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programs of interest to other constituencies. Whatever his inclination or disposition, the successful legislator finds himself trapped into supporting a government outpacing the growth of income.

Since it is the legislative process, the institutional setting, if you will, rather than the individual legislator which is the source of excessive taxing and spending, constitutional restraint is required.

In summary, Mr. Chairman, explicit and quasi-constitutional changes have altered the institutional setting of the Congress to the point where this setting itself must be corrected if the citizens of this country are to regain control over the taxing and spending policies of their Government.

Only a constitutional amendment will perform this function.

Mr. Chairman, I also have here a three-page statement written by my colleague, Dr. Milton Friedman. Also, Dr. Friedman has sent å letter requesting that his statement become part of this hearing record.

With your permission I would offer the statement and letter at this time.

Senator HEFLIN. It will be entered in the record.

Mr. STUBBLEBINE. Thank you, Mr. Chairman, for the opportunity to appear before this subcommittee and to urge upon it the adoption of the proposed Federal spending limit amendment.

Senator HErlin. I gather your proposal is to be tied to the gross national product?

Mr. STUBBLEBINE. Yes, sir, to the growth of the gross national product.

Senator HErlin. I suppose-there is a feeling among people that support a type of constitutional amendment politically as to whether that can be sold to the American people as opposed to, say, where there are 40 States, as I understand it, that presently have constitutional amendments that, in effect, say that you can't spend any more money than you take in.

I don't know if that was made a political issue rather than an issue from economists' viewpoint. Would you like to comment on that?

Mr. UHLER. Yes; I would.

I think at this stage in the deliberations, I would respectfully urge that the Senators and Representatives seek the best functional solution available. How can we best address the problem that we all have observed, and are trying to deal with? Our committee, which now numbers better than a quarter of a million people around the country, has gained nearly a million signatures on petitions in support of the spending limit approach. Because the words "balanced budget" roll off the tongue with greater facility than “spending limit” is not to suggest that the balanced budget approach is preferable functionally or for that matter politically. The polls that we have taken, and the polls that are available publicly, indicate an evergrowing demand on the part of the public for a spending limit. The people have come to recognize that it is the level of spending, rate of spending that is at the heart of the problem.

So I don't think, politically, the spending limit is in any way inferior to a balanced budget approach. Operationally, it is clearly superior.

Senator HEFLIN. Well these signing these petitions, like my rural sections of Alabama, about 30 years ago he would come around with petitions every Saturday when folks come to town, people would sign


petition to hang their grandma at midnight. I don't give much credence to petitions. Now polls may be different.

From a viewpoint of growth, one of the greatest causes that we have today in inflation is OPEC, the energy problem that we have, prices suddenly, going beyond the annual growth of inflation in other commodities. Does outside influences on this, on your restraint, on Government spending, could it mean that, these outside influences could mean that your approach would be too lax, that you would have inflation in the gross national product brought about from foreign causes or other causes, and as a result would be an incentive for excessive Government spending?

Mr. STUBBLEBINE. In the face of a stable monetary supply, an increase in the prices of certain commodities, particularly those imported from abroad, certainly would cause those prices to rise relative to the prices of other goods and services in the economy.

The increasing relative scarcity of oil, of energy sources, certainly is a signal to the market to increase the prices of those things.

But with a stable monetary supply, what would happen and what would maintain overall price stability, the price index, the average of prices, would be a decline in prices in other sectors of the economy.

Particularly in an economy which has developed some rigidities on the down side, the activities of OPEC certainly make the maintenance of a stable price level in the United States more difficult, but these activities do not prevent stability.

There is nothing in the operation of a monetary economy which requires that prices always move up, and, in part, this reflects the lack of discipline with respect to the Congress on deficit spending and lack of discipline on the part of the Federal Reserve with respect to the growth of the money supply.

Senator HEFLIN. I don't remember now whether I have seen any of the proposed bills that would in effect combine both principles. One, you don't spend any more than you take in but in no event more than tied to the gross national product.

What deficiencies or defects would that approach have?

