,borrow money. This In-creases the volume of money-la-cir-culation. If`the volume of money andcredit increases more tharr tAevolume of available goods end ser-vices, prices for those goods and services go up. A common expressionfor this phenomenon is "too manydollars chasing too few goods."Another way of explaining It Is: if themoney supply is too high, people willbe. willing to pay higher prices, andprices will go up.

High Interest Rates - Ironically, thehigh interest rates used to discourage-growth In the supply of money arealso sometimes cited for ceasing in-flation. An interest rate is the price

RATE OF INFLATIONPercentage of Consumer Price Index Rise from Preceding Year

for borrowing money. If interest ratesAre, high, then it costs more to borrow -money. For businesses which borrowmoney, high interest rates mean thatthey have to charge more for Whatthey produce in order to pay for the --borrowed money. For individuals wl-buy a house or a Car on credit, higr

. interest rates mean that they will.have to find ways to pay for the cc -i"of not only what they bought (alreEhigh because of inflation) but elsethe money they borrowed to buy

Energy Costs - The rapid riseprice of energy, particularly of im-ported oil,' has been very inflationa,President Carter, in his 1980 Statethe Union address, stated that "trk=biggest single factor in the inflaticrate increase last year was from onecause: the skyrocketing oil prices." In1970, a barrel of oil cost about $1.50on the world market; in 1980 it cost$35. Since the U.S. imports 40 percentof its oil, this price increase has hadan impact on our inflation rate:

Institutionalized Inflation - Inflationhas been with us so long that inmany subtle ways it has been built in-to the system.

Wage-Price Spiral - When pricesrise, workers demand higher wages topay these prices. When wages go up,businesses again raise their prices tocover the higher wages. The spiralcontinueswages and prices pushingeach other to higher levels.

indexing - In recent.years, manylabor contracts as well as govern-ment programs (welfare, unemploy-rhent compensation) have been index-

1OQO

!ng. When infla-Je 10 percent aand payments

v :y 10.percent.the federal

-.axed to inflation...3ectations Having

to inflation, we,dact accordingly.

Jr wage increases and. raise their prices before

ua .y need to. Furthermore, ach expects inflation has

ntive to save money, .sinceJney is worth more now than itlater.

,ale Remedlet Antlation.is difficult for economists to

ee on suitable remedies for infla-tion because they often disagree.onthe causes of'the problem. What oneeconomist may consider a neededpolicy, another may considerdisastrous. Below are some of themost often cited remedies:e Balancing the Federal BudgetBalancing the budget is hard to dobecause it is difficult to controlspending levels and to estimaterevenue levels. But tight fiscal policyin the form of a balanced budgetwould reduce the nation's demand forcredit by reducing governrrient bor-rowing. This could help push interestrates down and make additionalfunds available for private investment.Critics warn that cuts in governmentspending could hurt the section ofsociety dependent on governmentsocial services. Those most in needof economic assistance could be

:rnHow C.

airill h

those most hurt by this kind-of. economic policy. Furthermore, criticsArgue that balancing the budgetwould have little effect on inflation.

Tightening the Supply of Money -Tightenipg the money supply is apcipular remedy to inflation,, Tighten.ing the money supply means reducingor slowing the growth oftthe amountof money in circulation. The govern-.ment controls the supply of moneythrough the Federal ResPrve Board(often referred to as the "Fed"), asemi-independent board compo edseven people appointed by the resi-dent. The. Federal Reserve Boar hastwo main instruments for controllingthe money supply: interest rates andcredit controls. When the Fed raisesinterest rates, people are less likelyto borrow money. This limits theamount of money in circulation and"cools down" the economy. The Fedcan also tighten up on the availabilityof credit, making it more difficult forpeople to borrow money. However,these policies may exacerbate thelong-term problem of declining pro-ductivity because they reduce theamount of money available to invest.

Reducing Consumption of Im-ported Oil - If American dependenceon foreign oil were reduced, the U.Seconomy would be less affected bythe tremendoils price increases ofOPEC oil. This can be achieved by ac-celerating U.S. oil production anddeveloping alternative energy_sourcessuch as synfuel, solar, coal andnuclear.o Observing Wage and Price ControlsWage and price controls can be

either voluntary.or mandatory. Theyare regulations limiting increases inwages and prices which are used tocombat the inflationary effects 'of thewage-price spiral. Proponents arguethat price controls are particularlyneeded for combating inflation in fueland food prices. Critics claim thatwage-price controls only hide the realproblems and for that reason donothing to help the economy in thelong run.

The suggested remedies for infla-tion are many and difficult to choosefrom It may be that no policies willbe effective at this time or that Theright policies will be politically un-popular. The challenge for policy .makers is ta,sort through the rhetoric,

;and the conTlicting information tomake the hard choices that have tobe made.

What are the underlying reasons for the high rate of inflation .(What policies should we pursue to solve the problem?

GAR ALPEROVITZWe are facing a dramatically new

kind, of inflation in'the 1970's and the1960'S F rinstance, in the 1970's,world fo d shortages created veryhigh prices in the United States, eventhbugh this is a surplus country. Notethat thit is not a monetary inflation; itis based on world food shortages.We're also seeing very high energyprICes, and again,-they'renot based ,

on Monetary problerns.or on laborcosts. The only way to handle thenew kind of inflation, as opposed tothe did, is to manage our economy sothat, for-instance, we don't allowshort tern speculation on food short-ages to wash through the wholeeconomy,creating very high pricesfor consumerswhich leadto high wage.demands which thenlead to the price-wage spiral.

-We're going to have to Increaseworld food reserves and put a bufferbetween short term high' prices in theworld and more stable prices at home

) if we are to stabilize this key compo- .nent of the family budget: foodprices. I would also favor stabilizingcertain enemy prices, which meansmaintaining,controls on some prices,particularly for basic necessities likeheatipg oil. Of course, it's alsonecessary to achieve conservatRon.For instance, the Volkswagen Rabbitgets eller 40 miles to th-e gallon; theaverage car in our own national fleetgets something like,15-miles. If weregulated auto productionso that wesaved two-thirds on gas mileage; we-,wouldn't need sech° high prices toachieve conservation goals. in -

another area, hqusing, what used tobe called the "postwar baby boom,-has now becomea -family boom,"New families trying to lotuy homes arebidding up the prices. What we n dto do here is expand the supply ohousing. And that means makinjmore mortgage money available, par-ticularly fer low and moderate incomehousing,.or we'll never solve that partof the new kind of inflation.

In each case where the most impor-tant inflation pressures have come=food, energy and housingthe prOb-lems are very specific. They won't besolved by the old-fashionbd solutions -of tight money or created recessions.

The'only way to solve the new kind ofinflation is with sharply tailoredpolicies appropriate to 'each Of thespecific difficulties.

k. BREWSTER ATWATER, JR.High rates of inflation are by no

means inevitable. Persistent inflationin the United States and in othercountries is primarily' a function ofgovernments pursuing policies underwhich they spend more than they takein and print too much money.

The most promising solutions to in-flation Involve changing thosepolicies, Our government must,spend

-only-what it is willing to tax us to payfor; and, we must moderate the rateat which we print money. Other'policies and proposals designed, toencourage greater capital investmentand economic growth' should be givenfavorable consideration, but these arenot as crucial as getting spendingand money growth under firrrg-control.

CONGRESSMAN BILL FRENZELThe principal cause of inflation is

federal over-spending. Federaldeficits are not the only cause, butthey launched this cycle of inflationin the "guns and butter" days of themiddle 1960's, and have nurtured in-flation for the past 15 years.

Once, inflation is started, it quicklybecomes deeply rooted, and developsa momentum- of its own.' Lately, infla-tion haS been exacerbated by wageincreases, cost of living agreementsof all kinds, administered prices,'energy price increases and food priceincreases.

Cutting federal spending and reduc-ing deficits is not the onlycure for in:flation, but until we make cuts infederal spending, other-cures won'tbe very effective. We can't expect thepeople to make sacrifices until theirgovernment is willing to cut back too.

=Ndr can we expect monetary policy torestrain inflation _alone. We must bewilling to adopt amore stiingentfiscal policy:-

SENATOR CARL LVINThere it nq, siRgle cause for infla-

tion, A variety of factors have actedtogether' to create a Serioud and deep-ly imbedcled.inflation in-this country.

It is generally acknowledged byeconomists that,a balanced budgetwill not reduce significantly the cur-rent inflation Inflation might-be'reduced somewhat by a balancedbudget, but in -the process, tremen-dous social costs would be incurred.

