Mr. Chairman, I think Senator Stone alluded to time running out. The people of this country are demanding a Government that they can control, not one that controls them. They want an effective and efficient Government, not one that wastes their tax dollars. They want a Government that is financially responsible, not one that mortgages their futures. They want a Government to take action to stem inflation, not just talk about doing something. This is why Senator Stone himself states some 30 legislatures have so far called to the Congress for action. Action by four more legislatures will thrust a Constitutional Convention upon us, making action by the Congress long overdue. Mr. Chairman, a look at the record best puts the problem of Government spending into a much needed perspective.

Since 1950, Federal expenditures as a percentage of the gross national product have increased from 14 percent to 22 percent. In the last decade, Government outlays have tripled, increasing from $196 billion to $543 billion; hand in hand with increased Government outlays have come staggering outlays.

Currently the national debt is over $800 billion and the interest we pay on national debt comes to $1 billion per week this year alone. The correlation between these huge budget deficits and inflation is also striking. Between 1950 and 1969, inflation increased at an average of 2.2 percent per year. Since then, the average inflation rate has been 6.8 percent per year. Now we are experiencing an era of double-digit inflation.

Clearly we have been unable to control the spending of our Government. Until now, the American people have tolerated the financial irresponsibility of Congress. Until now, all attempts to put a handle on Government spending have been defeated.

Now, I have great affection and respect for both the House and Senate, and I have great respect for my colleagues in both parties, but I am not afraid to say that Federal spending is out of control. I think it is time that the Congress heeds Winston Churchill's insight, and I quote: "Things do not get better by being left alone. Unless they are adjusted, they explode with a shattering detonation."

After a considerable amount of reflection on this problem, I have come to the conclusion that we need a mechanism, a dispassionate, objective control, that will force the President and the Congress to limit what the Federal Government can do.

Congress must now in 1979 take some forceful action in response to heavy taxation, uncontrolled spending, and double-digit inflation. A number of my colleagues and the 30 State legislatures of which I spoke, propose to enact constitutional amendments to require a balanced budget.

I do not believe, however, that this approach will guarantee a limit on the role of the Federal Government in our citizens' lives. It could mean, in fact, increased taxes, increased intrusion in our lives, and continued irresponsible spending.

All the balanced budget amendment approach does is to either force the Government to collect in taxes only what it spends, or spend only what it collects. The Federal budget could still soak up 50 percent or more of the country's output and still meet a constitutional requirement for a balanced budget.

That is why Dick Stone and I have introduced Senate Joint Resolution 56, our constitutional amendment drafted with the assistance

of Nobel laureate Milton Friedman, and with the assistance of Craig Stubblebine, who is with us here today, and an additional group of distinguished businessmen and economists.

This amendment very simply put, will put a limit on the role and growth of Federal spending.

In shortest form, what this amendment does is the following:

First, prohibits Congress from increasing overall spending by a rate any larger than the most recent increase in the gross national product. When the inflation rate exceeds 3 percent, even tighter limits are to be applied.

Second, it requires Congress to apply any Federal surplus to reducing the national debt.

Third, it authorizes a spending increase by a vote of two-thirds of the Congress.

Fourth, it allows an increase in general spending limits only after approval by three-fourths of both houses of Congress.

Mr. Chairman, this amendment will allow government to grow in real terms, but it will not allow Government to continue its unrestrained growth into our lives.

I would add further that the amendment is flexible.

Within the overall spending limits, the Congress and the President are not constrained by a balanced budget requirement in setting policies to maximize growth. There is also a built-in countercyclical feature that would have the effect of allowing increased spending in times of recession and decreased spending in times of excessive growth. In fact, one of the things that often happens is that by the time the Congress gets around to enacting some kind of countercyclical assistance in the form of revenue sharing or creating jobs or public works, the recession is already working its way out of our economic system. We then find that we have enacted programs that only accelerate the next round of inflation rather than accelerating our recovery from a recession.

Over a period of time, Mr. Chairman, this amendment also has the important effect of actually balancing the budget simply by curbing the amount of our Nation's wealth that the Government could consume. For example, had the Heinz-Stone amendment been enacted back in 1969, being effective in that year, the national debt today would be $335 billion instead of $800 billion, or virtually the same debt that was on our books back in 1969.

I applaud the intent of the congressional budget process as it was established in 1974; namely, to curb Federal spending. I have nothing but the utmost respect for the capable leadership of Senator Muskie and Senator Bellmon. I served on their committee and I think it is fair to say the Congress has undertaken a comprehensive examination of Federal spending practices. But beyond that examination, I truly believe that the constitutional amendment that Senator Stone and I submitted would translate the good intentions of the Senate and House Budget Committees and of the efforts of Congress into meaningful and responsible controls on the growth of the Federal Government; not just, Mr. Chairman, in years in which a Presidential election is around the corner, but each and every year.