Mr. STUBBLEBINE. Of both a balanced budget and a spending limitation? It is the judgment of the Federal Amendment Drafting Committee that to adopt both of those at the same time is to so reduce the range of congressional latitude to deal with events in the economy as to suggest an unwelcomed combination; that if the Congress were to live within the restraints embodied in Senate Joint Resolution 56, that those restraints would indeed induce the Congress to adopt policies which, at least as we understand relationships in the economy today, would lead to a balanced budget.

The difference between the two approaches is whether the Constitution contains a policy or a process.

A balanced budget amendment is a policy which you have instituted into the Constitution and may indeed be appropriate to today's circumstances, but may be wholly inappropriate 50 years, 100 years, 200 years from now. I can't think of any economist who would be so rash as to forecast what economic relationships will be in the future. So you would have put into the Constitution a policy perhaps appropriate for today's times and perhaps wholly inappropriate at some time in the future. Senate Joint Resolution 56, on the other hand, is a process for resolving the relationship between revenues and expenditures, between the private and public shares of American life.

I would argue that it is unwelcomed, indeed, to try to combine & specific policy with a process.

Mr. UHLER. I think we should add, Senator, by design, the Federal spending limit amendment creates disincentives to expand the money supply in an unwarranted fashion. Inflation invokes the penalty provision of the amendment. Our data reflects, had the amendment been in effect over the last 10 budget years, instead of the cumulative addition to the public debt on-and-off budget, of some $350 billion, we would have enjoyed a modest surplus of nearly $80 billion during that time. And the result at this time would be a stable dollar, low rate of inflation, and a very healthy economy. Dollars would have remained in the hands of those who produced them and who would have used them more efficiently to create new jobs and new wealth.

Senator HErlin. Couldn't that same argument, though, be applicable to the concept of required budget Constitution

Mr. UHLER. If the budget had been balanced throughout that period, or over any business cycle period, the same benefits to the society would have been obtained. But as Craig has underscored, the process by which it is achieved through the amendment, offers the kind of flexibility and latitude that a modern democratic society demands and deserves.

Senator HEFLIN. What sort of an escape clause, two-thirds vote, or what do you have in the event it is necessary to exceed your limitation?

Mr. STUBBLEBINE. The emergency section, which would permit outlays in excess of the limitation during a given fiscal year, would proceed first with a declaration of emergency by the President, and then a two-thirds vote of each House.

Senator HErlin. Do you feel there ought to be a provision, say, in the event a President didn't want to declare a national emergency, but a Congress did, that you ought to have some provision for that?

Mr. STUBBLEBINE. No; Senator, the drafting committee would not feel that way.

Senator HEFLIN. Why?

Mr. STUBBLEBINE. The issue posed by these super-majority votes has to do with trying on the one hand to impart some flexibility into the amendment and, on the other hand, to stay within some rigid rule. The two-thirds rule or a super-majority rule, if that be the sole reliance, becomes an invitation to the Congress to develop the coalitions necessary to meet these majorities.

Just as the Congress itself cannot modify, at least explicitly, the Constitution of the United States, so these limitations should not lie wholly within the Congress itself. There must be some noncongressional entity with whom the Congress must cooperate if outlays in excess of the outlay limitation are to be forthcoming: The Congress should cooperate with the President if it proposes to spend in excess of the limit.

Now, you may develop scenarios within which somehow it would seem appropriate to the people of the United States that the Congress should authorize emergency outlays at the same time the administration, the President of the United States, who is, after all, elected by the people of the United States, would reject such outlays.

Senator HErlin. Take the national defense, there is in Congress a mood, as I sense it-I may be wrong-that much more has got to

be done for national defense as opposed to what is coming from the administration.

Under your requirement, it would be a virtual impossibility for Congress to, in effect, spend more money on national defense, therefore, having to have a release from your limitation in the event a President didn't want to do so.

Mr. STUBBLEBINE. No; Senator, that is not correct. What the limitation, what Senate Joint Resolution 56 would prevent is the Congress, on its own initiative, from spending a larger share of GNP, of U.S. personal income.

The Congress has, within its own power, the ability to provide for more national defense, but it must do so at the cost of reducing other programs.

Now, that is the entire intent of the amendment: The Congress, by its own initiative, shall not be able to spend a larger share of the people's income. In no sense does the amendment prevent the Congress from adopting a budget within the limitation that provides for more national defense and less of other things. This would not require the cooperation of the President.

