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.NOYICE: IPHOYOCOIPIED MAYlEL!lIALS MAV lIE IPL!lOYIECYIED IaV COIPVliUGHY LAW (YIUE 17, U.S. COIDE). -t ~ in' in' 0' "0 '.

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STATEMENT BY GEORGE MEANY, PRESIDENT OF TIlE AFL-CIO, . BEFORE THE SUBCOMMITTEE ON FINANCIAL INSTITUTIONS, '. 'SENATE COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS; . ' O N ECONOMIC· STABILIZATION'

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April 7, 197.1·

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The AFL-CIO supports. the general a'ims of S. 1201 - .. io extend the

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Legi slatiori , adopted in 1969 and 1970, that provides the President and tile 0CD

.Federal Reserve Board with authority to. stabil ize the national economy.

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is. riOt' .anew'position for the AFL-CIO~ .' We endorsed the purpo~es .. ,This . . of the originallegislation,\IIhen it was pending before the Congress. support its exten.sion.

We believe that the economy urgently needs

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g~vernment

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~ction t~ achie~e full employment and a reasonably stable price level.

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Economic :distressis continuing to spread.

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Millions of workers are

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adve~sely a~fected by unemp16yment and by production cutbacki, ~~ich reduc~

;workinghours and weekly p,ay checks~AllAmericans are suffering fro,!! the·

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rapid rise of living costs, which continue to wash otii much.. of the buying power

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of their incomes.

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The time is long overdue for the AdminiStration to stop playing with .

misguided"ga~e

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plans" and t~ke the necessary ~ction. to restpre the e~onomy .

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one for workers and '~nother fo~the banks and bigbusines~ .'

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and pursue. even-

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·handed. . eq,tii t~'ble pol icies •. . .',

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It is time for the Administration to' cease i is 'double-'standard ~-

to health. .

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.• The government's reports of the. past few weeks re:veal that stagnat ion .'

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'persists inmost p~rtsof'thenational economy, f~l1owing the general economic '.

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. decline of 1969-1970 •. Let ine call to your at.tention these few benchmarks of

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economicsfagnation:, '

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Th~re were 5 million uneinployed in March, after accounting for

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up 104 million from a year ago and. 2.3 million from January

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1969"when the Administration took office.

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·Sub~tan~i~l unemplo~ment has spread to 50 major industrial. areas in March ~.:.. froin'slx:in January1969 -.;,; and to 662 smaller areas. .

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The. 'cos~~of-li "lng in Janu,al'yand February was 5% above "

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from the cone~tion of THE HONe CARL ALBERT .

LEGISLATIVE

Series _ _ _ _ _ _ _ _ _ _ Box \:,\

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'NOTICE: PHOTOCOPIED MAYIELltIALS MAV BE PROYIECYIED BY COPYRIGHT LAW (TITLE 17, U.S. COD IE).

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The buyinU power of the weekly

after-ta~

earnings of the average

nonsupervisory worker, in January and February, was hardly any greater than a year ago, less than in the early months of 1969 and even below 1965.

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Although the

Ad~inistration

attempted to blame the high unemployment

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of the ,October-December quarter,on the effects of the auto strike, the

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rebound of auto production in the January-March quarter brought no improvement in the unemployment situation.

Approximately 5 million people were unemployed

in hoth quarters and the number of jobless, IS weeks and more, has ri sen to ()

1.1 million.

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Moreover, the Labor Department report for March states that

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"full-time employment was down by 190,000 from the last quarter of 1970, mostly

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Yet the Administration persists in its

optimisticrhetori~.

Instead

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of positive actions to turn the economy around from stagnation to sustained

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and rapid expansion, the Administration has given the American people a diet

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of rosy predictions-tha~ have not been achieved.

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of directing its

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attention and policies to real problems in the economy, ,the Administration has

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tried to make workers in general -- and construction workers, in particular --

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the scapegoat.

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Chairman Arthur Burns of the Federal neserve

~ndmuch

of the Administra-

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tion's leadership have been engaged in the shocking and 'blatant use of a

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,double st.andard.

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To cover their record of failure in economic polIcy, with

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its tragic consequences for millions of American families, they try to pin the

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blame on workers, while

pr~viding

subsidies and aid fQr the banks and big

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busi'ness.

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Let me cite a few examples of these double standards: >:c

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Since the cash-flow to corporations moved down after mid-1969, as a

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result of the Administration's engineered recession -- following a 91% rise

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from 1960 -- the Administration has proposed a step-up depreciation, which would

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cut corporate taxes by $3 billion to over $4 billion a year iit the next few

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years.

