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Senator Hatch. How much oil does Japan have on its shores?
Ms. Rivlin. Absolutely none.
Senator HATCH. How about West Germany?
Ms. Rivlin. Germany is not a producer of oil.

Senator Hatch. I presume they are paying the same world price and spot prices for oil as we are?

Ms. Rivlin. Yes.

Senator Hatch. How about agriculture in Japan? Would it compare with the ability of American agriculture to produce economically and efficiently?

Ms. Rivlin. I don't know a great deal about agriculture, but it doesn't compare.

Senator Hatch. There is no country in the world that can compete with us in agriculture. Why are their inflation rates so low compared to ours if oil is the primary cause of inflation in this country?

Ms. Rivlin. We think that both countries have been able to offset the increasing cost of imports, which is very serious for them, with various other kinds of policies.

Senator Hatch. They also have a stable money supply, do they not?

Ms. Rivlin. Both of them have much more tightly controlled economies and higher productivity at the moment. The Germans have been able to run a very restrictive monetary policy, to hold down growth, and to keep inflation down.

Senator Hatch. But, nevertheless, they are growing more rapidly than we are.

Ms. Rivlin. In part, because they were able to export their unemployment, which is something we can't do. Germany had a large number of foreign workers that they were able to send home. That doesn't count as unemployment in Germany; it counts as unemployment in Turkey. But it is a way out of the dilemma that was not available to us. They have also had much more favorable rates on their currency. They haven't been simultaneously suffering, as we have, from a decline in the value of their currency. They have had increases that have made their imports cheaper.

Senator Hatch. They have maintained a stable monetary supply. They have created incentives for savings and investment over there, thereby promoting productivity. Their deficits have not skyrocketed as have our country's. Yet, they don't have any oil.

We import approximately how much of our oil?
Ms. Rivlin. Less than half.

Senator Hatch. A little less than half. What I am saying is that I don't think it is correct for you to come in here and say—and I have great respect for you—but I don't think it is correct for you to come in here and say the reason for our inflation is the increase in oil prices. I think the better reasons for our intlation are the lack of a stable money supply, deficits in 43 of the last 50 years, continually imbalanced budgets, and tax laws which discourage work, savings, and investment.

I complement you for recognizing that congressional control of the economy would be enhanced by bringing off-budget spending agencies back on budget, and by compiling a credit budget showing

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various loan and loan guarantee activities of the Government. I think you are right about these, and I hope you will keep pushing those particular areas.

What are some of the so-called off-budget spending agencies What is the total spending for such items?

Ms. Rivlin. I would have to supply that for the record. Senator Hatch. Can you approximate it? It is approximately $12 billion this year, is it not?

Ms. Rivlin. Something like that.

Senator Hatch. These are funds that are not even listed in the ostensible deficit totals of $29 billion for fiscal year 1980?

Ms. Rivlin. I think it would be useful to get the off-budget spending agencies back on budget, to have a credit budget that would allow the Congress to see all the Federal credit activities in one place. It isn't that this information can't be found, it is that it can't be found in one place.

But, Senator, if I may, let me make clear what I am saying.

Senator Hatch. Before you do that let me just get that one point clear. The $12 billion in off-budget spending is in addition to the approximately $29 billion deficit we are going to have for the present fiscal year. Is that correct?

Ms. RIVLIN. Yes.

Senator Hatch. So if we have, as President Carter states, a "lean and austere" budget at a $29 billion deficit, one can automatically add $12 billion to that figure to come up with a more accurate $41 billion deficit.

Ms. Rivlin. You could add all kinds of things.

Senator Hatch. I am talking about this one area. In this one area you could add $12 billion and you are up to $41 billion already.

Ms. Rivlin. I don't want to be pinned to a particular figure. But there is off-budget spending that is not counted and has an impact on the economy

Senator Hatch. Let me just pin it down. If we have a $29 billion deficit, a "lean and austere" budget, and an additional $12 billion in off-budget items that are outside the normal budget process, our real budget deficit comes to $41 billion.

Ms. RIVLIN. Well, 29 and 12 are 41.

