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of them and when you go to that, you force people to engage in speculation rather than being involved in thrift, savings, and productivity.

That is what accounts for the decline of productivity in this country. Just to be direct in answering your question, I am very heartened by the fact that there are now economists and major institutions in the country that are aware of this problem and beginning to take a look at it.

Mobil Oil has taken a very hard look at this as well as several other corporations. I think, perhaps we are too far along the road to disaster. The banking problem is going to be here right now this year and it is going to cause a great crisis in this country.

Senator Bayh. I guess the principal responsibility of this particular committee, since it does not appropriate any funds and does not deal with the taxing structure does have a responsibility for the Constitution. Suggestions that are contained in matters before us as to the provisions—if an amendment were enacted we would have to either cut expenditures or increase taxes by some $29 billion, $30 billion, give or take a few billion, how would that ameliorate the problems that you describe?

Mr. Martin. Well, the first thing about the balanced budget amendment is that I think it will call the attention of people to the problem and define the problem properly. I don't think people really perceive today what inflation is really about, its sources, and the damage that it is doing.

Second, that by ending budget deficits and perhaps achieving budget surpluses, buying back our debt, the increase in productivity in this country will be so phenomenal that there will be plenty of employment and plenty of everything for everyone at low prices and lots of stability. That is what made this country great, a free enterprise system.

We need to move away from government regulation, away from government spending and deficit spending, away from the Federal Reserve creating money aggregates and allow people to go about their business and create the productivity that made this country great.

Senator Bayh. Mr. Martin, could you deal with the question I asked, please? I agree with you it would be nice if we were all living in a garden of Eden, but we are not. The question is, how do we approach it? We have not had any other testimony that suggests that if we immediately cut $30 billion out of expenditures or raise taxes that we are going to arrive at the kind of situation you described. If you feel that way then I am glad to have it. I am not sure your response

Mr. MARTIN. I think Mr. Davidson wanted to address himself to it. I just wanted to say this, I testified earlier that it is not $30 billion we have to cut out. It is hundreds of billions. That the budget deficit as I stated is nct $30 billion, is not $42 billion, but it is hundreds of billions of dollars. When you look at the accounting gimmicks in this budget, you will realize we are not talking $30 billion, we are talking maybe half a trillion dollars a year. That is what has to be cut out.

Senator Bayh. Where would you start? Give me a list of where you would cut?

Mr. DAVIDSON. Senator

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Senator Bays. I would like Mr. Martin to answer that. He is the one making all the big claims here. Where would you start or if you want to start, Mr. Davidson, that is fine but you haven't gotten that far out on the limb.

Mr. Davidson. I will be glad to answer your question. I think Mr. Martin is here as a private citizen. As I feel most citizens ought to, he has had the opportunity to present views which I think are sobering and worth attention. We have a difficult problem in trying to put this country back on its feet. I think the balanced budget amendment is something that would bring us in this direction.

One of the things it would do is it would require that the Congress i balance the budget. Under the concepts of the amendments that we have proposed and the 70-some that have been introduced, the budget would be balanced under the current definitions of the budget and not actuarial present value accounting systems such as Mr. Martin is referring to which prevail in the corporate world and private life.

I think the proper answer to your question is, were the budget balanced, the choice of these priorities belong rightly with the elected representatives of the people. You and Senator Hatch, Senator Thurmond and your associates would do a better job of setting those priorities than we can here.

Senator Bayh. Mr. Davidson, if I may suggest to you, that is a copout.

Mr. Davidson. We heard a lot of copouts this morning. I think turnabout is fair play.

Senator Bays. I didn't get that statement.

Mr. Davidson. Excuse me, I shouldn't say that. There is a fundamental philosophical point which has been missed in a lot of the debate. That is the question of about how people's desires are brought into play in the political process. I submit to you that every citizen in this country has two sets of desires. He has the desires that he personally has for his own, which means we all want to get as much as we can. The "gimme" philosphy is well known in our world and I think it will be with us until human beings evolve to a new type of species.

At the same time we have desires we might call public desires, our desire that the country run as it should. Our hope for the future. Our feeling that we need to pay our own way; be accountable.

These public desires are very meagerly represented because of the way that our system operates. It is desirable from the point of view of an efficient politician to appropriate as much money as possible to satisfy as many private desires as possible whereas leaving the public desires, which are more diffused and spread out over the entire population, less articulated.