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But workers' wage increases to offset the accelerated rise of living

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costs and to gain some improvement in buying power are denounced as inflationary.

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Folder

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·NOTICIE: PHOTOCOPIIEID MATIERIALS MAY IaIE PROTlEC1I'IE1D laY COPYRIGHT LAW (TliLlE 11, u.s. CODE). -i

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When exports lag, while imports continue to rise, the Administration

,proposes, as it did last year, to provide business with

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mechanism to defer

taxes on profits from exports, at a cost to the Treasury of hundreds of

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million~'

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of dollars.

But when organized labor seeks economic justice for workers, it is

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attacked as exercising "excessive market power." 3

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In recent months, billions of American dollars from wealthy people and

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corporations have been tiansferred to other countiies for personal gain. only Treasury response

(~nnounced

on April 1)

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trying to bring some 6f that

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Treasury will sell $1.5 billion of 3-mont~

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money home is to reward these people.

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government notes to, foreign branches of American banks at an interest rate of

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-- about 1.5 percentage points more than for similar borrowings in the U. S.

Bilt. workers are told they should be restrained in seeking wage increases, which

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are singled out as the primary inflationary factor.

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When bank profits shoot up -- like 21.9% for J. P. Morgan and Co. and

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16.1% for Chase-Manhattan--in 1970

there is not even a hint of goveTnment guide-

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lines for the banks.

And the New York Times reports that "the heads of the nation's

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largest banks -- which enjoyed sharp increases in profits during the recession

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year of 1970 -- gerierally were rewarded with higher salaries last year."

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istration spokesmen admonished the bankers but:workers are told that their wage

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increases ai',e supposed to be held down. '" Soaring land costs and financing charges have resulted in sharply rising

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housing costs (see Appendix).

The cost of financing on FHA homes has risen 356%

in the past 20 years and land costs have gone up 296%, while structure costs (which 'i~cllide on-site labor) has risen 65%.

However, the Administration tries to pin

the blame solely on construction wages and attempts to institute specific and immediate wage restraints.

It offers orily

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promise of some future restraints

on construction prices and profits and no mention at all of the major inflationary pressures of soaring land and financing costs. The AFL-CIO rejects such lopsided double standards. are unbalanced.

They arc unfair.

They

They are not workable.

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-NOlUCE: IPDiOTOCOIPIIED.MAYIERIALS MAV BEIPROYIECYIED BV COIPVIlUGDiT LAW (TITLE 17, U.S. COIDIE).

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Back in February 1966, the AFL-CIO Executive Council adopted a policy statement whi ch declared: "If the Pr.esident determines that the situation warrants extraorilinary overall stabilization measure~,. the AFL-CIO will cooperate so long as such restraints are equitably placed on all costs arid incomes -- including all prices, profits, dividends, rents. and executive compensation, as well as employees' wages, and salaries~ We are prepared to sacrifice as much as anyone else, as long as anyone else, so long ~s there is equality of sacrifice."

This statement has been reiterated by the constitutional conventions of the AFL-CIO -in 1967 and 1969 and on numerous occasions by the Executive Council.

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Mandatory government controls are never desirable, but at times, they t~.~

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be needed.

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If such controls are deemed necessary by the President and arc

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/evfm-handed, across-the-board on all costs, prices, rents and incomes -- including

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profits, dividends, interest and executive compensation, as well as workers' wages

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and salaries -- they would be both equitable and workable.

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It is our view that one-sided curbs on workers' wages, with no effective

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restraints on prices or the incomes of other groups in the economy, are ne1 ther

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a balanced and equitable stabilization program

nor a workable policy in Ii free

society.

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It is also our view that government measures to restrain wages ._- or both wages and. prices -- in one industry or sector of the economy are alsoinequi table

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anq unwQrkable.

In this complex, interdependent and huge American economy, it

is not possible to single out one industry or sector, in the hope

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curb~ng

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price pressures, when all other parts of the economy are free of similar restraints.

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.f:lowcan the government, in good conscience, apply wage restraints on

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...!workers· in' one industry -- to single out one. group of workers -- when the prices of

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the food, clothing and other goods and services they' buy are free to move up? .

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Such a measure smacks of punitive action, rather than a stabilization policy.

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Moreover,how can the government hope to stabilize pdtes inorieindustry,

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such as construction -- when that industry depends on materials and

services it buys from other industries, whose prices are free to rise?· It Just

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• NOYICE: IPHOYOCOIPIIEIO MAYIERIALS MAY ISlE IPROYIECYIED ISY COPylltlGDiY LAW (YITLIE 1" U.S. CODE).