Inflationary shocks such as OPECprice increases and crop failures con-tribute to inflation. Expectations thatinflation will remain high encouragespending at the expense of saving.'The resulting decline in savingsremoves important squrces of moneyfor productive investments. Finally,the wage-price spiral causes wagesand prices to,rise regardless of other ,

inflationary pressures. Our complexeconomy includes a network of ad-ministered wages and prices which,for reasons not quite clear, respondqyickly to upward pressures onwages and prices but stubbornlyresist downward pressures.

A coordinated anti-inflation pro-gram is necessary to address thenumber of inflationary factors in Oureconomy. This program shouldTh-clude restrained federal spending andtaxincentives for increased savings _

and productive investments. And theroot cause of inflation, the wage-pricenetwork, must be addressed. Onepossibility is a tax-based incomes,policy which rewards (with lowertaxes) individuals and businesseswho accept either lower wage in-creases or lower price increases thanthe prevailing rate.

GUS TYLERThe major causes for inflation are

clearly defined. There are four itemsthat are highly inflationary: fuel, food;housing and health care. Those fouritems make up about 60 percent of

-the average budget of-the medianfamily. For families below the me-dian, they make up'80, 90- or 100 per-cent of the budget. Furthermore, infla-tion for these four necessities (andthey arenedessities) is idst abouttwice the rate of nflation for the non-necessities. So if we an cope with

_those four, we will be ccOng with theproblem of inflation.

bbylobsly the way_ to cope with in-flation in the'price of fuel, aside fromconservation which has to-be done

irei'mediately, is to develop alternatesources of.energy through-thd 1980's,so that as we approach the 1990's wewill have an adequate supply of fueland we will not be forever dependentupon a limited source of petroleum.secondly, in the case of food: price in- °

flation,-there's no shortage ofagricultural potential in the-United'States.'What has Happened is that fofabout 40 years now, governmentpolicy has been to restrict production ;of food rather than to expand it If -we,were to unleash our productivecapacity, foods prices_eould be,Stabilized, or even brought, down.Thirdly, comes, to houaind,the two Inflationary itemS in hovingare 1) very high interest rates (the

cost of financing homes); and 2) thevalue of real estate, which has gone ,up -three or four times faster than er19:other item- The way to cope with highinterest rates is obviously to bring the

/interest rates down th.rough actionsof the federal Reserve system. Andas far as bringing land values down,that can happen if there is aredistribution of population in theUnited States. My guess is that if weapplied ourselves intensively to-developing alternate sources ofenergy like solar, wind, gentheimal .6and biomass, ne'W plants andfacilities would develop in erth9r parts

- of the 'country that are not so densely'populated and as a consequence, thecost of the land would come down. ,

finallyjn health care, we need two;things-in additiOn to national healthinsCiraece. We haVe to have a morerational system ef;health delivery toeliminate unnecessary overheadcosts andduplicat'iont.'end we have -tolaunch a program' in the. United Statesto add a whole new dimension to

'health care in whjett we don't justboncentrate:onillhets: but also con-centrate on wellness. We shouldn'tjust 'give a pill to:the stpk, we snob'also advice to- the,well-On hovp ostay well.

lf we address ali four of theseitems ,we should ultimately be in a

.positibh to cope with inflation whileat the-same time maintaining fullemplbyment in the United States.

Productivity: America's industrial CrisisIn the final analysis, the wealth of -

America depends on what we pro-duce..The total of all the goods andservices that we produce is called theGross National Prdduct (GNP). It istherefore very disturbing that for thefirst time since the Depression, theGNP has virtually stopped growing. Inpart,this is a reflection of current

' economic conditions the GNP -Iways grows slowly in times of slowereconomic activity. However: the cur-rent slow growth of the GNP is also areflection of a long-term trend.

Many economists blame this trendon a decline in productivity. Produc-tivity is the measure of how, much theaverage American, worker Produces.Newer, more efficient machinery andtechnological advances have alwaysenabled American workers to producemore for the same amount of work.But in recent years those advanceshave come fewer and farther in be-

.tween-. As a result," the rate of gr9wthin productivity is only half the level oftwo decades agb.

This decline in the rate of growth .has reduced the ability of the U.Seconomy to generate new wealth. Ithas also made it increasingly difficultfor American industry to competewith more effidient foreign compan-ies. In 1970, foreign companies sup-plied 15 percent of-the automobiles inthe U.S. domestic market. Today 30percent of the automobiles bought inAmerica are produced abro-ad, TheAmerican automobile industry hasbeen forced to lay off thousands ofworkers because demand for its pro-ducts has fallen so much. Otherdustries such as steel, textiles and

COMPARATIVE PRODUCTIVITYS. Base 100

'electronics have also found it difficult, to compete with foreign producers.

Reasons for the Declining GrowthThe mai reason for the decline in

the rate o growth in productivity isthat Am ican industry is not 'vest-ing eno gh resources into technolo-gies a more efficient machinery_

Thee are several reasons for this.First Americans save less of what-they earn than virtually any other peonpie n the world. This is partlybe' _ use 'the tax system and inflationdi_courage saving, and partlyecause America is a consumer-iented society. But whatever the

reasons, the low'rate of savingsmeans that there is less money avail-able to invest_ . we

Second, business and industry citegovernment health and safety regula-tions as obstacles to increased pro-ductivity because they require moneyintended for new production equip-ment to be used instead to meethealth and safety standards.Economists disagree sharply on themagnitude of this effect.

Third, support for the basicresearch which often results in majortechnological and-Vodu --i fatedbreakthroughs has decli- ed.I1oney'''spent on ba5ic research ay not yield

`results for many years. In times ofuncertainty, it is difficult for manybusinessmen to justify such long-term investments.

A fourth reason for reduced levelsof business investment has to do withthe structure of large corporations inAmerica. An American corporation isowned by many stockholders, most of-Whom are investors', interested only in

short-term profits'. This foam of cor-porate financing (as opposed to bAnk _loans) forces corporations tOcontinue-to pay dividends t(3 its stockholdersrather than re-invested in the corpora-tion for improving productivity. In ad-dition, corporate managers, unlike theowners of private companies, have astake in shoWing immediate profitsand "gating last year's record." Theymaybe unwilling to make sacrificesin order to plan for the future.Possible Remedies forSluggish Productivity

Economists disagree on the possi-ble remedies for improving the slug-gish rate of growth in productivity. -One proposed remedy is to dut taxesto encourage savings and investment.Many economists feel that the pre.sent high rate of taxation discourages

'both. However, some economists fearthat cutting taxes would increase theinflation rate.

A second proposed remedy is toreduce the number of governmentregulations with which businessesmust now comply. Proponents arguethat cutting government regulations"Would allow businesses to invest ,

more money into increasing their pro-ductive capacity. Critics of this propo-sal argue that the cost to society ofcutting government regulations wouldbe greater than the benefits -.For ex-.ample, regu ations such as the CleanAir Act, wf ch requires industry tocontrol the amount of pollutants theyemit Into the atmosphere, may savemore money by reducing health carerequired to treat the effect ofpollutants than it cost industry tocomply with the regulations.

IN PRODUCTIVITY1973 1979

5% 6%

U.S. still ranked high...

Great Britain'Italy

JapanFrance

West Germany_United States

-but growing more slowly_ _

7

A third proposed remedy is to lower4iterest rates and loosen credit con-trols in order to encourage higherlevels of Investment. However, thiscourse of action runs the risk of in-creasing the inflation rate.

Two other government policiesdesigned to Improve America's in-dustrial performance are linked to,but do not directly effect, the rate ofprodUctivity. The first of these isgovernment intervention inethemarketplace to help ailing Industries.In the case of the Chrysler Corpora-tion, the federal government guaran-teed a loan of $3.5 billion designed toprevent Chrysler from going bankrupt.Those In favor of the loan guaranteefelt It would prevent thousands ofworkers from becoming cinemployed;those opposed Charged that governMent involvement of this kind violatesthe principles of free enterprise andencourages inefficient business prac-tices. Another government policy op-tion is to impose tariffs or importquotas, thereby protecting American'industry from foreign competition_The American steel and auto in-dustries have argued for protection of

PRODUCTIVITY, (ion Dais)

Personal Savings. RatTotal Investment as % of GNP

apart WestGermany

France

this kind. Oppose is of tariffs andquotas argue that f the U.S. appliesthem to imports, other countries willretaliate by applying them to our ex-ports.