I think that is a basic point that answers your charge of a copout. It is not a copout to say that the Congress should live within the public desire --

Senator Bays. That isn't what I said was a copout. The copout is to say you ought to cut $30 billion out but then say but I don't want to tell you where it will come from. That is up to you guys.

Mr. Davidson. That is not a copout. That is just what I said.

Senator Bayh. I think that is a copout. I think if you feel strongly, and Mr. Martin says we have to cut out hundreds of billions of dollars.

Where are these going to come from? I want to salute the taxpayers association for pricking our consciousness and our conscience. I know I am looking at it from my own perspective with the transportation appropriation. We made Amtrak sit back and take a look at itself, and lost two trains in my own State. Now that is not so easy to explain, but it is the kind of thing we had to do.

Mr. Davidson. We apologize for that, Senator.

Senator Bayh. I don't ask for any apologies, nor do I want a merit badge. I just want to point out that everybody that is supposed to be here is not out at a golf course, or some bar someplace not tending to their responsibilities. Some of us have tried, and I think most of us are much more aware of the problem to a very great extent, because of people like you, Mr. Davidson, and others who have spoken very eloquently on this.

But in your testimony, you talked about shifting burdens and hiding costs.

Mr. Davidson. That is true.

Senator Bayh. Of programs. I would like to know where those are and which ones you would have me as a Senator address. Which ones would you have me cut?

Mr. Davidson. We have two different approaches. I will agree it would not be courageous on my part if I were to duck back and say, OK, Birch Bayh, you can take all the flak and I will sit back and just urge you forward. We did make recommendations in the case of Amtrak which you alluded to. We made other recommendations of expenditures which we felt were marginal. But the recommendations which we could come up with with our small staff would not be sufficient, probably would not be convincing to people.

We don't think it is an easy job. We know it is a hard job. I think the basic question is whether if we put the whole budget to the vote of the public in a referendum the people would say, yes, this is the aggregate we want.

And I believe if we did this, if we put it to a public vote that people would say, well, don't cut my spending but please produce a lower aggregate. So everybody is saying don't cut mine, cut the other fellow but produce a lower aggregate.

The people are right in the sense they want a lower aggregate, but they are wrong in the sense that everybody cannot have as much as he wants and still have a lower aggregate. So we have in effect incommensurate desires on the part of the public. What we are saying is we have to heighten, in the electoral process and in the political process, a concern for these public desires. This is a general feeling we all have, even if we are farmers saying give us greater farm subsidies, but please don't spend so much on the shipbuilders. It is a difficult problem. It won't go away. And we don't claim the balanced budget amendment is the panacea that will solve all our troubles. But we have to come to grips that costs are burgeoning beyond our ability to pay. We have to be able to own up to these costs and a balanced budget amendment drafted properly will do that.

Senator Bayh. I think you accurately described the problem from a public standpoint. I sent out some questionnaires in a newsletter a short while back and it was amazing, I think about 75, 80 percent of the respondents which is significantly large, said we should balance the

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budget. But when you broke it down into 10 or 12 categories, with one exception, welfare, there was a significant majority that sa d either spend the same or spend more. That is totally inconsistent.

Through heightened awareness, perhaps some political courage, some of us here recognize the importance of accomplishing this goal. I must confess to you, I think anyone who compares the responsiveness of the Congress to this problem as it dealt with the last budget resolution, just a week or so ago, with the responsiveness a year earlier would have to see that the message is getting through. Maybe it isn't getting through as clearly or as loudly or dramatically as some would like it, but I guess the concern I have is whatever we do, whether it is this round, or a statutory round, we don't want to make matters worse.

Mr. Davidson. I agree with you. I think that basically the question is, and you put it very well, is to which of the two contradictory desires people have we should give the greatest weight under certain circumstances. I think if we remember the story of Ulysses, he had himself tied to the mast when he passed by the island where the sirens were singing because he knew in human frailty he would not resist the tendency to plunge to his death if he didn't have this iestraint imposed from the outside. This is what we are asking for from the Congress.

We have seen clearly that outside restraint is needed. Over the last two decades as we have moved away from the outside monetary restraint-which through the gold backing and the silver content in the coins previously limited the degree to which the deficit could be financed through printing money-we have faced serious problems.