Senator Hatch. That is right. One would in the interest of full disclosure, have to add whatever off-budget outlays there were to whatever the normal deficit is in order to get the full deficit spending of this country in fiscal year 1980, the total amount that would have to be borrowed by the Treasury.

Ms. Riviin. That is why I think we ought to have the off-budget agencies arrayed before us.

Senator Hatch. What I am trying to say is that we in the Congress have deceived the American people into believing we are only going to have whatever budget deficit the President announces without informing them about the additional in off-budget deficit, and who knows what additional obligational authority will arise out of loans and loan guarantees made by the Federal Government? All of these would increase the total deficit of this country.

Ms. Rivlin. The point that I think, is important is that we are talking here not about what is desirable policy, but about what is desirable pro

cedure. And the point, it seems to me is that a constitutional amendment to balance the budget would create incentive to take more items off budget.

Senator Hatch. But you see many people feel the opposite. They see that Congress is doing it to them anyway so why not impose a sound balanced budget requirement and put the political burden on the people sitting in Congress. Then we will at least know what is happening because it will be more visible.

Ms. Rivlin. And I am disagreeing with that. It seems to me that the potential for having the Government visible is greater if you stick with and improve the current procedures than to move to a balanced budget amendment. We have examples in the States. Although many States have balanced budget requirements, they deal only with the operating budget; they do not deal with capital projects. In the States, capital projects are funded by selling bonds, which under Federal accounting would count as a deficit.

Senator Hatch. That may be true, but they nevertheless have not incurrred deficits anywhere near the magnitude of the Federal Government.

Ms. Rivlin. But they are not, in the Federal sense, balancing their budget.

Senator Hatch. That may technically be so, but they have not suffered deficits-growing deficits-for 43 of the last 50 years. That is what our problem is. The issue is whether we should continue in this process or should we try something likely to be more effective? The people are throwing their hands in the air and saying that something has got to be done.

Let me ask you another question. You state that the Budget Act has helped significantly in resolving these problems, and that, if we work within the parameters of the act, we would be able to solve our problems. The Budget Act was enacted in 1974, was it not?

Ms. Rivlin. Yes. The first budget that the Budget Act dealt with was for fiscal year 1976. It contained a record deficit.

Senator Hatch. What was it?

Ms. Rivlin. The Budget Act came into effect at the bottom of the worst recession we have had since 1930.

Senator Hatch. What was the budget in fiscal year 1976? Wasn't it around $366.4 billion?

Ms. Rivlin. Approximately:
Senator Hatch. What will it be this next year?
Ms. Rivlin. This year it will be over $500 billion.

Senator Hatch. It will be nearly $550 billion according to many estimates. What about the national debt in fiscal year 1976? It was something like $633 billion. Today we just increased the debt ceiling $879 billion.

I agree with you, you can't only blame the Budget Committees. But with regard to the 19 functions of the Federal budget we have just analyzed on the Senate Budget Committee, can you name any of those functions for which spending has been reduced from fiscal year 1976 or fiscal year 1979 for that matter?

Ms. RIVLIN. No, but in real terms
Senator Hatch. Not any of them?

Ms. Rivlin. Not in dollar terms. But we have a major inflation figure. In real terms, almost all the functions except defense will decline this year.

Senator Hatch. In the next year?
Ms. RIVLIN. Yes.

Senator Hatch. Will they decline below the figures of 1979 or will they still be higher than the figures in 1979 in real terms?

Ms. Rivlin. In real terms they will be lower than in 1979.
Senator Bayh. Would the Senator yield?
Senator Hatch. Sure.

Senator Bayh. I just would like to call his attention, because I know his concern about this, if you look in real terms as to how much we are really doing, and I look at that medical research budget, which is one I have had more than a passing interest in, and I see the budget presented, it is a lean and austere budget, as the Senator keeps referring to it. In real terms, with the exception of one relatively minor agency, as far as the amount of money spent by the bureau of one institute, in all of our Institutes of Health we are doing less this year than last, which means we are doing less to fight cancer, less to fight heart disease, less to fight lung disease, and that concerns me. Is this the sort of an escalator you should keep going on? Neither am I comfortable that we are fighting inflation on the backs of the people that aren't going to live very long unless we can find a way to resolve health problems. I don't mean to suggest the Senator is insensitive to health problems.