Congress, I believe, needs the mandated yet flexible limit on spending that our constitutional amendment will provide.

I would be one of those who would strongly insist, Mr. Chairman, that our Constitution has served us well for nearly 200 years. None of the less than 5,000 words of the Constitution of 1789 were lightly chosen. The Founders carefully structured the new Government against the accumulation of too much power at the seat of Government. The Founders had unique foresight but they too recognized the Constitution had to be responsive to the developments and changes that will inevitably occur during the life of the republic. Our Constitution, our Government is affected only to the extent that we are able to make progress and flourish under it.

Some reject any proposal that calls for a constitutional amendment. Some dismiss this or any constitutional amendment as inappropriate. Such frivolous attitudes smack sharply of a remark credited to the Duke of Cambridge, “Any change at any time for any reason is to be deplored."

Some action needs to be taken now to stop the unprecedented growth in Federal spending. Congress has shown that discipline cannot be exercised from within, and I argue that such discipline must be imposed by the Congress on the Congress by this amendment.

We need to take a hard look at the national interest. I do not believe we can continue business as usual in the formulation of the Federal budget.

Mr. Chairman, neither I nor Senator Stone would claim that this amendment is necessarily the last word on the subject. If changes need to be made to remedy imperfections or to further the goal of fiscal responsibility, and the changes are well-thought out, I will certainly support them. But the principle that the amendment addresses and that I seek to uphold is vital and immutable: The need to redress the balance of power between the Federal Government and the American people, by restraining Federal Government spending to a rational and reasonable level.

Mr. Chairman, that concludes my prepared statement, and I would be happy and pleased to answer any questions.

Senator BAYH. Thank you very much, Senator Heinz. We appreciate your taking the time to be with us. I share your concern that we find a solution.

Your amendment seems to have some interesting and worthwhile features. I have managed to study it carefully. I have no questions at this time.

I will ask if my distinguished colleague from Wyoming has any questions.

Senator SIMPSON. No, Mr. Chairman. I want to hear a bit more of testimony. I have nothing to say at this time.

Senator HEINZ. Thank you Mr. Chairman. Thank you Senator Simpson.

[Senator Heinz's prepared statement follows:]

PREPARED STATEMENT OF SENATOR JOHN HEINZ

Mr. Chairman, I would like to tahnk you and the distinguished members of this Committee for holding hearings on this most important subject.

The people of this country are demanding a government they control, not one that controls them. They want an effective and efficient government, not one that wastes their tax dollars. They want a government that is financially responsible, not one that mortgages their futures.

A look at the record best puts the problem of government spending into a much needed perspective. Since 1950, federal expenditures as a percentage of GNP have increased from 14 percent to 22 percent. In the last decade government outlays have tripled-increasing from $196 billion to $543 billion. Hand in hand with increased government outlays have come staggering deficits. Currently the national debt is over $800 billion, and the interest we pay on the national debt comes to over one billion dollars per week this year alone.

The correlation between these huge budget deficits and inflation is also striking. Between 1950 and 1969, inflation increased at an average of 2.2 percent per year. Since then, the average inflation rate has been 6.8 percent per year. Now we are experiencing an era of double digit inflation.

Clearly we have been unable to control the spending of our government. Until now, the American people have tolerated the financial irresponsibility of Congress. Until now, all attempts put a handle on government spending have been defeated.

I have great affection and respect for the Congress and my colleagues in both parties. But I am not afraid to say that federal spending is out of control. Congress should heed Winston Churchill's insight, "Things do not get better by being left alone. Unless they are adjusted, they explode with a shattering detonation."

After a considerable amount of reflection on this problem, I have come to the conclusion that we need a mechanism, a dispassionate, objective control that will force the President and Congress to limit what the Federal Government can do. Congress must now in 1979 take some forceful action in response to heavy taxation, uncontrolled spending, and double digit inflation.

A number of my colleagues and thirty state legislatures propose to enact constitutional amendments to require a balanced budget. I do not believe, however, that this approach will guarantee a limit on the role of the federal government in our citizen's lives. It could mean, in fact, increased taxes, increased intrusion in our lives, and continued irresponsible spending.

All the balanced budget amendment does is force the Government to either collect taxes only what it spends or spend only what it collects. The federal budget could still soak up 50 percent or more of the country's output and still meet a constitutional requirement for a balanced budget.