All of these proposed remedieshave their drawbacks, yet some or all

Italy UnitedStates

Great-Britain

of them may have to be applied if theU.S. economy is to regain its forwardmomentum. The challenge forpolicymakers is to find the balance ofpolicies which will revitalize theeconomy and head it in the.directionwe want it to go.

Why is the rate of growth in productivity so low today?What policies should We pursue to encourage higher productivity?

GAR ALPEROVITZThe most important reason we are

seeing a falloff in the growth of pro-ductivity is that there is no reason forthe average blisinessrnan to haveconfidence that the economy bwillgrow sufficiently in the future to war-rant investing massively in new equip-ment. What I mean is this: because ofOur failure to deal with inflation andbecause of our old-fashionedmethods of creatifig a recession onthe theory that this will control infla-tion, we have had a stop;go, up-down,recession-inflation economy_ ,for wellover a decade.

The only way a businessman canPossibly invesf in new automatedequipment, high productivity equip-ment "cyberhation7 or "roboticS-- the only,way he can make thoselong-term investnient decisions is if-he IfAs confidence in future economicgrowth.But that requires that we planOur economy for high growth. TheJapanese have been having growth

rates in productivity in manufacturingin the 5 to 10 percent range. Ourgrowth rate has been negative in thelast year. The reason they do so wellis that they produce a coherentoverall economic strategy and planthat people can count on when theymake investment decisions. Insteadof stop:ptart, up-down economicpolicies based on old-fashionedideas, they plan for growth thatallows businessmen to invest in newequipment for steel, new equipmentfor the auto industry, and the mostadvanced equipment in various otherbranches of industry. Only with thatkind of commitment and that kind ofplenning for economic growth thekind that you can actually count on

will we resume out"growth-in pro-.ductivity.!

There's a -great deal of talk todayabout giving businessmen tax creditsto spur investment in new equipment.But a tax credit doesn't meant much.The big question if you're a \

businessman is "Can I have con-fidence in the future ?" If so, you'regoing to run there to be ahead of thecompetitor. If not, you can have anawfully big tax credit and you are notgoing to invest because you don'twant to be sitting around with anempty factory: The real key is whetherour economic policy gives us con-flidence in the future. That meansplanning to ensure that we can dowhat many other countries are doing--- ensure a high growth rate overtime that you can count on enough toinvest in new equipment.

H. BREWSTER ATWATER, JR.inflation has resulted in a major In-

crease in uncertainty and a shorten-ing of horizons. Most privateeconomic decisions which Increaseproductivitycapital investment,research and development spendingand savinginvolve a long-term payoff. A, climate of economic uncertain-ty involving high inflation does not

favor these kinds of decisions.Therefore,,the most significant stepin achieving productivity gains comesright back to controlling inflation.

It is, also true that our present tax-structure penalizes investment andsavings and should be changed. And-it is regrettable to see the extent towhich R and D spending has beenforced to shift into activities aimed atachieving compliance with newgovernment regulations.

CONGRESSMAN BILL FRENZELThe decline of American productiv-

ity is the result of a complex com-bination of many factors. The mostobvious factor is insufficient savingsand investment in our economy.Another is excessive governmentregulation. A third is that our govern-ment favors limping, non-competitivecompanies with loans, subsidies andprotectionism, instead of providing in-centives for the growing, highly com-petitive companies which will furnishthe jobs of tomorrow.

The quickest, most effective spar toproductivity would be a tax law thatgives incentives to save and invest.We need accelerated depreciationallowances, more incentives ror per-sonal savings,_ decreased capitalgains. taxes, research and delielop-ment tax credits and other capital for-[nation proposals.

SENATOR CARL LEVINProductivity improvements are the

key to a vigorous economy. Risingproductivity allows us to producemore with less and thus reduce infla-tion even in the face of limitedresources. Productivity declines resultfrom a variety of factors. Two majorproblems are regulatory burdens,whictLajdd to the cost of production,and `insdfficient savings and in-vestments, which hinder productivityimprovements.

In regard to the burden of regula-tion, the challenge for government isto weigh the social benefits andeconomic costs of regulations. Inregardlo- insufficient. savings and in-vestments, the tax code can be usedto encourage, higher levels. Ac-celerated depreciation allowanceswill assist businesses to invest innew and efficient property.

Other policies will also help spurproductivity. Greater incentives forresearch and development will help

promote.technological advanceswhich provide, less 'costly and moreefficient meth ads of production.AgreSsive marketing of U.S. goodsoverseas will stimulate domestic pro-duction and'help improve productivi-ty_ Worker, incentives will also im-prove productivity. Employee StockOwnership Plans (ESOP) offer workersa stake in a business through ttiedirect or indirect purchase of corn-pany stock. ESOPs have been im-pressive in improving productivity andshould be encouraged.

GUS TYLER--.. Most of the talk about productivity

is pure mythology. First, the U.S. hasthe-highest productivity and has thegreatest output per person of anycountry in the world. If we were at100, Canada would be. next in the 80s,followed by France.

Second, the downturn in the growthrateis universal. It is happenngthroughout the world. The reason ourgrowth rate appears smaller is thatwe began with a larger base. For in-stance, when we were- 100, Japan was25 percent of our productivity. Wethen went up by 3 percent per year.Japan may have been going up by 9percent, but it was not growing a'sfast as we were. Growth rates as apercentage of the base are totallymisleading.

Third. areas where you have yourgreatest groWth in productivity are in

mannfacture At-the present time, theU.S. is primarily a service economy60 percent of the/labor force is ineer.vice industries. In service industries,you. do not have any rapid growthrates, of orbductivity because of thewhole nature of the service economy.Because our economy is becoming in-creasingly a service economy, ourgrowth rate is not high. If yOu.tookmanufacturing alone, our growth rate

of productivity would be higher.Fourth, productivity is directly

related to recessions. There havebeen only th-ree periods between 1927and the present in which we have hadnegative groWth rates. One was in -the1930's when we had a depresSion;another was in 1946, the first majorrecession after the Second WorldWar; and the other was in 1974-75, thelargest recession we have had. Duringthe-1970's, our entire policy was torestrict growth on the false hope thatthis would somehow check inflation.That policy reduced,broductivity. If wepursue a policy of full employmentand full growth in the U.S., productivi-ty will go up.

Finally, to increase produc,tivity,people must have the funds to investin research and development of in-novative new methods of production.The poficy of high interest rates thathas been followed since the 1970'sdiscourages investment and innova-tion because high interest rates makeit difficult to obtain funds to invest.

Unemployment_ in Aerkerida Causes and Effects,..._

Because it directly affects only a -

percentage of the working force, the,.problem of high unemployment isoften less visible than-the problems.

. of high inflation and industrial. decline.-Unless you are unemployed

yourself, unemployment only touchesyou indirectly. For this reason, unem-ployment is usually discussed 'nterms of the unemployment ra thepercentage of able-bodied Amer canswho cannot find work. Some percent-age of unemployment is usuallylooked upon as a given, but' when itreaches 7 or 8 percent, the levels wehave recently been experiencing,unemployment becomes more trouble-some. ,

Total unemploy ent can be broken,into a number of categories. One sim-ple way to divide Unemployment is in-to structural unemployment and .

cyclical unemployment. Some othercategories used when talking aboutunemployment are frictional unem-ployment, area unemployment and

_sector& unemployment all includ-ed here in structural unernployment.Structural Unemployment

Structual unemployment is the levelof unemployment which will persisteven when the economy is operatingat full capatity. It is called "struc-

UNEMPLOYMENT

9 percen

C

1970 71. 72 73 74 75 76 77 78 79 80

tural" because it is built into thestructure of the economy; The rate ofstructural unemployment is alsosometimes referred to as the underly:ing rate of -unemployment.

One kind of structural u.nemploy--ment is frictional unemployment. Frio:tional unemployment results-from theconstant movement of people fromone 'job to another. Because-there arealways People in transition, the

vpnemployment,rate can never be zeropercent Economists agree tlfat thelevel of frictional Unemployment isrelatively, stable; however they =

disagree on how high that levet is..A more serious kind of structural

_unemployment is unemploymentbaused by the incompatibility;ofworkers' job skills and available jobs: .

The people most affected by this kindof unemployment are unskilled andinexperienced workers because thereare fewer jobs for'-them in the U.S.:.economy. As a result, certain socio-economic groups are harder hitBlacks are more'likely to beunemployed than whites, femalesmore likely than males, young peoplemore likely than adults. The problemis particularly acute among blackteenagers. Some estimates are thatunemployment may be as high as 50percent for black teenagers in certainareas.