Senator Hatch. I did not believe him to be suggesting that.

Ms. Rivlin. May I state something to clarify what I think is a misunderstanding. I am not advocating a particular fiscal policy now or at any other time. I was trying to make a procedural argument. If you want to balance the budget-and it seems to me it is often desirable to do so—is it better to do that through a constitutional amendment or through already-existing procedures? I believe the Congress has procedures for doing this in an orderly way, but they need to be used more strongly than in the past.

Senator Hatch. The point that I am making is that Congress always has had the power to balance the budget, but it never does. Perhaps, there are deeply rooted institutional problems which prevent this.

Ms. Rivlin. But it didn't have the procedural mechanism until the Budget Act, which allowed the Congress to focus on the size of the deficit and budget.

Senator Hatch. I agree with that. What I am saying is that in the 5 years that have elapsed since the passage of the Budget Act, there have been five budget deficits totaling more than $225 billion. This year, we are suffering the fourth largest budget deficit in the history of the country. Yet you say the Budget Act provides Congress with the first "workable procedure” in deciding overall spending and deficit levels. I agree it provides a "workable procedure." It is just the procedure has not worked.

Ms. Rivlin. I am saying give it a chance. You are saying throw it away.

Senator Hatch. No; I am not. I am saying if we are going to give it a chance, let's do exactly that; let's not hide amidst a budget process characterized by ambiguity, deception, and contrivance. You are assuming that any balanced budget amendment will prevent deficits even during acute recession or time of war. There is no bal

anced budget amendment among those before the subcommittee that doesn't provide for some safety valve to deal with these problems. We are not going to pass anything out of this committee, nor would a constitutional convention, that would not permit waivers under some circumstances. Rather than resorting to a constitutional convention, I would rather have our committee approve a reasonable balanced budget amendment.

You have admitted that we have off-budget expenditures, Government-sponsored corporations, Federal loans and loan guarantees, the allocation of private credit, tax expenditures, and a host of other techniques that the Congress is using to avoid the normal budget process. We both agree that much of this should be brought into the process so that we know the magnitude of the real deficit, and at the same time quit deceiving the American people.

What bothers me is that if you look at the development of the 19 functions of the Federal budget since the Budget Act came into being, I don't think you can make a very good case that the Budget Committees have been holding the line on spending. I agree that a mechanism is there; and I agree that my colleagues on the committee, including the chairman and the ranking minority leader, want to do everything they can to hold down the budget. But it simply hasn't worked. I am certainly in agreement we should give it a fair chance, but it hasn't yet worked in 5 years.

Let me just ask you this. I think you raised some interesting points in suggesting that a spending limitation or balanced budget amendment can, and likely would, be circumvented by the creation of new off-budget agencies, allocation of Federal credit, and increased Federal regulation. At the same time, this makes clear why there exists such strong support for a constitutional amendment. It is that Congress does not want to limit itself in a meaningful way and practice true fiscal responsibility. It is always looking for budgetary cosmetics and recourse to budgetary hocus-pocus. I can assure you that if a balanced budget amendment or a spending limitation amendment or a combination of both was blatantly circumvented by any of these procedures you are suggesting here today, then the people of this country, in short order, would move to limit through further constitutional language increased regulation, credit allocation, and off-budgeting spending. They are simply fed up with congressional spending and taxing policies, it seems to me.

Ms. RIVLIN. They haven't done so in the States.
Senator Hatch. Because they haven't circumvented it.
Ms. Rivlin. Oh, yes, they have.

Senator Hatch. But they still have to make those payments. The fact is they are coming far closer to balancing their budgets than the Federal Government. The argument you have made about circumvention efforts by all levels of government makes the case why so many people in this country are frustrated. This is because so many in government don't want to abide by genuine fiscal restraint. That is why they want a constitutional amendment in the first place. You yourself outline some of the reasons. First of all, the budget process has not yet proven effective and needs more time to work after 5 years. In part, I agree with that. Second, the process we have right now isn't working because of budgetary circumvention efforts. Third, we have been applying to the economy Keynesian approaches which, as

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