That is why together with my colleague from Florida, Dick Stone, I introduced a constitutional amendment, drafted with the assistance of Nobel laureate Milton Friedman, that will put a limit on the role and growth of federal spending. Simply put, this amendment:

Prohibits Congress from increasing overall spending by a rate any larger than the most recent increase in the gross national product. When the inflation rate exceeds 3 percent, even tighter limits would be applied.

Requires Congress to apply any federal surplus to reducing the national debt. Authorizes emergency spending increases in times of war or similar crises. Allows an increase in general spending limits only after approval by threefourths of both houses of Congress.

This amendment will allow government to grow in real terms, but will not allow government to continue its unrestrained growth into our lives.

This amendment is flexible. Within the overall spending limit, the Congress and the President are not constrained by a balanced budget requirement in setting policies to maximize growth. There is also a built-in counter-cyclical feature in this amendment that would have the effect of allowing increased spending in times of recession and decreased spending in times of excessive growth. Over a period of time, the amendment could actually balance the budget simply by curbing the amount of out nation's wealth that the government could consume.

Had the Heinz-Stone amendment been enacted in 1969 the national debt would be $335 billion instead of $800 billion, and the cumulative deficit would not be $271 billion but a surplus of $22 billion.

I applaud the intent of the Congressional Budget process as it was established in 1974, namely, to curb federal spending. Under the capable leadership of Senator Muskie and Senator Bellmon the Congress has undertaken a comprehensive examination of federal spending patterns. But, beyond this, the Constitutional amendment submitted by Senator Stone and myself would translate the well intentioned efforts of Congress into meaningful and responsible controls on the growth of the Federal government. Congress needs the mandated yet flexible limit on spending that our amendment will provide.

Our Constitution has served us well for nearly 200 years. None of the less than 500 words of the Constitution of 1789 were lightly chosen. The founders carefully

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structured the new government against the accumulation of too much power at the seat of government.

The founders had unique vision and foresight, but they too recognized that the Constitution had to be responsive to the developments and changes that would inevitably occur during the life of the Republic.

Our Constitution, our government, is effective only to the extent that we are able to make progress and flourish under it. Some reject any proposal that calls for a Constitutional amendment. Some dismiss this Constitutional amendment as inappropriate. Such frivolous attitudes smack sharply of a remark credited to the Duke of Cambridge, “Any change at any time for any reason is to be deplored." Substantive action needs to be taken to stop the unprecedented growth in Federal spending. Congress has shown discipline cannot be exercised from within, and I argue that such discipline must be imposed on the Congress.

We need to take a hard look at the national interest-we cannot continue business as usual in the formulation of the federal budget.

Mr. Chairman, neither I nor Senator Stone would claim that this is the last word on the subject. If changes need to be made to remedy imperfections or to further the goal of fiscal responsibility, I will support them. But the principle I seek to uphold is vital and immutable: The need to redress the balance of power between the Federal Government and the American people.

Senator BAYH. Our next witness this afternoon is my distinguished colleague from Indiana. We appreciate you being here to discuss this matter with us.

TESTIMONY OF HON. RICHARD G. LUGAR, A U.S. SENATOR

FROM INDIANA

Senator LUGAR. Thank you, Mr. Chairman. I would like to submit my full statement for the record and read a summarized statement. It is a pleasure to be here to testify on behalf of the balanced budget. I appreciate the efforts you and the other members of the subcommittee have made in scheduling hearings on such an amendment. I am especially heartened by your recent commitment to bring a balanced budget amendment to a vote in this subcommittee. I urge you to do so with all deliberate speed.

Mr. Chairman, the American people overwhelmigly desire a balanced budget amendment to the Constitution. Thirty States have called for a second Constitutional Convention if Congress does not submit such an amendment to the States.

Over 35 States have urged the Congress to propose an amendment to the States and in poll after poll approximately 80 percent of the American public has consistently favored the adoption of a balanced budget amendment. At Gallup poll of this year reports that 78 percent of all Americans support a balanced budget amendment while only 12 percent are opposed. When an "escape clause" is added to the amendment, half of those opposed would support it, bringing the total to 84 percent.

We are at a point in time where decisive action by this subcommittee would be a tremendous encouragement to the American people. The American people have experienced double-digit inflation that shows no sign of abating, We may all disagree about the relative weights of different factors in causing inflation in the first place, but I think we all agree that once inflation has begun, it assumes a life of its own. Virtually all thoughtful observers, including administration spokesman Charles Shultze, have spoken about an "inflationary psychology."

We need action now to counter this psychology and to prevent inflation from feeding on itself. Arthur Burns has spoken most clearly