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'On Apri 1 1, only a few days after the President's Executive Order "Providing for the St.abilization of Wages and Prices in the Construction Industry,'" r.hl! I.abor Department. reported that wholesale prices of building materials shot up in March.

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"Most of the advance for industrial commodities in March was due to price

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increases for commodities used in construction," the Labor Department report stated.

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"Lumber and wood products rose sharply again ••• Almost all non-metallic mineral

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building materials were higher in price, with particular~y large gains registered

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for asphalt roofing and concrete ingredients."

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The costs and prices of the construction industry cannot be isolated from

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~l~e,p'rice pressures in the rest of the economy. .1'

The prices of no indust.ry can be

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·isolated, for very long, from

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pressures on the prices of the materials and

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serVices it requires.

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The recent

repor~

of the Joint Economic Committee of the Congress indicated

recognition of the inter-dependence of the economy's various industries and sectors,

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when it declared:

"If a freeze is imposed, it should be general.

A freeze should

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not be imposed on only one industry, nor should it be applied to wages without

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. also being applied to other costs or prices."

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A basic prerequisite for a genuine stabilization program, in our view, is that it must be across-the-board, equitable and even .. handed.

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For that reason, we endorse the bill's extension of the standby authority

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"to stabilize prices, rents, wages and salaries," with provision for "such adjust,

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as,: may be deemed necessary to prevent gross inequities."

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We believe the Congress must make it abundantly clear that this authority

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is for overall, across-the-board and even-handed measures, rather than for singling

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out one industry or one group of workers.

In addition, in the event that across-

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the-board economic controls are imposed, the Congress should immediately adopt an

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accompanying tax mechanism on profits, dividends and capital gains to assure genuine, overall ,and equitable stabilization.

A balanced, fair and wotkable stabilization

program must include overall restraints on all costs, prices and incomes -- includ-

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ing profits, dividends, and capital gains -- as well as wages, salaries and rents.

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Coliection _ _ _ _ _-'--_ _ _ _ _ _ _ _ _ Series

LEGISLATIVE

Box....."I~.L.L.\_Folde~---,\l....O?!"'--_

• NOYICIE: IPDiOTOCOIPIIED MAYIECUALS MAY lIE IPCtOYIECYIED IY COIPYILUGHT LAW (TIYLIE 1" U.S. COOle).

the AFL-:,CIO endorses the bill's proposed extension of authority to the I'resident to establish selective credit controls.

Suth selective credit controls

and interest-rate ceilings were urgently needed in 1969 and most of 1970 ,..- t.O 3

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c,lirb the'inflationary, extension of credit for land speculation, business merue,rs,

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conglomer~te'~ake~overs,~ambring casinos .nd investments in, foreign ~~bsidiaries,'

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while providing increased credit for-housing; C6inmunity facilities and the regular

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operations of business., Selective credit controls will become, urgently needed, 'in

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. t.he months ,ahead, if the Administration does what i ttalks,about _.... pursues Po)qlan-

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The AFL-CIO ,also endorses the bill's ;s' o

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provis~on

for variable, bank reserve

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'requi rements'i norder t~a~ rocate. the flow of b,ank c,redH to, where it, i's, most

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needed, while restraining the, extension of credit 'for l~w-:prio~ity' purposes.

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of t.his provision,

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Moreove~,.w·e repea~

of its enactment. '

:o\Jr'request

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. t'hat t~e Congress engage' ina detailed study ,of th~ ~tr~cture and policies of the , .

,Fed·erai. Reserve system, as the basis. fo~ a tho~ough reform of this. key economic

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'expansiona~y economic policies to aChieveandsustai'n fuiI' employment. .

Th~needed

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'efficiency and e~si n9 ' the pressures on u.nltcos ts :and ·p~iC'es.

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rise in. ou~put,.wlll, ,in itself, reducelnflatfciriarYP,ressures by,boosting.productive "

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'In~~.dh,ionio auth~ri tYior stabi liz~t'i~rimeasures i America now ,needs

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agency ofthe.iederal government.>

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theF~d~ral Rese~ve's operation

We rec.ommend that the Committee examine

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to lift the eConomy out of

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would create

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:'iobs {or. the mi 11 ions,of unemployed andlinderempfoyed, res.toring confidence .and ,

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health 1;0. thtreConolllic foundation of America~society.'

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Insum"then,' this is the position of the . We want inn at i on ended .