A third kind of structural unemploy-ment is caused by the decline of cer-

lain industries. Many workers in tex--tiles, electronics and other fields havelost their jobs bause those in-dustries have been on theyleclieeAmerica.

These types of structural unemploy-ment together form` an underlying rateof unemployment. in the last twentyyears'there has been arise in theunderlying unemployment rate. Untilrecently, 4 percent was consideredthe underlying rate of unemployment:in the American ecorkorny. However, 7.,there is riow- evictence that the levelMay betqonSiderably higher. -Thegovernment now uses 4.9percent asits figtire; Many economists use 5.5 or6 pdroent.,

Several reasons have been cited as,the 'Cause for the increased level ofstructural unemployment in the.Affierican-economy. One-is the influx

of large numbers of women and youthinto the marketplace at a time whenthe economy has been growing lessrapidly Than it did in previous years.The number-of jobs has not kept pacewfth'th-re number of potential workers.Another reason-cited by someeconomists is the minimum wage.They:Oairri:that by requiringbusfnessea to pafy even the most' un-skilled workers a'minimuM wage-,government legislation has reduced'the incentive to hire those people: AThird reason cited by some .

economists is the level of welfare.andunemployment benefits now paid by'the government. These economistsclaim that the current levels providelittle incentive for recipients to lookfor work.Cyclical Unempiloyment

The kind of unemployment mostoften in the news'today ikcyclIcalunemploymentsometimes also re-ferred to as recessionary_ unemploy-ment. Auto workers out of work inDetroit and'steelworkers.out of workin Pittsburgh a3c.part of cyclicalunemployment-They are out of workat least partly because the economyis in a cycle of slower activity,arecession.. During a recession, de-mand for the productS of industry andbusiness drops. Businesses needfewer workers to meet the demandand workers are laid off. The jump .

from 6 percent to 8 percent unemploy.rrent in the first half of 1980 waslargely a reflection of the currentslowdown.

A recession is, in part, a natural_phenomenon. Left to itself, businesstends to-follow a cyclical pattern inwhi-ch periods of rapid and slow ac-tivIty alternate. These cycles couldget out of hand and be dangerous.Government policy tries to smoothout the cycles, but this too can berisky. By stimulating the economywhen it is lagging, the goverprrientrisks fueling inflation, By restrainingthe economy When it is growing toofasj, the government risks cauSlrg asevere recession. (If severe enough itis called a depression.) Manyeconomists blame government ac-tions intended to slow the rate of In-

_ flatIon, particularly high inierestrates, for the severity of the current:

recession and thUs the high, level ofunemployment.Possible Remedigs for Unemployment

Two basic types of governmentpolicy are used to combat unempldy-dientr The first is monetary policywhich attempts to stimulate theeconomy into performing at fyllcapacity. This policy is targeted atCyclical unemployment. The second isgovernment policy intended to changethe structure of the economy to

'alleviate structural unemploym'ent.This policy is often aimed at thestructure of the labor market, usuallyby providing job training 40,Linskit led:

- workers. `Programs Such as CETA (theCoMprehensive Employment andTraining Act) provicetraining to thetoditionallY unskilled in an attemptto alldviate structural unemployment.

Combating unemployment usually,involves some costs either in terms ofmoney for job training programs suchas CETA or. in terms of increased in-flation rates which result from Apolities designed to stimulate theeconomy. As a result, rather than at-tempt to eliminate unemployment,government policy aims to reduceunemployment to an "acceptablelevel." The current government defini-tion, embodied in the Humphrey-Hawkins Full Employment Act, -defines 4 percent as an acceptablelevel.

% Unemployed

(16 and-over)

41'

(teenagers only)

UNEMPLOYMENT BY GRoups

5%

White Females

White males.

1'0°/0. 15%

Non- hite,Fernales

Non -White Male

Defining-what level is acceptablecan be alvery difficult task. In Part, it ,

depends upon what one perceives thelevel of structural unemployment tobe. If one believes that 4 percenti.sthe underlying rate of unemployment,then 4 percent ,wOuld seem to -be anacceptable level. If one-believes thatthe underlying rate of unemploymentis now 6 percent, then 4 percent may,seem to be an impossible figure toreach without incurring enormouscosts.

However, in considering the costsof policies-aimed at reducing thelevel of unemployinent, the costs of

(duly, 980)

20%- 28%" 30% 35% 40%-

unemployment must be considered.High unemployment .is a drain onsociety, not only because the govern-ment must pay out more money inunemployment benefit* food stamps,etc., but also because society doesriot have the benefit of all the workthat could be dorye If mere pebblewere employed. Furthermore,unemployment has hidden cO§ts'in"the forM of low morale and-highfrustration lettels. This oftentranslates into increased levels,ofcrime. balancing these costs andmaking a policy decisionis---a very dif-ficult task.

-Why do we-have:such a .high rate of unemployment togaWhat policies should we' pursue to toWer it?

GAR ALPEROVITZWe have a high, rate of un,p,smplpy-

ment because we have b.een_manag-ing our economy sb as to createunemployment. We have beenoperating on the old-fashioned theorythat running a slow economy willreduce inflation. The problem is thatthe new kind of inflation think ofenergy prices and food prices does'not yield to a planned slowdown likethe current recession. We simply getunemployment and more recession.

!Uwe want to get out-of this bind,we're going to have-to have a strongmeasure of direct control ovel- Of la-tion: In most of the first two'decades%of the post-war period, other in-dustrialized countries of tlAe worldwere running unemployment rateiln

the area of 2 percent..Ours-was in the4 to 5 percent range. The Japaneseand Austrians have been running 2 to3 percent unemployment. We are nowin the 7 to 8 percent range. The ex-amples of other countries show thatif we want to plan our economy forfull employment, for jobs fdr everyoneand for a great ideal more output,. wecan do it. But It requires usio aban-don the old-fashioned idea that arecession somehow significantlyhelps solve inflation. If we dOlh.pt,then we can begin to buildrailroads-, mess transit vehicles andsolar equipment, and-begin to rebuildour highways, hospitals and schodis.All'Of these things would put peopleto Cvorkon things whidh nee, toberdone. They-could be part of a

"-package or planned job creation forfull employment, consistent with aset of proposals to control inflation inthe key sectors by direct nieasures.

H. BREwsTeRATWATER, JR.Many unemployed people have

.voluntarily withdrawn from the labor-force to seek another Job. Still othersare only unemployed-for a shortperiod of time and are well.cushionedby variCius government progrems. Thismeans that our focue should.be onthe it:Mg-term, InvoluntarilyunehipToyed. It Is appropriate forgovernment toprovIde various pro-grains for such Individuals to Improvetheir eductatioriand skills to the pointof job readiness,- and to assist themIn finding good Jobs.

In -general,- though, the beat Eire-scription for unemployment is a 7

healthy, growIng._economy.-There isvery little evidence -that governmentprograms and actioFfts=which are -. 4focused narrow:W.0n Oanging the' -'''rate_ of unemployment have been suc-cessful, Thenationalunemploymentrate is only a crude indication oflabor market obnditions. Governmentpolieies should fobus on the dpecificdemonstrated needs of the long-termunemployednot the aggregate _

. unemployment rate.

CONGRESSMAN BILL FRENZELOurunemployment problem is the

_ result of a combination' of forces. Wehave recessionary unemployment,structure unemployment,-sectoral

. unemployment and area unemploy--- ment. .,4- .: -.

-- To-return re6eesion-onemploye0-:-- - ,_people_to work re Tres a healthy andwowing econorm inbentives areneeded to spurzou enemy and tostimulate capital formation for crea-.tion of new jobs.

To combat structural unemploy-ment, we need better training pro-grams to provide skills to the un--skilled, relocation programs, and taxincentivea..Inr employers to createjobs` in areas such as our eastern_

cities, where few isbNopportunities ex-ist. It would alsO help if we did nothave an unrealistic minimum wagewhich denies unsItilled_workers the-entry level jobs they need.

At present, one Of our great con.corns is thednemploymentintheautomobile : industry, SomeOorh-parries blame imports, but Many peo-ple blame the companies themselves,who have not produced energy effl-dent- cars,-or their employees, whohave not cared much about productquality and Whose wages are clearlyout of line with domestic and :worldsalary levels.

Four percent unemployment isoften cited as an acceptable_ level ofunemployment. As long as any personwants to work and can't, any amountof unemployment is a cause for-con-cern. But in a mobile society in whichpeople easily move in. and out of theirjob-market, 5 to6 percent is areasonable target. The current -ratenaf8 percent is far too high.

