Solutions for breaking the ratchet appear quite limited: either give up the goal of full employment (and let the struggle for income shares take place below the point at which such struggles generate inflation), or strip government of some of its power to alter the distribution of income.

The first alternative does not appear feasible. Certainly passage of the Full Employment and Balanced Growth Act of 1978 does not suggest a willingness to give up longstanding employment objectives, despite the Act's (clearly) secondary target of a 3% inflation rate. Nor does the four-year presidential electoral cycle provide any grounds for optimism.

INHERENT WEAKNESSES

The second solution may have a brighter future. A serious desire to arrest federal spending power was evident in the Congressional Budget Act of 1974, but its inherent weaknesses have led to more recent efforts to pass a constitutional amendment which, in effect, could achieve a similar objective. The success of a distant cousin in California-Proposition 13-and the progress of spending limitation constitutional amendments in other states provides additional encouragement, as does the program to bring out into the open the costs-and beneficiaries of our web of government regulation.

The heyday of the economists as the authorities on inflation may be over. They have described, very effectively, the superstructure of the contemporary inflationary process. But mere description or understanding of intricate economic relationships is not enough. Only when we begin to appreciate fully why inflationary policies are pursued, and the importance of the political struggles which lie behind those policies, can be begin to devise the checks and balances that will destroy the inflation ratchet.

PREPARED STATEMENT OF SENATOR THAD COCHRAN, A U.S. SENATOR FROM THE STATE OF MISSISSIPPI

Mr. Chairman, I appreciate this opportunity to support a constitutional amendment to require that the Federal budget be balanced.

As a rule, I oppose constitutional amendments when other avenues are available. I don't want to see the Constitution weighed down by unnecessary amendments. Some have opposed a balanced budget amendment for this reason, arguing that the problem of the federal budget is temporary and, weighed against the majesty of the Constitution, is relatively insignificant.

I disagree. In my opinion, the Federal deficit is an annually recurring threat to our economic system. The problems that multi-billion-dollar deficits present to our economy-which I shall discuss-are of the most fundamental nature. As Yale law professor and former Solicitor General for the United States, Robert Bork, has argued, the amendment concerns not economic dogma but rather concerns the basic relationship between citizens and their government.

Nor is this a problem that will go away. Over the last 30 years, budget deficits have been incurred 25 times with a total deficit of $450 billion, as opposed to only 5 surpluses totaling $17 billion.

We have seen a threefold increase in the Federal deficit during the 1970's. Since 1950, Federal expenditures have increased from 14 to 38 percent of the gross national product. And despite the recent clamor for budgetary restraint, 2 weeks ago a budget resolution was approved by the Senate providing for outlays of $546.3 billion and for a deficit of $31.6 billion. Last week the Senate voted to raise the debt "ceiling" by $49 billion to $879 billion. For fiscal year 1980, the gross interest on the national debt will be $67.6 billion.

In dealing with figures like $879 billion, or even $49 billion, "fiscal" approaches "metaphysical." We've had deficits and "the debt" for so long that they achieve the sanction of permanence, and yearly additions are accepted as a given fact. But if we view the national debt and the yearly deficit in more practical terms, their impact becomes more powerful.

Interest payments now comprise the third largest budget item in the federal budget, and 20 cents of every personal and corporate tax dollar paid into the Treasury goes to pay the interest on the debt. The per capita share of the debt now amounts to something like $3,600. In short, we are literally mortgaging the future of our children and our children's children. We must stop adding to that debt. And I think a constitutional amendment is the only way that Congress can be constrained to do so.

Of course, the most serious consequence of an unbalanced budget is its inflationary effect. I don't think anyone questions this fact. To the extent that the Federal Reserve purchases Treasury debt, it increases the money supply and depreciates the dollar. The result is inflation.

Over the first 8 months of this year, the Consumer Price Index has risen at an annual rate of over 13 percent. At this rate, prices will double in 6 years. Since 1967, the CPI has risen from 100 to 216. This erosion cannot be allowed to continue.

Governmental spending is not the sole cause of inflation, but it is a major cause, and it is one thing that we can control. We must do everything in our power to cut down on inflation.

I firmly believe that adoption of a constitutional amendment to balance the budget will reduce significantly inflationary pressures. And I believe that we can have a workable, realistic amendment.

I, along with 13 other Senators, am supporting Senator Lugar's proposal, Senate Joint Resolution 4. This amendment provides for a balanced budget unless two-thirds of both Houses agree to a deficit. Thus, in case of a national emergency, such as a war or a severe economic downturn, we would have the flexibility to adjust to the situation.

Numerous benefits would follow from such an amendment.

First, as stated, we would reduce one of the most significant inflationary pressures, the money supply.

