Mr. CLINGER. During last round of LPW, would you feel that the impact was a little late? That it actually fueled the inflation situation that we are in now, or how do you view the timing?

Mr. CHRISTIE. The timing was pretty good in rounds I and II, largely because there was a lot of excess capacity in the construction industry at that time, and because we were in a much more seriously distressed economy than we are right now. The need was considerably greater for it than it is today.

Mr. CLINGER. So you do feel it was effective?

Mr. CHRISTIE. Yes.

Mr. CLINGER. Thank you.

Mr. Nowak. In your testimony, you alluded to the fact of the consumer sector, the ratio of credit to income there is uncomfortably high. I wonder if it would be your opinion as to whether or not-I mentioned this to Mrs. Rivlin, too, whether or not the uncomfortably high ratio, whether it has an effect on inflation, or has had artificially over the last year and a half?

Mr. CHRISTIE. If it were to have an effect, it would have a negative effect, since the high rate of consumer credit is thought of as being a deterrent on further spending, but it does not seem to be having that effect this time around. The effect may be postponed because of the ease and the availability of credit at this time. Mr. NOWAK. In the consumer market, from that statement, I take it you are suggesting that the ease of consumer credit days are over because of the high ratio?

Mr. CHRISTIE. It certainly limits the ability for further expansion. Some people are just out of the borrowing market. There are a couple of other things that bear on this whole situation.

I spoke before about the Federal Reserve control over the growth of the supply of credit, which is probably a good deal more limited than one would tend to think, since the Fed can only work through the commercial banking system, which is only a part of the whole. The Fed has little control at all over the velocity of funds. It has been the increase in the velocity over the course of the last year, or year and a half that has been largely responsible for whatever inflationary aspect credit may have played in this whole thing. Another aspect of this, I suspect, is that perhaps since the last recession you see maybe a change in consumer attitudes, particularly expressed through the widespread use of credit cards in making purchases. To this extent the average consumer is considerably less sensitive to changes in prices, since you are not spending money, you are simply signing a little check, and the number on it does make its impression, until you get socked with a bill.

Mr. NOWAK. You talk about consumer goods, which I can only relate to my own circumstances. But I am sure it relates to everybody. You get letters in the mail, your credit has been extended from $500 to $2,500. Spend what you may.

I am wondering if that credit availability expansion is not artificially creating a demand that is hanging on and hanging on, and creating the inventory lag that seems to be existing today?

Mr. CHRISTIE. There is no question in my mind that the consuming public is less sensitive to prices today than it was 5 years ago, and a good deal less sensitive to prices than it was a generation ago.

Mr. NOWAK. I think it really contributes to the rate of growth, growth of inflation and sustaining of that rate. If you compared that to what was available in the whole consumer area, the whole credit market 5 years ago, and as you say, a generation ago, it was completely different. Today it is just a new, complete factor, the amount of money that is around and plus you add the money, to the amount of credit that is over and above that.

Mr. CHRISTIE. There is probably another dimension that ought to be brought into the discussion, since we opened the door to it. That is, until very recently, within the past, probably 20 months or so, the source of inflation has not been principally monetary, but basically cost-push inflation rather than demand-pull inflation, which is something you experience really only when you get to full capacity operation.

When demand impinges on the available supply of goods, prices begin to rise out of the imbalance between dollars and goods available. But it should be remembered that even through the recession of 1975, prices continued to march up during the worst part of the recession. That has to be pure and simple cost-push inflation, for whatever reason. And there are a variety of reasons. Cost-push inflation is with us, and is putting a base of hard-core inflation under the whole problem that is there during recession and prosperity alike, during periods of tight money and easy money.

Mr. Nowak. In your testimony you also refer to a tax cut and/or rebates at the present time, and you draw the conclusion that if we did that we would increase the Federal deficit. That is now estimated to be $29 billion. I take it from that you then say a 30 percent cut in the personal income tax over the next 2 or 3 years

Mr. CHRISTIE. I would not make that statement categorically. It would depend on the conditions at the time. Certainly you could conceive of a situation, let us say, 82-percent unemployment, that most certainly would warrant a tax cut. I do not think 61⁄2-percent unemployment does at a time when inflation is as serious as it is.