SENATOR CARL LEVINUnemployment arises-for a variety

of reasons. Foreign competition Maydisplace domestic manufacturing.Management decisions may fail to an-ticipate changing markets and con-sumer buying habits. Technological

advances in one field may.make anindustrial process obsolete and uncompetitiye.

tltremploymeot is a complex pro-blerri because there are so manykinds A certain amount of Onernploy-rnent existaabacause people changefrom one jgb"to another. Struptualunernploymenf exists becaUsa thereare people wh6 lack necessary jobskills. And regional unemployment_prevails in areas hard hit IA, dwindlingindustrial bases and plant closings.-

The federal response should besensitive to the different kinds of

. unemployment. Public works pro-grams are useful to keep peoplework-ing during recessions, but they

' should be.structured to teach lastingjobekills for-the private sector. jobretraining programsere useful whereregional unemployment exists. And

_tax Changes which_enconrage export_promotion and economic expansionin the private sector will help lowerunemployment as well:

GUS,TYUERThe high rate of unemployment was

manufaCtured in Washington, D.C. Itwas started when President Nixondecided that the way to cope with in.Elation was to cool the economy.The

_ phrase "cool the economy" means to --slow doWn the wheels of commerceand industry. In plain language, itmeans to manufacture unemploy-ment, Nixon manufactured unemploy-ment on the-theory that if unemploy-ment-went up, prices would stabilize.That polipy was continued by Ford,and curiously enough, also_continuedby Carter. So through the 1970's,uheniployMent was manufaCtured byrestricting the money supply, plimari-ly.through high interest rates.

There's absolutely no reason whythere should be any unemployment inthe U.S, at the present time. There'splenty of work to be done. lfweturned to alternate-forms of energy!prOductioni.we would need labor toput up the plant facilities and*thentomaintain them: if we expanded ourfood supply, if we began to expandour housing -stock which we needvery, Very.badly, there would be ab-solutely no unemployment in thiscountry at el.-Unemployment was ar-tificially created in Washington, D.C. _because they were living with a wildtheory that unemployment would cureinflation.,Actually;uhemployment andhigh interest rates have caused infla-Lion.

EcOom _Real.ities-of..iiiterdOpendence

An average American may watch atelevision set madein Japan, Wearshoes made in Brazil and dilVe a car..`assembledin Italy from parts made in:,Germany; Argentina and the United

_ tates:-Meahwhile-, U.S. products-andfood find their way to virtually everycountry in the World. Today, theeconomies of the world's nationshive become so interconnected thatin reality, they are all part of a globaleconomy.Industrialized Countries

. Since World War II, the industrial-ized countries of Europe and NorthAmerica, as well as Japan, havebecome increasingly interdependent.Trade with these countries accountsfor 69 percent of U.S. exports and 51percent of U.S. importt. The financesefthese countries are so intertwined_that the domestic economy of eachnation impacts upon the economies-of other nations: A recession inAmerica lowers the demand for carsmade in Germany and Japan and Maytrigger their economies into reces-sion.

The penetration of some importedCommodities such as foreign madesteel, automobiles; textiles and ap-pliances into The U.S. domestic; -

market has been of great concern toAmerican -producers, Today 30 per-cent of the autdmobiles and 15.8 per-cent of the steel bought by ceri- .

sumerS in America are producedabroad. As a result, some have calledfor proteetive quotas or tariffs (taXeson imported goods) which wouldmake these foreign products lesScompetitive in America. However,quotas and tariffs have been opposed.by those who fear retaliation by thenations with whom AmericatradeS. If

_thdU.S. were to place a quota ortariff:on _Jiapanese cars, -Japan mightdo the same to U.S. exports entering

'-Japan.The Oil Exporters .

Few things have brought the realityof interdependence more forceably tomind than the energy crisis. Today,-:not only are the industrialized nationsheavilYdependent upon each other,but they are also increasingly depen-dent upon oil imported from develop-ing nations. This trend went largely--unnoticed unttl 1973; when the oil pre-

,

ducing nations, most of whom belongto tha.-Organization of petroleum Ex;=- =porting Countries (OPEC), raised theirprices to alarming_levels. This oil_ _

price focrease caused a transferma..Lion of the-world economic andpolitical alinment. Wealth is shiftingfrom industrialized nations to those-developing nations which are oil pro-ducers. In 1973, the assets of theOPEC nations totalled $7- billion. By1980, their assets had grown to $343billion.Developing Countries -

While oil resources have propelledsome developing countries into themainstream of the world economy,the lack of oil resources has leftother developing countries far behind.These non -oil, producing nations, withtheir comparatively small nationalwealths, find it increasingly difficultto pay the rising ail costs.-For exam-ple, it is much more difficult forIndia's economy to afford 100 barrelsof oil than it is for-the U.S. economy."

Most developin ou tries survivebecause they pr ide raw materials to _

the industrial n:tions. Jamaica pro-)

duces large-amounts of bauxite, thematerial, from which aluminum ismade. Zambia and Zaire produce

large amounts of copper. Zimbabweand. South Akica.prodLice largeamounts of chromiunxThese:minerals, like oil, are both important ,-to the industrial world and'scarcethe U.S : importe over 9b, percent of itsbauxite and virtually all of i.chromium, Western Europe d Japanimport over 90 percent of their cop-per..However, the countries whichproduce them; unlike the producers ofoil, have been unable to form effer-tive cartels to capitalize on their im-.-portant natural resources.-

, IVItiCh of the mbrey-that deVeloping-nations make goes to pay off loan_ smade to.them by the-World Bankandthe International Monetary Fund.Loans from these institutions go todeveloping nations for deVeloprnentprojects and help These countries

'with theirbalance of,p.ayment pro-blerns. In recent years,4snly becauseof the burden of high eriergy costs,the debt level of developing countrieshas riseniremendously. By the end of

SoU

12/0 of total U.S. experts0/0 of total U.S. imports

80, Third Woria nations will owe in- -ernatibrial banks $350

The Future-For the U.S., the changing world

economic situation has many implica-tions for the future, IT U.S.;consurnp-tion cif natural resources cbntinues togrow, the U.S, will likely become in-creasingiSt dependent uponsimportedsupplies. This will make good rela--tions with producing nations evenMore importanfthan-they are to-day.Given the economic disparity of-wealth between The U.S. and some ofthese countries, gobcl rlations may

)

be diffidult to smairitain. _

in'the_inclustrial world, the volume '_-trade between nations, is likely to .

continue to increase. -FOr domesticproducers thip will meant increasedcompatitithi frorniforeign produceri.Some American industries are likelyto prosper, while others may sufferand, as a result, continue to_raie theissues of protective quotas andtariffs. As the world grows figurativelysmaller, U S. economic policY mustbecome increasingly sensitive to theworld situation.

OPEC'S GROWING ASSETS _

Cumulative Total(billions of dollars)

What does the increasing interdependence of all nationsmean for the United States?

GAR ALPEROVIT4:One of the most important things

to notice is that every other advanced-country is now moving towards morecoherent.public and private planning.The Japanese auto-industry and theJapanese.steel industry have beenbeating us- to the punch, tirrte and=time again, because they are part of aOoordinated public-private plan_ to en-.courage high productivity and highgrowth. Unless we develop a morecoherent sense_ of direction and plan--fling which' uses our capitatand otherresources in the most efficient way,we're going to find ourselves goingbackward as other countries go for-ward__

We are also going to see more pro-tectionism, whether we like-it or not.That's what's happening around theworld. And Ws- happening because of.

our failure to produce the high growtheconomy that would give more jobs.As long as we have recession andslow growth, any family, any com-munity, any industry that is. hreaten-ed by imports will inevitably screamout roF help and protection. The only

__realistic option is to run a high-performance economy, so that peoplewho lose jobs it an import industryhave other decent jobs to go to.

ln. regard to Third World countries,we ought to take a more responsibleposition by improving our purchasesfrom-those countries. The- most int:portant thing, in my view, istradenot aid. But that means we'vegot to get our own house togetherand run a growth economy or WeWon't be buying much from,abroad.also think are can help by giving long-term loans, preferable through multi-

..

national institutions like the WorldBank, to allow them to develop morerapidly.--This in turn will help our ex-

_ ports.

H. BREWSTER ATWATER, JR.Capital will generally go where it

gets treated best. One result-hasbeen a lot of transnational invest.ment. U.S. companies compete inforeign markets, as do foreign com-panies In our markets. Public policiessupporting free movement of goodsand capital are ultimately beneficial.for U.S. consumers and workersdespite specific instances where pro-blems occur. Competitive, efficientAmerican industries will grow andprosper, generating more jobs andwealth for America, and our con-.sumers will be able to buy productsthat are competitively priced.