Second, by forcing a halanced budget, the Congress would be forced to look more closely at its spending policies. The true costs and consequences of Federal programs would be analyzed with greater scrutiny. We would get more for our tax dollars.

Third, we would remove the Government at least partially from the money market. The Government's enormous debt requirements effecti, ely usurp much of the capital necessary for private investment, expansion and modernizationRecord interest rates are the result.

Finally, and most significantly, this amendment will signal our resolve here in Congress to bring spending under control. This will be a signal to both our constituents and to foreign markets that have yet to be conyinced of that resolve. Arthur Burns, former head of the Federal Reserve Board, ahs argued that a peremptory measure such as this amendment is necessary in order to offset the pressures brought to bear by special interest groups for continued and ever increasing Federal spending. Dr. Turns stated:

"***our country is in the midst of an inflation that has already weakened the confidence of people in government and in our country's future. The inflation is being fed by widespread and growing expectations that rapid inflation will continue. An inflationary psychology is now raging in our comtry. I do not think that our inflation can be brought under control without changing this psychology. A constitutional requirement of a balanced budget would indeed be drastic therapy; but this or some other decisive measure may well be needed to assure the American people that our governmental bias toward spending and borrowing is being effectively offset and that they can therefore look forward once again to a dollar of stable purchasing power."

In other words, aside from the economics and statistics of government finance, aside from arcane curves and graphs and probabilities, the most salient effect of such an amendment would be psychological. As Dr. Alfred Kahn has said time and time again, inflation feeds on itself because people assume-in fact must assumethat it will continue. In such a vicious cycle. inflation is the cause of inflation. And until people perceive some stability and determination by the Government to do everything in its power to counter that inflation, they will continue to spend and not save, purchase and not invest.

Thirty States have petitilned Congress for a convention to consider an amendment to require a balanced Federal budget. Over 80 percent of the public favor such an amendment. Here in the Senate, 20 different resolutions have been introduced that go toward this issue.

I urge the subcommittee to address this matter expeditiously. I don't underestimate the implications involved, and I know that it will be viewed with those implications in mind.

Senator BAYH. Our first witness this morning is a man who has the good fortune of representing a tremendous number of working men and women throughout the United States of America, Mr.

Lane Kirkland, who is Secretary-Treasurer of the AFL-CIO. He is not a stranger to the Halls of Congress. He is deeply concerned about the working climate, the economic climate confronting not only his members, but the country generally, and it's our good fortune to have him here.

I would yield to my colleague from Utah if he has any remarks that he might care to make at this time.

Senator HATCH. I welcome Mr. Kirkland and other members of the AFL-CIO leadership with us today. We will be most interested in your testimony. This issue is a very important one with some 30 States having demanded a constitutional convention on the subject. Many of course feel that a constitutional convention at this time may not be the best way of resolving what is clearly a public issue of great magnitude.

There is a growing perception that serious economic consequences will result unless something is done to check the skyrocketing growth of the national debt. This is a debt that must be accounted for, ultimately, in one way or another. Who is going to pay, and how will they pay, the $900 billion in debt, and the uncounted trillions-an estimated $4 to $7 trillion-in unfunded liabilities?

These hearings are important. We are interested in hearing the candid remarks and advice of leading people in the public sector and private sector. I don't know anyone who could give us better the viewpoint of the union working men in America than Lane Kirkland. We are very happy to have you with us, and welcome you to our committee.

Senator BAYH. Thank you very much. Mr. Kirkland, we are glad to have you here. We are anxious to hear what you have to say.

TESTIMONY OF LANE KIRKLAND, SECRETARY-TREASURER, AFL-CIO, WASHINGTON, D.C.; ACCOMPANIED BY RUDY OSWALD, CHIEF ECONOMIST; AND KENNETH YOUNG, LEGISLATIVE DIRECTOR

Mr. KIRKLAND. Thank you, my name is Lane Kirkland, I am secretary-treasurer of the AFL-CIO. I have with me our chief economist, Rudy Oswald, our legislative director, Kenneth Young.

Senator BAYH. I might say it has been a privilege to work with Mr. Young on a number of issues affecting really the heart and sole of what this country believes in the area of human rights over a long period of time. This committee is glad to have him back and glad to have your outstanding economist with us too, Mr. Oswald.

Mr. KIRKLAND. Mr. Chairman, the AFL-CIO is unalterably opposed to a constitutional amendment mandating a balanced budget or any mechanistic formula which amounts to a straight jacket on the constitutional powers of the Congress to, as the Preamble to the Constitution states: "Provide for the common defense and promote the general welfare."