Mr. NOWAK. You would be for that type of incentive as you are suggesting on the public works bill. That would not be the kind of incentive you would want to see out at the present time though? Mr. CHRISTIE. Correct.

Mr. NOWAK. Do you have any estimate as to what you feel, if that does happen, and the Federal deficit would grow substantially, the effect of that growth in the next fiscal year would be?

Mr. CHRISTIE. I am sorry, I do not understand the question. Mr. NOWAK. If we did have an additional stimulus, whether it be a tax cut, or any other incentive, and the Federal deficit would grow substantially in the next couple of years, say, a year, next fiscal year, how could you relate that to the rate of inflation? Mr. CHRISTIE. It is entirely possible that you could conceive of a set of circumstances in which a larger deficit-taking an arbitrary figure, a $40 billion deficit would not be inflationary at all. But the kind of conditions that you would have to conceive, in which an increased deficit would not be inflationary would be a very severely depressed economy, considerably beyond which the consensus opinion of most economists is right now.

The whole problem of the deficit is it becomes excess demand at the time of full employment, and therefore is in flationary. If it is

less than full employment, the deficit is a help. You are putting more into the spending stream through fiscal actions than you are taking out.

Mr. NOWAK. Your last page of testimony refers to the soft public works programs that were instituted before, and I guess you are suggesting here that if there is an initiative that it be turned into so-called soft public works programs rather than the hard, or larger construction projects that take more time, and so on?

Mr. CHRISTIE. It is my personal feeling that if an expenditure were to be made in this direction, under the kinds of circumstances, and with the problems we face in the balance of 1979 and 1980, that those funds would probably be better spent in the development of job skills than for the construction of roads, schools, and hospitals.

Mr. NOWAK. If you take schools and hospitals, a soft public works program, we could probably envision the rehabilitation of certain construction projects that are already being used, and so forth.

I am not suggesting we rehabilitate a closed school, but upgrade those that are now operating. I am thinking of typical employment, such as painters that would be needed for those types of jobs Thank you.

Mr. CHRISTIE. May I just respond to that?

I am glad you brought up the subject of rehabilitation, because we are learning that in dealing with urban problems more can often be accomplished through rehabilitation than new construction.

Month by month, year by year, we are seeing in our construction statistics, that in the private sector a higher proportion of effort is being directed into rehabilitation of existing structures than ever was before.

If local public works funds could be directed more toward rehabilitation of existing structures, and a good amount of rounds I and II, did go in that direction, and at the same time provide a higher level of job training than just painting, or chipping, so that the person who benefits by this expenditure also learns a trade at the same time, we would be maximizing the situation as well as we could.

Mr. ROE. Are there any other questions?

If there are no other questions, we want to thank you very much for your taking the time to be with us today. Your testimony has been very helpful.

The hearing will be closed for today, and we are scheduled for 10 o'clock next Tuesday morning. The leadoff witness will be Secretary Kreps of the Department of Commerce.

Thank you.

[Whereupon, at 12:40 p.m., the subcommittee recessed, to reconvene at 10 a.m., Tuesday, March 27, 1979.]

EXTENSION OF THE PUBLIC WORKS AND
ECONOMIC DEVELOPMENT ACT OF 1965

TUESDAY, MARCH 27, 1979

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON ECONOMIC DEVELOPMENT,

COMMITTEE ON PUBLIC WORKS AND TRANSPORTATION, Washington, D.C. The subcommittee met, at 10:05 a.m., in room 2167, Rayburn House Office Building, Hon. Robert A. Roe (chairman of the subcommittee) presiding.