We have to substitute some other restraint, we have to lash ourselves to the pole so we avoid the siren temptation to leap into deficit spending which could be our demise.

Senator Bayh. Well, perhaps it would help if we would amend the Voting Rights Act to prohibit sirens from voting.

Mr. Davidson. Prohibiting sirens from running for election, maybe.

Senator Bayh. I appreciate you being here. Mr. Martin, I appreciate your being here.

If you could, both of you, either individually or collectively, give us a shopping list-if you have hundreds of billions of dollars that can be cut out, I would like to know where they are going to come from. I would like to do it if it can be done in a way that doesn't impose real hardships. As I say, I don't think as we approach the expenditure end we can ignore the impact of that on the revenue end. If we have people unemployed, they are not paying taxes. But if you gentlemen could do that, either one or both of you, I would appreciate it.

I know the committee would and we would make it a matter of the record for anyone to read it who wants to. I get a little tired, I must say to you—and am guilty of coming perilously close to ostracizing you, Mr. Martin, and I apologize if that is the way it came out, but I get a little tired of an insert that is going to go into our committee record today ostracizing this committee the only committee in the whole Congress that is hearing this subject, yet we are being ostracized for not moving more quickly, and the member who makes this criticism is not here to hear your testimony.

Now that isn't because he isn't interested, and I don't want to be overly critical of that, but there is a remarkable inconsistency between those who feel it can be handled quickly by writing a letter to this chairman, pass a constitutional amendment quicker than ever

in history but don't bother us with the details of ferreting out and trying to find the ingredients necessary to do it.

Gentlemen, you have been very kind, very patient, I appreciate it. Forgive the monologue. The purpose of this is to get your opinion, not mine. If you could give us any additional guidance as to where this money can be found, I would be glad to have it.

Mr. Martin. Mr. Chairman, I will be glad to provide you with such a list. Of course it will never be as complete as people who actually get a chance to look at the budget, but I will give you a couple hundred billion dollars worth of items you will find very shocking. Believe me it was not my intention to criticize the committee. Perhaps my disappointment came across that way. It was not my intention.

I appreciate the opportunity to share my experience with you of what I believe is going on.

Mr. Davidson. My thanks to Mr. Martin and I also point out our staff has done rather full research on the proposals for a constitutional amendment, including some that haven't even been introduced in the Congress. We will be glad to share with you any of our research results.

Senator Bayh. That will be helpful if you could do that and I will ask my staff to consult with you on that. Thank you very much.

[The prepared statement of Mr. Davidson and a letter subsequently sent to Senator Bayh follow :)

PREPARED STATEMENT OF JAMES D. DAVIDSON Mr. Chairman and members of the subcommittee, thank you for the opportunity to appear before the Senate Subcommittee on the Constitution on behalf of amendments to the Constitution to require a balanced federal budget. The National Taxpayers Union represent 130,000 dues-paying members interested in reducing the burden of the taxpayer. Since 1975 we have been working on behalf of a constitutional amendment to require that the federal budget be balanced. Largely through our efforts, 30 state legislatures have petitioned Congress to call a limited constitutional convention to propose such an amendment in the event that the Congress cannot.

Opinion polls show that an overwhelming majority of citizens from all walks of life, young and old, rich and poor, black and white-all agree that constitutional restraints are necessary to force the federal government to follow practices of sound finance.

Since 1961, the budget has been in balance just once, in 1969. Budget deficits are now the norm during good years and bad. Further, as the record clearly indicates, the trend towards increased deficits is worsening. Fiscal years:

Billions 1961-65 inclusive.

$23 1966-70 inclusive..

37 1971-75 inclusive..

121 1976-80 inclusive..

276 (Totals for 1976-1980 include estimated totals for 1979 and 1980. It also includes a transitional quarter deficit of $14.7 billion between 1976 and 1977.)

The total deficit since 1961 if over $450 billion. This has many bad effects. To the extent that deficits are financed through borrowing from the public, real rates of interest increase and federal government borrowing “crowds out” the private borrower. Funds that would have been used for capital investment are diverted to support a federal deficit that largely pays for consumption expenditures. The result is a range of economic ills, including sluggish growth and a decline in productivity.

Persistent deficits are also a major cause of inflation. Because the deficits have become persistent, the Federal Reserve often has to accommodate the deficits by expanding the money supply. This is inflation.

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