On February 19, 1979, the AFL-CIO Executive Council considered the question of a constitutional amendment mandating a balanced budget, and unanimously concluded:

In our view, the Constitution is a living document which provides a framework for Government. Clearly, Congress already has the power to enact a balanced budget but has wisely concluded that to do so now would create chaos for America's States and cities and the people they serve.

Our concerns are both constitutional and economic. The Nation's founders understood that they were drafting a Constitution, a framework for an enduring Government, and not a statute book that could become quickly outdated by shifting economic and political trends. They created a system of government capable of meeting the people's needs, and left the definition of those needs to the three branches of Government.

The enumerated powers are, therefore, stated in general terms and supplemented by authority "necessary and proper for carrying out" those powers. The restrictions on those powers are narrow and few, and, almost without exception, the restrictions guarantee individual rights or assure equal treatment to the States.

The Constitution lives precisely because it embodies only those ideas that we as a people have concluded are basic and immutable truths on regulating our society, that there shall be a Federal Government based on the principles of separation of power and respect for individual dignity and liberty.

The proposition that the United States shall at all times balance its budget is not such a truth. As Mr. Justice Holmes stated: "A Constitution is not intended to embody a particular economic theory." The proposed constitutional amendments before this committee would do more than write economic theory into the Constitution. They would also undermine essential separation of powers' principles and erode the ability of representative Government to function through excessive limitations on its power to act. Each would weaken rather than strengthen the Constitution and change the fundamental character of this Government by distorting the delicate system of checks and balances.

First, Congress would be required to surrender its full partnership role in shaping national economic policy, by immobilizing its fiscal powers, the major weapon government has to fight recession and depression. Indeed, as the role of the elected representatives of the people would be diminished, the powers of the Federal Reserve Board, an unelected body without specific constitutional responsibilities, would be enhanced.

The task of managing the economy to fight recession or depression would thus be left to monetary policy and the Federal Reserve Board, an institution which is, in our view, dominated by bankers, not responsible to the President, the Congress, or the public, and which is incapable of preventing a relatively mild economic downturn from feeding on itself and developing into a full blown depression.

We believe that the key role the elected representatives of the people play in economic policy, through the budget process, must not be surrendered to an appointed body. We cannot think of any reason why the Congress should disqualify itself from participation in developing economic policy. It is ironic that the sponsors of these amendments, invoking the spirit of a real or supposed popular groundswell of public sentiment, have, in fact, proposed a solution to further insulate the system from public participation. Instead, a balanced budget require

ment relies upon an arbitrary, mechanistic approach to policy considerations.

Second, these proposed amendments would indirectly grant broad, sweeping new powers to the judicial branch. What if the Congress fails to provide for a balanced budget? Could the Members be sued, or jailed for contempt? Could a court determine how to achieve a balanced budget? Would the Supreme Court take over the Congress until it met its constitutional responsibility? Who would enforce such a provision?

These are questions without answers, because even the sponsors have no idea as to how the courts would rule. That's part of the problem with political expediencies and simplistic solutions, the questions they leave unanswered are often more complicated than the original problem.

Third, many of the proposed amendments display flagrant disregard for the democratic principle of majority rule. Under the Constitution, the Congress may declare war by majority rule. But under most of these proposals, it would require up to a three-fourths vote to declare that a war is an emergency so that adequate funding can be made available to fight that war.

The Senate already has enough trouble with a minority practicing obstructionism under the filibuster rule without adding a further numerical hurdle that leaves a gross inbalance of power in the hands of a minority.

Mr. Chairman, the committee should not lose sight of the fact that economic science is a misnomer. Even economists have only the most primitive and tentative understanding of how the economy works, and they adamantly disagree on that which they believe and understand. The shape of the future and of the proper budgetary response are unknown and unpredictable. It is a far better to acknowledge the lack of knowledge and maintain a legislative flexibility to meet economic challenges as they arise.

Those challenges are many and complex. War, recession, inflation, peace, each presents different economic conditions, none of which can be adequately met by mandating a balanced budget.

The Preamble to the Constitution does not state that the Government shall provide for the common defense and promote the general welfare, only if there is a balanced budget. A constitutional amendment mandating a balanced budget could result in Government providing for only one, on an either-or basis or, perhaps, neither. If such a decision had to be made, even more severe political polarization could result, and those who forced such a choice may not like the end result.

There is, of necessity, a fragile balance that must be maintained between guns and butter. One protects the society, and the other makes the society worth protecting. We reject an either-or choice, and likewise reject a constitutional amendment to mandate a balanced Federal budget that might at some stage force such a decision.

Mr. Chairman, before turning to some of the more serious economic implications of mandating a balanced budget, let me turn to the myth that such an amendment is a proper response to the so-called "tax revolt." There is little doubt that many State legislators in those States which passed resolutions calling for a constitutional convention on just this issue believed that they were taking a politically popular position.