Mr. ROE. The hearings of the Subcommittee on Economic Development will reconvene. As the members know, and the guests that are here, and the witnesses, this is the continuing testimony on H.R. 2063, which is an extension program for the economic development legislation. And we are particularly honored this morning to have as our first leadoff witness the highly respected and most talented Secretary of Commerce, whom we always enjoy having visit with us, and in my judgment is doing a splendid job in the economic program of our Nation. We are delighted to have Mrs. Kreps with us this morning.

The Chair now defers to the distinguished chairman of our full committee, the Honorable "Bizz" Johnson, for a formal welcome from our committee chairman.

Mr. Johnson?

The CHAIRMAN. Thank you, Mr. Chairman.

This morning I want to welcome the very able and efficient Secretary of Commerce, Mrs. Kreps. Mrs. Kreps, I want you to know that our committee has appreciated the help, encouragement, and coordination that your very able staff has given this committee. We are very fortunate to have you and your staff people working with us.

We again appreciate very much the help and assistance given to us from Commerce in keeping EDA within Commerce. And whatever we do with the legislation-and I am sure we will have a good piece of legislation-and we will move forward together. I know with your leadership in the Department of Commerce, your very able staff, and our committee, through the Subcommittee on Economic Development, and our staff will work very closely with you in attempting trying to perfect a very helpful piece of legislation, as it relates to the jurisdiction that comes under your leadership. Thank you.

Mr. ROE. Thank you, Mr. Chairman.

Now the Chair will defer to the distinguished minority leader, Mr. John Paul Hammerschmidt, from Arkansas.

Mr. HAMMERSCHMIDT. Thank you, Mr. Chairman.

I, too, welcome Mrs. Kreps to this subcommittee hearing. Your testimony is always a valuable asset in our deliberative process, and you are, I am sure, quite proud of the accomplishment of EDA, especially the fine record of administering the LPW program.

The President, I know, recognizes your considerable talent by delegating some $3 billion in new loan authority and $1.2 billion in existing loan authority to the Department of Commerce through EDA. And we are proud with you; we are very pleased that be made that decision.

Thank you, Mr. Chairman.

Mr. ROE. Thank you, Mr. Hammerschmidt.

Also, for the record, and because we want to introduce them personally, accompanying Secretary Kreps, of course, is the distinguished Assistant Secretary, Bob Hall, for Economic Development, and the Deputy Assistant Secretary, Lucy Falcone. We want to also welcome you here.

And now, before the Secretary testifies, may I call the attention of the members of the committee that the Secretary's schedule is extremely tight this morning. She will conclude her testimony, and then Mr. Hall and Ms. Falcone will stay for a little bit of review, or overview, if you like, of the general policy position that the Secretary will present.

Then, I also call to the members 'attention that we will not be getting into that much detail with Secretary Hall and Secretary Falcone, because Secretary Hall will be testifying. in depth at another occasion, scheduled, I think, later in the week.

So we want to again welcome you, Madam Secretary, and we defer now to your testimony.

TESTIMONY OF HON. JUANITA M. KREPS, SECRETARY OF

COMMERCE

Secretary KREPS. Thank you, Mr. Chairman. I do appreciate the warm welcome that you and Mr. Johnson have extended, and Mr. Hammerschmidt.

It is a great pleasure for me to be able to discuss with you the Commerce Department's expanded economic development role.

This is the first time since the President's recent decisions on reorganization that I have had an opportunity to speak at length on the implications for the Commerce Department of these decisions that have been made.

These are important implications for the Department, for the administration's overall goals, and for the Nation itself.

The President's reorganization decisions recognize above all the need for vigorous subnational economic policies that complement Federal monetary and fiscal policies. Aggregate monetary and fiscal policy measures-such as countercyclical adjustment in personal or corporate income taxes or Federal outlays, or changing the interest rates to affect the demand for money and credit-these measures are taken to promote sustained and orderly growth in the economy at large. It is generally believed that the benefits of such policies are widespread, that a rising tide lifts all boats.

But unlike the tide, increasing national prosperity does not lift all regions, or industries, or groups of people at the same rate.