The President's cooperation would be required only if the Congress wanted to increase the share of GNP going to Government.

Mr. UHLER. Senator, I might add that it was the sense of the drafting committee, over some 7 months of deliberations that the very process of determining a no-nonsense "bottom line," spending limit would force the Congress to set priorities. The process through which those priorities would be established would be more visible and more precise than the one currently utilized.

And that very process would elevate the importance of keeping America's defenses strong. On balance, the committee concluded that the process would be very effective in inducing the Congress to carry out its primary mission for the people of the country-national defense.

Mr. STUBBLEBINE. To think about this in a different context: We have been through a period in which somehow the solution to all problems besetting the United States and all pressures on the United States is simply for Government to take more and for people to have less. This limitation is designed to bring that period to a halt.

Now, we can't have it both ways. We can't, on the one hand, say that the Congress should be moderate in its use of the people's income, and on the other hand, that the Congress should be able to make its determination about this program and that program, and if the sum total of those programs means taking a larger share of personal income, so be it. None of us would run our households that way.

State governments are coming within their own limitations now. Michigan already has adopted a limitation that is more complex than Senate Joint Resolution 56. California and Washington will vote next Tuesday on similar amendments. At least the last I heard, the likelihood of success was good.

Mr. UHLER. I might interject that just Monday, the House of Representatives of the State of Illinois, by more than the three-fifths vote required, passed the taxpayers' right amendment, a tax limitation amendment which our committee assisted in designing. There is movement with this overall constitutional limit approach in most of the States throughout the country.

Senator HErlin. I suppose—I don't know what the figures are recently, but the proposal for a constitutional convention, which is in effect putting pressure on Congress to bite the bullet and do something about this, has waned.

The last count I had, I believe there were 30 States that had petitioned Congress for a constitutional convention. Thirty-four was needed, but something has happened. The predictions in March that those 34 States would be petitioning, the other fourth, maybe it was 28 in March or whatever it was, do you anticipate that there will be the additional four States petitioning for a constitutional convention for some constitutional limit on spending?

Mr. UHLER. This process, as you know, is being shepherded by the National Taxpayers Union. NTU anticipates by spring of this year achieving that 34th State. Obviously, the going gets more difficult State by State. But to suggest that concern over taxes is waningwhich I think was an interpretation of some of the data from a recent Roper study—commissioned by H. & R. Block-is, I think, a misinterpretation. What has happened is the people's focus has shifted from explicit reductions of taxes to an increasing concern over a limitation on spending by Government, an increasing demand that "budgets be balanced,” in that generic sense. That is the mood and shift that is occurring around the country.

I would expect the NTU to be successful in its acquisition of resolutions in the additional States. As I think we know, the individual resolutions lack some uniformity, so there may not be a legal requirement imposed on the Congress by this, but the political implications, I think, are absolutely clear.

Senator HEFLIN. Maybe I misused the word "waning." I suppose what is happening on the idea of petitions to Congress for a constitutional amendment or a constitutional law on spending limitations, what has happened is the divisiveness that is present in our society brought about by special interests, and there are all sorts of special interests—there is local-State government units who fear this type of thing would cut their moneys and are in effect influencing State legislators not to pass those petitions.

At least that is one premise and one position, and it is not really truly indicative of the thinking of the American people.

But I do think that we do have—the United States today is in a stage that we have probably never been before in that we have so many special interests, so many single issues, that influence the overall philosophy of everything else, that this causes concern or escape valves from any constitutional limitation and that certain special interests of single issues could be effective through their own efforts or their own purpose that there is a need for an escape, a national emergency, that if you make it too rigid that you couldn't get through that, you couldn't declare a national emergency when we really need it.

Mr. STUBBLEBINE. I would point out, Senator, that Senate Joint Resolution 56, of course, provides ample protection for the State legislatures. Any criticism of a balanced budget amendment on that ground would not spill over to Senate Joint Resolution 56.

If I could take just a moment, and while I stray into a territory not entirely my own, it seems to me that one way to view the continuing progress of the petitions for a constitutional convention is that the

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