[Congressional Record Volume 141, Number 149 (Friday, September 22, 1995)]
[Senate]
[Pages S14132-S14133]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. MACK (for himself, Mr. Dole, Mr. Lott, Mr. D'Amato, Mr. 
        Kyl, Mr. Shelby, Mr. Bennett, Mr. Gramm, Mr. Nickles, Mr. Roth, 
        Mr. Frist, Mr. Craig, Mr. Santorum, Mr. Bond, Mr. Faircloth,  
        and Mr. Cochran):
  S. 1266. A bill to require the Board of Governors of the Federal 
Reserve System to focus on price stability in establishing monetary 
policy to ensure the stable, long-term purchasing power of the 
currency, to repeal the Full Employment and Balanced Growth Act of 
1978, and for other purposes; to the Committee on Banking, Housing, and 
Urban Affairs.


          THE ECONOMIC GROWTH AND PRICE STABILITY ACT OF 1995

 Mr. MACK. Mr. President, today I am introducing the Economic 
Growth and Price Stability Act of 1995. This legislation aims to 
accomplish two major goals. First, it focuses the Federal Reserve on 
achieving price stability. Second, it repeals the Full Employment and 
Balanced Growth Act of 1978--the 

[[Page S 14133]]
Humphrey-Hawkins Act--which codified the Keynesian principles that 
advocate government fine-tuning of the economy.
  Based on the fundamentally flawed premise that government can manage 
the economy, the Humphrey-Hawkins Act set targets for the economy to 
reach an unemployment rate of 3 percent for individuals over 20 and 4 
percent for individuals over 16 and an inflation rate of 3 percent 
eventually moving to zero. Almost 20 years later, we know that this law 
has never achieved any of its intentions. This law proves that 
government cannot legislate prosperity--the reality is that individuals 
create jobs and free markets lead to prosperity.
  By codifying unrealistic goals, the Humphrey-Hawkins Act gives the 
Fed an unachievable mission to artificially boost growth and employment 
while keeping inflation and interest rates low. This promotes fine-
tuning of monetary policy by the Fed in response to current economic 
trends. While this may lead to short-term economic boosts, over the 
long term such intervention by the Fed leads to higher inflation, 
higher interest rates, and more frequent recessions. The Economic 
Growth and Price Stability Act corrects this problem by focusing the 
Fed on the only goal it can effectively achieve: price stability. 
Focusing the Fed on price stability will lead to a sounder dollar, more 
stable financial markets, increased employment, and greater long-term 
economic growth.
  The Economic Growth and Price Stability Act gives the Fed the 
responsibilities of defining price stability, charting its own course 
toward achieving and maintaining it, and setting its own timeframe for 
accomplishing the price stability goal. By allowing the Fed to create 
its own timetable, we can rest assured that transitional effects on 
employment and output will not occur.
  Under my legislation, the Fed will still be required to report to 
Congress on a semiannual basis, but it will additionally be required to 
explain, in verbal and numerical terms, its definition of and its 
methods for attaining price stability. By not mandating inflation 
targets, this legislation places the burden on the Fed to appropriately 
define price stability. As we all know, the market is a harsh task 
master, and I believe it will be the best judge of the Fed's progress.
  The Fed will have a strong incentive to make correct decisions about 
its definition of price stability and its method for achieving it, 
because the markets will be quick to express their views. The Fed will 
pursue price stability honestly and openly, because if it does not, 
long term interest rates will rise.
  Instead of countercyclical, command and control, government 
interventionist economics, the Economic Growth and Price Stability Act 
sets in place a free market paradigm. Under the Economic Growth and 
Price Stability Act the principal economic responsibilities of 
government are to establish and ensure an environment conducive to 
long-term economic growth and increases in living standards by 
maintaining free markets, low taxes, respect for private property, and 
the stable long-term purchasing power of the U.S. currency.
  If the elections in November 1994 taught us anything, they taught us 
that the American people want less government, not more. The Economic 
Growth and Price Stability Act recognizes that the American people know 
what is best for them and directly responds to their demands. I hope 
you will join me in this vital effort to free our economy from 
government mishandling.
 Mr. D'AMATO. Mr. President, I am proud to cosponsor with 
Senator Mack, the Economic Growth and Stability Act. As chairman of the 
Joint Economic Committee and a member of the Banking Committee, Senator 
Mack has studied economic issues studiously. I commend him for this 
initiative.
  This bill would repeal the Humphrey-Hawkins Act, which sets the 
current guidelines for the Federal Reserve's conduct of monetary 
policy. The multiple goals of Humphrey-Hawkins, however laudable, are 
conflicting and unattainable. In the long term the Fed can only address 
inflation. Unemployment and other such matters are the responsibility 
of the administration and Congress--which we control through our 
spending and tax decisions. Under this bill, we could no longer lay the 
blame of failed fiscal policy at the foot of the Federal Reserve.
  Senator Mack's bill would recognize that the appropriate goal for the 
Federal Reserve is maintaining price stability in the long term. The 
Economic Growth and Price Stability Act recognizes that a key factor in 
encouraging growth is a stable environment in which to make decisions 
about the future. In an atmosphere of assured price stability, American 
families and corporations would be better able to budget and plan for 
the future. Assuring this steady level of capital investment and growth 
will create the jobs necessary to keep Americans' working.
  The policies and school of thought behind this legislation are sound. 
Federal Reserve Board Chairman Alan Greenspan has testified that ``a 
key ingredient in achieving the highest possible levels of 
productivity, real income, and living standards is the achievement of 
price stability.'' The Economic Growth and Stability Act is a critical 
step in this direction.
  Working together, the Federal Reserve can tackle inflation while the 
Congress, with the right fiscal policy, can stimulate long-term growth. 
We must return to a period of strong growth for our country to prosper 
and remain globally competitive. We owe it to ourselves and our 
children.
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