'as anyone

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But we 'will

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We want full employment restored •. Weare

prepuedtosacriJicetomeet these.: goa1s-,.'

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the

scape~oat;

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as anyone, ,else, for as' o1ong

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for the eCQnomic mess created

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'by this Admini'stration's i11..,col'!ceived"gameplan."

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!From the Collection of Collection THE HON,. CARL ALRaRT

series_l_E_G_IS_LA_T_IV_E_BOX \~\

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• NOTIC": PHOTOCOI?IIEIO MAYIEIlUALS MAY laIE PIitOYIECTIED BY COPYRIGHT LAW (TIYLE

1" U.S. COIDIE). --f

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APPENDIX I

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INCREASES IN COSTS. FHA HOUSES 1949 to 1969

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Percent

.!W. Land ••• Structure - Financing Overhead & Profit

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1969

Increa~El

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6-

$ 1,144 $ 7,176 $ 520 $- 1,560

$ 4,525 $11 ,850 $ 2,370 $2,800

296% 65% 356% 79""

$10,400

$21,545

107%

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Sales Price •

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Monthly Mortgage Payment

$ 55.15

$168.00

205%

Cost of Structure Per Square Foot·

$ 9.44

$ 13.88

44%

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: ,·Excluding land, the ave~age number of square feet of the structure increased from 980 in 1949 to 1,226 in 1969. Source:

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Journal of Homebuilding, June 1970,_ p. 31.

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NOTE: In the 20 years, 1949-1969, the size of the structure increased and the cost of the structure -- materials plus on-site labor -~ rose 65%, while the cost of overhead and profit went up 7£1/0. But the major inflationary cost increases, by far, were the cost of land which rose 296% and the cost of financing which soared'356%. These cost increases in combination, resulted in a 107% rise in the sales price. The additional costs to the homebuyer of closing fees and charges, which are not examined here, probably rose by a somewhat similar percentage or more. Moreover, the homeowner's monthly mortgage payments jumped nearly double the 107"/0 rise in the sales price of the FHA house. resulted from the additional impact on the homeowner of the sharp mortgage interest rates -- from an effective rate of 4.34% on FHA mortgages in 1949 to an effective rate of 8.19%-in 1969.

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205% -This rise of new home -

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Essentially as a result of the inflationary increases of land costs and financing charges to the homeowner, as well as the developer and builder, :, the price of the FHA home more than doubled, between 1949 and N69, while :,inonthl Y payments on the mortgage more than tripled. The 205% rise in the !,I h'omeowner' s monthly mortgage payments was -almost four times greater than the 54% increase in the overall cost-of-living, as measured by the Consumer Price Index.

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~EG'SLAT'VE

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I'~\

Folder .... ' ;,~_ __

-NOTICE: PHOTOCOPIIED MAYIERIALS MAY lIE PROYIECYIED laY COPYRIGHT LAW (TIYLE 17, U.S. COD IE). "

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APPENDIX II

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CHANGES IN BUILOING COSTS, SINGLE .. FAMILY HOUSE , 1949, .. 1%9

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Average Sales Price

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56% lSOfo,

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36%

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11% 15% 5%

21% 13% 10%

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$20,534

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National Association of Home Builders Economics Department. CongressionCil Record, October 29, 1969,p. E9113.

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NOTE: This breakdown of building costs is slightly dIfferent from the FHA, Sec. 203" houses examined tn Appendix I, but the changes in co~t components are almost 'precisely the same.

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In the 20' years,'1949~.. 1969, the average sales price of this tYPlcal house, increased 110%. But the totaf wages and fririge benefits of on .. site construction workers fell from 33% of the price of the house to ,18% and the cost of materials increased ,froni 36% t03SOfo.

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The maj or inflationary increases were land costs which rose from 11% of the price to 21% and, the cost of financing to the developer and builder, which increased from 5% to 10% of the price. " '

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On top of the 11<>% rise in t he sales price, the homebuyer also paid the' 'sharply increasing closing costs, which include a variety of fees, charges and taxes. In, addition, interest rates onhoine ..mortgages approximately ,doubled from 1949 to 1969. ' As a result, the homeoWner' s monthly payments on :'principa1 and interest charges of the mortgage approximately tripled.

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'This process of compounding cost and price increases has priced most families out of the market ,for new houses • Since a' similar process has, affected costs and rehts of apartment units, most families have also been priced out of the market for new apartments." The result has been a growing' housing shortage in a period of serious urban, problems.

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THE HON. Ct\,R"~ AV~ER

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