CONGRESSMAN BILL FRENZELA_recent phenomenon In the world

economy is the growing in-terdependence of all nationaleconomiesindustrial nations andless- developed nations; A few coun

the y.S. haVe-sufficient*urdiandtechnological resourcesto ,survive alone. But even the U.S.needs large energy and metals im-.portato maintain its security andstandard of living, and its consumers-,demand Other foreign goods, like carsand electronics', when they are betterin price and quality than good_ sdomestic manufacturers can produce:

Oil producing nations are extract-ing-high prices for their energy.in an

energy-scarce -world.The-Jess='---TieVeloped bationg, the Third World,

are demanding a greater sharapf the,-world's economic pie. The in-dustrialized_World, plagued.by energy-related trade deficits, is struggling tomaintain and improve its standard of-living. Today'we have an environmentin which h-there is both danger and op-portunity__The danger is that large dif-ferences in wealth, resources or livingstandards are explosive. The oppor,tunity is that major trading periods inthe world's history have caused thecondition of all people in all countries-to improve._ intetdependence.is notas comfortable as self-sufficiencY,but withcareful management, andainme accomodation, it can lead tobetter times for all people.

SENATOR CARL LEVINThe industrial- countries have a

stak6 in improving the Fot of all coun-tries. The exchange of products andresources-should improve the sten-dard of living for all countries', While,the U.S : enjoys a high standard of liv-ing and a certain degree of self-sufficiency, we are still dependent onforeign products and resources. ThirdWorld countries also offer newmarkets for domestically produced

Doniestic economies are oftenrewarded by the presence °blowerpriced foreign goods. But the reversecan_ be equally true. Domesticeconomies can suffer extreme turmoilif foreign products are unfairly sub-sidized and thus able to underselldomestic products. The social rener-cussionsecan be devastatingtoworkers and their. families.

However, while some industries

need temporary protection, excessive.protection will cause more harm thangoodlin the long run, Consumers willbe denied the variety and quality ofimported goods. Rather than erectpcolonged trade barriers, repercus-sions of which can extend beyond

.

trade relations, the federal responseshould be directed at assistingdomestic industries td become corn-petitive again. Such a response couldinclude °temporary import restraintawhich allow induVries the time to-modernize plants and-equipment

GUS TYLER_

The term Interdependenne' ismisleading when_appliedjo-the-Third--World riptit:Ina: Since the end of theSiecond World War, the Third Worldcountries.have become more depen-dent than they4have ever been in allof theirhistory.-They have becomemore dependent-on the West becausethey-have been liviw with a falsehope -that rapid-inaustrialization,would enable them to be wealthy andto stand on thelowh feet. What-hashappened as a -bonsequence of thatpolicy is that they are dependent on

a.the West for mqrkets, they are depen-,dent on the Wedtsfor capital, and theare dependent 'citi the - West-for food. Idon't know how you can become

more dependent. There is absolutelyno independence and therefore notrue interdependence. --'-'

However, they do have a capacityfor independence. The capacity for in-dependence is their own soil; Theirpeople are 80 to 85 percent rural, yet , =,

they have neglected agriculture. Inthe past, these Third World countrieswere exporters of grain: Now they areimporters of grain. That has madethem even more dependent on theWest if-they were now to turn aroundtheir policies _and.developtheir ownfacilities, their own resources, if theywere to work their own land, they -

:would move in a_directioholtreater=7independence. Once they havegreater independence, then we couldhave true interdependence and notthe present circumstance Which isreally only dependence. '

-: in retard:to the iesue of imports; --the_auto industry, curiously enough,Is not at all a good example of theproblem. The basic problem appearsin iid manufacturingin apparel,textile ,.shoesshoes and eleCfrOnicassem l ,ywhich employs about 10million orkers in this tountor: The

.S. is art island of free trade in a ptectionist world. The result is thatseveral million jobs have been lost inthe U.S. in light manufacture.

,

Free Ent r r1s Role for t

Free enterprise in its purest formmeens allowing businesa to operatewithout governrIfent interferendO or' --regulation. In a pure:freeterprise

wsystem, the government world pro-vide only basic neceseities such asnational defense whicb Cannot besupplied by private enterprise-Undersuch.a system the forces of supply(the amount of goods abd-services

which will lao produced,at a Wienprice level) and demand (the amountof goods and-services-whichpurchased at a given price level) -.

determine what_is produced-and howit is allocated.

Although_the_American econornydsbased on the concept of free enter-prise, in reality government andprivate business are, greatly entwined'Over the past 50 years `the American

economy has moved from a relativelyfree enterprise economy to, what iscalled a mixed economy. Rather thana system in which decisions aremade purely by the-interaction of sup-ply and demand, a mixed economy isa syStem in which, government makes -some of the decisions.

One measure of government in-volvement in an economy_is theamount of government -spendingrelative to the total amount ofeconomic activity. In the UnitedStates, total federal; state Arid localgovernment spending has-grown from10 percent of the gross-national_pro-duct (GNP)`in 1929 to 32.5percent ofthe GNBzin 1980. Over the sarneyears, federal governmenrspendinghas groWn twin 2.4 to 18:8 pei-cent ofthe GNP1 t

While this iperc'entage may seemhigh, it is not all that high comparedto the percent of GNP that the

;-government takes in other jn-dustrialized countries. By thismeasure only. Japan has a freer. 'freeenterprise' economy. In West Ger-many, Great Britain, France and OtherEuropean countries, the governmentshare -of the GNP,is higher than it isin' the United States.

,Government RegulationsIn.the United States today, the

federal government-is involved inmany areas of the economy throughlaws and regulations which' affect the

-activities of industry. Many assumeAi

that industry opposes all regulation-and that they are in direct conflictwith the more :than 50 regulatory .

agencies which regulate them. -7-However, more realistically, industry

4favors some regulations While oppos,ing otherS. When regulation of- theairline,,trucking and railroad in- ,

dustries-was eliminated-throughlegislation;_those-indUstrieslopposed--2the deregulation. ,, . --

The.basic debate over regulatiorTrilon Whether there Shouldnot r hould

not be regulation, but on-wh t kind of15no o- -s

-

regulation,- and hoW much at w1at`cost to-whom. For regulations which'cost industry, the debate often hingeson whether acertain regulation denbe.instittited in a cost-effectige inan-:n6r. Is the benefit to soclety,worththe bast to industry? In 1986, accer- .ding to some estkhates, businest

. spent over 100 billion to comply-with -_government regulations. Ninety percent of that total wasspent`to comp-

, ly with,regulationa made by the En-vironmental Protection Agency (EPA),the Occupational Safety and HealthAdministration, (OSHA), and the Con-sumer Product Safety Commission(CPSC). : . .

Most of the immediate cost-of thisregulation ($100 billion) is passeddirectly to donsumers in _the form of

. higher orrces. However,' business-es-argue -that they also absorb some-ofthe cost becaute they are forced tospend money that -would have gone

-United States

111.00000000000

towards improving their productive --capacity on p6Ilution controlment, worker safety improvements,and other itemi-necessitated by _

goVernmeneregulaticins. Proponents=of _regulations argue, however, thatclean air, reduced death and injury indye, workplace, safe consumer pro-

\ ducts and a more equal-society have,a--vatue-greater-Thffn the cost of. theregulations which promote these.jectives-: PUrthermore, they argue thatat least Some of the money 'lost' as a

;Jesuit ofthe regulations is recycled tothe cos parries which make pollutioncontrolequipment, safety equipthent,and so forth.Protectiorrand Loans '

Whiile some industries berategov6rnment for its involvement inenterpriseother industhes specifical-

:iy..dsl? for government assistance. Inparticuier, ailing basic -ind6Stries

-.such as automobile and steel havesought-govemment interventibn. Theirrequests have taken two forms:_pro-tection from fdreign competition andloan guarantees to enable them to ob-tain loans they need to survive.,

To protect 'them from foreign corn- -

petition the Americaksteer and --automobile industries have demandedgovernrnent protection Irom foreign-competition in the 'form of tariffs4and-lor qudtas.on imported goods.Higher tariffs (taxeS- on-irnported_goods) would make imported doodsmore expensive and therefore less at-

HOW BIG A SLICE SHOULD GOVERNMENT TAKE?Total Government Spending as a- Percentage of GNP

=

tractive to tile American consumer.Lower quotad would obviously havether effect of-reducing the flow ofgoods intcrthe country:However, ifthe U.S. were to impose either, itwould run the risk of provokingretaliation by,the.nations:with Whom'it trades.

Several Corporations have askedfora more unusual fdrm of government_assistance = federal loan

.

guarantees. Most notable arnongthese have been Lockheed, one =thelargest -aircraft-manufacturers in

----7- _

America, and the ChrysIerCorp ra-tion, the nation's third largestautomobile manufacturer. In thecaseof Chryslerthe more recentcasethe co bination of foreigncompetition, efficiency in produc-tion, an management _pushed itto the brink of bankruptcy. After ,-,

_much-heated debate, Congress ap-prOv ed Ouerentees of $3.5- billion. _

Supporters of the loan guaranteesclaim-that thousands of Workers

.

wodia have lost their jobs withoutthem,Osgankfits_charge=that-loan ...

_

guarantees violate-theprinciples--offree enterprise acid encourage ineffi-cient -business praattces.

_ The proper rotator government in 7--the economy is difficult to determine:The complexity of the moderneconomy seems to derriand-thatgovernment involve itself in someareas, but too _much governMent in-volvement and too:little free enter-pride0110 may only add to the problem._-The challepge for policy-Makers in the1980's is to find a balance that willwork. _

GARALPEROWTZ.There's a.goodcleal of rhetoric

about the 'go:called free enterprisesystem. l don't know anybody whobelieves we're going _to turn the clockbeak to the19th century, of totallyfree enterprisa7he government isbecoming rnoreiand.mote involved in .

the economy torbefter or worse.= Fvei President' elect Reagan,ewho

campaigned on free enterprise .

slogans, ended up _supporting the bigloan guarantees for Chrysler, the -,--bailoitt7 The reason is diet if wedon't dsomething, a gigantic in-dustry wilf go.down, and with it, hurl-dredeof-thousands of jobs, communi;ty economic health; small' industriesand small businessmen who supplythe Chrysler industries.

Whether we like itor not; we are ina world in which government interven-lion le growing. think it is importantto recognize-this reality:Instead ofthe irrational form of interventionwe're seeing, we should institute amore effidient, more highly focused,more coherent form that producessomething usefuLl donl think theChrysler bailout was a very goed idea_I do think it would be good for us as

Hon if we sat down` and added upnumber of railroad cars' and..es-and mass transit vehicles that

as a society are going to need forpublic transit systems over th%nextten years: Then we could say toChryeler something like; "If_You'llconvert:your facilities, we will giveyou a contract to build railroads, bueand Mass transit, which we are going

to purchase as talii ayers in any. event." Theridea'is "conversion, yes;-bailout, no."

'The old elogarialboutgetting thegoVernment out are largelislogans.We see the majOr =Steel-companies

- going to"the goyernment_fer more:assistance; we seethe auto ,industryacjipd-tb the b6vernment. And theenergy-,companies are intimately in-volved wiffidOvernment through thepew. synthetic fuel corporation: Soeven as the rhetoric goes one way,the reality is moving in the-otherdirection in this country and othercountries. The real question is, willwe be able to do it intelligently and _rationally, rather than sit back andsloganeer at each other about a.situa-tion that's pretty mucli decided?

H. BREW TER ATWATER, JR.--= _

Government wilrcontinue to be theplace where many societal conflictsinvolving our economic system are

,aired and dealt with. An example ofthis is the trade=off between our need-for industrial growth and new energyand its environmental consequences.Government's judgments may change..Far example, government 'may well_decide that some relaxation ofspecific environmental regulationsare needed to foster industrialdevelopment or that otherforms ofregulation should be.modified.- Butgovernment Will remain the ultimatearbiter of the-trade-offs.

What I hope we may see less of in. the eighties is the subStitutioh of

bureaucratic judgmentior the market--r

17 rEV

place. There is no compelling reasonfor government to regulate themarketing of safe.products simplybecause a group of regulators doesnot like the product. Nor dd I thinkgovernment shouldbe in the businessof industrial restructuring ; resting ona belief on its-part that bureaucraticaction cauroduce a-theoreticelly:ideal marftt. This kind of goVernrpentintervention in 'the market econVy iswasteful, injuriousandjustoilainjWrengttie_eded.

At a niretimum,.I am hopeful thatthe public now understands thatregulation and other forms of govern-

.-ment intervention involve re-al coststoghe-economy,- often inyitibleatfirst, that must, be carefully ,weighedagainst a realistic assessment _of ex-pected_benefits.-

CONGRESSMAN BILL FRENZELFor -the nextdecade, it is inevitable

that the-role of government in ourrelatively free economic system mustdecline But it is equally inevitablethat it will decline slowly and uneven-

.11`!

Most Americans believe that wealready have more governtrent thanwe want, and that governMerd regula-tion is excessive, a drain of perhaps$150 billion on our economy. Both].political parties and all candidatespreach incessantly on the ne ed to-zdereg6lete, to let the free market de,its own thing. The concensus formore unfettered economy seems over-whelming.

But, in the same way it is am---

bivalent 'on federal spending. Americais ambivalent on government in-terference in the Marketplace. Forevery company screaming- for lessregulation, there are several busilytrying to build regulatory fencesaround their Markets or their in-dustries.

The American people still distrust_big-business and will continue to lookto Washington for protection. Theyfear for their swn health and safety;and they continue to maintain a highTe= _vel bf concern fotabetter environs

'_rent Perhaps nothing will do morefor America than getting the govern=ment off the bucks of the people. Butsince each little piece in theregulatory puzzle has-its own consti-tuenCy, the reduction of federal in-terference- will. be a series of hard-

- fought bottles, and progress will be_.'uneaten and slow.

.

.SENATOR CARL LEVINGovernment will continue to take-

part in'the operation of the U.S.economy. For a number of reasons,pbople will expect protections theyhave traditionally sought from govern-ment. Health and safety standardswill remain a vital concern. Thechallengb of redeveloping regionaleconomies will require 6cooperat-ivespirit between the public and privatesectors. ."

The economic challenge_ of the 80'swill call on the federal government toenact measures that promote

_

economic development while ei uring=reasonable regulations in areas otherthan human safety and health. Suchmeasures include the legislative veto,which-would allow elected officials

lations pro-congress to veto regulationsposed by non - elected bureavcrats,sunset legislation, which would re-quire-review of programs at regular in-tervals; and paperwork reduction.Another that the federal

-goveinment could undertake tostrengthen its-commitment toeconomic prosperity would be a revi-sion of the tax code to encourageprbduntive investments and revitalize-tions of certain strategic,Finfally, the federal governmentshould make uee_of the opportunityto-essist U.S. companies in develop --ing export markets.

GLISTYLERThe government is deep into the

economic system because everybodywants the government in theeconomic system,I have not yet metanybody who's opposed tolt exceptwhen they speak in general. When, theythey speak in specifics, everybody isfor -government intervention. Begin_with the farmers. If the federalgovernment were-to withdraw priceswpports and parity, the formers _-

would rise in rebellion. They'd-marchon Washington and-shoot -the press-dent. They want government interven-tion in the economy. Take people whofavor parochial schoola. They want.

the go.vernment to give money toparochial schools. And if you takepeople arnong minorities, they wantthe government intervening to protect =

the tights of-' minorities to hold jobsand live in certain- neighborhoods.That is more government intervention.

The people who say they want.leSsgovernment want it where government -is telling them that they have to dothing6they don't want to do. Theythink, would like to make :a lot ofmoney and pay no taxds. I ask forless government. At the-eorne time, ifI am in tronble, I comtto the govern-ment and. pay rescue In2.".-So )-everybody Ants tornethingfroin the .

goverhrtient,.ut ni*ody wants to give-anything to the government. Its avery-simple appeal a le;s govern-Ment' because- it assurnes _that the --government will still by theredoingwhetit'Adoihg-,exc4it it won't peatyou anything. Opviously:inatc never-going to happen..- _

No society-can-functipn withoutgovernment:The more compiek socie-ty is, the more government you haveto have. In a primative Rind of society..I guess you: could do with virtually nogoyernmehti at all because everybody _

would take care of himself.' But in-6complex society,'-you Can't haveeverybody going out and doing:anything they want ; Society, =complexas it is, requires organization, and -organiiation means there has to beguiding intelligence and a guiding--force.

oscary1--ded budgeta budget in which

government spending equals govern--t.'-ment -revenue Tricorn e).

lance-of payments -the yearlyatement which shows the amount

of money spent on import's and thee-='1,amount of money received for exports

by a nation Lbusiness Cyclethe Periodic up-and-°WO pattern of the economy froth[ries of rapid growth to times

Kalowef-growth(recession).cartel--a group of_ firms or nations-

Mph arca:11.44 to eliminate competi-__:.orrin an ifidLieley- Cartels set price- ---

and production levels for eachrneirdier, to, the mutual advantage oftt.Mainbers.

..Lcorporatiort -ea firm which is owned

-by stockholders and Controlled by :orporate-Officers it acts as a

htseparate'legaf entity; corporate-of-'-_-_Icers-are not personally responsible.

the debis-or other obligations of

-effectivenessusing orperating undera method of produon which is most efficient-and

r_,!yesults in the lowest_cost per unit pro--duced.: _

- credit -an amount of money extend-,ed tote person or firm by a bank or-

-1-.-other lender.credit controlsdevices used by thefederal government ta discourage the

,-,7.1ending of money, thereby controllingthe money supply and economic ec-,tivity. 5-

-..- cyclical unemployment-0e rate ofunemployment (most often temporary)

.caused by a'slowAdown in economicactivity, i.e. a recession_

debt which occurs whengovernment spending exceeds govern-,meat revenue (income).

. demandthe amounts of gpodsand--:services which will_btpurChased_atgiven price levels.depreciation= allowance atwhich businessusiness carilOWer theesti matedvalde of its equipment anfacilities_' In order ti Mduce-therrriouritof tatiesit paYSTOrilherm jAsquipi-derirand facilltiits:get order'

they IdseValue, gopreciate)depression - severe economicdownturn-with high leVels'Of_sunemployment, low levels.of p

2_tion and decreased incomdoc-_

_ . sderegulatIonthe act or proces's.ofremoving govern ent rettrictIonstplaced-on dertaineconomy or soding-of restricttonrailroadand-trucdevelopin- itAfric h Aare not rheavily on_ hthe

agriculture,These nations usGNPs less than $1literacy and birth rate_

_

developmentthe process of moving' =frcrin-an agriculturalettmomy-to anindustrial economyi_epecialty in --ddvaipprng nations.;__Developmentts

=carried out throughsocia4poldical.Larid-econornip-policiesaimejl, at imL.proving_-material Welfare; efimitingmasb.povedy; high illiteracyerates anearly degth,developing the ability. ofnations to supplylheir on gocd-_,arid services, and reducing Their debtsto other nations..Federal"Fleserve Board (Fed )a groupof seven individuals appbinted by thepresident who are respOnsible.formonitoring and Controlling economicactivity through- the Money sopply.Devices used to control are` interestrates= and; creditcontrols.-fiscal policymeaSures aimed at af-ecting economic activity through_

vernmentspending and taxes.incomes incomes which do

not change white change in'the cost: of living. e.g some pensions and

n ,_

free-enterprise--arr economic system ,- based on private ownership In which-business operates without. goverit-ment interferencefPrices are et bythe interection'of supply and

unemploymentthe amountof unemployment which resultsmovement by people from one job to

=

art h

aspects of ttey such as the lift-on the airline;

ing industfies.the nations In

erica and. Asia whichlizqd and which rely -.

Oft of raw materialso _tsforrevenue.:,fly per capita--, =

a high. II= n;:=

god ems or commodities pro--.

wheat;_clothinm.televi-5--io s.,_et

--_.P, root National P uct_..,,

at dOods and snrytces pitra :na ti orfiti t i n g a specifith-

P i timwusially clean_

International Monetary Fund (INIi9afund esfabliShecl in-1944 and intendedto provide money for nation's ex--periencing temporary-trade deficits.Bch member natian isexpected to ,contribute a percentage of its-income, e_to the fund every year,Indexingthe practise of adjusting -__

waged and/or,,payments to offset theimpact of inflation_ When the cost of

_ living increases, indexed wages arkpayments-increase automatically.

-thus maintaining the same "real" in-: come or paYment.-- _

co-ntinuing increase in-the general_ price levey-Inflationary expectationsattitudesotconsuMers and prOdUcers whichanticipate a continuing rise. in thelevel of prices and wages_-._interest ratesthe cost -of using bcrrowed,money4also, the indoule of

. .

tenders. They are stated as a percent-age of the total nio--ney borrowed tobe-paid ina -given time peribd_,

_;--nvestmentspending for new capitalgoods,-e.g. new ,equipment,machinery (new facilities), - .research

7-fo new technology, sta for the- pia-pose of increasing prpductive capaci- -

jot tr=aining- government or privateindustry-prograrqs_whiCh teach skills-

--to people who are either unskilled or -=whose skills are:outmoded:1n order toprepare..thernfor employment: -fabormarketthe pool ataTrailableworkers with varying_ levels of skil4 _

education and_ training who are will-ing and able 16-work_ -:::.-loan guarantee -amagreement madeby a third party (e.g; government) to .

pay ofta loan tcf a lender if a. bor-wiser- failsto do so_market-forcesthe forcei of supplyand demand which operate to setpricesand_levels of productionmarketplace of cctact betweenbuYpiS and tilt

:arenaInwhich business` transactiontake plebe-,,, not. necessarily-eogratihf&Vdetioh,:25

nlintinegattitit terone IV Kaii_sinpl

an.einploy-j_mixed itoono-my7-_an. economy ha

iticombin_ free enterprise _

government ragulation or ownership ---_of business.

1

=monetary pelicygovernmentalmeasures aimed-at affecting

.,..,:-.economic activity through changes inthe' money supply. Device§ used arenterest rates and credit controls.

OPEC (grganization of Petroleum Ex-1porting Countries)a cartel (defined

-:-above) comptised of twelve nationsAre the world's leading pro-

cars of Oil. OPEC has _been Sue-sifuliince 1973;in controlling the

:s,and levels-of production of?,;.:-member.nations oil, and t us in: oSrlaining consistently higher prices for

- __;private sector that part of theec°Homy which is managed-andowned._by individuals, individual firms

cormations, for the benefit of in,diViduals, 'productivitythe amount o oods-rid services produced by the average

rker during i-pecific period-of ---_-

publig.sectort hat part of thescopomywnion is directed anit

Jmanaged key governmerafer the pur-pose of benefiting society as a whole.

----t;quotas---Aimitations_placed on the;quantities of certain products whiCh:

_-;-tan be irnportti'each year-tTeatincomea measure of income =-Lwhiatttakes into acdount changes-in.Price%- the amount of goods-and_ser-

ices an income will buy

r

recessiOnmoderate economicdownturr,, not as severe as a-depcession, associated withindfeases inunemployment. Officially, a recessionoccurs when production falls fir twoconsecutive quarters,revenueincome; money taken in .bythe government from tales, duties,customs and other;sources and usedto pay public-expenses.savingsthe part ot,a. person's (orfirm's) after-tax income Which is notspenForr consumer goods. Or 'services.servicesadtivities desired or neededby the public, which are offered for.sale, .g..tailoring, maintenance andrepel ork, waitressing, etc.socio- onornic groupthe ..class-Aone -fangs to determined pylevelsof income and education, culturalbackground i values held andliype of -

standard of livingthe,level Of--,, .

-netessities; comforts or luxuries..

aspiredlo or enjoyed by a perserr or-. and considered-fimportant to

maintaining one's status-or. cirj- .'--. ._ _ ,cumstances:- ; ,

tocktfoldersthelowners of a cor-porafiOn; thoU-people who investmoney in-a corooratiori by. buying r--

shares which entitle them todividend% a proportion of the profits_

structural unemploymentthe rate ofunemployment caused, by changes inthe organization of the economy, evenwhen the economy is operating_at _fullcapacity, This rate accounts for_workers who have been laid off orcannot find lobs because their skillsdo not match available jobs.supplythe amounts of goods andservices whiCh will be produced atgiven price levels.tariffstaxes on imPorts (goodsbrought into a country).Third Worldterm used to describethe group of developing nations:unemploymentthe condition of be-ing unable to find work when willingand able to work.unemployment ratethe percentageof able-bodied individUals who arewilling to work but are unable to find

'wage-price spiralthe-cycle-of in-creasing wages and prices which ock-

`curs- because of business' desire to- zcover-costs and labor's des)re to' 7

maintain teal Incomaphen a 7'business raises prices, workers de-mind a higher' wage to pay the higherprice. Business, in turn; raises pricesto cover labor costs and so onWorld Banka multilateral institutionwhich loans money to developing na-tions-for projects which usually donot attract privets financing. The

--World Bank raises money throughdonations, from developed nationswhich hope to gain from theeconomic-growth of developing na-tions_ . --

=,3

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